Southern Titanium Nl v Bell Potter Corporate Finance Limited No. Scciv-02-1365

SOUTHERN TITANIUM NL v BELL POTTER CORPORATE
FINANCE LIMITED
[2004] SASC 93
Full Court: Prior, Debelle and Bleby JJ

PRIOR J. I agree with the reasons given by Debelle J and with the orders he proposes.
DEBELLE J. Southern Titanium NL (“Southern Titanium”) is a public company listed on the Australian Stock Exchange. Its operations include the discovery and assessment of the feasibility of mining mineral sand deposits in the Murray Basin area of this State. In late November 2001, Southern Titanium engaged Beerworth and Partners, a corporate advisory firm in Sydney, to advise it on the appointment of a sharebroker in Sydney who would assist in raising capital for its mining ventures and act as its broker on the east coast of Australia. In the upshot, in mid February 2002, Southern Titanium appointed Bell Potter Corporate Finance Limited (“Bell Potter”) to act in that role. A letter dated 17 February 2002 from Bell Potter set out the terms and conditions of the appointment.
The arrangements between Southern Titanium and Bell Potter have come to an end. Bell Potter alleges that Southern Titanium owes it $66,000 as fees pursuant to the agreement made on 17 February 2002. Southern Titanium disputes that liability. On 6 September 2002 Bell Potter served the demand upon Southern Titanium pursuant to s 459E of the Corporations Act, 2001 (“the Act”) requiring payment of the sum of $66,000.
Southern Titanium applied pursuant to s 459G of the Act to set aside the demand. On 8 August 2003 a Master of this Court dismissed the application of Southern Titanium to set aside the statutory demand. From that decision Southern Titanium appeals to this Court. The issues in this appeal are whether Southern Titanium made its application in accordance with the procedures prescribed by s 459G and whether there is a genuine dispute as to the existence of the debt within the meaning of s 459H. I deal first with the question whether Southern Titanium made its application within 21 days in accordance with subsection (3).
Section 459G requires an application to set aside the affidavit in support of a statutory demand to be filed and served within 21 days. It provides:
“(1)A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2)An application may only be made within 21 days after the demand is so served.
(3)An application is made in accordance with this section only if, within those 21 days:
(a)an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.”
The application was filed and served within time – the question is whether the supporting affidavit was also filed and served within time.
On 26 September 2002, within the period of 21 days prescribed by s 459G(3), the appellant filed and served an application to set aside the demand and an affidavit sworn by Mr C J Branson, Southern Titanium’s solicitor in Adelaide. That affidavit exhibited a copy of an affidavit sworn in Perth on 26 September 2002 by Mr D B Clarke, a director of Southern Titanium. The copy of the affidavit had been sent from Perth to Adelaide by facsimile transmission. In that affidavit, Mr Clarke set out the grounds upon which Southern Titanium sought to set aside the statutory demand. Among other things, Mr Clarke’s affidavit proved five documents which were stated to be exhibited to his affidavit. However, the exhibits were not included in the exhibits to the affidavit sworn by Mr Branson. All that was exhibited to Mr Branson’s affidavit was a copy of the facsimile transmission of Mr Clarke’s affidavit.
In his affidavit, Mr Branson deposed to the following facts.
“2.I swear this affidavit in support of the plaintiff’s application dated 26 September 2002 seeking to set aside a statutory demand.
3.The plaintiff intends to file the affidavit of David Brian Clarke sworn 26 September 2002, (‘Clarkes affidavit’) in support of its application dated 26 September 2002. I have received a copy of Clarke’s affidavit by facsimile transmission. Exhibited hereto and marked ‘CJB-1’ is a facsimile copy of Clarke’s affidavit.
4.I am informed by the plaintiff’s solicitors Fearis Salter Power Shervington, who are located in Perth, that they have sent the original of Clarke’s affidavit to the offices of Fisher Jeffries by overnight courier.
5.I undertake to file an original copy of Clarke’s affidavit upon receipt.”
The application and the affidavit of Mr Branson with the exhibited facsimile copy of Mr Clarke’s affidavit were both served on Bell Potter’s solicitors on 26 September.
The problems with Mr Clarke’s affidavit did not end with the failure to exhibit to Mr Branson’s affidavit the documents which had been exhibited to Mr Clarke’s affidavit. The original copy of Mr Clarke’s affidavit and its exhibits arrived in Adelaide on 27 September 2002, still within the 21 day period prescribed by s 459G(3). A clerk in the employ of Southern Titanium’s solicitors in Adelaide attempted to file the affidavit and exhibits at the Registry of this Court on 27 September. However, a clerk in the Registry refused to allow the affidavits and exhibits to be filed on the ground that the exhibits had not been marked in the form required by the Rules of this Court. It appears that the affidavit had been sworn and the exhibits marked in accordance with the requirements of the Rules of the Supreme Court of Western Australia. Each exhibit had been marked on its front page with the exhibit number. The Rules of this Court require more than that. The exhibit must have a front sheet identifying the exhibit and that front sheet must be attested by the person before whom the affidavit has been sworn: see Rule 83.08. However, the marking of the exhibits complied with the Rules of the Supreme Court of Western Australia. In the result, the original copy of Mr Clarke’s affidavit sworn on 26 September 2002 and the exhibits to that affidavit were not filed or served on 27 September. Given the conclusion on the issues arising under s 459G it is unnecessary to consider the consequences of the clerk’s action.
Southern Titanium’s solicitors arranged for another copy of the affidavit of Mr Clarke to be sworn. It was sworn by Mr Clarke on Friday, 27 September 2002. It complied with the Rules of this Court and was filed on 30 September 2002, the first business day after it had been sworn. It was served on the same day.
To summarise.
(1)    On 26 September 2002 the application, together with the affidavit of Mr Branson exhibiting Mr Clarke’s affidavit (but not the exhibits to Mr Clarke’s affidavit), was filed and served.
(2)    On 27 September 2002, within the period of 21 days prescribed by s 459G(3), the appellant’s solicitors attempted to file the affidavit of Mr Clarke and the exhibits to that affidavit but the Registry refused to accept it on the ground that the exhibits had not been marked in accordance with the Rules.
(3)    On 30 September 2002, the fresh affidavit and exhibits of Mr Clarke were filed and served. That affidavit was in the same terms as the affidavit sworn on 26 September 2003.
Affidavit Within Time
The question whether the affidavit was filed and served within time can be disposed of by reference to s 36 of the Acts Interpretation Act 1901 (Cth) which provides:
“(1)Where in an Act any period of time, dating from a given day, act, or event, is prescribed or allowed for any purpose, the time shall, unless the contrary intention appears, be reckoned exclusive of such day or of the day of such act or event.
(2)Where the last day of any period prescribed or allowed by an Act for the doing of anything falls on a Saturday, on a Sunday or on a day which is a public holiday or a bank holiday in the place in which the thing is to be or may be done, the thing may be done on the first day following which is not a Saturday, a Sunday or a public holiday or bank holiday in that place.”
The Notice of Demand was served on 6 September 2002. The period of 21 days prescribed by s 459G was to be measured from 7 September and expired on 28 September which was a Saturday. By reason of s 36(2), the time within which to file the affidavit was extended to the following Monday, 30 September. The affidavit was filed and served on that day. The affidavit was, therefore, filed and served on the last day prescribed by s 459G. The respondent does not suggest that Mr Clarke’s affidavit sworn on 27 September 2002 and filed and served on 30 September fails to set out the grounds on which Southern Titanium asserts that a genuine dispute exists or that it otherwise fails to satisfy the requirements of such an affidavit as spelled out in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 459. For these reasons, the application was properly made within a period of 21 days prescribed by s 459G.
A Genuine Dispute?
The second issue on this appeal is whether Southern Titanium had established that a genuine dispute exists about the existence or amount of a debt to which the demand relates. There was also a question whether Southern Titanium had established that it has an off-setting claim. As this is an appeal from a Master, the question is whether the Master erred in holding that there was no genuine dispute. That question does not require the Court to deal with findings of fact but, instead, the Court is required to draw inferences from the materials before the Master. The Court is in as good a position as the Master to draw those inferences. The Court may interfere if the Master has made an error of law or has mistaken the facts or made a mistaken inference from the facts.
The issues concern the terms of the agreement made on 17 February 2002 and representations allegedly made by Bell Potter to induce Southern Titanium to enter into that agreement. There is also an issue whether Southern Titanium terminated the agreement before the fees totalling $66,000 fell due.
Southern Titanium was intending to raise capital in two stages. It first wished to raise $3 million by a placement completed by 1 March 2002 (“the first placement”). It then sought to raise a further $10 to $20 million by 2 June 2002 (“the second placement”). The letter dated 17 February 2002 recited those facts. Clause 3 of the letter prescribed the fees payable to Bell Potter in these terms:
“3.     Professional Fees
Our overall fee structure is largely contingent upon achieving successful equity raisings for Southern Titanium, and is consequently substantially performance-based.
3.1    Per Diem Fees
Following our appointment, Bell Potter will charge Southern Titanium $30,000 per month for 3 months or until our mandate is terminated by mutual agreement. These fees will be payable monthly and within 14 days of invoice.
This structure anticipates that the due diligence and Information Memorandum drafting supporting the Second Placement is completed by 26 April 2002. In the event, through no fault of Bell Potter, the investor roadshow not be commenced till after 10 June 2002, a further $30,000 monthly fee will be payable.
3.2    Management Fee
No Management Fee will be payable on the First Placement.
On the date of allotment of the shares the subject of the Second Placement, Southern Titanium will pay Bell Potter an amount so that the total management fee (including all professional fees payable under section 3.1 herein) equals 1.0% of the capital raised. This fee will be payable out of the proceeds of the equity raising.
3.3    Equity Raising Fees
On the date of allotment of the First Placement Bell Potter will receive a Placement Fee of 6% of the amount raised, excluding those funds subscribed by M&G and Taylor Collison. Southern Titanium will also pay to Bell Potter the amount of the sub-underwriting fee to be paid by Bell Potter to M&G and Taylor Collison being an amount not exceeding 5%. This fee will be payable from the proceeds of the First Placement.
An Equity Raising Fee of 5.0% of the amount raised in the Second Placement will be payable by Southern Titanium to Bell Potter out of the proceeds of the Second Placement. All sub-underwriting, stamping and selling fees to third parties will be met from this fee by Bell Potter.
On the date of allotment of the shares the subject of the Second Placement, Southern Titanium will pay Bell Potter the total Equity Raising Fee for that placement.
Southern Titanium will establish a special purpose bank account for the deposit of application monies for the First and Second Placements. Southern Titanium agrees not to transfer funds from this account until fees owing to Bell Potter for either equity raising are paid in full.”
The appointment of Bell Potter was for a period of four months. Clause 7 provided that the appointment might be terminated by either party at any time, such termination to take effect upon receipt by the other party of written notice to that effect. There is an apparent inconsistency between clause 3.1 and clause 7. Clause 7 also contained terms as to the payment of any expenses incurred by Bell Potter to the date of the termination and other provisions should Southern Titanium terminate the appointment without due cause or in bad faith.
Southern Titanium asserts that it was induced to appoint Bell Potter as its broker and to enter into the agreement of 17 February 2002.   It also asserts that in the weeks following 17 February 2002, the representations were shown to be false and, in particular,
●      that Bell Potter operated separately from Bell Potter Limited;
●      that Bell Potter Limited sold down the stock of Southern Titanium;
●      that Bell Potter was not a first-tier broker;
●      that Bell Potter was not well-experienced and was not sufficiently experienced to represent Southern Titanium;
●      that Mr Dacres-Manning, the officer at Bell Potter responsible for the capital raising, was unable to understand the technical nature of Southern Titanium’s proposed operations in mineral sands, that the alleged lack of understanding caused Southern Titanium to ask that Mr Dacres-Manning be replaced, that Bell Potter replaced Mr Dacres-Manning with a Mr Wookey but he did not understand the operations any better than Mr Dacres-Manning.
It is common ground that Bell Potter only acted in connection with the first placement. A total of $3.5 million was raised and, of that sum, Bell Potter raised $1.5 million. The balance had been raised as a result of arrangements which had already been made by Southern Titanium before 17 February 2002
The affidavits filed on behalf of Southern Titanium assert that the disputes between Southern Titanium and Bell Potter began to occur in March 2002, not long after the agreement dated 17 February 2002 had been executed. Southern Titanium asserts that it was not receiving the level of services from Bell Potter that Bell Potter had represented it would provide and that there was a good deal of dissatisfaction on the part of Southern Titanium with Bell Potter’s performance of its obligations under the contract. Southern Titanium contends that fees were payable to Bell Potter only if Bell Potter fulfilled its obligations under the agreement made on 17 February 2002 and that it has failed to do so. It is also alleged that, on an unspecified day in about April or May 2002 Southern Titanium informed Bell Potter that it did not require the services of Bell Potter any longer and asked them to render no further accounts. If Southern Titanium has lawfully determined the contract, there are questions whether the fees due to Southern Titanium may be recovered. It is apparent from the affidavits which have been filed on behalf of both parties that there are at least two areas of dispute. The first is whether Bell Potter has been guilty of making misleading and deceptive representations as to its capacities to act as a broker for Southern Titanium and whether those representations (if established) affect the obligation of Southern Titanium to pay the fees claimed by Bell Potter. The second was whether the contract was terminated in April or May 2002.
Southern Titanium contends that the Master has erred in two respects. The first is that he failed to apply the appropriate test to determine whether or not a genuine dispute existed or that an offsetting claim existed. The second is that the Master descended into the merits of the dispute between Southern Titanium and Bell Potter.
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. Other formulations of the requirements have been expressed. They are collected in Spencer at 462 – 464. The test expressed by McLelland CJ in Eq. in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 is frequently cited:
“It is, however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s 450H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit ‘however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be’ not having ‘sufficient prima facie plausibility to merit further investigation as to [its] truth’ (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or ‘a patently feeble legal argument or an assertion of facts unsupported by evidence’: cf South Australia v Wall (1980) 24 SASR 189 at 194.”
These formulations should not become a gloss on the words of the statute or be used in substitution for the words of the statute: Spencer at 464. The Court must be satisfied that there is a dispute which has some substance and is not plainly vexatious or frivolous: Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39.
The Court should not embark upon an extended inquiry in order to determine whether there is a genuine dispute nor attempt to weigh the merits of that dispute: Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362 at 366 – 367; Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605. In Eyota Pty Ltd v Hanave Pty Ltd (supra) at 787-788, McLelland CJ in Eq. expressed what the court must do in these terms:
“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 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 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 (Aus) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said:
‘There is little doubt that Div 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 simple – 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.”
In short, the Court’s task is not to seek to resolve the competing claims of the applicant or respondent but to resolve whether a genuine dispute exists or whether there is a genuine counterclaim, set-off or cross-demand. It is not to try the claim but merely to establish its genuineness: Edge Technology Pty Limited v Lite-On Technology Corporation (2000) 18 ACLC 576 at para [27].

The Master heard the application of Southern Titanium on three occasions. On 6 March 2003 he gave brief reasons for the decision that he was satisfied that Southern Titanium had filed an affidavit setting up a case for a finding that there is a genuine dispute between the parties. He said:
“I have come to the conclusion on the facts presently before me that the plaintiff has demonstrated that it certainly has filed an affidavit, as required by the legislation, setting up a case for a finding that there is a genuine dispute between these parties in two instances:
1. That the amount claimed itself is a matter of genuine contention; and
2.That there is an offsetting claim of an amount far exceeding the amount of the claim.
Where I have difficulty is in determining whether there are substantial grounds evident which would justify me in setting aside the Notice of Demand.”
It is not entirely clear what the Master meant by that passage. It seems that he was saying that Southern Titanium had complied with s 459G. The Master went on to make some brief observations suggesting that he was not satisfied that a genuine dispute existed but gave Southern Titanium an opportunity to file a supplementary affidavit.
The use of the expression “substantial grounds” in the above extract from the Master’s reasons suggests that he had not applied the correct test to determine whether a genuine dispute existed. That is confirmed by the manner in which the Master later deals with the issues.
Between 6 March and 3 June 2003, when the Master again considered the matter, some six affidavits were filed – three by Southern Titanium and three by Bell Potter. They were in addition to the six affidavits which had already been filed. (In counting the affidavits I have treated Mr Clarke’s three affidavits as one.) Several of the affidavits are replete with assertion and denial as to the alleged representations made by Bell Potter and as to whether the balance of the fee was due.
On 6 June 2003 the Master again published reasons. Despite acknowledging the complexity of the matter, he concluded there was no genuine dispute. He said:
“I promised the parties I would re-read the material and reconsider their arguments given that the matter has been before me on a number of occasions. I have done so and come to the conclusion that I should not set this notice of demand aside despite the complexity of the matter and the requirement for interpretation of the agreement between the parties. I believe that the agreement is capable of interpretation on its face and no oral evidence is required in that regard. In other words, there is no genuine dispute as to its proper interpretation, notwithstanding the rather voluminous affidavit material supplied to convince me otherwise.”
The Master then proceeded to interpret the agreement. In doing so, he failed to have regard to the purported termination of the agreement by Southern Titanium and the question whether the alleged misrepresentations affected the liability of Southern Titanium to pay Bell Potter. He adjourned the matter to enable Southern Titanium to prove whether it had a genuine off-setting claim.
On 7 August 2003 the Master heard the parties and on 8 August published reasons holding that Southern Titanium had no genuine off-setting claim. He refused to set aside the statutory demand.
The Master’s reasons show that, instead of examining whether a genuine dispute existed, he has attempted to resolve the issues in a summary manner and in doing so has overlooked certain issues. It is apparent that he did not approach the question he had to decide with a proper understanding of the criteria to be applied when determining whether a genuine dispute exists. Obviously, some assessment of the merits of the case of Southern Titanium had to be made but only for the purpose of determining whether a genuine dispute existed. The Master has acknowledged that the matter was complex. He was faced with allegations of misrepresentations which it was not possible to resolve except after a lengthy hearing of the evidence. There were questions whether the alleged misrepresentations affected the liability of Southern Titanium to pay to Bell Potter the amount claimed. Furthermore, the Master has failed to have regard to the allegation that Southern Titanium had purported to terminate the agreement before the last two payments were due to be paid to Bell Potter. Those matters indicated that a genuine dispute existed which could not be described as spurious, hypothetical or misconceived. In my view, the Master did not apply the correct test for determining whether a genuine dispute existed.
For these reasons, I would allow the appeal, set aside the order of the Master, and substitute an order setting aside the statutory demands.
BLEBY J. For convenience I refer to the parties by the same designation as Debelle J has done. I agree with Debelle J’s conclusion, for the reasons that he gives, that the affidavit filed on behalf of Southern Titanium was filed and served within the time prescribed by s 459G of the Corporations Act, and that Southern Titanium was therefore entitled to have determined by the Court its application to set aside the statutory demand.
I also agree, for the reasons given by Debelle J, that the Master did not apply the correct test for determining whether a genuine dispute existed.
I consider that there is a genuine dispute on the construction of the agreement as to whether per diem fees were payable to Bell Potter where Bell Potter did not perform or did not properly perform its obligations under the agreement. However, that is not enough to raise a genuine dispute. The affidavits show that there is also a factual dispute as to whether or not Bell Potter did properly perform its obligations under the agreement, and Southern Titanium has therefore demonstrated that a genuine dispute exists as to its liability for the monies said to be due under the agreement, and therefore for the amount of statutory demand.
There is also a dispute as to whether or not the contract was terminated in April 2002 giving rise to a dispute as to whether the per diem fees became payable at all or, if they were payable, when they became payable.
On the affidavits there is also a genuine factual dispute as to whether Bell Potter was guilty of misleading and deceptive conduct, and was therefore in breach of s 52 of the Trades Practices Act, 1974, in respect of negotiations leading to the formation of the contract. That gives rise to the possibility of orders under s 87(1) and (1A) of that Act setting aside or varying the agreement whereby Southern Titanium, if successful, could be relieved of the obligation to pay any monies to Bell Potter under the agreement.
I reject the argument put on behalf of Bell Potter that Southern Titanium is required to prove actual loss in order to raise a genuine dispute on this ground. An order under s 87(1) or (1A) of the Trade Practices Act is not dependent on proof of actual loss. It is sufficient that a person “has suffered or is likely to suffer, loss or damage” by virtue of the conduct. In this case it would be sufficient for an order to be made under one of those subsections if it could be shown that, by virtue of the misleading and deceptive conduct (if proved), Southern Titanium would suffer loss by having to pay fees due under the contract induced by misleading and deceptive conduct for a service which was not that which Bell Potter represented that it would provide.
In my opinion it is not necessary to decide whether the plaintiff has an offsetting in claim. The maximum amount of the offsetting claim would appear to be $30,000 by way of alleged overpayment to Bell Potter. Southern Titanium has not asserted that it has any claim for damages against Bell Potter under the Trade Practices Act or on any other ground. If there were no genuine dispute as to Bell Potter’s claim against Southern Titanium, the alleged offsetting claim would be insufficient to justify setting aside the demand. The Court, on calculating the substantiated amount required under s 459H(2) of the Corporations Act, would have to find that that amount still exceeded the statutory minimum, and would have to allow the demand to remain, albeit varying the amount of the demand in accordance with an order made by the Court under s 459H.
For these reasons I agree with the orders proposed by Debelle J.

[2004] SASC 93

2 April 2004