Expressway Spares v CTK Engineering

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3138/00 - EXPRESSWAY SPARES PTY LIMITED v CTK ENGINEERING PTY LIMITED

JUDGMENT (ex tempore; revised 13 December 2000) 1 HIS HONOUR: This is an application by the plaintiff filed on 11 July 2000 to set aside a statutory demand served on it by the defendant, principally on the ground there was a genuine dispute as to the whole of the amount claimed. 2 A useful exposition of the test of whether there is a genuine dispute is found in the judgment of McLelland CJ in Eq in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785, 787 where his Honour said: 'In my opinion the expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit however equivocal, lacking 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.' 3 An unsatisfactory aspect of the case is that the plaintiff has not put the statutory demand into evidence. If there were no proof of the statutory demand the plaintiff would be bound to fail, as the Court cannot set aside something which has not been proven to exist. Luckily for the plaintiff, there is sufficient evidence for me to make an inference as to the existence of and content of the demand in this case, but that will not always be so. 4 It appears that the statutory demand was dated on or about 22 June 2000 and served at about that time, and was a demand for three amounts:

(a) alleged debt $205,236.93 ('the first debt'); (b) alleged debt of $46,150.01 ('the second debt'); (c) interest at 10 per cent from 1 February 2000 to 22 June 2000 in the sum of $9,678.02 ('interest'). 5 The plaintiff and defendant are part of a family of companies in which members of the Cassegrain family are interested. The claims for payment arise out of a family dispute which led the defendant to demand payment of the first debt, which had been recorded in the plaintiff's and defendant's financial statements for many years. The defendant demanded payment by letter dated 19 January 2000. The plaintiff replied, denying the claim, by letter of 28 January 2000. 6 Instead of confining itself to suing for the debt in the normal way, the defendant chose to invoke the statutory demand procedure. Courts have, time and again, warned creditors that the statutory demand procedure is not a mechanism for debt collecting, especially where (as here) the creditor knows that the debtor disputes the debt. The inappropriateness of the statutory demand procedure is all the more obvious where the claim to payment is part of a family dispute. In my view, the defendant has grossly misused the statutory demand procedure in this case, and I shall consider any application which may be made that costs be awarded against it on an indemnity basis.

The Cassegrain companies 7 The plaintiff is a large private company that trades in spare parts for heavy vehicles and earthmoving equipment. It was founded by the parents of Patrick and Claude Cassegrain, who appear to be some of the principal disputants in the family dispute, and since its incorporation all members of the family have been shareholders. 8 The defendant was also established by the father of Patrick and Claude, and was, for a time, operated by him with two colleagues. The company traded in the logging business and in forests west of Port Macquarie in New South Wales. The plaintiff says that during the 1960s the defendant ceased business, but the defendant denies this is so. The conflict of evidence does not matter for the purposes of this case. The defendant has for a substantial time also been a family company and all of the family members have shares in it. 9 There are other companies in which members of the Cassegrain company are interested including a company called Cassegrain Wines Pty Limited and a company called G C & Co Pty Limited.

The first debt 10 The evidence indicates that the first debt represents a premium paid by Thomas and Emily Cassegrain for shares subscribed for by them in the defendant. The defendant says that the subscription moneys were lent to the plaintiff and that the plaintiff on-lent those moneys. The plaintiff says that the money was not received by it, but it was, in fact, received by G C & Co Pty Limited. 11 It appears that the subscription for shares in the defendant by Thomas and Emily Cassegrain arose through their father Jean-Francois Cassegrain, who resides in France, deciding to invest in the family's enterprises in Australia. There is quite a bit of detailed evidence before me, especially on behalf of the defendant, dealing with this investment, but most of it need not be referred to in order to determine the issue which is before me. 12 Once the investment was made, no later than June 1985, it came to be accounted for in the financial statements of the plaintiff and the defendant. The evidence before me includes the plaintiff's financial statements for the years ended 30 June 1985, 1988, 1996 and 1999, at least one of those documents being signed by Patrick Cassegrain as a director, and the financial statements of the defendant for the years ending 30 June 1985 and 1997. In the plaintiff's financial statements an amount equating to or greater than the first debt is recorded as a non-current liability under the description 'inter company loans'. In the defendant's financial statements for those two years there is an amount recorded as a current asset described as a 'receivable' which appears to refer to the first debt. 13 In addition to the financial statements, there is evidence that the plaintiff's general ledger reflected the first debt and that the ledger was available to the external accountants of the plaintiff when they prepared the financial statements. 14 The external accountant of the plaintiff and defendant, as least from 1990, was Mr Sallaway. Unfortunately, Mr Sallaway has given inconsistent affidavit evidence, since he purported to resile from his initial affidavit and subsequently swore another affidavit which contradicted the first in some ways. The main point of inconsistency is that in the first affidavit he said that certain financial statements were not audited, but later said that they were. Significantly, however, he said in his first affidavit that he relied upon internally produced management accounts and other accounting information to prepare the financial statements and that he was never shown any primary records with respect to the first debt. As I read his evidence that assertion survives his later qualifications. 15 We therefore, have some financial statements purporting to reflect a debt and a dispute as to whether the debt ever existed. The defendant says the evidence in the financial statements is so strong that there can be no genuine dispute that the debt existed. I disagree. While the financial statements and ledgers provide some evidence of the existence of the debt, I do not regard that evidence as conclusive. The status of financial statements and journal entries as evidence proving the existence of the matters they record was explained in Temples Wholesale Flower Suppliers v Commissioner of Taxation (Cth) (1991) 99 ALR 479 and Manzi v Smith (1975) 132 CLR 671, 674. 16 In the present case there is some evidence to indicate that Claude Cassegrain had control of the preparation of internal accounting records and information because he was a director of both companies at the time when the financial statements, which are in evidence, were prepared and the ledger entries were made. Given Mr Sallaway's evidence that he relied upon internal accounting information in preparing the financial statements, it can be said that the representation in the financial statements of the existence of the first debt depends upon financial information created by Claude Cassegrain. 17 When one turns to the evidence given by Claude and Patrick Cassegrain as to the circumstances of the creation of the debt, there is at least an ambiguity as to whether the financial records correctly treat the plaintiff rather than G C & Co Pty Limited as the debtor. 18 On 11 March 1996 Claude Cassegrain wrote a letter to the family's accountants explaining that 'the cash from Jean-Francois was injected into G C & Co...' and saying that shares were transferred/created and issued to Jean-Francois (family) to reflect their interest in the company [CTK]. The plaintiff says these statements are an accurate explanation of the situation, namely, that G C & Co received the proceeds of Jean-Francois Cassegrain's investment. Claude Cassegrain seeks to explain that letter as 'a broad statement' referring to the fact that at about that time G C & Co owed money to the plaintiff, and he says that his letter was consistent with the proposition that the defendant on-lent the investment moneys from Jean-Francois to the plaintiff which, in turn, forwarded that money to G C & Co. 19 I should add that there is evidence suggesting that loan funds were moved around amongst the Cassegrain companies in order to take advantage of whatever fiscal and other opportunities may have been presented from time to time rather than to reflect true transactions. Patrick Cassegrain gives evidence to that effect, and also refers to a judgment by Davies J in the Federal Court of Australia which is consistent with that view. 20 I note as well that Mr Sallaway wrote a letter to McCabe lawyers on 5 May 2000, before swearing either of his affidavits, in which he said it was unusual that a debt had been owing since June 1985 and that the company has now been requested to repay it. He said: 'It appears to the writer that like all related Cassegrain companies and entities, that finances were moved between the group to obtain the best commercial advantage at the time.' 21 There is also some evidence that there was no intention on the part of the defendant to demand payment of the amount recorded as a debt owing by the plaintiff in the financial statements - for example, this is said by Mr Sallaway in his letter of 5 May 2000. 22 This account of the evidence is sufficient, in my view, to demonstrate there is a genuine dispute as to the existence of the first debt in terms of that enunciated by McLelland CJ in Eq in the Eyota case.

Limitation period 23 The plaintiff also submits that the first debt is statute barred even if it otherwise exists. It was created no later than June 1985. The most that the defendant could say of it is that it is a debt repayable upon demand. Assuming that to be so, says the plaintiff, the cause of action in debt must have accrued when the money was first lent: Ogilvie v Adams [1981] VR 1041, 1043; Drinkwater v Caddyrack Pty Limited (No 3) (unreported, Young J, 28 November 1997). 24 The defendant refutes the contention that the first debt is statute barred by referring to s 54 of the Limitation Act (NSW) according to which the limitation period does not commence to run, where the debtor confirms the cause of action, until the confirmation. Section 54(2)(a) says relevantly that a person confirms a cause of action if, but only if, he acknowledges to a person having the cause of action the right or title of the person to whom the acknowledgment is made. The defendant says that the financial statements, including the financial statement of the plaintiff signed by Patrick Cassegrain, constituted an acknowledgment for the purpose of this provision. 25 In response, the plaintiff refers to the principle that there can be no acknowledgment unless the acknowledgment is given to the creditor (A McGee, Limitation Periods 2nd edition (1994) at 305). The plaintiff says that a balance sheet is not a sufficient acknowledgment where it has never been received by the plaintiff: Re Compania de Electricidad de la Provincia de Buenos Aires Ltd [1980] Ch 146. As far as financial statements are concerned, in Stage Club Ltd v Millers Hotel Pty Limited (1981) 38 ALR 253 at 271, Wilson J referred to the Compania de Electricidad case and saw it as standing for the proposition that a company's balance sheet is implicitly addressed to the creditors whose debts are referred to in it, but will not constitute an acknowledgment unless the creditor has actually received a copy of the balance sheet and he is one of the creditors referred to in it. 26 In the present case, says the plaintiff, it has not been proved that the defendant, as such, received the plaintiff's financial statements, which are said to constitute acknowledgments of the first debt. 27 In my view, the plaintiff's submissions with respect to the law of limitations are correct. As far as the facts are concerned, there is an issue as to whether the financial statements of the plaintiff can be said to have been received by the defendant in circumstances constituting an acknowledgment of the first debt of the plaintiff for the purposes of s 54. At present, there is clearly a genuine dispute as to the facts concerning that issue.

The second debt 28 In November 1999 two bank cheques were made out to the plaintiff in the sums of $19,745.52 and $26,404.49 respectively. They bear the handwritten annotation '46,150.01 banked by Expressway Spares 1/11/99 from CTK Engineering re-sale of land to be transferred to Cassegrain Wines done 1/11'. It appears that the money was the proceeds of a sale of a block of land owned by the defendant. 29 There is some evidence that when the money was banked by the plaintiff, Claude Cassegrain instructed the company secretary of the plaintiff that the funds were required by Cassegrain Wines to pay the NSW Rugby Union Club. The moneys were then transferred to the NSW Rugby Union Club. The plaintiff says, therefore, that it merely acted as a banker for Cassegrain Wines and cannot be regarded as the borrower of that money. 30 The defendant asserts that the money was borrowed by the plaintiff and then on-lent to Cassegrain Wines. However, Claude Cassegrain acknowledges in his affidavit that the plaintiff has been 'the effective banker of Cassegrain Wines'. Clearly, once again, there is a genuine dispute as to whether the plaintiff is indebted to the defendant in respect of the second debt.

Conclusion 31 My conclusion, therefore, is that there is a genuine dispute with respect to both the debts and consequently there must be also a genuine dispute in respect of the amount of interest claimed. The appropriate order is Order 1 in the summons, namely, that the statutory demand bearing the date on or approximately 22 June 2000 served by the defendant on the plaintiff be set aside. I make that order.

Costs 32 For the reasons given in my reasons for judgment, I order that the defendant pay the plaintiff's costs on an indemnity basis. * * * * * * * * *

Last Modified: 12/21/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.