IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3069 of 1998 BETWEEN: PRUDENTIAL-BACHE SECURITIES (AUSTRALIA) LTD (ACN 005 382 169) Applicant AND: REVIK INVESTMENTS PTY LTD (ACN 077 236 367) Respondent JUDGE: RYAN J DATE: 17 APRIL 1998 PLACE: MELBOURNE REASONS FOR JUDGMENT This is an application under s 459G of the Corporations Law seeking an order setting aside a statutory demand dated 12 February 1998 which was served on the applicant, Prudential-Bache Securities (Australia) Limited ("Prudential-Bache") by the respondent Revik Investments Pty Ltd ("Revik"). The applicant apparently carries on business as a sharebroker and trader in share options and other securities. In the course of that business it seems that it extends credit to its clients on certain terms to enable them to trade in shares in respect of which transactions Prudential-Bache acts as broker. The statutory demand was related to a sum of $44,597.73 which, it is not disputed, was properly to be credited to Revik on the sale of certain shares in Western Mining Corporation ("WMC"). That sale was apparently effected by Prudential-Bache by way of closing out a position, which it says it was entitled to do pursuant to a client agreement or loan agreement, which subsisted between it and Revik as a client. There is an issue between the parties as to whether Prudential-Bache was entitled to set off the credit, concededly due on the WMC transaction, against debit balances due on other accounts which Revik has had with Prudential-Bache. The resolution of that issue will ultimately require the construction of clauses in various agreements to which Prudential-Bache and Revik are parties. It will also require a determination of whether Revik actually gave instructions for the purchase of securities which are said to have given rise to the debit balances against which Prudential-Bache claims to have been entitled to apply the credit from the WMC shares. Prudential-Bache also asserts an offsetting claim exceeding by $177,125.87 Revik's claim of $44,597.73. "Offsetting claim" is defined in s 459H(5) of the Corporations Law as meaning: ...a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates). The references in s 459H to the Court's being satisfied that there is a genuine dispute and satisfied that the company has a genuine claim against the person who served the demand on it have been the subject of considerable judicial exegesis. I refer, without pretending to be exhaustive, to Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362, Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 120 ALR 173 and Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. The meanings of those expressions have been illuminated by the drawing of analogies with applications for injunctions and applications for the extension or removal of caveats. In some instances the test has been phrased as being whether there is a serious issue to be tried. I was referred by Mr Ryan, who appears for Revik, by way of one such analogous reference to Eng Mee Yong v Letchumanan [1980] AC 331, a decision of the Privy Council, where the opinion of the Board was delivered by Lord Diplock and it was observed at 341: In the face of these vague, self-contradictory and implausible assertions on the part of the caveator, the judge accepted the sworn denial of the caveatees that they had ever agreed to any extension of the time of payment beyond September 28, 1974. Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be. I was also referred in the same context by Mr Gardiner, who appears for Prudential-Bache, to a recent judgment of a Full Court of this Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 15 ACLC 1001. In my view the cases illustrate that the test requires the finding of the existence of a genuine dispute. The onus is not a particularly high one, although the Court must be satisfied that there is a claim that may have some substance. In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (supra) Lockhart J observed at 39: Certainly the court will not examine the merits of the dispute, other than to see if there is in fact a genuine dispute. The notion of a genuine dispute in this context suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the court must be careful because if all an applicant has to do is assert both a claim and some basis for it without more it would mean in almost every case that the Court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime. In the present case I have been persuaded to a considerable degree of satisfaction that, in the words of Lockhart J, the claim by Prudential-Bache is not a frivolous or vexatious one. I consider that sufficient particularity has been given to the claim both to an entitlement to offset moneys against the credit arising on the WMC transaction and in support of the offsetting claim of $177,125.87 to support a finding that there is a genuine dispute in the sense in which the expression is used in ss 459G and 459H of the Corporations Law. Accordingly, I shall grant the application and order that the statutory demand be set aside and the respondent pay the applicant's costs, including any reserved costs, such costs to be taxed in default of agreement. I certify that this and the preceding two (2) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. Associate: Dated: 17 April 1998 Counsel for the Applicant: Mr S Gardiner Solicitor for the Applicant: Blake Dawson Waldron Counsel for the Respondent: Mr B Ryan Solicitor for the Respondent: Brett R E Ryan Date of Hearing: 17 April 1998 Date of Judgment: 17 April 1998