Corporations - Winding up - Application to substitute creditor - Whether genuine dispute as to debt - Turns on own facts

Corporations Act 2001 (Cth), s 465B

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669

South East Water Ltd v Kitoria Pty Ltd (1996) 14 ACLC 1328

Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294

ACP Syme Magazines Pty Ltd v TRI Automotive Components Pty Ltd (1997) 15 ACLC 732

Bingham v Iona Corporation Pty Ltd [1995] FCA 1195; (1995) 13 ACLC 560

DKM Building Materials Pty Ltd v Baker Timbers Pty Ltd (1985) 3 ACLC 729

Fire & All Risks Insurance Co Ltd v Southern Cross Exploration NL (No 1) (1983) 1 ACLC 971

Kelvingrove (1993) Pty Ltd v Paratoo Pty Ltd (1998) 16 ACLC 964

Melbase Corporation Pty Ltd v Segenhoe Ltd [1995] FCA 1225; (1995) 13 ACLC 823

National Australia Bank Ltd Pty v Market Holdings Pty Ltd [2000] NSWSC 1009; (2000) 50 NSWLR 465

Re J L Young Manufacturing Co Ltd (1900 2 Ch 753

Re Ripon Investments Pty Ltd (1985) 3 ACLC 733

Savings & Investment Bank Ltd v Gasco Investments (Netherlands) BV (1984) 1 WLR 271

Selim v McGrath [2003] NSWSC 927; (2004) 22 ACLC 112

1 MASTER NEWNES: This is an application by Comtel Services Pty Ltd ("Comtel") under s 465B of the Corporations Act 2001 (Cth) to be substituted as applicant in proceedings to wind up the respondent, E-Span Solutions Pty Ltd ("E-Span"). The debt of the original applicant, Corser and Corser, has been satisfied and Corser and Corser no longer seeks to pursue the application for winding up. E-Span opposes the substitution on the ground that there is a genuine dispute between E-Span and Comtel as to the debt claimed by Comtel.

2 Comtel alleges that E-Span is indebted to it in an amount of $225,000, pursuant to a written agreement for the sale of Comtel's business (the "sale agreement") and a convertible note agreement (the "convertible note") made between Comtel and E-Span. By the sale agreement, Comtel agreed to sell to E-Span certain assets, including intellectual property rights in relation to Comtel's business of supplying fibre-optic cabling and providing various associated services. The sale agreement provided that Comtel sold the assets to E-Span for the total sum of $225,000, to be paid by an instalment of $25,000 not later than 15 October 2003, a further instalment of $25,000 within 90 days of the first payment and the balance of $175,000 by way of a convertible note executed on settlement. The settlement date was 27 June 2003.

3 The sale agreement provided, by cl 6, that E-Span would assume and pay, when due, all debts and liabilities of the business specified in Sch G of the sale agreement. By cl 7 of the sale agreement, E-Span was entitled to receive payment of all debts due and payable to Comtel up to and including the settlement date.

4 Clause 11(1)(h) of the sale agreement provided, so far as relevant, that Comtel represented and warranted that the facts set out in the schedules to the sale agreement were true, complete and accurate in all respects and that all information provided by or on behalf of Comtel to E-Span with respect to the assets was true and accurate in all respects. Clause 9.1(b) provided, in effect, that it was a condition precedent to E-Span's obligations under the sale agreement that all representations and warranties by Comtel, and any written statement delivered to E-Span under the sale agreement, was true as at settlement date.

5 By cl 13 of the sale agreement, relevantly, Comtel agreed to indemnify and hold harmless E-Span from any losses, liabilities or damage from or relating to any breach of any warranty contemplated by the sale agreement.

6 The convertible note is dated 27 June 2003. By the convertible note, Comtel agreed to provide the sum of $175,000 to E-Span. That sum was repayable on the first anniversary of the convertible note. The convertible note provided that Comtel may at any time prior to that date convert the whole amount into shares in E-Span by serving notice on E-Span. It also provided, however, that if all the shares in E-Span were acquired by a publicly listed entity, then the sum advanced would convert into shares in E-Span.

7 It was a term of the convertible note that an event of default under it occurred, among other things, if E-Span did not pay on time any money due and payable under the sale agreement.

8 The instalments of $25,000 were not paid in accordance with the sale agreement and on 18 February 2004 Comtel served on E-Span a default notice under cl 8 of under the convertible note requiring payment by 19 February 2004 of the sum of $175,000 owing under the convertible note. No moneys were paid to Comtel and on 17 May 2004 it applied to be substituted as the applicant in this application. As I have said, E-Span opposes that substitution on the ground that there is a genuine dispute as to E-Span's indebtedness to Comtel.

9 I should say at the outset that the affidavit material filed on this application was extensive and by no means easy to follow. Indeed, it was apparent that even counsel had difficulties grappling with the affidavit material in the course of the hearing. As a consequence, the matter has consumed more time than it should have done.

10 There was some initial confusion as to the final form of the sale agreement. According to Mr Shirren of Comtel, there were negotiations between representatives of E-Span and Comtel in February and March 2003 regarding the purchase by E-Span of Comtel's business. He says that on 17 March 2003, at a meeting he had with Mr Medford of E-Span, it was agreed that E-Span would buy all the assets and liabilities of Comtel and, so far as possible, take over all of Comtel's creditors and debtors. A letter of offer was signed in April 2003. Mr Shirren says that in order to enable E-Span to prepare a written agreement, he sent to Mr Medford, among other things, a balance sheet of Comtel as at 23 April 2003 and an aged summary of debtors as at that date. Copies of the documents are annexed to his affidavit of 17 May 2004. They show total debtors as at that date in the sum of $181,007.86.

11 Mr Shirren says that a preliminary set of agreements, being agreements for the sale of the business, a fixed charge and the convertible note, was signed but he was not provided with copies of the documents. There were then some delays because of difficulties experienced by E-Span, including difficulties with a proposed takeover of E-Span by Didasko Ltd. Mr Sherrin says that he agreed with Mr Medford that a new set of agreements would be signed, the only material change being to the dates for the two payments of $25,000. According to Mr Shirren, E-Span prepared those documents and on 27 June 2003 he attended at Mr Medford's office to sign the new agreements. He says he took with him copies of the balance sheet, profit and loss statement, detailed profit and loss statement and a list of debtors and creditors of Comtel as at 27 June 2003 for inclusion in Sch G of the sale agreement. The agreed settlement date was 27 June 2003.

12 Mr Shirren says he signed the documents and was told that he would be provided with copies in due course, after they had been assessed for stamp duty. Mr Shirren says that since settlement he has been requesting a copy of the signed sale agreement but that has not been provided to him.

13 In an affidavit sworn 26 May 2004, Mr Medford appears to agree that an sale agreement for the purchase of the business was entered into on about 24 April 2004 but says that a new agreement was not signed on 27 June 2003. According to Mr Medford, all that was done on 27 June 2003 was that the balance sheet of Comtel, as at 27 June 2003, was inserted into the agreement as Sch G. The charge and convertible note were executed on 27 June 2004. Mr Medford annexes to his affidavit a copy of the balance sheet that he says was annexed to the agreement. It shows trade creditors in an amount of $154,982.60.

14 It appears from the affidavits that Mr Medford has filed in this application that he understood Comtel to contend that the relevant balance sheet was one showing trade creditors as at 27 June 2003 in the total sum of $181,007.86. Mr Medford alleges that, after 27 June 2003, Mr Shirren tried to replace the balance sheet in Sch G of the sale agreement with one that showed trade creditors in that sum. According to Comtel, however, there is no substance in that allegation and Comtel says that Mr Medford has confused the balance sheet attached as Sch G to the sale agreement executed on 27 June 2003 with the balance sheet as at 23 April 2003 which had earlier been provided to him. The latter balance sheet, a copy of which is attached to Mr Shirren's affidavit, shows trade debtors as at 23 April 2003 in an amount of $181,007.86.

15 Comtel says that Sch G to the final sale agreement was a balance sheet of Comtel as at 27 June 2003, showing trade creditors in a total sum of $154,982.60. In the end, therefore, that appeared to be common ground. It appears from Mr Shirren's affidavit of 20 July 2004 that the balance sheet was accompanied by an aged list of debtors in the amount of $154,982.60. A copy of the list is annexed to Mr Shirren's affidavit.

16 It follows, pursuant to cl 6.2 of the sale agreement, that it is that sum of $154,982.60 that E-Span is required to pay to creditors of Comtel.

17 In his affidavit of 26 May 2004, Mr Medford says that it was an implied term "of the transaction" that the total liability of Comtel to creditors was no more than the sum of $154,982.60, as shown in Sch G, and that all of its liabilities to creditors had been disclosed. I take that to mean that E-Span says it was an implied term of the sale agreement that the total liability of Comtel to creditors was no more than $154,982.60 and that all of its liabilities had been disclosed. Mr Medford goes on to say that a dispute has arisen as to whether in fact the amount owed by Comtel to its creditors at settlement totalled $154,982.60 or $181,007.86, as appears from the balance sheet of Comtel dated 24 April 2003, or an even greater amount.

18 Mr Medford says that the total amount owing by Comtel to creditors as at the settlement date has not yet been fully ascertained and that Comtel has failed to provide E-Span with sufficient information to enable it to ascertain the full extent of that liability. Mr Medford says he believes that creditors with claims exceeding $250,000 have approached E-Span with requests for payment. Although Mr Medford deposes to the fact that he is a director of E-Span and familiar with its affairs, no detail is provided of the creditors referred to and Mr Medford does not reveal the basis of his belief.

19 Mr Medford says he believes that, as at the date of his affidavit, E-Span and/or Didasko Ltd, on its behalf, have made payments in excess of $50,000 to creditors of Comtel and that Didasko has made payments in excess of $360,000 to E-Span, "and that part of these payments were made to creditors [of Comtel]". In support of the first assertion, Mr Medford simply annexes a list of entities (headed "creditor") and the amounts said to have been paid to each of those entities, totalling $50,100.57, and in respect of the second, he annexes what is said to be an extract from the general ledger of Didasko Ltd, consisting of a list of entities to which it is said payments have been made and the amount paid to each, totalling $361,195.59. Of that amount, some $292,368.48 is shown as direct payments to E-Span. The dates ascribed in the document to the various payments made by Didasko range from 4 December 2003 to 23 March 2004.

20 In an affidavit of 15 July 2004, Mr Medford reiterates that he believes the debts of Comtel at settlement exceeded the amount disclosed to E-Span. In support of that, he says, at par 8 of his affidavit, that he has been contacted by at least three creditors who were not disclosed in the list of creditors provided by Comtel, claiming an amount of approximately $75,000. Mr Medford then goes on at par 9 of his affidavit as follows:

"I have spoken to at least 3 organisations who claim to be creditors of the Applicant prior to the sale of the Applicant's business to the Defendant and whose alleged debts were disclosed to the Defendant prior to the sale agreement for sale in April 2003. Of those 3 creditors, the ones whose names I can remember are Page Data and EIW. I have been told by the 3 creditors whose information I verily believe to be true because the 3 creditors have already been paid and stand to gain nothing by not telling the truth, that they were instructed by Mr Shirren to re-issue their accounts in the name of E-Span (that is the Defendant) and that those accounts would then be paid. I am aware from information provided to me by Ms Marissa Cappatta of the Defendant's accounting department, which information I verily believe to be true, because the Defendant's accounts employees normally tell the truth about such matters and have no benefit whatsoever in not being truthful, that there have been liabilities of the Applicant paid by the Defendant in relation to invoices which were re-issued in the name of the Defendant but in respect of which the Defendant had no liability to pay."

"On the basis of the information provided to me by creditors of [Comtel] with whom I have had discussions, the re-issuing of invoices from [Comtel's] name to [E-Span's] and the replacement of the original list of creditors with the second list (and also with the replacement of the original Statement of Assets and Liabilities of the second list) I believe that it is likely that the creditors of [Comtel] as at the date of settlement exceeded the sum of $181,007.86."

22 Mr Medford says that E-Span is undertaking an audit of all apparent creditors to identify the creditors of Comtel which did not form part of the liabilities accepted by E-Span under the sale agreement and to ascertain which of those creditors have been paid by E-Span.

23 It was accepted by E-Span's counsel that the obligation of E-Span under the sale agreement was not to discharge all of Comtel's trade creditors as at the settlement date, but only those specified in Sch G. He submitted, however, that that was not the end of the matter. First, if the trade creditors exceeded the amount in schedule G, then the refusal of E-Span to meet the actual debt owed would result in the creditors concerned ceasing to supply the business. Second, if payments had been made, even mistakenly, to creditors of Comtel in excess of $154,982.60, then E-Span is entitled to recover the amount of the overpayment from Comtel and therefore has an offsetting claim against Comtel.

24 There is, however, no evidence to suggest that if E-Span failed to pay debts incurred by Comtel prior to the settlement date, in excess of the amount set out in Sch G, then the creditors concerned would refuse to supply E-Span or otherwise act to its disadvantage. Nor was there any evidence that any debts incurred by Comtel prior to settlement had been paid by E-Span for that reason.

25 As to the second proposition, I do not consider there is any credible evidence which suggests that E-Span has paid debts of Comtel exceeding the amount set out in Sch G of the sale agreement. As I have mentioned, Mr Medford says he "believes" that E-Span and/or Didasko on its behalf have paid $50,000 to creditors of Comtel. He does not state the basis of that belief and simply refers to a list of "creditors" and the sum said to have been paid to each of them. He neither produces nor refers to any primary documents relating to such debts nor does he say when the respective debts were incurred or paid.

26 The document that is described by Mr Medford as containing details from the general ledger of Didasko Pty Ltd, annexed to Mr Medford's affidavit of 26 May 2004, simply lists (without explanation) various payments said to have been made by Didasko Ltd. It appears from the document that, with one exception, all of the payments were made in March 2004. One payment has no date ascribed to it. In his affidavit Mr Medford says only that he "believes" that "part of these payments were made to creditors" of Comtel. Mr Medford does not say what "part" of the payments he believes were made to Comtel's creditors, although in his affidavit of 15 July 2004 he refers to six entities mentioned in the document, with debts totalling $38,529.29, and simply says they were creditors of Comtel. The basis of that assertion is not evident and the basis of Mr Medford's belief as to the payments allegedly made by Didasko, and the nature of the payments, is also not explained. In that context, I should note that there is no suggestion that Mr Medford is an officer of Didasko or is privy to its affairs or internal documents.

27 It is also notable that the contents of the document were not verified by any officer or employee of Didasko, although a Mr Adam Cossar, the chief operating officer and joint company secretary of Didasko, swore an affidavit on 10 June 2004 (and re-swore it on 9 July 2004) in relation to the issue of shares in Didasko to Comtel. Mr Cossar's affidavit makes no mention of the debts allegedly paid by Didasko on behalf of E-Span; it is silent on the subject.

28 In light of its vagueness, I do not consider that any weight can be given to Mr Medford's evidence as to the approaches he says he has received from creditors not referred to in Sch G. In the first place, it is difficult to understand that evidence. It is unclear whether the three creditors owed $75,000, referred to in par 8 of his affidavit, are the same as the three creditors referred to in par 9. More particularly, the statement "I am aware from information provided to me by Ms Marissa Cappatta of the Defendant's accounting department ... that there have been liabilities of the Applicant paid by the Defendant in relation to invoices which were re-issued in the name of the Defendant but in respect of which the Defendant had no liability to pay" is so vague as to be of no value at all. Secondly, no attempt has been made to provide any details indicating the amount or nature of any of the liabilities referred to, or the creditors involved, although in order for such an assertion properly to be made some details at least would have to be available to E-Span. The vagueness of the allegation necessarily precluded Comtel from responding to it.

29 As I have mentioned, Mr Medford says that an audit is being carried out of past and present creditors to ascertain debts of Comtel which E-Span has paid, but for which it was not liable. The audit commenced in 2003 and, according to Mr Medford, as at 15 July 2004 was still to be completed as not all creditors had responded to E-Span's enquiries. What is notable, however, is that despite that audit, and the time that has elapsed since settlement, no evidence has been adduced by E-Span as to any specific payment that E-Span has made for which it was not liable nor has any creditor to whom such a payment has been made been identified. Nor has any specific undisclosed creditor or debt been identified.

30 I did not understand counsel for E-Span to rely upon the contention in Mr Medford's affidavit that it was an implied term of the sale agreement that all of the creditors of Comtel as at settlement were contained in Sch G. That contention does not seem to me to be open. Apart from anything else, such a term would appear to be excluded by cl 19.2 of the sale agreement which provided as follows:

"This agreement and the schedules to this agreement constitute the entire agreement between the parties and this agreement contains all the representations, warranties, covenants and agreements of the respective parties and there are no oral agreements, representations, warranties, covenants or agreements of or between the respective parties express or implied."

31 In any event, for the reasons I have set out above I do not consider that any basis has been shown for the contention that the creditors of Comtel at settlement exceeded those shown in Sch G of the sale agreement, namely, creditors in an amount of $154,982.60.

32 I should add that it appears from the contemporaneous correspondence that the allegations now sought to be advanced by E-Span were not raised until shortly before this application was made, when Comtel was pressing for immediate payment. As late as 8 March 2004, Mr Shirren sent an e-mail to Mr Medford enquiring why the sum of $225,000 had not been paid and when it would be paid. Mr Medford replied the same day, saying among other things, "E-Span has completely settled its obligations with respect to the $175,000 through the provision of a convertible note which is converting to shares in E-Span and Didasko upon completion of the acquisition of E-Span by Didasko". No complaint was made that there were discrepancies between Sch G and the amount actually owing to creditors.

33 It seems that the first time the issue of the existence of creditors over and above those referred to in Sch G was touched upon was in an e-mail from Mr Horton of Didasko to Mr Shirren of 18 March 2004. In that e-mail Mr Horton simply said, apparently in response to earlier complaints by Mr Shirren that the Comtel creditors had not been paid, that "Didasko has in recent weeks transferred some $350K to E-Span principally for the extinguishing of the aged Comtel debtors." In an e-mail of 24 March 2004, Mr Shirren said that as he recalled there was an amount of approximately $160k owing to Comtel trade creditors at settlement and he went on to complain that a number had still not received payment.

34 It appears the next time the matter was raised was in a telephone conversation between Mr Shirren and Mr Horton on 30 April 2004, confirmed in an e-mail from Mr Shirren to Mr Horton of 3 May 2004. In that telephone conversation, Mr Horton apparently said, among other things, that E-Span had already paid approximately $225,000 to Comtel creditors and that trade creditors to whom a further amount of $170,000 was owing, had also demanded payment. In the confirming e-mail, Mr Shirren said it was extraordinary to suggest that trade creditor invoices were still surfacing 10 months after the sale of the business and suggested that such debts, and the debts accounting for the excess making up the payments of $225,000, had been incurred by E-Span since settlement.

35 Counsel for E-Span suggested that the latter communications evidenced a genuine dispute as to the amount of the Comtel creditors and the amount that had been paid by E-Span to such creditors. I do not agree. The statements apparently made by Mr Horton are no more than bare assertions by a third party made late in the day when Comtel was pressing for payment. I should add that if it were the case that, by 30 April 2004, E-Span had paid an amount of some $70,000 in excess of that shown in Sch G to Comtel creditors, and that demands totalling $170,000 had been received from other Comtel creditors, it have been might be expected that on this application evidence would be led of at least some of the specific payments and demands that had been made. In fact, no evidence of that nature was sought to be adduced.

36 The next contention of E-Span was that the debt had been satisfied by the conversion of it into shares in E-Span. That was put on two bases in the affidavits of Mr Medford. The first, which was not the subject of submissions on the hearing of this application, was that, by an oral agreement made between Mr Medford (on behalf of E-Span) and Mr Shirren (on behalf of Comtel) in early November 2003, Comtel agreed to accept shares in Didasko to the value of $50,000 in lieu of the two payments of $25,000 each specified in the sale agreement. In his affidavit, Mr Medford says that as a result of the agreement, Comtel is not entitled to the $50,000 but to the agreed shares in Didasko, and then only subject to Comtel fulfilling its obligations under the sale agreement and to any right of setoff and counterclaim by E-Span.

37 According to Mr Medford, Mr Brown of E-Span was a witness to the oral agreement. He says, in addition, that he believes it is also evidenced by conversations that Mr Shirren had with Mr Horton of Didasko.

38 No affidavit of Mr Horton has been filed. In his affidavit, Mr Brown says:

"I confirm that I witnessed the formation of that agreement and I recently indicated to Mr Medford that I consented to his informing this Court that I had witnessed the formation of the agreement ... it was oral in nature and expressed provisions where the payment of $50,000 that may be due to the applicant would be converted into shares."

39 Mr Shirren denies there was such an agreement and there was no evidence that such shares were, in fact, ever issued. It was submitted on behalf of Comtel, first, that such an oral agreement was of no effect as cl 19.7 of the sale agreement provided that the sale agreement may only be amended or varied in writing signed by the parties to it and, secondly, in any event the evidence was neither cogent nor credible. The evidence as to the oral agreement was vague, the evidence of Mr Horton had not been adduced and, in contrast to the position with the $175,000 debt where the shares were quickly issued, no shares had ever been tendered to Comtel. So far as the contemporaneous documents went, they showed that a suggestion of shares in place of cash had been made by E-Span but that it had been rejected by Mr Shirren on behalf of Comtel.

40 As I have mentioned, counsel for E-Span did not make any submissions on this matter in the course of argument on this application. In any event, I do not consider that E-Span has established that there is a genuine dispute in respect of E-Span's liability for the sum of $50,000.

41 I might add that Mr Medford's contention in his affidavit of 26 May 2004 that there is an extant agreement for the allocation of shares in Didasko in lieu of the payments totalling $50,000, does not appear to be easily reconciled with an e-mail he apparently sent on 8 March 2004 to Mr Shirren in which Mr Medford said that, although the liability had been converted into an issue of shares, as Mr Shirren had now said he did not want the shares, Mr Medford had reversed the issue of shares and Comtel would receive the $50,000 "on settlement with Didasko".

42 E-Span also contended that its liability to pay the sum of $175,000 under the convertible note had been discharged. E-Span claimed that shares in Didasko to the total value of $175,000 had been issued to Comtel in satisfaction of the debt, albeit Comtel has refused to accept the shares.

43 It was initially contended in Mr Medford's affidavit of 26 May 2004 that the shares had been issued to Comtel pursuant to the provisions of cl 4 of the convertible note. As I have mentioned, that clause relevantly provided that if all shares in E-Span were required by a publicly listed entity, then the debt to Comtel would be converted into shares in E-Span. Mr Medford said that, on or about 18 March 2004 (that is after the default notice had been issued by E-Span), Didasko, which was a publicly listed entity, entered into an agreement to acquire "substantially all shares in [E-Span]". Completion of the agreement was said to be due to occur on 18 March 2005.

44 It will be immediately apparent that, on the basis of that evidence, not only have the shares in E-Span not yet been acquired by Didasko, but that Didasko has not agreed to acquire "all the shares" in E-Span but, according to Mr Medford (and confirmed by an affidavit of Mr Cossar of Didasko), only "substantially all the shares". Not surprisingly, counsel for E-Span did not seek to pursue this argument but contended, without it seemed to me much enthusiasm, that nevertheless the shares had been issued and satisfied E-Span's liability to Comtel. I accept the submission on behalf of Comtel that it was not open to E-Span unilaterally to vary the method of payment provided for by the convertible note and that the tender of the shares, a tender which was not accepted by Comtel, did not discharge E-Span's contractual liability.

45 It was also contended on behalf of E-Span that Comtel had breached cl 9(b) of the sale agreement in that it had not, as required, assigned debts totalling $90,000 to E-Span, but rather had assigned debts totalling only some $26,000. The contention that Comtel was under an obligation to assign the debts was based upon an assertion by Mr Medford in his affidavit of 26 May 2004 that the allocation of $90,000 of the purchase price to "Debtors" in Sch F of the sale agreement gave rise to an "implied warranty" that Comtel would assign debts totalling $90,000 to E-Span. Mr Medford says "it is my understanding that debts totaling [sic] no more than $26,000 have been assigned from [Comtel] to [E-Span] ...". There is no hint as to how he came by that understanding. In his affidavit of 20 July 2004, Mr Shirren says that debts of not less than $52,000 have been assigned to E-Span.

46 In any event, it was submitted on behalf of Comtel that the implied obligation was simply incapable of arising. Counsel referred to cl 19.2 of the sale agreement, which I have set out above, and submitted that there was simply no basis for the alleged implied term. That, it seems to me, must be right. In any event, the amount involved, even on E-Span's case, is only some $64,000 so it would not lead to substitution of Comtel being refused, being substantially less than the debt claimed by Comtel.

47 Although the argument was not advanced by counsel on the hearing of this application, I should add that I do not accept the contention in Mr Medford's affidavit that a failure by Comtel to assign debts worth $90,000 would be a breach of the conditions precedent in cl 9.1(b) of the sale agreement and would therefore relieve E-Span of its obligations under the sale agreement. At most, Sch F, which referred to debtors in the sum of $90,000, was simply a representation or warranty that as at settlement Comtel had debtors in that sum. There is no evidence to suggest that that was not the case.

48 A further contention was raised in Mr Medford's affidavit of 26 May 2004 that Comtel had breached cl 11(1)(f) of the sale agreement by which Comtel covenanted that there were no legal actions threatened or pending that could have an adverse effect on E-Span. Mr Medford simply says that it was his understanding that prior to settlement legal actions were either pending or had been commenced. Mr Medford does not say how he came by that understanding and he does not provide any information regarding the legal actions referred to. Again, not surprisingly, counsel for E-Span did not pursue this aspect of the matter. It is clear that such a vague and bald assertion cannot establish the existence of a genuine dispute.

49 It was common ground that in order to resist the application for substitution E-Span would have to establish that there is a genuine dispute as to the indebtedness of E-Span to Comtel: South East Water Ltd v Kitoria Pty Ltd (1996) 14 ACLC 1328. What constitutes a genuine dispute for the purposes of the Act has been discussed in a number of cases. I do not consider it is necessary to canvass the authorities in detail.

50 In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 McLelland J said (at 671) as follows:

"It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 459H. In my opinion, that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean 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 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 Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1993] 11 ACLC 1062 Hayne J said:

'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'."

51 In Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294, Owen J, with whom Pidgeon and Wallwork JJ agreed, said at [27]:

"From the relevant authorities on the issue of what amounts to a 'genuine dispute' under s 459H there can be discerned an emphasis on two overriding considerations. First, that in determining whether there is a genuine dispute a court is required to undertake an investigation that raises much the same sort of considerations as the 'serious question to be tried' criterion which arises in an application for an interlocutory injunction or for the extension or removal of a caveat: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 per McLelland J at 671. Further, to reach a finding that there is a genuine dispute the applicant must satisfy the court that:

(a) the dispute is bona fide and truly exists in fact; and

(b) the grounds alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 15 ACLC 1001 per Northrop, Merkel and Goldberg JJ.

This formulation has been adopted in a number of recent decisions: see Goldspar Australia v KWA Design Group (1999) 17 ACLC 456 per Austin J at 462 and Universal Greening Pty Ltd v Sabine & Anor [1999] FCA 529; (1999) 17 ACLC 880 per Kenny J at 885. In the interests of consistency in the various courts that have to apply the Corporations Law, I think this is the approach to be preferred."

52 In my view, E-Span has failed to show that there is a genuine dispute in respect of the debt claimed by Comtel. Mr Medford, on behalf of E-Span, has asserted that the trade creditors of Comtel at settlement were greater than the sum of $154,982.60 shown in the balance sheet of Comtel as at 27 June 2003, but there is simply no credible evidence to suggest that that is the case. Although at the time Mr Medford swore his last affidavit in this application some 12 months had passed since settlement of the sale, and at least seven months had passed since the commencement of the audit of creditors, the evidence was notable for the lack of reference to any details of specific creditors or debts which it was said had not been disclosed by Comtel. The evidence never rose above the level of general, nebulous assertions.

53 Moreover, as counsel for E-Span conceded, E-Span's obligation under the sale agreement was not to discharge the creditors of Comtel as at the settlement date but only those specified in Sch G. There was no basis in the evidence for a contention that commercially or legally E-Span was under an obligation to pay any more than that.

54 The claim that E-Span had paid additional debts of Comtel, for which it was not liable, giving rise to an offsetting claim against Comtel, was also not supported by anything more than general assertions. Once again, despite the time that has elapsed since settlement of the sale and the audit of creditors that is said to have been underway since last year, there was no evidence of any specific creditor or debt, additional to those set out in Sch G, which E-Span had paid. In the light of Mr Medford's assertion that such creditors had in fact been paid by or on behalf of E-Span, such detail should have been available to be put into evidence.

55 Taken as a whole, the evidence given on behalf of E-Span was equivocal and lacking in precision, in circumstances where that was neither inevitable nor explicable. In particular, if, as was contended, substantial payments had been made to, and demands for other substantial sums made by, creditors not referred to in the sale agreement, it is inexplicable that the evidence on behalf of E-Span entirely failed to condescend to any detail in respect of those matters.

56 I am not satisfied there is a genuine dispute as to E-Span's indebtedness to Comtel and accordingly I would order that Comtel be substituted as applicant in these proceedings.