Reported Decision : (2000) 34 ACSR 177 New South Wales Supreme Court CITATION : Sterling Estates (SA) Pty Ltd v Bradley [2000] NSWSC 366 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1052/99 HEARING DATE(S) : 14 and 23 March 2000 JUDGMENT DATE : 8 May 2000 PARTIES : Sterling Estates (SA) Pty Limited (P) Michael Bradley (D) JUDGMENT OF : Hamilton J COUNSEL : C R Newlinds (P) J Simpkins (D) SOLICITORS : Kemp Strang (P) Conway MacCallum (D) CATCHWORDS : CORPORATIONS [212] - Winding up by Court - Grounds for winding up - Insolvency - Application to set aside demand - Genuine dispute as to indebtedness - Assessing genuineness. LEGISLATION CITED : Corporations Law ss 459E, 459G & 459H CASES CITED : Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 DECISION : Appeal from Master dismissed. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J MONDAY, 8 MAY 2000 1052/99 STERLING ESTATES (SA) PTY LIMITED v MICHAEL BRADLEY JUDGMENT His Honour: 1 This is an appeal from a judgment of Master Macready given on 23 September 1999 whereby at the suit of the respondent the learned Master set aside a notice of demand served on it by the appellant under s 459E of the Corporations Law ("the CL"). The CL continues to provide for non compliance with a notice of demand as a means of establishing the insolvency of a company for the purposes of an application to wind it up. 2 The provisions of the CL particularly material to this appeal are s 459E(1)(a) which provides that a person may serve on a company a demand relating to a single debt "that the company owes to the person, that is due and payable". It provides by s 459E(2) that the demand must specify the debt and its amount. By s 459G(1) the CL provides that a company may apply to the Court for an order setting aside a statutory demand served on the company. Section 459H provides as follows: "(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. (2) The Court must calculate the substantiated amount of the demand in accordance with the formula: Admitted total - Offsetting total where: 'Admitted total' means: (a) the admitted amount of the debt; or (b) the total of the respective admitted amounts of the debts; 'Admitted total' as the case requires, to which the demand relates; 'Offsetting total' means: (a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim; or (b) if the Court is satisfied that the company has 2 or more offsetting claims - the total of the amounts of those claims; or (c) otherwise - a nil amount. (3) If the substantiated amount is less than the statutory minimum , the Court must, by order, set aside the demand." 3 The statutory notice in this case alleges that the respondent owes the appellant "the amount of $110,000 being the total amount of the debt described in the Schedule." The description in the Schedule is as follows: "Description of the debt Amount of Debt $110,000" Capital acknowledged by Patrick Yu, director of Sterling Estates (SA) Pty Limited by document signed by him and dated 19 December 1997 and by letter dated 20 January 1998 The appellant did not before me in any way rely on the document dated 19 December 1997 mentioned in the Schedule (a handwritten document) but did rely on a letter or letters dated 20 January 1998. In fact there were two letters of that day in evidence that were substantially the same in their form, although there were textual differences. In each case the letter purported to be a letter written on behalf of the respondent and to be signed on its behalf by Patrick Yu as a director. It is common ground, however, that both letters were marked as drafts. The copies in evidence were not signed. There is no suggestion that there is or ever was a signed original or signed copy of either of the letters. I shall call the letters respectively "the first letter" and "the second letter", for ease of description, but I am not to be taken by using these descriptions to have come to any conclusion as to which of the two drafts preceded the other in time. The Master made no finding as to that and I do not make any such finding, nor do I think on the evidence it is possible to do so. Each letter on its second page contained the following: "The agreement reached in December we hope will provide a firm commercial basis for that spirit to continue and grow. The following was agreed:" In each case there follow seven numbered paragraphs which are apparently intended to convey the subject matter of the agreement, although in neither case is it entirely easy to understand precisely what would have been the respective obligations of the parties had an agreement been reached in the terms of either letter. On the evidence a conclusion could not be reached that any such agreement was ever concluded. 4 I now set out the paragraph numbered 1 appearing respectively in each of the first letter and the second letter: The First Letter: "1 The equity currently contributed by Bradley is in the region of $110,000 (SESA) to $180,000 (Bradley), the actual amount will be computed by Justin Davey as soon as he has been able to produce a financial audit of our accounts." The Second Letter: "1 The equity currently contributed by Bradley is in the region of $110,000 (SESA) to $180,000 (Bradley), the actual amount is to be agreed with the assistance of Justin Davey who will provide the accounting for same by no later than 15/3/98. The repayment of the equity contribution to Bradley will be made from distribution from the Mona Vale development." It should be said that Justin Davey was an accountant and the son of John Davey, an accountant who gave evidence on behalf of the respondent. 5 Additional evidence which may have been of some importance in the Master's decision was contained in the appellant's affidavits in support of his case. In the statutory affidavit verifying the demand pursuant to s 459E(3) of the CL he deposed: "5 Capital payments were made by me, inter alia, into joint property developments at Cammeray, Mona Vale and Cromer on the following dates and in the following sums: Cammeray 13/04/95 75,000.00 Mona Vale 06/03/95 23,844.00 Cromer 23/08/93 10,000.00 15/11/93 5,000.00 23/12/93 5,000.00 18/01/94 7,000.00 28/03/94 32,750.00 29/03/94 58,796.00 118,546.00 217,390.00 " In a subsequent affidavit read on the hearing before the Master Mr Bradley deposed in paragraph 33: "33 The minimal amount of $110,000.00 that I am claiming comprises my capital of $86,000.00 from the Cromer project and my capital of $24,000.00 from the Mona Vale project. In addition, I am also owed the balance of my capital of $52,000.00 from the Cammeray project and significantly greater sums for profits due to me from other projects in which I have a financial interest jointly with the Plaintiff." In the last two paragraphs of the same affidavit he deposed as follows: "49 I say that as and from the meeting on 19 December 1997, the SEAS/Bradley Partnership was effectively dissolved. A full audit will need to be carried out to determine the exact monies that are due to me in the various projects, either as capital, profits or both. 50 However the amount of $110,000.00, claimed by me in these proceedings, is an amount that was agreed by the directors of SESA, on 19 December 1997, was the amount which was due and payable to me. This amount was the minimum amount acknowledged by SEAS as being due and payable to me forthwith. The precise amount due to me, was to be determined by Jack Davey, who was to produce a financial audit no later than 15 March 1998. It was agreed at the meeting on 19 December 1997 that the amount determined by that financial audit, an amount acknowledged to be not less than $110,000, was to be paid to me no later than 15 March 1998." 6 The affidavit material set out in [5] was tendered by the appellant. Paragraph 49 was admitted unconditionally. Paragraphs 33 and 50 were admitted into evidence, but on the basis that they were to be treated by way of submission only. This has been said in the hearing before me to mean that in effect they were to be taken as of no effect at all, or on the same basis as submissions put by counsel. I do not think that this proposition is correct. Whilst they were not to be taken as proof against the respondent of the facts stated therein, they were tendered as sworn statements by the appellant showing his case as it was to be made out, and, in particular, deposing to his belief as to the matters set out therein. 7 The evidence generally showed that there had been a joint venture or series of joint ventures in respect of the development of properties which were carried out by the Carlton Unit Trust, the trustee of which was Setpave Pty Limited ("Setpave"). Each of the appellant and the respondent had equal holdings in the shares of Setpave and of the units in the unit trust. Furthermore, it is said that there were "subsidiary" joint venture arrangements between the respondent and the appellant in relation to the respondent's share or entitlement from Setpave. It is stated by John Davey, accountant, of those subsidiary joint venture arrangments, in an affidavit, as follows: "After repayment of capital contributions by the parties (as approved and paid by Setpave), SESA's net profit was to be determined after calculation and payment of overheads incurred by SESA in managing the relevant project out of the profit distributions received from Setpave. 50% of the net amount as arrived [sic] was to be payable by SESA to the Defendant, in addition to repayment of the capital amounts funded by him. Losses were to be shared equally between SESA and the Defendant." 8 It is apparent that there were subsidiary joint venture arrangements between the plaintiff and the defendant in relation to developments at Cromer, West Pennant Hills, Gymea, Cammeray, Mona Vale, Forestville, White City, Dee Why and North Sydney. The account in the evidence of the contractual arrangements between the parties relating to these joint ventures, including what was to be paid to each of them and when in respect of the capital and profits of those joint ventures, and any loan funds injected by either of them (and the evidence does suggest that in addition to capital payments there were payments by way of loan), does not descend to any greater detail or particularity than the statement by Mr Davey. That is in part because the respondent as plaintiff tendered affidavit evidence as to the nature of those arrangements which was successfully objected to as to form by the appellant as defendant. When the time came for the appellant's affidavits to be read, its version of the arrangements was equally objected to on similar grounds and equally rejected. Certainly it is true that the respondent as plaintiff did not then apply to the Master for an adjournment to permit it to fill any lacuna by evidence in admissible form. It is equally true to say that the appellant, its evidence in elucidation of these matters having met the same fate, did not apply for an adjournment to remedy the situation. The Master was therefore left with exiguous evidence of these matters before him. 9 If the conduct of the case had continued on the basis only of whether or not there was an admitted debt, this would have been of little moment, and that basis may have been in the forefront of the parties' minds at the time. However, as will appear, there is little doubt that both parties ultimately conducted the case upon a basis different from and more general than that, in relation to which the lack of concrete evidence of these, one would think, central matters, was of some considerable moment. The respondent did succeed in putting into evidence an accounting document showing sums of money passing between the respondent and the appellant in relation to various of the developments. That document, prepared from the respondent's point of view, showed credits in the appellant's favour of some $198,000 and debits against him of some $409,000, ie, the respondent had in various ways contributed $198,000 and received back $409,000. It is quite impossible to tell from that document, however, to what extent the sums contributed were by way of capital and to what extent the sums returned were by way of capital (although debits totalling some $96,000 are described as "equity"). There are many other pieces of evidence as to various amounts that went one way or the other. Among the evidence that was tendered I select that document, not as being the only way in which the respondent controverted various of the appellant's claims, but as illustrative of the confused state of accounting between these parties in respect of these complex transactions, a state of affairs which is conceded by the appellant himself in paragraph 49 from his affidavit set out in [5]. 10 A great deal of the learned Master's judgment is taken up with the question of whether or not the first letter (which seems to be the one relied on by the appellant) could be admitted into evidence at all as being an admission. It is not necessary for me to go into this matter because the learned Master did admit it into evidence and both parties were agreed upon the hearing before me that he was correct in doing so. 11 The nub of the learned Master's judgment, it seems to me, is contained in four paragraphs which I quote from it as follows: "27 Given that the document is capable of being an admission the form of words used in the later version suggest that payment will be made from a distribution from the Mona Vale development. The evidence on this aspect seems to be that there is still one unit to be sold and hence the condition has not yet been satisfied. 28 In addition on both versions the actual amount is to either be agreed or computed. Neither event has happened. Until this happens no admission occurs particularly as the contribution is spoken of as being 'in the region of'. In the absence of any evidence of the arrangement for repayment of the capital the admission needs to be in clear terms. …… 30 In these circumstances, it seems to me that there is no admission of the amount owing. 31 The defendant's case in respect of the statutory demand is presented as one based upon admissions. Given that this case has not succeeded it probably is not necessary to consider any alternative basis for the claim. However, notwithstanding this, I note the following matters on the evidentiary basis for a claim. 1 There is no evidence before me as to the terms of the subsidiary joint venture agreement between the parties and thus I have no evidence of the terms of repayment of what are said to be capital contributions. I cannot therefore conclude that any such capital contribution is presently due for repayment. 2 In paragraph 14 of Mr Davey's affidavit there is a suggestion that the terms of the joint venture arrangements between SESA and Fapodu in Setpave required Setpave's approval to repayments of capital. That is disputed by Mr Bradley but logic would suggest that at least there might have to be a repayment to SESA before a liablity to Bradley arose. ……" 12 A number of grounds of appeal are taken in the notice of appeal but they seem essentially to fall into two groups. Grounds 4 to 8 and 12 to 15 deal with the learned Master's finding that there was no admission of an amount owing. With respect, the learned Master did not have to go so far. Even on this aspect of the case it would have been sufficient had he found that there was a genuine dispute as to whether there was an admission or not. Grounds 9 to 11 should probably be taken as going to the appellant's alternative basis discussed in [14] below. 13 In my view there is no error demonstrated in the part of the learned Master's judgment that concerned whether there was an admitted debt. In the first place, I can find no appellable error in the learned Master's conclusion that in the circumstances the statement relied on in the first letter ought not to be taken as an admission of the existence of a debt due and payable at the time of the demand of $110,000. The circumstances as to the creation of the letter are quite unclear. It is accepted by both parties that a letter need not necessarily be signed or transmitted to constitute an admission. However, the whole circumstances of the creation of this letter are quite obscure, as are the terms of the letter itself. It is must be remembered that paragraph 1 has been written as part of the terms of a proposed agreement. Whilst it contains the word "acknowledged" it is far from clear whether the sentence operates as a statement of the state of affairs before the agreement referred to was entered into, or in effect expresses an obligation or position which the respondent will be bound to if the agreement is entered into. It seems to me that the first letter must be read with the second letter, since both are drafts. In the latter case, the terms of paragraph 1 are significantly different. If one looks at the surrounding circumstances and the lack of clarity of expression, I cannot see appellable error in the Master's finding that the sentence does not contain an admission of the requisite sort. Even if the question be not determined in the respondent's favour, as the Master has determined it, it seems to me that there is clearly established on the evidence a genuine dispute as to whether there is an admission or not, and whether the respondent in the circumstances could be taken to have admitted the existence of an immediately due and payable debt in the sum of $110,000. 14 The Master, in a sense, seems to have regarded that as the end of the matter. That appears from his statement contained in the first sentence of [31] of his judgment that the "defendant's case in respect of the statutory demand is presented as one based upon admissions." Some puzzlement arises from the relationship between this statement and the fact that I am assured by both counsel that the hearing before the Master was conducted by Mr Cotman, of Senior Counsel for the then defendant (now the respondent), on the basis that there was an alternative basis on which the respondent might succeed. This was that, quite apart from any admission, there was established a debt exceeding $110,000, and that the respondent had not discharged the onus necessary to have the notice of demand set aside in the face of the establishment by evidence of this debt. Quite what that onus is was the subject of some debate on the hearing of the appeal before me. It is far from entirely clear to me what occurred in this regard before the Master. However, the Master, despite the first sentence of his [31], seems to continue to give reasons as to why the appellant ought not have succeeded on that basis. It is here that the exiguous nature of the evidence of the transactions comes into play. The Master in [31.1] points out that, once the admission is out of play, there is no evidence as to when any of these capital items, whatever they may have been, became repayable. Again, I can find no appellable error in that finding by the Master. Nor do I find any appellable error in what the Master said in [31.2]. Certainly there seems to me to be on all the material available, a genuine dispute as to what capital had been contributed to what project, when it became repayable and to what extent it had been repaid. As I have already observed, insofar as both payments by the appellant and returns to him are concerned, it is far from clear on the evidence what payments were made in which direction, and how those payments were characterised by the parties or are correctly to be characterised in law, and whether there was any sum owing to the appellant at the time of the notice of demand. 15 Mr Simpkins, of counsel for the appellant, submitted to me on the hearing of the appeal, that those things mattered not. He said that the respondent bore the onus on the hearing before the Master. So far as the question of whether or not the debt was immediately repayable was concerned, he said the respondent, if it were to succeed on that issue, bore an onus to establish the time as at which the debt was repayable, and that if it failed to discharge that onus, that issue must be determined against it, ie, the appellant having asserted that a debt was payable, there was then an onus upon the respondent positively to establish a date for repayment subsequent to the demand or otherwise to show positively that the debt had not become repayable before the demand. 16 Insofar as that was the submission, that, in my view, is not a correct approach to the onus imposed by s 459G(1). There is no doubt that the respondent as plaintiff in the proceedings before the Master generally bore the onus of establishing its case. If it failed to establish it, on the balance of probabilities, then it could not succeed. However, it seems to me that it bore the onus not of establishing in some positive way each and every element necessary to the proposition that there was no due and immediately payaable debt, which appears to be what this submission amounts to, but the onus of establishing the proposition by which s 459G(1)(a) proceeds, ie, that there is a genuine dispute between the parties. And, of course, as with other questions of onus, the party bearing the onus on an issue may discharge it not simply by pieces of evidence which it itself puts forward, but by contending that the onus is discharged upon an examination by the tribunal of fact of the whole of the evidence before it relating to the relevant subject matter. 17 The meaning of "genuine dispute" in the context of this section is most usefully expounded in the often quoted passage from the judgment of the former Chief Judge of this Division in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 - 8, where McLelland CJ in Eq said: "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s450H [sic]. 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, 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 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 366 and 367) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Pt5.4 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 (Aust) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Div 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 simple - 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." 18 I have already said that I do not discern any appellable error in the learned Master's judgment and, in my view, it should therefore stand. I should say that in any case, it appears to me on the whole body of the evidence that it was established that there was at the very least, a genuine dispute as to whether there was in the first letter, or anywhere else, something that could properly be construed as an admission of an immediately due and payable debt of $110,000 and, equally, in the absence of such an admission, it was established that there was a genuine dispute as to whether any sum was due and payable by way of an agreed refund of capital from the respondent to the appellant up to the giving of the notice of demand. It flows from the above that the appeal must be dismissed. …oOo… Last Modified: 01/04/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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