Korean Group Pty Ltd v Cho Han Management Pty Ltd (in Liquidation) - [2008] SASC 137

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
KOREAN GROUP PTY LTD v CHO HAN MANAGEMENT PTY LTD (IN LIQUIDATION)
[2008] SASC 137
Reasons of Judge Burley a Master of the Supreme Court
22 May 2008
CORPORATIONS
Application to set aside statutory demand - defendant/creditor trustee of trading trust - incurred debts in course of trading - plaintiff liable to indemnify defendant - whether debts incurred in capacity of trustee - alleged genuine dispute not established - application dismissed.
Corporations Act 2001 Sections 459G and 459H, referred to.
Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787; John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; Eng Mee Yong v Letchumanan (1989) AC 331 at 341; South Australia v Wall (1980) 24 SASR 189 at 194, considered.

KOREAN GROUP PTY LTD v CHO HAN MANAGEMENT PTY LTD (IN LIQUIDATION)
[2008] SASC 137

JUDGE BURLEY: By originating process filed on 14 January 2008 the plaintiff has applied for an order setting aside a statutory demand dated 21 December 2007 served by the defendant upon the plaintiff. The plaintiff contends that there is a genuine dispute in relation to the alleged debt.
A copy of the statutory demand is exhibited to the affidavit of Mr Han sworn on 14 January 2008 (Exhibit KJH 2). It was accompanied by an affidavit of Mr George Divitkos, sworn on 21 December 2007. Paragraphs 7.1 to 7.6 of the affidavit are as follows:
7.1The Creditor [defendant] was the trustee of the Korean Property Trust by virtue of a Trust Deed dated 18 April 2006 whereby Andy Choi as Settlor of the trust appointed the Creditor as trustee (‘Trust Deed”),
7.2That Mr Ki Jun Han is the sole specified beneficiary of the Korea Property Trust.
7.3On 22 January 2007, Mr Ki Jun Han, the Appointee named under the Trust Deed, removed the Creditor as the trustee of the Korea Property Trust and appointed the Debtor company [plaintiff] as the new trustee pursuant to a “Deed of Retirement and Appointment of a New Trustee” dated 22 January 2007)”Deed of Retirement. The Deed of Retirement is an agreement between Ki Jun Han as Appointor for and on behalf of the Korea Property Trust, and the Debtor company. Now shown to me and exhibited hereto and marked D4’ is a true copy of the Deed of Retirement.
7.4Under Clause 22 of the Trust Deed, the Appointor is authorised and empowered to remove a trustee of the Korea Property Trust and to appoint a new trustee in its place, at his discretion.
7.5Pursuant to clause 5 of the Deed of Retirement, the Debtor company agreed to indemnify and hold harmless the Creditor in respect of any and all claims, costs and liabilities whether actual or potential which may arise against the Creditor in its capacity as trustee of the Korea Property Trust.
7.6The creditor had incurred the following debts in its capacity as trustee for the Korea Property Trust which the debtor company [the plaintiff] agreed to indemnify the creditor for, in accordance with the terms of the deed of retirement.:
(a)On or about 26 September 2006 the Creditor in its capacity as trustee of the Korea Property Trust (as lessee) entered into a lease with The Tribune Pty Ltd (as lessor) in respect of premises at 30 North Terrace, Kent Town in the State of South Australia. The Creditor defaulted under the said lease and an amount of $231,971.23 was claimed by The Tribune Pty Ltd under the Lease. This ultimately resulted in The Tribune Pty Ltd obtaining orders on 29 May 2007 from the Supreme Court of South Australia to place the Creditor into liquidation. Now shown to me and exhibited hereto and marked with the letters “GD5” is a true copy of The Tribune Pty Ltd’s proof of debt lodged in the liquidation of the Creditor.
(b)On or about 8 December 2006 a loan application fee liability was incurred to Golden Gate Funding in the amount of $2,308.23. Now shown to me and exhibited hereto and marked with the letters “GD6” is a true copy of the proof of debt lodged by Golden Gate Funding in the liquidation of the Creditor.
(c)Prior to 22 January 2007 a legal fee liability was incurred to Cowell Clarke Lawyers which resulted in judgment being entered against the Creditor in the amount of $4,168.85 plus interest and costs. Now shown to me and exhibited hereto and marked “GD7” is a true copy of the judgment obtained by Cowell Clarke.
Sections 459G and 459H of the Corporations Act 2001 are material. The former provides that a company may apply for an order setting aside a statutory demand. The latter provides that where the Court is satisfied that there is a genuine dispute, the provisions of s 459H apply. By virtue of s 459H(2) the Court must calculate the substantiated amount of the demand in accordance with a formula: admitted total - offsetting total. The terms “admitted total” and “offsetting total” are defined. The plaintiff’s argument is confined to whether or not there is genuine dispute and therefore the provisions relating to an offsetting total do not apply. Because the statutory demand consists of a total of three debts, “admitted total”, if it is established, means the total of the respective admitted amounts of the debts.
S 459H(3) provides:
If the substantiative amount is less than the statutory minimum, the Court must, by order, set aside the demand.
The statutory minimum is $2,000.
The term “admitted amount” contained in the definition “admitted total” is itself defined by s 459H(5) as follows:
Admitted amount, in relation to a debt, means:
(a)If the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt – a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt – so much of that amount as the Court is satisfied is not the subject of such a dispute; …..
Because, for reasons which I shall state later, I am satisfied that the second and third components of the overall debt, amounting to $6,477.08, are not the subject of a genuine dispute and exceed the statutory minimum, the statutory demand will not be set aside, but it may be reduced pursuant to s 459H(5)(b) if the plaintiff establishes that there is a genuine dispute in relation to the first component of the debt, namely the sum of $231,971.23. It will not be necessary for me to consider whether part only of that amount is genuinely disputed because the plaintiff’s argument was advanced on the basis that the whole of the debt was genuinely disputed by the plaintiff; no argument was put in the alternative that only part of the debt was the subject of a genuine dispute.
The plaintiff asserts that a genuine dispute exists in relation to its liability to indemnify the defendant in respect of each of the three debts referred to. Most of the argument was devoted to the alleged debt referred to at paragraph 7.6(a) of Mr Divitkos’ affidavit.
The Case Law
Both parties referred to the decision of the Full Court in Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103 )where Debelle J, with whom the other members of the Court agreed, said (at [14]):
The question what is meant by the expression “genuine dispute” has been frequently considered. The expression denotes a plausible contention requiring investigation, raising similar considerations to the requirement of a serious question to be tried which arises on an application for an interlocutory injunction: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787, Full Court per McLelland CJ in Eq. As Young J said in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253:
It is clear that what is required in all cases is something between mere assertion and a proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt.
On the other hand, if proof of a claim was required, then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court. What more than assertion is required is something that may differ from case to case.
The question whether there is a genuine dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of the dispute are real and not spurious, hypothetical or misconceived: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464.
The defendant also referred to Eyota (supra) where McLelland CJ in Eq, having referred to the concept of a plausible contention, said (at 787):
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.
It was submitted by Mr Livesey QC, counsel for the defendant, that the evidence relied upon by the plaintiff was “equivocal, lacking in precision, inconsistent with undisputed contemporary documents ….. [and] inherently improbable”.
The Facts
In his written submission, Mr Livesey provided a “Chronology of Key Events” which summarised the affidavit evidence concerning the events leading to the defendant’s service upon the plaintiff of the statutory demand. Most of the following summary is taken from paragraph 10 of Mr Livesey’s written submission. I shall identify the material disputes of fact.
From 2006 the defendant’s sole director was Ms Yang Suk Han. Her brother, Mr Ki Jun Han was the secretary of the defendant. The defendant was the trustee of the Korea Property Trust until 22 January 2007.
On 24 March 2006 the defendant offered to lease part of certain premises at 30 North Terrace, Kent Town from a company called The Tribune Pty Ltd. Mr Han wanted to set up and conduct a Korean Market at those premises. According to the defendant, the offer to lease the premises was made by the defendant in its capacity as trustee of the Korea Property Trust. This is apparent from the affidavit of Mr Gaetjens, sworn on 19 March 2008, paragraph 12. Mr Han, whose affidavits were filed in support of the application to set aside the statutory demand, denied that there were any dealings between The Tribune Pty Ltd and the defendant in its capacity as trustee of the Korea Property Trust. The plaintiff’s case was that such dealings were conducted by the defendant either in its own right (that is, not as a trustee) or, alternatively, as trustee for another trust called the Han Family Trust.
The dispute between the parties is principally a factual dispute. It is by reference to the facts that a determination must be made whether the plaintiff’s case gives rise to a plausible contention which requires investigation. If it does, a genuine dispute exists. However, if in deciding what conclusions may be drawn from the facts it is clear that they do not give rise to a plausible contention, it cannot be said that a genuine dispute has been demonstrated by the plaintiff. I say “conclusion” to be distinguished from “finding”. It is not my function on an application such as this to make final findings of fact, but I must examine the evidence to see if it is possible to conclude that the plaintiff’s contention that the defendant contracted in its own right or on behalf of another trust is plausible and requires investigation.
The onus is on the plaintiff to demonstrate that its contention is plausible . There is only Mr Han’s assertion that the defendant contracted in its own right or as trustee for another trust. The defendant’s evidence concerning the dealings between the defendant and The Tribune Pty Ltd is, to some extent, equivocal. The actual lease entered into does not state that the defendant as lessee entered into the lease either in its own right or on behalf of the Korea Property Trust or on behalf of another trust. It appears that some of those who acted on behalf of the defendant either assumed or were instructed that the defendant was acting in its capacity as trustee of the Korea Property Trust. I shall return to this aspect of the matter. More importantly, after the lease was entered into, it is apparent from the documentation exhibited to various affidavits that the defendant sought short-term finance so as to operate a Korean Market from the leased premises in Kent Town. A loan application for $400,000 was made by the defendant in its capacity as trustee of the Korea Property Trust. Mr Han signed the loan declaration on behalf of the defendant in its capacity as trustee of the Korea Property Trust. A property at Modbury, owned by the defendant in its capacity as trustee of the Korea Family Trust was offered as security for the loan.
An additional finance application was made in December 2006 to a different financier. It is apparent that the application was made by the defendant in its capacity as trustee of the Korea Family Property Trust. This application proceeded to the point of documentation and the incurring of legal fees.
The debts referred to in paragraph 76(b) and (c) of Mr Divitkos’ affidavit are debts which arose in relation to the applications for loan funds. The applications were clearly made by the defendant in its capacity as trustee of the Korea Property Trust. It is for that reason that I consider that no genuine dispute has been demonstrated by the plaintiff in relation to those two aspects of the statutory demand.
I have mentioned that persons acting for the defendant proceeded at least on the assumption if not an instruction that the defendant was acting in its capacity as trustee of the Korea Property Trust. One such piece of evidence is a proposed unsigned letter, a copy of which is Exhibit “KG2” to the affidavit of Mr Gaetjens, sworn on 19 March 2008. That letter came to Gaetjens from Mr Brian Mortimer who, the evidence discloses, had acted on instructions from Mr Han. The draft shows that the proposed letter was intended to be signed by the defendant as trustee for the Korea Property Trust. I infer that Mr Mortimer drafted this letter which is evidence that the defendant, in its dealings with The Tribune Pty Ltd, was acting in its capacity as trustee for the Korea Property Trust. According to Mr Gaetjens he received the copy letter on 24 March 2006.
The proposal contained in that letter was not accepted by The Tribune Pty Ltd but negotiations continued. There was thus at an early stage an indication that, contrary to the assertion of Mr Han, the defendant was acting as trustee of the Korea Property Trust in its dealings with The Tribune Pty Ltd. In my opinion, this position is confirmed by the subsequent applications for finance undertaken by the defendants in its capacity as trustee of the Korea Property Trust after the lease was signed. The evidence adduced on the application, including Mr Han’s own evidence about the setting up of the companies as trustees for various trusts, indicates that there was an intention to use those companies as trustees of trading trusts by which Mr Han and his sister would pursue business in Australia. For this reason, I agree that the assertions of Mr Han that the defendant was acting either in its own right or on behalf or as trustees of another trust are unsubstantiated. In addition, they are inconsistent with undisputed contemporary documents (the two loan applications). They are also inherently improbable.
It was not disputed that, if the defendant incurred the obligations referred to in paragraph 7.6 of Mr Divitkos’ affidavit in its capacity as trustee of the Korea Property Trust, the defendant was able to recover these costs from the plaintiff pursuant to the Deed of Retirement referred to in the evidence.
For the above reasons I consider that the plaintiff has failed to establish that the debts claimed by the defendant are genuinely disputed. In particular, the plaintiff has failed to raise a plausible contention requiring investigation. For these reasons the plaintiff’s application will be dismissed.