(2013) 85 NSWLR 601
Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69
Coulton v Holcombe [1986] HCA 33
Source
Original judgment source is linked above.
Catchwords
(2013) 85 NSWLR 601
Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69
Coulton v Holcombe [1986] HCA 33
Judgment (6 paragraphs)
[1]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
Judgment
McCOLL JA: The applicant, Bevic Holdings Pty Ltd, seeks leave to appeal from a decision of Brereton J declining the applicant's application pursuant to s 459G of the Corporations Act 2001 (Cth), to set aside a statutory demand served by the respondent, Victor Edward Wright, pursuant to s 459E of the same Act. [1]
The applicant sought to set aside the statutory demand on the basis that there was a genuine dispute between it and the respondent about the existence or amount of the debt to which the statutory demand related or because there was some other reason why the statutory demand should be set aside. [2]
The circumstances in which the statutory demand was served are set out in detail in the primary judgment. It is unnecessary to repeat them. It is sufficient to say that the applicant owns and operates a farming property called Cherry Hill near Uralla on the northern tablelands of New South Wales. It is one of a group of companies established by Victor Thomas Wright and Betty Velda Wright. Mr and Mrs Wright were the respondent's parents and also the parents of the respondent's four siblings, all of whom are directors of the applicant. Mr Wright pre-deceased Mrs Wright, whereupon his control share in the applicant passed to his widow. She died in 2011. The respondent is executor and trustee of her estate. [3]
The debt claimed in the statutory demand was in the amount of $811,049.47. It was described in a schedule to the statutory demand as a "Loan account payable by the Company to the Creditor as recorded in the special purpose accounts of the Company for the financial year ended 30 June 2014". The demand was accompanied by an affidavit annexing the special purpose accounts of the company for each of the financial years ending 30 June 2007 - 2014. [4]
The respondent adduced evidence before the primary judge, which was not the subject of challenge by cross-examination or contradiction by other evidence, that the loan account had come into existence as a result of conversations with Mrs Wright in about 1998 or 1999. Those conversations were to the effect that the company was in financially straitened circumstances and may not be able to keep Cherry Hill, that refinance facilities would not be sufficient to resolve the financial difficulties and that the respondent would lend money to the applicant on an interest free basis. [5]
The financial statements of the applicant, prepared by its accountants, commenced to show as a liability a loan account in the respondent's name from the financial year ending 2001. The financial statements for each of the years 2001 until and including the year ending 30 June 2007 were signed by the accountant, by the respondent as director and by Mrs Wright, as being true and correct. After 2007, although there was no evidence the accounts were signed by anyone, they continued to record a loan account in the respondent's name increasing to the amount the subject of the demand in 2014. [6]
The respondent swore an affidavit to which he exhibited all the primary documents said to support the advances he had made to the company since 2001. In addition a summary of that documentary material was served pursuant to s 50 of the Evidence Act 1995 (NSW) which the primary judge described as "identify[ing] and explain[ing] each individual transaction reflected in the movements on the loan account." [7]
The company did not adduce any evidence which contained any "affirmative denial that the monies [the respondent] says were paid to [it] or for its benefit were so paid, nor any affirmative denial that they were paid by way of loan to the company." However, the primary judge accepted that the respondent's payments were made at a time when he was in practical control of the applicant in circumstances of which the respondent's siblings were probably unaware. In such circumstances the applicant said it wished to investigate the transactions further and put the respondent to strict proof of his claim. [8]
The primary judge found that there was "detailed and comprehensive documentary proof of each advance made and each transaction on the loan account relied on to found the claim [which] has not been the subject of contradiction or cross-examination." [9] His Honour also found that there were "financial statements of the company which record the loan account, and which appear to be regular financial statements produced year-by-year over a period of some 14 years" and that it was significant that "for the first 7 years, those accounts, containing a reference to a loan account with money owing to [the respondent], were signed not only by him but by Mrs Betty Wright, the other party to the conversations to which [the respondent] deposed." [10] There was also some evidence that the respondent's sister, Mrs Brown, who was also one of the directors of the applicant, had become aware that he had lent money to the applicant at various family gatherings since about 2010. [11] Further, "the nature of the payments tended to show that many were made directly for the benefit of the company, for example, by way of making salary payments on behalf of the company". [12]
The primary judge concluded that there was "nothing in the evidence" before him "from which it [could] be said that there might be a defence", albeit that there was "suspicion and uncertainty" on the applicant's part. His Honour held that such suspicion and uncertainty was insufficient to accede to the application. Rather, it was necessary for the applicant to point to material from which the Court could see "that there may be a defence." [13] Accordingly, his Honour concluded that he was "not satisfied that there was a genuine dispute as to the existence or amount of the indebtedness claimed." [14]
His Honour also concluded that there was "no other reason for setting aside the demand" within the meaning of s 459J(1)(b). In this respect he rejected the applicant's contention that some conversations which occurred at a company meeting attended by all the directors in September 2014 constituted any sufficient agreement or estoppel for that purpose. [15]
In its draft notice of appeal to be filed if leave to appeal was granted, the applicant foreshadowed contesting the primary judge's findings that there was no genuine dispute nor "some other reason" to set aside the statutory demand.
[3]
Submissions
In its written submissions in support of the application for leave to appeal prepared by counsel who had appeared on the s 459G application, the applicant emphasised the respondent's role as its director who was in sole control of it for some time, the complexity of the "running loan account" between himself and the applicant and the fact that, in evidence in reply, he referred for the first time to the establishment of the loan account as having been consequent upon conversations with his deceased mother in 1998/1999 and 2003.
The applicant also contended the primary judge failed to have regard to the proposition that the Court may infer the existence of a genuine dispute in circumstances where the creditor refused to allow the debtor to inspect its books [16] and that the primary judge ought not to have resolved the issue of what it contended were "the disputed conversations" between the applicant and Mrs Wright on the set aside application. The applicant also sought to contend that the primary judge failed to give any, or any sufficient, weight to disclaimers included in the applicant's unaudited accounts inserted by its independent accountant to the effect that "[n]o person should rely on the special purpose financial report without having an audit or review conducted" and similar statements in other accounts. Finally, the applicant contended that the primary judge erred in failing to conclude that, if there was a loan account such as that for which the respondent contended, having regard to the fact that no demand had been made prior to service of the statutory demand, it could not be concluded that the debt was due and payable. Alternatively, they contended that if it was repayable on demand, there was an issue as to a limitation defence.
Next, the applicant contended that the primary judge ought to have concluded that there was "some other reason" for setting aside the statutory demand in circumstances where the respondent had agreed with Mrs Wright that he wanted to be repaid "as the company can afford it", that in late 2014 at two directors' meetings, he had failed to provide verifiable information about his dealings with the applicant and to hand over the accounting system to the other directors to permit an audit and that at a meeting in late 2014 it had been agreed, on the respondent's motion, that all future operational and management decisions for the applicant would be made by majority decision of the board. In such circumstances, the applicant contended, the respondent had acted precipitously in serving a statutory demand at precisely the time the other directors were questioning his claimed debt.
The applicant submitted that leave to appeal should be granted because the judgment below was clearly wrong, there were strong prospects of success on the appeal, and the consequences for it were severe in that it faced a presumption of insolvency and a winding up application contrary to the respondent's agreement and that in such a case there could be no certainty that leave would be granted under s 459S of the Corporations Act to challenge the respondent's debt.
Mr H Piper, solicitor, appeared for the applicant on the leave application. He relied upon the written submissions to which I have referred. In addition, Mr Piper submitted that the leave to appeal should be granted to examine the circumstances in which the respondent, who was in a fiduciary relationship with the applicant, claimed to be entitled to serve a statutory demand. He contended that it was not common for a statutory demand to be issued by a person in a fiduciary relationship with the company. Mr Piper also contended that there was an issue of equitable fraud to be examined to determine whether the respondent had acted unconscionably or in a deliberate breach of an equitable duty owed to the company. Mr Piper accepted that neither the issue of breach of fiduciary duty nor that of equitable fraud had been raised before the primary judge.
The respondent opposed the application for leave to appeal contending that nothing the applicant had advanced countered the force of the primary judge's findings referred to above. [17] The respondent also emphasised that the application did not meet any of the principles on which leave to appeal may be granted.
[4]
Consideration
Leave to appeal is required to challenge any judgment or order of the Court on an application under s 459G of the Corporations Act. [18] That provision reflects "a policy discouraging appeals in relation to statutory demands". [19]
Ordinarily it is only appropriate to grant leave to appeal in respect of matters that involve issues of principle, questions of general public importance or where it is reasonably clear there has been an injustice in the sense of going beyond it being reasonably arguable that the primary judge was in error. [20]
McLelland CJ in Eq explained in Eyota Pty Ltd v Hanave Pty Ltd [21] that in order to establish that there was a "genuine dispute", the applicant was required to demonstrate that there was a "plausible contention requiring investigation". His Honour continued:
"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."
The applicant does not contest the primary judge's conclusion of the comprehensive nature of the proof of each advance the respondent had provided to found his claim for a debt. To the extent the applicant seeks to complain that the primary judge ought to have found that there was a genuine dispute because there had been a refusal to allow inspection of the books and access to accounts, by the time the s 459G application was concluded, the applicant had had the opportunity to inspect all the primary documents upon which the respondent relied to evidence his loans. The applicant did not, as the primary judge found, advance anything affirmative to negate the force of those primary documents.
The applicant contends it is not to point that it failed to cross-examine the respondent as such a course only occurs "in an extreme case". [22] However, there are occasions where cross-examination may be permitted, if directed to whether there is a genuine dispute as to the existence of a debt, as distinct from the merits of any such dispute or claim. [23] This was such a case.
The applicant also contends that the respondent's evidence as to the conversations had "all the appearance of recent invention". That submission is difficult to sustain in the light of the primary documents which were clearly the best evidence of the monies the respondent had lent the applicant. Whatever the disclaimer in the company's accounts may mean (and it is notable that they are directed to third party reliance rather than to those operating the company) the production of the primary records was compelling evidence in support of his case. The applicant does not seek to controvert the authenticity of those records the respondent produced. Nor does it seek to challenge the primary judge's finding that the nature of the payments tended to show they were paid for the applicant's benefit.
As to the conversations between the respondent and Mrs Wright which the applicant wishes to dispute, his Honour was clearly conscious of the potential frailty of the oral agreement between the respondent and Mrs Wright, but found corroboration for it in the fact that she had signed the financial accounts for the applicant for many years during which the loan had appeared in those accounts. Further, there was support for the fact that the monies had been advanced from Mrs Brown's evidence.
Other matters the applicant sought to raise on the application concerning fiduciary duty and equitable fraud were not raised before the primary judge. The Court should not grant leave to appeal in relation to matters not raised in the Court below, especially where, as in the present case, it is plain that significant investigations of the facts would be required to resolve these contentions. [24]
The application in this Court did not, in my view, rise above the contention advanced below, that the applicant wished to put the respondent to proof. It might be thought that he had, albeit somewhat belatedly (a tardiness reflected in the primary judge's costs order [25] ) risen to that challenge. The applicant's case did not rise above mere assertion, based on "suspicion and uncertainty". That was insufficient to succeed on the s 459G application.
In my view, the applicant has not identified any issue of principle, question of general public importance or injustice which would warrant a grant of leave to appeal.
I would dismiss the application for leave to appeal with costs.
SACKVILLE AJA: I agree with McColl JA.
[5]
Endnotes
In the matter of Bevic Holdings Pty Ltd [2015] NSWSC 732.
Corporations Act, s 459H(1)(a); s 459J(1)(b).
Primary judgment (at [2] - [3]).
Primary judgment (at [1]).
Primary judgment (at [4] - [6]).
Primary judgment (at [7]).
Primary judgment (at [10]).
Primary judgment (at [22]).
Primary judgment (at [26]).
Primary judgment (at [27]).
Primary judgment (at [28], [30]).
Primary judgment (at [37]).
Primary judgment (at [39]).
Primary judgment (at [42]).
Primary judgment (at [43] - [44]).
Reinsurance Australia Corporation Ltd v Odyssey Re (Bermuda) Limited [2000] NSWSC 1118; (2000) 36 ACSR 348 (at 25).
See [10] above.
Supreme Court Act 1970 (NSW), s 101(2)(p).
Passion Projects (ALLYOUNEEDISLOVE) Pty Ltd v Concept Moulding Pty Ltd [2014] NSWCA 415 (at [3]) per Leeming JA (McColl JA agreeing).
Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69; Zelden v Sewell [2011] NSWCA 56 (at [22]); Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 (at [46]); GKD v Director of Department of Family & Community Service [2012] NSWCA 219 (at [10]); Be Financial Pty Ltd v Das [2012] NSWCA 164 (at [32]-[34]) cited with approval in Lee v New South Wales Crime Commission [2012] NSWCA 262 (at [12]) per Bathurst CJ (Macfarlan and Barrett JJA agreeing).
(1994) 12 ACSR 785 ("Eyota") (at 787).
Eyota (at 787).
Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 (at [67]) (Beazley P, Meagher and Gleeson JJA).
Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1.
See primary judgment (at [46] - [50]).
[6]
Amendments
21 July 2015 - Spelling correction of Counsel for the Respondent
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Decision last updated: 21 July 2015