Greenway Hotel Pty Ltd v Parton [2004] ACTCA 13

Court of Appeal (ACT)|2004-07-14|Before: Lander JJ

1. The appeal be allowed.

2. The order made by the judge below be set aside.

3. The appellant's application to set aside the statutory demand for payment of debt dated 2 September 2003 made on behalf of the respondent be allowed.

4. There be no costs of the application before the judge below.

5. The respondent pay the appellant's costs of the appeal.

IN THE SUPREME COURT OF THE ) No. ACTCA 35-2003

ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

1. This is an appeal from a decision of a judge of this Court refusing to set aside a statutory demand served pursuant to s 459E of the Corporations Act 2001 (Cth) (the Act).

2. On 2 September 2003 the respondent, Neville William Parton, served a statutory demand for payment of a debt on the appellant claiming that the appellant owed him the amount of $200,000. The Schedule to the statutory demand claimed -

The debt arises out of a deed entered into between Greenway Hotel Pty Ltd, myself and others dated 14/8/2000 that provides for the payment of $1,200,000.00 by Greenway Hotel Pty Ltd to me. Only $1,000.000.00 has been paid, and $200,000.00 remains outstanding. On 17/6/2003, I sent a letter of demand to Greenway Hotel Pty Ltd by facsimile and by express post requesting payment of the sum of $200,000.00 within 21 days. To date no payment has been made.

3. The statutory demand was accompanied by an affidavit, as required by s 459E(3) of the Act, in which the respondent verified that the debt was due and payable by the appellant, and that he believed there was no genuine dispute about the existence or amount of the debt.

4. On 23 September 2003 the appellant filed and served an application pursuant to s 459G of the Act to set aside the statutory demand. The application was made within the time provided in s 459G(2). The application was accompanied by an affidavit sworn by Thomas Clyde Elvin, who was, at the time the application was filed, a director of the appellant: s 459G(3).

5. In that affidavit, Mr Elvin claimed that the appellant 'has a genuine dispute with respect to the claimed debt'.

6. He deposed that the deed of 14 August 2000, upon which the claimed debt was based, was an agreement between a number of parties, including the appellant, the respondent and himself.

7. He exhibited the deed of agreement, referred to in the statutory demand, which showed that, apart from the appellant, Mr Elvin and the respondent, there were three other parties: Tylden Machinery (Sales) Pty Ltd, Reswick Pty Ltd, and Parton Enterprises Pty Ltd.

8. The deed recites that the parties entered into the deed so that the appellant could pay to the respondent one half of the net proceeds of the construction of a motel at Greenway.

9. Paragraph 2 of the deed provided -

2. In consideration of Greenway paying to Parton the sum of $1,200,000.00 the parties have agreed that the Deed of Agreement dated 3 October 1997 be terminated with all parties relinquishing their rights under the Deed from the date of this Deed. The said $1,200,000.00 will be payable by Greenway to Parton as follows:-

(a) $1,000,000.00 on execution of this Agreement; and

(b) $200,000.00 on the earlier of the following dates: to be paid from Tasmania Distillery Pty Ltd.

(i) twelve (12) months from the date of this Agreement; or

(ii)

the date Dickson Hotel Pty Ltd (ACN 081 362 754) and Highland Holdings (ACT) Pty Ltd repay to Greenway, monies outstanding to Greenway as at the date of this Agreement.

10. There were further terms of the deed by which the respondent agreed to resign as a director of the appellant, and the appellant, Mr Elvin and Tylden Machinery (Sales) Pty Ltd would procure the release of the respondent from any guarantees signed by him or Reswick Pty Ltd, or Parton Enterprises Pty Ltd, and finally by which the appellant, Mr Elvin and Tylden Machinery (Sales) Pty Ltd released and discharged Reswick Pty Ltd, Parton Enterprises Pty Ltd and the respondent from any claims arising out of the construction of the motel and agreeing to indemnify those other parties from all claims, guarantees and any liabilities whatsoever.

11. Mr Elvin deposed in his affidavit that the changes to paragraph 2, which was altered in the manner described in paragraph 9 of these reasons by the deletion of the words in subparagraphs (i) and (ii) of paragraph (b) and the addition of the words 'to be paid from Tasmania Distillery', were written by the respondent and were made at his request.

12. Mr Elvin said that the Tasmania Distillery was owned by Highland Holdings (ACT) Pty Ltd which changed its name to Tasmania Distillery Pty Ltd. He said that Mr Parton 'expressed the view ... that he should be paid the $200,000 more quickly if the obligation was for Highland Holdings (ACT) Pty Ltd [Tasmania Distillery Pty Ltd] to pay it rather than Greenway'. Clearly enough, Mr Elvin was thereby asserting that the parties agreed that Tasmania Distillery Pty Ltd (formerly Highland Holdings (ACT) Pty Ltd) was to assume the appellant's obligation.

13. Tasmania Distillery Pty Ltd owed the appellant $199,000. Mr Elvin claimed that the appellant assigned to Mr Parton its right to recover that loan from Tasmania Distillery Pty Ltd. This, Mr Elvin claimed, was to reflect the agreement that Tasmania Distillery Pty Ltd would assume the appellant's obligation in the deed.

14. A balance sheet of Tasmania Distillery Pty Ltd 'as of December 2002' was annexed to Mr Elvin's affidavit. It showed that that company was then indebted to the Elvin Group of companies in the sum of $832,482.45 and to Reswick Pty Ltd (a company controlled by the respondent) in the sum of $630,572.75. The balance sheet shows a separate liability for 'Greenway Hotel Loan Tfr' in the sum of $199,000 and a total liability to the 'Parton Group of Companies' in the sum of $829,572.75.

15. The respondent filed and relied upon an affidavit of his own.

16. Whilst he accepted that he had made the change to the deed of agreement by adding the words 'to be paid from Tasmania Distillery', he disputed the reasons for the change and the circumstances in which the change came about. He said that he made the change at the request of Mr Elvin because Mr Elvin said it suited the appellant 'tax wise'. He said that no other changes were made at the time of signing.

17. He disputed the accuracy of the balance sheet exhibited to Mr Elvin's affidavit.

18. Mr Parton exhibited to his affidavit a balance sheet which he said was provided to him by Mr Elvin on 8 January 2003. That balance sheet is headed 'as of December 2002' and shows as a liability of the company a 'Loan from Greenway Hotel' of $199,000. He also exhibited a letter from the administrators of Tasmania Distillery Pty Ltd, dated 23 July 2003, which also shows a liability to Greenway Hotel of $199,000.

19. We are not quite sure of the relevance of either of those documents. They are not necessarily inconsistent with Mr Elvin's account in his affidavit.

20. The respondent also claimed that he had made a claim upon the company on 17 June 2003 to which he had never received a reply.

21. Section 459H(1) of the Act provides -

This section applies where, on an application under s 459G, the Court is satisfied of either or both of the following:

(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(b) that the company has an offsetting claim.

22. Section 459H(2) requires the Court to calculate the substantiated amount of the demand in accordance with a particular formula.

23. Where there is a genuine dispute between the company and the respondent, the substantiated amount will be nil and, in those circumstances, the demand should be set aside under s 459J(1)(b).

24. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 24 ACSR 353 at 365, the Full Court of the Federal Court (Northrop, Merkel and Goldberg JJ) said -

In our view, a "genuine dispute" requires that:

• the dispute be bona fide and truly exist in fact;

• the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.

25. For the purpose of determining whether a genuine dispute exists, the Court will not examine the merits of the dispute or attempt to determine the dispute itself: In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601. Thomas J said at 605 -

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 result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).

26. It is not the function of the Court, on an application to set aside a statutory demand under s 459G, to decide the merits of the matter. The Court, however, should be satisfied that the dispute is genuine, in that the claim that the debt is not owed is bona fide and there is some evidence to support it.

27. The onus upon the company seeking to set aside the statutory demand is not a heavy one. In CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at 103 [16], Barrett J said -

It is unnecessary to canvass in detail here the scope of "genuine dispute" ground under s 459H as laid down in well known cases such as Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290; (1993) 11 ACSR 362; Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 and Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452; 147 ALR 444; 24 ACSR 353. It is sufficient that I repeat what I have said in other cases, namely, that the task faced by the company challenging a statutory demand on the genuine dispute grounds is by no means at all a difficult or demanding one. The company will fail in that task only if it is found, upon the hearing of its s 459G application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that on rational grounds indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.

28. In this case, the parties agreed that the debt was originally owed but there was a dispute between the appellant and the respondent as to the continued existence of the debt. The question in this case was whether or not a genuine dispute existed that the debt had been discharged in the manner described by Mr Elvin, or remained due and payable in the manner described by Mr Parton. The question was not which of the parties was correct.

29. The judge who heard the application gave ex tempore reasons. He referred to the authorities and, in particular, to Spencer Constructions and said -

That the real crux of the case was to be found in the construction of clause 2 of the deed.

30. He said that the meaning of the deed was clear. He said Tasmania Distillery Pty Ltd was not a party to the deed and under no circumstances could be said to have assumed an obligation to pay any amount of money. He said that if he were to accept the construction, which the appellant contended was appropriate, he would have to construe clause 2 as providing for the appellant to pay $1 million and that no other party had a liability to pay the balance.

31. He dealt with the contention that the appellant had assigned to the respondent its rights to recover a loan owing to the appellant from Tasmania Distillery Pty Ltd and said -

I accept that it may well have been and apparently was contemplated by the applicant that the outstanding $200,000 would be paid to the respondent by dint of the applicant arranging with Tasmania Distillery for the money to be paid to the respondent, but that expectation falls far short of any evidence of any agreement by the respondent to forego payment in the event that Tasmania Distillery does not provide it, or alternatively to accept the right, an enforceable right, to proceed against Tasmania Distillery in lieu of its rights under the deed.

I have firmly concluded that evidence before me does not raise a triable issue, or if I may return to the language employed in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd a genuine dispute "the grounds of which are real and not spurious, hypothetical, illusory or misconceived".

33. There is no doubt that the deed, in its original form, obliged the appellant to pay to the respondent the sum of $1.2 million in two payments. However, the deed was amended to provide that the sum of $200,000 was 'to be paid from Tasmania Distillery'.

34. On the appellant's case, the sum of $200,000 was only payable by Tasmania Distillery Pty Ltd. Its alternative case was that Tasmania Distillery Pty Ltd had effectively paid the amount.

35. The respondent's case was that the appellant remained at all times obliged to pay the sum of $200,000 and the respondent had not been paid by Tasmania Distillery Pty Ltd or any other party on behalf of the appellant.

36. The appellant's notice of appeal contained some sixteen grounds. However, at the hearing, the appellant's counsel submitted that the primary judge had fallen into error in -

(a) the way in which his Honour directed himself as to the onus to be discharged by an applicant seeking to set aside a statutory demand on the ground of a "genuine dispute" pursuant to s. 459H (1) (a) of the Corporations Act, 2001;

(b) his Honour's rejection of the supplementary evidence tendered on behalf of Greenway in support of the "genuine dispute" ground; and

(c) the way in which his Honour dealt with the merits of the dispute on the evidence before him.

37. We do not think that first ground has been made out. The primary judge referred to the authorities under s 459G and s 459H of the Act and stated the principles in accordance with those cases. There is no indication that he misdirected himself on the law and, in particular, the principles to be applied to applications of this kind.

38. The appellant sought to tender an originating application and an annexed Statement of Claim of proceedings brought in the Supreme Court of the Australian Capital Territory in which Reswick Pty Ltd was plaintiff and the appellant defendant (SC 618 of 2003). The Statement of Claim referred to the history of the dispute between the group of companies of Mr Elvin and Mr Parton. It addressed the deed of 14 August 2000 -

9. On or about 14 August 2000, the parties to the First Agreement entered into a further agreement ("the Second Agreement") under which the parties agreed to terminate the First Agreement in consideration of the respondent paying to the Plaintiff the sum of $1,200,000.00.

10. Under the Second Agreement, the Defendant paid the sum of $1,000.000.00. The payment occurred at the same time as the signing of the Second Agreement.

11. On or about 17 June 2003, payment of the sum of $200,000.00 was demanded within 14 days.

12. The Defendant has not paid the sum of $200,000.00.

13. The Defendant has not discharged its duties with regard to the second agreement.

AND THE PLAINTIFF CLAIMS:-

(1) The amount claimed is $200,000.00;

(2) Interest is claimed.

(3) Damages; and

(4) Costs.

39. The pleadings were tendered to prove that Reswick Pty Ltd (a company controlled by Mr Parton) was asserting that it was the owner of the debt of $200,000. It was said that that assertion in those proceedings was inconsistent with Mr Parton's claim that he was owed $200,000 pursuant to the deed.

40. Mr Elvin did not claim in his affidavit that Reswick Pty Ltd was owed the sum of $200,000 by the appellant. He did not assert that Reswick Pty Ltd had any claim to that money. He did not claim, in his affidavit, that a genuine dispute existed because the monies were owed to Reswick Pty Ltd, not to the respondent.

41. The primary judge refused the tender. He said -

In the alternative, Mr Whitelaw submitted that there was considerable doubt as to whether the debt was payable to Parton. In support of that submission, Mr Whitelaw attempted to tender pleadings pursuant to which the company Reswick Pty Ltd had apparently purported to claim the same amount of money. I rejected that tender on the basis that it seemed to me that if it were relevant at all, it could only be relevant to a new ground of argument not foreshadowed in the affidavit provided by Mr Elvin, namely one suggesting that there was some form of further subsequent agreement involving the assignment of the benefit of the debt from the respondent to Reswick.

42. It was argued on appeal that Mr Elvin did not need to refer to the fact that Reswick Pty Ltd asserted that the debt was owed to it before being entitled to adduce evidence of that fact on the hearing of the application.

43. The appellant contended that it was entitled, at the hearing of the application, to prove that any dispute existed, whether identified in the affidavit filed under s 459G or not. Section 459G provides -

459G (1) A company may apply to the Court for an order setting aside a statutory demand served on the company.

459G (2) An application may only be made within 21 days after the demand is so served.

459G (3) An application is made in accordance with this section only if, within those 21 days:

(a) an affidavit supporting the application is filed with the Court; and

(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

44. Section 459G is only complied with if an affidavit supporting the application and the application are filed within 21 days: David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 at 276 per Gummow J. The affidavit does not have to be filed with the application but, like the application, must be filed within 21 days. It must support the application.

45. There are four different grounds which could lead to the setting aside of a statutory demand:

(1) there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates: s 459H(1)(a);

(2) the company has an offsetting claim: s 459H(1)(b);

(3) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside: s 459J(1)(a);

(4) there is some other reason why the demand should be set aside: s 459J(1)(b).

46. The appellant argued that an affidavit filed pursuant to s 459G(3)(a) would comply with s 459G if it stated the ground or grounds upon which the application was brought. It was contended that the grounds were those mentioned in paragraph 45 of these reasons.

47. In our opinion, that argument must be rejected. Section 459G(3)(b) requires the filing of an affidavit supporting the application. To merely state which ground is relied upon would not comply with the subsection.

48. If the ground relied upon is that there is a genuine dispute between the company and the respondent the affidavit should state that to be the ground. But the affidavit needs to go further. It would not comply with the subsection if it merely asserted that a dispute existed: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452. That is so because the affidavit would not support the application. Otherwise, the affidavit would be doing no more than restating the ground of the application.

49. In Graywinter, Sundberg J considered the 'minimum content' for an affidavit to be a supporting affidavit. He said (at 459) -

In order to be a "supporting affidavit", an affidavit must say something that promotes the company's case. An affidavit which merely says "I am a director of the company but am too busy at present to make a full affidavit, and I will do so later" would not support the application. It would in no way advance, further or assist the company's cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute: John Holland_. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief:_ 71 Paisley Street.

50. Sundberg J was considering an application in circumstances where the applicant was seeking to adduce further evidence at the hearing. He said (at 460) -

In several cases it has been held that an applicant is not restricted on the hearing to the affidavit that is served with the application. See Scanhill at 467 and Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290 at 295. An applicant whose initial affidavit has satisfied the threshold test must be able to supplement the material, because while the "supporting" affidavit does not have to deploy the evidence, on the hearing only admissible evidence can be relied on. In Louisbridge_, Ryan J said that "provided that an affidavit is filed and served within the 21-day period which supports the application by providing grounds for concluding that there is a genuine dispute ... or that the company has a offsetting claim", supporting affidavits may be filed after the period has expired. Apart from_ Hire Works_, the cases do not support the proposition for which the applicant contended, namely that an affidavit that does not satisfy the threshold test can be supplemented later on. That issue did not arise in_ Scanhill or Mibor. It did arise in Hire Works_, but for the reasons I have given, I am respectfully unable to agree that the court can entertain as an application under s 459G a case in which an affidavit containing the minimum requirements has not been served within time._

51. Unless the affidavit supports the application, it is not an affidavit that complies with s 459G. If it does support the application, there is nothing in s 459G which would preclude the moving party adducing further evidence of the dispute referred to in the affidavit in support of the application. An applicant, therefore, must file the supporting affidavit required under s 459G to give the Court jurisdiction to make an order under s 459H or s 459J. If that affidavit complies with the minimum requirements, the moving party can adduce further evidence at the hearing in support of a claim of a genuine dispute.

52. The appellant, in this case, identified the disputes which it said existed in Mr Elvin's affidavit. Mr Elvin did not assert that the debt was not owed by the appellant to the respondent but to Reswick Pty Ltd. In our opinion, the primary judge was right to reject the tender of the pleadings. They did not relate to the matters in the affidavit which supported the application: D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794; Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419; (2001) 166 FLR 179.

53. If it were otherwise and a company articulated a dispute in the supporting affidavit which was not accepted at the hearing of the application, but established another dispute which was accepted at the hearing, the company would not have complied with s 459G but would claim the right to be entitled to relief under s 459H or s 459J. In other words, the company would obtain relief, even though, when the Court's jurisdiction was attracted under s 459G, it was not entitled to any relief.

54. However, in the end result, nothing much turns on whether the pleadings should or should not have been admitted because we think the evidence before the primary judge did establish that a genuine dispute existed.

55. The evidence before him was that the parties had agreed that Tasmania Distillery Pty Ltd had assumed the obligation owed by the appellant. In turn, so it was asserted, that obligation was discharged in the manner described in paragraph 9 of Mr Elvin's affidavit -

As indicated above, Greenway is not indebted to Parton in the sum of $200,000 or at all. The debt was a debt owing from Tasmania Distillery Pty Ltd (under administration) to Parton or his nominee. This debt has in fact been discharged by virtue of the fact that Reswick has contributed $200,000 less to the working capital of Tasmania Distillery Pty Ltd than it was otherwise obliged to do. Accordingly, Greenway has a genuine dispute with respect to the claimed debt and I respectfully request this Honourable Court to make an order setting aside the statutory demand.

56. It may be, as the primary judge concluded, that the respondent's contentions will be made out. However, that is a matter on which the parties will have to lead evidence.

57. It is not possible, nor permissible, to decide on an application of this kind which of the parties will ultimately be successful. All that needs to be decided on an application of this kind is whether the challenge is so devoid of substance that no further investigation is warranted.

58. In our opinion, a genuine dispute exists between the parties. The dispute is not spurious. There is documentary evidence (i.e. the Deed) to support the appellant's contentions.

59. Because the appellant has made out a genuine dispute, it was entitled to an order under s 459H setting aside the statutory demand.

60. We would allow the appeal. We would set aside the order made by the primary judge. In lieu thereof, we would make an order that the respondent's statutory demand for payment of debt dated 2 September 2003 be set aside.

61. There should be no costs of the application before the primary judge.

62. The respondent should pay the appellant's costs of the appeal.

I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Solicitor for the Appellant: J S O'Connor Harris & Co

At a glance

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Judgment (46 paragraphs)

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Cases Cited (4)