Transview Pty Ltd v Sweeny - [2014] WASC 258

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: TRANSVIEW PTY LTD -v- SWEENY [2014] WASC 258

CORAM: MASTER SANDERSON

HEARD: 30 JUNE 2014

DELIVERED : 24 JULY 2014

FILE NO/S: COR 79 of 2014

BETWEEN: TRANSVIEW PTY LTD
Plaintiff
AND
REDMOND GEOFFREY SWEENY
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand - Adequacy of affidavit in support of the application - Turns on own facts

Legislation:

Nil

Result:

Demand set aside

Category: B

Representation:

Counsel:

Plaintiff: Mr A D Wilson
Defendant: Mr K L Christensen

Solicitors:

Plaintiff: Frichot & Frichot
Defendant: Gaden Lawyers (WA)

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

71 Paisley Street Footscray Pty Ltd v Vineyards Estate Pty Ltd (Unreported, FCA, 18 August 1995)
Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419
Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306
Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 21 ACSR 581
Jadd Projects Pty Ltd v Muldoon Tiles Supply & Fix Pty Ltd [2004] WASCA 180
John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250
Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360

MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. A copy of the demand appears as annexure KCM2 to the affidavit of Kevin Charles McKay sworn 23 April 2014. The amount of the demand is $167,500. Under the heading 'Description of the debt' in the schedule to the demand there appears the following:
Principal amount owing under the loan agreement between the Creditor and the Company.
The loan is repayable upon demand and the Company has failed to comply with the demand from the Creditor dated 15 March 2013.
The Creditor does not abandon any of his entitlements, other debts or obligations owed to him by the company.
The background facts taken from Mr McKay's affidavit can be summarised as follows. The plaintiff operates the business of a winery producing under the label of Forester Estate (Forester) and also operates the business of wine distribution called Estate Wine Shippers (EWS). The business was founded in 2002 by Mr McKay and the defendant. It is common ground between the parties that to finance the venture each contributed $167,500 to the plaintiff to allow it to finance its activities. The accounts of the plaintiff reflect these loans.
Mr McKay's view of the terms of these loans is set out in pars 13 ‑ 14 of his affidavit. They read as follows:
13.The aforesaid loan accounts were non‑recourse loans which were to be treated as a capital injection to the Company if after 12 months the money loaned to the Company could not be paid by the Company.
14.The financial position of the Company was such that the loan money could not be paid back within 12 months and accordingly was regarded as a capital injection.
Counsel for the defendant objected to these two paragraphs. He maintained they were simply conclusions not backed up by any evidence. He submitted what Mr McKay should have done was pointed to some document which reflected the alleged agreement and if that did not exist have set out the facts and circumstances which were said to the loans being 'non‑recourse'. Furthermore counsel submitted in the absence of an explanation as to what 'non‑recourse' meant the paragraphs were effectively meaningless.
This raises again the question of what are the minimum requirements of an affidavit in support of an application to set aside a statutory demand. The starting point is the decision of Young J in John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250. His Honour said:
There may be cases, and indeed it may be the majority of cases, where the court will look not only to an assertion of a dispute, but some sort of material short of proof which backs up the claim that is made that the amount is disputed. It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt.
On the other hand, if proof of a claim was required then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court. What more than assertion is required is something that may differ from case to case (253).
That statement of principle has been repeated in countless cases. The next case most often cited is the decision of Olney J in 71 Paisley Street Footscray Pty Ltd v Vineyards Estate Pty Ltd (Unreported, FCA, 18 August 1995). His Honour was there dealing with a since repealed rule of the Federal Court. He said:
Although the provisions of O71 r36B cannot affect the proper construction of s459G(3), it is fair to say that an affidavit which states the material facts relied upon by the applicant in support of an application would comfortably satisfy the description of an 'affidavit supporting the application'. On the face of it O71 r36B contemplates that the affidavit required by s459G(3) is to be in the nature of a pleading in that it requires facts to be stated rather than the evidence to be relied upon.
Sundberg J relied heavily upon this decision in his judgment in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 21 ACSR 581. His Honour said:
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 ...
In a s459H(1)(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 is not enough. Nor is a bare claim that the debt is disputed sufficient (587).
His Honour then referred to Young J's decision in John Holland and to Olney J's decision in Paisley Street Footscray. His Honour pointed out the affidavit need not contain all of the evidence the plaintiff might rely upon at a contested hearing. He said:
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.
...
I am thus unable to accept the respondent's submission that the affidavit must contain sufficient material to make out a case under s459H. ... 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 (587 ‑ 588).
Remarkably enough almost all of the cases at appellate level dealing with the issue of the minimum requirements of an affidavit in support of an application to set aside a statutory demand have been decided in this jurisdiction. They start with Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360 and follow through with Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306 then to Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419 and Jadd Projects Pty Ltd v Muldoon Tiles Supply & Fix Pty Ltd [2004] WASCA 180. All of these decisions support what was said by Sundberg J in Graywinter. The point can be emphasised by quoting from the judgment of Anderson J in the Predella decision. His Honour said:
As to the sufficiency of the affidavit in support of the application to set aside the statutory demand, I must say I do not see why a debtor faced with a statutory demand from a stranger who claims to be an assignee does not sufficiently dispute liability to the stranger by stating a 'genuine bona fide belief' that the deed of assignment 'may be void and of no legal force or effect', which is the statement made by Mr Farbenbloom in his supporting affidavit of 14 December 2000. That is more than a mere assertion that there is a genuine dispute. It states the basis of the dispute. A little more might have been required had the debtor been in possession of the deed of assignment. ... The affidavit is to be understood as saying 'the assignment is unenforceable. Particulars will be given after discovery'. That would be a good pleading, disclosing a good defence in the sense that it is more than a bare denial (309).
The difficulty with pars 13 ‑ 14 in Mr McKay's affidavit is that if they were a pleading they would be liable to be struck out. What Mr McKay does not do is provide material facts. He merely asserts the loans were non‑recourse. But that does not mean his evidence is inadmissible. What it means is that without more the basis of a genuine dispute has not been established. It is necessary then to look at the additional material provided by Mr McKay to determine whether or not the statutory demand ought be set aside.
Attached to Mr McKay's affidavit as annexure KCM4 are a series of minutes of directors' meetings of the plaintiff. The first of these relates to a meeting held on 10 November 2006. The defendant was present at that meeting as was Mr McKay and two other gentlemen one by the name of Craig Douglas. Appearing under the heading 'Cash Flow Forecasting' there appears the following dot point:
Shares to be issued for loan amounts already provided. RS to advise CD
The same entry appears in the minutes of 8 December 2006. There is a slightly different entry in the minutes for a meeting held 12 January 2007 and the loan amount referred to is different to the amount the subject of the statutory demand. Mr McKay in his affidavit does not explain the difference in these minutes. Other than saying the issue of the shares never occurred Mr McKay provides no additional information about the loan and its alleged conversion into shares.
In September 2010 the company accepted advice from an accountant that an injection of $250,000 by way of capital was required. What was proposed was that Mr McKay and the defendant would each provide $125,000. The defendant indicated he did not wish to contribute that amount. The accountant suggested Mr McKay buy out the defendant's interest. An agreement was drawn up. It appears as annexure KCM5 to Mr McKay's affidavit.
The agreement provided a mechanism for the valuation of the defendant's shares and for the resulting amount to be paid over a period of time. Clause (i) of the agreement provided that the shareholder loan of $167,000 should be incorporated in the amount payable to the defendant.
Counsel for the defendant maintained the agreement was irrelevant because it was unenforceable. It was no more than an agreement to agree. For present purposes that argument may be accepted. But it does not alter the fact the existence of the agreement provides some extrinsic evidence which supports the mere assertions made by Mr McKay in pars 13 ‑ 14 of his affidavit. Taken together with the references in the minutes of at least two directors' meetings that is sufficient in my view to establish it is arguable the loan made by the defendant to the company was to be converted into shares. On that basis I am satisfied there is a genuine dispute and the statutory demand ought be set aside.
There are two matters which require further comment. First it is difficult to see why Mr McKay did not explain the circumstances which he says gave rise to the so‑called 'non‑recourse' loan agreement. Affidavits in support of an application to set aside a statutory demand are frequently bedevilled by two much irrelevant material. But here the point was simple, crisp and straightforward. Counsel for the defendant made much of the absence of direct evidence as to the alleged agreement - and he was right to do so. In the end I was satisfied there was sufficient material to support Mr McKay's argument but it was a near run thing.
Second the defendant did file an affidavit in opposition to this application but it did not in any way address the evidence put by Mr McKay. It is frequently the case in applications of this sort a defendant will put on evidence which goes into great detail about what the defendant says occurred. More often than not the result is to crystallise a dispute. But it is most unusual for a defendant simply not to respond to evidence put by the plaintiff. Counsel for the plaintiff submitted in those circumstances the defendant should be taken to have accepted the plaintiff's evidence. In the circumstances of this case it is a unnecessary for me to reach a concluded view on this issue. Independent of the defendant's failure to deny the plaintiff's evidence I am satisfied there is a genuine dispute. This question can be left for another day.
The statutory demand will be set aside. Subject to hearing from the parties the defendant ought pay the plaintiff's costs of the application including the reserve costs.