This passage was applied by the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 463-4.
38 Thus the bulk of authority puts the basal test that the court must be satisfied on the evidence before the court, the company has shown that it has a plausible contention requiring investigation; see SMEC International Pty Ltd v CEMS Engineering Inc at 600.
39 Mr Gray says that on the evidence before the learned Master, including the exhibits and the affidavit by Nicola Reale of February 2003, the evidence never reached the stage where the Master could be satisfied that there is a genuine dispute about the debt on the Graywinter test or even on the SMEC test. I will examine this submission as I look at each of the next two heads of argument.
40 However, it follows from what I have said above that it is insufficient that the court feels that there might be an arguable case or that there may be room for argument about a point. The onus is on the plaintiff to prove by evidence that there is a genuine dispute, that is that there is a plausible contention requiring investigation.
41 B. The argument as to the identity of the debtor, in simple form, is that the two brothers, Nicola and Rocco agreed that the borrowing from the Commonwealth Bank was Rocco's matching contribution of finance for the company and that he would be solely responsible for its repayment. In the divorce settlement between Rocco and Ludmilla, Rocco took the interest in the company whilst Ludmilla took the Strathfield house subject to the mortgage. She then paid the mortgage out of the proceeds of sale. The debt to the bank was thus not the company's debt, but Ludmilla's debt.
42 The contention is that the evidence is that in the divorce, a solicitor for Ludmilla made statements to this effect and that the terms of settlement were approved by a Registrar of the Family Court contained in a notation to this effect.
43 Mr Gray says that the solicitor's affidavit, which was tendered as Exhibit "A" is merely evidence that the solicitor said those things, not of their truth. There is nothing to be found in the paragraph of the affidavit referring to Exhibit "A" as to why it was tendered, it was admitted without objection and seems to me thus to have been in evidence for all purposes.
44 I always entertain some doubt about this proposition and, when I am the trial judge, usually ask counsel the status of statements of fact in correspondence annexed to affidavits and, if appropriate, make an order under s 136 of the Evidence Act 1995 to define their status. During the argument on the appeal Mr Gray asked me to make an order under s 136 of the Evidence Act. I reserved on this, but I am of the view that I should not do so in view of the way the material was tendered before the Master.
45 I should note that there was no exploration as to the effect of the rule in British Thomson-Houston Co Ltd v British Insulated and Helsby Cables Ltd [1924] 2 Ch 160. That rule is that evidence given by a witness for X in one piece of litigation relied upon by X in that litigation is not admissible as an admission against X in other litigation.
46 Once the Graywinter argument is put to one side, the point does not matter too much as the court assumes that the affidavit contains the evidence that that solicitor would give at the ultimate trial if called upon to give evidence.
47 I may then pass to the substantive part of the argument on this point.
48 A good place to commence is with the judgment of Hodgson J in AGC (Advances) Ltd v West (1984) 5 NSWLR 590 affirmed in the Court of Appeal as West v AGC (Advances) Ltd (1986) 5 NSWLR 610. In that case, Mrs West borrowed $68,000 from AGC secured on her home the bulk of which was paid to a company, The World of Quiche Pty Ltd (Quiche). On the facts, the judge held that all parties including the lender knew that the real transaction was a borrowing by Quiche secured on Mrs West's home and that it was not intended that the loan be repaid by anyone except Quiche or its guarantors. He held at p 603 that "in substance" Quiche was the principal borrower and the other parties including Mrs West were guarantors.
49 His Honour noted that his decision was in accordance with Hollier v Eyre (1842) 9 Cl & Fin 1; 8 ER 313; Greenough v McClelland (1860) 2 El & El 429; 121 ER 162 and Rouse v Bradford Banking Co [1894] AC 586.
50 The House of Lords in Hollier's case stated the law in the case of an annuity, that as between the grantee and the person named as the grantor, the documents are conclusive and no evidence can be received to the contrary. This was also the view taken by the Full Court in this State in Edwards v Lennon (1866) 6 SCR (NSW) (Eq) 18, 29-30. (Hodgson J appears to have departed from this and applied what O'Donovan & Phillips, Modern Contract of Guarantee 3rd ed (Law Book Co, Sydney, 1996) p 20 call "a more modern, flexible approach to the admissibility of extrinsic evidence").
51 This difference matters very little as it is clear that as between the persons named as grantor and guarantors inter se, extrinsic evidence may be admitted to show that there were equities which enabled a court of equity to decree inter se the real and substantive position between them.
52 Greenough's case was a decision of the Exchequer Chamber which again plainly applied equitable principles. However, Atherton SG argued that, at law, not only has the principal creditor to have knowledge of the arrangement, but he must expressly agree at the time of the contract to treat a party as a surety only and cited Manley v Boycot (1853) 2 El & Bl 46; 118 ER 686 which indeed does support that submission. The Exchequer Chamber did not rule on this submission. Manley's case was not cited to Hodgson J who appears to have reached a contrary viewpoint.
53 The Rouse case was quite a different matter. The question was whether after a guarantee had been given a dissolution of partnership and an alleged agreement of the principal creditor released one of the guarantors. It is irrelevant to the present case.
54 Hodgson J returned to the subject in Manzo v 555/225 Pitt Street Pty Ltd (1990) 21 NSWLR 1. In that case, 555 agreed to borrow $120,000 from Custom Credit. Manzo and Oehm gave secured guarantees for this loan. The money was used to pay creditors of companies associated with Manzo under a scheme of arrangement. The security was sold and Custom Credit paid out. Manzo then made a statutory demand on 555 based on the implied promise of the principal debtor to indemnify a surety who had paid the debt. His Honour applied his decision in West and said that there was a bona fide dispute as to who, in equity, was the principal debtor.
55 Before dealing with the facts, I should note that there is some difficulty with the terminology of s 459H(1). The section does not define "debt". Is the situation where at law X owes Y a debt, but X has a right in equity to have Z pay the debt to Y a dispute about the existence of a debt, or has X merely a personal equity against Z?
56 In Re Steel Wing Company Ltd [1921] 1 Ch 349, 355, PO Lawrence J held that "debt" in the corresponding section of the English 1908 Act meant debt at law or in equity as those words had been used in s 80 of the 1862 Act and were only omitted from the 1908 consolidation because of the English Judicature Act which made them unnecessary. The case concerned an equitable assignment of part of a debt and the assignee was held to be a creditor who could seek winding up.
57 The Companies Act 1899 (NSW) s 86 followed English 1862 s 80 and described a creditor as a person who was indebted "at law or in equity". The 1936 Act, s 209 followed the then English section and omitted those words. Even though there was no Judicature Act in NSW at the time, the probabilities are that the legislature, in the light of Re Steel Wing Company did not intend to change the law. Thus, as Hodgson J held in FAI v Southern Cross Exploration NL (No 3) (1986) 4 ACLC 447, 455 and again in Manzo v 555/225 Pitt Street Pty Ltd (1990) 21 NSWLR 1, 8, a creditor in equity is a creditor for the purposes of the Corporations Act. It must follow that a debt due in equity is a debt for the purposes of that Act.
58 However, what is a debt in equity? The Steel Wing case involved an imperfect assignment. That was held to be an equitable debt. Another example is where a defaulting trustee is obliged to restore money abstracted in breach of trust: Ex parte Adamson; Re Collie (1878) 8 Ch D 807, 819; Wickstead v Browne (1992) 30 NSWLR 1, 14. The two cases before Hodgson J are unclear as to the exact nature of the claim, but it would appear that the petitioner was owed a sum of money recoverable only in equity.
59 As Hodgson J pointed out in the Manzo case at p 8, there can only be one creditor in respect of any debt. Thus, if A owes B money at law, the fact that A is a nominee for C or that C is bound to indemnify A, is no answer to the question whether A owes money to B. The only exception may be where A could obtain against B a perpetual injunction to prevent A suing B on the basis of B's unconscionable conduct in seeking to sue A in all the circumstances of the case.
60 Thus, if the only dispute is whether the company has a claim in equity that it be indemnified (or indeed a cross claim against a third person) is not a matter that is relevant to whether there is a dispute about the debt.
61 Mr Blake says, and there is considerable truth in the statement, that it does not really matter what precise analysis one makes of the proposition that at least in equity, the court can between the alleged principal debtor and the alleged sureties work out who, in substance, is the principal debtor, Manzo's case is sufficiently analogous to show that the company has shown that a genuine dispute exists.
62 The facts of the present case are not in the same plight as they were in Manzo's case. Here there was no doubt that when the loan was taken out and when the loan was later increased, the principal debtor was either the company or Rocco: it was not Ludmilla. Furthermore, Ludmilla was never a party to the alleged conversation in which Rocco said that he would borrow and repay the money. Thirdly, there is no evidence that what Rocco said was every carried out. Fourthly, Ludmilla never got any benefit from the loan.
63 Indeed, it would seem that the way the company was structured, there was never any possibility of Rocco lending the company money, any loans would have been by the trustee of the Rocco Reale Family Trust. There is no evidence as to who that trustee is. There is no evidence that Rocco ever lent any money to that trustee. Indeed such of the bank documents that are in evidence show that the money was provided by the bank to the company directly. Indeed there was no evidence from Rocco before the Master at all.
64 As the Master found in [30] of his judgment, there is absolutely no suggestion in the documents that the company was the principal debtor.
65 Furthermore, there is no doubt that the whole of the money that came from the bank was used for the company's business as so-called working capital.
66 The company sought to rely on marrying conversations between the brothers in 1997 to which Ludmilla was not a party with the divorce settlement between Ludmilla and Rocco to which the company and Nicola were not parties and then saying that in some way or other, everyone assumed that the substance of the matter was that Ludmilla assumed the debt with the Strathfield property and that she had no right of indemnity against the company.
67 The Master held that there was sufficient for him to hold that there was a genuine dispute on this ground.
68 The finding of the Master, even in a case where there is no oral evidence must be accorded great weight and respect, but the judge is conducting an appeal by way of rehearing and must address the issues raised.
69 The Master deals with this aspect of the case in [28]-[32] of his reasons. In [28] he cites West's case as authority for the proposition that the court can have regard to extrinsic evidence. This is true, but whether one should prefer the House of Lords' decision in Hollier is a good question. The Master also does not differentiate between the position qua the principal creditor and that as between the sureties inter se.
70 The Master then says that the recital in the property settlement was equivocal. He then notes that there is nothing in the company accounts to suggest that Rocco was the principal debtor.
71 The gravamen of the judgment is in [32]:
"However, when one has regard to the arrangements between the brothers to the effect that Rocco Reale was to personally repay the loan and that it was for the purpose of him providing a similar level of funds to the company as had been provided by his brother, the truth and substance of the transaction would tend to suggest that the principal debtor was Rocco Reale."
72 With respect, to reach the view that the material would "tend to suggest" is insufficient for the company's purpose. However, putting semantics aside, the Master, with respect, does not fully analyse the evidence and does not take into account the factors I have set out above which point in the opposite direction, particularly the lack of evidence of acquiescence of Ludmilla in any such arrangement.
73 The onus was on the company to satisfy the court. I do not consider it did so.
74 C. The estoppel is said to arise out of proceedings 1430 of 2002. These were proceedings commenced by Ludmilla and Rocco against the company. The company submits that the settlement of these proceedings was on the basis that the defendant would not enforce any right of indemnity in respect to the bank loan.
75 The Master rejected that there was any waiver or conventional estoppel or estoppel in pais involved. He then turned to equitable estoppel. He referred to the judgment of Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428-9, where his Honour set out six elements of the equitable estoppel relied on in that case.
76 The Master refers to the statement of the solicitor in Exhibit "A" that Ludmilla would have $268,000 to support herself and four children as a representation that she had no other assets and thus that she recognised that she had no right to any indemnity.
77 The learned Master said at [24]:
"Although I accept that minds may differ I would have thought that the statement was not too ambiguous and that there may be room for an argument for promissory estoppel. Detriment is obvious and reliance would be arguable."
78 Mr Gray is very critical of this statement. First, he says that the learned Master has not addressed the real question which is not whether there is room for argument about a point, but whether the court is satisfied that there is a genuine dispute, or at least a plausible contention requiring investigation.
79 Next he says that there could never be a promissory estoppel as Ludmilla never made any promise. The type of estoppel spoken about by Brennan J in the Waltons case was rather an extended version of proprietary estoppel. This could not exist in the instant case as there had been no acquiescence by Ludmilla on which the company could or did rely to its detriment. Indeed none of the six elements referred to by Brennan J exist.
80 Next he submits that it is most significant that the Master actually found that no-one turned his or her mind at the relevant time to whether there was a right of indemnity. This being so, it is difficult to conclude that a representation was made. In any event, it is difficult to see how any representation that was made in the terms of settlement was made to the company.
81 Mr Blake valiantly submitted that the learned Master had stated the relevant legal principles and applied them. However, with respect, the submissions of Mr Gray are to my mind almost entirely valid.
82 D. It follows that the appeal should be allowed and the orders of the Master set aside. The respondent company must pay the appellant's costs both before me and before the Master, but may, if qualified, have a certificate under the Suitors Fund Act 1951 with respect to the costs before the Master. I extend the time for compliance with the statutory demand to 8 August 2003. The exhibits should remain with the file.