Rivercorp v Casement [2004] NSWSC 280 (8 April 2004)

Last Updated: 14 April 2004

NEW SOUTH WALES SUPREME COURT

CITATION: Rivercorp v Casement [2004] NSWSC 280



CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): 5750 of 2003

HEARING DATE{S): 11/03/04

JUDGMENT DATE: 08/04/2004

PARTIES:
Rivercorp Pty Ltd v Frank Casement

JUDGMENT OF: Master Macready

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
Mr I Neil for plaintiff
Mr A Gruzman for defendant

SOLICITORS:
Paul Baird for plaintiff
Baron & Associates for defendant


CATCHWORDS:
Corporations law. Action to set aside statutory demand under s 459 G of the Corporations Act. Defects in the affidavit in support of the demand. Demand set aside.

ACTS CITED:


DECISION:
Statutory demand set aside.


JUDGMENT:

- 1 -
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION



MASTER MACREADY

Thursday 8 April 2004


5750 of 2003 RIVERCORP PTY LTD v FRANK CASEMENT

JUDGMENT

1 MASTER: This is an application to set aside a statutory demand under s 459G of the Corporations Act 2001 (Cth) (the Act). The statutory demand dated 24 October 2003 claimed the sum of $80,000.00 in respect of a debt described as being “Loan described as ‘Casement Loan Account’ in Agreement dated 23 April 2003”.

2 There are two bases raised for the setting aside of the demand. The first ground was that the affidavit in support of the statutory demand did not comply with the requirements of s 459E(3) of the Act. The second was that there is a genuine dispute regarding the amount of the debt.

3 I turn to the first question. The objectionable paragraph in the affidavit verifying in the statutory demand is paragraph 2 which is in the following terms:-

“The Defendant (referred to in the attached Statutory Demand as the ‘Company’) is indebted to the Plaintiff (referred to in the attached Statutory Demand as the ‘Creditor’) in the amount of $80,000 set out in the attached statutory demand.”

4 It is said that the affidavit fails to meet the requirements of the Act because it does not verify or state that the alleged debt is due and payable by the plaintiff. What it states is that the plaintiff is “indebted” to the defendant in the amount of $80,000.00. It is said that this in breach of ss 459E(3)(a) and 459E(3)(b) and Rule 5.2(a) of the Act.

5 Before dealing with this point it is necessary to deal with a preliminary point which goes to the question of whether or not this ground was raised in the affidavit that was filed within the time limited by the section. That affidavit was the affidavit of John Phillip Brosnan sworn 14 November 2003. Paragraph 27 of the affidavit is in these terms:

“On or about 24 October 2003 the plaintiff was served with a Statutory Demand purportedly issued by Casement, even though the affidavit in support of the demand was sworn by McCann. I am told by my solicitor that the affidavit is defective. A true copy of the document issued by Casement is located at page 117 of Exhibit RC1.”

6 As is made plain by the above paragraph the exhibit contained a copy of the statutory demand and an affidavit in support.

7 The most recent discussion of the extensive case law in this area and its development is that of Austin J in POS Media v B Family [2003] NSWSC 147. There His Honour said:

“26 The principle asserted by the defendant is that the plaintiff cannot succeed on the ‘no debt’ ground, because that ground was not set out in Mr Patkin's affidavit of 9 December 2002, and cannot be characterised as an extension of the grounds set out in that affidavit. 27 The principle is said to arise out of s 459G, which states: ‘459G (1) A company may apply to the Court for an order setting aside a statutory demand served on the company. (2) An application may only be made within 21 days after the demand is so served. (3) An application is made in accordance with this section only if, within those 21 days: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.’ 28 In David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 the High Court of Australia held that an application to set aside a statutory demand is to be made within 21 days of service of the demand, and not at some time thereafter, and that to treat s 1322 as authorising the Court to extend the 21 day period would be to deprive the word ‘only’ in s 459(2) of effect (per Gummow J at 276). The David Grant case implied that the plaintiff must file and serve, within the 21 day period, not only the application but also an affidavit falling within the description of ‘an affidavit supporting the application’; in assessing whether these requirements have been satisfied, the Court is not to have regard to any supplementary affidavit filed and served by the plaintiff at a later time. 29 Section 459G does not prescribe the content of the application. That is left to the Rules of Court, which are now substantially uniform. The application is made by an originating process, which according to Rule 2.2 of the Corporations Rules of the various Courts, and the associated Form 2, must set out the relief sought and the sections of the Corporations Act under which the proceeding is brought, but need not plead the grounds upon which the relief is sought. The defendant's interest in knowing the plaintiff's claim is catered for by the general rules of Court regarding particulars, and the Court's power to order that the matter proceed by pleadings or points of claim in an appropriate case. 30 In the absence of authority, one might have thought that an affidavit would ‘support’ such an application if it deposed to facts that would (alone or together with other evidence) justify the grant of some such relief as the application sought, once the plaintiff articulated (at the hearing, if not earlier) the reasoning by which those facts would warrant that relief. One would not expect the supporting affidavit to supply the intermediate reasoning, in the nature of a pleading. Assertions in an affidavit in the nature of submissions are normally held inadmissible, if challenged. 31 However, the law has taken rather a different course. In Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452, Sundberg J was dealing with an application to set aside a statutory demand on the basis that there was a genuine dispute as the existence of the debt. Perhaps influenced by a supplementary Federal Court Rule in force at the time, he said (at 459): ‘In a s 459H(1)(a) case, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of affidavit, that it may read like a pleading.’ 32 Those observations have been taken up and applied frequently in first instance decisions - for example, Zenaust Imports Pty Ltd v Olympic Chemicals Works Co Ltd (1998) 28 ACSR 465; Z-Tek Computers Pty Ltd v Aus Linx International Pty Ltd (1997) 15 ACLC 1233; SMEC International Pty Ltd v CEMS Engineering Inc [2001] NSWSC 459; (2001) 38 ACSR 595. In the Zenaust case, however, Santow J added (at 469) the qualification that an affidavit in support of a notice to set aside a statutory demand could not fairly be expected to rise higher than the level of articulation of the claimed debt in the statutory demand. 33 These cases dealt with the minimum content requirements for the affidavit in support of the application. A corollary of their reasoning is that if the affidavit discloses certain grounds only, the plaintiff should be limited to those grounds at the hearing. That proposition was accepted in D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794, where Perry J remarked (at 1798), in respect of an affidavit filed on behalf of the plaintiff well after the expiration of the period of 21 days, ‘in so far as it raises any ground offered in support of the application not identified in the affidavit ... filed within time, [it] could not be taken into account in determining the application’. The same point was accepted by Mandie J in Missay Pty Ltd v Seventh Cameo Nominees Pty Ltd (in liq) [2000] VSC 397. 34 Those decisions should be compared with Callite Pty Ltd v Adams [2001] NSWSC 52. In that case the statutory demand was by solicitors who sought to recover in respect of fees charged for legal work. At the hearing the plaintiff (the client) wanted to assert that there was a genuine dispute because the defendant (the solicitor) had not complied with mandatory requirements of the Legal Profession Act 1987 (NSW). The affidavit supporting the client's application to set aside the statutory demand annexed the relevant invoices but did not assert the ultimate facts that would allow the legal conclusion to be drawn that there had been no proper fee disclosure as required by the Legal Profession Act. However, it was evident on the face of the invoices that they did not comply with the requirements of that Act in various ways. Santow J held that it was unnecessary for the affidavit to point out explicitly that omissions had occurred, since it was self-evident from a perusal of the annexed accounts that they lacked certain mandatory inclusions. He concluded (at [12]) that ‘the legal consequences which follow are not required to be pleaded in such an affidavit’. 35 We now have the benefit of three decisions by an intermediate appellate court. The Full Court of the Supreme Court of Western Australia has followed Sundberg J's observations and their corollary in Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360; Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419; (2001) 166 FLR 179 and Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 167 FLR 106. However, the Financial Solutions case has reduced the Graywinter ‘principle’ to a more fact-specific inquiry. 36 The Meadowfield case applied Sundberg J's observations about the ‘minimum requirements’ for the affidavit without adding anything of general application. In the Energy Equity case, the question was whether the plaintiff could seek to establish at the hearing that it had an offsetting claim in negligence in relation to a particular contract, when all that had been relevantly said in the affidavit filed within time was that there were ‘a string of off-setting claims’. After examining the authorities Wallwork J (with whom Steytler J and Olsson A-UJ agreed) concluded (at 185, in a passage described in the Financial Solutions case as an obiter dictum): ‘In my view it now seems to be accepted that an affidavit filed outside the 21-day period which raises a new ground or grounds to set aside a statutory demand (as opposed to an affidavit which expands on grounds in an earlier affidavit which has satisfied the threshold test) cannot be used in an application of this nature.’ 37 In the Financial Solutions case, the plaintiff contended at the hearing that there was a genuine dispute as to the existence of the debt claimed in the statutory demand, for two reasons. First, the plaintiff said that the defendant claimed as assignee under a deed of assignment which mistakenly identified the deeds of loan to which the assignment related, and secondly, the plaintiff said that the defendant was not a permitted assignee under the terms of the deeds. The affidavit supporting the application said only that the plaintiff had not sighted the deed of assignment and genuinely believed that the assignment might be void and ineffective, and was seeking discovery of the documents referred to in the statutory demand in order to establish whether the defendant had a legally enforceable claim against it. 38 Applying the observations of Sundberg J in Graywinter , and also the views of Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716, Parker J (with whom Anderson and Scott JJ agreed) held (at 115) that the material facts on which the plaintiff intended to rely to show a genuine dispute were sufficiently, ‘though less than ideally’, set out in the affidavit and its annexures. He observed, applying the views of Young J in the John Holland case, that the affidavit went beyond mere assertion. As to Sundberg J's observations, he said that they were apt to the circumstances with which Sundberg J was concerned, but ‘there is reason to hesitate and hold back from acceptance of the apparent effect of the submission for Financial Solutions that the concluding paragraph of the passages cited earlier from Sundberg J's reasons in Graywinter reveal a settled and universal principle, which must be satisfied by an affidavit before it can be accepted as 'supporting the application' within the meaning of s 4 59G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires.’ 39 Barrett J of this Court carefully reviewed the case law in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd [2002] NSWSC 45, although his judgment was delivered before the Financial Solutions decision. Barrett J's conclusions were as follows: ‘[21] It is thus reasonably clear that the relevant concept of “raising” or “identifying” a particular ground involves some verbal delineation of that ground in the s 459G(3)(a) affidavit. If a debt of $10,000 were claimed as one year's interest under a contract providing for interest at the rate of 9% per annum on a principal sum of $100,000, it would not, in my opinion, be sufficient for the affidavit to annex the loan agreement and say no more. It would have to refer at least to the connection between the contract and the debt claimed and put in issue the calculation of interest - even if it merely said, “The debt does not accord with the annexed contract”. [22] The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by s 459H and s 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.’ 40 With respect, these observations are a logical application of the principle enunciated in Energy Equity. However, they might arguably take Sundberg J's observations in Graywinter further than the Financial Solutions case would now take them, and be inconsistent with the decision in Callite. If it was unnecessary for the supporting affidavit in Callite to do anything more than annex the solicitor's invoices, on the face of which there were non-compliances with the Legal Profession Act, why would it be necessary for the supporting affidavit in Barrett J's hypothetical example to do anything more than annex the loan agreement showing a different rate of interest from the one claimed?

8 From the paragraph I have quoted above it is clear that it was pointed out in the first affidavit that the attached affidavit was defective. The complaint by the defendant appears to be that the precise nature of the deficiency was not particularised. There are a number of answers to these submissions.

9 The only matters of fact necessary to support the relevant submission are the terms of the affidavit itself. There does however seem to be some difference of opinion at first instance as to the extent of the delineation of the ground in the affidavit. In Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd [2002] NSWSC 45 Barrett J expressed a requirement for a delineation of the ground in the affidavit in order to raise or identify that ground. In Callite Pty Ltd v Adams [2001] NSWSC 52 Santow J held that it was unnecessary for the affidavit to point out explicitly what omissions had occurred since it was self-evident from a perusal of the annexed accounts that they lacked certain mandatory inclusions. He concluded that the legal consequences which followed are not required to be pleaded in such an affidavit. This is supported by Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 where His Honour concluded that the precise nature of the application may well influence what is required in this regard.

10 The present case is one where it is alleged that the affidavit is defective. Before the reader is put the affidavit and the concept of a defect which is clearly a reference to the material in s 459J of the Act. For the defect to become apparent all that is required is a comparison of the actual affidavit and the statutory requirements. In my view, in these circumstances, I would have thought that there is a sufficient delineation of the ground.

11 It was also pointed out that the case law to which I have referred was all in the context of applications under s 459H of the Act and that there was no case that dealt with such a requirement under 459J of the Act. This may be so but it is apparent that the requirement in s 459E(3) of the Act applies equally to s 459H and 459J. This is not to say that the contents may be different in respect of each such application. Having regard to the conclusions I have reached I do not think it necessary to pursue this matter further.

12 I now turn to the substantive point. The principal case relied upon in this respect is the decision of Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219; (2002) 20 ACLC 726. At paragraphs 16 to 23 His Honour Mr Justice Barrett set out the following which is almost an identical situation to the one in the present case.

“16 I must confess immediately to difficulties with the Master's finding that the affidavit effectively stated even that the debt was due. The words used are set out at paragraph 8 above. The operative term was ‘is indebted’. This was deposed to in the context of a demand which, in its paragraph 1, did no more than to say that ARG ‘owes’ Main Camp a particular amount.

17 A statement that one person ‘owes’ a particular sum to another and ‘is indebted’ in that sum asserts no more than the existence of a debt, that is, an obligation to pay the sum concerned. It says nothing about the time at which the obligation must be performed. It therefore says nothing about whether the sum concerned is ‘due’ or ‘payable’. It is, of course, axiomatic that a debt, in the form of a payment obligation, may be presently owing but not yet either ‘due’ or ‘payable’. It may likewise be ‘owing’ and ‘due’ but not yet ‘payable’, although it is not possible for a debt ‘owing’ to be ‘payable’ but not ‘due’: Marriott Industries Pty Ltd v Mercantile Credits Ltd (1991) 9 BCL 256 per King CJ. A statement that a sum is ‘due and payable’ thus connotes not only that it is ‘owed’ (so that the debtor is ‘indebted’) but also that the time for payment has arrived and the obligation to pay is an unqualified and unfettered obligation requiring immediate performance.

18 On this basis, I consider that the Master went too far in finding that the word ‘indebted’ in the affidavit, even viewed in conjunction with the word ‘owes’ in the demand itself, conveyed the message that any sum was ‘due’. He was certainly correct, however, in holding that the words used carried no connotation that any sum was ‘payable’.

19 In the result, the Master came to the correct conclusion in deciding that the affidavit did not comply with s 459E(3)(a) or conform with Form 7, in that it did not verify that the debt or total to which the demand referred was ’due and payable by the company’. Furthermore, the Master was in my view correct to regard that non-compliance and non-conformity as a ‘defect’ in the s 9 sense (although, of course, not a ‘defect in the demand’ as referred to in s 459J(1)(a)). That being so, if the non-compliance and non-conformity are to form the basis for an order that the demand be set aside, the case must be one within s 459J(1)(b). The reason for this has already been mentioned by reference to Spencer Constructions and Goldspar .

20 The Master did not explain the grounds on which he regarded the non-compliance and non-conformity (each, as I have explained, more substantial, in my view, than he recognised) as sufficient to constitute a reason why the demand should be set aside. But the reason seems to me to follow almost as a matter of course from the nature of the inadequacy.

21 By serving a statutory demand on a company, a creditor takes the first step towards bringing into existence a statutory presumption of insolvency on the basis of which the creditor may proceed to ask the court to supplant the existing custodians of the company's property and affairs in favour of an officer of the court whose first duty is to attend to the interests of the general body of creditors. If the court accedes to that request, the established order of administration within the company is put into abeyance and a regime in which the interests of shareholders are subordinated or deferred comes to the fore. The first step to which I have referred involves, in essence, a clear delineation of the creditor's assertion of an entitlement to receive payment of a debt in respect of which there exists not only an unquestionable obligation to pay but also an unconditional obligation to pay immediately. The message conveyed by the demand is effectively a message of last chance: that, unless the payment already unequivocally and immediately required to be made is in fact made within the period stated in the demand, the company will be vulnerable to the grave consequences which the court may, on application made, visit upon it on the basis of the statutory presumption of insolvency.

22 In the light of the radical consequences which may thus result from non-compliance with a statutory demand, the value to be placed on adherence in all material respects to the statutory requirements is necessarily high. It is not open to a creditor whose debt is merely owing to resort to the statutory demand procedure. The express words of both the legislation and the prescribed form of affidavit make it clear that the assertion of the debt's status as being both due and payable is part of the message the creditor is compelled to convey in order to become entitled to the presumption of insolvency. This is not a matter of mere semantics or shades of meaning. Nor can it be suggested that slavish use of a particular verbal formula for its own sake is essential when exactly the same message may be quite adequately conveyed in different words: compare Daewoo Australia Pty Ltd v Suncorp-Metway Ltd [2000] NSWSC 35; (1999) 33 ACSR 481, a case to which the Master referred, where a requirement that an affidavit ‘state that the deponent believes those matters to be true’ was held sufficiently satisfied where the deponent set out the relevant matters and concluded with the words, ‘and I so verify’.

23 What is essential is that the documents put the company on notice in an unambiguous way of all the matters the legislation requires. The creditor's contention that the debt, as well as being a debt (that is, owing), is both due and payable is one such matter. That contention is indispensable to the full understanding the legislation requires a company receiving a statutory demand to obtain from that demand and its accompanying affidavit. That full understanding was not conveyed by the creditor in this case. It is true that a demand for payment within the specified period was made. But the important fact (or assertion) that the company was under a legal obligation to make that payment without any further step on the creditor's part, without the satisfaction of any intervening condition and without the passage of any further time was omitted. It is to clear notification of that important fact (or assertion) that the legislation attaches particular significance by the clear requirements expressed by reference to the words ‘due and payable’.

13 Notable of course is that, like the demand in Main Camp, the expression used was the word “owes” and like Main Camp the expression used in the affidavit was “is indebted”.

14 Reference was made to Panel Tech Industries (Australia) Pty Ltd v Australia Skyreach Equipment Pty Ltd (2003) [2003] NSWSC 619; 200 ALR 321 where Justice Barrett had occasion to refer to his decision in Main Camp. However that case dealt with an affidavit which annexed a number of invoices which allowed His Honour to consider that sufficient notification was given that the debt was claimed as due and payable.

15 In my view the breaches in the present case are serious and lead me to the view that the demand should be set aside under s 459J(b) of the Act.

16 Although it is not strictly necessary, I will make some comments on the nature of the genuine dispute which is alleged in the present case.

17 The plaintiff company was a company which was involved in the IT industry. Originally the person in charge was Mr Stephen McCann. In March 2002, Mr McCann’s brother-in-law, Mr F Casement, lent a sum of US$25,000.00 to the company which led to the entry of a loan account in the company’s books in the amount of A$46,997.00. In July 2002 Mr McCann arranged for two new partners to come into the business. They were Mr Brosnan and Mr Rowe. In about October 2002 there were further discussions (although there is some dispute as to these) about the prospect of bringing Mr Casement into the company. According to Mr McCann these did not ultimately progress and it was necessary to repay Mr Casement’s loan.

18 The relationship between the existing three partners deteriorated and on 31 March 2003 Mr McCann retired from the company and as a director. There was then an agreement on 23 April 2003 to cover his retirement from the company and the repayment of various amounts to him. This agreement was made between Mr McCann, Mr Rowe and Mr Brosnan and the plaintiff company. Of importance is that Mr Casement was not a party to that agreement. Paragraphs 22 to 25 of that agreement are in the following form:

“22. SMC agrees that the $50,000 withdrawn by him on or about 10 April 2003 from the Company’s bank account was in reduction of the SMC Loan Account balance prior to that date.

23 The Company agrees to repay the balance of the SMC Loan Account and the Casement Loan Account in the following manner:-

23.1 the Company will pay the First Instalment Amount on the First Instalment Date; and

23.2 the Company will pay three instalments of the Monthly Instalment Amount prior to the Completion Date.

In the event of default in any payment the whole of the balance will be immediately due and payable and interest shall accrue on any outstanding sum at the rate of 15% per annum until all sums have been paid and any payment after default shall be first in payment of interest and then in payment of the outstanding Monthly Instalment Amount.

24 SMC agrees that upon the payment of the amounts referred to in paragraph 22 no further amount will be owing by the Company to SMC or Frank Casement for the SMC Loan Account and the Casement Loan Account.

25 SMC agrees and acknowledges that he has authority to receive the payment in respect of the Casement Loan Account on behalf of Frank Casement.”

19 Not long after the April agreement the parties once more fell into dispute with allegations that Mr McCann was in breach of the restrictive clauses in the April agreement. Pursuant to his rights under the April agreement Mr McCann received the sum of A$45,000.00. He says that he allocated $11,655.86 to the debt owed to Mr Casement on the basis that he had collected it for Mr Casement under the terms of his authority set out in clause 25 of the agreement.

20 There is evidence from Mr Casement that he gave this authority and that $80,000.00 was still outstanding and he required repayment.

21 I had the benefit of a number of submissions in respect of the principles to be applied and I think the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments respect of the expression "genuine dispute":

"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 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 Mibor 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 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 (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."

22 There are two bases upon which it is said that there is a genuine dispute. The first relates to evidence of discussions between Mr McCann and the other two directors in which Mr McCann is alleged to have told them that he had borrowed the money from Mr Casement and then put it into the company. Having regard to the original company documents which set up the loan account it is clear that the loan was shown in the company’s records as owing to Mr Casement. There does not seem to be any basis for suggesting that any later statements by Mr McCann to Mr Brosnan (which in any event are disputed) would ultimately be admissible against Mr Casement in relation to the loan account. In any event the terms of the loan would be determined by what was said at the time the monies were advanced. In respect of the original loan the relevant evidence is the record in the companies accounts, namely, “loans F Casement”. In respect of the sum of $44,658.78 placed with the company in early October 2002 these were allocated to the Frank Casement loan account by Monica Casement on the express instructions of Mr Brosnan. He did not deny these instructions. There is no doubt on the evidence that the funds were provided by Mr Casement. In these circumstances I do not see any genuine dispute.

23 The other way in which the dispute was put was that Mr Casement authorised Mr McCann to act as his agent for the purpose of recovering the money due to him from the plaintiff company and that in acting within the scope of that authority Mr McCann made the agreement of 23 April 2003. It is then said that the liability for the Casement debt is now governed by the April agreement and that all that remains is a claim for damages which does not give rise to a debt necessary to support a demand.

24 There is no doubt that if the only claim is a claim for damages in breach of the April agreement that would not be to a debt which is due and payable sufficient to support a statutory demand. Such a claim does not include a claim for unliquidated damages - see Rothwells Ltd v Nommack (No 100) Pty Ltd (1988) 6 ACLC 1199 at 1200 and First Line Distribution Pty Ltd v Paul Whiley (1995) 13 ACLC 1216 at 1218, and Griffith Producers Co-operative Co. Ltd v Calabria (1996) 15 ACLC 19. See also CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at 103 para [15].

25 The real question of course is whether or not the liability for the Casement debt is governed by the April agreement.

26 I have earlier referred to the terms of the 23 April 2003 deed and the fact that Mr Casement was not a party to that agreement. In these circumstances all that paragraphs 22 to 25 and its incorporation of the definition of the Casement Loan Account do is to record the authority which Mr McCann warrants that he has from Mr Casement.

27 Paragraphs 22 to 25 do not on their face represent any agreement between Mr Casement and the company but merely record an agreement between Mr McCann and the company. There is evidence given by Mr Casement before the Court in his affidavit and that clearly indicates that he authorised Mr McCann to act as his agent for the purpose “to receive payment of my loan $91,655.86”. There is absolutely no evidence of any authority to enter into the agreement of 23 April 2003. In these circumstances there does not seem to be any basis for suggesting that Mr McCann entered into the April agreement on behalf of Mr Casement as his principal.

28 It follows that although the description of the debt in the statutory demand refers to the April agreement. The underlying liability is that in respect of the original loans made by Mr Casement which were reflected in the company’s accounts and in the absence of any other evidence, would be repayable on demand. In these circumstances I would not have thought there was a genuine dispute.

Orders

29 I order that the statutory demand dated 24 October 2003 served by the defendant on the plaintiff be set aside.

30 Subject to submissions I order the defendant to pay the plaintiff’s costs of the proceedings.

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LAST UPDATED: 08/04/2004