New South Wales Supreme Court CITATION : TERASHORE v JACDIN [2001] NSWSC 601 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 2660 of 2001 HEARING DATE(S) : 4 July 2001 JUDGMENT DATE : 4 July 2001 PARTIES : Terashore Pty Limited v Jacdin Pty Limited JUDGMENT OF : Master Macready at 1 COUNSEL : D.J. Durston for plaintiff J. Dupree for defendant SOLICITORS : Searle & Associates for plaintiff L.C. Muriniti & Associates for defendant CATCHWORDS : Corporations Law. Application to set aside demand. Deman varied by reducing it from $70,000 to $50,000. No matter of principle. DECISION : Paragraph 32 1 MASTER: This is an application to set aside a demand under section 459G of the Corporations Law. The demand is dated 17 April 2001 and seeks to recover the sum of $70,000 that is said to be in respect of a loan advance in June 1998 of $50,000 and a fee payable on a loan advance by 30 June 1999 of $20,000. 2 It is sought to set aside that demand on two grounds. The first is that it is said to be an abuse of process as there are parallel proceedings already on foot between the same parties in the District Court. Secondly, it is said that there is a genuine dispute in respect of the amount of the demand. 3 There was an initial question as to the sufficiency of the affidavit filed on behalf of the plaintiff on 16 May 2001. 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 page 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 bare 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 s 459G a case in which an affidavit containing the minimum requirements has not been served within time." 4 The original affidavit was the one of Ms Searle of 16 May 2001 which referred to District Court proceedings between the same parties. It annexed a copy of the case record and the defence. It also attached a letter which was marked "D" to which there was no response. That letter was one which was written prior to commencing proceedings and in which Ms Searle stated that, "As you are aware there is a genuine dispute regarding this debt and the serving of such notice is an abuse of process considering the fact the matter is being defended in the District Court." 5 When the matter first came before me as there was no evidence of the statement of claim and this led to an adjournment. The later affidavit which is sought to be relied upon is a further affidavit of Ms Searle of 28 June 2001 in which she annexed the statement of claim and referred to a change of solicitors and defences and also there has been tendered a copy of the defence that in fact has been filed in the District Court proceedings. 6 It seems to me, looking at the second affidavit, that no new point has been raised. What has been done is to flesh out what has been apparent to the parties about matters which are within each party's knowledge ie their existing proceedings between them in the District Court. In these circumstances I consider that the second affidavit is admissible. 7 I turn to the question of abuse of process. It was submitted that the mere existence of a parallel set of proceedings constitutes an abuse. In Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911 at 913, his Honour Mr Justice Needham was concerned with a case of a parallel set of proceedings. He concluded at 913 that: "It seems to me to be an abuse of the process of this Court to make the claim for that sum of money as included in its Common Law claim, and then to seek to wind the company up by parallel proceedings in the Equity Division because of the failure to pay to the plaintiff the same sum of $78,930." 8 His Honour's comments were adopted by Santow J in Roy Morgan Research v Wilson Market Research (1996) 14 ACLC 925. There was also reference with approval to what was said by the late Master Adams in Mala Pty Ltd v Johnston (1995) 13 ACLC 100 at 102. There the Master said: "As to abuse of process, it is prima facie an abuse of process for any party to institute two proceedings for the one claim. That much, I think, appears from a case cited to me this morning, Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911. I use the words 'prima facie' because there can be an explanation why two proceedings are issued and it is a matter for the court to determine whether the explanation is sufficient. That, I think, appears from Re Bond Corporation Holdings Ltd (1990) 8 ACLC 153; (1990) 1 WAR 465 where there was at the time of the filing of a petition civil proceedings in the court which involved a dispute as to the same amount." 9 It can be seen that the words "prima facie" recognise that there can be an explanation as to why, in the terms of those decisions, two proceedings were issued. 10 In order to see whether there is a reason for using the statutory demand process one needs to notice a little about the District Court proceedings. The plaintiff in those proceedings is Jacdin Pty Ltd, the defendant in these. The first defendant is Terashore Pty Ltd, the plaintiff in the present case. The second and third defendants are, firstly, the principal of a firm, J Pappas - Attorney, and secondly a solicitor engaged to work in that practice. The claim in paragraphs 1 to 6 is a claim against the first defendant for the repayment of a debt of $70,000 and clearly enough is the one which is referred to in the statutory demand. Paragraphs 7 to 27 of the statement of claim are claims against the second and third defendants only. They are claims for actions they took in acting for the borrower and perhaps also the lender in the transactions. There are allegations of misrepresentations as to the suitability of the borrower and breach of retainer on the part of those solicitors. 11 The statutory demand process (which is the other parallel proceedings in the terms of that expression) leaves to one side the claim against the solicitor and only involves a claim for the $50,000 debt and the $20,000 fee. A reason why these proceedings may have been taken could well be the defendant was of the view there could be no dispute in respect to that part of the claim. 12 In this regard it is necessary to notice with a little more care the pleadings in the District Court. Paragraphs 1 to 6 in the District Court proceedings are in the following terms: "1. The plaintiff is and was at all material times a corporation registered in accordance with provisions of the Corporations Law and able to sue and be sued in its corporate name and style. 2. The plaintiff is and was at all material times the trustee of a superannuation fund ("the fund") which fund was for the benefit of, inter-alia, Elaine Margaret Pearce ("Pearce") and Keith Richard Hyams ("Hyams"). 3. At all material times the first defendant was a corporation able to sue and be sued in its corporate name and style being incorporated in accordance with the provisions of the Corporations Law. 4. By agreement made in or about June 1998 between the first defendant and the plaintiff ("the agreement") the plaintiff loaned to the first defendant on terms set out therein an amount of fifty thousand dollars ($50,000.00)("the loan"). The agreement expressed by writing a copy of which has been provided to the second and third defendants. A copy of the writing has been produced by the first defendant in answer to a subpoena. 5. Pursuant to the agreement the first defendant was required to, inter alia, do the following: (a) Repay the loan. (b) In addition to repayment of the loan pay a loan fee in consideration for the loan of twenty thousand dollars ($20,000.00). (c) Pay the loan fee and the loan by the earlier of the following dates: (i) 30 June 1999; or (ii) the day on which Edmund Scotney Johnson and Hayley Frances Johnson completed on the purchase of a property situated at Unit 201/433 Alfred Street North Neutral Bay in the State of New South Wales. 6. In breach of the agreement the first defendant failed to repay the loan amount and the loan fee on 30 June 1999 and has to date not made any payment at all." 13 Pursuant to the defence dated 26 June 2001 paragraphs 1 and 3 of that statement of claim were admitted. In paragraph 2 of the defence, the first defendant non-admits paragraph 2 of the statement of claim. In paragraph 3 of the defence the first defendant denies the agreement alleged in paragraph 4. Paragraph 4 of the defence is in the following terms: "4. The First Defendant admits that there is an agreement in writing but denies that the agreement was executed or that it entered into the agreement." 14 In paragraph 5 the first defendant denies paragraph 6. The defence then goes on to not admit the other claims which are not made against it. 15 There is no response to paragraph 5 in the statement of claim in express terms. Perhaps, on a generous construction, paragraph 4 of the defence could be taken to respond to both paragraphs 4 and 5 of the statement of claim. It is important to note that each of paragraphs 4 and 5 and indeed paragraph 6 of the statement of claim are tied to what is alleged to be the agreement pleaded. 16 The evidence before me to which I will refer shortly makes it clear that the parties are in dispute as to the execution of the written agreement which is pleaded and referred to in paragraphs 4, 5 and 6 of the statement of claim. In the statement of claim there is no claim for an alternative basis for relief in respect of repayment of the amount in the event that the agreement was not proved. In the ordinary course such an advance would be repayable upon demand and in accordance with the authorities would thus be presently due. 17 The defence has been carefully drafted to take advantage of this fault in the statement of claim and only responds to the agreement as pleaded. If, in fact, the $50,000 had been repaid one would expect to see a pleading of this fact in the defence. It is necessary to plead specifically any matter that might take the other party by surprise. This is particularly so where in either of the two alternatives ie the pleaded agreement or a loan repayable on demand, the time for payment has passed. 18 The defendant sought to establish material which set out the background circumstances for the provision of the funds. This included a letter which was written by J Pappas, Attorney by one of the defendants, Mr Derwin, on 7 July 1998. The terms of that letter are as follows: "RE: LOAN TO TERASHORE - $55,000.00 I refer to our conversations regarding this matter. The essence of the transaction is as follows: 1. On 17 April 1998 my clients Mr & Mrs Johnson & Terashore Pty Ltd entered into a Deed in relation to a property known as Unit 201, 433 Alfred Street North, Neutral Bay. A copy of that Deed is attached for your perusal. 2. On 20 April 1998 the Johnsons entered into the Option to Purchase the property. A copy of the Option and the front page of the contract are also attached. The Johnsons and Terashore now seek to proceed to exercise the Option and proposed to do so on 8 July 1998. Pursuant to its obligations Terashore is to provide the funding necessary to exercise the Option, ie $50,000.00. In consideration for procuring the funding Terashore is to receive a payment from the Johnsons on or before 30 June 1999 which payment is to be calculated in accordance either with 3.2 or 3.3 of the Deed of 17 April 1998. The transaction in so far as Jacdin is concerned involves an offer by Terashore to Jacdin of a fee of $20,000.00 in consideration of the loan of $50,000.00 to enable the option to be exercised. Attached is a short Deed evidencing the agreement with Terashore. I have inserted some additional safe guards into the Deed including the provision in relation to an equitable mortgage over Terashore and a written direction to the Johnsons. I would not suggest that be done immediately, but if at some point in the future it was felt appropriate then Terashore can be called upon to provide the charge and direction. In the absence of compliance an Order from the Equity Division of the Supreme Court would readily be obtained forcing Terashore to honour it's obligations pursuant to the Deed. The other protection to Jacdin will be the lodgement of a Caveat against the title to the property immediately after the Option has been exercised. The total purchase price of the property is $550,000.00. A unit in the complex which is also a three bedroom unit but does not have the garden area which attaches to the unit in question was sold recently for $680,000.00 and another unit was the subject of an offer of $690,000.00 which the vendors rejected. Once you have had the opportunity to peruse the attached documents please telephone me." 19 It is clear from that that the proposed transaction was to do with the exercise of an option and the funds necessary to do that for that purpose. There were two copies of the letter admitted into evidence. One of them is obviously a faxed copy and the fax header shows the number of pages. Having regard to the terms of what are said to be the enclosures, the fact that they are all not attached I do not think is of great moment. Otherwise the two copies are the same. They have obviously come from the possession of different people. 20 The evidence before me also shows in Exhibit 2 that the option referred to existed and also establishes the existence of the deed of 17 April 1998 which is also referred to in the letter. 21 The transaction in question, which was the exercise of that option, clearly went ahead. There is evidence of a letter from Pappas J Attorney of 8 July 1998 giving notice of the exercise of the option, enclosing a cheque for $49,500 and enclosing an executed contract of sale pursuant to the option. A letter in reply of 20 July 1998 acknowledged receipt and returned the contract signed by the vendor and dated the contract 8 July. That contract is in evidence and provides for the vendor to sell the property with a deposit of $55,000, being 10 percent of the purchase price. It is apparent from these later letters that I have referred to that contracts were exchanged and that a sum of $49,500 was tendered in that exchange. 22 There was admitted provisionally two cheques dated 8 July. They are drawn on a company called Krem Holdings Pty Ltd which the evidence does not show any connection with the lender. The first one is in favour of Norjam Pty Ltd, the vendor under the contract, for $49,500. It is dated 8 July. It is apparent from the notes on the photocopy that it has been paid. The other one is one in favour of Terashore for $500 of the same date. In respect of the second cheque I am not precisely sure on the evidence where it fits in but it may be some repayment of an advance by Terashore. 23 The evidence to which I have referred I think is sufficient to infer without any other evidence that the funding of $50,000 was provided by the defendant in these proceedings. Importantly the letter of 7 July was addressed to the defendant but the agreement which was attached to it referred to the defendant as the lender, although that agreement was never executed. 24 On the next day the transaction which was proposed in the letter was completed by the solicitor who was apparently, from the terms of the letter, soliciting the funds for the borrower and cheques were provided and enclosed in the solicitor's letter. 25 As I have said, that evidence alone if it was standing by itself might lead one to infer that the defendant provided the funds. 26 I turn to what might be said to be a defence, at least as to this part, namely the provision of funds of $50,000. In the affidavit of Ms Searle of 28 June apart from referring to the defence the only matter going to what might be facts relating to a genuine dispute is what is set out in paragraph 5. That paragraph is in the following terms: "I am instructed by Neil Macdonald, a Director of the first defendant in the District Court proceedings and the Applicant herein, that there is a genuine dispute to be litigated in the District Court proceedings and that the first defendant is not liable to the plaintiff for the alleged debt." 27 That gives one no enlightenment as to what is any defence as to the provision of funds of $50,000. 28 It is clear on the face of the District Court proceedings that there is a dispute about the $20,000 fee. Clearly that depends upon the written agreement being established. So far as the $50,000 advance, there is nothing put forward to show that is a genuine dispute in respect to the provision of funds. The District Court proceedings do not advance the matter because they do not address the claim for repayment outside the terms of the pleaded agreement. 29 Importantly, the onus is on the defendant to show what is a genuine dispute. I have had the benefit of a number of submissions in respect of the principles to be applied. I think probably the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Ltd v Hanave Pty Ltd (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 any 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 having '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 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 Milbor 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." 30 As to the repayment of the $50,000 there seems to be nothing in my view more than mere assertion. In these circumstances I do not think bringing of the proceedings is an abuse of process. I am satisfied that there is no genuine dispute in respect of the provision of the funds of $50,000. There clearly is a genuine dispute as to the $20,000. 31 Accordingly, the orders I make are as follows: 32 I vary the notice of demand dated 17 April 2001 by reducing it to $50,000 to take effect from 21 days from the date of service of the demand. 33 There have been further submissions about whether seven days is an appropriate period as referred to in section 459F(2)(a)(ii). Having regard to the evidence before me I do not think there is any evidence which would make it appropriate to vary the statutory period and accordingly I do not vary the statutory period. 34 I have heard further submissions on costs and there has also been reference to the orders for costs which I made in my judgment on 15 June. I think I should not interfere with those matters. They have their own particular reasons. I think the appropriate order is to deal with the balance of the costs. 35 The plaintiff has only been partially successful and in those circumstances what I propose to do is order the defendant to pay one half of the plaintiff's costs for the remainder of the action. 36 I do not think I should make any orders about set off. I made the prior order on the undertaking of the plaintiff's solicitor that she would meet any of those costs personally. I leave her to make her own arrangements and I would expect her to honour that undertaking which she made to the Court. oOo Last Modified: 07/30/2001 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.