SMEC International v C.E.M.S. Engineering

Supreme Court of NSW|2001-04-17|Before: Austin J, Hill J

(2001) 162 FLR 383 (2001) 38 ACSR 595 Reported Decision : (2001) 19 ACLC 1309 [2001] NSWSC 459 [2001] ACL Rep 120 NSW 87

CITATION : SMEC International v C.E.M.S. Engineering [2001] NSWSC 459 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1761/01 HEARING DATE(S) : 17 April 2001 JUDGMENT DATE : 5 June 2001

PARTIES : SMEC International Pty Ltd (P) C.E.M.S. Engineering Inc (D) JUDGMENT OF : Austin J

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1761/01 SMEC International Pty Ltd v C.E.M.S. Engineering Inc

JUDGMENT (published 5 June 2001, revised to correct typographical errors 6 June 2001) 1 HIS HONOUR: SMEC International Pty Ltd is a wholly-owned subsidiary of SMEC Holdings Ltd. The SMEC group is an engineering consultancy and project management group based in New South Wales. SMEC stands for Snowy Mountain Engineering Company. The group was once owned by the Commonwealth but in 1993 it was privatised by a management buy-out. 2 CEMS Engineering Inc is a company that appears to have been incorporated in Panama. It contracted with SMEC International to provide support services for two engineering consultancy projects that SMEC International had in Iran. The contracts were negotiated on behalf of SMEC International by Mr Jack Boniface, and on the part of CEMS Engineering by Mr Thomas Moser, apparently a resident of Switzerland. 3 On 26 February 2001 CEMS Engineering served a statutory demand and supporting affidavit on SMEC International, claiming that SMEC International owed it US$240,000. The debt was described as follows: 'Fees payable to the creditor for logistical support and consultative, facilitative and representative services provided to the company in accordance with the contract dated 3 November 1996 between the parties and subject of Invoice number P01-007 dated 7 September 2000.' 4 The statutory demand was accompanied by an affidavit of Mr Moser in the following terms: '1. I am the attorney to CEMS ENGINEERING INC, the creditor named in the statutory demand, which this affidavit accompanies, relating to the debt owed by SMEC International Pty Ltd. 2. I am authorised to act on behalf of the creditor and have been involved in the negotiation, signing and administration of the contract in question as well as monitoring of invoices and payments. 3. The debt of US$240,000 mentioned in the statutory demand is due and payable by the debtor company. 4. I believe that there is no genuine dispute about the existence or amount of debt.' 5 By an originating process filed on 13 March 2001, SMEC International applied under s 459G of the Corporations Law for an order that the statutory demand be set aside. The matter came before me in the Corporations List on 17 April 2001, when SMEC International indicated that it wished to make an application for security to be provided by CEMS Engineering for its costs. However, the parties were ready for a final hearing of the proceedings and it was possible for me to hear the matter on that day. Therefore the application for security for costs was not made. 6 I have decided that the plaintiff is entitled to an order that the statutory demand be set aside, on the ground that there is a genuine dispute between the plaintiff and the defendant about the existence of the debt to which the demand relates: s 459H (1) (a). The plaintiff also relied on six other grounds for setting aside the statutory demand (two other grounds, relating to alleged deficiencies in the affidavit accompanying the statutory demand, were advanced in written submissions but were abandoned at the hearing). Some of those grounds raise difficult and uncertain questions of law. I shall set out the plaintiff's contentions and make some brief comments, but it not necessary for me to decide them and I shall not base my decision on any of those grounds. 7 Before dealing with the 'genuine dispute' ground and the other grounds advanced by the plaintiff, I shall deal with a submission by the defendant that the Court has no jurisdiction to determine the plaintiff's application.

The defendant's contention that the Court has no jurisdiction to hear and determine the plaintiff's application 8 Section 459G (2) of the Corporations Law states that an application by a company for an order setting aside a statutory demand may only be made within 21 days after the demand is served on the company. By s 459G (3), an application is made in accordance with s 459G 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. 9 The statutory demand was served on 26 February 2001. The proceedings were commenced on 13 March 2001, by the filing and serving on that day of the originating process supported by an affidavit by James Marshall made on 13 March 2001. The defendant accepts that the requirements of ss 459G(2) and (3) have been complied with, subject to one point. In the defendant's submission, Mr Marshall's affidavit does not fall within the description of 'an affidavit supporting the application' for the purposes of s 459G(3)(a). 10 Mr Marshall's affidavit is brief. He deposes to being a partner of the firm of solicitors who act for SMEC International ('SMEC'), authorised to swear the affidavit on behalf of SMEC. He annexes a copy of the statutory demand and Mr Moser's affidavit. He says that on 21 December 2000 his firm (on the behalf of SMEC) sent a facsimile letter to solicitors acting for the defendant in response to a demand by the defendant for payment of US$240,000, and annexes a copy of that letter. He says that no response was received to that letter and on 2 March 2001, following service of the statutory demand, his firm sent another letter to the defendant's solicitors. He says that no response was received to the second letter. He says that the plaintiff seeks an order that the statutory demand be set aside. 11 The letter dated 21 December 2000 contains the following: 'Our client has instructed us that:

The payment to our client by FARAB was not for fees for engineering services in respect of Karun III, and therefore does not entitle your client to a claim of US$240,000.

2 Your client has not complied with the terms of the agreement with our client, dated 3 November 1996. Our client is formulating a claim in this regard.

Our client has paid to your client in excess of $414,000 pursuant to invoices issued by your client. Our client is currently reviewing and auditing those invoices, and may seek further particularisation and substantiation from your client in respect of the invoiced amounts, and may seek repayment of part or all of this amount.' 12 The letter goes on to draw attention to contractual provisions according to which the agreement is governed by the laws of Switzerland and any dispute or claim arising out of the agreement is to be settled by arbitration according to the rules of the Zurich Chamber of Commerce. The letter concludes: 'As foreshadowed above, our client is further considering its position with respect to your letter dated 18 December 2000 and its position under the agreement with your client. We would expect our client to have concluded their review of this matter and be in a position to submit their claim against your client by mid-January 2001.' 13 The letter dated 2 March 2001 refers to the statutory demand and the letter of 21 December 2000. It continues: 'In that correspondence we noted our client's instructions that our client is not indebted to your client for the amount claimed for a number of reasons. We do not intend to repeat those reasons in this correspondence. In light of the fact that the debt is clearly disputed on bona fide grounds the service by your client of a statutory demand constitutes an abuse of process.' 14 A much fuller affidavit, made by a director of the plaintiff called Ross Hitt, was filed and served outside the 21 day time period. Substantial documentation was exhibited to that affidavit. The plaintiff relied on Mr Hitt's affidavit and the exhibits to it at the hearing. 15 The defendant submitted at the hearing that s 459G, when read together with s 459H (which allows the Court to set aside a statutory demand where there is a genuine dispute about the existence or amount of the debt or the company has an offsetting claim), requires that the supporting affidavit disclose facts showing a genuine dispute between the parties, 'beyond mere assertion, bluster or bare claim'. According to the defendant, this is an essential step for the jurisdiction of the Court conferred by the Corporations Law to be enlivened. In its submission, later supplementation of the evidence does not excuse the need for the original supporting affidavit to comply with these requirements. 16 I agree with the defendant that compliance with s 459G (3) is a condition of the Court's jurisdiction, and therefore the Court cannot act on the plaintiff's application unless a 'supporting affidavit' has been filed and served within the requisite time: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, 459. As I said in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456, the question is, how far must the affidavit go for it to be properly classified as an affidavit which supports the application? Where the application is based on a genuine dispute, to what extent must the affidavit which is filed with the application demonstrate in its terms, without reliance on subsequently filed evidence, that a genuine dispute exists? 17 In Graywinter , Sundberg J (at 459) expressed the view that a mere assertion that there is a genuine dispute, or a bare claim that the debt is disputed, is not enough. The affidavit must 'disclose facts showing that there is a genuine dispute between the parties'. It must 'advance, further or assist the company's cause' (at 459). However, it is not necessary for the affidavit to give details, in admissible form, of all of the evidence that supports the contention of a genuine dispute. It is enough that the evidence is available at the hearing (at 459). It follows that the affidavit may read like a pleading and need not go into the evidence. Moreover, 'an affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit'. As Santow J remarked in Zenaust Imports Pty Ltd v Alembic Chemical Works Co Ltd (1998) 28 ACSR 465, 469, 'the basis for a genuine dispute cannot be expected to rise higher than the level of articulation of the claimed debt in relation to which a genuine dispute is said to arise'. 18 In Graywinter the affidavit simply asserted that the creditor had agreed to a compromise and terms of payment, and had agreed not to sue, and that a judgment which had been entered for the debt had been entered erroneously, and therefore a genuine dispute existed. This was held to be sufficient to satisfy the statutory requirement. In contrast, in Dromore Produce Pty Ltd v W Paton (Fertilisers) Pty Ltd (1997 23 ACSR 230, Young J held an affidavit by the plaintiff's solicitor which simply said that the plaintiff disputed that it was indebted to the defendant, was insufficient to satisfy the statute. I noted other authorities in my reasons for judgment in the Goldspar case. 19 In my opinion Mr Marshall's affidavit is adequate to satisfy the criteria for a supporting affidavit within s 459G (3) (a). It is true that the letter of 21 December 2000 does not, in its own terms, assert a dispute as to the existence of the debt. However, the matter is put beyond doubt by the letter of 2 March 2001, which draws the conclusion that the plaintiff is not indebted to the defendant for the reasons set out in the previous letter. The letter of 21 December 2000 goes beyond mere assertion, by setting out two factual grounds for disputing the debt. One is that a payment received by the plaintiff was not for engineering services of a kind that would trigger the defendant's entitlement to make a claim. Another is that the agreement is subject to an arbitration clause that has not been followed. Other assertions, contained in paragraphs 2 and 3 on the first page of the letter of 21 December 2000, are less specific and may well not be sufficient to satisfy the statutory requirement, if they appeared alone - although at least those paragraphs indicate that the plaintiff intended to rely on an offsetting claim rather than merely a genuine dispute as to the existence of the debt. 20 Mr Marshall's affidavit gives a rather thin presentation of grounds for alleging that there is a genuine dispute as to the existence of the debt, especially when compared with the elaborate and extensive submissions made on behalf of the plaintiff at the hearing. But there is nothing in s 459G or the case law that requires the supporting affidavit to set out the plaintiff's grounds comprehensively. If the supporting affidavit is a 'pleading', it must like other pleadings be capable of amendment. Thus, for example, the fact that Mr Marshall's affidavit does not complain that the statutory demand was expressed in US dollars rather than Australian currency did not, in my view, prevent the plaintiff from arguing at the hearing that a statutory demand expressed in any currency other than Australian dollars is bad for that reason alone. The cases accept that a plaintiff is entitled to rely upon affidavits filed outside the 21 day period, provided that the application has otherwise been instituted validly: Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1999) 11 ACSR 326, 328; Re Louisbridge Pty Ltd [1994] 2 Qd R 144, 145; Zanjill Pty Ltd v Sydney Autolac Centre Pty Ltd (Federal Court of Australia, Hill J, unreported, 5 December 1997). That proposition must imply that later affidavits can expand and supplement the factual grounds upon which the plaintiff will rely at the hearing, subject perhaps to the qualification that the initial supporting affidavit must indicate the general nature of the plaintiff's case (for example, that the plaintiff asserts a genuine dispute as to the existence or amount of the debt rather than (or as well as) an offsetting claim). 21 I reject the defendant's contention that Mr Marshall's affidavit fails to comply with s 459G (3) (a).

Genuine dispute 22 The plaintiff contends that there is a genuine dispute between the plaintiff and the defendant as to the existence of the debt claimed. The standard to be applied by the Court in determining, for the purposes of s 459H (1) (a), whether it is satisfied that there is a genuine dispute between the company and the defendant as to the existence or amount of the debt to which the demand relates, has been discussed in many cases: see, for example, Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 462-4; Mibor Investments , 11 ACSR at 366-7; Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601, 605; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787-8. For present purposes, an acceptable formula is that the plaintiff must satisfy the Court that it has a plausible contention requiring investigation. 23 According to the plaintiff's submission, there is a plausible contention of a genuine dispute as to which contracts govern the obligations of the plaintiff; as to whether the plaintiff's obligations are owed to Intercasp Trade SA rather than the defendant; whether those obligations are subject to regime of 32% or 19½% of fees; and whether the plaintiff's obligations are capable of discharge only by payment, at least to the extent of US$6000 per month, to Euro Arvin in Switzerland. In order to explain these matters, it is necessary for me to refer to the evidence set out in Mr Hitt's affidavit. 24 Mr Hitt has given affidavit evidence of a history of events in which negotiations between the plaintiff and the defendant were conducted by Mr Boniface on behalf of the plaintiff and Mr Moser on behalf of the defendant, without any involvement of other staff of the plaintiff. Mr Boniface is now on leave of absence from the company and there is an audit committee investigation into his activities as chief executive, particularly in respect of contracts and expenditure. There is evidence providing grounds for concern about the contractual relationships between the plaintiff and the defendant, and between the plaintiff and other entities associated with Mr Moser. For example, Mr Hitt has discovered evidence of various correspondence and contracts and from which it appears that the plaintiff agreed to pay US$6000 per month to Euro Avin, a company associated with Dr Khorzad, and Iranian intermediary. Further, some documents indicate that the plaintiff has entered into two agreements in identical form to the agreements which Mr Hitt treats as the main agreements with the defendant, and in these other agreements there is provision for a commission payment of 19.5% to a company called Intercasp Trade SA.

25 The defendant objected to the admissibility of much of Mr Hitt's affidavit evidence, but it seemed to me to be relevant and admissible, and there was no reason in my opinion for exercising any discretion against admitting it. I therefore ruled at the hearing that the relevant parts of the affidavit were admissible. Consequently Mr Hitt's evidence stands uncontradicted. I shall not set it out in full. Suffice it to say that I accept his evidence for the purposes of this judgment.

26 His evidence is in various respects vague, but it does indicate, with some supporting documentation, that there may be confusing and inconsistent contracts between the parties providing grounds for real doubt as to whether the contract or contracts upon which the statutory demand is based are valid and enforceable between them. In my opinion, this is sufficient to provide a 'plausible contention requiring investigation' for the purposes of s 459H, and therefore there is a genuine dispute as to the existence of the debt claimed by the defendant.

Other grounds for challenging the statutory demand 27 As I have said, the plaintiff relied at the hearing on six other grounds upon which the statutory demand should, it said, be set aside. I shall set out the plaintiff's contentions on each ground and some brief observations. In summary, the other grounds were that:

(i) the statutory demand is defective because it is expressed in a foreign currency;

(ii) the contract or contracts pursuant to which the statutory demand was made contain provisions requiring that any dispute be referred to arbitration;

(iii) the defendant is forced to rely on a debt arising in a way different from the basis set out in the statutory demand;

(iv) the debt is unenforceable because of issues relating to the propriety of the conduct of Mr Moser and Mr Boniface;

(v) any entitlement of the defendant is confined to a percentage of fees excluding payments for reimbursable items, and the debt is not been confined in that way;

(vi) the plaintiff has an offsetting claim in an amount greater than the amount claimed by the defendant.

Foreign currency 28 The statutory demand is for an amount of US$240,000. No attempt is made in the demand to convert that amount to Australian dollars. The plaintiff submitted that section 459E, which refers to a demand for a 'debt', and Form 509H prescribed under the Corporations Regulations (regs 1.0.03 and 1.0.04), which provides for the creditor to state that the debtor company owes it 'the amount of $ (insert amount)', have the effect of requiring that the demand be made in Australian dollars. There is some case law to support the plaintiff's submission: see Re Ikin, ex parte Lambourghini Tractors of Australia Pty Ltd (1985) 4 FCR 582; Vehicle Wash Systems Pty Limited v Mark VII Equipment Inc (1997) 80 FCR 571, 577-8. 29 The question is not easy to resolve, and any views expressed upon it at first instance can only be provisional, since it is it is inevitable that an appellate court will eventually be asked to pronounce upon the matter. I considered the question in Daewoo Australia Pty Ltd v Suncorp-Metway Ltd (2000) 33 ACSR 481, 491-3. After reviewing the authorities I came to the conclusion that the Corporations Law permits a statutory demand to be made in foreign currency, where the demand relates to a contract which entitles the creditor to be paid in the foreign currency; but even if the demand were defective because it is made in a foreign currency, no substantial injustice would be caused if it were not set aside, in a case where the agreement entitles the creditor to be paid in the foreign currency demanded. 30 I would be prepared to revise my views if some new, persuasive argument to the contrary were to be advanced. Counsel for the plaintiff submitted that two matters should cause me to change my opinion. First, he noted that the matter had been addressed, for the purpose of bankruptcy notices, by express amendments now found in ss 4 (2A), (2B) and (2C) of the Bankruptcy Act, 1966 (Cth). He contended that since Parliament had found it necessary, in the analogous bankruptcy context, to amend the law quite elaborately in order to resolve the problem, a court should hesitate to develop a judicial solution going beyond the text of the Corporations Law and Form 509H. However, nothing in this argument reduces or rebuts the considerations which led me to my conclusion in the Daewoo case. 31 Secondly, counsel for the plaintiff drew attention to some conversion rate issues that arise on the facts of this case. Here the ultimate underlying right asserted by the defendant is to 32% of fees paid to the plaintiff. The amount is payable in US dollars but relates to fees that are dominated partly in US dollars and partly in Iranian rials. If it is permissible for the statutory demand to be made in US dollars, it will be necessary to convert the Iranian currency into US currency, and to decide upon a conversion date for that purpose. I accept this submission, but it does not bear upon the legal issue as to whether a statutory demand can be made in foreign currency. The problem of conversion of Iranian currency into US currency arises by virtue of the contract between the parties, under which they have agreed that payment be made to the defendant in US dollars by reference to fees partly calculated in Iranian currency. 32 The plaintiff's counsel also pointed out that the deductions from any entitlement of the defendant in respect of payments for reimbursable items are dominated in Australian dollars. Again, however, that is the bargain between the parties. Any difficulty in ascertaining an appropriate conversion date is a difficulty arising out of the construction of the contract. Further, counsel pointed out that any offsetting claim by the plaintiff is likely to be calculated principally in Australian dollars. Again, however, that is a consequence of the bargain between the parties, by which the plaintiff put itself in a situation of having an obligation to make payments in US currency while incurring expenditure in Australian dollars. 33 All these matters are relied upon by the plaintiff, not only to persuade the Court that the making of a statutory demand in foreign currency is impermissible, but also to establish that there is a defect in the statutory demand (because it is a demand in foreign currency) that causes substantial injustice under s 459J (1) (a). The substantial injustice arises because the plaintiff's fees are denominated partly in Iranian currency, reimbursable items are denominated in Australian dollars, and the plaintiff's offsetting claim relates to expenditure incurred in Australian dollars. For the reasons that I set out in the Daewoo case, my view is that a statutory demand expressed in foreign currency is not defective, where the demand relates to a contract under which the company has promised to meet a financial obligation in the foreign currency. Therefore the question whether the defect has caused substantial injustice does not arise. If it did, however, I would be inclined to the view that where commercial parties enter into an agreement for payment in foreign currency, recognising that some of their expenditure and entitlements will relate to currencies other than the one denominated in the contract, there is no substantial injustice for the purposes of s 459J (1) (a) in the company being held to its promise to make payment in foreign currency notwithstanding that some of its rights and obligations relevant to the contract are expressed other currencies, since the company has expressly bargained that way.

Arbitration clause 34 The agreement between the plaintiff and the defendant contained an arbitration clause, according to which any dispute arising out of or in connection with the contract would be subject to final settlement by arbitration in Switzerland; further, under the contract the governing law is Swiss. The defendant submitted that there was no evidence of a dispute of a kind that would enliven the arbitration cause. I disagree. The letter of 21 December 2000 shows that the plaintiff did not regard the sum claimed as due and payable, and the arbitration clause is amply wide enough to apply in those circumstances. Under s 7 (2) of the International Arbitration Act 1974 (Cth) any proceedings in respect of the alleged debt (such as any later application to wind up the plaintiff) would be stayed: Flakt Ltd v Wilkins and Davies Construction Co Ltd [1979] 2 NSWLR 243, 250-251. 35 The plaintiff submitted that the issue of the statutory demand constituted a breach of contract, having regard to the arbitration provision in the contract. Counsel for the plaintiff relied upon Haiki Shipping Corporation v Sopex Oils Ltd [1998] 1 Lloyd's Rep 462, 472; British Aerospace Plc v Dee Howard Co [1993] 1 Lloyd's Rep 368, 374-5; FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association (1996) 41 NSWLR 117, 126-7. The plaintiff contended that to issue a statutory demand in breach of contract amounted to a threatened abuse of process of the Court, which could be restrained by injunction. It is true that the cases recognise, notwithstanding the reform of the statutory demand procedure introduced by amendments in 1992, that is still some residual scope for applications to restrain reliance on the statutory demand procedure on the ground abuse of process: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, 279; see, generally CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345, 390-394; The Angelic Grace [1994] 1 Lloyd's Rep 168, 181-2; [1995) 1 Lloyd's Rep 87, 96, 97. The defendant contended that the Court would not intervene by making, in effect, and anti-suit injunction (citing Vee H Aviation Pty Ltd v BP Australia Ltd (1995) 58 FCR 73, 76). But the dicta in the David Grant case demonstrate that there is a jurisdiction to intervene in special circumstances. 36 However, in my view it is unlikely that a Court would set aside a statutory demand on the bare ground that the service of the demand or the commencement of winding up proceedings in consequence of it, violated an arbitration clause. The question is a little artificial, because the application of the arbitration clause is likely to arise for consideration only if there is a dispute between the parties, and once there is a genuine dispute the Court will set aside the statutory demand on that ground. In Reinsurance Australia Corporation Ltd v Odyssey Re (Bermuda) Ltd (2000) 36 ACSR 348 Master Macready held that the issue of a statutory demand was permitted notwithstanding a contractual provision which ascribed jurisdiction to the English courts, as the issue of a statutory demand, part of the winding up procedure, did not itself constitute a dispute. In the Master's opinion the International Arbitration Act operated to stay statutory proceedings such as those brought upon a statutory demand and did not provide a basis for setting aside the demand. I would be inclined to follow this reasoning were necessary for me to decide the point.

Different debt 37 The plaintiff drew attention to the fact that the statutory demand wrongly describes the debt claimed as fees payable in accordance with a contract dated 3 November 1996, which in fact relates only to the Karun III power station, whereas the claimed amount is apparently in respect of both Karun I and Karun III. The plaintiff submitted that the defendant is thus forced to rely on a debt arising in a way different from the basis set out in the statutory demand: Zhen Yun (Australia) Pty Ltd v State Bank of South Australia (1994) 13 ACSR 801, 803. 38 Although was an error in the demand, in the circumstances that error cannot possibly have misled the plaintiff, whose officers were well aware that the claim arose out of the negotiated settlement of the dispute between the plaintiff and FARAB. The statutory demand identified invoice number P01-007 dated 7 September 2000. That invoice, which is in evidence, was headed 'Karun Settlement', and although it referred only to the agreement of 3 November 1996, it also referred to a 'final invoice covering the settlement payment agreed by contract signed on 16 August 2000'. In these circumstances I would not set aside the statutory demand on this ground, if it were the only ground available.

39 The plaintiff submitted that there is a genuine dispute, to the requisite standard, as to the enforceability of the debt claimed by the defendant. Counsel referred to Mr Hitt's affidavit and Exhibit RH5 to it, and contended that this evidence raised serious issues requiring investigation as to the propriety of the conduct of Mr Moser and Mr Boniface.

40 As I have said, the defendant has not adduced any evidence to contradict Mr Hitt's evidence. However, on the question of impropriety Mr Hitt is naturally and appropriately cautious. He says that Mr Boniface is currently on leave of absence from the company pending the result of an audit committee investigation into his activities as chief executive of the SMEC group, and in particular, into contracts and expenditure. He says that arrangements between the plaintiff and the defendant were negotiated solely between Mr Boniface and Mr Moser, and other members of the board have not met Mr Moser. He says he has uncovered a series of contracts and arrangements with entities associated with Mr Moser, and records (as I have observed) numerous versions of various agreements between the parties.

41 I have concluded, for the reasons already given, that Mr Hitt's evidence establishes that there is a genuine dispute as to the existence of the debt claimed by the defendant. However, his evidence is, in its own terms, much less specific and tentative on the question whether there is any evidence of impropriety. In my opinion it does not cross the threshold of a plausible contention requiring investigation, at this stage. Failure to exclude payments for reimbursable items

42 In his affidavit and Mr Hitt says that, even if the defendant actually performed the services for which it claims payment, according to his calculation the defendant is only entitled to payment of US$117,087 and it has been paid US$168,000 (using a conversion rate of 50 cents to the dollar). Therefore, according to Mr Hitt's evidence, the defendant has been overpaid.

43 The defendant submitted that Mr Hitt's evidence is very general and imprecise. Counsel also contended that the evidence was inadmissible, but I have held that the relevant evidence should be admitted. It shows a calculation made pursuant to the terms of the contracts between the parties, which has not been challenged directly by the defendant. In my opinion, therefore, this evidence shows at least a plausible contention requiring investigation, and therefore a genuine dispute, with respect to the whole of the debt claimed by the defendant. Offsetting claim

44 Mr Hitt's evidence is that during the course of the contractual relationship between the parties, Mr Boniface was primarily responsible for dealings in Iran with the defendant and Dr Khorzad. He lists payments totalling $414,479.96 made to the defendant for commission and the purchase of a motor vehicle. He says he does not know whether the defendant actually performed services to justify the payment of the commissions. Pending the result of further investigations, he seeks to preserve the possibility that the plaintiff may seek to recover these earlier commission payments from the defendant.

45 Additionally, he refers to the termination of the Karun I and Karun III agreements by FARAB. Following termination, the plaintiff has demanded US$14.5 million from FARAB for costs and damages, and FARAB has counterclaimed for US$10.4 million from the plaintiff. Pursuant to the agreements, the defendant was required to provide dispute resolution services to the plaintiff and no such services have been performed, although Dr Khorzad attempted to assist ineffectually. Mr Hitt says that according to his calculation, plaintiff is entitled to make a counterclaim recover US$336,461 from the defendant for damages.

46 I do not say that these contentions are implausible, and I do not criticise Mr Hitt for wishing to make further investigations. However, I do not accept that they have, at this stage, crossed the threshold of plausible contentions requiring investigation. There is no specific content of observable facts, at this stage, although there are causes for apprehension and even suspicion. I would not find that the plaintiff had an offsetting claim for the purposes of s 459H, if this were the only ground relied upon.

Conclusion 47 The plaintiff has satisfied me that there is a genuine dispute between it and the defendant about the existence of the debt to which the statutory demand relates. I am therefore required by s 459H (3) to make an order setting the statutory demand aside. I shall give the parties an opportunity to make submissions with respect to costs, although I am strongly inclined to make an order that the defendant pay the plaintiff's costs of the proceedings. * * * * * * * *

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