New South Wales Supreme Court CITATION : Pacific Turf v Johnston [2001] NSWSC 542 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 2587/01 HEARING DATE(S) : 12 June 2001 JUDGMENT DATE : 12 June 2001 PARTIES : Pacific Turf Equipment Pty Limited v Michael Alan Johnson JUDGMENT OF : Master Macready at 1 COUNSEL : N. Marshall for plaintiff C. Harris for defendant SOLICITORS : Matthews Follbigg for plaintiff Wood Marshall Williams for defendant CATCHWORDS : Corporations Law. - Application to set aside statutory demand. - No matter of principle. DECISION : Paragraph 9 - 1- 1 MASTER: This is an application under the Corporations Law to set aside a creditor's statutory demand dated 19 April 2001. The demand seeks to recover a sum of $37,391.80 said to be monies loaned by the creditor to the company. As appears from the affidavit the correct figure on the evidence before me would be $25,941. The affidavit of Mr Clarke is read to show that there was a genuine dispute in respect of the liability. That expression was referred to by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669, at page 671 in these terms: 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 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 not 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." 2 The evidence about a genuine dispute relates to the nature of what was the advance. In paragraph five of the affidavit of Mr Clarke there is a discussion with the defendant, both of them apparently being directors of the plaintiff company and both of them having contributed, or being in the process of about to contribute funds to this particular project. 3 Mr Clarke alleges that the defendant said: "I understand that the monies I am paying are risk capital. I will be happy to be repaid when the company has enough surplus funds to do so." 4 There is some evidence before me although not in a very satisfactory state that there are not presently sufficient surplus funds for that purpose. That agreement has been suggested as being so vague as to not be enforceable. It is clear that funds were first advanced in 1999 and this discussion is said to have taken place in July 1999. The parties have also subsequently prepared a document in which the two directors agreed that all company cheque payments will be deemed business loan repayments. That document was dated 3 June 2000. Cheque butts for part repayment of the amounts showed business loan repayments. Similarly the company's accounts would seem to show them as loan accounts. There are in fact no proper accounts before me but it seems that the accounting has treated amounts advanced by each of them as loans. According to the letter from the defendant's solicitor he denies that conversation, however that has not been sworn to. It creates a slight problem because one does not have an alternative view but assuming anyhow that it is denied, the question is whether the agreement is so vague that at this stage I should not find any dispute about it. 5 The statutory demand was dated 19 April 2001 and there was a letter of 19 March written by Mr Clarke to Mr Johnson in which he complained about some earlier demands, the evidence of which is not before me. On page two he makes reference to when the parties meet the conversation would centre around the fact that "your and my investment capital has gone into running the company" and it then goes on to talk about not making a profit. 6 Then on the last page he refers to the fact that when addressing the defendant he makes a conscious decision to invest $25,000 as a working capital in the business they want to be involved in and that one has to appreciate with the business it will take time over many years to show a steady profit. 7 That letter although it does not refer in terms to conversations, now probably with the benefit of discussions with legal advisers that has emerged in the affidavit, does show an appreciation that the money went in as working capital. In the actual conversation it is referred to as risk capital. Although I am satisfied that the amount probably has been contributed by way of a loan. The terms of that loan, given that there is this evidence that the repayment may be when there are surplus funds and the use of the words "risk capital", at least goes part way to deal with the problem of what might happen if there are never surplus funds, i.e. if the venture is not successful. 8 It may be, and this is hard to determine at this stage, but one construction might be that there is as between the partners an arrangement that the money will not be repaid until there is a surplus from the operation, in other words some type of deferred loan. 9 It is a difficult one and I think it is fairly close to the line, but in my view I think there is a genuine dispute and accordingly I make order one in the originating process. I have not dealt with the claim that the matter is an abuse of process. I think it is preferable to deal with it by way of genuine dispute. There is some evidence that in serving the demand the defendant was seeking to obtain the result that he might be bought out. That of itself does not amount to an abuse of process given the intention that is sought to be established. 10 I order the defendant to pay the plaintiff's costs. Those costs to be paid on a party, party basis. Last Modified: 06/29/2001 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.