New Environment v Ford

[2008] NSWSC 45

CITATION:	New Environment v Ford & Anor [2008] NSWSC 45
HEARING DATE(S):	04/02/08
JUDGMENT DATE :	8 February 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Macready AsJ at 1
CATCHWORDS:	Corporations Law. Application to set aside statutory demands under s459G of the Corporations Act. Whether defects in demand and affidavit in support. No genuine dispute established. Proceedings dismissed.
PARTIES:	New Environment Pty Ltd v Kerrie Ford and Wade Wyatt
FILE NUMBER(S):	SC 4881 of 2007
COUNSEL:	Mr S Philips for plaintiff Ms A Tsekouras for defendants
SOLICITORS:	Coleman & Greig for plaintiff Abadee Dresdner & Freeman Pty Limited for defendants

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

ASSOCIATE JUSTICE MACREADY

Friday 8 February 2008

4881 of 2007 NEW ENVIRONMENT PTY LTD v KERRIE FORD AND WADE WYATT

JUDGMENT

1 HIS HONOUR: This is application by the plaintiff to set aside two statutory demands issued by the first and second defendants. The demands were issued by the defendants in respect of their own separate debts alleged to be due by the company New Environment Pty Ltd which was formerly known as New Environment Management & Technology Pty Limited. The demand issued by Wade Wyatt was for $55,259.29 and that issued by Kerrie Ford was for $27,629.65. Both demands were dated 17 September 2007.

2 The defendants were previously shareholders in the company which is the plaintiff in the present proceedings. Prior to October 2004 Mr Wyatt held 50 ordinary shares and Miss Ford held 25 ordinary shares in the capital of the plaintiff company. Under a Share Sale Agreement made on 28 October 2004 they sold their shares to a company Heggies Australia Pty Ltd (“Heggies Australia”) for an aggregate purchase price of $1.1 million.

3 The Share Sale Agreement contained the usual provisions for agreements of this nature. The agreement also dealt with loans made by both defendants to the plaintiff company which were extant at the time of the purchase of the company by Heggies Australia. Clauses 11 and 12 of that agreement dealt with the repayment of the vendors’ loans. It is important to note the plaintiff company was not a party to the agreement of 28 October 2004. Those clauses are in these terms:

“11. Repayment of Vendors' Loan
11.1 The Vendors disclose and the Purchaser acknowledges that on the Completion Date the Company is indebted to -
(a) Wyatt in the sum of Ninety Nine Thousand One Hundred and Seventy Four Dollars Sixty Cents ($99,174.60) ("the Wyatt Loan"), and
(b) Ford in the sum of One Hundred Thousand Five Hundred Dollars ($100,500.00) ("the Ford Loan"), the Ford Loan including the sum of One Hundred Thousand Dollars ($100,000) lent to the Company by Ford on the Completion Date out of the First Instalment of the cash component of the Ford Share Purchase Price, which sum of $100,000 has been on-lent by the Company to the Purchaser on the Completion Date;
by way of loan funds provided by the Vendors to the Company ("the Vendors' Loans").

11.2 The Purchaser will obtain the repayment of the Vendors' Loans to the Vendors within two (2) years after the Completion Date.

( 11.3 The Purchaser and the Vendors agree that the Vendors' Loans (or so much thereof as shall from time to time remain outstanding) shall bear interest from the Completion Date until repayment at the rate of Ten per cent (10%) per annum accruing on daily balances and payable monthly in arrears.

12. Vendors' Indemnity in Respect of Tax Liabilities­
12,1 The Vendors hereby agree to indemnify the Purchaser in respect of any liability for income or other tax not paid or provided for by the Company (or any penalties or fines in respect thereof) arising in respect of any year up to 30th June 2004. and not paid or provided for at the date,-of this Agreement.”

4 A board meeting of the plaintiff company held on 28 October 2004 dealt with the terms of Miss Ford’s loan of $100,000 and provided that it was repayable within two years of 28 October 2004 and it was to carry certain interest. The amount was actually on lent to Heggies Australia repayable on demand.

5 The undisputed evidence was that at this time, namely, 28 October 2004 Mr Wade was owed $99,174.60 by the plaintiff company.

6 Shortly prior to the expiration of the two year period there was communication between Heggies Australia and the defendants in which it was noted that the amounts due would be paid to each of the defendants on the due date by being transferred to their accounts. On 25 October 2006 $49,287.86 was transferred to Mr Wade’s account and $75,947.19 was paid to Miss Ford also on the 25 October 2006 by way of bank transfer.

7 On 30 October 2006 after the time had expired for repayment of the loans a letter was received from Heggies Australia dated 25 October 2006 in which they suggested that there was a deduction pursuant to clause 12.1 of the Share Sale Agreement because the company’s accounts allegedly did not include provision for unpaid income tax up to June 2004. The short fall was the sharing between the two accounts of the liability of $75,971.30 in the appropriate proportions representing the shareholdings of the defendants. The letter went on in its conclusion to say:

“Subject to you and Mr Wyatt accepting the basis upon which we have apportioned the amount due under the indemnity, the above payment constitutes full and final settlement of the obligations of the Purchaser under the Agreement solely with respect to the Ford Loan.”

8 A similar concluding paragraph with necessary variations was included in the letter sent to Mr Wyatt. Plainly, Heggies Australia sought to deduct an amount which it alleged it was entitled to recover under the indemnity contained in clause 12.1. In respect of this purported deduction pursuant to the indemnity there clearly is an issue between the parties as to whether or not there was the appropriate provision by the company in respect of the tax liabilities and whether it was disclosed to the purchaser. That dispute is no doubt a genuine dispute on the evidence before me but it is only, of course, a dispute in respect of the claim for an indemnity under clause 12.1.

9 It will be seen from clause 11.2 which I have set out above that this is in the nature of a guarantee or separate covenant to ensure the repayment of the plaintiff company’s indebtedness to the two defendants.

10 The plaintiff submits that there are defects in statutory demands and the affidavits and that there is also a genuine dispute.

11 I turn to consider the defects in the statutory demands. The demands in each case are in the same form apart from the different amount depending upon which defendant issued the demand. The defects in the demand centred upon the description of the debt in the schedule to the demand. In the demand made by Mr Wyatt that was in the following form:

Description of the debt Unpaid repayment of Vendor Loan under the ‘Share Sale Agreement’ of 28 October 2004 between the company and the Creditor plus accrued interest. Total amount of the debt $55,259.29.”

12 Thereafter there followed a schedule showing an amount unpaid and interest with a total amount.

13 A defect is defined in s 9 of the Corporations Act in relation to a statutory demand as including:

“(a) an irregularity; and
(b) a misstatement of an amount or total; and
(c) a misdescription of a debt or other matter; and
(d) a misdescription of a person or entity.”

14 It was submitted that there was a misdescription of the debt or other matter given that the demand was addressed to the plaintiff company which was the company that owed the debt under the original agreement for loan. This was not what was referred to in the description I have set out. In effect it was suggested that the description was referring to the obligation of the purchaser under the sale agreement to obtain repayment in terms of clause 11.2 of the Share Sale Agreement. It was pointed out that any failure to make repayment under the Share Sale Agreement cannot give rise to a debt by the plaintiff to either of the defendants as the plaintiff was not a party to the Share Sale Agreement. Although the description of the debt in the statutory demand could in strict terms by use of the word “under” refer to the obligation to guarantee the repayment of the company loan, it could also arguably be merely a reference to what was described in the sale agreement as vendors’ loans. In other words it was identifying where a reference to those loans would be found. When one looks at clause 11 there is plainly a proper reciting of what was there described as “vendors’ loan”.

15 Any application to set aside on the basis of this defect would be under s 459J(1)(a) of the Corporations Act and it is necessary for the applicant to establish that substantial injustice will be caused unless the demand is set aside.

16 There is no evidence of the substantial injustice. Plainly in the correspondence which ensued the plaintiff was well aware which loans were the subject of the demands. For these reasons I am not satisfied that the demands should be set aside because of the defects arising from the description of the relevant debt. Reference was made in the course of submissions to AR Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 at [29-32] where Barrett J had the following to say:

“29. It has been said more than once that the purpose of a statutory demand is to put the relevant company fairly and squarely on notice of what it must pay in order to satisfy the debt of the party serving the demand. The demand must be unambiguous; it must leave the recipient in no doubt as to the course that should be taken. Where ambiguity exists within a statutory demand, such as to produce doubt in the mind of any reasonable reader as to the course that must be taken in order to avoid a situation where the statutory presumption of insolvency is created, the demand is defective as contemplated by s.459J(1)(a). These matters are made clear in, among other cases, Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226 and Spencer Constructions Pty Ltd v D & M Aldridge Pty Ltd (1997) 76 FCR 452.

30 Section 459J(1)(a) contemplates that a demand may be set aside if the court is satisfied that there is “a defect in the demand” and that, because of the defect, “substantial injustice will be caused unless the demand is set aside”. It is on this ground that the plaintiff relies in relation to this demand. The term “defect” is defined for this purpose in s.9 as including “a misstatement of an amount or total” and “a misdescription of a debt or other matter”.

31 Given the conflicting figures in this statutory demand (and the fact that paragraph 1 wrongly asserts that an amount of $6,486 is described in the schedule), it is, to my mind, clear that it contains a defect within one or both of the descriptions in the definition.

32 As to the question of substantial injustice, the position is that the plaintiff has paid the smaller of the two amounts referred to in the demand, being the amount that is consistent with the prior correspondence and the understanding of the position that was engendered on the part of the plaintiff by the defendant’s solicitors. For a company that has taken that course in the particular context to be exposed to the possibility of an adverse presumption for the purposes of winding up proceedings, unless it pays some unexplained balance not dealt with the prior correspondence, would clearly be a source of substantial injustice.”

17 The case before His Honour was substantially different from the present one on the facts in that in His Honour’s case the company receiving the demand had paid a lesser amount and because of the difficulties with the nature of the demand it did not know how much it might have to be paying.

18 I turn to the question of the defects alleged in respect of the affidavit in support of the demand.

19 The affidavit plainly did not follow the prescribed form under the rules and was in these terms:

”Form 62 (version 2) Rue 35.1
AFFIDAVIT OF DEBT By Wade Wyatt 17 September 2007

This Affidavit is affirmed in verification of the debt to Wade Wyatt by New Environment Pty Ltd ABN 31 003 980 676 of Registered Office Level 2, 2 Lincoln Street, Lane Cove NSW 2066. The total amount of the debt owed to Wade Wyatt $55,259.29 and is due and Payable as stated in the accompanying Letter of Statutory Demand dated 17 September 2007.

Address for Service
C/O Kerrie Ford, Getex Pty Ltd, Suite 2.02 Building 2, 35 Waterloo Road, North Ryde 2113

Filed for Wade Wyatt
Address 6 Milford Place Turramurra NSW 2074
AFFIDAVIT DETAILS

Name Wade Wyatt
Address 6 Milford Place Turramurra NSW 2074 Occupation Consultant
On 17 September 2007, 1 affirm
1. I believe that the information contained in this affidavit is true
AFFIRMED
…..”

20 The affidavit then goes on to continue the affirmation clause and the witnessing of it by a Mr John Field JP.

21 The next document which part of the bundle served was in these terms:

“Attachment to Affidavit of Debt
The debt is referred to in a document called "Share Sale Agreement" dated 28 October 2004, in which "the Company" is defined as New Environment Management & Technology Pty Ltd, ACN 003 980 676, this company now being named New Environment Pty Ltd. In this document Wade Wyatt is identified as a Vendor and Heggies Australia Pty Ltd, now Heggies Pty Ltd, as the Purchaser.

New Environment Pty Ltd continues to exist as a separate company with a different Board than that of Heggies Pty Ltd, see attached page from Heggies website dated 14/09/2007.
Item 11 of the document states that "the Company is indebted to Wyatt by way of loan funds provided by the Vendors to the Company....

The Purchaser will obtain repayment of the Vendors' Loans to the Vendors within two (2) years ...".
An amount of $99,935.39 was calculated to be payable to Wade Wyatt as at 28 October 2006. An amount of $50,647.53 was deducted from the amount of loan repayment due from New Environment Pty Ltd to Wade Wyatt. This amount was arbitrarily deducted by New Environment Pty Ltd as a disputed set-off claimed by Heggies Pty Ltd, a separate Company, and not as an amount claimed by New Environment Pty Ltd. The disputed amount claimed by Heggies Pty Ltd cannot be deducted as a set-off from a debt owed by New Environment Pty Ltd.

The short payment of the loan caused the amount of $50,647.53 to be in default by New Environment Pty Ltd as at 28 October 2006.

Correspondence with the Solicitors for both New Environment and Heggies about their Clients' dispute of the debt produced a reply as to why Heggies disputed the debt, but was conspicuously silent on any dispute by New Environment of the debt. There is no basis to believe there is any genuine dispute by New Environment of the debt.”

22 That document was signed by Mr Wyatt and was identified by Mr John Field JP as an annexure to the affidavit of Wade Wyatt dated 17 September 2007.

23 The plaintiff raised the construction of what was meant by the statutory demand because of the description of the debt in the affidavit of debt which I first quoted. Plainly when referring to a letter of statutory demand dated 17 September 2007 the affidavit is referring to the actual statutory demand which was the previous document to which it was attached. In the circumstances where I have found that there is no substantial injustice I do not see that it is appropriate to decide on this ground in respect of the affidavit. A more serious question is one which is whether the affidavit in fact includes a statement there being no genuine dispute about the debt which appears in the last line of the last paragraph of the attachment.

24 In B&M Quality Constructions v Buyrite Steel Supplies (1995) 13 ACLC 88 McLelland CJ in Eq referred to the importance of affidavits including the requirement that the deponent express his belief as to the absence of any genuine dispute about the existence or amount of the debt. At page 90 he said the following:

“In my opinion the departure from the relevant rule in respect of the affidavit accompanying the statutory demand is a matter of substance. The requirement of that rule, as to the identity of the person making the affidavit accompanying the statutory declaration, is designed to serve the public interest as well as to protect the company against unwarranted demands, by endeavouring to ensure, within practical limits, that the person who must put his or her oath or solemn affirmation to the relevant matters (and thereby risk a conviction for perjury if a knowingly false statement is made) is the person associated with the creditor who is most likely to have direct knowledge of those matters. It is important in this regard to bear in mind that the relevant matters include not only a belief as to the existence and amount of the debt, but also a belief as to the absence of any genuine dispute about the existence or amount of the debt. The express requirement in the rule that the person making the affidavit depose to his or her belief that there is no genuine dispute is a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent such cases from reaching the court on such an application as the present, with a consequent waste of time and resources. This mechanism would be substantially weakened unless a person likely to have personal knowledge of the existence of a dispute if there is one makes the affidavit. A statement of a belief that there is no genuine dispute based solely on hearsay is unlikely to have anything like the same degree of reliability. I therefore do not regard what has occurred in the present case as a merely technical breach of the rules. It goes to the heart of what Pt 80 a r 15 was intended to achieve.”

25 The real question in this case is whether the affidavit does include the statements which are referred to in the attachment to it. I point out that there is another attachment which is merely attaching some company document to it which is also identified by Mr Field JP. If the attachment is part of the affidavit then plainly there is evidence in the affidavit of the fact that there was a belief that there was no dispute as to the debt.

26 In the circumstances it seems to me that as the attachment has been identified by Mr Field JP as an annexure to the affidavit and Mr Wyatt has actually signed it, there has been an attempt to effectively comply with the terms of the prescribed affidavit.

27 In these circumstances I do not think that there is a sufficient defect in the affidavit to warrant the setting aside of the application under s 459J(1)(b).

28 I turn to the whether there is a genuine dispute.

29 I had the benefit of having a number of submissions in respect of the principles to be applied and I think the most useful summation of what is a genuine dispute 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 in respect of the expression "Genuine dispute":

"It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s.459H. 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."

30 The plaintiff suggests that there are four bases on which there might be a genuine dispute in respect of the subject debt. The first assumes that the debt with which we are concerned is that payable pursuant to the Share Sale Agreement which obligation under 11.2 was an obligation of Heggies Australia rather than the plaintiff company. In my view it is plain that what the defendants are seeking to recover is the debt which is due by the plaintiff company to whom they lent the money.

31 The second basis is that it is submitted that the debt was repaid in full in October 2006. This is on the basis that the plaintiff says that the amount was repaid less the deduction under clause 12.1 of the Share Sale Agreement and if the defendants were not prepared to settle on that basis they should have returned the funds.

32 The first matter to note about this is that the defendants were not given the option of knowing the terms of payment because it was not put to them until after the payment was made.

33 The second thing is that the letter which followed the payment was really only purporting to conclude the rights which Heggies Australia had in respect of the indemnity which they had given. It did not purport to effect the debt due by the plaintiff company.

34 The third basis for suggesting that there was a genuine dispute is that there was a dispute on the evidence that the details of the tax disclosure were not provided prior to completion of the Share Sale Agreement. Plainly there is a genuine dispute on this aspect but it is a dispute as I have earlier indicated as to the indemnity given under clause 12.1. It is not a dispute as to the liability as between the plaintiff company and the defendants who had lent their money.

35 The fourth matter was that it was suggested that the defendants disputed that the plaintiff was entitled to any benefit from the indemnity with respect to undisclosed tax liability. I do not follow this as it is merely a restating of the third proposition.

36 It is to be remembered that the debts claimed in the statutory demands are debts due between the defendants and the plaintiff company. There is plain evidence in the minutes of the company as to the existence of the debt and the terms upon which it is repayable in respect of Miss Ford and that is not sought to be challenged. There is also plain evidence which is not challenged that at the time of the Share Sale Agreement Mr Wyatt was owed the amount he was then owed.

37 In these circumstances it seems to me that there is no genuine dispute.

38 I dismiss the proceedings. I order the plaintiff to pay the defendants’ costs.

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