New South Wales Supreme Court CITATION : Endeavour v Fox [2003] NSWSC 831 HEARING DATE(S) : 4th and 9th September 2003 JUDGMENT DATE : 9 September 2003 JURISDICTION: Equity Division JUDGMENT OF : Master Macready at 1 DECISION : CATCHWORDS : Corporations Law. Application to set aside a statutory demand under s 459G of the Corporations Act. Agreement for payment by instalments - no consideration fee agreement therefore no genuine dispute. Proceedings dismissed. PARTIES : Endeavour Film Management Pty Limited v Fox Studios Australia Pty Limited FILE NUMBER(S) : SC 1961/03 COUNSEL : S. Hughes for defendant SOLICITORS : B.D. Andrews & Co for defendant - 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY TUESDAY 9 SEPTEMBER 2003 1961/03 ENDEAVOUR FILM MANAGEMENT PTY LIMITED v FOX STUDIOS AUSTRALIA PTY LIMITED JUDGMENT 1 MASTER: This is an application to set aside a statutory demand dated 20 February 2003 claiming a sum of $30,256.70. The plaintiff was a lessee from the defendant with offices at Fox Studios. 2 In June 2002 there were meetings between officers of the two companies to discuss arrears owing by the plaintiff under the lease. This led to a letter being sent by the plaintiff to the defendant in these terms: "14/6/02 ATTN: Nancy Fox Studios AUSTRALIA RE: Rental arrears As per our meeting of Wednesday last, please find enclosed a cheque for $4,500 as agreed. To reiterate our arrangement, $6,000 is now payable monthly to encompass current rental/outgoings obligation with the balance reducing amounts outstanding. Initial payment of $4,500 with balance of June (1,500) payable before end of June. $6,000 monthly payment payable in 2 installments of $3,000 each month with two weekly intervals. Regards Endeavour Film Management Pty Limited Ian Chandler Director" 3 By late October the plaintiff was in default under the terms for repayment. There was another meeting which it was agreed repayments would be at the rate of $1,500 per week. The arrears were $4,500 and there had been at least four late payments up to that stage. By 22 November the plaintiff was again in default although the default was remedied by 28 November. In the period since late October there had been two late payments with two cheques not met on presentation. At a meeting on 28 November the defendant indicated it wanted increased repayments. These were not forthcoming and notice was given with intention to terminate the lease, which termination occurred by 3 January 2003. 4 The plaintiff seeks to raise both a genuine dispute and an offsetting claim. I have had the benefit of having a number of submissions in respect of the principles to be applied and I think the most useful summation for what is a genuine dispute is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments 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 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." 5 In respect of the genuine dispute, the plaintiff did not challenge the amount of the arrears in question but sought to rely upon the agreements for repayment as being binding and in some way still enforceable. The problem with that argument is that there was no consideration for the plaintiff's promise. The principle to which I have referred was explained by the High Court in Wigan v Edwards (1973) 47 ALJR 586 in these terms: "The general rule is that a promise to perform an existing duty is no consideration, at least when the promise is made by a party to a pre-existing contract, when it is made to the promisee under that contract, and it is to do no more than the promisor is bound to do under that contract. The rule expresses the concept that the new promise, indistinguishable from the old, is an illusory consideration. And it gives no comfort to a party who by merely threatening a breach of contract seeks to secure an additional contractual benefit from the other party on the footing that that first party's new promise of performance will provide sufficient consideration for that benefit." 6 The plaintiff, as I said, provided no consideration for his promise to pay by installments. He was already bound to make the payments which were the subject of the payment by installments. It did not, for instance, agree to pay interest on the outstanding amounts. The actual provision of the cheque for the first payment is certainly not consideration. In the absence of consideration there can be no genuine dispute based upon what was alleged was an insistence by the lessor to be paid forthwith for amounts due to him. 7 The plaintiff was represented by a director of the company who apparently is not legally trained and in these circumstances, although he did not refer to it, I feel I should consider whether there may be some equitable estoppel which might apply in the circumstances. 8 As stated in Equity Doctrines and Remedies, Meagher Gummow Lehanne, fourth edition p 550, the current state of authority in Australia as to equitable or promissory estoppel is encapsulated in the following passage from the judgment of Brennan J in Waltons Stores (Interstate) Limited v Maher at 428-9; 542. But in reading that passage it should be understood that, particularly in cases involving an assumption about a state of affairs, reasonable notice of an intended departure from the assumption may avoid any sufficient detriment: Commonwealth v Verwayen (1990) 170 CLR 394 at 442; 95 ALR 321 at 354; BC9002031 per Deane J. The passage from the judgment of Brennan J in Walton's case states: "It is necessary for the plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second defendant, a defendant who has not actively induce the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs." 9 Although I could assume that there was an expectation that repayment by installments was agreed, as a result of the defendant's actions, the plaintiff has led no evidence of acting or abstaining from acting in reliance on the expectation and that the defendant knew or intended him to do so. All that has happened is the lease arrangements have continued. There are no other actions referred to by the plaintiff. In these circumstances, I see no room for the operation of any estoppel. I turn to the question of an offsetting claim. 10 Mr Chandler annexed to his affidavit a copy of an ordinary statement of claim issued in the District Court by the plaintiff against the defendant claiming damages for breach of the lease. The statement of claim does not identify the breach of the lease and claims damages, the principal one being for reprinting casting cards for performance of some $233,540. Nowhere in his affidavit evidence does Mr Chandler depose to any facts to prove the offsetting claim. As far as breach is concerned the change of position by the defendant on repayment by installments does not constitute a breach. 11 The court's task in assessing an offsetting claim has been dealt with in a number of cases. For instance, in Edge Technology Pty Ltd v Lite-On Technology Corp (2000) 18 ACLC 576, Santow J had the following to say at paras 24 and 25: "It is here again true (as it was in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456) that it "is not my task in the present proceedings to seek to resolve the competing claims of the Plaintiff and the Defendant": per Austin J at 462. Rather, it is to "resolve whether, for the purposes of s 459(H)(1)(a), there is a genuine dispute between the Plaintiff and the Defendant about the existence or amount of the debt to which the Defendant's statutory demand relates": Austin J at 462. Or alternatively, whether there is a genuine counter-claim, set-off or cross-demand against the Defendant and if so, in what amount. In particular, how should it be quantified; at a nominal $1 or at a large figure and if the latter, how is the quantification to be arrived at? The latter question essentially asks whether the counter-claim or set-off is fictitious or merely colourable; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Limited (No 2) (1994) 12 ACLC 490; 13 ACSR 787. In that context, to come up with a plausible contention to (sic) requiring further investigation which, if later established, would preclude there being an offsetting claim. That would not establish that the counter-claim or set-off was fictitious, or merely colourable. In that sense, the counter-claim or set-off is not the reciprocal of the statutory demand debt. Rather it is a means of offsetting the statutory demand debt with a genuine counter-claim or set-off. I adopt the approach of the Full Federal Court in Spencer Constructions Pty Limited v G&M Aldridge Pty Limited (1997) 15 ACLC 1,001 at 1,011, (1997) 76 FCR 452 at 464; that a genuine dispute requires that "the dispute be bona fide and truly exist in fact" and that the "grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived". The same applies to the counter-claim or set-off. One asks: Is it bona fide, is it real and not spurious?" 12 He later went on to say:- "For the demand to be set aside on the basis of the demand debt being genuinely disputed, it must be established by the Plaintiff that the dispute concerning its existence is bona fide and not spurious, hypothetical, illusory or misconceived: Spencer's Case (supra). In other words, there must be a plausible contention requiring further investigation which genuinely puts in dispute the debt which grounds the statutory demand. But the merits are not now to be determined beyond the preliminary testing as to whether there is a serious question to be tried. The alternative basis for the demand to be set aside or reduced by reason of an offsetting claim involves, as I have said, a different test. The question is not whether there is a genuine dispute in the above sense against the offsetting claim. The question is rather whether the "offsetting claim" can be shown to be "not frivolous or vexatious"; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. That places a heavier onus on the party seeking to maintain its statutory demand, than if it merely had to establish the reciprocal of a genuine dispute against the offsetting claim. 13 Notwithstanding the test, as is described by his Honour, there still needs to be some evidence before the court. For example, as the court has to determine the amount of the offsetting claim there has to be some evidence of quantum. Annexing a statement of claim does not prove it. In Macleay Nominees Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743, Palmer J expressed it in these terms: "In my opinion, a genuine offsetting claim for the purposes of CA s459H(1) and s 459H(2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s 459H(1) and s 459H(2)." 14 As there is no evidence, I am not satisfied that there is an offsetting claim. Accordingly, I dismiss the summons and order the plaintiffs pay the defendant's costs. Exhibits are returned. 15 In this matter I extend the period for compliance with the statutory demand dated 20 February 2003 for a period of 14 days from today's date. I stay the order for payment of costs for a period of 14 days. ********** Last Modified: 10/07/2003 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.