In the matter of ReNu Waste Pty Limited

HER HONOUR: This is an application to set aside a statutory demand on the basis of a genuine dispute as to whether the debt is due and payable. The defendant, Natalie Hoang, provided $85,000 to the plaintiff company, ReNu Waste Pty Ltd, to assist the company to buy land in Victoria. The company proposed to subdivide the land and, on subdivision, repay the loan by transferring a lot in the subdivision to Ms Hoang. Almost a year later, the parties entered into a Contract of Sale of Real Estate in respect of Lot 17 in the proposed subdivision. The company experienced further delays in registering the plan of subdivision. Ms Hoang rescinded the contract under section 9AE of the Sale of Land Act 1962 (Vic) and issued a statutory demand in respect of the $85,000. The company does not dispute the debt but says that it is not due and payable given the terms on which the funds were initially provided.

The issues which arise are:

Alastair Brodie is a director and shareholder of ReNu Waste. The company is involved in waste management and production of energy and is establishing a waste receiving and processing facility in Mildura, Victoria. Mr Brodie describes the company as a relatively recent start-up which has raised funds to operate its core business.

In about 2017, Mr Brodie became interested in buying land across the road from the Mildura facility. The vendor had obtained development consent from the Mildura Council to subdivide the land, although the consent was soon to lapse. Mr Brodie was keen to subdivide the land as well. On 17 February 2017, the company signed a Contract of Sale of Real Estate to buy the land for $850,000, with a deposit of $85,000 due by 8 March 2017 and the balance of $765,000 payable on settlement. The contract was subject to finance, with a loan of $850,000 to be obtained from a reputable financial institution by 10 March 2017.

ReNu Waste did not have the funds to purchase the land nor pay the deposit. For some years, Mr Brodie had been investing in various projects with Hans Felden, Ms Hoang’s partner. Mr Brodie spoke to Mr Felden about the land. Mr Brodie suggested that, to obtain funds to pay the deposit, the company should sacrifice one lot in the proposed subdivision at a huge discount. A valuation report was to hand and Lot 17 had been valued at $218,000 once the subdivision was registered. Mr Brodie proposed that, if they could secure an investment of $85,000 to pay the deposit, the company would sign over title to Lot 17 to the investor with title to be transferred after any mortgage over the land (presumably registered in favour of the “reputable financial institution” financing the purchase) had been discharged and the lot could be transferred. Mr Felden said that he thought he might have someone who was interested in this proposal.

On 28 March 2017, the vendor signed the Contract of Sale of Real Estate. In early to mid April 2017, Mr Felden telephoned Mr Brodie and said that Ms Hoang would fund the $85,000. Ms Hoang, Mr Brodie and Mr Felden met. Mr Brodie said that ReNu Waste could not borrow the $85,000 from Ms Haong and pay interest in the usual way as it needed its cash flow for the Mildura facility, but the company could offer a large discount on Lot 17, which had been valued at $218,000. Further, Mr Brodie deposed:

On about 17 April 2017, Mr Felden sent Mr Brodie a document entitled “Business Plan Thurla Two-Mildura”, proposing a loan with interest payments but Mr Brodie called Mr Felden and repeated that ReNu Waste could not enter into such an agreement but could offer a lot in the subdivision at a discounted price of $85,000 and, again,

On 18 April 2017, the company made a part-payment of the deposit of $50,000 and, on 28 April 2017, the remaining $35,000 from the company’s core business funds. On 2, 4 and 5 May 2017, Ms Hoang made a series of payments totalling $85,000 to ReNu Waste. The company says that the monies were paid in accordance with an oral agreement between the company and Ms Hoang: to provide $85,000 to the company in return for Lot 17, with the lot to be transferred to her on registration of the plan of subdivision and the company obtaining clear title to the lot by discharging any registered mortgage over the land, with Ms Hoang’s entitlement to Lot 17 to be documented by a Contract of Sale of Real Estate.

In August 2017, Mildura Council re-approved the subdivision and, in November 2017, ReNu Waste completed the purchase of the land with finance obtained from Mega Loans secured by a mortgage over the land, a second mortgage over a pub in Moree in which Mr Brodie and Mr Felden had an interest, and a second mortgage over Mr Felden’s home in Sydney. Following Mildura Council’s approval of the subdivision, the proposed lots were resurveyed and plans lodged with the Department of Lands Victoria. This allowed a contract to be prepared for Lot 17.

On 7 March 2018, a Contract of Sale of Real Estate was signed by ReNu Waste and Ms Hoang for Lot 17. Perhaps oddly, the price was said to be $215,000 with a deposit of $10,750 payable by 28 February 2018 (that is, before the date of the contract itself) with the balance of $204,250 payable at settlement. The parties agree that these details were incorrect and the price of Lot 17 was $85,000, which had been paid in full. The contract provided that settlement was due on the later of 23 May 2018 or,

The earlier date of settlement, 23 May 2018, came and went. In March 2019, a year after the contract had been signed, Mr Felden sent an email to Mr Brodie requesting a share of the profit expected in the subdivision for Ms Hoang. Mr Felden noted:

In July 2019, Mr Felden sent an email to Mr Brodie pressing for a response to his email of 17 March 2019 and Mr Brodie replied:

On 16 September 2019, Ms Hoang’s solicitors wrote to ReNu Waste noting that the plan of subdivision had not been registered and, “Our client hereby cancels the contract dated 7 March 2018 pursuant to section 9AE Sale of Land Act (Vic) and the contract of sale.” This letter was sent 18 months and 9 days after the contract had been exchanged.

On 4 October 2019, the plan of subdivision was registered. On 16 October 2019, Ms Hoang’s solicitor wrote to ReNu Waste demanding repayment of the $85,000 together with interest on the terms set out in “Business Plan Thurla Two–Mildura”, calculated to be $150,756.40. The company’s solicitor replied, acknowledging that $85,000 was advanced to the company by Ms Hoang but denying that any interest was payable or that the “Business Plan Thurla Two – Mildura” formed part of their agreement. Rather:

On 24 October 2019, Ms Hoang issued a statutory demand in the amount of $85,000. The company’s solicitors clarified that, whilst ReNu acknowledged that $85,000 was advanced by Ms Hoang, “we never said it was due and owing now” and asked that the demand be withdrawn for various reasons. The statutory demand was withdrawn and another demand issued and served on 11 November 2019, again in the amount of $85,000 as advanced on various dates from 2 May 2017 on. The affidavit accompanying the statutory demand was sworn by Ms Hoang, who deposed that ReNu Waste owed $85,000 to her “relating to loan advances which I made …”.

On 29 November 2019, ReNu Waste filed an Originating Process to set aside the statutory demand. In support of the application, Mr Brodie swore two affidavits. Beyond what is already set out, Mr Brodie said that the development has been completed; Lot 17 has been listed for sale with real estate agents but remains unsold; Lot 17 remains encumbered by a mortgage to Fincore Pty Ltd which has not been repaid and, it was said, the $85,000 is not due and payable to Ms Hoang.

Section 459H of the Corporations Act provides that, on an application under section 459G, the Court may set aside a statutory demand where there is a genuine dispute about the existence or amount a debt or where there is an offsetting claim in an amount greater than the debt. The principles relating to both genuine disputes and offsetting claims are well-settled. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal (Beazley P, Meagher and Gleeson JJA) said in the context of an offsetting claim, at [30]–[31]:

It is not for the Court to engage in an assessment of a deponent’s credit on an application such as this: Britten-Norman at [46]. What is called for is an assessment of the kind described by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; (1994) 12 ACLC 669 (approved in Britten-Norman at [46]). At 787 (citations omitted):

In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, Dodds-Streeton JA, with whom Neave and Kellam JJA put the test in the following terms, at [71]:

Often cited is the judgment of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919; (1993) 11 ACSR 601 at 605, which provides useful guidance:

Here, Mr Brodie was not cross-examined and Ms Hoang called no evidence. Thus, I have proceeded on the basis that Mr Brodie’s description of what was said and done is correct.

Section 459E(1) of the Corporations Act provides that a statutory demand may be served on a company relating to a debt that is “due and payable”. A debt is ‘due and payable’ when it is ascertainable, immediately payable and presently recoverable or enforceable by action: Re Elgar Heights Pty Ltd (1985) 9 ACLR 846; [1985] VR 657 at 669 and 671 (per Ormiston J); Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 at [39]-[42] (per White J); NA Investment Holdings Pty Limited v Perpetual Nominees Limited (2010) 79 ACSR 544; [2010] NSWCA 2010 at [63] (per Lindgren AJA). As Barrett J explained in Main Camp Tea Tree Oil Limited v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219 at [17]:

The learned author of Farid Assaf, Statutory Demands and Winding Up in Insolvency (2nd ed, 2012, LexisNexis Butterworths) considers that such an interpretation is consistent with the underlying policy and purpose of Part 5.4 of the Corporations Act as the statutory presumption of insolvency should arise only in clear cases of indebtedness and the debt in question is one about which no other inference can be drawn in the event of non-payment, other than that the company was unable to pay it: at [2.36]. Further, in determining whether a debt is ‘due and payable’ for the purposes of section 459E, the courts tend to adopt a pragmatic and commercial approach: at [2.38]. For example, in HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234, where the monies were said to be due and payable by reference to the doctrine of restitution, Master Newnes observed at [30]:

An example concerning monies payable under a contract for sale of land is Binshell Pty Limited v Broadway Australia Pty Limited [2002] NSWSC 54, where the vendor terminated the contract after the date for completion had been extended on a number of occasions at the request of the purchaser. The purchaser had never provided a deposit, as required by the contract, but had instead provided a “deposit guarantee” under which a third party guaranteed payment of the deposit in the event of default by the purchaser. The vendor served a statutory demand requiring payment of the deposit. Barrett J held that deposit was “due and payable”. At [39]-[40]:

The company does not dispute the existence of the debt claimed by the creditor, but does dispute that the debt is “due and payable”. The company submitted that this is a genuine dispute within the meaning of section 459H of the Corporations Act as to whether the debt is due and payable.

The courts have vacillated as to whether such a dispute should be dealt with under section 459H(1)(a), section 459J(1)(a) or section 459J(1)(b). Section 459J(1) provides:

Initially, in Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited [1996] NSWSC 199; (1996) 20 ACSR 746; (1996) 132 FLR 300 at 304, Bryson J held that the inclusion of debts in a statutory demand that had not fallen due for payment constituted a defect in the demand rendering it liable to be set aside under section 459J(1)(a). In NT Resorts Pty Limited v Deputy Commissioner of Taxation (1998) 16 ACLC 957; (1998) 153 ALR 359 at 367, Finkelstein J disagreed and was inclined to favour the view that section 459J(1)(b) was the only available ground but considered that, in reality, the standard of proof in either case was the same as, if the application must be made under section 459J(1)(b), the Court would not exercise its discretion to set aside the demand unless it was satisfied that there was a genuine dispute about whether the debt to which the demand related was due and payable. NT Resorts was followed in Midland Imports v Asia Pacific [1999] NSWSC 12 per Austin J at [27], Map Plumbing Services Pty Ltd v BB Enterprises Pty Ltd (2000) 35 ACSR 135; [2000] NSWSC 820 per Santow J at [44] and Streetwise Property Projects Pty Limited v Higgins [2005] NSWSC 535 at [19] per Master Macready.

In contrast, such a contention was simply dealt with as a genuine dispute under section 459H(1)(a) in A R Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 per Barrett J at [19]; United Capital Properties Pty Ltd v Handbury Asset Management Pty Ltd (2011) 86 ACSR 161; [2011] FCA 1075 per Stone J; In the matter of Carbon Polymers Limited [2013] NSWSC 376 per Brereton J at [25] and In the matter of Forza Plumbing Systems Pty Ltd [2013] NSWSC 1234 per Brereton J at [19].

In In the matter of MK Group Phoenix Pty Ltd [2014] NSWSC 1467, Black J gathered these strands and concluded that a statutory demand claiming monies which were not due and payable gave rise to a defect in the demand that would cause substantial injustice for the purposes of section 459J(1)(a), would also be an abuse of the statutory demand procedure for the purposes of section 459J(1)(b), and, in that case, should also be set aside by reason of a genuine dispute as to whether the monies were due and payable: at [27], [41]. In In the matter of Tuffrock Pty Ltd [2015] NSWSC 738, Black J noted that a genuine dispute as to whether the debt is due and payable can provide a sufficient basis to set aside a creditor’s statutory demand under section 459J(1)(b), and was satisfied in that case that a genuine dispute had been established as to whether the debt was due and payable and set the demand aside under section 459J(1)(b): at [15], [18].

The same approach was taken by Barrett AJA in In the matter of PostNet Australia Pty Ltd [2017] NSWSC 160 at [16]-[17] and Gleeson JA in In the matter of Longjing Pty Ltd (2017) 123 ACSR 456; [2017] NSWSC 1534 at [44]. More recently, in AspectFP Pty Ltd v Messer [2019] VSC 249, Gardiner Asj J concluded that the plaintiff’s proposed construction of a loan agreement was completely untenable, being that interest would only be payable at the plaintiff’s whim if and when it decided to repay the principal debt: at [23]. On the proper construction of the loan agreement, interest was due and payable. There was thus no genuine dispute under section 459H that the interest was due and payable.

As to the onus and standard of proof, Gleeson JA noted in Longjing at [46]:

Thus, when a company applies to set aside a statutory demand on the basis that there is a genuine dispute, not as to the existence or the amount of the debt, but whether it is due and payable within the meaning of section 459E, then the Court may set it aside either under section 459H(1)(a), 459J(1)(a) or 459J(1)(b), but, whichever route is taken, the Court must be satisfied before doing so that there is a “plausible contention requiring investigation” that the debt is not presently due and payable.

The company submitted that Ms Hoang advanced $85,000 to be repaid when title to Lot 17 was created by the sub-division and clear of mortgage encumbrances. The title to Lot 17 is not clear of such encumbrances. Until such time as the mortgagee removes the mortgage from the title to Lot 17, the amount of $85,000 is not due and payable and there is a genuine dispute that the debt is due and payable. The company submitted that the Contract of Sale of Real Estate did not accord with the oral agreement in two respects: the price and deposit (a mistake which Ms Hoang readily accepts); and, Ms Hoang was not entitled to completion until there was a discharge of mortgage over the land. This gave rise to a personal equity between the parties and it would be an equitable fraud or unconscionable conduct on the part of Ms Hoang to deny the true terms of the agreement and to hide behind the terms of section 9AE of the Sale of Land Act in order to defeat that agreement. The company relied on Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 654; [1988] HCA 16 per Brennan J and Heggies Bulkhaul Limited v Global Minerals Australia Pty Limited (2003) 59 NSWLR 312; [2003] NSWSC 851 at [102]-[103] per Austin J. The company argued, by analogy, that a person is not entitled to rely upon section 9AE to defeat “equities”, as explained in Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) at [12-100] to [12-140], “Statutes as Cloaks for Frauds”.

Ms Hoang submitted that the oral agreement alleged by the plaintiff was a contract for the sale of real estate, being that Ms Hoang would pay the plaintiff $85,000 and, in exchange, the plaintiff would issue the title of Lot 17 to her when the subdivision was registered and the mortgage discharged. The oral agreement was, until reduced to writing and signed, incapable of supporting proceedings: section 126 of the Instruments Act 1958 (Vic). The provision of the Contract of Sale of Real Estate making the time for completion after the registration of the strata plan was set with reference to a particular event rather than to a particular date, being 14 days after notice in writing of registration of the subdivision. This did not operate to prevent rescission under section 9AE(2) of the Sale of Land Act: Harofam Pty Ltd v Scherman (2013) 42 VR 372; [2013] VSCA 104 at [15] and [27] (per Nettle AP, Neave JA and Garde AJA). In any event, Ms Hoang’s right to be repaid the monies did not arise under the agreement – oral or written – but the common law. Upon a contract for the sale of land ceasing to exist, whether by rescission or abandonment, in the absence of agreement as to how the monies paid were to be dealt with upon rescission, the $85,000 is to repaid as monies had and received for the use of the defendant on the basis of a total failure of consideration: McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 406; (1951) 25 ALJR 425; [1951] ALR 771 per Dixon and Fullagar JJ, with whom McTiernan J agreed; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434; (1978) 19 ALR 223; [1978] HCA 12 per Stephen, Mason and Jacobs JJ with whom Aickin J agreed.

Ms Hoang submitted that section 9AE of the Sale of Land Act conferred a statutory right to rescind the contract and overrode the contract that had been agreed between the parties; it did not create an interest in land or deal with interests in land. Nor did Bahr v Nicolay (No 2) or Heggies Bulkhaul support the company’s contention. In Bahr v Nicolay (No 2), the High Court had regard to a contractual obligation which had been ignored and the High Court imposed a constructive trust over the land in question. Here, Ms Hoang had received no benefit under the contract which would give rise to any equity; it was not unconscionable for Ms Hoang to rely on her statutory right as she was simply out of pocket and had been out of pocket for some three years.

Whether the $85,000 was 'due and payable' when the statutory demand was issued on 11 November 2019 depends upon whether Ms Hoang was entitled to rescind the contract under section 9AE of the Sale of Land Act and call for the return of monies which she had paid or whether, as the company contended, Ms Hoang was subject to an ‘equity’ such that she could not hide behind section 9AE in order to defeat the true agreement with the company.

Looking firstly at what the true agreement between the parties was, dealings between the company and Ms Hoang have been poorly documented. Further, the nomenclature used by the parties to describe the transaction lurched between terms associated with investments, loans or the purchase of real estate. Accepting Mr Brodie’s evidence as read, it is not entirely clear whether, when Mr Brodie discussed the transaction with Ms Hoang:

What was the effect of entering into the Contract for Sale of Real Estate which did not include such terms? A written contract may, of course, embody only part of an agreement between the parties. A prior oral agreement may continue to be valid and enforceable “provided the two may consistently stand together”: Hoyt’s Pty Ltd v Spencer (1919) 27 CLR at 133 at 139; [1919] HCA 64 per Knox CJ. An oral agreement that Ms Hoang was not entitled to Lot 17 until payment of the secured creditor would not, however, be consistent with the purchaser’s entitlement under the Contract of Sale of Real Estate to settle – at the latest – 14 days after receiving notice that the plan of subdivision was registered. Such an oral agreement would add a further period of waiting until the vendor has sold enough lots to repay the financier of the development sufficient to repay the financier in full or, at least, excise Lot 17 from the financier’s security.

The company could, of course, seek rectification of the Contract of Sale of Real Estate to include such a term. Again, it is not necessary to decide on this application whether such a rectification suit would succeed; it is sufficient to conclude that there is a plausible contention that the company is entitled to rectification of the Contract of Sale of Real Estate to include such a term.

But does it flow from this that the company has a plausible contention that this amounted to an ‘equity’ operative on Ms Hoang, constraining her from rescinding the Contract for Sale of Real Estate and calling for the return of the $85,000 such that the amount is not ‘due and payable’? The answer is emphatically no. Section 9AE(2) of the Sale of Land Act provides:

Thus section 9AE(2) provides for a time limit of 18 months within which a plan of subdivision is to be registered or, if the contract so specifies, “another period” in substitution for the statutory period after which a purchaser may rescind if the plan is still unregistered: Harofam Pty Ltd v Scherman at [11]. In Harofam Pty Ltd v Scherman, the Court of Appeal of the Supreme Court of Victoria considered what is necessary to “specify another period” within the meaning of section 9AE(2). At [15] and [16]:

In that case, the contract was conditional on registration of the subdivision and conferred on the purchaser a right to avoid the contract if the plan was not registered within two years (Harofam Pty Ltd v Scherman at [2]),

Their Honours were fortified in their view by a then recent decision of the Court of Appeal of the Supreme Court of Western Australia, Harman Nominees Pty Ltd v Leighton Shores Pty Ltd [2012] WASCA 189, which reached the same view in respect of comparable legislation. In Harofam Pty Ltd v Scherman at [27]:

Here, the Contract of Sale of Real Estate did not specify another period on which the plan of subdivision was to be registered, after which Ms Hoang was entitled to rescind the contract. The contract did not specify any period or date by which the plan of subdivision had to be registered save that settlement was due on the later of 23 May 2018 or 14 days after the vendor gave notice in writing to the purchaser of registration of the plan. But, more importantly, nor would the contract have “specified another period” even if it included the additional term which the company says was part of the agreement and which it is entitled to seek to have included in the contract by a rectification suit: that Ms Hoang was not entitled to settlement until after any other mortgage over the land had been discharged. That being the case, Ms Hoang was both entitled to rescind the contract when she did and would also have been entitled to rescind the contract if it had the additional term asserted by the company.

Section 9AF(1)(b) of the Sale of Land Act provides that, if a purchaser rescinds an off-the-plan contract pursuant to section 9AE, "the purchaser is entitled to the immediate return of the deposit moneys.” Section 9AA(6) defines "deposit moneys" as including “any moneys which are part of the purchase price received by the vendor… before the purchaser becomes entitled to a transfer or conveyance of the lot.” In Landmark Property Enterprise Pty Ltd v Monash Property Developments Pty Ltd [2015] VSC 266, Croft J observed that the definition of “deposit moneys” is very broad, consistent with its legislative history and purpose, being protective of purchasers: at [48]-[51].

The definition of "deposit moneys" does not require, in terms, that the vendor receive such moneys in accordance with a Contract of Sale of Real Estate signed by the parties, as opposed to an oral agreement reached sometime before signing such a contract. In Everest Project Developments Pty Ltd v Mendoza [2008] VSC 366, Hargraves J considered that deposit moneys paid before entry into an off-the-plan contract were nonetheless paid “under an off-the-plan contract” within the meaning of section 9AA(2) because, when the contracts of sale were construed as a whole in light of the surrounding circumstances, the contracts provided that the initial payments were to be treated as payment of the deposit under the contract: at [95]-[96]. Unlike section 9AA(2), the definition of “deposit moneys” does not even refer to moneys being paid “under an off-the-plan contract” or any contract but more broadly as “any moneys which are part of the purchase price received by the vendor… before the purchaser becomes entitled to a transfer or conveyance of the lot”. Further, the circumstances here, according to Mr Brodie, were that Ms Hoang would pay the whole of the purchase price and a Contract for Sale of Real Estate would be executed when it was possible to do so. Thus, I consider that payments made by Ms Hoang in May 2017, ten months before entry into the written contract, fall within the definition of “deposit moneys”.

Thus Ms Hoang was entitled to rescind the contract under section 9AE(2) and was also entitled by reason of section 9AF(1)(b) to demand the immediate return of any moneys which were part of the purchase price received by the company before Ms Hoang became entitled to a transfer of Lot 17 which, in this case, is $85,000. So far, it appears that the debt in the statutory demand was ‘due and payable’ when the demand was issued.

The company submitted, however, that by reason of the oral agreement reached in March 2017, as described by Mr Brodie, Ms Hoang was not entitled to exercise her statutory right as it would be unconscionable and amount to an equitable fraud to do so. Whilst there is much force in Ms Hoang’s submission that there is nothing unconscionable about rescinding the contract and seeking the return of $85,000 paid almost three years ago, whether there is a plausible contention that there are any “equities” in favour of the company which would preclude Ms Hoang from exercising her statutory right is answered by section 14 of the Sale of Land Act, which provides:

It is clear law in Victoria that the Sale of Land Act, including by reason of section 14, precludes reliance on such a contention. In Everest Project Developments Pty Ltd v Mendoza, Hargraves J held at [98]:

For these reasons, I have concluded that there is no plausible contention that Ms Hoang is not entitled to demand repayment of the $85,000, and there is no genuine dispute that the amount claimed in the statutory demand is not due and payable. I make the following orders: