Chase Manhattan Bank Australia Limited v OSCTY Pty Limited

unable to make a finding as to whether a copy of the letter of 3 November 1994 had in fact been sent to the appellant. I agree with the trial Judge as to this finding. The last matter raised was the rejection of an affidavit by Mr J G Florent, chartered accountant. Mr Florent deposed, inter alia:- "I am of the opinion that no reasonable or competent accountant nor the Nominee acting reasonably and competently could have reached the determination of trading losses that the Nominee did determine based upon the information supplied to him and referred to by me in paragraph 2 of this Affidavit. In my opinion there was insufficient information contained in the documents referred to by me in paragraph 2 of this Affidavit to enable the Nominee to make the Determination that he did." This passage amounted to an allegation of incompetence or bias on the part of Mr Sanford and his staff. It was entirely unsupported by reference to any details or any discussion of the matters set out in Mr Sanford's 13 page report and determination: cf Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 348. The affidavit merely made an allegation of incompetence or actual bias, neither of which was an issue, without referring to any facts from which the trial Judge could have inferred either of those things. The trial Judge correctly rejected it. I would allow the appeal, set aside the orders made by the trial Judge and substitute an order that the statutory demand be set aside and the Gillford Pty Ltd pay the costs of the application. The respondent, Gillford Pty Ltd, should pay the appellant's costs of the appeal. I certify that this and the preceding 6 pages are a true copy of the reasons for judgment of the Honourable Justice Davies. Associate: Date: 21 December 1995

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 571 of 1995 ) GENERAL DIVISION )

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: BURDON PTY LTD Appellant AND: GILLFORD PTY LTD Respondent

CORAM: DAVIES, HILL & WHITLAM JJ PLACE: SYDNEY DATED: 21 DECEMBER 1995

REASONS FOR JUDGMENT HILL J: The appellant, Burdon Pty Ltd ("Burdon"), appeals to this Court from the judgment of a judge of this Court dismissing its application to set aside, under s459G(1) of the Corporations Law ("the Law"), a statutory demand served upon it by the respondent, Gillford Pty Ltd ("Gillford"). The demand was dated 6 December 1994 and claimed that Burdon owed Gillford $149,618.72, calculated as follows: " SCHEDULE Description of Debt Amount of Debt Accumulated Trading Losses of Gillford Pty Limited in the period 27 July 1992 to 30 June 1994 as determined by Mr G Sanford of Deloitte Touche Tohmatsu on 2 December 1994 $184,118.72 Refund of Franchise Fee

pursuant to clause 3(b) of the Heads of Agreement between Burdon Pty Limited dated 10 June 1994 (the Agreement') $ 40,000.00 Sub Total $224,118.72 Less Amount to be deducted pursuant to clause 5 of the Agreement $ 74,500.00 Total amount $149,618.72" Burdon and Gillford had been engaged for some time and in various courts, in litigation. That litigation had been bitter and it may be inferred that the relationship between the two companies is likewise bitter. Among the litigation was a proceeding instituted in this Court in 1993 in its Australian Capital Territory Registry. As a result of a mediation, the parties to those proceedings agreed to a settlement of them without admissions, which was recorded in a document headed "Heads of Agreement" dated 10 June 1994. The settlement required Burdon to take over from Gillford the business and accumulated losses of a specified business on the basis, inter alia, that Burdon should pay Gillford an amount "equal to accumulated trading losses in the period 27 July 1992 to 30 June 1994". The provision for refund of franchise fee and the deduction of $74,500 referred to in the statutory demand, arise also out of this agreement. An attempted implementation of the agreement failed and precipitated further litigation. In the course of that litigation the parties agreed upon a procedure for the determination of the trading losses and there was prepared a document agreed between them headed "Agreed Procedure for the Determination of Trading Losses for the Purposes of Clause 3 of the Heads of Agreement" ("the Agreed Procedure"). This document provided for the determination of the trading losses by a practising accountant to be selected by the President of the Institute of Chartered Accountants. That person is referred to in the Agreed Procedure as "the nominee". It then provided for the nominee to determine the amount of the trading losses incurred by Gillford in respect of the specified business in the period from 27 July 1992 to 30 June 1994. The nominee was directed that he was to be satisfied that the trading losses had in fact been incurred by Gillford. Clause 3 of the Agreed Procedure contains the following relevant provisions: "(a)All communications between Gillford Pty Ltd (Gillford') or Burdon Pty Ltd (Burdon') and the nominee shall be in writing. Other than as set out herein, Gillford, Burdon or any person acting on behalf of either (each of which is hereafter referred to as a party') shall not communicate with the nominee. (b) Gillford shall provide to the nominee such accounting records and other documents as it relies upon to enable the determination of trading loss. All such material shall be available for inspection by Burdon at the offices of Sly & Weigall in Sydney for 5 clear business days before being provided to the nominee. (c) Burdon may within 10 clear business days of the materials being made available to it provide the nominee with any written submission or other written material it may wish. In the event that Burdon provides material to the nominee, it shall provide 2 copies and the nominee shall within 24 hours forward one copy to Gillford. (d) Gillford may within 7 clear business days of receiving its copy of a submission or other material provided by Burdon to the nominee provide to the nominee in reply a written submission and other written material. In the event that Gillford provides material to the nominee, it shall provide 2 copies and the nominee shall within 24 hours forward one copy to Burdon. (e) The nominee may make written request to Gillford to provide to the nominee such information as the nominee directs and Gillford so directed shall furnish, in duplicate, the information requested within 48 hours or such further time as the nominee allows, by written notice to Gillford, granted on written application of Gillford made within the 48 hours first referred to. The nominee shall forward a copy of any request, application from, [sic] or extension granted to, Gillford pursuant to this paragraph to Burdon and the nominee shall within 24 hours of receiving information from Gillford pursuant to this paragraph forward one copy to Burdon. (f) The nominee shall, if possible, determine the trading losses within 3 weeks of receipt of the material referred to in paragraph (b) or so soon thereafter as practicably possible. ..."

The costs of the nominee were to be borne by the parties who agreed to be bound absolutely by the nominee's determination. No appeal or review was to lie from it. The President of the Institute of Chartered Accountants ultimately appointed Mr Sanford of Deloitte Touche Tohmatsu to act as the nominee. On 2 December 1994 Mr Sanford reported that he had calculated the trading loss in relation to the specified business in the relevant period to be $184,118.72. In his report, Mr Sanford wrote, under the heading "Sources of Information": "In the preparation of this report we have relied upon the following information: - Ten boxes of accounting documentation submitted by Gillford Pty. Limited pursuant to Clause 3(b) of the Agreed Procedure. (Supporting documentation) - Financial statements and general ledgers requested by us from Paisley and Robertson, accountants to Gillford Pty. Limited under letter dated 25 october 1994, pursuant to Clause 3(e) of the Agreed Procedure. (Accounting records) - Revised financial statements, general ledger and stock reconciliation requested by us from Paisley & Robertson, Accountants to Gillford Pty. Limited under facsimile dated 7 November 1994. (Additional information) - Burdon Pty. Limited's written submission, under letter dated 10 November 1994 and supporting material pursuant to Clause 3(c) of the Heads of Agreement. (First submission) - Additional submission received from Burdon Pty Limited under facsimile dated 11 November 1994. (Second submission) - Gillford Pty. Limited's submission, dated 22 November 1994 and material pursuant to Clause 3(d) of the Heads of Agreement. This document was produced in two parts; response to first submission and response to second submission. - Bank Reconciliation requested by us from Paisley & Robertson, Accountants for Gillford Pty. Limited. (Additional information) In addition to the above we have had discussions with Paisley & Robertson."

Burdon now asserts that it is not bound by Mr Sanford's determination because it has been arrived at after breaches of either or both of cl3(a) and cl3(e) of the Agreed Procedure in that, as the report itself stipulates, discussions have taken place between the nominee on the one hand and Messrs Paisley & Robertson, accountants for Gillford, on the other. It is on this basis that Burdon seeks to set aside the statutory demand. Its submission is that it was an essential term of the parties agreement to the Agreed Procedure that there be no communications between Gillford or Burdon on the one hand and the nominee on the other, except where those communications were in writing and available for inspection by the other side. The prohibition extended as well to persons acting on behalf of either Gillford or Burdon, that is to say, inter alia, to Paisley & Robertson. It is said that strict performance of the agreement is a condition precedent to the emerging of any liability on the part of Burdon and the consequence of the agreement not being strictly complied with is that no liability on Burdon's part arises to pay any amount for trading losses to Gillford. It is perhaps at this point relevant to observe that proceedings have been commenced by Burdon in the Supreme Court of New South Wales for a declaration that the determination of the trading losses was not valid. These proceedings have not been cross-vested to this Court, although there was some contemplation by the parties that this would happen. However, Burdon was not prepared to have the matter cross-vested and heard at the same time as the application to set aside the statutory demand for whatever reason. On behalf of Gillford evidence was adduced from Mr Sanford. His evidence was that he was assisted in making the determination of trading losses (and thus in writing the report) by Ms Barker, an employee of his firm. He said that he had personally had no discussion with Messrs Paisley & Robertson. He said, however, that he had been told by Ms Barker and believed that she had had discussions with a Ms Haddrill of Paisley & Robertson and that the reference in the determination to discussions was a reference to Ms Barker's discussion. He then said:

"In coming to my determination I relied solely on material received in writing from Paisley Robertson and I did not rely on any conversation with or on any report of conversations held with Paisley Robertson. Any indication in the Determination to the contrary is incorrect and was not intended."

In oral evidence Mr Sanford said that he had at all times been aware of the procedure laid down in the agreement between the parties requiring all communications to be in writing and understood that the reason for this was because the parties were at loggerheads and there had to be a record of every communication. Nevertheless he had authorised Ms Barker to engage in discussions with Messrs Paisley & Robertson to see whether they had information of a class which he required to fulfil his instructions. He specified the information he wanted Ms Barker to find out. It was very particular information in relation to stock purchases, as Mr Sanford was looking for some guidance as to where that information might be sought and whether there was any summary that could pull together the information that had already been provided. A second conversation between Ms Barker and Ms Haddrill took place on or about 25 November, when Ms Barker sought to obtain a copy of certain bank reconciliations as at 30 June 1993 and 30 June 1991 respectively. She followed up this verbal request by sending a fax to Messrs Paisely & Robertson setting out the documents required. Ms Barker had a very prominent role in the preparation of the report. There was in evidence an account from Deloitte Touche Tohmatsu billing the time spent on the report, inter alia, by both Mr Sanford and Ms Barker. Not surprisingly, the time spent by Ms Barker was substantially greater than that spent by Mr Sanford. Indeed, even under the heading "Preparation of Final Report" Mr Sanford spent only 4.4 hours of time, as against Ms Barker's 15.4 hours. Review and analysis of documentation and records was largely carried out by Ms Barker. When asked why he had authorised Ms Barker to make direct contact with the accountants, Mr Sanford said that he was conscious that the parties wanted a determination within three weeks and so took the view that he had to be prompt in arriving at his determination. Neither Ms Barker nor Ms Haddrill were called to give evidence. There was no suggestion they were unavailable. THE JUDGMENT APPEALED AGAINST His Honour concluded, and indeed it was not in dispute, that there had been breaches of both cl3(a) and cl3(e) by Gillford (through its accountants Paisley & Robertson) and Mr Sanford. However, he noted that Mr Sanford had acted in complete good faith and that it had not been suggested to the contrary. His Honour then said:

"In all the circumstances it is my view that although there was a breach by both Gillford and Mr Sanford [sic] of clauses 3(a) and (e) of the Agreed Procedure it is, I think, a breach that had no causative effect in relation to the preparation of the report of Mr Sandford [sic]. It seems to me to be unreal to say that, whatever may have been actually said in the course of the telephone discussions between Ms Barker and Ms Haddrill or other persons of Paisley Robertson, would have been outside the ambit of the written request which followed the discussion and the material that was supplied pursuant to it. Although the contravention of the clauses was regrettable, I do not think it is a contravention that has led to any relevant result so far as the issues in this case are concerned: cf the reasoning of Burchett J in the field of administrative review under the Administrative Decisions (Judicial Review) Act (1977), Australian Conservation Foundations [sic] v Forestry Commission (1988) 79 ALR 685 at 693."

In the result his Honour concluded that there was not a genuine dispute between the parties and dismissed the application. THE APPELLANT'S GROUNDS OF APPEAL The grounds of appeal sought to be argued on behalf of Burdon fell into two categories: procedural and substantive. Procedurally it was submitted that his Honour had erred in rejecting an affidavit by an accountant, Mr Florent, in admitting certain evidence said to be hearsay from Mr Sanford and by failing to draw an inference that the evidence of Ms Barker, and presumably Ms Haddrill, would not have been helpful to the respondent. Substantively it was submitted that his Honour erred in finding there was no genuine dispute between the parties as to the existence or amount of the debt, and indeed should have held that there was a breach of an essential term of the agreement between the parties so as to vitiate Mr Sanford's determination of the losses. THE PROCEDURAL ARGUMENTS At the hearing at first instance, counsel for Burdon sought to read an affidavit of Mr Florent, the accountant for Burdon. In that affidavit Mr Florent said: "2. I have read and considered the Agreed Procedure for Determination of Trading Losses, the Respondent's Primary Accounting Material held at the offices of Sly & Weigall in Sydney and the following Respondent's Submissions to the Nominee made pursuant to the Agreed Procedure:- (i) Shipard Consulting Pty Ltd dated 7 November 1994. (ii) Shipard Consulting Pty Ltd dated 22 November 1994. (iii) Sly & Weigall together with attachments dated 25 November 1994. (iv) Sly & Weigall together with attachments dated 28 november 1994. I have also read and consider the Determination of the Nominee dated 2 December 1994. 3. I am of the opinion that no reasonable or competent accountant nor the Nominee acting reasonably and competently could have reached the determination of trading losses that the Nominee did determine based upon the information supplied to him and referred to by me in paragraph 2 of this Affidavit. In my opinion there was insufficient information contained in the documents referred to by me in paragraph 2 of this Affidavit to enable the Nominee to make the Determination that he did."

His Honour did not permit that affidavit to be read. In an ex tempore judgment given during the course of the proceedings his Honour said: "In my opinion it is beyond the field of expertise of Mr Florent to reach a conclusion of the kind to which he has. It is also my view that it is irrelevant to any issue in the case for an expert witness to express those views. What he says is what this court has to determine, not what an expert can say. I reject his affidavit."

His Honour returned to the rejection of this evidence when giving judgment, dismissing the application to set aside the statutory demand. His Honour said: "I would add that I earlier rejected evidence by affidavit from Mr J.G. Florent and I gave reasons at that time for that rejection. I would add now that, even if I had admitted Mr Florent's evidence, which is essentially paragraph 3 of his affidavit, the evidence would have had, in my opinion, no probative force in the case because the basis on which he expressed the opinion there referred to is not stated by him in his affidavit. Also, the matters to which he directs his attention are matters solely for the Court to determine, and I have determined them."

With respect to his Honour, I do not think that the evidence was wholly irrelevant. The point sought to be made has to be seen in the context that Mr Sanford, in his report, had said that regard had been had to conversations with Gillford's accountant. Mr Florent's evidence was that on the written material to which Mr Sanford had regard, and that alone, no reasonably competent accountant could have arrived at Mr Sanford's result. The logical conclusion from this evidence is, assuming that Mr Sanford was a reasonably competent accountant and there is no suggestion to the contrary, that there must have been some other material which was taken into account in the writing of the report. Nor do I understand his Honour's reference to the views of Mr Florent being objectionable because the matter on which he gave evidence was a matter solely for the Court to determine. It was not an issue at all for the Court to determine whether the figure derived at by Mr Sanford was a reasonable figure or was otherwise correct. In any event, consideration would then have to be given to s80 of the Evidence Act 1995 (Cth), as to which see the discussion in Pepsi Seven-Up Bottlers Perth Pty Ltd v Commissioner of Taxation (unreported, Hill J, 10 November 1995).

Perhaps the vice in the affidavit lay not in these matters but in the matter addressed by his Honour in his final judgment, namely, that the basis upon which Mr Florent had expressed his opinion was not set out in the affidavit at all. Thus counsel for Gillford complains that the opinion of Mr Florent would have been admissible only if the premises, that is to say the facts upon which his opinion was based, were expressly stated in his report. This is said to be a rule of general application, at least where there is complicated litigation: Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313 at 348. There is a question in my mind as to how complicated the litigation was in the present case and whether the principle discussed in Arnotts has any relevance to it. Certainly it is the case that the evidence would have had little probative value if left where it was. Admissibility and weight are, however, two different things. Ultimately, I find it unnecessary to reach a final conclusion. Even if the material in the affidavit were admitted it would not, in my view, affect the outcome of the appeal. The second evidentiary objection concerned the paragraph of Mr Sanford's affidavit dealing with what Mr Sanford had been told by Ms Barker. The passage objected to, to which reference has already been made, was in the following terms:

"7. ... I am informed by Catherine Barker and verily believe that she had brief discussions with Lynnette Haddrill of Paisley Robertson."

It is submitted that this evidence should be rejected as hearsay. With respect, I agree with his Honour that the evidence was admissible and was not hearsay. Clause 7 was adduced not as evidence of the truth of the fact that Ms Barker had had discussions with Paisley & Robertson (which was, in any event, admitted) and certainly not to prove the substance of those discussions which were left unsaid, but rather to prove the fact that Ms Barker had told Mr Sanford that she had had conversations. On that basis the evidence was admissible as direct evidence and was not hearsay. The final procedural matter complained of was the failure on the part of counsel for Gillford to call either Ms Barker or Ms Haddrill. If the matter before the Court had been a trial of the merits, that is to say, either a trial of the declaration presently in the Supreme Court of New South Wales or, alternatively, proceedings in a court for recovery of the amount said to be owed by Burdon to Gillford, the failure to call Ms Barker and/or Ms Haddrill might well have been significant. It could then have been said that there was an inference capable of being drawn from the fact that Ms Barker had prepared the report and that she had mentioned in the report conversations with the accountants, that those conversations had influenced the outcome. That inference could clearly be more confidently drawn by the failure to call either Ms Barker or Ms Haddrill, the only persons who were in fact aware of what the conversations were. But to say that is to direct attention away from the very nature of the proceedings before his Honour. It is to that matter to which attention should be drawn and to which I now turn. THE SUBSTANTIVE COMPLAINT The background to Division 3 of Part 5.4 of the Law concerned with statutory demands is dealt with in the judgment of Gummow J, with whom Brennan CJ, Dawson, Gaudron and McHugh JJ agreed, in David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 131 ALR 353. Suffice it to say here that the present provisions of the Division stem from the recommendation of the Law Reform Commission in the "Harmer Report" (Law Reform Commission Report No. 45, General Insolvency Inquiry). Relevantly, that Report recommended that where a debt forming the basis of a statutory demand was disputed or some other dispute arose in respect of a statutory demand, that dispute be dealt with at a stage earlier than the winding up proceedings. Hence, s459G was introduced to permit a company to apply to the Court for an order setting aside a statutory demand served upon it where the application is made within twenty-one days of the demand being served. It is a ground for setting aside the statutory demand that there is a genuine dispute between the company and the person serving the demand about the existence or amount of the debt to which the demand relates: s459H(1). If that dispute is as to the whole of the amount demanded, then the demand will be set aside. If the dispute is only as to part, the Court may vary the demand: s459H(4). Thus the statutory issue in a case such as the present is whether there is "a genuine dispute" between the parties, either as to the existence or the amount of the debt. There have now been many cases which have considered the test to be applied by the Court. They are conveniently summarised by Lindgren J in Chase Manhattan Bank Australia Limited v OSCTY Pty Limited (1995) 17 ACSR 128 at 135. His Honour says: "The references in s459H to the Court's being satisfied' that there is a genuine' dispute and satisfied' that the Company has a genuine' claim against the person who served the demand on it, have been the subject of judicial consideration: see for example Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362; [1994] 2 VR 290 (Vic/Hayne J) at 366-67; Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 (Qld/Thomas J) at 605-606; Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 120 ALR 173; 12 ACSR 341 (FCA/Beazley J); (Scanhill) at 356-57; Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446; 13 ACSR 525 (FCA/Hill J) at 526-27; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 (FCA/Lockhart J); Hamilhall Pty Ltd (In Liq) v AT Phillips Pty Ltd (1994) 15 ACSR 247 (FCA/Branson J); Rohalo Pharmaceuticals Pty Ltd v RP Scherer SpA (1994) 15 ACSR (FCA/Lindgren J (Rohalo)). Their meanings have been illuminated by analogies found in applications for injunctions to restrain the commencement, advertisement or prosecution winding up of proceedings, pre-dating the enactment of s459G (Scanhill), and in the opposing of a notional application by the person who served the statutory demand for summary judgment against the company for the debt the subject of the demand (Rohalo). Consistently with these cases, I ask whether Oscty has satisfied me that there is a serious question to be tried' or an issue deserving a hearing' as to whether it has a claim against Chase."

One thing is clear. It was not intended by the legislature that the Court would, in an application to set aside a statutory demand, embark upon any extended inquiry into the merits of the case. All the Court need do is determine where there is a genuine dispute. In Re Morris Catering (Australia) Pty Ltd (1993) 41 ACLC 919, (1993) 11 ACSR 601 referred to by Beazley J in Scanhill, Thomas J said: "There is little doubt that Div 3 is intended to be a complete code which 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 the result of it) and to identify the genuine level of an offsetting claim (not the likely result of it)."

The difference in policy underlying the provisions of the Bankruptcy Act 1966 (Cth) relating to a bankruptcy notice and the provisions of the law relating to a statutory demand, can readily be seen. A creditor is not entitled to have a bankruptcy notice issued unless the creditor has actually obtained a judgment. At least where the claim of the creditor is defended, that judgment will have been obtained only after a hearing. Ordinarily that judgment will thus be conclusive of liability. Where a judgment by default is obtained the Court will not, as a matter of course, look behind the judgment. Although, the fact that the judgment was obtained by default will make it more likely that a court in bankruptcy will look behind the judgment to ascertain whether there was in truth an reality a real debt: Wren v Mahoney (1972) 126 CLR 212.

A statutory demand, on the other hand, may be served notwithstanding that no judgment has been entered. This clearly can have the consequence that a creditor may issue a statutory demand as a means of collecting a debt and, as an alternative, to obtaining judgment. For this reason the view was early taken that a court would not, as a matter of discretion, make a winding up order where a bona fide dispute existed as to the debt: cf Mibor Investments at 9 citing McPherson, The Law of Company Liquidation (3rd Ed) at 63. If such a dispute existed then the creditor should take proceedings to obtain judgment against the debtor company and the dispute should be litigated in those proceedings. The statutory test now enshrined in s459H obviously derives from the Court's reluctance to have winding up proceedings used for debt collecting and involves a statutory embodiment of this reluctance. There may, no doubt, be occasions where the Court in reaching a satisfaction that there is no genuine dispute between the parties as to the existence or amount of a debt really reaches a conclusion that there is no debt at all. An analogy can be drawn from cases where summary judgment is resisted. The general rule is that a party is not to be denied a trial unless the absence of a cause of action or defence is clearly demonstrated. The question is often said to be whether a defence is so obviously untenable that it can not possibly succeed: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, see at 129, Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91. If the case is one which can be disposed of by determining a short question of law, or perhaps a question of construction of an instrument, this can be done. Where facts may be in dispute, however, it would ordinarily be inappropriate to proceed to determine the merits. If the case is one where there is a "plausible contention requiring investigation" the case will ordinarily be one where there is a "genuine dispute": Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 per McLelland CJ in Eq, Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at 384. Lockhart J in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 recognised that the standard of satisfaction which the Court requires will not be particularly high. His Honour said (at 39): "Certainly the Court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute. The notion of a `genuine dispute' in this context suggests to me that the court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the court must be careful, because if all an applicant has to do is to assert both a claim and some basis of it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime."

Whatever the proper test to be applied, even if it were as high as a requirement on the part of an applicant to establish a prima facie case, the applicant did that in the present case. It showed, by tendering Mr Sanford's report, that there had been a breach of both cll3(a) and 3(e). Clearly the extent of that breach and its causative effect would not be information known to Burdon. It was not the party in breach. What it had done in the context of the agreement between the parties was establish that a breach had occurred of a term which commercially at least was regarded by the parties as significant. If ever parties appeared to have viewed each other with suspicion it was the parties to the present proceedings. Their suspicion of each other was so great that they wished to ensure that any communication between them or their agents and the nominee be not merely in writing but be exposed to each other. It was in this context that Burdon demonstrated a breach. Of course that is not the end of the matter. For Burdon ultimately to succeed in showing that the amount referred to in the statutory demand is not owing, it would need to show that the term prohibiting oral communication was an essential term so that the breach itself was a breach of a term essential to the contract. If the term were essential, it is arguable whether it would be necessary for Burdon to show that the breach was causative of an error. If the breach was of an essential term then that might be the end of the matter: Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR NSW 632 at 641-2, approved in Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 337 and see DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1977-8) 138 CLR 423 at 431. There is an alternative way of analysing the agreement between the parties. Essentially the parties have agreed to appoint an expert to determine the amount of the losses. The decision of that expert is final and binding upon the parties. In so far as different rules apply to impugning the decision of an arbitrator on the one hand and an expert valuer on the other, a question may arise as to whether the present circumstances should be characterised as the appointment of an arbitrator designed to hear both sides in written submissions and then make a determination on the one hand, or a real expert valuer on the other. The question is not solely one of the label used by the parties, although the label used will have significance: Edmund Barton Chambers (Level 44) Co-Op Ltd v Mutual Life & Citizens Assurance Co Ltd [1984] NSW Conv R 55-177 and the cases noted in Jacobs: Commercial Arbitration Law and Practice, Law Book Company Ltd, 1990, Chapter 12. The determination of an expert, if that is what Mr Sanford was, could only be impugned on very limited grounds, for example, fraud or collusion or perhaps where the approach taken by the expert valuer involved a departure from the question referred to him or her: see per McHugh J in Legal & General Life Australia Ltd v A Hudson Pty Ltd [1985] 1 NSWLR 314 at 331. A denial of natural justice may also operate to vitiate the award of an expert. Particularly it will ordinarily be irrelevant that the expert has made a mistake or adopted a wrong basis for his or her conclusion. I leave aside the question of the liability in negligence to one or other party of the expert, a topic considered by the House of Lords in Arenson v Arenson [1977] AC 405. Primarily the question whether an award of an expert may be set aside for error will depend upon the terms of the contract appointing that expert. McHugh J in the Hudson case had this to say (at 335): "In my opinion the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, express or implied. This was pointed out by Sir David Cairns in the Court of Appeal in Baber v Kenwood Manufacturing Co Ltd (at 181). A valuation obtained by fraud or collusion can usually be disregarded even in an action at law. For in a case of fraud or collusion the correct conclusion to be drawn will almost certainly be that there has been no valuation in accordance with the terms of the contract. As Sir David Cairns pointed out, it is easy to imply a term that a valuation must be made honestly and impartially. It will be difficult, and usually impossible, however, to imply a term that a valuation can be set aside on the ground of the valuer's mistake or because the valuation is unreasonable. The terms of the contract usually provide, as the lease in the present case does, that the decision of the valuer is `final and binding on the parties'. By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision. It is now settled that an action for damages for negligence will lie against a valuer to whom the parties have referred the question of valuation if one of them suffers loss as a result of his negligent valuation. ... But as between the parties to the main agreement the valuation can stand even though it was made negligently. While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract."

A mere procedural mistake on the part of an expert not involving a denial of natural justice will not vitiate an expert's determination. This will particularly be the case where the procedural defect is immaterial. That will be so, ordinarily, because any procedural requirements which the parties may stipulate will not be essential to the contract between them. Where, on the other hand, the parties contract in circumstances where the procedural terms are essential, a different conclusion may arise. Whether that is the present case is a matter for argument and is better left for a court dealing with the merits to decide. There is, as well, in the present case a factual question to be investigated. It is clear, and it is in any event admitted, that conversations did take place in breach of cll3(a) and 3(e). Whether those conversations were ultimately material and the substance of those conversations is a matter upon which evidence in due course requires to be heard. For the present, if materiality be an unimportant issue and on the case of the respondent it is and on the case of the appellant it is not, evidence will need to be taken with the full benefit of court procedures such as discovery, interrogatories and the like, procedures not readily appropriate to an application to set aside a statutory demand. We were invited to consider the relevant law and the facts and to come to a conclusion whether Burdon was in fact liable to Gillford for the amount determined by Mr Sandford, as Gillford submitted, or whether the award was vitiated by force of the failure on the part of Mr Sanford and on the part of their accountants to abide by cl3(a) and cl3(e). For my part I decline to accept this invitation. Rather, I would content myself with deciding the real issue between the parties, namely, whether there is a genuine dispute between them. In my view, that is unquestionably the case from which it follows that the statutory demand should be set aside. I would accordingly allow the appeal with costs. I certify that this and the preceding twenty-six (26) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Hill. Associate: Date: 21 December 1995

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 571 of 1995 ) GENERAL DIVISION )

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: BURDON PTY LTD Appellant AND: GILLFORD PTY LTD Respondent

CORAM: DAVIES, HILL & WHITLAM JJ PLACE: SYDNEY DATED: 21 DECEMBER 1995

WHITLAM J I agree with the judgment of Hill J. I certify that this is a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam

Counsel and Solicitors BJ Toomey QC with GA Farmer for Appellant: instructed by Donovan, Oates & Hannaford Counsel and Solicitors CP Comans instructed by Sly & for Respondent: Weigall Date of Hearing: 1 December 1995 Date Judgment Delivered: 21 December 1995