Supreme Court New South Wales Medium Neutral Citation: Re PSR Refining Services Pty Ltd [2023] NSWSC 243 Hearing dates: 15 March 2023 Date of orders: 20 March 2023 Decision date: 20 March 2023 Jurisdiction: Equity - Corporations List Before: Black J Decision: Creditor's statutory demand is set aside, with parties to be heard as to costs. Catchwords: CORPORATIONS — Winding up — Statutory demand — Application to set aside — Whether there is a genuine dispute about the existence or amount of the debt — Whether there is a defect in the demand — Whether the demand should be set aside on other grounds Legislation Cited: - Business and Commerce Code (Texas) - Civil Procedure Act 2005 (NSW), s 100 - Corporations Act 2001 (Cth), ss 9, 459G, 459H, 459J - Limitations Act 1969 (NSW), s 54 - Oaths Act 1900 (NSW), s 34 Cases Cited: - Aldridge Electrical Industries Pty Ltd v Mobitec AB (2001) 163 FLR 369; (2001) 39 ACSR 287; [2001] NSWSC 823 - Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22; [2005] ACTCA 3 - Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 - Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 - Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397 [2019] NSWCA 60 - Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581 - Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 - Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 - Re Austpac Resources N.L. [2022] NSWSC 1668 - Re Australian Tailings Group Pty Ltd [2019] NSWSC 1218 - Re Garawin Pty Ltd [2020] NSWSC 983 - Re Jana Pty Ltd [2022] NSWSC 112 - Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 - Re Wollongong Coal Limited (2017) 122 ACSR 30; [2017] NSWSC 201 - Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143 - Spacorn Australia Pty Ltd v Myer Stores Limited (2001) 19 ACLC 1270; [2001] VSCA 89 - Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; [1997] FCA 681 Category: Principal judgment Parties: PSR Refining Services Pty Ltd (Plaintiff) Joe David Capers (Defendant) Representation: Counsel: K Young (Plaintiff) T Smartt (Defendant) Solicitors: Coleman Greig Lawyers (Plaintiff) Craddock Murray Neumann Lawyers (Defendant) File Number(s): 2022/323231 Judgment 1. By Originating Process filed on 28 October 2022, the Plaintiff, PSR Refining Services Pty Ltd ("PSR") applies to set aside a creditor's statutory demand ("Demand") issued by Mr Joe Capers. The Demand claims the amount of AUD 942,230.46 as described in a schedule to the Demand. That schedule refers to loans advanced by Mr Capers to PSR on or about 4 and 5 April 2009, totalling USD 250,000, adds interest, deducts several payments received and converts the balance from USD to AUD as at 4 October 2022. A verifying affidavit dated 5 October 2022 of Mr Capers verifies that the debt owed by PSR is owed in US dollars and that the amount claimed in Australian dollars has been calculated at 5 October 2022 using the Reserve Bank of Australia exchange rate of 0.6474 in relation to US dollars on 4 October 2022, and states that Mr Capers believes there is no genuine dispute about the existence or amount of any of the debts. 2. By its Originating Process, PSR contends that there is a genuine dispute about the amount or existence of the debt to which the Demand relates, implicitly invoking s459H(1)(a) of the Corporations Act 2001 (Cth) ("Act"), and that there are defects in the Demand causing a substantial injustice, or some other reason why the Demand should be set aside, implicitly invoking s459J(1)(a)-(b) of the Act. Affidavit evidence 1. In support of its application to set aside the Demand, PSR reads the affidavit dated 28 October 2022 of Mr Martin Hewines, who is a director and shareholder of PSR. Mr Hewines' evidence is that PSR's main business is the development and web distribution of 3D virtual environment training software for international oil refining, oil and gas distribution and other industries, and that business is primarily conducted in the United States of America. He gives a lengthy account of his dealings with Mr Capers, and refers to a proposal that Mr Capers acquire a 10% shareholding in PSR's business. Mr Hewines acknowledges receiving two separate loan amounts totalling USD 250,000 from Mr Capers on or about 25 April 2009 and 1 May 2009, but contends they were paid under a proposed shareholders' agreement in relation to an investment by Mr Capers in PSR. 2. An unexecuted memorandum of understanding ("MOU") dated 25 March 2009, which is exhibited to Mr Hewines' affidavit (Ex MAH-1, 34) records that the purpose of the MOU was to enable Mr Capers, Mr Hewines and other named persons to agree in principle a basic framework of terms and conditions under which Mr Capers would acquire a 10% equity holding in PSR in return for a capital investment of USD 250,000. The MOU recorded that Mr Capers' USD 250,000 capital investment was to be used for the purpose of covering PSR's operating expenses during a broad range of sales and marketing activities with major international oil companies and technical training institutions and that the "exchange rate to be determined by inter-bank rate at time of electronic transfer." The MOU also refers to the fact that Mr Capers' USD 250,000 investment is to be applied as working capital in accordance with the PSR Business Plan; that Mr Capers is to take on a role of a working PSR director renumerated at USD 3,000 per month, which is consistent with the amount of interest later agreed to be payable under the loan agreement; and that: "PSR and Mr Capers view his US $250,000 in investment and 10% shareholding as a long-term undertaking subject to a period of at least 3 years to allow PSR reasonable time to grow. Any future share transactions by either Mr Capers or PSR shall be subject to due diligence of valuation at the time of the transaction". The reference to 3 years here is consistent with the term of 3 years which PSR contends also applied to the loan agreement, although it occurs in a different context. Although the MOU relates to an investment in PSR, it provided for execution by three persons identified by their capacity with PSR, rather than expressly by PSR. 1. Mr Hewines' evidence is that, on or around April to June 2012, Mr Capers proposed the amendment of the then unexecuted shareholders' agreement to become a business loan agreement in the amount of USD 250,000 with interest of USD 3000 payable per month and backdated to 1 May 2009 (Hewines 28.10.22 [28]). That description of the loan agreement does not identify a fixed term for the loan and suggests that loan was either repayable on demand or at least on reasonable notice. Mr Hewines' further evidence (Hewines 28.10.22 [30]) is that: "In or about the second quarter (being the months of April to June) of 2012, I verbally agreed on behalf of [PSR] with Mr Capers to amend the shareholders' agreement to a loan agreement. I believed that the basic terms of the loan agreement were as follows: (a) Principal amount: USD $250,000. (b) Interest: USD $3,000 per month for a period of 3 years only effective from 1 May 2009. (c) The loan amount plus interest was to repaid to Mr Capers within a 3 year period." Mr Hewines does not there identify any basis for his understanding that interest was payable for 3 years only, or that loan was to be repaid within a three year period. No written loan agreement is in evidence and there is no suggestion a written loan agreement was executed. 1. Mr Hewines' evidence is that two payments were made by PSR to Mr Capers in the amount of USD 90,000 and USD 37,000 in early November 2012, and the Demand credits the first payment and credits a large part of the second payment in the amount of USD 36,000. The parties did not raise any point as to the difference between those figures. Mr Hewines contends that a third payment was made to Mr Capers in December 2012 of USD 50,000, although Mr Capers does not credit that amount in the Demand, and Mr Hewines refers to a dispute with Mr Capers, from about March 2013, as to whether he had received that amount. I address the common ground as to that question below. Mr Hewines contends that PSR made a payment to Mr Capers in the amount of USD 3000 on 1 March 2019 and the Demand allows a credit for that amount. Mr Hewines also refers to subsequent correspondence between the parties about the debt. 2. Mr Hewines contends in his first affidavit that the appropriate jurisdiction to determine a dispute in respect of the shareholders agreement and loan agreement is Texas in the United States of America, inter alia, because the agreement between PSR and Capers was originally formed in the United States of America and Mr Capers has previously resided in Texas. Mr Hewines also contends that the statutory limitation period in respect of the debt owned by PSR expired in June 2021. Mr Hewines contends that there is a defect in the Demand, and that PSR is unable to ascertain or calculate the amount of the alleged debt. It is not apparent that there is any such difficulty, where the debt claimed was calculated using the USD/AUD exchange rate on 4 October 2022 and PSR understands that calculation although it contests its basis. Mr Hewines also objects to the description of the loan arrangements between PSR and Mr Capers in the Demand and contends that the affidavit given by Mr Capers has not been witnessed and verified in accordance with s 34 of the Oaths Act 1900 (NSW). No such point was taken by PSR at the hearing. In summary, Mr Hewines contends that there is a genuine dispute in respect of the debt claimed in the Demand by reason of the limitation period applicable in New South Wales and in Texas and because the proper jurisdiction to enforce the agreement is in the United States. 3. Mr Capers relies on his affidavit dated 29 November 2022 which responds to aspects of Mr Hewines' evidence. It is not necessary to address significant aspects of that evidence, where the Court approaches an application to set aside a creditor's statutory demand as a summary application and not as a final hearing of the underlying dispute between the parties. Mr Capers sets out a lengthy conversation as to the terms of the arrangement occurring with Mr Hewines some 14 years ago. Plainly, questions could arise as to the reliability of Mr Capers' evidence as to that conversation in a substantive hearing, rather than an application to set aside a creditor's statutory demand. Mr Capers also contends he did not send emails relating to the payment of USD 50,000 which PSR made in December 2012. It is not necessary to address that evidence further where Mr Smartt rightly accepted that there is a genuine dispute in respect of the making of that payment, which, if the Demand were not set aside in its entirety, would result in it being varied to reduce the amount claimed by that amount. Mr Capers also refers to correspondence, on which he relies, which he contends amounts to PSR's acknowledgment of the debt claimed against it. 4. By his second affidavit dated 16 December 2022, Mr Hewines responds to aspects of Mr Capers' affidavit dated 29 November 2022. It is not necessary to address that evidence in order to determine this application. I recognise that, as Mr Smartt who appears for Mr Capers points out, Mrs Hewines is also a director of PSR and did not give affidavit evidence, and two former directors of PSR also did not give affidavit evidence. Little turns on that, where because this application has a summary character and multiplication of witnesses is not desirable, and because of the nature of the findings that I reach below. 5. I should also refer to subsequent correspondence exhibited to Mr Hewines' and Mr Capers' affidavits. By a letter dated 8 November 2018 to Mr Capers, signed by Mr Hewines as director of PSR, to which the common seal of PSR was also applied, Mr Hewines advised Mr Capers that: "We acknowledge, and have always acknowledged, that we borrowed US $250,000 from you. We acknowledge, and have always acknowledged, that we agreed to pay you US $3,000 p.c.m interest. There was no written agreement about when the capital or the monthly payments would be made; nor what would constitute a default in payments. We have shown our intent to repay you through payments made of US $176,000 (US $126,000 received by you and, for another $50,000 not received by you, but it is not dispute that it was paid)… We would dearly like to be financially able to make a payment to you today, but we do not have the money available to do so. The business does not have the money and I personally do not have the money nor do I have assets that could be ceased. There is absolutely nothing squirreled away. I only wish there was". That letter proposed that, from January 2019, PSR would pay Mr Capers USD 3,000 per month "so that we are keeping step with the interest payments and so that this debt does not get any worse". That letter seems to me to be entirely inconsistent with Mr Hewines' claim, in his first affidavit, to have understood that the loan to PSR had previously fallen due after a 3 year term and that interest of USD 3,000 per month was not payable beyond that 3 year term. 1. By an email dated 23 June 2019 to Mr Capers, Mr Hewines noted that he had hoped that "we would have gotten on top of the cash flow issues by now but they persist" and offered an explanation of steps being taken to address PSR's business difficulties. By an email dated 23 September 2019, Mr Hewines advised that he expected "to have sufficient funds to pay [Mr Capers] the 2019 interest in full before year end". Again, that email seems to me to be inconsistent with his claim in his first affidavit to have understood that the interest obligation under the loan had by then ceased. 2. By letter dated 21 April 2022, an Australian solicitor acting for Mr Capers wrote to Mr Hewines and others stating that: "We have received instructions from Mr Capers to write to you in relation to monies outstanding to him pursuant to a Memorandum of Understanding between Mr Martin Hewines, Mrs Hewines and Mr James Hewines and Mr Capers. Ancillary and subsequent agreements are also relevant to the monies outstanding to Mr Capers. The purpose of this letter is to reach an agreement with you as to the total amount outstanding to Mr Capers at the current date and the arrangements for repayment of the debt to our client. We are instructed that as at 31 March 2022 the total sum outstanding by you to our client was the figure of $580,000 inclusive of interest. We understand interest is accruing at the rate of $3,000 per month. The figure of $580,000 is in US dollars." This letter did not expressly refer to a debt owed by PSR, as distinct from Mr Hewines and other members of the Hewines family. 1. By letter dated 11 July 2022, Mr Hewines' US legal representative responded to the letter from Mr Capers' solicitor, treating it as a claim for repayment by Mr Hewines, Mrs Hewines and Mr James Hewines; contended that the action was barred by a 4 year statute of limitation under Texas law and, in particular, that a debt that accrued on 25 March 2009 would require legal action no later than 25 March 2013; noted that the MOU was not signed and was not a debt instrument; and contended that, under s 26.02(b) of the Texas Business and Commerce Code, a loan agreement in which the amount involved exceeds $50,000 in value is not enforceable unless the agreement is in writing and signed by the party to be bound and that party's authorised representative. I will return to that provision below. 2. By an email dated 30 December 2019, Mr Hewines advised Mr Capers that: "I am well aware I'm committed to paying you the remaining US $33,000 interest for 2019 but I also have to keep the company afloat. If we become bankrupt, that will severely lower both its value and the level of any interest of any prospective buyers. Please be aware, I am not sitting on a pile of cash. If PSR goes broke, then so do I and that leaves with me absolutely noting to live on, the employees without a job and creditors stranded. So, as you can see, I am strongly incentivized to keep the company going … somehow." Again, that proposition is inconsistent with the position put in Mr Hewines' first affidavit that the loan agreement and any obligation to pay interest had expired long ago. I recognise that Ms Young, who appeared for PSR, contended that these emails were an elderly man's acknowledgment of a moral obligation to make the relevant payments. It seems to me that they are more reasonably read as Mr Hewines proceeding on the basis that the loan agreement and the obligation to pay interest remained on foot. 1. By a third Affidavit dated 10 March 2023, read by leave at the hearing, Mr Hewines' solicitor led evidence of historical AUD/USD exchange rates published by the Reserve Bank of Australia and exhibited the relevant provisions of the Texas Business and Commerce Code on which PSR relied. I will return to those provisions below. Whether a genuine dispute as to the existence of the debt arises under Texas law 1. First, PSR seeks to set aside the Demand on the basis of a serious dispute under s 459H(1)(a) of the Act. The Court has power to set aside a creditor's statutory demand under that section where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates. Ms Young addressed the case law as to the existence of a "genuine dispute" for the purpose of that section, referring to earlier cases and to the subsequent decision of the Court of Appeal in Britten–Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 ("Britten-Norman"). 2. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. The threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J (as his Honour then was) in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 (at [18]) that: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger." 1. I also have regard to the decision of the Court of Appeal in Britten-Norman where, in summarising the case law applicable to offsetting claims, the Court of Appeal undertook a comprehensive review of the cases referable to establishing whether a genuine dispute was established. The Court emphasised (at [36]) that the evidence necessary for that purpose "need not conclusively prove or otherwise be incontrovertible or substantially non-contestable", and also observed (at [46]) that: "In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the Court is not concerned to engage in an inquiry as to the credit of the deponent of the affidavit filed in support of the application." The Court also emphasised (at [47]) that the Court's role was, in such an application: "… to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim." 1. In Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8], Barrett AJA in turn approved my observations in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], that summarised the principles applicable to a genuine dispute as follows: "(1) A dispute is "genuine" if it is not "plainly vexatious or frivolous" or "may have some substance" or "involves a plausible contention requiring investigation". A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are "real and not spurious, hypothetical, illusory or misconceived" and which demonstrate the dispute's "objective existence" and "prima facie plausibility". (2) The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section. (3) The task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted. (4) The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute, the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine."' 1. A similar approach was adopted by the Court of Appeal in Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 ("Creata") and again by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60. It is also well-established that the Court will not determine questions of construction in an application to set aside a creditor's statutory demand, a position which was emphasised by the Court of Appeal in Creata and subsequently quoted at length and applied by Williams J in Re Jana Pty Ltd [2022] NSWSC 112 at [15]. The Court of Appeal in Creata also referred to the observations of the Supreme Court of Victoria in Spacorn Australia Pty Ltd v Myer Stores Limited (2001) 19 ACLC 1270; [2001] VSCA 89 at [4], where Brooking and Charles JJA put that test as directed to the question whether it was "plain as a pikestaff" that a particular construction was not tenable. In dealing with these principles, I have also drawn on my summary of these principles in Re Australian Tailings Group Pty Ltd [2019] NSWSC 1218, Re Garawin Pty Ltd [2020] NSWSC 983 and Re Austpac Resources NL [2022] NSWSC 1668. 2. Ms Young made extended submissions as to the proposition that the governing law of the loan agreement between PSR and Mr Capers is Texas law. It is not necessary to address those submissions at length where Mr Smartt fairly accepted that there is an arguable case that the loan agreement was governed by Texas law. Mr Smartt initially contended that, although Mr Capers accepted that matter, that did not assist PSR because there was no admissible evidence of Texas Law. That submission was displaced by evidence led by PSR, by leave, of Texan law after it was made. Mr Smartt initially also submitted that the law of Texas was presumed to be the same as New South Wales Law; however, no such presumption applied after evidence of Texas law was led by PSR. 3. On the basis that it is genuinely arguable that the loan agreement is governed by Texas law, Ms Young submits that there is a genuine dispute as to the existence and quantum of the debt claimed by Mr Capers because Texas statute law requires that such a loan is in writing and an agreement that contravenes the Texas statute is not enforceable. Section 26.01 of the Texas Business and Commerce Code (Ex MMY-1, 70) provides that a promise, inter alia, which is not to be performed within one year from the date of making the agreement is not enforceable unless that promise or agreement, or a memorandum of it, is in writing and signed by the person to be charged with the promise or agreement or by someone lawfully authorised to sign for him. It seems to me genuinely arguable that any loan agreement was here not to be performed (or at least not to be performed in whole) within one year from the date it was made, where PSR contends that the loan had a three year term, and Mr Capers leads no evidence that he intended the loan to be repaid within one year, or that he took any step to seek repayment of the principal of the loan within one year. 4. It follows that there is a genuine dispute as to whether that agreement, where it is not in writing or signed by PSR or someone authorised for it, is now enforceable under Texas law. On this narrow basis only, it seems to me that there is a genuine dispute as to whether the debt is now due and payable and that is sufficient basis to set aside the Demand. For completeness, it seems to me that it is not genuinely arguable that s 26.02 of the Texas Business and Commerce Code, to which PSR's US legal representative had referred in his letter dated 11 July 2022, applies, where that section is directed to a loan agreement made by a financial institution (as defined) and there is no basis to think that Mr Capers fell within the scope of that definition. 5. Ms Young also contends that enforcement of the debt is statute barred by a four year limitation period under Texas law. This proposition depends on the contention that the debt had a three year term to which I referred above. I am not persuaded that a genuine dispute was established on that basis. While Mr Hewines deposes to an understanding to that effect, he does not give evidence of any conversation from which that understanding arose, and this seems to me too slender a factual basis for this claim, even on an application to set aside a creditor's statutory demand. For completeness, Ms Young did not press an alternative submission that, if the proper law of the loan is New South Wales law, the debt is statute barred under New South Wales law and there is no acknowledgment of the debt under s 54 of the Limitations Act 1969 (NSW). The substantiated amount of the Demand 1. The parties also addressed disputes as to several elements of the debt claimed by Mr Capers. I recognise that, under s 459H of the Act, the Court is in some circumstances required, where a genuine dispute is established, to determine the substantiated amount, after allowing for the amount which is genuinely disputed. It is not necessary to determine these matters, where a genuine dispute has been conceded as to whether the loan is governed by Texas law and established as to whether it is unenforceable under Texas law. I will, however, briefly identify the relevant issues. 2. Ms Young contends that there is an error in Mr Capers' calculation of the amount of the debt and, if the exchange rate as at 4 October 2022 was applicable, then the proper calculation of the debt on that basis would be $937,596.51 not $942,230.46. Mr Smartt responds that the difference in this calculation of the total was not raised in the affidavit supporting the Originating Process and PSR is not entitled to rely on it now. Even if it were possible to rely on the principle in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581 as a response to a substantive claim, I am not persuaded by that submission. This difference between those amounts was sufficiently raised by the inclusion of a copy of the Demand in the affidavit supporting the Originating Process, and that mathematical error is apparent on the face of the Demand. 3. Ms Young also contends that there is a genuine dispute to whether the amount of the debt claimed should be further reduced by the payment of USD 50,000 made by PSR on 24 December 2012. Mr Smartt fairly accepted that, given the conflicting evidence as to the payment of USD 50,000, it would be appropriate to vary the Demand to reduce the amount claimed by that amount. Had I not found that the existence of the debt was generally disputed, I would have varied the Demand to exclude that amount. Ms Young contends that there is a further dispute as to a payment of USD 36 made by PSR on 1 February 2019. Mr Smartt fairly accepted that the practical course would be to reduce the amount of the Demand by USD 36, in respect of that dispute, and I would have taken that course had the Demand not been set aside. 4. Ms Young contends that there is a genuine dispute as to whether Mr Capers is entitled to claim an interest rate of USD 3,000 per month from the end of the three year term of the loan for which PSR contends. Ms Young submits that Mr Capers is not entitled to claim interest at the continuing rate of USD 3,000 per month after that date, absent an expressed provision of the loan agreement, although he would potentially be entitled to damages including for loss of use of the money, or to claim prejudgment interest under s 100(2) of the Civil Procedure Act 2005 (NSW) if he commences substantive proceedings to recover the debt. Mr Smartt in turn addresses matters relevant to the question whether interest should only accrue on the loan agreement to that date and contends that the proposition is not arguable. It is not necessary to determine this question, where I have found the existence of the debt is genuinely disputed. However, I should note that there is a real question whether there is a sufficient factual basis to establish a genuine dispute, or reason to vary the amount of the Demand on this basis, where Mr Hewines deposes to an understanding to the effect that the loan and obligation to pay interest had a three year term, but he does not give evidence of any conversation from which that understanding arose, and his later correspondence with Mr Capers did not refer to such an understanding, in contemplating the continued payment of interest long after the suggested term had expired. Whether there is a defect in the Demand under s 459J(1)(a) 1. Section 459J(1)(a) of the Act provides that the Court may by order set aside a creditor's statutory demand if it is satisfied that, because of a "defect" in the demand, substantial injustice will be caused unless the demand is set aside. The term "defect" is defined in s 9 of the Act as including an irregularity; a misstatement of an amount or total; a misdescription of a debt or other matter; and a misdescription of a person or entity. 2. Ms Young submits that the Demand is defective and substantial injustice is occasioned because it applies the AUD/USD exchange rate as at the date of the Demand, 11 October 2022 and not the AUD/USD exchange rate at the time of any alleged breach, in circumstances that the AUD has devalued approximately 40% against the USD between the alleged breach in 2012 and 11 October 2022. Ms Young fairly accepts that the issuer of a creditor's statutory demand for a debt in foreign currency can convert the amount demanded to Australian currency. She also refers to the observations of Santow J in Aldridge Electrical Industries Pty Ltd v Mobitec AB (2001) 163 FLR 369; (2001) 39 ACSR 287; [2001] NSWSC 823 ("Aldridge"), where Santow J observed at [27]-[29] that: "Although the House of Lords decision in Miliangos v George Frank (Textiles) Limited (supra) is concerned with the issue of jurisdiction to give judgment in a foreign currency, and its necessary corollary, being the date at which conversion of the sterling amount should be made, it provides by analogy some guidance for the choice of appropriate dates for conversion of a statutory demand under the Corporations Law. In Miliangos Lord Wilberforce (at 468) ultimately favoured as the appropriate date, the date of payment, in the sense of the date the Court authorises enforcement of the judgment; this was as against other possibilities namely the date the action was brought and the date of judgment. By analogy, albeit imperfect, and subject to the contract between the parties, the appropriate dates would ordinarily be: (i) the date of the statutory demand, consistent with Lockhart J in Topfelt Pty Limited v State Bank of NSW Limited (supra) at 22 who expressed the view that it was prudent for a creditor to state the amount actually due at the date of the demand ; (ii) the date of service, which is said to be a less preferred date (see Lockhart J in Topfelt Pty Limited (supra); or (iii) the date for the scheduled payment which had not been made, that being the date of breach. The choice of the date for conversion by reference to the date of the statutory demand may in circumstances of currency fluctuations need some constraint. Drawing on the analogy of my decision in the contract damages case of Ronnoc Finance Limited v Spectrum Network Systems Limited (Santow J, SCNSW, 14 August 1996, unreported), the choice of the date of the statutory demand may, for example, need to be qualified by recognising the creditor's responsibility not to act unreasonably or unfairly to the debtor in the manner in which damage is sought to be recovered for breach, with the attendant obligation to mitigate loss, where the currency is fluctuating in favour of the creditor. Indeed, in circumstances where a creditor deliberately speculates at the debtor's expense, the court may well conclude that the loss, here the foreign currency debt payable, should be assessed as at the time before which the behaviour of the creditor becomes clearly unreasonable. For example, inexplicable delay on the part of the creditor, suggestive of an attempt to manipulate the fluctuations of the currency market moving in the creditor's favour, might lead to a later than anticipated date for creation of the statutory demand. However, I do not need reach any concluded view on this in the present case. However, if the date selected for conversion were not one of the three appropriate dates outlined above then I consider that the statutory demand would suffer from a mere defect; one that is not ordinarily of the kind "where substantial injustice will be caused unless the demand is set aside" ; see s459J of the Corporations Act. "Defect" is defined in s9 of the Corporations Act and now Act so as to encompass either "an irregularity" or "a misstatement of an amount or total" ..." 1. Ms Young submits that Mr Capers' choice to convert the debt claimed from USD to AUD as at the date of the Demand is disadvantageous to PSR, given the extent of the depreciation of the AUD against the USD between 2009 and 2023. Mr Smartt initially submitted that there was no evidence of changes in exchange rates over the period, and that would have raised the question whether the Court could have taken judicial notice of the depreciation of the USD against the AUD over the relevant period, which would be known to many Australians and has been widely reported in the media; however, it is not necessary to decide that question, where PSR, by leave, tendered evidence of exchange rates over the period. 2. I am not persuaded this matter gives rise to a defect in the Demand or to any substantial injustice to PSR. The decision in Aldridge identifies the date of a creditor's statutory demand as a potentially appropriate date for the conversion, subject to the requirement that the creditor not act unreasonably. It seems to be that it would not be unreasonable for Mr Capers to undertake the conversion on that date, unless PSR established the fact that, or at least an arguable case that, the loan was repayable at an earlier date and not on demand. It seems to me that PSR has not established that matter for the reasons set out above. Whether there is some other reason to set aside the Demand under s 459J(1)(b) 1. Ms Young also refers to authorities in relation to s 459J(1)(b) of the Act including Arcade Badge Embroidery Co Pty Ltd v The Federal Commissioner of Taxation (2005) 157 ACTR 22; [2005] ACTCA 3 and Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143 and to my observations as to the scope of the Court's power to set aside the Demand on that basis in Re Modern Wholesale Jewellery Pty Ltd [2017] NSW 236 at [24]; as follows: "Section 459J(1)(b) of the Corporations Act permits the Court to set aside a demand where there is some other reason for it to do so. The Court's power to set aside a demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [16]." 1. I am also not persuaded that Mr Capers' choice to convert the debt claimed from USD to AUD as at the date of the Demand gives rise to some other reason to set aside the Demand. It again seems to me that it could only do so on the premise that the loan was repayable at an earlier date, not on demand, and that it is therefore unreasonable to apply the exchange rate as at the date of the Demand, and PSR has not established that that premise is genuinely arguable, for the reasons set out above. 2. For completeness, Ms Young also refers to an apparent typographical error in the affidavit accompanying the Demand, which includes an additional zero in a reference to an amount of USD 132,000. I would not have attached any weight to that matter in establishing a basis to set aside the Demand. Determination and costs 1. It follows that the Demand should be set aside on a narrow basis, that a genuine dispute has been established that the debt is governed by Texan law and not enforceable, because the loan agreement is not to be performed by repayment within a period of one year and is not in writing or signed by PSR or its authorised representative. That has the consequence that Mr Capers must be left to commence proceedings to recover the amount of the debt claimed, whether in Australia or Texas, rather than invoking the summary procedure that is applicable to an undisputed debt by the issue of a creditor's statutory demand. PSR will then have the opportunity to address the disputed matters on their merits in substantive proceedings. 2. Ms Young submits that the Demand should not have been issued and PSR seeks costs on an indemnity basis. My preliminary view is that there should be no order as to costs, where PSR was only able to succeed on a narrow basis by reason of a late affidavit proving Texas law, which it was granted leave to read at the hearing on the basis, inter alia, that Mr Capers' position as to costs could be protected by an appropriate costs order. I will allow the parties a short opportunity to be heard as to costs if they wish. 3. For these reasons, I make then following orders: 1. The creditor's statutory demand dated 5 October 2022 issued by Mr Capers to PSR Refining Services Pty Ltd be set aside. 2. The parties send their written submissions as to costs to the Associate to Black J by 4pm on 27 March 2023 and submissions in reply by 4pm on 3 April 2023, each not to exceed 5 pages in Arial font, size 12 and one and a half spacing, with the question of costs to be determined in Chambers. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 March 2023