1 I agree in the reasons of my brother Justice Osborn and with the order which he proposes.

2 This is an application for leave to appeal from an order of Gardiner AsJ, which varied a statutory demand pursuant to s 459H(4) of the Corporations Act 2001 by reducing its quantum, but otherwise in effect dismissed an application that the demand be set aside.

3 Troutfarms Australia Pty Ltd ('Troutfarms') contends that the judge erred in failing to find that there was a genuine dispute as to the existence of the balance of the debt.[1]

4 Perpetual Nominees Ltd ('Perpetual') submits that his Honour's finding in this respect should be upheld.

5 The phrase 'a genuine dispute' uses ordinary English words and its meaning in any particular set of circumstances must be a question of fact. Nevertheless its application is illuminated by the authorities referred to by Robson J in Rhagodia Pty Ltd v National Australia Bank:[2]

In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd[3] Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) said:

[56] The court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.

[57] No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the "ultimate question" of the existence of the debt should not be compromised.

[71] As the terms of s 459H (sic) of the Corporations Act 2001 and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something "between mere assertion and the proof that would be necessary in a court of law" may suffice. A selective focus on a part of the formulation in South Australia v Wall,[4] divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.

In Eyota,[5] McClelland CJ of the Supreme Court of New South Wales said:

It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs in s 450H. 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 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),[6] or "a patently feeble legal argument or an assertion of facts unsupported by evidence": cf South Australia v Wall.[7]

But if 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 Mibor Investments[8] Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 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 there 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 (Aust) Pty Ltd[9] Thomas J said:

"There is little doubt that Div 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 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)."

In TR Administration,[10] Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) cited this passage with apparent approval[11] and noted it was also cited by the Full Federal Court in Spencer Constructions Pty Ltd v GAM Aldridge Pty Ltd.[12]

6 On 29 January 2008 Perpetual advanced $4,450,000 to Troutfarms and a related company, Racso Pty Ltd ('Racso'). This advance was refinanced by Perpetual on two subsequent occasions. The second refinancing rolled the advance over to 13 July 2011. In addition, Perpetual made advances to Zido Pty Ltd ('Zido') in October 2005. Again, that loan was refinanced on two occasions. Troutfarms guaranteed Zido's liability to Perpetual under an unlimited deed of cross-guarantee dated 5 August 2009. In addition, the Zido and Racso transactions were secured as follows:

(a) a first registered mortgage dated 23 December 2003 provided by Zido to Perpetual over a property at Mirrabooka, Western Australia;

(b) a first registered mortgage dated 28 March 2008 given by Racso to Perpetual over a property at Lilydale in Victoria;

(c) a first registered mortgage dated 28 March 2008 provided by Troutfarms to Perpetual over a property at St Pauls Road, Sorrento;

(d) a first registered mortgage dated 30 April 2008 from Troutfarms to Perpetual over a property at Pekina Square, Sorrento; and

(e) a fixed and floating charge dated 28 March 2008 given by Troutfarms to Perpetual.

7 In November 2012 Perpetual issued a statutory demand under s 459E of the Act in relation to debts owed to it by Troutfarms. The demand claimed that Troutfarms was liable to Perpetual in the sum of $6,003,919.19. This amount comprised two sums. The first, $3,306,881.10, was due pursuant to the loan agreement dated 13 July 2010 between Perpetual and Troutfarms and Racso. The second, $2,697,038.09, was due pursuant to the deed of cross-guarantee dated 5 August 2009 in which Troutfarms had agreed to act as guarantor in respect of the obligations of Zido.

8 Before Gardiner AsJ, Troutfarms did not dispute the effect of the loan documents, the guarantee or the quantum of debt. It alleged first that it was released from its liabilities to Perpetual by an oral agreement made at a meeting with Perpetual on 12 August 2011 that Troutfarms would be released from all its obligations to Perpetual if it paid $1.6 million to Perpetual by 30 August 2011.

9 Secondly, Troutfarms contended that there was a genuine dispute in respect of that part of the claim that related to its liability under the guarantee given by it of Zido's liabilities because it was entitled in equity to be discharged and exonerated from liability to Perpetual by requiring Zido and/or Perpetual to sell the Zido property and apply the proceeds of sale to extinguish Troutfarm's liability under the guarantee.

10 Thirdly, Troutfarms contended that because there was a proceeding on foot by Perpetual against the other parties to the transaction, there was 'some other reason' why the demand should be set aside under s 459J(1)(b).

11 The judge held that the second contention relating to exoneration was arguable and on that basis varied the statutory demand by excising the amount relating to the Zido transaction. He rejected the other contentions, holding that the first contention was so inherently improbable as to lack sufficient prima facie plausibility to merit further investigation and that there was nothing at all in the third contention.

12 In an affidavit of 10 December 2012 Ian McGoldrick deposes that he was engaged to act as the representative of Troutfarms in operational day to day matters at the relevant time. He says that in early 2011 he was contacted by Adam King, a finance broker who had conducted previous negotiations with Perpetual to arrange loan facilities and the subsequent rollovers of them. King told McGoldrick that Perpetual would not rollover the Racso Troutfarms loan again when it was due for repayment because Perpetual was winding up the relevant mortgage pool that it was managing on behalf of OnePath.

13 McGoldrick deposes that Troutfarms's only assets at the time were the two properties at Sorrento which were mortgaged to Perpetual. In an effort to reorganise repayment to Perpetual, Troutfarms sought to refinance the Sorrento properties from other sources. Ultimately, National Australia Bank offered to lend $1.6 million on the security of the Sorrento properties. McGoldrick advised King of this and asked him to inform Perpetual of this offer.

14 King emailed John Champion of Perpetual on 5 August 2011 concerning the Zido and Racso loans:

I have spoken to Ian about this and he has asked me to meet with you next Friday. We will come back to you on the timing of Ian's flight in order to arrange a time to meet on Friday.

As mentioned to you yesterday, we have received an approval from NAB to refinance the 2 Sorrento properties for an amount of $1.6m and we request your consent to discharge these securities. I will fax or e-mail through to you a copy of the LOO shortly.

From memory I think $1.6m is quite close to your valuation for these properties. We will need to deduct some settlement costs from the $1.6m also for establishment fees and valuation fees, etc.

Can you please advise me if you consent to this release.

We expect to have more concrete and tangible progress in relation to Lilydale and Perth by the time we meet next week.[13]

15 McGoldrick states that on 7 December 2012 he was informed by King and believes that in early August 2011 King spoke with an officer of OnePath (who is not identified) and informed him that one of Troutfarms's requirements, if the $1.6 million was paid, was that Troutfarms be released from any further liability to Perpetual. It is not said by McGoldrick in his first affidavit what Perpetual's response to this was.

16 McGoldrick further deposes that on 12 August 2011 he met with Alison Young, John Champion and Jamie Gilchrist, who were commercial portfolio managers working for OnePath at its offices in Kent Street, Sydney. McGoldrick states that at that meeting he 'said words to the effect that [Troutfarms] would raise finance from the National Australia Bank in the amount of $1.6 million, and would pay the money to [Perpetual] and OnePath in exchange for a total release of [Troutfarms] from further liability, which included the discharge of the mortgages held by [Perpetual] in respect of the Sorrento properties, and that the transaction must sever any ties between the two entities.' Gilchrist and Young have deposed that McGoldrick did not make this statement.

17 Further, in an email from Young to McGoldrick of 15 August 2011, McGoldrick was advised that the titles to the Sorrento properties would be released subject to a satisfactory valuation being received in respect of the Racso property at Lilydale, one of the other properties securing the guarantee. The email stated relevantly:

Dear Ian,

Thank you for meeting John, Jamie and myself last Friday.

The following is our understanding of the timetable you have proposed in order to facilitate full repayment of your facilities with OnePath by 30 September 2011.

1. Refinance of Sorrento properties by end of August 2011.

OnePath will release titles subject to satisfactory value for our portion of the Lilydale vacant land being confirmed by CKC. Adam King to arrange email confirmation from the Valuer by Tuesday 16 August 2011.[14]

After addressing the subject of refinancing of the Lilydale and Western Australian properties, the email concluded:

Please confirm that you agree with the above schedule of events and will now work towards meeting our requirements in order to prevent recovery action being commenced.[15]

18 It can be seen that the email does not reflect the arrangement for which Troutfarms contends.

19 McGoldrick further states that in reliance on the understanding that Troutfarms's liability would be discharged, Troutfarms procured financing from National Australia Bank in the approximate amount of $1.6 million. In turn a partial discharge of the fixed and floating debenture charge given by Troutfarms was registered after the Sorrento properties were refinanced through National Australia Bank.

20 King deposes that in or about mid-August 2011 he spoke with an officer of Perpetual/OnePath by telephone. He says the person was most likely either John Champion or Alison Young but he is unable to recall which one. He says he asked this person to confirm whether, as a consequence of the refinance, Troutfarms's titles would be discharged and Troutfarms would be released from any further liability to Perpetual/OnePath. The person concerned said 'Yes, that would be the consequence of the refinance.'

21 The applicant contends that his Honour's conclusion that there was not a genuine dispute as to the existence of the oral agreement of 12 August 2011 was wrong or attended by sufficient doubt to warrant the grant of leave to appeal and be productive of substantial injustice.[16]

22 The applicant contends that it was simply not open to the judge to reject the applicant's claim as inherently improbable, at least without cross-examination of the deponents of the affidavits on which the applicant relies. This was said to be so because of the statements made in the affidavits of Ian McGoldrick of 10 December 2012 and 28 February 2013 and the affidavit of Adam King sworn 6 March 2013, and the fact that on 30 August 2011 Troutfarms paid $1.6 million from funds borrowed from National Australia Bank to Perpetual.

23 The applicant also contends that, contrary to the judge's conclusion, it was not inherently improbable that Perpetual would orally agree to release Troutfarms from all liabilities in return for $1.6 million, given that the payment provided Perpetual with the amount of $1.6 million without having to attempt to enforce its securities. At the time Troutfarms's only assets were the Sorrento properties and Perpetual was left free to pursue its rights against the other borrowers' guarantors over whose assets it held security.

24 More particularly it is contended that it is highly improbable that Troutfarms would borrow from National Australia Bank and pay $1.6 million to Perpetual if it were intended that Perpetual was to retain its charge over Troutfarms's assets.

25 I do not consider any of these contentions to be any more persuasive than the judge considered them to be.

26 The starting point must be that it is inherently improbable that a fully secured lender would give up a substantial aspect of its security in return for payment of a minor fraction of the secured debt for the questionable advantage of having two of the secured properties refinanced rather than sold under mortgage.

27 Next, the evidence adduced on behalf of the applicant was at best thin. Thus, as his Honour observed, it was of significance that in his initial affidavit of 10 December 2012 McGoldrick did not depose that Perpetual's representatives agreed to the arrangement he postulated. In his affidavit in reply of 28 February2013, although he stated Perpetual's representatives 'agreed to that proposal', he did not elaborate how they did so or in what terms.

28 Next, as the judge discerned, it was not only the inherent improbability of the version of events given by McGoldrick and King which rendered it suspect, but also the absence of any supporting documentary evidence, the existence of contradictory documents and the conduct following entry into the supposed agreement which was inconsistent with the existence of such agreement.

29 The email from Young to McGoldrick of 15 August 2011 refers to the refinancing of the Sorrento properties but not the discharging of Troutfarms from its obligations under the guarantee.

30 Further, as the trial judge observed as to the dearth of supporting documentary evidence:[17]

Mr King states that in about mid-August 2011 he spoke with a representative of Perpetual by telephone whose identity he is unable to recall, but says it was most likely either John Champion or Alison Young. He deposes that the person was asked to confirm whether it was a consequence of the refinance that Troutfarms' titles would be discharged and it would be released from any further liability to Perpetual. Perpetual's officer is alleged to have said 'yes, that would be the consequence of the refinance'. I note at this point that there seems to be no doubt that Mr King is representing the interests of Mr McGoldrick and the borrowers in the exchange.

Mr King did not confirm this significant exchange in writing with Perpetual, as in my view would be expected of a person professionally engaged in significant financial transactions. He was not able to recall the gender of the person he spoke with at Perpetual, nor did he make a file note of the conversation despite its significance.

I also note that despite the importance of the terms of the alleged agreement to release Troutfarms, it was not reduced to any form of written confirmation, however informal. On the contrary, the contemporaneous communications generated by Perpetual, while descending to detail about the programme for discharging the liabilities in full, make no reference at all to any release of Troutfarms from its obligations under the guarantee or the fixed and floating charge or for the balance of the Racso Troutfarms liability. I regard Mr King's account of the conversation with an unidentified representative of Perpetual as being so vague and unconvincing that it should not be given any significant probative value even in an application of this type.

31 By comparison, there was a wealth of documentary evidence which belied the existence of the alleged agreement. As the judge observed, it included the following:[18]

In his affidavit Mr Gilchrist, who is a Senior Manager, Commercial Mortgages at OnePath, states that he was at the meeting on 12 August 2011 with Ms Young, Mr Champion and Mr McGoldrick. He exhibits a file note dated the same day, composed by Ms Young and signed by him, and confirms this as being a true record of the meeting.[19] The file note stated:

Meeting took place at OnePath offices on 12 August 2011 at 9.30am. In attendance were Alison Young, John Champion, Jamie Gilchrist and Borrower, Ian McGoldrick.

Loans to the Group matured 11 August 2011 and maturity reminder letters were previously sent to the client on 25 March 2011 and 5 July 2011 advising that rollover will not be provided and arrangements should be made for the loan to be paid out at maturity.

Further to the file note dated 8 August 2011, Borrower confirmed the following strategy for repayment of our loans in full:

The memorandum then set out the various steps to be taken, including the refinancing of the Sorrento properties. The memorandum concluded:

Borrower is to be advised in writing of the above requirements and to fully comply in order to prevent recovery action being taken.

Gadens have confirmed review of our loan documentation and are in the process of providing their signoff.

...

Mr Gilchrist exhibits a letter that was sent to Troutfarms shortly after the meeting of 12 August 2011, which he describes as a letter of forbearance, entered into between Perpetual, Troutfarms and the other borrowers. The letter, from Gadens, the solicitors for Perpetual, was headed 'Lender: Perpetual Nominees Limited, Borrower: Zido Pty Ltd, Racso Pty Ltd and Troutfarms Australia Pty Ltd'. The heading to the letter then identified the several security properties, including the Sorrento properties. The letter stated:

We act on behalf of OnePath Funds Management Limited (OnePath) in relation to the above. We refer to your correspondence with Ms Alison Young of OnePath on 18 August 2011, in particular, your proposal to facilitate full repayment of the subject facilities with the Lender by 30 September 2011.

Whilst reserving its rights in relation to the breaches under the facilities, and without being obliged to do so, the Lender is prepared to forebear from taking immediate steps to enforce its Securities strictly on the following conditions:

The author of the letter then set out the various steps to be undertaken, including the refinancing of the Sorrento properties and concluded:

If any of the conditions set out above are not strictly complied with, a further event of default will be deemed to have occurred under the Facility Agreements and the Lender reserves its right to exercise any and all of its rights under its Facility Agreements and supporting Securities immediately and without further notice. Without limitation, those rights include issuing demands and taking further recovery action upon failure to comply with the demands.[20]

The letter concluded with a requirement that the borrowers and guarantors execute a copy of the letter and that it be returned to Gadens. Dr Bentley and Mr McGoldrick signed the copy of the letter (as exhibited) in their capacities as officers of the corporate borrowers and in their own right.

...

Mr Gilchrist states that on 30 August 2011 the Sorrento properties were sold and Perpetual provided a discharge of its mortgage over those properties at settlement. The remainder of the terms set out in the letter of forbearance were not satisfied, however, and on 4 October 2011, Mr Gilchrist instructed Perpetual's lawyers to serve a demand on Troutfarms.

32 The judge reached the following conclusions with respect to the documentation, with which I respectfully agree:[21]

I observe that the terms of the letter of forbearance state that Perpetual agreed to forbear from taking further enforcement action on the conditions set out in the letter. The letter is clear in its terms that the loan facilities were to be repaid in full. There is no mention of any agreement to release Troutfarms as Mr McGoldrick contends was struck at the meeting.

...

As Robson J observed in Rhagodia,[22] the establishment of a genuine dispute requires an explanation of the contemporaneous undisputed documents. There is no explanation from Troutfarms' representatives as to why there was no rejoinder to the communications making reference to payment in full of the liability nor any explanation as to why such a significant transaction involving the release of millions of dollars would not be the subject of even informal documentation.

33 In my view the countersigning by the representatives of Troutfarms of the letter of forbearance is entirely inconsistent with the existence of an arrangement of the type they now allege. The letter expressly contemplated repayment of the loans in full and expressly reserved all of the lender's rights under the supporting securities which it held.

34 Insofar as conduct is concerned, the payment of $1.6 million to Perpetual was accompanied only by a partial discharge of the fixed and floating debenture charge given by Troutfarms, discharging the Sorrento properties. If there had been an agreement of the kind alleged Troutfarms would have demanded a total discharge as a condition of completion of the transaction.

35 Counsel for the applicant argued that at the very least the judge was faced with two conflicting factual accounts and that that must be sufficient to make it reasonably arguable that there was a real question to be tried.

36 I do not agree. The judge dealt with this issue as follows:[23]

Adopting the formulation of McClelland CJ in Eyota, the court is not to accept uncritically as giving rise to a dispute statements in affidavits which are 'equivocal, lacking precision, inconsistent with undisputed contemporary documents ... or inherently improbable ...'[24] I consider the evidence that Troutfarms presents in support of its submission regarding the alleged agreement of 12 August 2011 as falling within such formulation. In this regard I refer particularly to

(i) the vagueness of the assertion by Mr McGoldrick that the agreement was struck;

(ii) the complete absence of supporting contemporaneous documentation to evidence such a significant matter;

(iii) the existence of contemporaneous documentation which is completely consistent with Perpetual's version of events and the inherent implausibility of Perpetual releasing a party from very significant liability in return for that party agreeing to what it was already bound to do.

37 I respectfully agree. I am unable to detect any error of fact or principle in the judge's reasons. I would refuse the application for leave to appeal. His Honour's conclusions are attended by no material doubt.

[1] Section 459H of the Act provides:

Determination of application where there is a dispute or offsetting claim

(1) [Court satisfied of dispute or offsetting claim] This section applies where, on an application under section 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; (emphasis added)

[2] [2008] NSWCA 73; (2008) 67 ACSR 367, [91]-[94] (citations in original); see also, Powerhouse Australasia Pty Ltd v Viarc Pty Ltd [2006] VSC 508; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, 464.

[3] [2008] VSCA 70; (2008) 66 ACSR 67 ('TR Administration').

[4] (1980) 24 SASR 189.

[5] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787-8 ('Eyota').

[6] [1980] AC 331 at 341 (PC).

[7] (1980) 24 SASR 189, 194.

[8] Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; (1993) 11 ACSR 362, 366-7 ('Mibor Investments').

[9] (1993) 11 ACSR 601, 605.

[10] [2008] VSCA 70; (2008) 66 ACSR 67.

[12] [1997] FCA 681; (1997) 76 FCR 452.

[16] BHP Petroleum Pty Ltd v Oil Basins Ltd [1985] VicRp 72; [1985] VR 756; Niemann v Electronic Industries Ltd [1978] VicRp 44; [1978] VR 431, 444; Darrell Lea (Vic) Pty Ltd v Union Assurance Society of Australia Ltd [1968] VR 401, 408.

[17] Troutfarms Australia Pty Ltd v Perpetual Nominees Limited [2013] VSC 228 ('Reasons'), [42]-[44].

[18] Ibid [27]-[28], [30], [32], [34] (emphasis added).

[19] I observe the notice is in fact signed by Young, Gilchrist and Champion.

[20] The conditions were [from exhibit JLG-5 to the affidavit of James Leslie Gilchrist sworn 7 February 2013]:

1. That the properties at 99 St Pauls Road, Sorrento, Victoria and 12 Pekina Square, Sorrento, Victoria be refinanced by the end of August 2011. We confirm that the refinance is currently in progress in relation to both properties.

2. That the property at 443 Maroondah Highway, Lilydale, Victoria be refinanced by the end of September 2011.

3. That the property at 22 Chesterfield Road, Mirrabooka, Western Australia be refinanced by the end of September 2011.

4. The facilities be fully repaid by no later than 30 September 2011 which is when the forbearance period will expire.

5. The Borrowers will be liable to pay the Lender's costs and disbursements of and incidental to the negotiation of this letter including legal costs on a full indemnity basis.

[21] Reasons [33], [52] (citation in original).

[22] [2008] NSWCA 73; (2008) 67 ACSR 367, [131].

[23] Reasons [53] (citation in original).

[24] (1994) 12 ASCR 785, 787.