In the matter of Harmon International Holdings Pty Ltd

1. [1]

   HER HONOUR: This is an application under sections 459G and 459H of the Corporations Act 2001 (Cth) to set aside a statutory demand on the basis that there is a genuine dispute as to the existence of the debt. Hartford Investments Pty Ltd (Hartford), the creditor, claimed in a statutory demand to be entitled to be subrogated to the rights of H&H Mezz Pty Ltd, which had lent monies to the plaintiff, Harmon International Holdings Pty Ltd (Harmon), a debt said to have been repaid by Hartford. Harmon says that Hartford is not entitled to be subrogated, either to the security accompanying the loan, the terms of the loan agreement between H&H Mezz in respect of interest, or at all.

2. [2]

   Before turning to the facts, it is necessary to give reasons for an evidentiary ruling made during the hearing, as I indicated that I would. Hartford is itself now in liquidation. The liquidator of Hartford tendered the transcript of a liquidator’s examination of Ali Talanehzar, the sole shareholder, director and secretary of Harmon. Mr Talanehzar is also known as Alan Zar. Objection was taken to the admissibility of the transcript under section 597(14) of the Corporations Act 2001 (Cth) which provides: (emphasis added)

3. [3]

   A situation relevantly identical to the one at hand was considered by Gordon J in Rathner (in his capacity as official liquidator of Kalimand Pty Ltd (in liq) v Hawthorn (2014) 320 ALR 776; [2014] FCA 1067. A liquidator examined Mr Hawthorn, who was the sole director of Kalimand and also sole director and shareholder of High Country Meats (Vic) Pty Ltd. The liquidator brought a claim against High Country Meats to recover a voidable transaction and assets alleged to be held on trust by High Country Meats for Kalimand. The liquidator sought to tender parts of the transcript of the examination of Mr Hawthorn as evidence against High Country Meats. Whilst her Honour considered that the transcript was not admissible under section 597(14) of the Corporations Act, it was admissible under section 63(2) of the Evidence Act 1995 (Cth), which governs the admissibility of documents containing a previous representation of a person who is not available to give evidence.

4. [4]

   A similar approach was taken in earlier cases. In Wily v Lo Presti (1997) 16 ACLC 82, a liquidator brought proceedings to recover a voidable preference from Mr Lo Presti. The liquidator could not locate a witness, Mr Lettieri-Barbato. The liquidator tendered a transcript of the examination of Mr Lettieri-Barbato. Young J considered that section 597(14) said nothing about the admissibility of transcript of evidence of other persons than that of Mr Lo Presti. His Honour proceeded to deal with the admissibility of the transcript under section 63(2) of the Evidence Act. In Southern Equities Corp Limited (in liq) v Bond (2001) 78 SASR 554; [2001] SASC 70 at [133], Wily is cited as authority for the proposition that transcript may be admitted against others.

5. [5]

   In Fodare Pty Ltd v Shearn (2010) 240 FLR 187; [2010] NSWSC 737, Barrett J noted that section 597(14) has the result that the transcript of examination is admissible against the examinee but, where there are several defendants, it is not admissible by force of section 597(14) against the other defendants: at [39]; citing In the matter of Westgate Wool Co Pty Ltd (2006) 206 FLR 190; [2006] SASC 372 at [22] per Debelle J. However, at [41]:

6. [6]

   In this case, the examination transcript was relied upon to counter Harmon’s evidence in the form of an affidavit sworn by Mr Talanehzar setting out the facts upon which it is said that the Court should conclude that there is a genuine dispute as to the debt. The examination transcript was, as I understood it, relied upon as a prior admission against interest by Mr Talanehzar and Harmon, being a version of events given when examined on the subject in August 2018. Section 81 of the Evidence Act 1995 (NSW) has the result that the transcript is admissible as evidence of a previous representation, and I admit it.

7. [7]

   This case is hampered by a lack of documents and witnesses. The liquidator of Hartford has few records. The person behind Hartford, Peter Larcombe, is dead. Mr Talanehzar provided no records and apparently has none. The person who is said by Harmon to have actually discharged the H&H Mezz loan, George Eleter, did not give evidence.

Harmon

1. [8]

   In 2014, Harmon was incorporated. Michael Eleter was sole shareholder, director and secretary of the company. Harmon was engaged in property investment and development. Harmon exchanged contracts to buy two adjoining boarding houses at 306 and 308 Cleveland Street, Surry Hills for $2,480,000. Solicitors’ trust account statements in respect of the purchase record the client as George Eleter. Presumably, therefore, George Eleter had something to do with the decision by Harmon to acquire the properties.

2. [9]

   In 2015, Tony Eleter became sole shareholder, director and secretary of Harmon. A month later, Mr Talanehzar became the sole shareholder, director and secretary of Harmon. It is apparent from emails in evidence that Mr Talanehzar had a business relationship with Mr Larcombe of Aventis Capital.

3. [10]

   Harmon was also buying other properties. In May 2015, Mr Larcombe authorised his solicitors to release $350,000 held in the solicitors’ trust account to complete Harmon’s purchase of a property in Stanmore for $1,652,000. It would appear that Mr Larcombe was a contributor of funds to acquire Harmon’s investment properties, apparently as equity as no mortgages were recorded on the title of the Stanmore property in respect of Mr Larcombe’s contribution. Harman also obtained a loan from H&H Mezz, a company owned by Gabreal Halvagi, to buy the Stanmore property. A second mortgage to H&H Mezz was registered on the title of the Stanmore property.

Loan from H&H Mezz

1. [11]

   Harmon obtained a loan from Sydney Wyde Mortgage Fund to buy the Surry Hills properties. On 9 June 2015, Harmon also entered into a Deed of Loan with H&H Mezz, which agreed to lend Harman $408,400 secured by a second mortgage over the Surry Hills properties. The term of the loan was 6 months. Interest was payable at 24% per annum, with four months’ interest payable in advance. On 10 June 2015, purchase of the Surry Hills properties was completed and title was transferred to Harmon. H&H Mezz’s loan to Harmon was secured by a registered second mortgage over the Surry Hills properties.

2. [12]

   On 10 July 2015, Hartford was incorporated. Christian Budd-Madison was the sole shareholder, director and secretary of Hartford but all decisions in the company were made by Mr Larcombe.

3. [13]

   In September 2015, Harmon purchased a property in Paddington for $1 million. On 20 October 2015, Mr Larcombe requested a solicitor provide settlement sheets for the purchases of Surry Hills, Stanmore and Paddington properties, together with details of the amounts sent to the solicitors’ trust account for settlement of each of the properties. The information was provided, together with the first pages of the contracts for sale for each property. The trust account statements in respect of the Surry Hills properties recorded:

Repayment of loan

1. [14]

   The loan from H&H Mezz in respect of the Surry Hills properties was due to be repaid on 9 December 2015. On 5 November 2015, Mr Halvagi of H&H Mezz sent Mr Talanehzar a letter to be signed and returned. The draft letter stated that the Stanmore property was currently being sold.

2. [15]

   On 15 November 2015, Mr Talanehzar forwarded the proposed letter to Mr Larcombe, together with statements of account from the first mortgagee in respect of the loans to purchase the properties, noting “Mate also Vaucluse mortgage is due on 20th with Paddo”. On 10 December 2015, the loan from H&H Mezz was not repaid.

3. [16]

   On 22 January 2016, Mr Talanehzar sent Mr Larcombe and George Eleter the first page of the contracts of sale for the Surry Hills and Stanmore properties. H&H Mezz conducted a title search for the Surry Hills properties. On 29 January 2016, George Eleter emailed Mr Talanehzar and Daniel Hausman of Aventis Group in respect of one of the Surry Hills properties, and Mr Hausman replied (copied to Mr Larcombe) that he had read both contracts and noted there were no section 149 certificates and the title searches were out of date. Two days later, on 31 January 2016, Mr Hausman sent an email to Mr Larcombe:

4. [17]

   On 2 February 2016, Mr Halvagi of H&H Mezz emailed Mr Talanehzar a further document to be signed and returned, and also emailed Mr Larcombe asking him to get Mr Talanehzar to sign and return it. A week later, Mr Larcombe replied “Yes. Speak Tuesday morning mate.” A week later on 16 February 2016, Mr Halvagi emailed Mr Larcombe again “call me” and a few days later, Mr Larcombe replied “working on refi the second mate. Should have answer am.” It would appear from these emails that Mr Halvagi saw Mr Larcombe, rather than Mr Talanehzar, as the person to deal with in respect of repayment of the H&H Mezz loan, and Mr Larcombe was endeavouring to refinance the second mortgage.

George Eleter

1. [18]

   Mr Talanehzar says that he started to look for someone to refinance the H&H Mezz loan. He spoke to George Eleter, a former business associate. On 18 February 2016, Mr Talanehzar says he had a conversation with George Eleter, which he deposed was to the following effect:

2. [19]

   Mr Talanehzar says that he called Mr Halvagi and advised that he had obtained finance to pay out the mortgage and needed about a week. Mr Halvagi said that he would calculate a payout figure for the next week but it needed to be paid out by that date or he would push ahead legally. Mr Talanehzar told Mr Halvagi that he understood and was hoping that payment would be made directly by Mr Larcombe by direct deposit into H&H Mezz’s account. Mr Talanehzar said he was happy for Mr Halvagi to liaise with Mr Larcombe to make sure everyone had the correct figures and account information.

3. [20]

   On 19 February 2016, Mr Halvagi of H&H Mezz sent a default notice to Mr Larcombe and Mr Talanehzar noting that the loan had been due for repayment on 10 December 2015 and was now in default. Mr Halvagi noted “promised return 25 February 2016” and calculated the amount due and payable on that date to be $439,714. H&H Mezz’s bank account details were provided. Mr Halvagi advised that if the amount was not paid in full by 25 February 2016, legal action would be commenced.

Payment by Hartford

1. [21]

   On 24 February 2016, $440,000 was paid from the bank account of Hartford to H&H Mezz. Mr Budd-Maddison deposed that he made the payment at the direction of Mr Larcombe. The amount paid was roughly the same as the payout figure advised by H&H Mezz on 19 February 2016. According to Mr Budd-Maddison, Mr Larcombe told him:

2. [22]

   Mr Budd-Maddison deposed that Hartford did not have any contractual dealings or agreements with Harmon, George Eleter or H&H Mezz which created any obligation on the part of Hartford to make the payment. Further, the liquidator of Hartford has not found any satisfactory explanation or justification in Hartford’s books and records for the payment.

3. [23]

   The following day, on 25 February 2016, Mr Talanehzar deposed that he had a conversation with George Eleter, as follows:

4. [24]

   Objection was taken by Hartford to the admissibility of Mr Talanehzar’s evidence of conversations with George Eleter in which George Eleter conveyed what Mr Larcombe had told him about approving and providing a loan. This is second-hand hearsay evidence. However, the evidence is admissible to prove the fact of the conversation, and what Mr Eleter asserted to Mr Talanehzar, irrespective of the truth of what Mr Eleter asserted to Mr Talanehzar. Such evidence is admissible to establish the existence of a genuine dispute as to the debt, being in this case whether Hartford repaid the H&H Mezz loan on its own account or as agent for Hartford’s borrower, George Eleter: In the matter of Creata (Aust) Pty Ltd [2017] NSWSC 1055 at [14]-[16] per Black J; Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [38] and footnote [9]. Whilst admissible for this purpose, the Court may ultimately find that the mere fact that a third party asserts a fact is not a sufficient basis to establish a genuine dispute as to a debt: Black J at [15].

5. [25]

   On 23 March 2016, Mr Talanehzar emailed Mr Larcombe, George Eleter and Patrick Willmott of Aventis Capital. Mr Talanehzar provided Mr Willmott with details of upcoming mortgage repayments, noting:

6. [26]

   On 17 May 2016, Mr Talanehzar sent George Eleter and Mr Larcombe a title search for each of the properties. Repayment of the H&H Mezz loan had not been followed by a discharge of the second mortgage on the Surry Hills properties.

Liquidators appointed to Hartford

1. [27]

   On 20 September 2016, liquidators were appointed to Hartford. On 31 October 2016, a discharge of mortgage was registered in respect of the H&H Mezz second mortgage on the Surry Hills properties. The discharge of mortgage was dated 30 June 2016. Whether the discharge of mortgage was executed on 30 June 2016 or at the time it was registered on 31 October 2016, whether this occurred before or after Mr Larcombe died, and the surrounding circumstances, are not in evidence. As the authorities to which I will shortly refer attest, such evidence may indicate whether the discharge of mortgage rebuts a presumption that Hartford intended to keep the mortgage alive for its own benefit, or is neutral as being consistent only with an intention by those surviving Mr Larcombe to remove the secured nature of the debt.

2. [28]

   Hartford’s liquidators issued summons for examination and production of documents. In July 2018, Mr Talanehzar was served with a summons for examination by the liquidators of Hartford, and says that this was the first time he had heard of Hartford.

3. [29]

   On 21 August 2018, Mr Talanehzar was examined before Judicial Register Ng of the Federal Court of Australia. His evidence in the examination was broadly consistent with his affidavits in these proceedings. Mr Talanehzar agreed that Harmon had not made the payment which gave rise to the discharge of H&H Mezz’s mortgage. He agreed that, having regard to the documents that he was shown, which appear to have been the same documents in evidence in these proceedings, that Hartford had discharged the mortgage:

4. [30]

   Mr Talanehzar said that the arrangement with Mr Eleter was oral. Mr Talanehzar repeated:

5. [31]

   Mr Talanehzar said that he had no idea that Mr Larcombe was associated with Harmon.

6. [32]

   Mr Talanehzar repeated:

7. [33]

   Mr Talanehzar also said that he later sold his shares in Harmon to Mr Eleter and, since leaving the company, had not kept any of the documents relating to Harmon or the loan.

Statutory demand

1. [34]

   On 6 November 2018, Hartford issued a statutory demand to Harmon supported by an affidavit of the liquidator. The schedule to the statutory demand described the discharge of H&H Mezz’s mortgage as a result of Hartford’s payment to H&H Mezz of $440,000 and continued:

2. [35]

   The statutory demand contains two elements. The first element is assertion of an entitlement to an equitable mortgage arising through the doctrine of subrogation. Such an entitlement may not give rise to a debt “due and payable” under section 459E of the Corporations Act but rather an alternate means of obtaining repayment if the debt is not repaid on demand. The second element is an entitlement to monies under the Deed of Loan. As the loan was due and payable some time ago, this is more likely to qualify as a debt “due and payable”, assuming that Hartford was subrogated not only to the security but to H&H Mezz’s contractual entitlements. The authorities to which I was taken were largely relevant to the first element but not the second.

3. [36]

   On 27 November 2018, Harmon filed an originating process to set aside the statutory demand, supported by an affidavit of Mr Talanehzar, who described his conversations with George Eleter on 18 and 25 February 2016, already set out in this judgment. In response, Hartford served an affidavit by the liquidator and also Mr Budd-Maddison. The liquidator noted that the books and records of Hartford appeared to be incomplete but said that he had been unable to ascertain any satisfactory explanation or justification in Hartford’s books and records for the payment of $440,000 to H&H Mezz.

Jones v Dunkel

1. [37]

   Hartford submitted that the Court should draw a Jones v Dunkel (1959) 101 CLR 298 inference in respect of Harmon’s failure to call George Eleter citing BI (Contracting) Pty Ltd v Strikwerda (2005) 3 DDCR 149; [2005] NSWCA 288 at [37] per Mason P. Hartford submitted that a Jones v Dunkel inference should also be drawn in respect of Harmon’s failure to call Mr Halvagi. I am not sure that the latter follows as it is difficult to see why Mr Halvagi could be considered to be “in the camp” of Harmon as opposed to, say, Hartford.

2. [38]

   There is nothing in principle to stop the Court drawing a Jones v Dunkel inference in an application under section 459H to set aside a statutory demand by reason of a genuine dispute as to the debt, although the nature of such applications and the evidence which may be relied upon in such applications may suggest that it would be unusual to do so. Such an inference was drawn by Senior Master Mahoney in Radly Corporation Pty Ltd v Suncorp-Metway Ltd (2001) 19 ACLC 1597; [2001] VSC 272 at [29(c)] and [33]. The Court was invited to do so in similar applications but did not draw the inference in Tony Innaimo Transport Pty Ltd v Skyroad Logistics Pty Ltd [2018] FCA 1134 at [35], [51]-[52] per Griffiths J (application for leave under 459S); Complete Equipment Solutions Pty Ltd v Tesab Engineering Ltd (2016) 309 FLR 236; [2016] VSC 253 per Randall AsJ (whether service effected); XSRE Pty Ltd v Lightning Electrical Group Pty Ltd [2011] NSWSC 1147 at [7] per Ward J (offsetting claim).

3. [39]

   Harmon submitted that it was not appropriate to draw a Jones v Dunkel inference having regard to the use to which hearsay evidence may be put in such applications. As explained by Barrett AJA (with whom Gleeson and White JJA agreed) in Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [39]:

4. [40]

   Here, Harmon called evidence directed to establishing whether there is a genuine dispute as to the debt, rather than establishing on a final basis that Hartford is not entitled to be subrogated to H&H Mezz’s position. It was sufficient for Harmon to do so by the use of “hearsay” evidence (in the sense described by Barrett AJA). It was not necessary to call George Eleter, and I do not draw a Jones v Dunkel inference for failure to do so.

5. [41]

   Hartford claims to be entitled to be subrogated to H&H Mezz’s entitlements under the Deed of Loan and the second mortgage in respect of the Surry Hills properties. Subrogation is an equitable doctrine by which rights are transferred from one person to another by operation of law with the consequence that persons owing obligations are ordered to tender performance to a person other than the one originally entitled: Parkinson, ed., The Principles of Equity (2nd ed., Lawbook Co., 2003) at [1501], [1502]. One of the recognised situations founding subrogation is where a lender makes an unsecured loan which pays out a secured creditor. In this case, the lender may be subrogated to the secured rights. Equity makes the rebuttable presumption that the security is to be kept alive for the lender’s benefit. In Australia, the formulation of the principle most often cited is that of Lord Jenkins in delivering the advice of the Privy Council in Ghana Commercial Bank v Chandiram [1960] AC 732 at 745:

6. [42]

   There has been a divergence in recent times between Australian and English law on this subject: see Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 cf. Challenger Managed Investments Limited v Direct Money Corp Pty Ltd (2003) 59 NSWLR 452; [2003] NSWSC 1072 at [48]-[50] per Bryson J, approved by Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [98], per curiam. This is not the occasion of a detailed examination of this topic, suffice it to say that Ghana Commercial Bank remains good law in Australia: see also MJ Cleaver, Equitable Subrogation in Australia and England (2018) 29 JBFLP 34 for a discussion of the position after recent developments in the Supreme Court of the United Kingdom. As the learned authors of Parkinson, op. cit., succinctly explain at [1514]:

7. [43]

   An illustration of the application of these principles is Re H & S Credits Ltd (in liquidation), Tucker v Roberts [1969] Qd R 280 where a receiver mistakenly believed that a debenture deed had a particular effect such that he could safely cause the mortgages over a property to be extinguished. He did not intend to keep the mortgages alive for the benefit of the debenture holders but to rely upon an existing security which he considered valuable and effective. The receiver evinced a plain intention at all times to have the mortgages extinguished and for them not to be kept alive for the benefit of the debenture holders. The actual discharge of the mortgages was inconsistent with an intention to keep them alive. By reason of the receiver’s actual intentions, the presumption had no application.

8. [44]

   The threshold to establish a genuine dispute about the existence of a debt is a relatively low one. The principles were concisely collated by Black J in In the matter of Gorji Property Investment Pty Ltd [2018] NSWSC 1671 at [14]-[15], in particular:

9. [45]

   As McLelland CJ in Eq explained in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; (1994) 12 ACLC 669 at ACSR 787 (citations omitted):

10. [46]

    In Britten-Norman, the Court of Appeal clarified the standard of evidence required in such an application, at [36]:

11. [47]

    The Court, at [48], also approved the following statement of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601:

12. [48]

    Harmon submits that Hartford has no right of subrogation in the circumstances of this case. Harmon relied upon the analysis of Eve J in Wylie v Carlyon [1922] 1 Ch 51 at 53:

13. [49]

    Beyond this, Harmon submitted correctly that “in order to determine whether the presumption applies in any given case the circumstances of the case have to be looked at”: Cochrane v Cochrane (1985) 3 NSWLR 403 at 405; see also Re H&S Credits Limited (in liq), discussed above. In particular, Harmon relied upon Paul v Speirway Ltd (in liquidation) [1976] Ch 220 where Oliver J concluded at 233:

14. [50]

    Harmon submits that in order to determine intention it is necessary to look at the circumstances of the case. That is not possible on the application to set aside the statutory demand and it is not possible because there is no evidence adduced by the relevant officers of Hartford. The last submission is not correct, as Mr Budd-Madison gave evidence including as to the intention of Mr Larcombe.

15. [51]

    Further, Harmon disputes that Hartford is entitled to stand in the shoes of H&H Mezz under the Deed of Loan. The fact that the loan was discharged by the payment of $440,000 had the result that the Deed of Loan is at an end. According to Mr Budd-Maddison, Hartford did not have any agreement with Harmon and as such there is no basis to assert that Hartford is entitled to interest at 24% per annum, giving rise to the asserted debt of $841,804.46 and there is a genuine dispute that the debt claimed in the statutory demand is due and payable.

16. [52]

    Hartford submits that the fact of Hartford’s $440,000 payment and the subsequent discharge of the mortgage give rise to the presumption that Hartford intended to keep the H&H Mezz mortgage alive for its own benefit, and Harmon has failed to rebut that presumption as Harmon’s evidence does not rise above a bare assertion of facts unsupported by evidence. Putting differently, if the Court is disinclined to accept the evidence of the Harmon, the presumption is not displaced and Hartford is entitled to subrogation. It is submitted that Hartford is thus entitled to rely on the presumption and is subrogated to the rights of H&H Mezz as mortgagee and is entitled to recover, as a debt, $440,000 plus interest calculated under the Deed of Loan.

17. [53]

    Hartford submits that the mere assertion of a contrary position by a plaintiff does not form the foundation of a conclusion that a genuine dispute has arisen. Indeed, it would be a perverse outcome if a plaintiff were to be permitted to simply file an application supported by an affidavit which merely recounts a countervailing version of events to that contended by the defendant in support of the original statutory demand. A degree of scrutiny necessarily informs the Court’s consideration of the evidence of each party to the dispute (which may not be a genuine one). As Lockhart J stated in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at [35]:

18. [54]

    Hartford submitted that Harmon’s evidence amounted to unsupported bare assertions. Whilst hearsay evidence is admissible on statutory demand cases, the Court would give little weight to the representations of Mr Talanehzar where such representations could have been supported or corroborated by documentary evidence or evidence from Mr Eleter. Further, Harmon’s contentions were said to be implausible as:

19. [55]

    Harmon’s contention, essentially, is that Hartford is not entitled to subrogation as Hartford did not discharge the secured H&H Mezz loan but George Eleter did. On Harmon’s case, Mr Larcombe lent the money to George Eleter for the purpose of on-lending to Harmon to repay a secured loan. That fact that Hartford paid the funds directly to H&H Mezz was because Mr Larcombe was directed by George Eleter to pay the loan funds directly to H&H Mezz. In doing so, Hartford was not repaying the H&H Mezz loan on its own account but on behalf of George Eleter. Further, Harmon contends that the nature of the loan from Mr Larcombe to George Eleter was unsecured. That is, this is not a case of subrogation at all or, alternatively, the presumption described in Ghana Commercial Bank can be rebutted in this case.

20. [56]

    Hartford submitted that there were no accounting entries or financial statements which corroborated the existence of a loan from George Eleter to Harmon in circumstances where Mr Talanehzar, according to his affidavit, had had access to the books and records of the company when preparing his evidence. But evidence does not have to be supported by contemporaneous documentation. “Whilst a witness’s evidence may be more cogent if it is supported by such documentation, the absence of documentation does not, of itself, render a witness’s evidence lacking in credibility, reliability or cogency: Britten-Norman at [61]. In that case, the Court noted that the available emails posed difficulties for Britten-Norman but, at [60]:

21. [57]

    The available emails in this case indicate that Mr Larcombe had an investment in Harmon and the properties it owned, was in a business relationship with Mr Talanehzar and / or George Eleter and may have been effectively the person behind Harmon. The emails indicate that Mr Larcombe wanted to repay the H&H Mezz loan in order to remove an expensive source of finance that was eroding his equity in the Surry Hills properties. But the evidence is scant and not sufficiently definitive to exclude another version of events.

22. [58]

    Mr Talanehzar’s version of events is unsupported by any contemporaneous documents and may be supported by George Eleter. The paucity of emails and other documentation also points to the parties conducting business orally and having informal arrangements based upon business relationships of some long standing. Is the loan described by Mr Talanehzar spurious, mere bluster or assertion? Does it have a sufficient objective existence and prima facie plausibility and sufficient factual particularity to exclude the merely fanciful or futile? It is not inconsistent with undisputed contemporary documents as there are so few which exist, and the available records are themselves obscure. If Hartford and Mr Larcombe had kept accounting and financial records which one might commonly expect to see in a property investment business, then one might think that Mr Talanehzar’s assertion could be readily rejected out of hand. But in the absence of such records, I am unable to do so. It seems to me that Mr Talanehzar’s affidavit is sufficient to establish a genuine dispute as to the debt such that Harmon’s application to set aside the statutory demand on the basis of a genuine dispute as to the existence of the debt should be granted. This does not mean that the liquidator will not be able to prove that Harmon is obliged to repay the monies to Hartford but simply that issuing a statutory demand is not the way to go about it.

23. [59]

    For these reasons, I make the following orders:

    1. (1)

       Pursuant to section 459H of the Corporations Act 2001 (Cth), order that the statutory demand dated 6 November 2018 served by the defendant upon the plaintiff be set aside.

    2. (2)

       Order the defendant to pay the plaintiff’s costs of the application.