Sterling v Bradley

[1999] NSWSC 924

CITATION:	STERLING v BRADLEY [1999] NSWSC 924
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	1052/99
HEARING DATE(S):	30/08/99
JUDGMENT DATE:	23 September 1999
PARTIES :	Sterling Estates (SA) Pty Limited v Michael Bradley
JUDGMENT OF:	Master Macready at 1

COUNSEL :	Mr C.R.C. Newlinds for the plaintiff Mr N. Cotman for the defendant
SOLICITORS:	Kemp Strang for the plaintiff Conway Maccullum for the defendant
CATCHWORDS:	Corporations Law. Application to set aside statutory demand based upon admission that amount was owed. Demand set aside.; Evidence. Admissions. Whether s 87 of Evidence Act affects the common law rule that an admission by an agent requires publication to some one other than the principal. Held it does change the common law rule.
DECISION:	Para 37

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

MASTER MACREADY

Thursday 23 September 1999

1052/99 STERLING ESTATES (SA) PTY LIMITED v MICHAEL BRADLEY

JUDGMENT 1 MASTER: This is an application under s 459G of the Corporations Law to set aside a statutory demand dated 19 December 1998 served by the defendant upon the plaintiff. The demand seeks the repayment of the sum of $110,000. 2   The application is an unusual one in that the parties have been in dispute since 1997 about payments due to the defendant from the plaintiff. The defendant’s case in support of the statutory demand is one which relies, inter alia, upon a number of alleged admissions on behalf of the plaintiff that the defendant is owed at least $110,000. The admissions are said to arise in a document dated 19 December 1997 signed at a meeting held on that day to discuss issues between the parties and in a letter dated 20 January 1998. 3   The plaintiff and the defendant in this matter are developers of real estate and have been involved in a number of projects together. The plaintiff is a 50 percent shareholder in a company called Setpave Pty Ltd (“Setpave”). The other 50 percent holder is a company known at Fapodu Pty Ltd (“Fapodu”). Setpave is a joint venture vehicle which operates as the trustee of the Carlton Trust a unit trust in which the units are owned equally by the plaintiff and Setpave. The plaintiff in respect of its share or entitlement from Setpave entered into subsidiary joint venture arrangements with the defendant which apparently required contributions of capital by the defendant in projects undertaken through Setpave. The defendant was a director of the plaintiff from 1991 until January 1998. He is also a director of Setpave. 4   Setpave the joint venture vehicle between the plaintiff and Fapodu entered into a number of real estate development projects in the period 1993 to 1998. As part of the joint venture arrangements between the plaintiff and Fapodu in relation to Setpave, Fapodu was to contribute the bulk of the funds required for each development with the plaintiff providing the remaining funds, management and supervision of the projects. After a return of capital Fapodu and the plaintiff were to share equally or as otherwise may be agreed in any instance any profits or losses on each project. There was apparently no formal joint venture instrument or written agreement recording the terms of the joint venture. Three of the projects which were undertaken concerned properties at Cromer, Cammeray and Mona Vale. 5   The precise terms of the oral arrangements in respect of the subsidiary joint venture arrangement which was entered into between the defendant and the plaintiff in respect of the plaintiff’s share of the development being carried out by Setpave are not in evidence. There is, however, sufficient evidence to indicate that the projects required capital contributions from the defendant and that these would be repaid in due course. In addition there would also be a payment between the plaintiff and the defendant in respect of profits or losses. The parties are in dispute as to the method of calculating any such profits particularly whether it should include administration charges claimed by the plaintiff to be deductable before arriving at the net profits of any venture. There also seems to be a dispute about the number of projects in which the defendant participated with consequent liability for losses. However, the evidence in this area is uncertain given that the main evidence sought to be led on this aspect was in inadmissible form and was rejected. 6   The first project was the Cromer project to which the defendant alleges that he contributed $86,000 in capital. That project was completed in December 1994 and distributions were made. 7   The Cammeray and Mona Vale projects. These are more recent and apart from the sale of one or two units have been substantially completed. 8   It is useful at this stage to turn to the admissions which are the foundation for the claim in the statutory demand. They arise out of a meeting held on 17 December 1997 to discuss the contributions. The defendant gave evidence in paragraph 46 of his affidavit of the terms of the conversation which he had with Mr Yu of the plaintiff. Mr Yu gave his evidence of what occurred in the discussions in paragraph 32 of his affidavit. There is, not unnaturally, a difference between what is alleged. In essence Mr Bradley’s conversation includes what can be said to be admissions that at least $110,000 was owed for return of capital while Mr Bradley maintained that the correct amount was about $180,000. Mr Bradley indicated in his conversation that payment of $110,000 would be paid no later than 15 March 1998. When one looks at Mr Yu’s version he in effect asserts that Mr Bradley’s contribution would not be more than $100,000 but that did not take account of money paid back to him or shares of overheads or project losses. He gives no indication of a time for payment. 9   On 19 December 1997 here came into existence a note signed by Mr Davey and Mr Yu which is attached to the affidavit verifying the demand. There is also attached to that demand a letter of 20 January 1998 addressed to the defendant, the author of which on the face of the document is Mr Yu. However, the document is not signed and there is a dispute as to how this got into the possession of Mr Bradley. There has also been located a further amendment of that letter of 20 January which appears at page 37 of the affidavit of Mr Davey, a director of the plaintiff. It appears to be slightly more detailed than the one attached to the affidavit in support of the demand but likewise it is not signed. In the first draft of the letter of 20 January 1988 there was included the following:-

“The following was agreed:-
1. The equity contribution currently contributed by Bradley is in the region of $110,000 (SESA) to $180,000 (Bradley), the actual amount will be computed by Justin Davey as soon as he has been able to produce a financial audit of our accounts.”

The second version is in these terms:-

“The following was agreed:-
1. The equity currently contributed by Bradley is in the region of $110,000 (SESA) to $180,000 (Bradley), the actual amount is to be agreed with the assistance of Justin Davey who will provide the accounting for same by no later than 15.3.98. The repayment of the equity contribution to Bradley will be made from distribution from the Mona Vale development.”

11   The are many other parts of the documents but the above is the substantive admission said to be constituted by the document. 12   It is necessary to see what status these documents have in order to determine whether they might be admissions. Mr Bradley in his affidavit swears that the letter of 20 January 1998 which he annexed to his statutory demand was given to him by Patrick Yu on or about 20 January 1998. Mr Yu swears it was not given by him to Mr Bradley and was prepared as a working draft. He denies that he gave him any copy of the other draft of 20 January 1998 and does not know how it came into Mr Bradley’s possession. He does, however, point out that Mr Bradley had full access at that time to all the word processing facilities in the plaintiff’s offices. Mr Bradley does not deal with how it came into his possession. 13   For the purposes of this application it is necessary to consider whether there might be a genuine dispute in relation to the making of the admissions recorded in the document. How the document came into the possession of Mr Bradley and whether it does constitute an admission is something with which the parties are at issue. So far as the principles to be applied in these matters are concerned I think the most useful summation 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 those 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."

14   Given the dispute between the parties as to how the document came to be in Mr Bradley’s possession it would seem that I could not conclude on this application that the document had been given to Mr Bradley by Mr Yu and therefore would, if authority was proved, constitute an admission by him on behalf of the plaintiff. Indeed, the evidence is that it was a working draft and not final. There are perhaps two ways in which the document may be admissible The first is that it is a document in the possession and control of a party. It is said in Cross on Evidence para 33510 that a strong case should be necessary for the reception of the document for such a purpose. Given the evidence of the status of the document it is difficult to see how it should be admissible. It is quite a different situation to that which concerned the court in Alderson v Clay (1816) 1 Stark 405, 171 ER 511. 15 The second is that the statement is that of an agent of the plaintiff. In Cross on Evidence at para 33540 it is asserted that normally the statement of the agent which is tendered as an admission must, on the preponderance of authority, have been made to a third person, not to the principal unless it has been adopted by the principal. 16   Upon closer analysis the cases cited in Cross really deal with the issue of determining when a person is speaking on behalf of the company This is noted by Young J in Friends Provident Life Assurance Co Ltd v Arbitrage Financial Group Pty Ltd SCNSW, 22 February 1995, Butterworths Unreported Judgments. In re Devala Provident Gold Mining Company (1883) 22 Ch D 593A is authority for the principle that a confidential report made by an agent to a company is not admissible against the company unless adopted by it. The case concerned a statement made by the chairman of the company to a meeting of shareholders. Fry J states at 595-596:

“Now the rules which limit the admissibility in evidence of statements not made on oath are somewhat stringent, and the only ground upon which, in my view, this statement could possibly be admitted would be that the chairman was the agent of the company, and that he was making the statement in the course of a transaction with a third party in which he was acting as the agent of the company, and that it was within the scope of his agency. If that were so, the statement would be admissible against the company. It appears to me, however, that it is not admissible, for it was made by the agent, not in a transaction between the company and a third party, but at a meeting of the company. It is the case of an agent making a report to his own principal, and, in my view, when an agent is making a confidential report to his principal the report is not admissible evidence in favour of a third party.”

17   Although the general principle that reports to a company must be adopted before they can be taken as admissions by the company is accepted law: see, for example, In re Djambi (Sumatra) Rubber Estates Ltd (1912) WN 192, Guarnaccia v Rocla Concrete Pipes Ltd [1976] VR 302, Finance Guarantee Co Ltd v The Commissioner of Taxation (1970) 44 ALJR 368, the correctness of the analysis in Devala that statements made by a company chairman speaking to shareholders at a company meeting is not speaking on behalf of the company for the purposes of admissibility has been doubted in Finance Guarantee Co Ltd v The Commissioner of Taxation (1970) 44 ALJR 368, Trade Practices Commission v Allied Mills Industries Pty Ltd(No 3) (1988) 55 FLR 174 and Friends Provident Life Assurance Co Ltd v Arbitrage Financial Group Pty Ltd SCNSW, Young J, 22 February 1995, Butterworths Unreported Judgments.

18   In Friends Provident Life Assurance Co Ltd Young J also casts doubt on the analysis in Devala which requires that the agent make a statement in the course of a transaction with a third party. His Honour said, again in obiter, that “properly analysed … [Devala’s] principle is not focused upon the happenstance that statements are made from one agent to another but, rather focuses on the question of authority”. This is supported by cases where ledgers or records kept by employees of the company are admissible. For example, in Warner v The Women’s Hospital [1954] VLR 410, Sholl J (at 413) determined that hospital records of the admission, treatment and discharge of hospital patients kept by hospital staff were documents made in the course of the employees’ duties for the purpose of constituting the hospital’s records capable of being regarded as admissions that the particular facts and opinions therein were accepted as accurate. The hospital records were akin to a diary or log. (His Honour also went on to find that the subsequent conduct by the hospital constituted the adoption of the records as accurate.) Gowans J in Guarnaccia (supra) (at 304-305) said the “characteristic feature” of entries in records made in the course of an agent’s duties was “that they are made for the purpose of a record to be acted upon, not as a report.”

19   On the other hand, communications or records of company business, which can be characterised as reports to the company by an employee or agent acting as a principal, will not be admissible unless the company adopts the contents of the communications. In RW Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd, NSWSC, Giles J analyses a note made by one employee recording a telephone conversation with another employee of the relevant company and an unsigned review of a business operation prepared by an employee of the company as being records of the company’s business which were akin to “a report by an agent to his principal [which] is not an admission affecting the principal” and cites (at 2) Re Devala, Guarnaccia v Rocla Pipes Ltd [1976] VR 302 and General Jones Pty Ltd v Wildridge and Sinclair Pty Ltd (Neasey J, 12 April 1988, unreported). In Swann v Miller [1919] 1 Irish Reports 151 a letter written by an agent to its principal reporting the outcome of a conversation was held to be a mere narrative of events which could not bind the principal unlike a letter which was part of the contract or res gestae.

20   In Settlement Wine Co Pty Ltd v National and General Insurance Company Ltd, Full Court SCSA, 8 September 1988, Butterworths Unreported Judgments, the Court determined that an insurance assessor’s reports directed to the insurer were not admissible on this basis although statements made by an insurance assessor to the insured have been treated as admissions in Fire and All Risks Insurance Co Ltd v Caratti (Bullfinch) Pty Ltd [1969] WAR 49.

21   The fineness of the distinction between records and reports was noted by Sholl J in Warner v Women’s Hospital (at 413). The distinction is found in the authority given to the agent. In making records in the course of duties the authority is to make observations and record opinions on behalf of the employer. In compiling a report the authority is to present the agent’s version of events or the agent’s opinions to the company for consideration. In order to determine when an agent is acting on behalf of the principal, that is with the authority of the principal, “one has to consider the nature of the statement and the circumstances in which it is made, including, for example, the person, to whom, and the time at which, the statement is made”. See Lord Justice O’Connor in Swann v Miller at 183. 22   In the present circumstances the actions of Mr Yu in preparing the draft letter seem to me to be more in the nature of making a record for the company which it may use rather than a report to the company. Given his position in the company and in the negotiations he would be acting within his authority when preparing the document. It would thus seem to be capable of being an admission. If this were not so then it would be necessary to consider the effect that s 87 of the Evidence Act may have on this body of common law dealing with internal reports to a company. 23   Section 87 of the Evidence Act provides:-

“87 Admissions made with authority

(1) For the purpose of determining whether a previous representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that:

(a) when the representation was made, the person had authority to make statements on behalf of the party in relation to the matter with respect to which the representation was made, or

(b) when the representation was made, the person was an employee of the party, or had authority otherwise to act for the party, and the representation related to a matter within the scope of the person's employment or authority, or

(c) the representation was made by the person in furtherance of a common purpose (whether lawful or not) that the person had with the party or one or more persons including the party.

(2) For the purposes of this section, the hearsay rule does not apply to a previous representation made by a person that tends to prove:

(a) that the person had authority to make statements on behalf of another person in relation to a matter, or

(b) that the person was an employee of another person or had authority otherwise to act for another person, or (c) the scope of the person's employment or authority.”

24   The section seems to change a number of the common law principles on authority of agents such as the principle that proof of agency cannot be found in the statement itself. 25   The dictionary in the Evidence Act is important as it provides:-

“ Representation includes:
(a) an express or implied representation (whether oral or in writing); or
(b) a representation to be inferred from conduct; or
(c) a representation not intended by its maker to be communicated to or seen by another person; or
(d) a representation that for any reason is not communicated.”

26   Clearly the “working draft” was not intended by Mr Yu to be communicated at the time it was prepared. The Law Reform Commission interim report No 26 on the Evidence Act noted the disparate views in the cases on the need for the agent to have communicated the matters to someone other than the principal. It suggested that such a requirement was too strict. It did not make any recommendations in this regard but the incorporation of the definition of representation in a section dealing with agent’s admissions indicates that a change in the common law position was intended. It would seem therefore that s 87 overturns the possible common law position. This makes the statement admissible if the appropriate authority exists. As I have said, given Mr Yu’s role in the negotiations and his position in the company, the preparation of such a letter would be within his authority and thus the document can constitute an admission. 27   Given that the document is capable of being an admission the form of words used in the later version suggest that payment will be made from a distribution from the Mona Vale development. The evidence on this aspect seems to be that there is still one unit to be sold and hence the condition has not yet been satisfied. 28   In addition on both versions the actual amount is to either be agreed or computed. Neither event has happened. Until this happens no admission occurs particularly as the contribution is spoken of as being “in the region of”. In the absence of any evidence of the arrangement for repayment of the capital the admission needs to be in clear terms. 29   I have already referred to the hand written document which is said to constitute an acknowledgment. In it there are what appears to be words “Cromer - ….. 110/120 - 180”. It also contains other matters which obviously reflect some of the discussions which occurred in the 19 December meeting. There is an inconsistency in the document in that it seems to put the amount of capital towards Cromer but this is not so. Clearly from both sides of the discussions at the meeting there is in respect of the $110,000 a reference being made to capital for all projects. On the face of the document itself it does not constitute an admission that the amount of $110,000 was due. To explain the document reference has to be made to the discussions and there is a substantial dispute between the two parties to those discussions. I have already indicated that Mr Yu’s version would not constitute an acknowledgment that the amount was presently owing or would be owing on 15 March 1998. 30   In these circumstances, it seems to me that there is no admission of the amount owing. 31   The defendant’s case in respect of the statutory demand is presented as one based upon admissions. Given that this case has not succeeded it probably is not necessary to consider any alternative basis for the claim. However, notwithstanding this, I note the following matters on the evidentiary basis for a claim.

1. There is no evidence before me as to the terms of the subsidiary joint venture agreement between the parties and thus I have no evidence of the terms of repayment of what are said to be capital contributions. I cannot therefore conclude that any such capital contribution is presently due for repayment.

2. In paragraph 14 of Mr Davey’s affidavit there is a suggestion that the terms of the joint venture arrangement between SESA and Fapodu in Setpave required Setpave’s approval to repayments of capital. That is disputed by Mr Bradley but logic would suggest that at least there might have to be a repayment to SESA before a liability to Bradley arose.

3. There is a dispute about the allocation of overheads in respect of Cromer. Paragraph 16 of Mr Davey’s affidavit shows a sufficient level of overhead to make a significant difference to the result but the absence of evidence of the terms of the arrangement does not allow one to determine that there is a genuine dispute in this area.

4. Losses on other projects are claimed in paragraph 17 of Mr Davey’s affidavit. However, once again, there is no evidence of the terms of the arrangement and one thus cannot determine that there is a genuine dispute in this area.

32   Even though the case has failed on the admission claim I am not satisfied that there is any other evidentiary basis for the present recovery of capital contributions. 33   At the commencement of this case there was reference to the question of whether Mr Davey’s affidavit was sufficient to attract jurisdiction. No reference was made to this matter in submissions but in case it is a live issue I will address it. 34   The law in this regard is conveniently set out in the Judgment of Sunburg J in Graywinter Properties Pty. Limited v Gas and Fuel Corporation Superannuation Fund, 21 ACSR, 581. At 587.8 his Honour had the following to say:

"Is a complying affidavit a condition of jurisdiction?
It seems to me that s 459G(3) makes plain that the Court can entertain an application to set aside only if within the prescribed period an affidavit supporting the application is filed and copies of the application and affidavit are served. The High Court in Grant said that compliance with the subsection is a limitation or a condition upon the authority of the Court to set aside a demand; it is a condition of the jurisdiction that subs (3) be observed; if the condition is not observed there is no application before the Court. I am thus unable to agree with the Senior Master that the failure of an affidavit to satisfy the minimum requirements for an affidavit to be a "supporting affidavit" is not a jurisdictional impediment.
The minimum requirements in a genuine dispute case.
In order to be a "supporting affidavit", an affidavit must say something that promotes the company's case. An affidavit which merely says "I am a director of the company but am too busy at present to make a full affidavit, and I will do so later" would not support the application. It would in no way advance, further or assist the company's cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute: John Holland. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief: 71 Paisley Street.
In a s 459H1(a) case, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute not enough. Nor is there a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of an affidavit, that it may read like a pleading.
An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify.
I am thus unable to accept the respondent's submission that the affidavit must contain sufficient material to make out a case under s 459H. In reply, that submission was somewhat retreated from. It was said that the affidavit must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute - it might read more like a pleading than a story. That accords with what I consider to be the minimum requirement.
…………
A multitude of affidavits?
In several cases, it has been held that an applicant is not restricted on the hearing to the affidavit that is served with the application. See Scanhill at 467 and Mibor Investments Pty. Limited v Commonwealth Bank of Australia (1993) 11 ACSR 362 at 368. An applicant whose initial affidavit has satisfied the threshold test must be able to supplement the material, because while the "supporting" affidavit does not have to deploy the evidence, on the hearing only admissible evidence can be relied on. In Louisbridge , Ryan J said that "provided that an affidavit is filed and served within the 21 day period which supports the application by providing grounds for concluding that there is a genuine dispute... or that the company has an offsetting claim", supporting affidavits may be filed under the period has expired. Apart from Hire Works, the cases do not support the proposition for which the applicant contended, namely that an affidavit that does not satisfy the threshold test can be supplemented later on. That issue did not arise in Scanhill or Mibor . It did arise in Hire Works, but for the reasons I have given, I am respectfully unable to agree that the Court can entertain as an application under s 459G a case in which an affidavit containing the minimum requirements has not been served within time."

35   Given the fact that the affidavit does not need to be in strictly admissible form, I think it is appropriate to consider the whole of the affidavit, not just the part that was admitted into evidence on the hearing before me.
36   The relevant affidavit is that of Mr Davey. Clearly it raises the dispute about the admissions and also addresses most of the substantive matters although in an inadmissible manner. In these circumstances it is a sufficient affidavit to attract jurisdiction. 37   I order that -

1. The creditors Statutory Demand for payment of debt dated 17 December 1998 issued by the defendant to the plaintiff be set aside.

2. The defendant to pay the plaintiff’s costs.

Last Modified: 09/23/1999