Royal Capital Pty Limited v Nece Pty Limited [1999] NSWSC 698

New South Wales Supreme Court CITATION : Royal Capital Pty Limited v Nece Pty Limited [1999] NSWSC 698 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 1890/99 HEARING DATE(S) : 9 July 1999 JUDGMENT DATE : 9 July 1999

PARTIES : Royal Capital Pty Limited (P) Nece Pty Limited (D) JUDGMENT OF : Master McLaughlin

COUNSEL : Mr. B. Burke (P) Mr. J. Sleight (D) SOLICITORS : Shaw McDonald (P) Gilbert & Tobin (D) CATCHWORDS : ACTS CITED : Corporations Law DECISION :

SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

MASTER McLAUGHLIN

Friday, 9 July 1999

1890/99 ROYAL CAPITAL PTY LIMITED -v- NECE PTY LIMITED JUDGMENT

1 MASTER: By summons filed on 1 April 1999, the plaintiff, Royal Capital Pty Limited ("Royal Capital), seeks an order that the creditor's statutory demand for payment of debt dated 16 March 1999 issued on behalf of the defendant, Nece Pty Limited ("Nece"), be set aside pursuant to the provisions of section 459H(1)(a) of the Corporations Law. 2 That demand seeks payment by the plaintiff to the defendant of the amount of $400,000. That amount is described in the schedule to the demand as follows: "principal outstanding pursuant to loan agreement". 3 In terms of the summons, the plaintiff brings the present proceedings pursuant to the provisions of section 459H(1)(a) of the Corporations Law. That subsection provides, relevantly: This section applies where, on an application under section 459G, the court is satisfied of either or both of the following:

(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates ... 4 In the instant case the plaintiff asserts that there is a genuine dispute as to the existence of the debt asserted by the defendant, that is, the debt alleged to be constituted by the outstanding principal pursuant to a loan agreement. 5 In support of the summons, there was filed an affidavit of Dr Adrian Ong sworn 30 March 1999. He is a director, and also a shareholder, of the plaintiff company and appears to be the person who is essentially in control of the plaintiff. 6 I should also here record that Dr Ong is a director of the defendant company. He became such in 1997. In the affidavit to which I have just referred Dr Ong makes reference to the loan agreement which is the subject of paragraph 3 of the affidavit verifying the statutory demand. That affidavit verifying is sworn by Phillip Graham Sidney on 16 March 1999. In paragraph 3 of that verifying affidavit, the deponent asserts that the plaintiff is party to a loan agreement with the defendant dated 19 August 1997. 7 Dr Ong, in paragraph 5 of his affidavit, says that the purported "loan agreement" referred to in Mr Phillip Sidney's affidavit is contained in a letter from Phillip Sidney on behalf of Nece to Royal Capital of 19 August 1997, and Dr Ong annexes a copy of that letter to his affidavit. 8 He continues in paragraph 6 by saying: There has never been any agreement by Royal Capital in respect to any repayment and that there never will be. The document is and was a "dummy" document and does not evidence a true or real transaction. No amount of $400,000 has been paid by Nece to Royal Capital. 9 Subsequently, there was filed in the proceedings an affidavit by Mr Sidney of 28 May 1999. That affidavit annexes a copy of the document which Dr Ong annexed to his affidavit and which Dr Ong described as the purported loan agreement. However, the annexure to Mr Sidney's affidavit is slightly different, in that it bears an endorsement which does not appear on the annexure to Dr Ong's affidavit. 10 It is appropriate that I should set forth what is contained in that letter, since that letter is relied upon by the defendant as constituting the loan agreement giving rise to the indebtedness, which is the subject of the present proceedings. The letter is addressed: Royal Capital Pty Limited 537 Malvern Road TOORAK VICTORIA AUSTRALIA 3142 11 It says: Attention Dr Adrian Ong

Dear Adrian,

NECE PTY LIMITED ADVANCE TO ROYAL CAPITAL

I confirm that Nece has advanced to Royal Capital Pty Limited (Royal) (formerly known as Haynick Pty Limited) $400,000 ( Advance ) on the following terms:

(a) Interest on the Advance is payable at such rate and such time as agreed by Nece and Royal; and

(b) the Advance is to be repaid by Royal to Nece in instalments to be agreed between Royal and Nece.

Please acknowledge agreement to these terms by signing and returning to me the copy of this letter which is enclosed.

Yours faithfully

Phillip Sidney. 12 The copy of the letter annexed to Mr Sidney's affidavit bears the following endorsement: Acknowledged by Adrian Ong on behalf of Royal Capital Pty Limited

and then bears a signature, which appears to be "Adrian Ong". Dr Ong was cross-examined concerning that endorsement, and ultimately his response was that he did not dispute that that document, being Annexure "F" to Mr Sidney's affidavit, bears Dr Ong's signature. 13 Dr Ong swore a second affidavit in the proceedings on 16 June 1999. That affidavit was essentially in response to Mr Sidney's affidavit of 28 May 1999. Paragraph 6 dealt with the letter of 19 August 1997 bearing the endorsement which I have just recorded. Although in paragraph 6 Dr Ong said that he had no clear recollection of signing the letter, he then referred to signing a letter as requested by Mr Sidney and said that that letter may have been Annexure "F" to Mr Sidney's affidavit. 14 He continued: I did not see the letter as a genuine record of the dealings between Royal Capital and Nece. 15 He also said in that paragraph: I was under the impression that it was a letter required for the internal records of Nece only. In signing the letter I had no intention of binding Royal Capital. I did not see the letter as a legally binding document as all matters between Royal Capital and Nece had already been agreed upon before that time. 16 Essentially it is asserted by Dr Ong, on behalf of the plaintiff, that the letter of 19 August 1997 was, in effect, a sham; that it did not record anything which had happened. An attempted explanation for such a sham has been advanced by Dr Ong on behalf of the plaintiff, as follows. 17 It would appear that Nece was in a degree of financial difficulty at the relevant time in 1997. In order to resolve that financial difficulty, Nece was desirous of purchasing from a company, Ritek Corporation, shares which that company held in Nece itself. It could not do that directly, but, as it would appear, it attempted and, in fact, succeeded in doing so in a quite legal fashion, as a result of the intervention in the transaction, of the present plaintiff, Royal Capital Pty Limited. 18 The minutes of a meeting of directors of Nece of 25 July 1997 record an oral agreement reached between Mr Sidney, on behalf of Nece, and Royal Capital (which at that time had the name Haynick Pty Limited). It will, however, be appreciated that Dr Ong was not, at the date of that directors' meeting, a director of Nece. He became a director subsequently. 19 The advance by Nece to the plaintiff was, however, duly recorded in the financial statements of Nece for the period ended 31 December 1997. At the time when those financial statements were prepared and were available, Dr Ong was a director of Nece. 20 There is in evidence, as Exhibit 1, a document entitled Deed of Settlement and Share Purchase relating to Nece Pty Limited. That deed was made on 22 July 1997. It contemplates the purchase by the plaintiff from Ritek, of shares in Nece for $400,000. Dr Ong agreed that those shares were the same shares which are referred to in paragraph 4 of his affidavit of 16 June 1999, and he agreed that the share transaction contemplated by the deed was ultimately brought to completion. 21 The deed provided for Nece to lend money to the plaintiff, the purchase price of those shares, and there is no dispute by the plaintiff that it did obtain from Ritek, in accordance with that deed, the shares in Nece. 22 I have already observed that the plaintiff brings the present proceedings pursuant to the provisions of subsection (1) of section 459H of the Corporations Law and upon the sole basis that there is a genuine dispute as to the existence of the debt. The basis of that assertion is that the entire transaction, and in particular the letter of 19 August 1997 setting forth the details of the advance by the defendant to the plaintiff of the sum of $400,000, was a sham. 23 It is concomitant with that assertion by Dr Ong, on behalf of the plaintiff, that he, a director of the plaintiff and also a director of the defendant, was prepared to be a party to such a sham. I am not satisfied that the transaction was in any way a sham. Whatever dispute might now be asserted, I do not regard that as being in any way a genuine dispute. 24 The defendant gave notice by letter dated 3 December 1998 that it required repayment of the $400,000 within 28 days of the date of that letter. I am satisfied that the debt thereupon became due and payable by the plaintiff to the defendant and, there being no basis for any genuine dispute as to its indebtedness, I propose to dismiss the summons. 25 DISCUSSION ENSUED AS TO COSTS. 26 MASTER: I make the following orders: 1. I order that the summons be dismissed. 2. I order that the plaintiff pay the costs of the defendant. 3. I make no order in respect to the costs of the notice of motion filed by the defendant on 2 July 1999 to the intent that each party will bear its own costs thereof. The Exhibits may be returned. **********

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