New South Wales Supreme Court CITATION : Castle v Sherwwod [1999] NSWSC 751 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 1428/99 HEARING DATE(S) : 09/07/99 JUDGMENT DATE : 9 July 1999 PARTIES : Castle Constructions Pty Limited v Sherwood Furniture Pty Ltd and J. Greenbaum JUDGMENT OF : Master Macready at 1 COUNSEL : Mr. G. Sirtes for the plaintiff Mr J. Breenbaum in person SOLICITORS : Kitamura & Associates for the plaintiff CATCHWORDS : Corporations Law. Application to set aside statutory demand. No matters of principle. DECISION : Para 11 - 7 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY FRIDAY 9 JULY 1999 NO 1428/99 - CASTLE CONSTRUCTIONS PTY LIMITED V SHERWOOD FURNITURE PTY LIMITED. JUDGMENT: 1 MASTER: This is the hearing of an application to set aside a statutory demand. The statutory demand is one which was issued by the defendant company against the plaintiff company and claims an amount of $45,000. The demand is dated 27 January 1999. The proceedings were instituted on 18 February 1999 and affidavits in support were filed at that stage. Accordingly, it would be within time. Importantly the claim in the statutory demand is a claim for a dishonour of three cheques dated in July and August 1997 in the amount totalling in all $45,000. 2 The arrangements between the parties were that the defendant was to construct and install in the plaintiff's offices various furniture some of which had to be built in and some of which was loose. The initial arrangements appear to have been made towards the end of June 1997. At that stage there is a variety of evidence before me which refers to requests for cheques to be paid on account of the purchase price. There was an initial deposit and over a period the plaintiff company issued some cheques according to Mr Lahood on the basis that they were not to be presented until completion of the work. The matter of the construction work seems to have come into dispute in the second half of 1997 with allegations of at least delays in the completion of the work. What happened then was that the plaintiff company stopped payment on the cheques in about August. In October the three cheques concerned were presented and were dishonoured. Thereafter there were further discussions between the lawyers for the parties as by this stage lawyers had become involved in the matter. Their involvement led to the execution of an agreement dated 1st December 1997 and that seems on the face of it to have substituted a new regime for whatever might have been the contract between the parties prior to that date. 3 The contract in clause 1 provides for the delivery and installation of the remainder of the goods and clause 1.4 deals with defects. In particular it provides for making good, involving rectification of any defects by 5 March and clause 1.4.4 provides that if the making good of rectification works not completed by 5 March 1998 any monies under clause 2.4 will be repaid to the plaintiff. Clause 2 appears to be a fairly comprehensive clause which deals with payment. It refers to the agreement that there has already been paid $49,000 as part of the price and provides for further payments. 4 Under clause 2.2.1 there is a payment which provides for items delivered by December 1997 and clause 2.2.2 provides for payment for free standing items and completed installation of all built in items of $9,000. Clause 2.4 provides that the balance of the funds namely $48,700 be held by the plaintiff's solicitor and provision is made for payment out once the contract is completed. One of the parties to the agreement is a Mr Ficus an architect and he accepted an appointment and was appointed as an expert under the contract to certify as to certain matters on completion. 5 After lst December there were a number of things done including inspections by Mr Ficus from time to time and one of which he indicated in his view that there was no compliance with clause 2.2.2. There are outstanding defects according to his evidence which still have not been rectified and that would mean as we have now passed March 1999 that the sum for the balance of the work would have to be paid to the plaintiff rather than the defendant under the terms of the agreement. 6 The difficulty is that the statutory demand claims money pursuant to cheques. Under s 71 of the Cheques Act there is a liability by the drawer that on presentation of the cheque, the cheque will be paid according to its tenor and under s 76 the measure of damages in Australia is the amount of the cheque. That would seem to provide strict liability normally to make payment on a cheque. That is the claim which the demand makes under s 6 of the Cheques Act. The provisions of that last two mentioned sections, namely, s 71 and 76 are subject to any agreement that there may be between the parties as to payment. This means that one has to look to see whether there might be some other agreement governing payment between the parties. 7 The agreement of lst December 1997 appears on its face to be a complete code dealing with the remainder of the contract. There is obviously from the affidavit evidence and from the way the case has been presented a substantial dispute between the defendant company and the plaintiff as to whether the work has been carried out appropriately. That really is not the dispute which I have to judge for the purposes of this application. The real dispute which I have to judge is more of a legal dispute. That is whether there is a genuine dispute at all as to whether or not the agreement of the lst December 1997 has superseded any liability for the cheques. 8 In determining that it is necessary to remind oneself as to what are the principles to be applied and I think the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v. Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments in respect of the expression "Genuine dispute". "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s. 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of consideration as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in 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' not have sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence; (cf South Australia v Wall (1980) 24 SASR 189 at 194). But does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry s to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.' In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922 (1993) 11 ACSR 601 Thomas J said: 'There is little doubt that Division 3...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. That is not to say that the Court will 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". It is often possible to discern the spurious, and to identify mere bluster or assertion. But 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. The essential task is relatively simply - to identify the genuine level of a claim(not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it)'. I respectfully agree with those statements". 9 The question then is whether there is a genuine dispute about the supplanting of the right to sue on the cheque by the agreement of 1st December 1997. This means that the genuine dispute has absolutely nothing to do with whether the work was properly completed under the contract. That is a dispute for another place if the demand is set aside. The things that incline me towards the view that there is a very substantial argument and certainly a genuine dispute as to whether the cheques could be sued upon is that the agreement of the 1st December 1997 is the code which regulates the rights between the parties and their ability to sue each other for monies in respect of the remainder of the contract. 10 Given the terms of the agreement it seems to me that it really does encompass the parties' rights and therefore the ordinary presumptions that might apply by reason of s 71 and 76 of the Cheques Act are not applicable. For these reasons I am satisfied there is a genuine dispute in respect of the matter. 11 Accordingly I set aside the statutory demand made by the defendant on the plaintiff dated the 27th January 1999 in the amount of $45,000. The defendant is to pay the plaintiff's costs. 12 There has been an application for costs on an indemnity basis. This might apply if there is some action which has been taken which tries to raise false issues. However what has been sought to be argued obviously by the solicitors who earlier appeared was some argument perhaps that the cheques might still be valid. The matter has been dealt with and I do not think that I will make an order on an indemnity costs basis and accordingly costs will be on the ordinary party and party basis. The exhibits are to be returned. ********** Last Modified: 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.