Taylor v Research [1999] NSWSC 543

New South Wales Supreme Court CITATION : Taylor v Research [1999] NSWSC 543 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 1485/99 HEARING DATE(S) : 02/06/99 JUDGMENT DATE : 2 June 1999

PARTIES : T.A. Taylor & Son Pty Ltd v Research & Applied Technologies Pty Ltd JUDGMENT OF : Master Macready at 1

COUNSEL : Mr S. Flanigan for the plaintiff Mr P. Dodson for the defendant SOLICITORS : Somerville & Co. for the plaintiff Aubrey F. Crawley & Co. for the defendant CATCHWORDS : Corporations Law. Application to set aside statutory demand. No matter of principle. Demand set aside as to part. DECISION : Para 38

16 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY

WEDNESDAY 2 JUNE 1999

1485/99 - T A TAYLOR & SON P/L -v- RESEARCH & APPLIED TECHNOLOGIES PTY LTD

JUDGMENT

1 MASTER: This is an application to set aside two statutory demands. One is dated 29 January 1999. It is for the sum of $37,332.21. The other is dated is 1 April 1999 and it is for the sum of $14,329.44. It is a total of $51,661.65. 2 The application is in time and the summons was amended to include an order to set side the second demand, which was after commencement of the proceedings. 3 Basically in this matter Mr Palmer and Mr Taylor were shareholders in a group of companies which were involved in a number of different areas in the building industry. One area was waterproofing buildings and supplying waterproofing membranes. 4 A deed was entered into on 25 June 197 whereby the group of companies was split up and each of Mr Palmer and Mr Taylor went their separate ways. 5 Mr Ross Taylor took the company T A Taylor & Son Pty Ltd P/L, who is the plaintiff. Mr John Taylor took the other companies, which included inter alia the defendant. 6 The basis for setting side the demands is there are said to be offsetting claims. The claim arises out of a job which was done by some company in the group in 1993. There was litigation and in due course that litigation, which was against the plaintiff, was settled for a sum of $165,000. There were costs involved in the litigation which brought the amount of the liability to $207,637.20. In these proceedings the insurers provided for a payout of $100,000, which left a liability of $107,630.20. One half of that liability is $53,818.60. It is submitted that this liability maybe enforced by the plaintiff against the defendant and, as it exceeds the amounts of the demands, should be set aside. 7 The basis for the claim, which is the foundation of the offsetting claim, arises out of the deed to which I have referred. That deed at the commencement talks of the parties and indicates they are John Francis Palmer of 14 Aminya Street, Lane Cove ("John Palmer") and Ross James Taylor of 99 Riverview Street, Lane Cove, in the said State ("Ross Taylor"). 8 There are a number of definitions in the deed which are important, and I set out a number of the definitions in order to make comprehensible the comments which I will make later: "Palmer Group" means John Palmer, persons associated with John Palmer and any companies in which John Palmer or any associates of John Palmer have an interest in either by shareholding or membership on the board of directors, except for any such persons which are also members of the T. A. Taylor Group; "RATS' means the partnership conducted by Ligon 155 and Ligon 156 and known as Research and Applied Technologies having a business address of 40 Robert Street, Rozelle in the said State; "Partition Date" means 31 December 1996; "Son" means T. A. Taylor & Son Pty Limited (ACN 000 482 897) having a registered office at 40 Robert Street, Rozelle in the said State; "T. A. Taylor Group" means each and all of Holdings, Son, Taylor Qld, Geoff Maiden and RATS; "Taylor Group" means Ross Taylor, persons associated with Ross Taylor and any companies in which Ross Taylor or any associates of Ross Taylor have an interest in either by way of shareholding or membership on the board of directors, except for any such persons which are also members of the T. A. Taylor Group; 1.3 Headings in this Agreement are for convenience only and do not affect its interpretation or construction." 9 The definition of "RATS" refers to a company, Ligon 156, and that company is now the defendant in the proceedings. The agreement in clause 1.3 provides that the headings are for convenience only and do not affect its interpretation or construction. 10 The principal provision appears in clause 2.1 and it is evident from that clause the deed is intended to separate the operation of the T A Taylor group so that ultimately the T A Taylor will own the business conducted by the plaintiff. The Palmer group would own the businesses conducted by other companies and trusts. 11 In clause 4.1 provision is made in respect of the effect of financial arrangements and clause 4.2 refers to the fact that the parties recognise that one party takes greater share of the stock, plant and equipment but would also take a greater share of the liabilities. 12 In this regard one should note that Recital A provides that Ross Taylor and John Palmer, either directly or indirectly, own in equal shares the T A Taylor group. In other words, the parties are moving from what might be viewed as an equal holding to splitting up the group in somewhat unequal proportions. The relevant clause under which it is said the right to bring the offsetting claim is clause 9. That clause is in the following terms: "9. The parties remain equally liable to all claims and liabilities of any nature which may arise in respect of the businesses conducted by the T. A. Taylor Group until the Partition Date." 13 It can be seen that the first two words "the parties" is not an expression which is defined in the deed which contains an extensive definition clause. The immediate question which springs to mind is what is meant by that and the deed certainly itself makes it clear that the two individuals are mentioned as parties to the deed. There is also a release contained in paragraphs 13 and 14. Those releases are in the following form: "Ross Taylor releases and discharges John Palmer and his associates from all liability for damages or loss and from all sums of money, accounts, actions, proceedings, claims, demands, costs and expenses whatever which Ross Taylor has or had or at any time in the future may have or have had against John Palmer or an entity related to or an associate of John Palmer which arose in respect of the businesses conducted by the T. A. Taylor Group. John Palmer releases and discharges Ross Taylor and his associates from all liability for damages or loss and from all sums of money, accounts, actions, proceedings, claims, demands, costs and expenses whatever which John Palmer has or had or at any time in the future may have or have had against Ross Taylor or an entity related to or an associate of Ross Taylor which arose in respect of the businesses conducted by the T. A. Taylor Group." 14 One thing that can be immediately noted about these is that each clause uses the defined name, either being "Ross Taylor" or "John Palmer", which comes from the very commencing words when the parties were named and which have been quoted above. 15 The question which arises in part is whether there is in fact a genuine dispute in respect of the construction or what I will shortly refer to about rectification. 16 I have had the benefit of a number of submissions in respect of the principles to be applied and I think probably the most useful summation is that given by McLelland CJ in Eq 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 considerations 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, with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (c/f Eng Em Yon 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 it 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 as 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 at 605 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." 17 In one of his affidavits Mr Taylor, who is manager and director of the plaintiff, indicated that he instructed the company's solicitors to prepare an application seeking appropriate declaration that each of the companies in the Palmer group as described in the agreement are jointly and severally liable to indemnify each of the companies in the Taylor group and to seek rectification to achieve that result. 18 Given this approach to the matter, I think it is probably inappropriate to deal with the matter in the way in which Cohen J did in Delnorth Pty Ltd v State Bank of New South Wales 17 ACSR 279. This is because apart from the terms of the deed itself, there is an evidentiary area that may impact upon the question of the construction. 19 In a letter from the Building Durability Group, which apparently is the company through which Mr Palmer does his work, dated 4 June 1998, he referred to a question of warranties for a construction project at Blandville Court. That was not the one which was concerned with the proceedings that have been settled giving rise to the offsetting claim. His letter notes the novation of existing warranties and liabilities and then in paragraph 3 says the following: "Whilst Building Durability will be fully liable to the Department of Housing as a result of the novation, the liabilities of our associated entities in respect of the initial contract will of course continue as per our partitioning agreement (Clause 9)." 20 It can be seen from this that the defendant seemed to on one view of that paragraph to consider that associated entities in respect of the initial contract would continue to have liabilities and refers to clause 9. This is somewhat contrary to the construction of that clause, which would suggest it is only the individuals who have liability under it. Such a statement may be an admission. 21 Recently in Ronnoc Finance P/L v Spectrum Network Services P/L Santow J (1996), his Honour in dealing with this matter had the following to say: "...there is Court of Appeal authority that such admissions are admissible, insofar as providing material from which a court may determine a question of law, a question of fact, or a question of mixed fact and law; see Pitcher & Anor v Langford & Anor (1991) 23 NSWLR 142 at 160B per Handley JA (Kirby P concurring at 146) and earlier Grey v Australian Motorists and General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 684 per Mahoney JA and Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 231. The question of construction of a contract is a question of law. It can in principle make no difference whether the admissions were made before or after entry into the contract. Indeed, the admission is more likely in practice to be made after the contract is entered into." 22 If one comes back and looks at the deed, there are a number of matters that immediately become apparent. On the defendant's construction, one of the most important is, of course, the use of the words themselves, namely, "the parties". A party to a deed or an agreement is to use an expression well known to the law and refers to those parties executing the agreements and being expressed to be a party. Clearly, it is the two individuals who fulfil that description. 23 It is also interesting to note that the expression "the parties" has been used elsewhere in the deed, for example, in paragraph 10. There is it is said that the parties have an equal entitlement to income, profits, losses and outgoings, et cetera. That, no doubt, reflects what is in recital A, which I have already referred to and would seem to indicate that the ultimate beneficial owners through whatever company structures might intervene are the two individuals. 24 Also, interestingly, in clause 7.3, there is a reference which shows an indication when group liability is imported, if that is desired. That clause provides that, "each party covenants, either personally, or through their group, equally to finance and support and maintain Theodore Taylor and Gwendolyn Taylor". 25 If the draftsman wished to put up a group liability, clearly, there was a proper mechanism to be able to do it. If one thinks of factors pointing the other way, one of the ones is, of course, the question of the admission which I have referred to and the other matters arise out of the terms of clause 9 itself. The subject matter is "all claims and liabilities of any nature" and it is those matters which may arise in respect of the businesses conducted by the group. 26 It is plain from the description of the businesses within the deed that there are different businesses carried on by different companies and trading trusts. That being so, one could anticipate that all claims and liabilities of any nature would essentially include claims on warranties, guarantees, third party accident claims and perhaps even claims against directors of companies. 27 The clause is very general in nature and, in fact, quite wide in its ambit and perhaps reflects a desire to preserve the way in which the grant operated prior to the split up with various companies and, ultimately, the two founders being liable for ultimate payment. 28 Another point that has been raised is the contrast between the way clause 9 is expressed and the way clauses 13 and 14 are expressed. In the latter case, clearly, it is individual causes of action which are released and the draftsman has been careful to limit it to individuals by using those defined names which come from the recital of the parties at the commencement of the deed. 29 I appreciate that there may be contrary arguments to this, namely, it is an easier drafting technique than using one which seeks to incorporate all the releases in one clause. Be that as it may, it is a slightly contrary indication and the matter itself is not easy of resolution. 30 Before coming to a conclusion on it I want to dispose of one other argument which was also raised. That was the question of whether or not the affidavit of Mr Sommerville sworn 22 February 1999 is a sufficient affidavit for the purposes of the application. 31 The law in this regard is conveniently set out in the judgment of Sunburg J in Graywinter Properties Pty. Limited v Gas and Fuel Corporation Superannuation Fund, 21 ACSR 581 at 586. At 587.8 his Honour had the following to say: "Is a complying affidavit a condition of jurisdiction? It seems to me that s 459G(3) makes plain that the Court can entertain an application to set aside only if within the prescribed period an affidavit supporting the application is filed and copies of the application and affidavit are served. The High Court in Grant said that compliance with the subsection is a limitation or a condition upon the authority of the Court to set aside a demand; it is a condition of the jurisdiction that subs (3) be observed; if the condition is not observed there is no application before the Court. I am thus unable to agree with the Senior Master that the failure of an affidavit to satisfy the minimum requirements for an affidavit to be a 'supporting affidavit' is not a jurisdictional impediment. The minimum requirements in a genuine dispute case. In order to be a 'supporting affidavit', an affidavit must say something that promotes the company's case. An affidavit which merely says 'I am a director of the company but am too busy at present to make a full affidavit, and I will do so later' would not support the application. It would in no way advance, further or assist the company's cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute: John Holland. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief: 71 Paisley Street. In a s 459H1(a)case, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is there a care claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of an affidavit, that it may read like a pleading. An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify. I am thus unable to accept the respondent's submission that the affidavit must contain sufficient material to make out a case under s 459H. In reply, that submission was somewhat retreated from. It was said that the affidavit must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute- it might read more like a pleading than a story. That accords with what I consider to be the minimum requirement. .......A multitude of affidavits? In several cases, it has been held that an applicant is not restricted on the hearing to the affidavit that is served with the application. See Scanhill at 467 and Mibor Investments Pty. Limited v Commonwealth Bank of Australia (1993) 11 ACSR 362 at 368. An applicant whose initial affidavit has satisfied the threshold test must be able to supplement the material, because while the 'supporting' affidavit does not have to deploy the evidence, on the hearing only admissible evidence can be relied on. In Louisbridge , Ryan J said that 'provided that an affidavit is filed and served within the 21 day period which supports the application by providing grounds for concluding that there is a genuine dispute...or that the company has an offsetting claim', supporting affidavits may be filed under the period has expired. Apart from Hire Works , the cases do not support the proposition for which the applicant contended, namely, that an affidavit that does not satisfy the threshold test can be supplemented later on. That issue did not arise in Scanhill or Mibor . It did arise in Hire Works, but for the reasons I have given, I am respectfully unable to agree that the Court can entertain as an application under s459G a case in which an affidavit containing the minimum requirements has not been served within time." 32 In determining this question, I think it is proper when considering the affidavit of Mr Sommerville of 22 February 1999, to have regard not only to the material that was ultimately admitted before me on today's hearing, but also those parts of the affidavit which I rejected, as they were not in proper form for the purposes of the final hearing. 33 It is proper to do so because one has to judge whether the material set out in the affidavit is such as may be described as promoting the plaintiff's case and because, as his Honour points out, the initial affidavit does not have to be in admissible form for a final hearing. 34 With this in mind and looking at the matter clearly, I think the affidavit articulates the basis of the offsetting claiming that is proposed to be made. It sets out the detail of the events giving rise to the claim by Meriton Apartments, it exhibits a copy of the agreements, makes an allegation the individuals entered that agreement as agents for all of the companies in the group and shows how the numbers then available on the then demand were made up. 35 It my view, the affidavit set out the framework for the argument which was to be put and is appropriate. It is sufficient to give jurisdiction to deal with the matter. 36 That then brings me back to the fundamental question of whether there is a genuine dispute. One of the matters that inclines me to a view that the dispute might be genuine are the statements that the plaintiff proposes to bring proceedings to seek rectification and/or, in addition, declarations for the construction for which it contends. 37 Section 459 M of the Corporations Law provides that an order under section 459H or 459J may be made subject to conditions. In other words, the demand may be set aside subject to conditions. If the plaintiff were to bring those proceedings, that certainly indicates a sincere view on its part that it thinks it may be likely to succeed, rather than simply making a suggestion that these proceedings might be brought in order to bolster the genuineness of the case. 38 I am minded, therefore, to make an order, the effect of which will be that in the event that the plaintiff, within 21 days, brings proceedings for the rectification of the deed of 25 June 1997, seeking to change that deed to accord with the view it has propounded in these proceedings, that the demand be set aside and in the event that it does not bring those proceedings within 21 days of today's date, I would order that the proceedings be dismissed. 39 Having indicated the view that I take and the order that I would propose to make, rather than formally making the order at this stage, I will at the request of the parties stand the proceedings over until Thursday 24 June 1999 before me at 10 am. **********