TOSKAS v TOSKAS [2000] NSWSC 565 | Case summary

1 MASTER: This is an application to set aside a statutory demand served by the defendant on the plaintiff. The statutory demand is dated 20 April and seeks repayment of a debt of $332,592.48. The application is apparently made within time and the circumstances surrounding the matter concern the plaintiff company and the defendant, a former director who is also a shareholder in the company. The loan is a shareholder's loan - and I will come back to the terms of that loan shortly. 2 There is a preliminary matter which has to be determined first as to whether the application for the demand should be set aside. That is said to arise because of a defect in the affidavit in support of the demand. That affidavit is sworn on 20 April 2000. It is clear that the defect in an affidavit may lead to the setting aside of the demand under s.459J(1)(b). In such cases it is not necessary of course to show that substantial injustice will be caused unless the demand is set aside. 3 In the present case the defect in the affidavit is not as to the substance of the affidavit but as to the fact that on the first page the Justice of the Peace has not signed the first page. Under the Corporations Law Rules, r.2.6, an affidavit is required to be in the form that complies inter alia with the Rules of the Supreme Court of the State where the affidavit is sworn or affirmed. It was sworn or affirmed at Sydney and accordingly it did not comply with pt.38 of the Supreme Court Rules. Rule 2.5 of that part provides that each page of an affidavit shall be signed by the deponent and by the person before whom it was sworn. Importantly r.5 provides: "An affidavit may with the leave of the court be used notwithstanding any irregularity in form". 4 It was submitted that this irregularity was such that the demand should be set aside because of the defect in the affidavit. In particular reference was made to a decision of his Honour McClelland CJ in Equity in B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd 15 ACSR 433. That is a decision which has been followed in many cases, however, the point that his Honour was making in that judgment concerned the substantive part of the affidavit and the person who swore the affidavit. It was because of non-compliance in those respects that his Honour regarded the defect as one which would justify the setting aside of the demand. 5 None of those considerations are present in the present case. The affidavit in substance is in appropriate form and the illegality is one which may allow the affidavit to be used with the leave of the court. Given that the deponent has signed the first page, the failure of the Justice of the Peace to sign it has little practical effect. The signature on the page, of the deponent, verifies of course that the affidavit was in that form when it was sworn. In the circumstances I am not satisfied that the defect is one which should lead to the demand being set aside and accordingly I decline to do so. 6 The defendant suggests firstly that the affidavit in support which is the affidavit of the defendant of 9 May 2000 is not an affidavit complying with the jurisdictional requirements. He relies upon the decision of his Honour Sunberg J in Graywinter Properties v Gas & Fuel Corporation Superannuation Fund 21 ACSR 581 in support of that application. I think however, before dealing with that it may be more useful if I were to move to the substantive reasons as to why there may be no genuine dispute in this matter. 7 I think probably the most useful summation of what is a genuine dispute is that given by McClelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At p.671 his Honour had the following to say: "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s.459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194). But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibo Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether here is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.' In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Division 3...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 simply - 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).' I respectfully agree with those statements." 8 The two areas in which there are said to be a genuine dispute is first as to whether the debt was due and payable and secondly whether there should be an implied term. So far as the first is concerned it is clear that it is in respect of a shareholder's loan account and the evidence before me states that there is no written agreement in respect of such loan accounts. In the company's accounts of 30 June 1999 the notes to the accounts describes the Shareholder's Loan as "(unsecured) at call". In the absence of any other evidence, particularly evidence as to the terms of repayment, it seems to me that the usual rules will apply that the loan is repayable upon demand or at call as so described in the accounts. In order to found a statutory demand it is necessary under s.459E that the debt is due and payable. 9 The evidence before me establishes that there has been no demand made for the loan apart from the statutory demand. However, simply because a debt is payable upon demand or at call, does not mean that the debt is not due and payable. So much appears to have been decided in Collins v Benning (1701) 12 Mod Rep 444, 88 1440. The principle is supported in part by some of the earlier cases when a cause of action arises, for example, in Re McKinley and McDermott v Boyd (1894) 3 Ch 290 and Reeves v Butcher (1891) 2 QB 509. In these circumstances it seems to me that the debts are due and payable notwithstanding the absence of service of a demand. There could, in my view, be no genuine dispute about this question given such a basic legal proposition. The other area in respect of which it is said that there is a genuine dispute is that it is suggested that there should be an implied term that any demand for repayment provides six weeks' notice before requiring payment. The basis of an implied term is of course referred to by the Chief Justice in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales 149 CLR 337 at 347 where the court approved the statement in BP Refinery (Westport) v Shire of Hastings (1977) 16 ALR 363 at p.376: "Their Lordships do not consider it necessary to review exhaustively the authorities on the implication of a term in a contact which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied. (1) It must be reasonable and equitable; (2) It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) It must be so obvious that 'it goes without saying'; (4) It must be capable of clear expression; (5) It must not contradict any express term of the contract". 10 The factual matters in which it is said would support the implication of the term contended for relate to the terms of accounts of the company which are before me. The accounts show that from 30 June 1999 non-current assets, the majority of which are property, plant and equipment are valued at $2,187,005.23. It is apparent from the notices to the accounts that these are two properties, one at Marrickville Road, Marrickville and the other at Canterbury Road, Bankstown. The other current assets are a mere $62,000 and the total assets are $2,250,262. Against these assets and current liabilities, which apart from the $500 for accounts payable are borrowings of $1,072,777.74. They consist entirely of shareholders' loans. These are the only liabilities of the company, in other words shareholders' loans are a little over $1,000,000 in respect of a company holding two properties valued in total in something in excess of $2,000,000, or at least shown on an historical cost basis as such in the company's accounts. 11 It is suggested that it was at least arguable that one could imply that the terms suggested because it would take time to sell freehold or borrow funds. Certainly one would have thought selling freehold would not be relevant. However, I must say that the company's accounts tended in my view to indicate quite to the contrary of the suggested implied term. 12 Accordingly I am not satisfied that there is a genuine dispute in respect of this area. In the circumstances it is not necessary to deal with the question of whether the affidavit is one sufficient to comply with the jurisdictional requirements. 13 I do note that in fact in the form in which it was filed but not admitted before me in evidence, it gave sufficient notice of the basis on which the case was to be argued. In these circumstances I dismiss the summons and order the plaintiff to pay the defendant's costs.

TOSKAS v TOSKAS

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