Barron River Foods Pty Ltd & Australian Food Processors Pty Ltd v National Australia Bank Limited [2005] QSC 98

SUPREME COURT OF QUEENSLAND CITATION: Barron River Foods Pty Ltd & Australian Food Processors Pty Ltd v National Australia Bank Limited [2005] QSC 098 PARTIES: BARRON RIVER FOODS PTY LTD (ACN 055 933 483) and AUSTRLIAN FOOD PROCESSORS PTY LTD (ACN 010 936 928) (applicants) v NATIONAL AUSTRALIAN BANK LIMITED (ACN 004 044 937) (respondent) FILE NO/S: 294 of 2004 DIVISION: Trial PROCEEDING: Application ORIGINATING COURT: Supreme Court at Cairns DELIVERED ON: 15 April 2005 DELIVERED AT: Cairns HEARING DATE: 9 December 2004 JUDGE: Jones J ORDER: 1. The application is allowed. 2. The statutory demand against each applicant dated 24 May 2004 is set aside. 3. The parties have liberty to apply upon giving four business days’ notice to other parties. CATCHWORDS: CORPORATIONS – RECEIVERS, MANAGERS AND CONTROLLERS – where applicants owed money to the respondent – where the respondent appointed receivers of the applicants – whether the receiver paid correct amount to the respondent – whether respondent had authority to deduct amounts for receivers’ remuneration and enforcement expenses COUNSEL: Mr C Ryall for the applicants Ms C Muir for the respondent SOLICITORS: William Royds Lawyers for the applicants Mallesons for the respondent [1] The applicants, Barron River Foods Pty Ltd (“Barron”), a wholly owned subsidiary of Australian Food Processors Pty Ltd (“AFP”), make this application pursuant to s 459G of the Corporations Act 2001 (“the Act”) to set aside separate statutory -- 1 of 8 -- 2 demands by National Australian Bank Limited (“the bank”). The accounts of the applicants were linked, with AFP guaranteeing the debts of Barron. The demand in each case was for the payment of the same amount $41,814.95 being – Description Amount of the debt Balance of monies due and owing by the $41,814.95 company pursuant to an overdraft facility and business loan facility provided by the Creditor to the Company calculated as follows:- Overdraft and business Loan as at 15/11/02 (date of decision of Holmes J) $123,029.13 Less balance of funds received from Realisation of assets of Company and Michael Brendan Feeney $ 81,844.18 Total amount $41,814.951 [2] Each statutory demand was served by post. The solicitors for the bank, relying upon evidence of their office procedures, allege that the demands and the supporting affidavits of Mr Kirk were posted in Brisbane on 25 May 2004. In the ordinary course of post the documents should have been delivered to the Holloways Beach address on or before Friday, 28 May 2004. [3] The applicants claim that the documents were not delivered to the Holloways Beach address until Monday, 31 May 2004. [4] This application was filed and served on 21 June 2004. Consequently the jurisdiction to hear the application depends upon my holding that service was not effected until 31 May 2004 as alleged by the applicants. [5] Service by post is permitted by s 109X of the Act. But the deemed service by reference to delivery in the ordinary course of post is accepted “unless the contrary is proved”. See s 29 of the Acts Interpretation Act (Cwth); s 39A of Acts Interpretation Act (Qld). The bank argues that the applicants have not adduced evidence sufficient to discharge that onus of proof. There was no evidence of how often the mail box was checked or who was responsible for making the collection. [6] As I indicated in the course of argument on the first hearing date I felt constrained to accept the direct evidence of Mr Feeney that 31 May 2004 was “the actual date of delivery of the relevant documents”.2 That being the case I now formally rule that the application was instituted within the time prescribed by s 459G(iii) of the Act. [7] The basis upon which the applicants seek to set aside the statutory demand is that there is a genuine dispute about the existence or the amount of the debt claimed. The scope of the dispute cannot be gauged because the bank has failed to give proper accounting of deductions made from the applicants’ bank accounts. In the 1 Ex B to Affidavit of Gavin Kearns sworn 7 June 2004 2 Affidavit of Michael Feeney sworn 27 July 2004 -- 2 of 8 -- 3 alternative, the applicants invoke s 459J(1)(b) to argue that the Court ought to set aside the demand in the exercise of its discretion. The principal basis for this submission relates to the fact that Barron ought to have the opportunity to execute a judgment in its favour against the former receivers for damages to be assessed. There is a prospect that damages may exceed the amount of the debt. The bank has agreed to indemnify the receivers and thus has an interest in forestalling the assessment. However, the bank argues that this claim lacks mutuality with the amount sought by the demands and cannot be set off against them. Factual background [8] Prior to 2002 Barron carried on the business of a food manufacturer and processor at Cairns. AFP owned the property on which the business was conducted and it guaranteed payment of Barron’s debts to the bank. [9] Since 1996 the applicants’ debts to the bank have been guaranteed by the directors and particularly by Mr Feeney on whose evidence the applicants rely at this hearing. Mr. Feeney’s overdraft to the bank and his guarantee of the applicants’ debts were secured by mortgage over real property owned by him. [10] The applicants borrowed monies from the bank by way of overdraft facilities and business loans. Details of the balances of their various facilities as at 30 April 2001 are set out in the affidavit of Darryl Kirk sworn 16 July 2004.3 The total debt (including debts to the bank by the applicants’ directors) amounted to $1,576,660.40. [11] During 2001 the applicants defaulted in their arrangements with the bank. On 10 September 2001 the bank appointed receivers of the applicants and other related entities. This appointment coincided with attempts being made by the directors of the applicants to sell the businesses, with the result that there were allegations of interference with the sale and arguments over the distribution of proceeds of sale. These matters were resolved by all interested parties signing a Deed of Settlement dated 21 September 2001. This document is relied upon by the bank as providing a foundation acknowledgment of the level of the debt as at that time, but the principal effect of the Deed was to terminate the appointment of the receivers. The sale did not proceed and the same receivers were re-appointed on 16 November 2001. [12] Thereafter the receivers by contracts dated 21 December 2001 sold the property and businesses for the sum of $100,000 payable to AFP and $1,000,000 payable to Barron.4 This sale was duly completed but led to complaints by the applicants that the sale was at a significant undervalue. There was a shortfall between the proceeds of the sale and the amount owing to the bank. The bank sought to recover this shortfall by pursuing the guarantors in separate legal proceedings in the Supreme Court at Brisbane and at Cairns. In each instance the bank was successful.5 [13] As a consequence the guarantors’ property has been sold and the proceeds of sale applied to the reduction of the applicants’ debts. Barron instituted proceedings against the receivers seeking damages for breach of duty. On 28 July 2004 judgment for damages to be assessed was entered in favour of Barron. Similar 3 See ex DK1 at p 53 4 Ex DK1 at pp 102-129 5 See reasons for judgment Holmes J Ex DK1 at pp 235-239 and per Jones J at pp 268-273 -- 3 of 8 -- 4 proceedings brought by Mr Feeney have not proceeded because he has since been made bankrupt. The issues [14] The applicants identify two areas of dispute as follows:- 1. The quantification of the amount paid to the bank by the receiver; and 2. the lack of authority for the bank to deduct amounts of $85,330 for receivers’ remuneration and $39,889.05 for its own enforcement expenses. [15] The dispute as to the quantification of the receipts from the receiver arises because Mr Feeney on behalf of the applicants asserted that an amount of $400,000 was received by the receivers from the debtors of the applicants.6 This assertion is made on incomplete material because Mr Feeney also claims that bank statements were not given to the applicants whereby they could follow the flow of funds into, and between, the applicants’ accounts. Mr Feeney alleged in his affidavit sworn 8 December 2004 as follows:- “The following transactions were initiated by NAB on the AFP Account No. 62 120 43005: 6. (a) On 3 May 2001 Misc Debit - $32,954.81, transfer to new No 2 account; 7. The following transactions were initiated by NAB on AFP Account No 52 975 5841: (a) On 24 September 2001 Miscellaneous Debit - $149,067.69, of this $62,847.88 was disbursed by Receiver to pay creditors and wages and allocation of the balance of $86,218.81 is unknown. See exhibit “A”. (b) On 11 October 2001 to 4561 621204306 - $15,000.00, transfer to AFP original account. (c) On 15 November 2001 to 4580 999999947 - $48,384.79, an amount of $30,602.04 was transferred to receivers AFP bank account, the balance of $17,782.75 was sent back to this account. (d) On 29 January 2002 to – no details - $23,908.63, allocation is unknown. See Exhibit “B”.” [16] Mr Darryl Kirk on behalf of the bank gives an explanation for various transactions. The bank’s dealing with the funds in the applicants’ accounts is complicated by the fact that it was necessary to open new accounts in the name of the receivers and to transfer funds between the business accounts and the receivers’ accounts. Further to that funds received from business debtors were not uniformly banked to the same account. Mr Kirk claims that the amount received from the business debtors was “no more than $161,320.69”.7 Mr Kirk explained the disposal of funds received by the bank in paragraph [24] of his affidavit sworn on 16 July 2004. However he made further inquiries after swearing that affidavit which caused him to correct some of the details and in his further affidavit to state – “5. (iii) While the Bank received the sum of $107,451.15 from the receivers and managers on or about 5 March 2002 as set in paragraphs 24(b) of the Affidavit, the Bank was entitled pursuant to 6 See para 12 affidavit of Michael Feeney sworn 21 June 2004 7 See para 3 Affidavit of Darryl Kirk sworn 8 December 2004 -- 4 of 8 -- 5 the applicants’ facilities to allocate the funds to costs that had been incurred by the Bank and then in reduction of the applicants facilities. As such, these monies should have been allocated as follows: (A) $38,899.05 to pay the Bank’s realisation costs (including legal costs and other realisation costs) incurred; (B) $4,788.06 to reduce the Barron Overdraft account; and (C) $68,562.10 to reduce the AFP Overdraft account. Instead, they were allocated as set out in paragraph 24(b) of the Affidavit. As a result of the misallocation of funds by the Bank, AFP’s Overdraft was incorrectly reduced by the sum of $38,899.05. The Bank will attend to rectifying this over allocation to the AFP Overdraft and as such in addition to the amount that is claimed to be due and owing in the Demands there is an additional $38,899.05 (less further credits and plus interest) owing n the AFP Overdraft; (iv) On 4 July 2002, the Bank received the sum of $30,000 from the former receivers and managers of the applicants. These monies have been allocated to the AFP Overdraft to reduce the debt due and owing from $38,899.05 (see paragraph 5(iii) herein) to $8,899.05 together with accrued interest; and (v) On 6 May 2004, the sum of $31,320.69 was received from the former receivers and managers of the applicants which was allocated to pay realisation costs (including legal costs) that had been incurred.”8 The total receipts this identified, amounts to $168,771.84. [17] This affidavit identified the bank’s deduction from the applicants’ accounts of the bank’s realisation costs. The applicants claim they had no knowledge of this deduction nor was any demand made of them for payment of this, or of any other, amount for realisation costs. [18] The bank’s entitlement to deduct such costs and its obligation to inform the applicants is set out in the document entitled Over Facility Renewal Advice9 and includes the provision that – “The bank’s reasonable costs, charges and legal expenses as well as stamp duty, search and registration fees …must be paid when we ask. If any fees or charges are not paid when we ask, the bank may debit the facility with those fees and charges so that these amounts are included in the amount you owe the bank under the Facility. You agree to pay when we ask the enforcement expenses reasonably incurred by the bank in enforcing its rights if you breach this agreement.”10 8 See para 5 Affidavit of Darryl Kirk sworn 6 December 2004 9 See ex “DK1” at pp 1-12 to affidavit of Darryl Kirk sworn 16 July 2004. -- 5 of 8 -- 6 (The bank’s reference to realisation costs would appear to be the same as “enforcement expenses” referred to above. I will continue to use the bank’s terminology of realisation costs.) [19] The applicants assert that they were never asked to pay realisation costs. The Bank does not point to any evidence that a demand was made as required by the above terms. If the applicants’ contention is correct then they have been denied an opportunity to examine the basis of the charges levied and the amount of any charge. They have been denied the opportunity to pay the realisation costs from other sources. [20] By way of clarification of Mr Feeney’s inquiry of 3 May 2001 of the item, - MISC. Debt - $32,954.81, Mr Kirk in a further affidavit sworn 8 December 2004 said:- “2(b) the sum of $32,954.81 referred to in paragraph 6(a) of Mr Feeney’s further affidavit was transferred to the Cheque Account from the Overdraft to allow AFP to trade. When the Cheque Account was opened AFP had no funds in it. Accordingly, I allow the sum of $32,954.81 to be further drawn down on the Overdraft (ie extended the Overdraft) and transferred these funds to the Cheque Account to allow AFP to have access to funds; (c) on 19 September 2001, the Bank received instructions from the receivers and managers of AFP (“Receivers”) requesting the Bank to transfer to the Receivers any funds located in the Cheque Account and to pay wages and creditors in the sum of $62,847.88. While the instructions were received on 19 September 2001 it took five days for the request to be processed. I am today informed by Mr Ian Hall, one of the Receivers and verily believe than the sum of $85,330.00 was received by the Receivers which was used to pay their remuneration in accordance with the terms of the deed that was entered into between the applicants and the Receivers on 21 September 2001 and appears at page 41 in exhibit “DK1” to my affidavit sworn 16 July 2004 (“Deed”).” 11 [21] The applicants claim that they had no knowledge of the receivers having claimed, or been paid, remuneration in the amount of $85,330 or any other amount. The bank responds by arguing that as the receivers are agents of the applicants, it has no obligation to inform the applicants of the receivers’ claim or the quantum of their fees. The bank relies upon the terms of the settlement Deed appointing the receivers and the principle expressed in Commonwealth Bank of Australia v Muirhead.12 [22] Whilst the applicants’ obligation to pay receivers’ remuneration is undoubted and whilst the bank would certainly have agreed to indemnify the receivers in respect of their remuneration, the issue is whether the bank could, without notifying the applicants, authorise the debiting of their account in this way. There may well be challenges to the applicants’ assertion that they were unaware of the debit of these fees, but there is no evidence that they were made aware. 10 Ibid at p 11 11 Para 2 affidavit Darryl Kirk sworn 8 December 2004. 12 (1997) 1 QdR 567 -- 6 of 8 -- 7 [23] The extent of the accounting between the applicants and the bank and between either of them and the receivers was not the subject of direct evidence before me. Some of these issues were raised in affidavits only in the days immediately prior to the hearing. Nonetheless in my view these issues do raise a genuine dispute within the meaning of s 559H of the Act. The total value of these two items of dispute is $124,219.05. To what extent the total, or any part of it, can be challenged cannot be gauged. But with the respondent’s demand being for considerably less than the disputed items, the applicants should not be denied the opportunity to test the amount of the debt and to verify the accounts upon which they debt is alleged to be based. It is not for the Court on this application to examine the merits of the dispute other than to determine that the issues raised do indicate that this dispute is genuine and not vexatious or frivolous. The test, as stated by Thomas J in Re Morris Catering (Australia) Pty Ltd,13 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 the 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.” [24] I am satisfied that the applicants’ claims go beyond merely asserting a claim. It is clear that there was some complexity and indeed some uncertainty in the way in which the applicants’ accounts were administered by the bank. The fact that Mr Kirk in his ultimate affidavit had to rely upon hearsay information from one of the receivers as the basis of his belief as to the reason for the deduction of $85,330 from the applicants’ accounts suggests that the accounts upon which the debt is based may require some interpretation. Counsel on behalf of the respondent drew my attention to Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd,14 which is authority for the proposition that a Court must be satisfied that the applicants’ claim goes beyond mere assertion and that applicants must show some basis for the dispute. I am satisfied that in this instance the applicants have satisfied that test. [25] Having reached this view, it is not necessary to consider whether the applicants are entitled to relief on discretionary grounds. [26] I therefore allow the application and set aside the respective statutory demands against each applicant. [27] On the question of costs, I have taken a preliminary view that each party has failed to state its position in a clear and timely way. The applicants’ identification of the areas of dispute in which it succeeded continued until the day before the hearing. The respondent’s reply to the applicants’ claims concerning realisation costs and 13 (1993) 11 ACSR 601 14 (1994) 13 ACSR at 39 -- 7 of 8 -- 8 receiver’s remuneration were not satisfactorily explained by reference to documents but rather relied upon hearsay evidence. Some of the origin of this dispute appears to lay in the unsatisfactory manner in which the Bank administered the applicants’ accounts. For these reasons I will make no order for costs but will allow a period of 14 days within which the parties may make submissions in writing to seek a different order. Orders [28] 1. The application is allowed. 2. The statutory demand against each applicant dated 24 May 2004 is set aside. 3. The parties have liberty to apply upon giving four business days’ notice to other parties. -- 8 of 8 --