New South Wales Supreme Court CITATION : Streetwise v HigginsStreetwise v Higgins [2005] NSWSC 535 HEARING DATE(S) : 02/06/05 JUDGMENT DATE : 2 June 2005 JURISDICTION : Equity Division JUDGMENT OF : Master Macready at 1 DECISION : Paragraph 42 CATCHWORDS : Corporations Law. Application to set aside a statutory demand on the basis that the debt is not yet due. Held that such a demand could not be set aside under s 459 J (1)(b) of the Corporations Act. PARTIES : Streetwise Property & Projects Pty Limited v Paul Higgins FILE NUMBER(S) : SC 6960/2004 Mr M Sahade for plaintiff COUNSEL : Mr JR Young for defendant Sutton & Byrne for plaintiff SOLICITORS : Simon Diab & Associates for defendant LOWER COURT JURISDICTION : - 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY THURSDAY 2 JUNE 2005 6960/04 - STREETWISE PROPERTY PROJECTS PTY LIMITED v PAUL HIGGINS JUDGMENT 1 MASTER: This is an application to set aside a statutory demand pursuant to s 459G of the Corporations Act. The demand was dated 8 December 2004 and served on 10 December 2004. 2 The demand claimed a sum of 205,000, described as follows: "Pursuant to a Deed of Investment executed by the Debtors the Creditor paid $180,000.000 to the Debtor. According to the agreement the Debtor was to repay the invested amount plus profit in the minimum amount of $25,000 Total: $205,000.00" 3 Mr Higgins, the defendant, was approached apparently by a beautiful young lady at Stockland Shopping Mall at Merrylands and asked if he wanted to receive investment and financial advice. After a follow up he paid from his savings $180,000 to the plaintiff on 8 April 2002. He signed some unspecified documents and in due course received the following acknowledgment from the plaintiff on its letterhead: "Deed of Investment This is to confirm that Mr Paul Higgins of 29 Brians Street, Merrylands NSW 2160 participates as an investor in a development project undertaken by Streetwise Property & Projects Pty Ltd. Consignment amount: $180,000 Terms: 18 months or on completion of project if sooner. Project: No 1 Grady Street, Quakers Hill This agreement confirms that you will be entering in a joint venture with Streetwise Property & Projects Pty Ltd Streetwise, acting upon your behalf and in joint interest. Streetwise are to manage and coordinate the entire project on behalf and in joint interest with yourselves. Streetwise will obtain the necessary Development Applications (DA) and Building application (BA). Streetwise will arrange relevant section 94 contributions to local council, as well as all necessary legal documentation. Streetwise wether through Streetwise Home & Investment Loans Pty Ltd or through an external financier, obtain necessary finance for the original purchase/or construction of the proposed development. Upon completion of the joint venture, Streetwise Property & Projects Pty Limited will reimburse to you the total sum of $180,00.00 (AUS) representing your initial investment $180,000.00) plus your profit for this participation, minimum $25,000.00 (AUS). It is acknowledged that the investors liability is limited to the investment amount and offer's no personal guarantee's. This investment is limited to this particular project known as No. 1 Grady Street, Quakers Hill and is independent from any other projects taken by Streetwise. Dated 30th April 2002. Streetwise Property & Projects P/L." 4 In October 2003, after the eighteen months was up, he started ringing the plaintiff and asking if he could have his money back. There followed a series of conversations during the next year which, on his version, he was given the run around and did not receive his money back. 5 By August 2004 he was seeking the assistance of the Credit Ombudsman to get his money back. They did not help and he consulted a solicitor at the end of October 2004. This culminated in the issue of the demand. 6 The documents in evidence before me suggest that it was on 14 February 2004 that the project he had invested in was sold, presumably after completion of the project. On the plaintiff's case he was clearly entitled to receive back the money by October 2004, if not on the proper construction of the agreement in October 2003. 7 The plaintiff's case was that in May 2004 the defendant agreed to roll over his investment into a new development at Blue Haven on the Central Coast. This the defendant flatly denies. 8 The evidence of this was given by Mr Kavelan Bangaroo, the managing director of the plaintiff who recounted a conversation in the following terms: "He said: 'Hi my name is Paul Higgins. I have an investments with you at 1 Grade Street, Quakers Hill. I am just enquiring how this is going,' I said: 'The project will be completed in one or two months, and then your investment will be realised.' He said: 'How do you think it is going?' I said: 'I haven't got the figures in front of me but I hear it is going very well. But don't worry, you will either get your minimum guaranteed amount or you will get more than that, so you are pretty secure.' He said: 'I don't need the money just yet. I would like to continue investing with Streetwise. Do you have any others?' I said: 'Yes, we have another project in the Central Coast that is being put together, would you be interested in that? He said: 'Yes do I have to put in any more money or can I use what I already have with you?' I said: 'We could extend your investment by rolling over your profit from the Grady Street property into the Central Coast property development on similar terms. Your guaranteed amount of $25,000 will then apply to the end of that extended investment.' He said: 'How long would he investment take then?' I said: 'Realistically, bout 20 months from now. He said: 'Yes do that'. I said: 'Done, I'll tell the appropriate people' He said: 'OK'." 9 The only business record that supports the change of the investment was a business recorded referred to by Mr Downes, who is the general manager of the plaintiff. That shows under a strange heading, namely Streetwise Job Cost Report, the original deposit by Mr Higgins on 9 April 2002 of his $180,000 and then follows an entry of $10,000 for an investment in the number 1 Grady Street development of $180,000. 10 On 22 June 2004 there is shown a return of investment from 1 Grady Street of $180,000. On 20 June 2004 there is a credit for profit from the 1 Grady Street development of $20,300. On 23 June 2004 there is an investment of $200,300 as investment in lot 1029 Waterhen Close development of $20,300. 11 The plaintiff suggested that there was a genuine dispute as to when the funds were due to be repaid. It does not dispute that at least the amount in the statutory demand is owing but says it is not presently due. This opened up a debate before me as to whether the application was to be considered under s 459H or s 459J(1)(b) of the Act. 12 There may be some doubt as to whether it was a new "investment" but it probably was a variation of the terms of the original one on the plaintiff's case so I will so regard it for the purposes of the decision. 13 The relevance in the debate is said by the plaintiff to be that if it is dealt with under s 459J(1)(b) it is necessary to prove as a fact that the debt was not due and payable, rather than merely establish that there was a genuine dispute as to whether it was due and payable. Section 459H provides: "459H(1) This section applies where, on an application under s 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 off-setting claim." 14 There does not seem in the present case to be any dispute about the existence of the amount of the debt to which the demand relates. It may be in the upshot that the amount of profit to which the defendant is entitled is somewhat greater than in the demand but that would seem on his case, at least, to be the minimum amount to which he is entitled. 15 Section 459J is in the following terms: "459J(1) On an application under s 459J the Court may be order set aside the demand if it satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. 459J(2) Except was provided in sub-s (1), the Court must not set aside a statutory demand merely because of a defect." 16 The debate on this matter was elucidated by Finkelstein J in the following terms: "The trend of authorities so far is that each of the four grounds for setting aside a statutory demand is mutually exclusive. In Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1995) 16 ACSR 213 at 219 Olney J said, obiter, at s 459J(1)(b) was not intended to cover the case of a genuine dispute between the company and the person making the demand about the existence or amount of the defendant referred to in the demand. On appeal, (19 ACSR 125) the Full Court was not required to consider this point. Further, there are a number of cases that have held that paragraphs (a) and (b) of s 459J(1) are mutually exclusive: see Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446; Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (in liq) (1994) 117 FLR 330; Chains & Power (Aust) Pty Ltd v Commonwealth Bank of Australia (1994) 15 ACSR 544; but compare Topfelt Pty Ltd supra and Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 17 ACSR 662. When the allegation is that a debt that is specified in a statutory demand is not due and payable it is by no means clear under which ground the company must apply for an order setting aside the demand. In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300 Bryson J held that the inclusion of debts in a statutory demand that had not fallen due for payment constituted a defect in the demand rendering it liable to be set aside under s 459J(1)(a). If this decision is correct then it would not be sufficient for a company to show that there was a genuine or bona fide dispute that the debt was not due and payable. It would be necessary to prove as a fact that the debt was not due and payable. This was not a matter of concern in Portrait Express. It appears to have been conceded that the debts in questions were not due and payable. The creditor resisted the application to set aside the statutory demand on the basis that no injustice had been caused by the inclusion of these debts in the demand. However, an allegation that a debt is not due and payable is not always capable of easy resolution. There will be many cases where the Court will be required to examine and consider complex issues of fact, sometimes involving the credibility of witnesses, before it could resolve the matter. Thus, an application to set aside a statutory demand could become a hearing of significant proportions. The Court may be required to make orders for pleadings and discovery and there may well be cross-examination of witnesses. This would be a most unsatisfactory and unfortunate result. An application to set aside a statutory demand, being a summary process with evidence on affidavit, is hardly an appropriate vehicle for a trial of substantive issues. Moreover, on the current state of the authorities, this result could only be avoided if either Portrait Express was wrongly decided or if the cases that have held that the grounds for setting aside a statutory demand are mutually exclusive were wrongly decided. The view that I have reached is that where a creditor serves a statutory demand that relate to a debt that is not due and payable this is a deficiency of a more fundamental character than a defect that may be the subject of an application under s 459J(1)(a). In my view the word 'defect' connotes the notion of something that is faulty or imperfect in the demand. It involves a fault or imperfection that might have been avoided. It does not cover the case of the inclusion of a demand of a debt in respect of which the statutory demand procedure is not available at all. In this regard I am in disagreement with the decision in Portrait Express. I appreciate that in Australian Securities Commission v Marlborough Goldmines Ltd (1993) 177 CLR 485 the High court has made it quite clear that in the case of uniform national legislation such as the Corporations Law a single Judge should not depart from an interpretation placed on that legislation by another Judge unless convinced that the other interpretation is plainly wrong. I am convinced that Portrait Express is wrong on the point under consideration. My reasons for this conclusion follow. The history of the winding-up of companies shows that the procedure is not to be used as a vehicle for resolving commercial disputes. As long ago as 1844, with the passing of Joint Stock Companies Act (7 & 8 Vict c. 110) , a creditor could petition the Court for the winding-up of an insolvent company. But it was soon established that a creditor could not rely upon a bona fide disputed debt to obtain a winding-up order. In such a case the petition would be dismissed: see Re Catholic Printing & Selling Co Ltd (1864) 46 ER 319 for an early example. The reason given was that winding-up proceedings were not suitable proceedings in which to determine a dispute about whether or not the company is indebted to the petitioner: see also Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation [1978] VR 83 at 95-86; Stonegate Securities Ltd v Gregory [1980] CH 576 at 598. The 1844 Act contained provisions to facilitate the proof of insolvency. One circumstance was where a creditor had sued out a writ of summons seeking to recover a debt and the company failed to pay or to secure that debt to the satisfaction of the creditor within one month of the service of the summons. By the time of the Companies Act (25 & 26 Vict c.89) a creditor could prove insolvency where the creditor had served a demand for the payment of a debt and the company had failed to pay or to secure that debt. This demand was commonly referred to as a statutory notice. With little variation this remained a feature of English and Australia company law until the passing of the Corporation Law Reform Act 1992. When a creditor served a statutory notice in anticipation of presenting a petition to wind-up a company and there was a genuine dispute about the existence of the debt referred to in the notice the Court would often restrain the presentation of the petition: see e.g. Cadiz Waterworks Co v Barnett (1874) LR 19 EQ 183; Metal Protective Co Pty Ltd v Site Welders Pty Ltd [1968] 1 NSWR 106. There is nothing in the Corporations law that suggests to me that the winding-up procedures have suddenly become an appropriate proceeding to resolve commercial disputes. Still less is there any indication in the provisions relating to statutory demands that would lead to that conclusion. On the contrary sections such as s 459H(1) suggest that the opposite is the case. Thus, a construction of s 459J(1)(a) that would require the Court resolve a substantive dispute between a creditor and a company on an application to set aside a statutory demand is contradicted by the history of the winding-up of companies and the fact of the legislation. It follows that a construction of s 459J(1)(a) that avoids this result is to be preferred. There are two reasons why I believe that in Portrait Express Bryson J fell into error. First, once it was established that the statutory demand included debts that were not due for payment at the date of the demand it appears to have been accepted by the parties that there was a defect in the demand. The main argument on this aspect of the case was whether substantial injustice would be caused to the company if the demand was not set aside. Thus, it was not necessary for Bryson J to closely consider the meaning of the word "defect". Secondly, the applicant in Portrait Express had no difficulty in establishing the fact that certain of the debts specified in the demand were not payable. The debts were for goods sold and delivered. The terms of trade were not recorded in a letter from which it was cleat that credit was given. Accordingly, Bryson J was not confronted with a case where his Honour was required to consider the consequences of the construction that he placed on s 459J(1)(a). On what ground then should the applicant base its application? There are only two possibilities. The first is s 459H(1)(a) that permits an application to be made when there 'is a genuine dispute ... about the existence ... of a debt to which the demand relates.' Here there is no dispute about the existence of the debts due to the Crown. What is said is that those debts were not due and payable. Does such an allegation fit within the language of the ground? It would be if the 'debt' that is referred to in s 459H(1)(a) is only a debt of the class that can be included in a statutory demand; that is a debt that is due and payable. In that event the application could be made under s 459H(1)(a). But it is by no means clear that this construction is available. The second possibility is that the application should be based on s 459J(1)(b). There is no doubt that this ground is available if s 459H(1)(a) is not. In reality it is not necessary to reach a concluded view on the matter (although I should say that I incline in favour of the view that s 459J(1)(b) is the only available ground) for the reason that the standard of proof would in either case be the same. That is to say if the application must be made under s 459J(1)(b) the Court would not exercise its discretion to set aside the demand unless it was satisfied that there was a genuine dispute about whether the debt to which the demand relates was due and payable." 17 Master McLaughlin in International Media Movement v Sponsorship Sales and Marketing, 14 August 1998, BC9804431 preferred the view of Bryson J, although he did not have the same problem. 18 In Midland Importers Pty Ltd v Asian Pacific International 4 February 1999 BC9908901 Austin J considered and adopted the approach of Finkelstein J in The Northern Territory Reserve case. This approach has also been adopted by Santow J in MAP Plumbing Services Pty Ltd v BB Enterprises Pty Ltd 21 August 2000 BC200005028. 19 Having regard to the weight of authority, and the actual reasons advanced by Finkelstein J, I would adopt his reasons and conclusions. 20 In addressing the question of whether there is a genuine dispute as to whether the investment is due and payable, it is necessary to deal with the oral conversation deposed to by Mr Bangaroo. 21 It was suggested that as a matter of construction all that was to be put into the next project was the profit and that the $180,000 was now repayable. On this basis the defendant would have asked that the amount of the payment be simply reduced. 22 I have a different view. In my view a consideration of the whole conversation indicates that the parties were dealing with the whole of their "investment". 23 The parties are clearly at issue as to whether or not the conversation occurred at all. In my original decision in Hanave Pty Ltd v Eyota Pty Ltd I was confronted with being asked to disbelieve a witness and hence determine a question of credit. On appeal in that matter, reported as Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 the matter was dealt with by McLelland CJ in Equity. In dealing with this question of deciding the issue of credit he had the following to say: "The Master said that if he were deciding the issue on a final hearing basis he would have no doubt that the money payments were made by way of interest and not as repayment of principal, but that this would involve a finding that Dr Grammat was not a witness of credit. The Master went on: 'However, making a finding on the question of the credit of a witness is not appropriate when one is merely considering whether there is a genuine dispute. To that extent it means that one is determining the merits of the dispute. In these circumstances I am constrained to find that there is a genuine dispute in respect of the $200,000.'" 24 He then went on to give consideration to the meaning of genuine dispute and set out his meaning of the term in these terms: "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 457H. 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 of 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 Litchumnan (1980) AC 332 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 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 off-setting 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 assertions. 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 off-setting claim (not the likely result of it).' 25 I respectfully agree with those statements. 26 Having set out his conclusion as to what it meant, his Honour returned to the question which he had earlier addressed as to whether I was right not to make a finding on the credit of the witness. He agreed with my decision on that aspect in these terms: "In the light of these considerations, I consider that the Master was correct in finding that there was a genuine dispute in respect of the $200,000. The evidence of Dr. Grammat was not so inherently improbably or otherwise defective as to preclude any need for further investigation. It raised a genuine dispute within the meaning of S.459H and the Master was right to decline to make a finding on the question of Dr. Grammat's credit and to determine the merits of the dispute." 27 It is, of course, the plaintiff's contention that the defendant's story is so inherently improbable that I should, notwithstanding the conversation, conclude there was a genuine dispute. In support of this contention it points to the following: "1. The fact the first time there was any assertion of a rollover occurred after the issue of the statutory demand. 2. That the first assertion of it in the affidavit of Mr Downes of 23 December 2004 should not be accepted because that affidavit contains a patently false statement as to whether there had been any requests for repayment before the statutory demand. 3. The fact that Mr Higgins' money on the documents produced was not used for the Blue Haven project." 28 It is plain that the first assertion of a rollover is after the statutory demand. There had been numerous communications by the defendant to the plaintiff before that demand on 28 October 2004 and there was a letter sent by fax requesting the return of the money by the plaintiff. He said he received a call and was promised he would get it in thirty days. He waited until 19 November. He sent another reminder and threatened to take legal action within ten days. There was no reply to this letter. 29 On 2 December his solicitor wrote a letter to the plaintiff. It was a formal letter of demand and required an immediate response and payment. The response came the next day and it was that the director was away until the 9th and it would be dealt with by then. This did not occur and the defendant still waited. 30 There is not a skerrick of any suggestion to these very specific demands that there had been a rollover. It would be the most easy and natural thing for the company to have done. 31 It is clear from the documents produced on subpoena that the costs of the land and buildings of the Blue Haven project were about $220,000 and that it had a loan for the project of $226,000 which was used at least up to the amount of $206,000. This led to the suggestion that in those circumstances the allegation that the moneys were put into the project is spurious. 32 Unfortunately, however, it is not whether the money actually went into the project which is of real concern in the present argument. The question is whether it was agreed to be put in. If it was agreed to be put in then it is linked to the project and it may or may not, depending on the terms of the document, give an interest in the project, notwithstanding the moneys supplied simply went into the coffers of the plaintiff company. 33 Accordingly, I do not think that point is a particularly good one which really does not go to whether there is a genuine dispute. 34 The other matter was the affidavit of Mr Downes in which he swore in par 12: "I further say that the plaintiff has not received any demand or request for payment from the defendant at all until the service of the statutory demand hearing." 35 It is perfectly plain from the documents which I have recounted earlier that the company had received demands, some three of them at least, clear, explicit and in writing before that date asking for the money to be paid back. 36 That may be so. The one reply that there is was not signed by Mr Downes. Notwithstanding this one could imagine that if one had cross-examination much could be made of credit or, alternatively, there could be some explanation Mr Downes may have as to why he should make that statement on the information which he had. 37 However, I do not think, having regard to the role which I have to play in determining whether there is a genuine dispute that I should decide a question of credit and put to one side the conversations, firstly the parts of his affidavit in par 5 which refer to the rollover agreement, and the consequential matters which he puts in par 6 relying upon that. 38 As I have said in this matter it is not appropriate to have cross-examination and these matters do not lend themselves to dealing with these credit issues. One is simply left with the failure to make assertions prior to he demand being issued. 39 In those circumstances, I do not think that the claim is too fanciful and can be dismissed without fuller investigation. It is one which I think will require further investigation and I am satisfied there is a genuine dispute as to when the money is repayable. This means the case will have to be decided elsewhere, somewhere where no doubt the truth of the allegations to which people have sworn will be tested and if found to be without foundation will lead to other proceedings of quite a different nature. That unfortunately is not my task and it is not appropriate for me to say any more. 40 It is suggested I might make a conditional order that the sum should be paid as a condition of setting aside the demand. The basis of this was what was described as the paucity of the plaintiff's case and linking that with the matters in relation to the affidavit to which I have already referred. In my view this would be simply doing by the back door what it is not my task to do by the front door. 41 However, matters are appropriate for conditional orders but I do not think that the real question of whether there is a genuine dispute - and I find there is a genuine dispute - that I should turn around and impose a condition of the payment in of the amount. 42 Accordingly, I set aside the demand made by the defendant on the plaintiff of 8 December 2004. I order the defendant to pay the plaintiff's costs. (Counsel addressed on the question of costs.) 43 There is one exception I will make to the costs order, and that is it will not include any hearing costs in respect of the appearance before the court on 18 March 2005. ********** 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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