Kinghorn Motors Pty Ltd v Kilner [2001] NSWSC 872

New South Wales Supreme Court

CITATION : Kinghorn Motors Pty Ltd v Kilner [2001] NSWSC 872 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4321/01 HEARING DATE(S) : 04/10/01 JUDGMENT DATE : 4 October 2001

PARTIES : Kinghorn Motors Pty Ltd v Rex Colin Kilner JUDGMENT OF : Master Macready at 1

COUNSEL : Ms K. Mihail for plaintiff Mr P. O'Loughlin for defendant SOLICITORS : Abbott Tout for plaintiff Carlos Toda for defendant CATCHWORDS : Corporations Law. - Application to set aside statutory demand. - Demand set aside. - No matter of principle. DECISION : Paragraph 8

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1 MASTER: This is an application to set aside a statutory demand under section 459G of the Corporations Act. The demand is by a Mr Kilner, a former director of the plaintiff company, for the sum of $242,779.60. The description of the debt is "Amount advanced by way of loans to the company as per schedule supplied by the company". That schedule is not in evidence but one takes from the description of the debt that there are loans advanced to the company. 2 The plaintiff seeks to set up an off-setting claim and that can only arise from the facts which are set out in paragraphs 4 and 5 of the affidavit of Mr Geoffrey Charles O'Connell of 4 September 2001. Those paragraphs are in the following form: "4. Mr Kilner was removed as a director of the Company due to an investigation having been conducted which ascertained that he had wrongfully misappropriated assets of the Company and had otherwise engaged in improper dealings for his own benefit contrary to the interests of the Company.

5. Annexed hereto and marked with the letter "B" is a document which sets out particulars of certain of the transactions which to my personal knowledge are attributable to Mr Kilner and which relate to dealings which were unauthorised and which were to Mr Kilner's benefit and to the detriment of the Company. The amounts involved were $271,963.74 and interest on that has been calculated but only up to 31 October 1998 at $109,844.98. Interest would continue to accrue on that amount." 3 The Annexure "B" which is referred to in paragraph 5 is a document which is a schedule headed "RCK Drawings, Daily Interest Charged Monthly", and is of a number of pages. There is a date for each transaction, something under the heading Details. There is then a column called Drawings. There is then Interest and a Balance. So far as Interest and Balance is concerned, this is irrelevant because there is no suggestion in the evidence of any basis for charging interest in respect of what debt might have accrued. The only relevance would be the matter under the Drawings column which shows just the total amount of the drawings, $271,963.74. That is greater than the amount in the statutory demand. 4 In submissions I was referred to the level of persuasion that is required, particularly by reference to the decision of McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour said the following 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, 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 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 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."