Tag Archives: Supreme Court of Victoria

Setting aside a statutory demand – Another useful summary of the law

Last year I added a post (see http://wp.me/p1UOHK-5y) referring to a clear, brief summary of the requirements for setting aside a demand, set out in the decision in Elite Catering Equipment Pty Ltd v Seroshtan [2012] VSC 241(link).

Another recent case following the same line of reasoning is worth noting.  The decision is Welldog Pty Ltd v World Oil Tools Inc [2013] QSC 180 (link), approving a summary of the law by Robson J in Rhagodia Pty Ltd v National Australia Bank Ltd (2008) 67 ACSR 367 at [91]–[94] (link).

Robson J’s summary has also been approved recently in a decision of Associate Justice Gardiner, in Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd [2013] VSC 228 (link) and by the Victorian Court of Appeal, on appeal from Gardiner AsJ, in Troutfarms Australia Pty Limited v Perpetual Nominees Limited [2013] VSCA 176 (link).

The cited passage from Rhagodia reads as follows (emphasis added):

[91] In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) said:

‘[56] The court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.

[57] No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised.’

[92] Dodds-Streeton JA further said:

‘[71] As the terms of s 459H of the Corporations Act 2001 and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.’

[93] In Eyota, McClelland CJ of the Supreme Court of New South Wales said:

‘It is, however, necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 450H. 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 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), or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall.’

But if 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 Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 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 weight 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) Pty Ltd 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.

[94] In TR Administration, Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) cited this passage with apparent approval and noted it was also cited by the Full Federal Court in Spencer Constructions Pty Ltd v GAM Aldridge Pty Ltd.

Regards

Mark

Clear, brief statement of Court’s approach to applications to set aside a demand

A recent decision of Justice Ferguson of the Supreme Court of Victoria is worth reading by practitioners defending or making applications to set aside statutory demands under s459G of the Corporations Act 2001.  The decision is Elite Catering Equipment Pty Ltd v Seroshtan [2012] VSC 241(link), an appeal against a decision by Associate Justice Gardiner.  The decision at first instance, at [2012] VSC 194 (link),is also worth reading.

Very briefly, the creditor was a company director who was seeking to recover a loan to the company.  The other two directors claimed the loan was in fact equity.  There was most probably a genuine dispute about the issue, since there were no clear records at the time the advance of the money to the company to determine its nature,  save for two matters:  one of the other directors had signed a letter acknowledging the debt, and the Company accountant had prepared the accounts showing the amount to be a director’s loan.  In both decisions the Court relied on these last two matters in deciding there was no genuine dispute.

The decisions are worth reading because, first, the Court refused the application:  perhaps a rare occurrence in itself.

Second, the reasoning in the decisions illustrates that whilst the threshold for establishing a genuine dispute is low and the Court ought not try the case on its merits, nevertheless it is permitted to investigate the matter.   In this case the factual basis of the application appeared at first glance to be plausible given the lack of clear evidence about the nature of the advance when first made, but required some investigation by the Court, which it was willing to do, to determine that given the later in time evidence there was no real dispute.

Third, there is a short but pithy summary about the task of the Court in determining these applications.

On appeal, Justice Ferguson stated:

7 In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[7] DoddsStreeton JA said:[8]

The court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim. No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised. (Citations omitted).

8 Her Honour also said:[9]

“As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice.”

At paragraph 42 and 43 of the first instance decision, Gardiner AsJ  states;

42 The principles to be applied in assessing applications under s 459G of the Corporations Act are the subject of many authorities. The Court need only find that the plaintiff has a genuine dispute about the existence or amount of the debt. It has been said that this does not impose a particularly high standard. The grounds for alleging a dispute or an offsetting claim must not be spurious, hypothetical, illusory or misconceived. To quote from the Full Court of the Federal Court in Spencer Constructions v Aldridge,[2] it must be “real”.   In the well-known passage of McCelland CJ in Equity in Eyota v Hanave, his Honour said:

A genuine dispute connotes a plausible contention requiring investigation and raises much the same sort of considerations as a serious question to be tried arising on an application for the interlocutory injunction or 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 the undisputed contemporary documents or other statements by the same deponent, or inherently and improbable in itself” it may not be – it may not having sufficient prima facie plausibility to merit further investigation as to its truth or a patently feeble legal argument or assertion of the facts unsupported by evidence.

43 In Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[3] DoddsStreeton J stated:

While it is not a very exacting standard, on the one hand mere, assertion of a dispute or offsetting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The court must not enter into the merits of the dispute, but it is not crossing the line in regard to its legitimate role on these applications to consider evidence which “bears on whether or not the asserted dispute or offsetting claim is genuine”. Indeed that is its necessary function.

Regards

Mark