FEDERAL COURT OF AUSTRALIA CORPORATIONS - statutory demands - application to set aside - whether genuine dispute - whether applicant accepted liability for debts incurred by wholly owned subsidiary Corporations Law s 459H Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 24 ACSR 353 Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 120 ALR 173 Greenwood Manor v Woodlock (1994) 48 FCR 229 MEDIA ENTERTAINMENT GROUP LTD v IMMEDIATE ASSISTANTS PTY LTD VG 3363 OF 1997 BEFORE: RYAN JR PLACE: MELBOURNE DATE: 26 NOVEMBER 1998 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3363 of 1997 BETWEEN: MEDIA ENTERTAINMENT GROUP LTD Applicant AND: IMMEDIATE ASSISTANTS PTY LTD Respondent JUDicial registrar: RYAN DATE OF ORDER: 26 november 1998 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The statutory demands of 10 November 1997 be set aside. 2. The respondent pay the applicant's costs as agreed or taxed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3363 of 1997 BETWEEN: MEDIA ENTERTAINMENT GROUP LTD Applicant AND: IMMEDIATE ASSISTANTS PTY LTD Respondent JUDICIAL REGISTRAR: RYAN DATE: 26 NOVEMBER 1998 PLACE: MELBOURNE REASONS FOR JUDGMENT The applicant seeks to set aside two statutory demands of 10 November 1997. The schedule to the first demand describes a debt of $51,682.12 as follows: "Moneys due to the creditor by the Company pursuant to the Company's acknowledgment of debt in the amount of $84,182.12 in relation to services rendered in 1996 by the creditor, such acknowledgment of debt forming part consideration for the Creditor providing consultancy services to the Company in 1997. The acknowledgment of debt is outlined at numbered paragraph 1 of a letter from the Company to the Creditor dated 11 April 1997. Less payments received by the company to reduce the debt 3 April 1997 $30,000 13 May 1997 $2,500 Total amount now due being $51,682.12 being original debt of $84,182.12 less payments received of $32,500." Paragraph 1 of the letter of 11 April 1997 is in the following terms: "Acceptance by Media Entertainment Group Limited of a liability to Immediate Assistants Pty Ltd in the amount of $84,182.12 in relation to services rendered in 1996." The schedule to the second demand describes a debt of $10,836.15 as follows: "The debt is due to the creditor by the company for the creditor's provision of consultancy services to the company in June and July 1997, particulars of which are provided below. Invoice No. Invoice Date Consultancy Services Commission Expenses Amount Paid Amount Due 266 4 June 1997 $5,000 $4,952.50 $626.49 $5,626.49 $4,952.50 970708-1 8 July 1997 $5,000+$500 as agreed for writing of ICI Zestril Script Nil $383.65 Nil $5,883.65 Total amount now due $10,836.15" The demands arose from consulting services provided by the respondent to a company called Good Health Television Pty Ltd (GHTV). In 1996 the respondent provided consulting services including medical management and advertising sales related to the Good Health television program. Dr Andrew John Cohen, a Director of the respondent company, appeared on the program as medical director. Dr Cohen also determined programming and advertising policy, directed advertising sales initiatives and sold advertising and sponsoring in the program to corporate and government clients. GHTV is a wholly owned subsidiary of the applicant company. The services provided to GHTV in 1996 were provided pursuant to an oral agreement between Dr Cohen on behalf of the respondent and Mr Cary Stynes and Mr Andrew Buxton, Directors of GHTV. The original debt of $84,182.12 set out in the schedule to the first demand was incurred by GHTV. The respondent asserts that the applicant and the respondent entered a repayment agreement on or about 15 April 1998 (exhibit D Mackay affidavit 15 June 1998, exhibit F Cohen affidavit 14 June 1998) whereby the applicant accepted liability for the debt of $84,182.12, repaid $32,500 as outlined in the schedule to the first demand but failed to pay the balance of the debt. The respondent also asserts that the second demand relates to consultancy services provided to the applicant between April and August 1997 and to invoices raised in respect of this work. The applicant claims: · there is a genuine dispute within the meaning of s 459H(1)(a) of the Corporations Law about the existence of the debts to which the demands relate · if the debts are debts of the applicant (which is denied), the applicant has offsetting claims within the meaning of s 459H(1)(b) of the Corporations Law against the debts to which the demands relate · if the debts in the second demand are debts of the applicant (which is denied), there is a genuine dispute within the meaning of s 459H(1)(a) of the Corporations Law about the amount of the debts to which the second demand relates. It is undisputed that: · prior to 1997 the respondent provided services to GHTV Pty Ltd · GHTV failed to pay the respondent for the services which are the subject of the debt claimed in the first demand · in late 1996 or early 1997 the respondent declined to provide further services to GHTV because of non payment for services already provided · in March 1997 the Managing Director of the applicant company, Mr Angus Mackay, asked Dr Cohen of the respondent company to recommence services to the applicant. There is dispute as to whether the recommenced services were to be provided to the applicant or GHTV. Mr Cohen agreed to recommence services. There is dispute as to whether the recommenced services were provided to the applicant or GHTV. It is undisputed that Mr Mackay sent a letter dated 11 April 1997 to the Directors of the respondent company which letter was unsigned, headed Without Prejudice and was not on the letterhead of the applicant company or GHTV letterhead or indeed on any letterhead. There is no dispute that such letter was received by Mr Cohen on behalf of the respondent but there is dispute as to whether Mr Cohen ever returned a copy of the letter to the applicant with an acceptance clause signed for and on behalf of the respondent. Dr Cohen states that: · on or about 13 March 1997 he received a repayment proposal from Mr Mackay · as a result, in late March, he agreed on behalf of the respondent to provide consulting services to the applicant from 1 April to 1 August subject to written terms being agreed between the respondent and the applicant · on or about 11 April 1997 he received a letter which he asserts was from the applicant and constituted a draft agreement for the payment of the old debts and for the provision of future services · on or about 11 April he responded in an undated letter on the letterhead of the respondent company, the letter was addressed to "Mr A Mkay (sic) Managing Director MEG" and which letter suggested amendments to the draft agreement in the letter of 11 April · on 15 April he received by email an amended letter still dated 11 April which letter outlined the amendments suggested by Dr Cohen in his undated letter of about 11 April · the terms were acceptable to him, he signed the letter and sent a signed copy to the applicant that day by post · on or about 13 April 1997 the respondent received the sum of $30,000 which was in accordance with paragraph 2(a) of the original draft agreement provided on 11 April · on or about 13 May 1997 the respondent received the sum of $2,500 which was in accordance with paragraph 2(b) of the agreement allegedly executed on 15 April. The applicant asserts that: · Mr Mackay had no authority to enter a repayment agreement in the terms set out in the letter of 11 April or the amended letter of 11 April · an agreement in terms of either letter of 11 April endorsed by the respondent was not received by the applicant · no agreement was entered between the applicant and the respondent on 15 April · the agreement, if there was an agreement, constituted by the letter of 11 April was an agreement between GHTV and the respondent and was not an agreement between the applicant and the respondent. The respondent asserts that: · Mackay was at all material times the Managing Director of the applicant company · Mackay had the actual authority to enter into the repayment agreement · the amended letter of 11 April constituted an offer from the applicant and was sent under the express instructions of Mackay · the offer constituted by the amended letter was accepted by the respondent on the signature of Cohen and the contract was complete upon execution by Cohen and Cohen delivered the signed, amended letter back to the applicant · Mackay states that he received the signed acceptance of offer (Mackay affidavit 15 June 1998 paragraph 11) · further confirmation of the receipt of the signed acceptance of offer is contained in exhibit M of the affidavit of Cohen 14 June 1998. Exhibit M is a letter of 19 June 1997 on the letterhead of Good Health TV and signed by Mackay "for and on behalf of GHTV"and contains in the second paragraph the following statement "after a number of discussions on the terms and conditions relating to the recommencement of these services a draft letter dated 11 April 1997 was forwarded to you and you acknowledged acceptance of its contents by executing it on page 3 and returning it to me". In respect of the first demand I am satisfied that: 1. During 1996 GHTV refused to pay some of the respondent's invoices for services. 2. The agreement between GHTV and the respondent came to an end in late 1996 or early 1997 and the respondent remained unpaid in respect of some invoices. 3. At all material times Cary Peter Stynes and Andrew Buxton have been Directors of the applicant and of GHTV. 4. Stynes and Buxton were the persons on behalf of GHTV who had negotiated and agreed with the respondent provision of consultancy services to GHTV in 1996. 5. In March 1997 Mackay was appointed the Managing Director of the applicant company. 6. On or about 14 April 1997 the respondent was paid $30,000 in part payment of the debt owed by GHTV. 7. On or about 15 May 1997 the respondent was paid $2,500 in part payment of the debt owed by GHTV. I agree with counsel for the respondent that the critical issue is whether the applicant has shown there is a genuine dispute about the existence of the repayment agreement entered into between the applicant and the respondent on or about 15 April 1997. I also agree with the oral submissions of counsel for the respondent which in effect was that if the repayment agreement was entered between the applicant and the respondent and if the 1997 services were provided to the applicant and not to GHTV then the applicant would fail to establish a genuine dispute as to the existence of the debts to which the demands relate. However, I am of the view that there is a real and genuine dispute as to whether the repayment agreement was one entered and executed between the applicant and the respondent and whether, as part of such agreement, if there be such agreement, the respondent contracted with the applicant to supply the 1997 services to the applicant. There is contest as to whether the agreement was executed and, if executed, whether it was with the applicant or GHTV. There is contest as to whether the applicant, through Mr Mackay, accepted liability for the 1996 debts of GHTV. There is contest as to whether Mr Mackay was authorised to commit the applicant to accept liability for the 1996 debts. There is contest as to whether invoice 970708-1 was rendered to the applicant or GHTV. The payments of $30,000 and $2,500 were made not by the applicant but by GHTV and the applicant asserts the payments were made at the direction of Mackay and were not authorised by the Directors of GHTV. Payments made in respect of 1997 services were made by GHTV. They were not made by the applicant. There are also written requests from Mr Mackay, admittedly after the alleged execution of the agreement, which requests are for invoices to be made out to GHTV rather than to the applicant. It is not to the point that the Court might form a preliminary or tentative view that the general weight or tenor of the evidence might favour the existence of the repayment agreement between the applicant and the respondent. The Court in these proceedings is "not … to examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a genuine dispute and whether there is a genuine claim. … Beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. … Division 3 is intended to be a complete code which prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim.": Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605. "What is clear is that in considering applications to set aside a statutory demand, the Court will not determine contested issues of fact or law which have a significant or substantial basis": Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 24 ACSR 353 at 363. In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39 Lockhart J said: "… what appears clearly enough from all the judgments is that a standard of satisfaction which a court requires is not a particularly high one. I am for present purposes content to adopt any of the standards that are referred to in the cases. … The highest of the thresholds is probably the test enunciated by Beazley J, though for myself I discern no inconsistency between that test and the statements in the other cases to which I have referred. However, the application of Beazley J's test will vary according to the circumstances of the case." His Honour was referring to the test of Beazley J in Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 120 ALR 173 at 189 where Her Honour said: "The test to be applied for the purposes of s 459H is whether the Court is satisfied that there is a serious question to be tried that the applicant has an offsetting claim." Northrop J took a similar view to Lockhart J in Greenwood Manor v Woodlock (1994) 48 FCR 229 at 234 and said: "Although it is true that the Court, on an application under ss 459G and 459H is not entitled to decide a question as to whether a claim will succeed or not, it must be satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt. If it can be shown that the argument in support of the existence of a genuine dispute can have no possible basis whatsoever, in my view, it cannot be said that there is a genuine dispute. This does not involve, in itself, a determination of whether the claim will succeed or not, but it does go to the reality of the dispute, to show that it is real or true and not merely spurious." The volume of opposing affidavit evidence and the nature of the documents tendered has satisfied me that the applicant has met the relatively modest test of establishing a genuine dispute as to the existence of the debts which ground and found the statutory demands and as to the amount of the debt in the second demand. In the circumstances, it is not necessary for me to determine whether the applicant has met the appropriate tests as would establish genuine offsetting claims. That I doubt but it matters not. Having concluded that there is a genuine dispute as to the existence of the debts and as to the amount of the second debt I propose to set aside both demands and order the respondent pay the applicant's costs of and incidental to the application. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of Judicial Registrar Ryan Associate: Dated: 26 November 1998 Counsel for the Applicant: Ms J. Davies Solicitor for the Applicant: Mallesons Stephen Jaques Counsel for the Respondent: Mr A. Rodbard-Bean Solicitor for the Respondent: Tress Cocks & Maddox Date of Hearing: 23 November 1998 Date of Judgment: 26 November 1998