In the matter of Invigor Group Limited

1. [1]

   HER HONOUR: This is an application to set aside a statutory demand under section 459G of the Corporations Act 2001 (Cth) on the basis that there is a genuine dispute as to the existence of the debt. The plaintiff is Invigor Group Limited. The defendant is Raus Capital Fund Limited. One of Invigor Group’s directors is Gary Cohen. He is also a director of Marcel Equity Pty Limited. Patrick Hunt is a director of Raus Capital.

2. [2]

   In June 2017, Invigor Group entered into a Loan and Convertible Note Agreement with Raus Capital (Loan Agreement), under which, essentially, Raus Capital lent $500,000 to Invigor Group and was issued with 41,666,667 Convertible Notes. A convertible note is sometimes referred to as a “hybrid” security as it has features of both debt and equity. The noteholder — in this case Raus Capital — can convert the note into a specified number of shares in the issuing company — in this case Invigor Group — or cash of equal value. The attractions of a convertible note to both the noteholder and issuer are explained by the Australian Securities Exchange in “Understanding hybrid securities” (2016) at page 9:

3. [3]

   Thus, under the Loan Agreement, Raus Capital could elect to convert the Convertible Notes into shares in Invigor Group by issuing a Conversion Notice but, in the absence of such a notice, Raus Capital was entitled to redeem the Convertible Notes on the Maturity Date (being 30 November 2018) and be paid $500,000 by Invigor Group.

4. [4]

   Raus Capital did not issue a Conversion Notice but instead, in late November 2018 or early December 2018, sought repayment of the loan. The loan was not repaid.

5. [5]

   On 14 December 2018, Raus Capital, Invigor Group and others entered into two back-to-back Convertible Note Sale Agreements. Under the first agreement, entered into by Raus Capital, Invigor Group and Marcel Equity (Marcel Sale Agreement), Raus Capital agreed to sell the Convertible Notes to Marcel Equity for $500,000 on the terms and conditions contained in the agreement. Clauses 4, 5 and 6 of the Marcel Sale Agreement were as follows:

6. [6]

   Annexed to the Marcel Sale Agreement and headed “Annexure 1 — Standard Transfer Form” was a transfer by Raus Capital of the Convertible Notes to Marcel Equity for a consideration of $500,000. Although clause 5 of the Marcel Sale Agreement referred to Raus Capital delivering “an executed but undated note transfer form” to Marcel Equity, the transfer in evidence is executed and dated. As Clause 5 also made plain, Raus Capital was obliged to deliver this form “at Completion”, as that term was defined in Clause 6. There is no evidence or suggestion that the transfer form was provided by Raus Capital to Marcel Equity in any form other than as Annexure 1 to the Marcel Sale Agreement.

7. [7]

   Mr Cohen deposed that Invigor’s obligations under the Loan Agreement were “satisfied” on entry into the Marcel Sale Agreement. On the face of the agreement, however, mere entry into the agreement did not discharge Invigor Group’s obligations under the Loan Agreement but, rather, it anticipated that it would achieve this result on satisfaction of the conditions in clause 6 of the Marcel Sale Agreement, including payment of $500,000 to Raus Capital.

8. [8]

   Under the second Convertible Note Sale Agreement, entered into by Invigor Group, Marcel Equity and Karoo Investment Group Pty Limited (the Karoo Sale Agreement), clause 2 provided:

9. [9]

   The provisions of the Karoo Sale Agreement were thereafter relevantly the same as the Marcel Sale Agreement: Marcel Equity agreed to sell the Notes to Karoo Investment for $500,000; at Completion, Marcel Equity was obliged to deliver an executed, undated share transfer attached as Annexure 1. Clause 6(a) provided, in like terms to the Marcel Sale Agreement, that Completion of the Karoo Sale Agreement was conditional upon completion of the Marcel Sale Agreement. Annexure 1 was a standard transfer form from Marcel Equity to Karoo Investment of the Convertible Notes in consideration for $500,000. Again, unlike the description of the transfer in Clause 5 as undated, the transfer form in evidence is executed and dated.

10. [10]

    On the face of these documents, therefore, there were back-to-back agreements under which it was envisaged that Karoo Investment would pay $500,000 to Marcel Equity, which would pay it onto Raus Capital, which would hand over its Convertible Notes in Invigor Group to Marcel Equity, which would hand over the Convertible Notes to Karoo Investment. Completion of the two agreements would be simultaneous and the executed transfers annexed to the agreements would be handed over at Completion. Completion was to take place within 7 days, that is, by 21 December 2018.

Share transfers are utilised

1. [11]

   On 14 December 2018, that is, the same day that the two Convertible Note Sale Agreements were executed, Jane Gregs, Financial Controller of Invigor Group received:

Attempts to negotiate another deal

1. [12]

   On 18 December 2018, Mr Cohen of Invigor Group wrote to Mr Hunt of Raus Capital advising:

2. [13]

   On 19 December 2018, Mr Cohen sent a second email to Mr Hunt, attaching a proposed Convertible Note Settlement Agreement between Raus Capital, Marcel Equity and Invigor Group (Proposed Sale Agreement) which provided (clause 2):

3. [14]

   The Proposed Sale Agreement repeated that the consideration for the acquisition of the Convertible Notes was $500,000 and continued (clause 5):

4. [15]

   The Proposed Sale Agreement continued:

5. [16]

   Raus Capital did not reply.

6. [17]

   On 20 December 2018, Mr Cohen sent a third email to Mr Hunt attaching an executed version of the Proposed Sale Agreement, advising that the first tranche of funds was due to be settled the next day and “the shares will be issued tomorrow as well to your account”. According to Ms Gregs, the shares had already been issued, although presumably not to Raus Capital’s account. Mr Hunt was asked to execute the Proposed Sale Agreement and return it. Mr Hunt did not reply.

7. [18]

   On 21 December 2018, Mr Cohen sent a fourth email to Mr Hunt noting he had not heard from Raus Capital and was preparing for settlement that today. Mr Hunt replied:

8. [19]

   Mr Cohen replied, perhaps ungraciously:

9. [20]

   Mr Hunt replied promptly:

10. [21]

    It would appear that Mr Cohen now had a problem: he did not have the $500,000; the note transfer forms annexed to the Marcel Sale Agreement and Karoo Sale Agreement had already been utilised contrary to the terms of those agreements; and, Raul Capital had not agreed to allow the note transfer forms to be utilised to procure the issue of 125 million ordinary shares before payment of the $500,000. Mr Cohen replied:

11. [22]

    On 27 December 2018, Mr Cohen sent a further email to Raus Capital saying that he would like to resolve the matter amicably and asked for a time when he could call. Raus Capital did not reply.

12. [23]

    On 27 December 2018, 125 million ordinary shares in Invigor Group were registered in the name of Raus Capital. Mr Cohen says that these shares are held by Raus Capital “on trust for Karoo” pending completion of the Marcel Sale Agreement. A more accurate description may be that these shares are held by Karoo Investment on resulting or constructive trust for Raus Capital. There is no evidence that Raus Capital asked for this security to be provided or knew that it would be provided. Nor was provision of such security in the absence of Marcel Equity’s payment of the first instalment of $250,000 part of the proposal put forward by Mr Cohen. It simply appears to have been an attempt by Mr Cohen to offer some security, without also telling Raus Capital that the security was effectively being provided by Raus Capital itself.

13. [24]

    On 5 January 2019, Mr Cohen sent two emails to Raus Capital attaching:

14. [25]

    On 8 January 2019, “Vlad” of Raus Capital replied, expressing some concerns but without, it appears from the email, necessarily appreciating what had happened. Vlad noted:

15. [26]

    On 10 January 2019, Mr Cohen replied that Marcel Equity would pay $250,000 immediately with the remaining $250,000 by 31 January plus interest and “on satisfaction of payment of amounts above Raus will retransfer shares to Marcel nominees”. Further emails passed between Mr Cohen and Raus Capital on 15 January 2019 in which Mr Cohen said “I am now looking to get this agreement in place over the next couple of days”. On 1 February 2019, the solicitors for Invigor Group emailed Raus Capital as follows:

16. [27]

    On 5 February 2019, transfer of the payment was said to have been prevented by “minor technical difficulties” about which Mr Cohen expressed surprise and gave an assurance that he would investigate and offered, on 8 and 9 February 2019, to call. Nothing came of this.

17. [28]

    On 22 February 2019, Raus Capital issued a letter of demand. Invigor Group replied by its solicitor that the Loan Agreement “is no longer valid or enforceable” as a consequence of the Marcel Sale Agreement. How this was so was not laid bare. On 18 March 2019, Raus Capital issued a statutory demand. Invigor Group seeks to have it set aside on the basis that it owes no debt at all to Raus Capital.

18. [29]

    In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [31], the Court of Appeal approved McLelland CJ in Eq’s consideration of a “genuine dispute” in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 as involving a plausible contention requiring investigation, raising much the same sort of considerations as the “serious question to be tried” criterion that applies in the case of an interlocutory injunction. As McLelland CJ in Eq stated at 787:

19. [30]

    The Court, at [48], also approved the following statement of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605:

20. [31]

    The characteristics of a “genuine dispute” were described in similar terms by the Victorian Court of Appeal in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, by Dodds-Streeton JA (with whom Neave and Kellam JJA agreed), at [71]:

21. [32]

    Invigor Group, in its submissions, raised a contention that Raus Capital was not entitled to redeem the Convertible Notes for failure to comply with clause 9.5 of the Loan Agreement, which relates to delivery up of the Note Certificates. Objection was taken to advancing this contention at trial as no reference was made to this matter in the affidavit of Mr Cohen in support of the Originating Process and thus offended the “Graywinter” principle (see Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; (1996) 21 ACSR 581 and the cases which follow it). Invigor Group did not press this contention at trial.

22. [33]

    Invigor Group framed its claim in relatively narrow terms: that its debt under the Loan Agreement was satisfied or discharged by the Marcel Sale Agreement because Raus Capital signed and delivered an executed note transfer form and Invigor Group “acted upon that duly signed and delivered note transfer form”. Invigor Group says that Raus Capital’s right to recover the money is now against Marcel Equity, and this is said to be supported by Marcel Equity’s subsequent remarks in the emails from Mr Cohen of 18 December 2018, 21 December 2018, 10 January 2019 and 1 February 2019 to which I have already referred, and by Mr Hunt’s execution of the transfer on 1 February 2019.

23. [34]

    These communications, when set out in their context, do not support the submission made. So far as the evidence reveals, Raus Capital delivered an executed note transfer form as Annexure 1 to the Marcel Sale Agreement only — not as a stand-alone document — to be dealt with in accordance with the terms of the Marcel Sale Agreement and not otherwise. Mr Cohen’s emails were a series of attempts to negotiate an extension or variation of the Marcel Sale Agreement. Raus Capital did not accept any of these proposed extensions or variations. Mr Hunt’s execution of the transfer form on 1 February 2019 was at Invigor Group’s request in circumstances where Raus Capital was, apparently, about to be paid the $500,000. On such payment, it would have been necessary to transfer the 125 million ordinary shares in Invigor Group which Karoo Investment had procured and Mr Cohen had registered to Raus Capital’s account in the circumstances which I have described, that is, without the knowledge, request or consent of Raus Capital.

24. [35]

    More importantly, there is no evidence that, when Invigor Group “acted upon that duly signed and delivered note transfer form”, it did so:

25. [36]

    Invigor Group’s submission was thus:

26. [37]

    In the alternative, Invigor Group submitted that Raus Capital was estopped from denying that the Loan Agreement was satisfied or discharged by the Marcel Sale Agreement, or alternatively, is estopped “from denying” the Marcel Sale Agreement. As I understand it, Raus Capital does not “deny” the Marcel Sale Agreement but simply says that it has not been performed and thus ceases to operate at all.

27. [38]

    Invigor Group relies on EK Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 at [221] as a concise statement of the relevant principles of estoppel:

28. [39]

    A further paragraph of White J’s judgment at [223] also bears repetition:

29. [40]

    Invigor Capital submitted that there was a plausible contention of promissory estoppel, but it could point to no promise by Raus Capital, only silence. Invigor Group’s counsel submitted that the representation arose because “They should not have handed [the executed forms] over”. I do not accept this submission. Countless transactions proceed on the basis that parties hand over executed documents in anticipation of completion, not to be utilised until completion takes place. That this was one such transaction was abundantly clear from the terms of the Marcel Sale Agreement and Karoo Sale Agreement.

30. [41]

    Invigor Group then submitted that, in the events that have unfolded, “by amending the Karoo [Sale Agreement] and extending the terms for the payment of the $500,000 (relying in part upon the 125 million shares), there has not been any, and cannot be any, reliance by [Raus Capital] on the seven-day period as basis to terminate the [Marcel Sale] Agreement”. I am not confident that I have understood this submission, but there is no evidence that Raus Capital agreed to amend the Marcel Sale Agreement or Karoo Sale Agreement nor that it accepted any of Mr Cohen’s proposals to vary the terms of those agreements.

31. [42]

    Invigor Capital submitted that it acted to its detriment by issuing the 125 million ordinary shares to Karoo Investment. I have again failed, I fear, to grasp the full import of this submission as it is entirely unclear to me how Invigor Capital, in utilising the executed transfer forms in a manner not contemplated by the Marcel Sale Agreement or Karoo Sale Agreement, has suffered a detriment. It would appear, rather, that Invigor Capital, Marcel Equity or Karoo Investments have “jumped the gun” by obtaining the Convertible Notes without paying for them.

32. [43]

    The Court does not need to accept uncritically the proposition that Invigor Group’s debt under the Loan Agreement was satisfied or discharged by the Marcel Sale Agreement, or that Raus Capital is estopped from contending otherwise, as giving rise to a genuine dispute in circumstances where it is wholly at odds with the contracts and contemporaneous documents and in the absence of any other evidence from Mr Cohen to support these contentions. There does not seem to me to be an issue deserving of a hearing. Rather it seems to me that the asserted dispute put forward by Invigor Group is not genuine but falls into the category of “mere bluster and assertion”, to say the very least.

33. [44]

    For these reasons, I made the following orders:

    1. (1)

       The Originating Process filed on 23 April 2019 is dismissed.

    2. (2)

       Plaintiff to pay the defendant’s costs of the proceedings.

    3. (3)

       Grant liberty to the defendant to apply, by 21 August 2019, for a variation to Order 2 to seek indemnity costs and/or a lump sum costs order, such application to be made by sending any affidavit evidence, along with submissions limited to four pages, by email to the chambers of Rees J, copied to the plaintiff’s legal representatives.

    4. (4)

       In the event that the liberty in Order 3 is exercised, direct the plaintiff send by email to the chambers of Rees J, copied to the defendant’s legal representatives, any affidavit evidence in reply, along with submissions limited to four pages, by 4 September 2019.