J.S.W. Parts Pty Ltd v Dacaro Pty Ltd

[1997] FCA 753

FEDERAL COURT OF AUSTRALIA

CORPORATIONS  - Insolvency - Winding up - Statutory demand to pay debt - Setting aside - Whether genuine dispute about existence of debt.

Corporations Law ss 459G, 459H(1)(a)

Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ASCR 362
Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229
The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 20 ACSR 108
Chadwick Industries (South Coast) Pty Ltd  v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37
Scanhill Pty Ltd  v Century 21 Australasia Pty Ltd  (1993) 47 FCR 451
Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525
Rohalo Pharmaceutical Pty Ltd v R. P. Scherer SpA (1995) 13 ACLC 94

J.S.W. PARTS PTY LTD v DACARO PTY LIMITED
VG 3164 of 1997

CORAM:       FINKELSTEIN J
PLACE:         MELBOURNE
DATED:        11 AUGUST 1997

IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA  DISTRICT REGISTRY	)VG 3164 of 1997
)
GENERAL DIVISION	)

BETWEEN:	J.S.W. PARTS PTY LTD ACN 005 327 882 Applicant
AND:	DACARO PTY LIMITED ACN 008 525 200 Respondent

CORAM:	FINKELSTEIN J
PLACE:	MELBOURNE
DATED:	11 AUGUST 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The statutory demand served by the respondent on the applicant on 24 April 1997            be       set aside.

1. The applicant’s costs of this application be paid by the respondent.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA  DISTRICT REGISTRY	)No. VG  3164 of 1997
)
GENERAL DIVISION	)

BETWEEN:	J.S.W. PARTS PTY LTD ACN 005 327 882 Applicant
AND:	DACARO PTY LIMITED ACN 008 525 200 Respondent

CORAM	FINKELSTEIN J
PLACE:	MELBOURNE
DATED:	11 AUGUST 1997

REASONS FOR JUDGMENT

This is an application by J.S.W. Parts Pty Ltd (“JSW”) pursuant to s.459G of the Corporations Law to set aside a statutory demand served on JSW by Dacaro Pty Limited (“Dacaro”) on 24 April 1997 relating to an alleged debt of $40,000 said to be owed by JSW to Dacaro.   If the demand is not set aside at the end of the period for compliance (as to which see s.459F(2)) JSW will be presumed to be insolvent (s.459C(2)(a)) and an order that it be wound up in insolvency might be made.

The Court has power to set aside a statutory demand if it is satisfied “that there is a genuine dispute ... about the existence or amount of a debt to which the demand relates”: s.459H(1)(a). Once set aside a statutory demand is of no effect: s.459K. In determining whether there is a genuine dispute the Court will not embark upon any extended enquiry, nor will it determine where the merits of that dispute lie. As was said by Hayne J. in Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ASCR 362 at 367: “[a]ll that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.”

There is no authoritative statement dealing with the meaning of the expression “genuine dispute” in s.459G and what must be established to show that a genuine dispute exists. The difficulty, if there is one, lies with the meaning of the word “genuine”. It appears to be used in its ordinary meaning but as the Oxford English Dictionary shows the word has a number of meanings. Perhaps the meanings which are most apposite are “not spurious”, “real”, and “true”: see also Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 at 234 per Northrop J. Thus, something more than the mere assertion of a dispute by the party resisting the statutory demand is required to satisfy s. 459G. To demonstrate that a dispute is genuine will, in the ordinary case, require evidence to show that the dispute is based on reasonable or substantial grounds.

This conclusion appears to accord with the view of Lockhart J. in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 where (at p.39) his Honour said:

”The notion of a ‘genuine dispute’ ... suggests to me that the court must be satisfied that there is a dispute that is not plainly vexatious or frivolous.  It must be satisfied that there is a claim that may have some substance.  On the other hand the court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect.  Plainly that is not what the legislature intended by introducing this new regime.”

There are decisions both in the Federal Court and in State Courts where the requirement is expressed in different terms but not, in my view, to a different effect.  I refer by way of example to cases such as Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451, Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525 and Rohalo Pharmaceutical Pty Ltd v R. P. Scherer  SpA (1995) 13 ACLC 94 where expressions such as “triable issue” and “serious question to be tried” are used as a substitute for the word “genuine”.

Further the need to establish that a dispute is based on reasonable or substantial grounds will then be the same as that which must be established by a company seeking to enjoin a winding-up application that has been threatened, or seeking to stay or resist a winding-up application that has been made, by a creditor whose debt is disputed but who does not rely on deemed insolvency arising from a failure to comply with a statutory demand: as to the position of such a creditor see The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 20 ACSR 108, a case decided after the amendments to Part 5.4 of the Corporations Law effected by Act No. 210 of 1992. It would be unusual if a company had a different standard of proof to defend the claim of a creditor with a disputed debt who relied on s. 459G to establish insolvency from that applicable to a creditor with a disputed debt who could establish actual insolvency.

I now turn to examine whether JSW has established that there is a genuine dispute concerning the amount claimed to be due by Dacaro.  It was common ground that JSW retained Dacaro to assist it in obtaining “export credits” on motor vehicle components.  The fee to be paid was 20 per cent of the value of the export credits obtained.  The terms of the retainer, in particular those terms which defined the scope of the work to be undertaken by Dacaro, are far from clear and possibly derive from two sources.  The first is a conversation between by Mr. T.E. Jacob, the managing director of JSW and Mr. D.M. Gilmour, a director of Dacaro, which was dealt with in an affidavit sworn by Mr. Jacob.  The affidavit states that Mr. Gilmour agreed that Dacaro would “a.  take us [JSW] right through the claim (for export credits) including all preparation of documentation;  b.  liaise with customs;  c. find a purchaser for the credits”.  But it is also clear, or at least it appeared to be accepted by counsel appearing on behalf of JSW, that no agreement regarding those terms was reached between Mr. Jacob and Mr. Gilmour during this conversation.

The second possible source of the terms of the retainer is a letter Mr. Gilmour wrote to JSW soon after the conversation.  In it he asked for confirmation that the fee of 20 per cent of the value of the export credits would be paid and set out the work that would be performed to earn the fee in the following terms: “I will be responsible for all negotiations with the Australian Customs Service and the Department of Industry Science and Technology.  I will attend audits and promote your company in a way to maximise your sales, profitability, etc. and will keep you informed of any changes, or proposed changes to Government policy that may affect the interests of JSW Parts.”

On one view, the effect of the letter may have been to revoke any offer to perform the work described in the conversation.  On another view Mr Gilmour’s promise to undertake responsibility for all negotiations with the Australian Customs Service could be interpreted, having regard to the fact and contents of the conversation, as including the work described in the conversation other than the promise to find a purchaser for the export credits.

The identification of the precise terms of the retainer is of importance because the principal reason JSW denies liability to pay Dacaro any fee is its assertion that the export credits that it did obtain did not result from work that Dacaro had promised to perform.  I should make it clear that JSW did obtain export credits 20 per cent of the value of which is approximately $40,000, or at least so it was conceded for the purposes of the application.   JSW did accept that Dacaro attempted to perform some work in connection with the obtaining of those export credits but says that what little work Dacaro undertook was performed in a negligent or deficient manner.  For example, it is asserted that, at Dacaro’s suggestion, JSW adopted an incorrect format for its application for export credits and consequently had to rework the application at substantial cost.  It is also asserted that other procedures required to obtain export credits were not initially complied with because Dacaro had failed to advise JSW as to those procedures.  As a result, so it is said, unnecessary work was performed no doubt at significant cost to JSW.  The general tenor of the complaint, however, is that Dacaro did not perform the work as promised so as to entitle it to its fee.  If the facts alleged are true and the terms of the retainer include the work described in the conversation between Mr Gilmour and Mr Jacob, JSW may not be indebted to Dacaro.

In answer Dacaro makes two main points.  First, it says that JSW had made payments to it at the agreed rate in relation to export credits that had been obtained in the year 1995 and for some export credits that had been obtained for the years 1991 to 1994 (inclusive).  Those payments were made after its retainer had been terminated.  Secondly, it says that until the statutory demand was served, JSW had made no complaint about the manner in which Dacaro carried out its retainer.  It was submitted that these facts, the substance of which was not disputed, prevent JSW from asserting that a genuine dispute now exists.  As this argument runs, the conclusion to be drawn from JSW’s conduct is that the dispute is not genuine but manufactured purely to avoid winding up proceedings.

However, making payments apparently in pursuance of a contractual obligation and without complaint does not always amount to an admission that those payments were lawfully due or, so far as this case is concerned, that the work required to be performed by Dacaro had been performed adequately.  There may be other explanations.  Here we are dealing with relatively small sums of money.  A contracting party may be willing to pay a small sum in order to avoid more significant costs that would arise if a dispute arose and litigation followed.  It might be that JSW thought that paying the amounts it did, totalling some $21,000, would be the end of the matter.  Or it might be, as Dacaro contends, that it had earned its fee and that the payments made were in recognition of that fact. 

On the state of the material before the Court it cannot be said that the assertion by JSW that it is not indebted to Dacaro in the amount claimed is frivolous, vexatious or lacking in substance.  On the contrary, I am of the view that there exists a “genuine dispute” as to whether Dacaro is a creditor of JSW.

It follows that an order must be made that the statutory demand served by Dacaro on JSW on 24 April 1997  be set aside and that Dacaro pay the costs of this application.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein

Associate:       Helen Grutzner

Dated:            11 August 1997

Counsel for the Applicant:	M. Sifris
Solicitor for the Applicant:	Isakow, Solicitors 2/200 Queen St.  Melbourne. Vic. 3000.
Counsel for the Respondent:	C. Northrop
Solicitor for the Respondent:	GSM Lawyers 228 Smith St. Collingwood.  Vic. 3066.
Date of Hearing:	21 July 1997
Date of Judgment:	11 August 1997