Court of Appeal (WA)|1999-12-17|Before: Owen J, Pidgeon J, Wallwork J

Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 (17 December 1999)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : TURNER CORPORATION (WA) PTY LTD -v- BLACKBURNE & DIXON PTY LTD [1999] WASCA 294

BETWEEN : TURNER CORPORATION (WA) PTY LTD (ACN 008 077 749)

Corporations - Statutory demands - Application to set aside statutory demand - Whether genuine dispute or offsetting claim - Test to applied for purpose of determining whether genuine dispute

Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37

Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 12 ACLC 334

Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320

Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601

Scanhill Pty Ltd v Century 21 Australasia Pty Ltd [1993] FCA 618; (1993) 12 ACSR 341

Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429

1 PIDGEON J: I agree with the reasons to be published by Owen J and the orders proposed.

2 WALLWORK J: I agree with the reasons for judgment of Owen J and to the orders proposed by his Honour.

3 OWEN J: This is an appeal against a decision of a Master dismissing the appellant's application to set aside a statutory demand pursuant to s 459G of the Corporations Law.

4 The appellant is a property developer involved mainly in residential ventures. The respondent operates as a mortgage broker. On 8 September 1998 the respondent served on the appellant a statutory demand dated 4 September 1999 for $116,076.64. The amount demanded was said to be a principal sum of $97,000 together with interest of $19,076.64.

5 The principal sum the subject of the claim arose from an agreement executed on 19 September 1996 between three individuals; namely, Mary Hargreaves, Myrtle Webb and Dulcie Clark ("the Lenders") and the appellant. Under the agreement the Lenders undertook to lend the appellant $97,000. The advance was to be secured by a mortgage over a specific property owned by the appellant. The mortgage was arranged by the respondent in its capacity as a broker. Mortgage documents were executed and registered against the title on 20 September 1996. On 23 January 1998 following the execution of the mortgage document the mortgage was assigned by the Lenders to the respondent.

6 The purpose of the loan was to provide the appellant with funds to meet progressive building payments involved in the development of, and construction of residences on, properties in Marangaroo. The mortgage, the subject of the statutory demand, was secured over one of those properties; namely, Lot 279 Monash Circle, Unigates Park, Marangaroo ("the mortgaged property"). A valuation had been prepared. It indicated that the value of the completed house and land package on the mortgaged property was $141,000. The initial proposal was that the loan of $97,000 would become available to the appellant in stages. There was to be a first draw-down of $34,000 to discharge the mortgages which were then registered against the title. The remaining funds were to be held in a trust account by the respondent to meet progressive building claims and interest payments.

7 The respondent held several other mortgages that had been given by the appellant. All of these mortgages had been arranged by the respondent to provide the appellant with funds for the Marangaroo development project. A total of $746,000, including the $97,000, had been raised and was held by the respondent in one trust account. These funds were advanced as required for the benefit of the appellant.

8 Following the assignment of the mortgage the respondent released funds from the trust account to meet mortgage interest payments relating to the mortgaged property. Funds were also released from this account to meet certain payments due on other properties being worked on by the appellant. The respondent continued to release funds over a period of time. Eventually the funds in the account became depleted so that there was not enough money to meet a progress payment owing to the builder contracted to construct the house on the mortgaged property. As a result of this shortfall the appellant could not complete the house nor was the appellant able to sell the mortgaged property as planned and repay the amount secured over the property.

9 Default notices were issued under the mortgage. The appellant failed to comply with these notices. Following this the respondent exercised its rights under the mortgage and took possession of the property. The respondent then served on the appellant a statutory demand for the outstanding debt of $116,076.64.

10 On 23 November 1998 the appellant made an application under s 459G of the Corporations Law to have the statutory demand set aside. The appellant relied on s 459H, which provides:

"(1) 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 claim relates;

11 The appellant claimed in the application before the Master that at all times there had been an agreement between the parties that the respondent would use the $97,000 to pay out existing mortgages to the value of $34,000 on the mortgaged property and thereafter release funds to meet progressive building payments in relation to the completion of the house on the mortgaged property and to meet interest payments on the advance. Contrary to this agreement, the appellant contended, the respondent had released funds without its authority for purposes other than those agreed by the parties. Because of this breach there was insufficient funds to meet progressive building payments due on the mortgaged property and as a result the construction of the house could not be completed.

12 The appellant accepted that some of the funds had been released by the respondent with the appellant's authority for the purposes agreed. However, not all of the funds had been properly applied. The appellant submitted before the Master that because of the respondent's breach it had only ever received approximately $43,000 of the $97,000. As the appellant had not received all of the funds the subject of the statutory demand there was, pursuant to s 459H(1), a genuine dispute as to the existence and amount of the debt to which the demand relates. The appellant also submitted that the respondent's breach gave rise to an offsetting claim under s 459H(1)(b) for the amount still outstanding under the agreement and for the loss suffered by the appellant as a result of the respondent's breach.

13 In addition to its claim under s 459H(1) the appellant argued that the actions of the respondent in exercising its rights under the mortgage and taking possession of the property for the purpose of exercising a power of sale had the effect of preventing the appellant from selling the property and satisfying any outstanding debt. The appellant argued that the fact the respondent had taken possession of the property and was in the process of selling the property for the purpose of recovering and satisfying the debt justified setting aside the statutory demand under s 459J(1).

14 In the application before the Master the appellant relied on a letter dated 5 September 1996 from the respondent to one of the Lenders, Mrs Webb ("the letter"). The letter contained information relating to the proposed loan arrangement as well as details relating to the appellant's project. The appellant relied on the letter as evidence of an enforceable agreement between the parties as to how the funds were to be released. The relevant part of the letter is set out in the Master's reasons at 11 of the appeal papers and reads as follows:

"Licensed valuer Owen Griffiths has provided us with a valuation of Lot 279 Monash Circle, Unigates Park, Marangaroo which has a completed house and land package value of $141,000.00. The loan will be made available in stages, with $34,5000.00 paid over initially to layout the existing mortgage and the remaining funds held in a trust account to meet progressive building claims and interest payments. The loan represents 69% of valuation."

15 The appellant contended that this letter constituted, or evidenced, a collateral contract by which the funds were to be advanced for, and only for, the purposes stated in the letter.

16 The Master dismissed the appellant's claim that there was a genuine dispute between the parties as to the amount of the debt pursuant to s 459H(1)(a). The Master said there were two main reasons for doing so. First, in his opinion, the "rather loose formulation" of the letter relied on by the appellant was not sufficient evidence that an enforceable agreement had been entered into between the appellant and respondent as to how the funds were to be used. Secondly, the Master found that there was no evidence before the Court to indicate that any of the funds had been advanced to anyone other than the appellant. Having decided that the appellant's argument as to a collateral contract could not succeed the Master went on to find that all of the $97,000 had been advanced by the respondent for the appellant's benefit. On these findings the Master concluded that the appellant had failed to present any evidence capable of supporting its claim that there was a genuine dispute between the parties.

17 In dismissing what the Master viewed as the appellant's claim to the existence of a collateral contract the Master said, at 5 of the reasons:

"There are a number of difficulties with this submission. First, it is by no means clear that there was any binding and enforceable contract entered into between the applicant and the respondent as to how the funds borrowed would be used. It is difficult to see what consideration supported the obligation allegedly undertaken by the respondent not to disperse funds, save in accordance with the rather loose formulation referred to in the respondent's letter to one of the mortgagees. Further, there is no evidence that the funds have been advanced to anyone other than the applicant. What the applicant is saying is that, because the respondent advanced funds in line with its direction and for its benefit, the respondent is somehow liable for the applicant not using those funds to its advantage. In my view, such an argument simply cannot be sustained."

18 The Master then went on to consider the relevant test to be applied by the Court to determine whether there is a genuine dispute between the parties. Having found that the test of "a serious question to be tried" was generally preferred the Master concluded as follows:

"In this matter I cannot see that there is a serious question to be tried - that is to say I cannot see that there is a genuine dispute between the parties. The applicant's case is, in my view, short on particularity and lacks any foundation in law or equity. I would not be prepared to set aside the statutory demand on the basis that there is a genuine dispute."

19 In relation to the appellant's argument under s 459H(1)(b) the Master held that to establish an offsetting claim the appellant needed to show that there was a serious question to be tried as to whether it had an offsetting claim equal to or greater than the amount demanded. The Master said that a person in the position of the appellant could need to provide the Court with evidence as to the value of its alleged offsetting claim. In the Master's opinion the only evidence capable of supporting this claim would be in the form of a valuation of the property so that the loss claimed by the appellant could be quantified. As the appellant had not produced any evidence as to what price the mortgaged property might fetch upon sale the question of any offsetting amount was "nothing more than conjecture". In dismissing the appellant's claim the Master also expressed serious doubts as to whether the value of an unrealised security could be characterised as an offsetting amount.

20 Finally, in relation to the appellant's claim that the statutory demand should be set aside pending the realisation of the property under s 459J, the Master held that this was not a situation where the section applied. This was particularly so in this case because the evidence produced by the appellant could not show that the mortgaged property when sold would realise sufficient funds to satisfy the amount demanded.

21 Having found that the appellant did not fall within s 459H(1) the learned Master dismissed the application and made orders extending the time for compliance under the statutory demand for seven days. The appellant filed a draft notice of appeal with 11 grounds of appeal and relevant particulars. The grounds of appeal and particulars, which are as follows:

1. The learned Master erred in fact and in law in holding that the appellant did not deny that the money was borrowed and the calculation of interest.

2. The learned Master erred in fact and in law in not finding that the funds were to be lent and advanced to the appellant under a separate contract to the mortgage and that it was a term of that contract that such funds were to be used only for proscribed purposes, namely to pay out existing mortgages and the construction of a dwelling on the mortgaged property.

3. The learned Master erred in fact and in law in holding, expressly or by implication, that the respondent advanced funds in line with the appellant's direction and for its benefit.

4. The learned Master erred in fact and law in not finding that only about $40,000 of the sum secured under the mortgage was ever advanced to the appellant.

The learned Master erred in fact and in law in not holding that there was an arguable issue that the value of the mortgaged property which the respondent is in the process of selling as a mortgagee in possession exceeds the amount which the appellant says he has been advanced under the contract to lend and advance funds.

6. The learned Master erred in fact and law in holding that there was not any genuine dispute between the parties.

The learned Master erred in fact and law in not holding that there was an arguable issue as to whether the respondent was in breach of the contract to lend and advance funds to the appellant.

8. The learned Master erred in fact and law in not holding that there was an arguable issue as to whether the appellant had suffered loss and damage in excess of the amount by the respondent by reason of the respondent's breach of contract to lend and advance funds to the appellant, and that such loss and damage constituted a genuine offsetting claim.

9. The learned Master erred in fact and in law in holding that the evidence did not establish that there was a serious question to be tried as to whether the appellant had an offsetting claim.

10. The learned Master erred in law in holding that the appropriate test to determine whether a "genuine dispute" exists is whether there is a "serious question to be tried".

11. The learned Master erred in fact and in law in not holding that there was "some other reason why the demand should be set aside."

22 On close analysis the appeal involves three fundamental issues. First, whether at the time the application before the Master was made there was a genuine dispute as to the amount of money allegedly advanced by the mortgagee; namely, that under the mortgage agreement only approximately $43,000 was advanced to the appellant. Secondly, whether there had been a breach of agreement by the mortgagee which gave rise to an offsetting claim which exceeded the amount of the demand. Thirdly, whether the demand should have been set aside under s 459J as the respondent had taken possession of the appellant's property, for the purpose of exercising the power of sale and was in effect depriving the appellant from selling the property and using the proceeds to satisfy any outstanding debts.

23 I do not think there is much substance in the third issue. I think the real issue is whether the evidence before the Master was capable of supporting, to the required standard, the appellant's case that there was an agreement between the parties as to how the funds would be paid out and that the respondent had breached that agreement by only advancing part of the $97,000 to the appellant for the purposes agreed.

24 In his reasons, at 11 of the appeal papers, the Master considered the tests to be applied for the purpose of determining whether a statutory demand should be set aside pursuant to s 459G_._ The Master accepted that for the purpose of determining whether there was a genuine dispute under s 459H(1)(a) the Court is not expected to undertake an extended inquiry nor attempt to weigh the merits of the dispute: Mibor Investments Pty Ltd v Commonwealth Bank [1994] VicRp 61; [1994] 2 VR 290. The Master then went on to consider the test to be applied for the purposes of determining what amounts to a "genuine dispute", at 5 of the reasons he stated:

"In Capital Bay Investments Pty Ltd v Richard Szklkarz Architects Pty Ltd, unreported; SCt of WA; Library No. 980503; 8 September 1998, Murray J, when dealing with the question of what is a 'genuine dispute' put the position as follows:

'The parties accept and in my view rightly so that it may often be convenient to say that the court will be satisfied to the degree required by the section if it can discern an arguable case or a serious question to be tried as to the genuineness of the dispute or the existence of an offsetting claim.

This reference to 'a serious question to be tried' seems to be the standard which, in recent times, has been employed in interlocutory applications: see Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148 at 153 where Mason ACJ made it clear, with reference to the very same question which arose in the context of an interlocutory debate, that the test of a serious question to be tried' is generally preferred to that of 'a prima facie case. In this matter I cannot see that there is a serious question to be tried - that is I cannot see that there is any genuine dispute between the parties."

25 The appellant contends that the Master erred in law in finding that the appropriate test to be applied for the purpose of determining whether there was a genuine dispute under s 459H was whether there was "a serious question to be tried". This contention is set out in ground 10 of the notice of appeal. The appellant submits that the Master was wrong to rely on the decision of Castlemaine for the purpose of restricting the test to one of "a serious question to be tried". This is because, the appellant claims, Castlemaine dealt with an interlocutory application for injunctive relief which, by its nature, would require a stricter approach than "a prima facie case". The appellant contends that to adopt, in an application pursuant to s 459G, the same test as that applicable to injunctive relief would be oppressive and place too strict a burden on the party attempting to have the demand set aside. This is especially so because no action has been commenced in the civil jurisdiction of the Court but one party has served on another party a statutory demand the effect of which, if upheld, would mean the winding-up of that party. In such a situation where the repercussions of upholding the demand may be so destructive the appellant contends that the test to be satisfied in order to have the demand set aside need only be that there is an "arguable case" as to the genuineness of the dispute.

26 Apart from the express terms in s 459H there is little guidance in the legislation as to what is required to establish a genuine dispute or claim. It has been left to the courts to formulate a test as to what amounts to a "genuine dispute". A considerable number of judicial formulations have arisen, which vary between the stricter standard of "a serious question to be tried", and the lesser standard requiring no more than "an arguable case".

27 From the relevant authorities on the issue of what amounts to a "genuine dispute" under s 459H there can be discerned an emphasis on two overriding considerations. First, that in determining whether there is a genuine dispute a court is required to undertake an investigation that raises much the same sort of considerations as the "serious question to be tried" criterion which arises in an application for an interlocutory injunction or for the extension or removal of a caveat": Eyota Pty Ltd v Havana Pty Ltd (1994) 12 ACLC 699 per McLelland J at 671. Further, to reach a finding that there is a genuine dispute the applicant must satisfy the court that:

(a) the dispute is bona fide and truly exists in fact; and

(b) the grounds alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived: Spencer Constructions Pty Ltd v G & M Aidridge Pty Ltd (1997) 15 ACLC 1,001 per Northrop, Merkel and Goldberg JJ.

28 This formulation has been adopted in a number of recent decisions: see Goldspar Australia v KWA Design Group (1999) 17 ACLC 456 per Austin J at 462 and Universal Greening Pty Ltd v Sabine & Anor [1999] FCA 529; (1999) 17 ACLC 880 per Kenny J at 885. In the interests of consistency in the various courts that have to apply the Corporations Law, I think this is the approach to be preferred.

29 In applying the standard of a "serious question to be tried" I do not think it could be said that the Master was in error.

30 To succeed in this appeal the appellant will need to show that the evidence before the Master was of such a nature that it provided a real factual basis capable of supporting its claim that there was a genuine dispute between the parties as to how the $97,000 was to be advanced and that the respondent breached this agreement. It is important to bear in mind when considering the application before the Master that the appellant did not need to satisfy the Court as to the merits of its claim. The appellant only needed to go so far as to show that there was evidence before the Court that would establish a genuine dispute between the parties as to whether the amount demanded in the statutory demand had in fact been received by the appellant.

Did the evidence support the appellant's claim as to a "genuine dispute"?

31 The appellant did not deny that there was an agreement to lend between the parties for the amount of $97,000 or that there was a mortgage executed to secure the money advanced under the agreement. However, the appellant's case before the Master was that it was a term of the agreement to lend that the funds were to be advanced for specific purposes. Those purposes were that funds would be used to pay out existing mortgages to the value of $34,500 and thereafter funds would be released only for the construction of a dwelling on the property. The appellant submits that on the evidence before the Court the Master should have reached a finding that the evidence was capable of supporting the appellant's claim that an agreement existed and that the appellant had not received all of the $97,000 owed by the respondent.

32 The appellant's evidence that it was agreed between the appellant and the respondent that moneys would be advanced for specific purposes is found in the affidavit of K L Turner sworn 29 September 1998. In par 7 of that affidavit Turner deposes that at all times it was agreed between the parties that the principal sum would be used to pay off existing mortgages on the property of approximately $30,000 and to pay for building works on the property to be conducted by Peter Stannard Homes Pty Ltd in the sum of $65,552. A copy of the schedule to the building contract is annexed which confirms the sum of $65,551. In par 8 Turner states that apart from the amount used to pay off the existing mortgages which was approximately $30,000, no further funds were advanced to either the builder or the appellant.

33 The respondent's evidence in reply was contained in the affidavit of K F O'Brien sworn 23 October 1998. In its evidence the respondent did not deny or refer to the appellant's allegation that there was an agreement between the parties as to how the $97,000 would be dispersed. Rather, O'Brien deposes that the funds were placed in an account for the appellant and that this account also held funds that had been raised for the appellant by other mortgages. In par 8 O'Brien states that deductions were made from the account when authorised by the appellant to make payments to various builders engaged by the appellant and to meet interest payments on the mortgages. In par 10, O'Brien says that by 5 May 1998 there were insufficient funds in the account to meet the payment due to Peter Stannard Homes because by that time all the funds had been paid to the appellant or paid out as directed by the appellant. The respondent relied on a series of account statements, annexure "KOB2", showing all deposits and withdrawals on the appellant's account as evidence that all the funds originally held for the appellant had been released for its benefit.

34 In response to the affidavit of O'Brien the appellant relied on a further affidavit of Turner sworn 5 November 1998. In par 3, Turner denies that the deductions made from the account with respect of the $97,000 were authorised by the appellant and reasserts that at all times it was agreed that the money would be used for the purposes defined in his previous affidavit. In par 4, Turner refers to the affidavit of O'Brien and its annexure "KGB 2" and states that even if the respondent's accounts are accepted, apart from the mortgage repayment of $34,500 the only other payments authorised to be paid out of the $97,000 were those payments such as interest and stamp duty fees which were incidental to the mortgage. Turner then goes on to itemise which payments released from the account were authorised by the appellant to be paid from the $97,000. These authorised amounts total some $8,418.53. In par 5, he then states that taking into account the various payments shown in the respondent's evidence "KOB2", the balance of the mortgage being $54,081.47, was still not accounted for and had not been received by the appellant or authorised to be paid on its behalf. In par 6, Turner deposes that the applicant did not authorise funds to be used for any purposes other than those agreed.

35 In reply to Turner's second affidavit, the respondent filed a further affidavit of K F O'Brien sworn 19 November 1998. In this affidavit O'Brien deposes that all payments from the account were made with the authority of the appellant. Annexed to the affidavit is a bundle of authorities ("KGB-1) completed by the appellant with respect to certain payments deducted from the account.

36 It is clear that the appellant's primary contention is the existence of the agreement as to the purposes for which the funds could be dispersed. This contention by the appellant is clearly expressed in both of its affidavits. The respondent's evidence did not expressly deny or even reply to the appellant's claim that such an agreement existed. The respondent merely asserted that all the funds had been paid to the appellant or otherwise as directed by the appellant. The respondent produced working accounts, "KOB2", which showed the debits and credits to the account it held for the appellant's benefit and that by 6 October 1998 the balance of the account was insufficient to meet the payment required by Peter Stannard Homes with respect to Lot 279. The respondent relied on these accounts as evidence that all the moneys held by the respondent in the account for the appellant were released to either the appellant or for the appellant's benefit such as payments for and incidental to the building works on the appellant's properties.

37 In my opinion, the accounts relied on by the respondent are capable of showing that all the funds including the $97,000 were advanced and deposited in that account and that over a period of time the funds were used to meet payments for the appellant's benefit. However, the fact that all the funds were released for the appellant's benefit will not necessarily amount to a discharge on the respondent's part if it can be shown that there was a specific agreement between the parties as to how the $97,000 was to be advanced and that the respondent breached this agreement.

38 The appellant also relied on the letter to Mrs Webb dated 5 September 1998 ("the letter") as evidence of the arrangement reached between the appellant and the respondent as agent for the Lenders. I have already set out the relevant passage and I will not repeat it. The appellant contended that it must follow from the terms of the letter that the $97,000 advanced by the Lenders was for the purposes set out in the letter. That is, the money was to be used to pay out the existing mortgage over Lot 279 and to pay for building works with respect to that lot. The appellant submitted that once the $97,000 was placed in the account the respondent could not use this money for any other purposes than those agreed and relating to Lot 279.

39 I think there is a degree of commercial logic to the appellant's argument that the $97,000 advance was to be used only for expenses in relation to a specific lot; namely, Lot 279. This would make sense particularly where the money advanced by the lender is secured over a specific property. From the Lenders' perspective, it would be in their best interests to ensure that the money advanced is to be used to provide payments for the construction of the house and therefore contribute to the value of their security. It seems to me that this is the position expressed by the paragraph set out above and contained in the letter. That paragraph is clearly informing the lender how the loan of $97,000 will be used. In this case the Lenders were advancing the funds by way of a commercial investment in return for a mortgage over a specific property. I think it is clearly arguable that they would not be doing so if the position was that the money advanced was going to be used to finance construction or improvements on another property.

40 Counsel for the respondent submitted at the appeal that the arrangement between the parties was that a global sum was to be raised by individual mortgages and that the moneys were to be pooled in one account and used for the pay-out of existing mortgages, interest and building costs with respect to all the properties being developed. The respondent also relied on the letter as evidence of the pooling arrangement. Counsel referred to certain paragraphs in the letter, which referred to the appellant's construction plans in relation to the whole Marangaroo development as providing evidence that the parties had intended for a global sum of money to be raised and spread across the various properties.

41 In my view, the letter does not provide sufficient support to the respondent's submission that the parties had agreed to the pooling of funds. While the letter does refer to the fact that 15 individual mortgages have been raised for the purpose of financing the appellant's Marangaroo development it also says that the mortgages were to be secured over separate lots. The letter also provides detailed information as to how the Lenders' money will be used, which lot is to be given as security and the valuation of the particular lot which the Lenders' funds are secured over. It seems to me that in construing the letter it is important to remember the context in which the letter was sent. It was provided to the Lenders by the respondent prior to the execution of the mortgage for the purpose of setting out the proposed arrangement to be entered into between the Lenders with the appellant. When read in this light it seems to me that the Lenders would have understood that the money to be advanced was paid for improvements to the secured property. In my opinion, the fact that the mortgage was later assigned to the respondent would not in itself alter the original agreement as to how the funds were to be used.

42 Counsel for the respondent submitted that despite what was contained in the letter the real issue was the arrangement between the respondent and the appellant as to the way the funds were to be disbursed. Counsel argued that the appellant's claim that there was an agreement as to how the funds were to be used could not be made out as there was evidence that the appellant was aware at all times that all the funds raised had been pooled in the one account and that payments relating to all the properties were paid out of this one account. The respondent sought to rely on the authorities which make up annexure "KOB-1" as evidence that the parties intended the funds to be pooled for the purposes of meeting expenses incurred over the lots. Counsel for the respondent submitted that by signing a number of authorities for payments relating to pooled expenses it must have been clear to the appellant that in order to proceed with its work there would have to be a globalisation of all the funds.

43 Having considered these bundles I am not sure that they are capable of providing any conclusive support to the respondent's submission. In my opinion, the pooling of funds is not inconsistent with the submission that the $97,000 was only to be paid out for agreed payments which specifically related to Lot 279. The fact that all funds are kept in one account would not have prevented the respondent from keeping a record as to which payments related to specific mortgages. Nor would knowledge that the funds were held in the same account as other funds imply that the appellant had agreed to a general pooling of funds and waived the need for the respondent to keep any account as to which specific mortgage the money released related to. In my opinion, if evidence supports an argument that from the outset the arrangement between the parties was that money was placed in the account for specific purposes, then the fact that the funds are held in one account with other funds and that the appellant knew this does not, in itself, relieve the respondent from its obligation not to release funds forming part of the $97,000 for purposes other than those agreed by the parties.

44 Further, in my view, it is difficult to see how the bundle of authorities could provide cogent evidence that the appellant authorised funds to be released for purposes other than those agreed. This is because many of the authorities forming part of annexure "KOB-1" are authorities which relate to payments going to other properties. Apart from those interest payments which were accepted by the appellant in par 4 of the affidavit of Turner dated 5 November 1998, none of these authorities appears to relate specifically to payments with respect to Lot 279. Having said that, I am aware that some of these payments authorised by the appellant did not appear to relate to any particular property.

45 The respondent submitted that it was possible that certain payments such as the authority for the hardware account (which appears at 107 of the appeal papers) could have related to expenses incurred for the benefit of Lot 279. I accept that the authority for the hardware account could give rise to an inference that the appellant in some instances authorised funds to be released that may have been for the benefit of Lot 279. However, on the evidence it remains open to argument whether that was the case and in any event the evidence contained in the bundle comes nowhere near accounting for the $54,550 that the appellant claims was never advanced.

46 There is no doubt on the evidence that the appellant did receive the benefit of some of the $97,000. However, for the purposes of the statutory demand the question revolves around the argument whether all of the $97,000 was paid to the appellant or paid out for purposes authorised by the appellant. It is certainly arguable on the basis of "KOB-2" that all the funds held by the respondent for the appellant were released for the appellant's benefit in one way or another. However, the appellant's evidence is that the $97,000 was to be advanced for specific purposes relating to the mortgaged property. In addition to the appellant's direct affidavit evidence as to the agreement, the evidence by way of the letter also supported the appellant's claim that the money was to be used for specific purposes.

47 In the argument before this Court both parties were able to offer a clearer and more detailed explanation of the evidence than was possible before the Master. The evidence of the appellant that was before the Master addressed its allegation that there was an agreement between the parties which had been breached. Indeed, without this there would have been no basis for the application. The Master was not required to undertake an extended inquiry nor was he required to weigh the merits of the case. All the Master was required to do was to consider whether on the evidence before him the facts supported the appellant's claim that there was a genuine dispute between the parties as to the amount of the outstanding debt. It seems to me that the letter gave sufficient weight to the appellant's case to require at the very least some form of denial or explanation rather than a broad assertion by the respondent that all the funds had been paid for the appellant's benefit. Further, I do not think the evidence contained in "KOB-1" and "KOB-2" was enough on which to base a finding that the appellant's argument as to the agreement simply could not be sustained.

48 In my opinion, the Master was in error in dismissing the appellant's claim that there was a genuine dispute as to the amount of the outstanding debt.

49 Having regard to all the circumstances I am satisfied that the applicant has made out its case that there is a genuine dispute between the parties as to the amount of the debt which is the subject of the demand. Obviously, it is not for this Court to make any final determination or reach a conclusion as to the merits of the applicant's claim. In any event, it would not be possible to do so. The evidence made available to the Court by both parties was lacking in detail.

50 Under s 459H(2) the Court is required to calculate the "substantiated amount" for the purpose of determining whether to set aside or vary a statutory demand. The applicant submits that the evidence is capable of supporting the existence of two offsetting claims. The first claim relates to the $54,550 it claims was never advanced for proper and authorised purposes. The second claim is for the loss that the applicant claims to have sustained as a result of the respondent's breach of contract. The applicant submits that the amount of the loss is approximately $61,000 being the difference between the initial valuation for the home and land package ($141,000) and the present estimated value of the property, being $80,000. The applicant submits that for the purpose of an "Offsetting total" the amount is the sum of these two claims.

51 I think there are some difficulties with the applicant's submission in relation to its offsetting claim for breach of contract. The applicant did not provide any cogent evidence to support its claim in relation to the present market value of the property. As a result of this omission it is impossible for the Court to calculate the loss allegedly sustained as a result of the breach. The only evidence provided was in the affidavit of K L Turner sworn 29 September 1988 where he deposes, in par 12, that the fair and reasonable value of the land is approximately $80,000. Apart from this expression of opinion there is no substantive evidence, such as a valuation, to support the value placed on the property by the deponent. However, there is evidence to support the applicant's claim to an offsetting amount for the $54,550, being the balance of the original advance. There is no need for me to repeat what I have already said on that issue.

52 The "substantiated amount" is to be calculated in accordance with the formula: "Admitted total - Offsetting Total". It seems to me that for the purpose of calculating the "substantiated amount" the applicant's claim under the mortgage will suffice. In this case there is an "Admitted total" of some $43,000 which the applicant says it received. The "Offsetting total" is approximately $54,550. The "substantiated amount" is therefore $11,550 in favour of the applicant. Where the substantiated amount is less than the statutory minimum of $2,000, s 459H(3) provides that the Court must set aside the demand. In the circumstances, I think that is what the Court must do.

53 Because of this conclusion, I do not intend to deal further with the appellant's submissions in relation to the existence of an offsetting claim for damages flowing from the alleged breach of contract. Nor do I think it is necessary to deal with the appellant's claim that it should succeed under s 459J(1)(b) on the ground that the respondent taking possession of the property amounted to "some other reason why the demand should be set aside".

54 In my view the appeal should be allowed. It follows that the statutory demand of the respondent dated 4 September 1998 should be set aside.

Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (87 paragraphs)

Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 (17 December 1999)

Parties

Cases Cited (2)