Sundarjee Bros (Aust) Pty Ltd v Sundarjee Bros [2004] NSWSC 1158 | Case summary

2882/04 - SUNDARJEE BROS (AUST) PTY LIMITED v SUNDARJEE BROS (HK) LIMITED (IN LIQUIDATION) JUDGMENT 1 By its originating process filed on 14 May 2004, the plaintiff makes application under s.459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendant. The plaintiff relies upon the existence of "a genuine dispute … about the existence … of the debt to which the demand relates", that being a ground specified in s.459H(1)(a). 2 The plaintiff and the defendant are companies the shares in which are owned by members of the Sundarjee family. Both companies, together with a company incorporated in Fiji, appear to have been vehicles through which a trading business founded by an earlier generation of the family was conducted. The defendant is now in liquidation. 3 The statutory demand refers to a debt of $1,181,535.31 described as follows: "AUD$1,181,535,81, being money lent to the Company by the creditor and duly acknowledged by the Company in its financial statement for the year ending 30 June 1999 and also duly acknowledged in an Agreement annexed to Short Minutes of Order both dated 14 February 2000 and filed in the Supreme Court of New South Wales in matter no. 3783 of 1998." 4 The agreement dated 14 February 2000 is an agreement by which certain earlier proceedings in this court were compromised. The parties to those proceedings were Puran Sundarjee as plaintiff and the present plaintiff as defendant. Puran Sundarjee, as a shareholder in the plaintiff, proceeded against it on the basis that he had been the victim of oppression or like conduct. The parties to the agreement of 14 February 2000 were the plaintiff, Puran Sundarjee, Pravin Sundarjee, Hasmukh Sundarjee and the trustees of the estate of the late Jethalal Sundarjee (being Pravin Sundarjee, Murji Sundarjee and Hasmukh Sundarjee). The defendant was not a party to the agreement, although it is relevant to note that Puran Sundarjee and Murji Sundarjee were, at that time, directors and shareholders of the defendant. 5 The agreement of 14 February 2000 provided in clauses 1 and 2 for the purchase of Puran Sundarjee's shares in the plaintiff by the plaintiff itself for $897,791.07, with authority for the plaintiff to retain $337,791.07 and to apply it in discharging a debt acknowledged by Puran Sundarjee to be due and owing to the plaintiff. Clause 3 was as follows: "The Defendant [that is, the present plaintiff] and the parties hereto acknowledge that the Defendant presently owes Sundarjee Bros (HK) Ltd the sum of AUD$1,181,535.31 being the sum referred to in the Defendant's accounts for the year ended 30 June 1999." 6 The opening words "The Defendant and the parties hereto" are somewhat curious since the "Defendant" (the present plaintiff) was clearly included as one of the parties. Nothing, however, turns on this. The important point, for present purposes, is that the acknowledgment in clause 3 operated only among the persons who were parties to the agreement. 7 Both the description of the debt in the statutory demand and the acknowledgment in clause 3 of the agreement of 14 February 2000 refer to inclusion of the alleged debt of $1,181,535.31 to the defendant in the plaintiff's financial statements for the year ended 30 June 1999. On the evidence before me, this presents something of a conundrum, as there are two versions of financial statements of the plaintiff for that year. One was produced in evidence as an attachment to a fax from the plaintiff's solicitors to Puran Sundarjee's solicitors apparently sent on 3 February 2000 (although it refers to 1999), that is, shortly before the settlement in the earlier proceedings. The balance sheet forming part of those financial statements shows, as a non-current liability, a sum of $1,181,535.31 designated "Sundarjee Bros (HK) Ltd". The second set of financial statements includes a balance sheet showing an identically designated item in the sum of $131,535.31. Neither set of accounts in evidence is signed by the directors of the plaintiff or carries any audit report or other authentication. 8 It is appropriate to refer also to accounts of earlier years. Signed and audited financial statements of the plaintiff for the year ended 30 June 1993 showed as a non-current liability "Loans from related parties - Sundarjee Bros (HK) Ltd" in the sum of $913,493, with a corresponding item of $807,840 for the previous year. Similarly formal accounts for the year ended 30 June 1994 reflected a corresponding item of $912,575.90 at that date. Signed formal accounts for the year ended 30 June 1995 show the item at $1,062,575.70. Unsigned accounts for the year ended 30 June 1997 (accompanied by a compilation report signed by the external accountant), show, in the previous corresponding period column (that is, the column for 30 June 1996) $912,575.90 as a non-current liability to Sundarjee Bros (HK) Ltd, with a figure of $131,535.31 for that item in the current year column (ie, the year ended 30 June 1997). The reduction of $1,050,000 is explained in notes to the accounts in a way to which I shall return. In one balance sheet at 30 June 1998 (unsigned and unaudited), the liability remains at $131,535.31, while in another (again there are two, as for 1999), a figure of $1,181,535.31 is shown. 9 The $1,050,000 reduction in indebtedness to the defendant reflected in the unsigned accounts for the year ended 30 June 1997 is described in Note 3 as "Less Transferred to Shareholders". Note 2 "Shareholders' Loans" records in respect of each of Puran Sundarjee, Murji Sundarjee and Estate Late Jethalal Sundarjee an item of $350,000 designated "Provisional Share of Hong Kong Loan". These together total $1,050,000 and the overall impression created is that new indebtedness of the plaintiff to the individuals had arisen to the extent of $1,050,000 in place of the previous equivalent indebtedness of the plaintiff to the defendant. 10 I was invited to infer that, to the extent of two separate sums of $290,000 and about $407,000, there had been remitted to the plaintiff the net proceeds of certain sales of land in Hong Kong and that these had been wrongly reflected in the books of the plaintiff as indebtedness of the plaintiff to the defendant. The remittances were in 1992 and 1993. The treatment of them as debts owing by the plaintiff to the defendant was said to be wrong because the properties (and therefore the proceeds) were held in trust by one individual member of the Sundarjee family for other individual members of the family. It may be that the 1997 entries in respect of $1,050,000 were intended to recognise (although significantly after the event) individuals' entitlements of this general kind. The defendant, however, pointed to some evidence suggesting that the proceeds of the property sales had, in the first instance, been paid by the trustee vendor to the defendant and had passed through the bank account of the defendant before reaching the plaintiff, with the result that there is evidence of the ownership of the remitted moneys by the defendant at some point. 11 Before turning to the parties' contentions, I mention two other aspects of the evidence. First, the financial statements of the defendant put into evidence do not reflect a receivable corresponding with the supposed liability to the defendant recorded in the plaintiff's financial statements. Second, when the defendant's solicitors made a request for payment before resorting to the statutory demand procedure, the plaintiff's solicitors replied that the accounts and agreement were in error in acknowledging the debt and inviting the defendant to provide particulars, but no particulars were given. 12 The plaintiff contends that any debt of $1,181,535.31, if it ever existed (and it is contended that, as to at least the two sums of $290,000 and $407,000 it never existed), is statute barred. The defendant says that the agreement of 14 February 2000 or the financial statements for the year ended 30 June 1999 or both represent a sufficient acknowledgement of the debt to enable the defendant to rely upon it as a basis for the statutory demand. 13 In the present proceedings, I am not called upon to decide whether the defendant is entitled to recover the sum of $1,181,535.31 from the plaintiff as a debt. I am required merely to say whether, on the evidence before me, there exists a genuine dispute as to the existence of that debt. In approaching that question, I must apply tests laid down in a number of well known cases, including Re Morris Catering Pty Ltd (1993) 11 ACSR 601, Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 and Spencer Constructions Pty Ltd v G & A Aldridge Pty Ltd (1997) 76 FCR 452. I would repeat here what I said about those tests in Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411: "It is appropriate to dwell for a moment on the guidance provided by these cases. The tests of 'plausible contention requiring investigation', 'real and not spurious, hypothetical, illusory or misconceived' and 'perception of genuineness (or lack of it)', applied in the context of a summary procedure where 'it is not expected that the court will embark on any extended inquiry', mean that the task faced by a company challenging a statutory demand on the 'genuine dispute' ground 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."

This formulation has been applied in Greenway Hotel Pty Ltd v Parton [2004] ACTCA 13 and Trecomax Pty Ltd v Prentice (2004) 50 ACSR 314. 14 The plaintiff begins with the proposition that, if, as the defendant says in the statutory demand, money was "lent" by the defendant to the plaintiff to the extent of $1,181,535.31, there is no evidence of the terms of any loan or, in particular, of the time at which the money was to be repaid. Even if the money was repayable on demand (which might be thought a common characteristic of indebtedness between related entities), time starts to run, for limitation purposes, from the date the loan was made: Young v Queensland Trustees Ltd (1959) 99 CLR 560. The unfairness that this may seem to entail in the case of loans between members of a family or related entities and steps taken in the United Kingdom to redress that unfairness by statute were referred to by Master McLaughlin in Woodward v McGregor [2003] NSWSC 672. The plaintiff points to s.14 of the Limitation Act 1969 for the proposition that a debt becomes statute barred six years after the cause of action arose and to s.63 for the proposition that the effect of the time bar is to extinguish the right of action and therefore to cause the debt to cease to exist. On that basis, the plaintiff says, there is, at the very least, an arguable case that the plaintiff was not, at the date of the statutory demand, indebted to the defendant in respect of moneys advanced more than six years beforehand. 15 The defendant relies on the agreement of 14 February 2000 and the financial statements for the year ended 30 June 1999 to argue that matters are so clear that there is no genuine dispute. The defendant cannot, of course, argue that the agreement of 14 February 2000 is the source of any promise by the plaintiff to the defendant to pay any sum of money. The defendant was not a party to the agreement and can derive no rights under it. Much less, of course, could it see the financial statements as a source of any promise to pay. Nor, as I understand it, does the defendant seek to say that the plaintiff is estopped, as against the defendant, from denying the indebtedness referred to in the agreement and the financial statements. There is no evidence that the defendant acted to its detriment in reliance on the content of either, even assuming that there had been any representation by the plaintiff to the defendant in terms of that content. The defendant's position, as I understand it, is that the agreement or the financial statements or both operate as an account stated from which a promise to pay may be inferred (see Siqueira v Noronha [1934] AC 332) or as an acknowledgement for the purposes of s.54 of the Limitation Act causing any time that had run beforehand to be disregarded for limitation purposes. 16 The difficulty for the defendant is that there is no evidence that the content of either the agreement or the accounts was communicated directly by the plaintiff to the defendant, or that any acknowledgement by the plaintiff contained in it was made to the defendant. The defendant says, however, that two of its directors were parties to the agreement and that, in that way and to that extent, there was communication of the content of both the agreement and the accounts by the plaintiff to the defendant. 17 The defendant relies, in that respect, on the decision of the High Court in Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 where it was held that duly signed and adopted accounts of a company showing a debt to another company operated as an acknowledgement when delivered to one of its directors who was an officer of the creditor company and was in office to watch the interests of that creditor. There was, it was held by majority, effective communication with the creditor through the individual concerned. In the present case, it has been shown that some of the parties to the agreement of 14 February 2000 were directors of the defendant, but it does not seem to be shown that any of them had the kind of watching brief within the defendant that played a part in the Stage Club decision. That being so, it does not seem possible, on the materials presently available, to postulate a duty of the particular individual to communicate to the defendant knowledge obtained about the plaintiff: see Harkness v Commonwealth Bank of Australia (1993) 32 NSWLR 543. 18 As I have said, I am called upon only to say whether a genuine dispute exists as to the existence of the debt, in the sense that there is any arguable case as to its non-existence. I am satisfied that a genuine dispute does exist. Having regard to the length of time that the supposed indebtedness by the plaintiff to the defendant has been recorded in the financial statements of the plaintiff and the likelihood that any debt that ever existed was payable on demand so that the Young v Queensland Trustees principle applies, it is cogently arguable that any such debt is statute barred. As to the proposition that there has been a revival by acknowledgement through the February 2000 agreement and the 1999 financial statements, it is cogently arguable that neither was communicated to the defendant so as to constitute an acknowledgement to the defendant. 19 Because the "genuine dispute" ground is made out in respect of the whole of the debt claimed in the statutory demand, s.459H(3) requires that the court set aside the statutory demand. I therefore order that the statutory demand be set aside and that the defendant pay the plaintiff's costs of the proceedings. 20 I might say, in conclusion, that this a clear case in which a definitive adjudication of the issues surrounding the alleged debt is essential before that alleged debt can safely be regarded as fit to ground any presumption of insolvency for winding up purposes. **********

Sundarjee Bros (Aust) Pty Ltd v Sundarjee Bros

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