Royal Premier Pty Ltd v Taleski - [2001] WASCA 48

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE FULL COURT (WA)

CITATION: ROYAL PREMIER PTY LTD -v- TALESKI [2001] WASCA 48

CORAM: MALCOLM CJ
IPP J
WALLWORK J

HEARD: 22 SEPTEMBER 2000

DELIVERED : 28 FEBRUARY 2001

FILE NO/S: FUL 53 of 2000

BETWEEN: ROYAL PREMIER PTY LTD
Appellant
AND
CANE TALESKI
Respondent

Catchwords:

Corporations Law - Application to set aside statutory demand - Whether offsetting claims pursuant to s 459H - Held, the Master correctly held that the evidence did not demonstrate an offsetting claim

Legislation:

Corporations Law (Cth), s 459H

Rules of the Supreme Court 1971 O 37 r 6(2a)

Result:

Appeal dismissed

Representation:

Counsel:

Appellant: Mr C P Stokes
Respondent: Mr A Metaxas

Solicitors:

Appellant: Chris Stokes & Associates
Respondent: Arthur Metaxas & Co

Case(s) referred to in judgment(s):

Automatic Fire Sprinklers v Watson (1946) 72 CLR 435
Goldspar Australia v KWA Design Group (1999) 17 ACLC 456
Heyman v Darwins Ltd [1942] AC 356
Turner Corporation WA Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294
Universal Greening Pty Ltd v Sabine & Anor (1999) 17 ACLC 880

Case(s) also cited:

Brown v Jam Factory Pty Ltd (1981) ATPR 40-213
Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporises Pty Ltd (1994) 13 ACSR 37
Eden Vale Pty Ltd v Bennett & Co, unreported; SCt of WA; Library No 970533; 23 January 1997
Eyota Pty Ltd v Hanabe Pty Ltd (1994) 12 ACSR 785
Gates v City Mutual Life Assurance Society Ltd (1986) ATPR 40-666
Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1
Kashemije Stud Pty Ltd v Hawkes (1978) 1 NSWLR 143
Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555
Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062
Moriarty v Regent's Garage [1912] 2 KB 766
Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919
Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451

MALCOLM CJ : This is an appeal against an order made by Master Sanderson dated 10 March 2000 by which the learned Master dismissed an application by the appellant to set aside a statutory demand made by the respondent. The application was made pursuant to s 459G of the Corporations Law. The application fell to be determined under s 459H and was made on alternative grounds. First, the appellant said that there was a genuine dispute about the amount claimed in the demand. Alternatively, it was contended by the appellant that it had an offsetting claim greater than the amount of the demand and that the demand should therefore be set aside under s 459H(3).
The demand was served on the applicant on 24 December 1999. The application to set aside the demand was filed on 17 January 2000. The application was supported by an affidavit of one Li Chien (Terrence) Chan sworn 14 January 2000. Throughout his reasons the learned Master referred to the latter as "Li Chien" and I shall do the same. The respondent swore an affidavit in opposition to the application dated 7 February 2000. The applicant then filed a further affidavit by one Cheng Kwee (Albert) Chan (referred to as "Albert Chan") sworn on 25 February 2000. These three affidavits form the evidence which was before the learned Master.
On 20 March 1998 the respondent and Albert Chan entered into an agreement in relation to the appellant and its business undertakings. The agreement was described as a "Deed of Purchase of a Controlling Interest in Royal Pty Ltd". The latter was a misdescription of the name of the appellant company. No issue arises out of this. I will refer to the Deed as "the purchase agreement".
The company was engaged in the business of the construction of replica sports cars and the manufacturing of stretch limousines. The respondent was the sole director and shareholder of the company. He was desirous of obtaining a capital injection to expand its manufacturing and production facilities, and increase its market penetration both within Australia and for the export market. It was recited in the purchase agreement that Li Chien was desirous of injecting the requisite capital in return for a controlling interest in the company, and that he was to be appointed as a director of the company.
The purchase agreement went on to specify the terms and conditions upon which Li Chien would inject capital into the company. Clause 12 set out the duties and responsibilities of the respective directors of the company, including the respondent. Clause 13 provided for the remuneration of the directors. The respondent was to receive $3,000 per month for "carrying out of the duties and responsibilities as a full‑time working director".
The statutory demand was for an amount of $17,500 said to be for:
"Moneys owed by the company to the [appellant] in respect of salary owing to the [appellant] pursuant to an agreement between the [appellant] and the Debtor … for the period 1 May 1998 until 1 February 1999 in respect of which the sum of $17,500 remains outstanding."
The amount of the claim represented the balance owing to the respondent, who said that for a period of nine months in respect of which salary was payable at the rate of $3,000 per month he had not received the full amount of $27,000, but had been paid only $9,500, leaving a balance of $17,500 outstanding. The learned Master noted that there was no dispute between the parties regarding the validity of the agreement and there was no suggestion that the agreement did not accurately reflect the bargain reached by the parties.
In his affidavit Li Chien set out the background which led to the agreement and said in par 9 that, prior to March 1999, the respondent represented to Albert Chan that each Ford Fairlane Limousine "would cost $30,000 to purchase and stretch". It is alleged that this representation was made prior to the agreement being concluded and was relied upon when Albert Chan entered into the agreement with the respondent. As to this evidence the learned Master said:
"In an application to set aside a statutory demand statements of information and belief are permissible because the application is considered interlocutory in nature: see Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062 per Hayne J at 1067. But it is incumbent upon a party making statements of information and belief to set out the sources or grounds of that information or belief: see O 37 r 6(2a). That has not been done in par 9 of Li Chien's affidavit and it is a problem which bedevils much of the evidence contained in both affidavits relied on by the applicant. It can perhaps be inferred that Li Chien was told about the negotiations prior to the agreement by Albert Chan who is his father. But if that is the case, there should have been a statement to that effect in the affidavit."
The affidavit went on to say that in July 1998 the respondent drew up a business plan for the company, a copy of which is exhibited to Li Chien's affidavit. Li Chien says in par 11 that in preparing the business plan the respondent represented that he had the skill and experience to ensure fulfilment of it. The appellant then alleges that the respondent was in breach of a number of his duties and responsibilities. The details are set out in par 13 of Li Chien's affidavit. They were summarised by the learned Master as follows:
"First, it is said the defendant was in breach of cl 12 of the agreement because the work on stretching two limousines was behind schedule and no other work had been commenced. Second, it is said that the budgeted cost of $30,000 for the manufacture of a stretched Ford Fairlane limousine had blown out to an actual cost of $92,670.45. Thirdly, it is said that licensing approval had not been obtained for three partly manufactured limousines and one limousine which was completed was being improperly used. Fourthly, it is said that the defendant abused his position as a director of the company to assist a third party in relation to immigration matters and, in particular, by offering the individual an occupational traineeship. Finally, it is said that the defendant did not work full-time as a director of the applicant because he was a director and/or shareholder of five other companies. It is said that these matters, collectively or individually, mean the respondent is not entitled to his agreed remuneration or is liable to the applicant in damages."
Having set out the material in the supporting affidavit, the learned Master went on to say:
"Based upon this affidavit, it is very difficult to ascertain what case is being put against the respondent. It is said that there is a genuine dispute as to the respondent's entitlement to remuneration. There is no dispute that the respondent was employed by the applicant for the period between 1 May 1998 and 1 February 1999. Prima facie, then, he is entitled to be paid for that period. It might perhaps be argued that the respondent's entitlement would fall away if there was total failure of consideration - that is, if the respondent had done nothing in relation to the applicant's business. But that is not suggested by Li Chien's affidavit. What is suggested is that the respondent carried out his duties either in breach of the agreement, or negligently, or in some way which led to loss and damage to the applicant. In other words, the applicant says that it has an offsetting claim. It might be argued that, as the respondent was a director of other companies, he was in some way in breach of his fiduciary duties as a director of the applicant. Even assuming that this breach of fiduciary duties could disentitled [sic] the respondent to remuneration under the contract, the allegation is entirely lacking in detail. If it can be established that the respondent, while a director of the applicant, was engaged in a business which was in competition with the applicant then he would be liable to account to the applicant for any profits: see Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1. But the mere fact the respondent is a director of five corporations which may or may not be in competition with the applicant is no basis for denying the respondent remuneration under the agreement.
Under s 459H(2) a formula is provided for calculation of what is the substantiated amount of the statutory demand. This in turn requires that a figure be put on any 'offsetting total'. It is not possible, based on Li Chien's affidavit, to ascertain what, if any, amounts comprise what the applicant says is the offsetting total. For instance, it is said that the cost of the manufacture of the stretched Ford Fairlane was budgeted at $30,000 and blew out to $92,670.45. Assuming that to be the case (and there is no supporting documentation at all provided by the applicant), it does not automatically mean that the applicant has a claim against the respondent for $62,670.45. Such a claim would only arise if it could be established that the cost blow out was the result of a breach by the respondent of the agreement or was due to his negligence. Li Chien's affidavit provides no basis for reaching such a conclusion."
Clause (13) of the contract expressly provided that:
"For the carrying out of the duties and responsibilities of a full‑time working director [the respondent] shall receive monthly remuneration initially set at AUD$3,000 which shall be reviewed when the Company commences generating profits."
It was not suggested that the respondent did not work full‑time as a director during the relevant period. Counsel for the appellant made it clear that it was contended that the respondent's performance was incompetent or negligent, such that he was not entitled to payment. Reliance was placed on Automatic Fire Sprinklers v Watson (1946) 72 CLR 435 for the proposition that it was performance of the work which he was employed to do that entitled an employee to remuneration. There was a counterclaim for damages based upon a contention that the respondent had not substantially performed his obligations under the employment contract. In this respect, the effect of the Automatic Fire Sprinklers case is that wrongful dismissal of an employee is a breach of the contract of employment which entitles the employee to treat the contract as discharged and sue for damages for breach: Heyman v Darwins Ltd [1942] AC 356. Notwithstanding the fact that the dismissal is wrongful, it determines the contract. The employee, however, can sue for remuneration earned but not paid and damages for wrongful dismissal.
It was contended on behalf of the appellant that the respondent's right to be paid his salary was conditional upon him performing his duties as an employee without negligence. There is no provision in the contract to that effect and it was but faintly argued that such a provision should be implied. There is no basis for the implication of such a provision.
Counsel for the appellant informed the Court that the reasons why the respondent was only paid $9,500 out of a total entitlement of $27,000 was not the subject of any evidence. In other words, there was no evidence why the respondent was not paid the full amount during the period he was employed. There was evidence by Albert Chan in his affidavit in reply that he was extremely dissatisfied with the progress and manufacture of the stretch limousines and that it was for that reason that he invited the respondent, as one alternative, to tender his resignation. The respondent refused to do so, but did not in fact carry out further work for the appellant after 1 February 1999. In particular, there was no evidence that the respondent was not paid the full amount due to him on account of wages prior to January 1999 because of any inability of the company to make payment.
Li Chien says in his affidavit in par 9 that:
"Prior to the March 1998 agreement [the appellant] represented to my father that [he had been] carrying out the duties and responsibilities described in paragraph 7 above for some time in his role as managing director of [the company] and that he had the skill and experience to carry out these duties. He also represented that each Ford Fairlane Limousine would cost $30,000 to purchase and stretch. [The company] relied on this representation, which was of continuing effect, in agreeing to employ him in May 1998."
Li Chien went on to say that, in July 1998, as part of his duties and responsibilities, the appellant prepared a business plan for the company which relevantly provided that:
"(a)one limousine was nearing completion by the end of July 1998 for the local market.
(b)a Mercedes 300 SEL limousine for export would be completed by August 1998.
(c)two more limousines would be completed by October 1998.
(d)manufacture of custom built sports cars would commence by October 1998.
(e)[the company] would manufacture 10 stretch limousines in it's first year of manufacture at a sale price of $40,000 each and 5 kit sports cars at a sale price of $25,000 each."
It was also said that in preparing the business plan on behalf of the company, the respondent represented that he had the skill and experience to ensure the fulfilment of the plan. It was also said that the company relied on this representation in continuing to employ the respondent from July 1998 onwards. It was not suggested, however, that the respondent would not have been paid, but for his representations.
It is said, however, that by January 1999 when the respondent was invited to resign, he was in breach of a number of his duties and responsibilities, namely:
(1)He was in breach of cl 12a, general management, cl 12b and production schedules (cl 12c). Because of the two limousines being manufactured, the Ford Fairlane and the Mercedes 300 SEL had not been completed, manufacturing had not commenced on the next two limousines scheduled for completion by October 1998, manufacturing had not commenced on the kit sports cars and manufacturing had not commenced on the balance of the 10 limousines due for completion by July 1999.
(2)He was in breach of production cost controls under cl 12e because the manufacture of the Ford Fairlane limousine was budgeted to cost $30,000 but by December 1998 the company had incurred costs of $92,670.
(3)He had failed to ensure full compliance with local laws and regulations as required by cl 12i in that all limousines required the approval of the Department of Transport to permit such vehicles to exceed the dimensions and mass limits provided by the Vehicle Standards Regulations under the Road Traffic Act. It is alleged that the respondent never secured permits from the Department of Transport for the three limousines that were partly manufactured and that between October and December 1998 the one limousine that had been completed (with defects) was allowed by the respondent to be illegally driven and hired.
It was also contended that the limousine being operated by the respondent on behalf of the company was never licensed with the Department of Transport as a chartered vehicle.
In the meantime, by a supplementary agreement dated 27 April 1998, it was agreed by the parties to amend the deed dated 20 March 1998 as follows:
"(1)Clause (3) of the Deed of Purchase shall be amended to read as follows:-
'Taleski shall have the option to increase his shareholding in the Company to a figure not to exceed 49/51 equity ratio with Chan at any future time, and that Chan shall always maintain a clear majority interest in the Company.'
(2)Clause (4) of the Deed of Purchase shall be amended to read as follows:-
'Chan shall be appointed as the Managing Director of the Company immediately upon the execution of this agreement.' "
It was contended that the agreement dated 20 March had to be read with the 1998 Business Plan. Clause 2.1(5) of the Business Plan provided that:
"In lieu of performing a 'due diligence audit' on [the company] both [Li Chien] and Mr Taleski agreed to register a new company called Royal Premier Pty Ltd to carry on the business of Royal Pty Ltd under the same conditions as the 'Deed of Purchase', and to take over all assets and new shareholders' funds of Royal Pty Ltd …"
It was submitted that by this means the parties were changed. It appears, however, that this simply brought a new agreement into existence or, more accurately, was a record of an agreement in the nature of a recital.
It was contended by Li Chien in his affidavit that, in preparing the Business Plan on behalf of the company, the respondent represented that he had the skill and experience to ensure the fulfilment of the Business Plan and that the company relied on this representation in continuing to employ him from July 1998 onwards. According to Li Chien, by January 1999 when the respondent was invited to resign as a director of the company, he was in breach of a number of his duties and responsibilities, namely:
"13.1General Management (clause 12a), production management (clause 12b) and production schedules (clause 12c).
Of the two limousines being manufactured (the Ford Fairlane and the Mercedes 300 SEL) neither had been completed, manufacturing had not commenced on the next two limousines (scheduled for completion by October 1998, manufacturing had not commenced on the kit sports cars, and manufacturing had not commenced on the balance of the 10 limousines (due for completion by July 1999).
13.2Production cost controls (clause 12e)
The manufacture of the Ford Fairlane limousine was budgeted to cost $30,000 but by December 1998 [the company] had incurred costs of $92,670.45.
13.3Approvals to ensure full compliance with local laws and regulations (clause 12i).
(a)All limousines require the approval of the Department of Transport to permit such vehicles to exceed the dimensions and mass limits provided by the Vehicle Standards Regulations under the Road Traffic Act. [The respondent] never secured permits from the Department of Transport for the 3 limousines that were partly manufactured. Between October and December 1998 the one limousine that had been completed (with defects) was allowed by [the respondent] to be illegally driven and hired.
(b)The limousine being operated by [the respondent] on behalf of [the company] was never licensed with the Department of Transport as a chartered vehicle.
12.4Staffing and appointments jointly with [Li Chien] (clause 12g).
[The respondent] wrongly used the resources of [the company] and his position as a director of that company to attempt to secure a visa extension for a Goran Dimeski on the basis of an occupational Traineeship. He represented to the Department of Immigration and Multicultural Affairs (DIMA) that Dimeski was continuing to receive training in moulding and shaping of fibreglass from [the company]. My father had never agreed to the appointment of this person. I am advised by DIMA that they are currently investigating this matter.
12.5Obligation to work as a fulltime director (clause 13).
Throughout this period as a director of [the company], [the respondent] remained a director and/or shareholder of a number of other companies. These included the following:
(a)Aquarius Holdings (Aust) Pty Ltd
Chan Tay Holdings (Aust) Pty Ltd
Royal Malaysian Autoclassics Co Pty Ltd
Royal Pty Ltd
Royal Limousines Pty Ltd.
(b)Of these companies I am aware that [the respondent] continued to operate Royal Pty Ltd and Royal Limousines Pty Ltd and had previous work done on behalf of those companies. Now annexed hereto marked 'CKC 5' and 'CKC 6' are true copies of 2 invoices rendered by Challenge Sheet Metal to those companies, each dated 30 September 1998."

It is then said that by reason of the matters set out above, the company disputed its liability to pay salary to the respondent and disputed the amount claimed in the statutory demand. In my opinion, none of these claims were such that they could justify the non‑payment of the respondent's salary for the time he was employed by the appellant.
So far as the counterclaim for damages for negligence is concerned, the learned Master said:
"Based upon this affidavit, it is very difficult to ascertain what case is being put against the respondent. It is said that there is a genuine dispute as to the respondent's entitlement to remuneration. There is no dispute that the respondent was employed by the applicant for the period between 1 May 1998 and 1 February 1999. Prima facie, then, he is entitled to be paid for that period. It might perhaps be argued that the respondent's entitlement would fall away if there was a total failure of consideration - that is, if the respondent had done nothing in relation to the applicant's business. But that is not suggested by Li Chien's affidavit. What is suggested is that the respondent carried out his duties either in breach of the agreement, or negligently, or in some way which led to loss and damage to the applicant. In other words, the applicant says that it has an offsetting claim. It might be argued that, as the respondent was a director of other companies, he was in some way in breach of his fiduciary duties as a director of the applicant. Even assuming that this breach of fiduciary duties could disentitled [sic] the respondent to remuneration under the contract, the allegation is entirely lacking in detail. If it can be established that the respondent, while a director of the applicant, was engaged in a business which was in competition with the applicant then he would be liable to account to the applicant for any profits: see Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1. But the mere fact that the respondent is the director of five corporations which may or may not be in competition with the applicant is no basis for denying the respondent remuneration under the agreement.
Under s 459H(2) a formula is provided for calculation of what is the substantiated amount of the statutory demand. This in turn requires that a figure be put on any 'offsetting total'. It is not possible, based on Li Chien's affidavit, to ascertain what, if any, amounts comprise what the applicant says is the offsetting total. For instance, it is said that the cost of the manufacture of the stretched Ford Fairlane was budgeted at $30,000 and blew out to $92,670.45. Assuming that to be the case (and there is no supporting documentation at all provided by the applicant), it does not automatically mean that the applicant has a claim against the respondent for $62,670.45. Such a claim would only arise if it could be established that the cost blow out was the result of a breach by the respondent of the agreement or was due to his negligence. Li Chien's affidavit provides no basis for reaching such a conclusion."
The learned Master went on to refer to the affidavit of Albert Chan which was filed after the respondent's affidavit. The affidavit of Albert Chan raised certain matters not raised in the affidavit of Li Chien. As to this the learned Master said:
"I accept that the applicant is not restricted on the hearing of an application to matters raised in the affidavit filed in support of the application: see Mibor Investments Pty Ltd v Commonwealth Bank (supra) at 1066. However, it is to be expected that in most cases all the grounds upon which it is said that the statutory demand ought be set aside should be covered in the supporting affidavit. If that is not done, then a subsequent affidavit should explain why it was not done. The alternative is a multiplicity of affidavits which is at odds with the simple and direct procedure envisaged by the statutory demand regime.
The first six paragraphs of Albert Chan's affidavit relate to the manufacture of the Ford Fairlane limousine and the allegation that it was over budget. I am unable to draw anything from these paragraphs which suggest either a genuine dispute as to the debt or an offsetting claim.
Paragraph 7.1 refers to licensing of a vehicle. It is irrelevant to the matters in issue. Paragraph 7.2 details drawings of $26,751.70 which is said, by implication, to have been improperly taken by the respondent. The paragraph falls foul of

O 37 r 6(2a) and will be struck out. Even if the paragraph had stood, there is nothing in the paragraph itself or elsewhere in Albert Chan's affidavit which would justify a conclusion that the applicant had a claim against the respondent for the amount in question. There is simply nothing in the rest of Albert Chan's affidavit which demonstrates either that there is a genuine dispute about the debt or that there is an offsetting claim."

In my opinion, the decision of the learned Master was clearly correct.
There was a further counterclaim referred to in the affidavit of Li Chien, par 12, to the effect that in August of 1998 the respondent represented to Albert Chan that, if the company paid the costs of a Yellow Pages advertisement amounting to $18,356, a number of smaller limousine operators would promote their services under the umbrella of the company and share the advertisement costs. The company relied on this representation to pay the costs of the advertisement on 4 August 1998, namely the sum of $18,356.
In relation to this claim, I agree with Ipp J that it has not been shown that the learned Master was in error in holding that there was no basis for the alleged off‑setting claim in respect of the relevant advertisement. I also agree with the reasons of Ipp J and his Honour's conclusions in relation to each of the other matters dealt with by his Honour.
For these reasons I would dismiss the appeal.
IPP J : This is an appeal against a decision by the learned Master dismissing an application made by the appellant to set aside a statutory demand under s 459G of the Corporations Law.
The learned Master pointed out that "a problem which bedevils much of the evidence" relied on by the appellant was its omission to comply with the Rules of the Supreme Court 1971 O 37 r 6(2a) which requires affidavits containing statements of information or belief to set out the sources or grounds of that information or belief. I would endorse this comment. The difficulties so brought about are compounded by the fact that much of the evidence relied on by the appellant amounts to vague generalities and much of the detail necessary to support important elements of claims made by the appellant against the respondent does not appear in the papers. I shall advert to these matters more fully in the course of these reasons.

The respondent was employed by the appellant at an agreed salary of $3,000 per month. By the statutory demand, he claimed $17,500 from the appellant in respect of outstanding salary for the period 1 May 1998 to 1 February 1999. The respondent's full entitlement to salary during the period in question was $27,000. He was apparently paid $9,500 of this sum and the amount of the statutory demand represented the balance.
Counsel for the appellant commenced by submitting that the respondent had been negligent in performing certain of his duties as an employee, and therefore was not entitled to be paid any salary whatever. On this basis he contended that there was a genuine dispute between the parties as to the existence of the debt alleged by the respondent.
Essential to this submission was the proposition that the respondent's right to be paid salary was conditional upon him performing his duties as an employee without negligence. This is the only basis on which the argument so advanced could have substance as the appellant accepted that, during the period in question, the respondent worked for the appellant on a full-time basis and purported to perform the tasks allocated to him. There is nothing in the contract between the parties, however, that supports the argument that the respondent's right to salary is so conditional, and the argument is untenable. As I understood counsel for the appellant, after meeting some opposition from the court in regard to the contentions so advanced, he did not press them.
The principal argument of the appellant was that it has three "offsetting claims" within the meaning of s 459H of the Corporations Law which exceed the amount demanded by the respondent. Hence, the appellant submitted that the demand should be set aside under s 459H(3). I shall in these reasons assume, without deciding, that all the claims advanced by the appellant are capable of being offsetting claims under s 459H(1).
The first offsetting claim relied on by the appellant was for the sum of $26,751.70. Apart from the bald allegation that the moneys making up this sum were "unlawfully and improperly drawn by [the respondent] from the [appellant]", the sole evidence on which the appellant relied was par 7.2 of an affidavit by Cheng Kwee ("Albert ") Chan. This paragraph alleged:
"By end of 1998, [the respondent] had drawn a total of $26,751.70 as follows:-
(1)$6,000 drawn on 05.06.98 and 25.08.98 as his salaries for months 20.04.98 -20.05.98 and 21.05.98 -20.06.98 respectively;
(2)$7,000 drawn on 28.08.98 as company loan to himself, which has since remain unpaid;
(3)A total of $13,198 drawn in cash and received by himself on 27.03.98 ($100), 01.04.98 ($1,500), 21.07.98 ($2,400), 02.09.98 ($1,000), 15.10.98 ($2,500), 20.10.98, ($1,000), 21.10.98 ($108), 30.10.98 ($90), 30.10.98 ($4,500) without any receipts or supporting documents;
(4)$553.70 for Taleski's private vehicle repair, as part of $2,500 paid to Tom's Auto Repairs on 27.11.98."
Paragraph 7.2 was struck out by the learned Master who held that it "falls foul of O 37 r 6(2a)" and the appellant appeals against this decision. The learned Master also commented that "even if the paragraph had stood, there is nothing in the paragraph itself or elsewhere in Albert Chan's affidavit which would justify a conclusion that the [appellant] had a claim against the respondent for the amount in question".
With regard to the finding that par 7.2 failed to comply with O 37 r 6(2a), counsel for the appellant submitted that "Albert Chan as a director of the company may give direct evidence of payments by the company". Of course, subject to relevance, direct evidence is generally always admissible. The affidavits of the appellant, however, laid no grounds for inferring that the evidence contained in par 7.2 was "direct evidence", that is, that that evidence was within the personal knowledge of the deponent, Albert Chan. There is nothing in the material that explains how Albert Chan knew that $7,000 was drawn on 28 August 1998, that the money was drawn as a loan, and that the loan was unpaid. The papers do not reveal how Albert Chan knew that a total of $13,198 was drawn in cash as alleged and received by the respondent as alleged and that there were no receipts or supporting documents for the payments totalling this sum. There is nothing that explains how Albert Chan knew that $553.70 was spent on the respondent's private vehicle repairs. There is simply no basis given for the reception of this evidence.
I also agree with the learned Master's observation that even if par 7.2 had not been struck out, the allegations in that paragraph do not justify a conclusion that the appellant has a claim against the respondent for the amount in question. The mere fact that the respondent was paid $6,000 in respect of salary does not give rise to a claim on the part of the appellant for return of that sum. In the absence of an allegation that the due date for the repayment of the loan of $7,000 had expired, it cannot be said that as at the date of the hearing before the learned Master, the respondent was obliged to repay the sum of $7,000 to the appellant. The mere fact that the respondent may have drawn $13,198 in cash without any receipts or supporting documents does not on its own give rise to a claim by the respondent against him for that sum. Similarly, the mere fact that the respondent might have spent $553.70 of the appellant's money for private vehicle repair does not, alone, entitle the appellant to recover that sum from him.
In the circumstances, I consider that the learned Master was entirely correct in holding that the appellant had not established that it had an offsetting claim for $26,751.70.
The second alleged offsetting claim was for the sum of $18,356 which the appellant paid for an advertisement in the yellow pages directory on 4 August 1998. As I understood counsel for the appellant, this claim was for damages flowing from a misrepresentation, presumably alleged to have been made fraudulently or negligently by the respondent.
It is necessary to set out the evidence on which the appellant relied for its contention that an offsetting claim so arose.
One Li Chien ("Terrence") Chan stated in an affidavit made by him:
"In August 1998 Cane Taleski represented to my father [that if] Royal Premier Pty Ltd paid the costs of a yellow pages advertisement ($18,356,00) a number of smaller limousine operators would promote their services under the umbrella of Royal Premier Pty Ltd, and share the advertisement costs. Royal Premier Pty Ltd relied on this representation to pay the costs of the advertisement on 4 August 1998."
The respondent filed an affidavit replying to this paragraph as follows:
"I deny saying to [Terrence Chan's father] that smaller limousine operators would pay for the yellow pages advertisement. I did say they would pay a commission and that is what occurred."
Thereafter, Albert Chan, in an affidavit by him, referred to what the respondent had said in this regard and stated:
"It is irrelevant whether the smaller limousine operators were to share the yellow pages advertisement by paying a commission or otherwise. In either event, [the respondent] misled me to believe that he had an overpowering influence on many small limousine operators, and could easily get them under the Royal Premier umbrella to share the yellow pages advertisement. This never happened."
The evidence by Terrence Chan in regard to the respondent's representation to his father is plainly hearsay and the affidavit in which this material was contained did not comply with O 37 r 6(2a) in that regard. At the hearing before the learned Master, counsel for the respondent objected to this evidence and repeated that objection in argument on appeal. In my opinion, that objection must be upheld. There is no explanation for the omission of the appellant to comply with O 37 r 6(2a) in regard to this evidence and there is no explanation given as to the failure by Terrence Chan's father to make an affidavit himself dealing with the issue in question.
Additionally, I would point out that there was no evidence that, in making the representation, the respondent acted fraudulently or negligently.
Moreover, an inference arises from the representation as alleged that the appellant accepted that it would pay at least part of the advertisement costs, and there was no evidence as to the amount which the appellant had accepted that it would pay. This bears on the amount of the damages allegedly sustained by the appellant by reason of the false representation. In this regard it is also to be noted that the advertisement apparently in fact appeared in the yellow pages directory. Thus the appellant derived some benefit therefrom. Accordingly, it is unlikely that the appellant's damages amounted to the full cost of the advertisement. There was simply nothing that touched upon this aspect of the claim. I agree with the submission made by counsel for the respondent that the evidence of damage suffered by the appellant by reason of the representation concerning the yellow pages advertisement was so inadequate that this alone precludes a finding that there is an offsetting claim in regard thereto.
In the circumstances, I am not persuaded that the learned Master was incorrect in holding that no offsetting claim had been established in regard to the costs of the yellow pages advertisement.
I turn now to the third alleged offsetting claim. As explained by counsel for the appellant, "[t]he appellant claims an offsetting claim in respect of losses suffered by the respondent's failing to perform his contractual obligations under the agreement".
The agreement in question was a contract whereby, it was submitted, the appellant employed the respondent. The proof of this contract was tainted with the same obscurity and confusion that was endemic to the other allegations relied upon by the appellant. Terrence Chan, in his affidavit, referred to a contract entered into on 20 March 1998 between his father and the respondent. By that contract, Terrence Chan's father agreed to advance $35,000 to a company known as Royal Pty Ltd of which the respondent was the sole director and shareholder. Further, by that contract, Terrence Chan's father was to be appointed as a director of Royal Pty Ltd. The contract set out the duties and responsibilities of the respondent as a director (and, presumably, as an employee) of Royal Pty Ltd. Although the contract was executed on behalf of Royal Pty Ltd, it is by no means clear that Royal Pty Ltd was a party to the contract and no allegation was made to that effect.
Thereafter, according to Terrence Chan, his father and the respondent agreed to "vary" the contract of 29 March 1998 by "substituting Royal for Royal Premier Pty Ltd [that is, the appellant]". What was meant was that the contract was "varied" by the appellant replacing Royal Pty Ltd as a party. Apart from the fact that, as I have mentioned, it is by no means clear that the appellant was a party to the contract of 20 March 1998, there is no probative evidence that the appellant and the respondent agreed that the respondent would undertake to the appellant to perform the duties and assume the responsibilities set out in that contract. On analysis, the admissible evidence only reveals that there was an agreement between Terrence Chan's father and the respondent to that effect. Nevertheless, I shall proceed on the assumption that the respondent undertook to the appellant that he would assume the duties and responsibilities set out in the contract of 20 March 1998.
Terrence Chan asserted that "as part of his duties and responsibilities" the respondent prepared a business plan for the appellant. Counsel for the appellant drew attention to par 2.2 of the business plan which recorded:
"Proposed Activities
The proposed activities of the Company are:-
1)Manufacturing of stretched-Limousines.
2)Manufacturing of Custom-built Sports cars.
3)Dismantling of used cars for spare parts.
4)Export of manufactured custom-built Sports cars to Eastern Europe and Africa.
5)Export of stretched Limousines converted from 10 year old Mercedes 300/420/500 SE/SEL imported from Singapore
6)Stretched Limousines converted from local Ford Fairlanes will be built for hire and sales in the Australian market."
Counsel also drew attention to par 5.0 of the business plan which recorded:
"5.0PROJECTED REVENUE
The projected revenue for the first three years based on stretched limousines and custom‑built sports cars are tabulated below."
The projected revenue in question was as follows:

Description

1^st Year

2^nd Year

3^rd Year

1

Quantity of Stretched Limousines

10

15

25

Sales Revenue @ AUD$ 40k each

$400,000

$600,000

1,000,000

2

Quantity of Sports Cars (Kit)

5

10

20

Sales Revenue @ AUD$ 25k

$125,000

250,000

500,000

Total Projected Revenue

$525,000

$850,000

1,500,000

Counsel for the appellant submitted that "the agreement of 20 March 1998 was varied by the inclusion of the business plan". There was no evidence, however, to this effect. In any event, there is nothing in par 2.2 or par 5.0 of the business plan which could be regarded as a warranty or condition or undertaking on the part of the respondent. The paragraphs in question are merely forecasts of business activities and results. Nevertheless, counsel for the appellant relied on the business plan and the paragraph to which I have referred in submitting that because the appellant had failed to meet the forecasts, the respondent had committed breaches of his contractual obligations to it. In my opinion, however, for the reasons that I have expressed, there is no foundation for this submission.

In the course of oral argument on appeal, counsel for the appellant also submitted that as part of the third offsetting claim the appellant had a claim against the respondent based on his negligence. Counsel drew attention to the evidence that the appellant's performance fell substantially short of the forecasts contained in the business plan. He submitted that this established negligence on the part of the respondent but, in my opinion, it does nothing of the sort. There could be many reasons unconnected with the respondent's negligence that conceivably could have caused the appellant to be less successful than the business plan prognosticated. It was incumbent upon the appellant to set out the respects in which the respondent was negligent and to adduce some appropriate evidence supporting these allegations. This the appellant omitted to do.
Counsel for the appellant submitted, further, that the appellant had a claim against the respondent for negligent misrepresentation based on the proposition that the respondent had the requisite skill to carry out the duties allocated to him under the contract of 20 March 1998 and to ensure that the appellant achieved the forecast results set out in the business plan. The only evidence, however, on which the appellant relied for the proposition that the respondent did not have possess that level of skill was the failure of the appellant to achieve those results. That fact alone, however, does not prove the absence of skill. Again, there could be many reasons for the appellant's disappointing results that are not connected to the respondent's skill.
In the course of argument, the suggestion was made that the appellant might have a claim against the respondent for misleading or deceptive conduct under the Fair Trading Act based on misrepresentations as to the future results contained in the business plan. This submission, however, suffers from the same defects as the previous argument to which I have adverted. Because of the paucity of evidence on the issue, there are serious difficulties in the way of the appellant in establishing, even arguably, misleading or deceptive conduct of the kind raised.

There is another supervening and fundamental problem with the appellant's contentions, namely, there is no evidence of any damages that the appellant might have suffered in consequence of the alleged negligence or misleading or deceptive conduct on the part of the respondent. Of course, at this stage, it is not necessary for evidence as to damages to be given in meticulous detail. But there must be at least some material upon which the court can conclude that some damage has been sustained and which will enable the court to make a reasonable assessment as to the amount thereof. In this case, however, there is simply no way of determining whether damage was suffered by the appellant in consequence of the alleged negligence or misleading or deceptive conduct, and there is no evidentiary material from which damage suffered by the appellant can be calculated. This absence of evidence as to damage is itself fatal to the appellant's arguments.
In the circumstances, I consider that the learned Master correctly held that there was nothing in the evidentiary material "which demonstrates … that there is an offsetting claim". I would dismiss the appeal.
WALLWORK J: These are reasons for judgment on an appeal from an order of a Master of this Court which dismissed an application by the appellant to set aside a statutory demand which had been made by the respondent under s 459E of the Corporations Law.
The application had been made on alternative grounds. Firstly, it had been claimed by the appellant that there was a genuine dispute as to the sum for salary which had been claimed from the appellant by the respondent in the statutory demand. In the alternative, the appellant had contended that it had "an off‑setting claim" greater than any sum owing and that the demand should therefore be set aside pursuant to s 459H(3) of the Corporations Law.
At the hearing of the application the appellant had relied in part upon an affidavit of Mr Li Chien Chan sworn 14 January 2000. The respondent had replied with an affidavit sworn 7 February 2000. The appellant had later lodged an affidavit from Mr Albert Chan sworn 25 February 2000.
The learned Master said in his reasons for judgment that the three affidavits taken together had formed the evidence for and against the application. The Master came to the conclusion that there was nothing in the affidavits which demonstrated either that there was a genuine dispute

about the salary claimed in the statutory demand, or that there was an off‑setting claim.

The law

In Turner Corporation WA Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294, Owen J, with whom the other two members of the Court agreed, said in par 27 and par 28 of his reasons that in determining whether there is a genuine dispute within the meaning of s 459H(1)(a), "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 1001 per Northrop, Merkel and Goldberg JJ."
His Honour noted that that formulation had 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) 17 ACLC 880 per Kenny J at 885. His Honour said that in the interests of consistency in the various courts that have to apply the Corporations Law he thought that this was the approach to be taken.
In my view it is not necessary in this case to decide whether or not there was a genuine dispute as to whether the respondent was entitled to be paid the salary which he had claimed pursuant to the agreement which he had reached with the appellant. That agreement provided that the respondent was to receive $3000 per month for "the carrying out of the duties and responsibilities as a full‑time working director." The appellant had claimed that he was owed $17,500 for the period 1 May 1998 until 1 February 1999.
I would first decide whether the appellant had, in the terms of s 459H(1)(b) "an off‑setting claim" against the demand by the respondent for the $17,500.
In my opinion the criteria by which to judge whether the appellant has satisfied the court that it has an off‑setting claim, should be the same as would be used to determine whether there was a genuine dispute between the parties pursuant to s 459H(1)(a), namely, the 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" - per Owen J in Turner Corporation (supra).
When judging whether there was a serious question to be tried in the Turner case, Owen J said that to succeed in its appeal, Turner Corporation:
"… 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 … 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."
In discussing the evidence in that case, his Honour commented that the respondent's evidence did not expressly deny or even reply to the appellant's claim that a relevant agreement existed (par 36). His Honour further said that:
"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." (par 47)
His Honour further said:
"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. 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." (Paragraphs 49, 50).
In par 52 his Honour said:
"The 'substantiated amount' is to be calculated in accordance with the formula: 'Admitted total - Offsetting total'. … Where the substantiated amount is less than the statutory minimum of $2000, s 459H(3) provides that the court must set aside the demand."
If the evidence in this case is examined in the same manner as in the Turner Corporation decision, it appears from Mr Li Chien Chan's affidavit of 14 January 2000, that the duties and responsibilities of the respondent in the company were as follows:
"(a)General management and day to day administration;
(b)Production management and production control of the company's manufacturing activities;
(c)Establishing production schedules, logistic plans and procedures;
(d)Quality control of manufactured vehicles;
(e)Production cost controls and materials procurement;
(f)Automobile engineering, innovative designs and improvements;
(g)…
(h)Overseas marketing and promotions jointly with Chan;
(i)Approvals to ensure full compliance with local laws and regulations;
(j)Policy and planning decisions of the company jointly with Chan." (AB 24 cl 12 of the agreement)
It was provided in cl 13 of the agreement that the respondent was entitled to the salary he had claimed in the statutory demand "for the carrying out of the duties and responsibilities as a full‑time working director…."
Mr Chan deposed that prior to entering into the agreement, the respondent had represented that he had been carrying out the duties and responsibilities abovementioned for some time and that he had the skill and experience to carry out those duties. He had also represented that each of the Ford stretch limousines proposed to be produced would cost $30,000 to purchase and stretch.
Mr Chan deposed that the appellant had relied upon the above representations when agreeing to employ the respondent in May 1998. Further that in July 1998 the respondent had prepared a business plan for the company, which plan had provided amongst other things, that that there was one Ford stretched limousine nearing completion by the end of July 1998; that there was also a Mercedes 300 SEL limousine to be completed by August 1998, two other limousines to be completed by October 1998 and sports cars which would commence to be manufactured by October 1998.
Mr Chan further deposed that in preparing the business plan for the company the respondent had represented that he had the skill and experience to ensure the fulfilment of the plan and that the company had relied on those representations in continuing to employ him from July 1998 onwards.
Mr Chan also deposed that in August 1998 the respondent had represented that if the company paid the costs of a Yellow Pages advertisement in the sum of $18,356, a number of smaller limousine operators would promote their services under the umbrella of the company and share the advertisement costs. He deposed that the company had relied on this representation and paid the costs of the advertisement on 4 August 1998.
The alleged breach of duties and responsibilities by the respondent which it was claimed would substantiate an off‑setting claim against the statutory demand for the $17,500 salary owing, included an allegation by Mr Chan that by January 1999 when the respondent had been invited to resign as a director of the company, he had been in breach of his general management duties as well as his duties concerning production management and production schedules. Mr Chan deposed that the first two limousines being manufactured had not been completed. He deposed that manufacturing had not commenced on the next two limousines scheduled for completion by October 1998 and that manufacturing had not commenced on the kit sports cars (due to have been commenced by October 1998) or the balance of the 10 limousines which had been due for completion by July 1999 pursuant to the business plan.
It was further deposed by Mr Chan that the manufacture of the Ford stretch limousine which had been estimated to cost $30,000 had by December 1998, increased to a cost of $92,670.
Mr Chan also deposed that the respondent had not secured permits for the three limousines which were partly manufactured and that he had thereby breached his responsibilities to ensure full compliance with local laws and regulations. Mr Chan further deposed that amongst other things the respondent had continued to play an active part in the operations of two other companies.
In my view it is significant that pursuant to the original agreement of 20 March 1998, the respondent was to be paid a monthly remuneration of $3000 "for the carrying out of the duties and responsibilities of a full‑time working director." (Clause 13, AB 39).
In his affidavit in opposition to the application to set aside the statutory demand sworn 1 February 2000, the respondent admitted that he had represented that each Ford stretched limousine would cost $30,000 to purchase and stretch. However he deposed that: "At the time of this conversation I also told Kwee that the costs would be higher than $30,000 dependant upon the type of upholstery, extras and interior." The respondent denied that he had represented in the business plan that he had the skill and experience to ensure the fulfilment of it.
With respect to the outlaying of $18,356 for the Yellow Pages advertising, the respondent denied that he had said that the smaller limousine operators would share the advertisement costs. He deposed that he had said that those operators would pay a commission and that is what had occurred.
The appellant argued before this Court that but for the alleged representations by the respondent it would not have outlaid any of the $18,356 on the Yellow Pages advertisement; that this alone would offset the sum in the statutory demand.
The respondent also deposed there were not two limousines being manufactured as alleged for the appellant, but three, and that one of those had been finished and approved by the Department of Transport and licensed. Further that another two cars were almost finished. He deposed that he had been told to slow down on those two cars and on all other work as the company had been moving operations to Narrogin. He did not admit that by December 1998 the company had incurred costs of $92,670 on one of the stretched limousines. He deposed that he was a director of other companies but that those appointments had not required him to devote time which "precluded" the fulfilment of his duties to the appellant.
In my view when judging this matter, it is significant that a failure to comply with a statutory demand can provide the basis for an application for a company to be wound up pursuant to Part 5.4 of the Corporations Law. That is significant in this case because pursuant to the agreement of 20 March 1998, Mr Chan from Singapore agreed to pay $134,999 for shares in the company. That investment was to result in him acquiring 100,000 shares and the respondent 35,000 shares. In his affidavit sworn 25 February 2000, Mr Chan deposed that he is the Managing Director of the appellant and had invested $153,250 in the company as at 13 November 1998.
In my opinion, in all the circumstances there has been no sufficient explanation from the respondent as to why Mr Chan's investment and the company failed in such a disastrous manner. As evidenced by his statutory demand, the respondent thinks the company ought to be put into liquidation. Having in mind the representations which it is alleged that he made to Mr Chan and which for some reason did not come to fruition, and taking into account his agreed responsibilities pursuant to the agreement and his lack of explanation for the failure of the plans, and taking into account Mr Chan's investment, if the criteria discussed by Owen J in the Turner Corporation decision are applied, it should be held that in all the circumstances, the appellant has "an offsetting claim" pursuant to s 459H(1)(b).
Therefore the appeal should be allowed and the statutory demand of the respondent should be set aside.

Description	1^st Year	2^nd Year	3^rd Year
1	Quantity of Stretched Limousines	10	15	25
Sales Revenue @ AUD$ 40k each	$400,000	$600,000	1,000,000
2	Quantity of Sports Cars (Kit)	5	10	20
Sales Revenue @ AUD$ 25k	$125,000	250,000	500,000
Total Projected Revenue	$525,000	$850,000	1,500,000