Universal Greening Pty Ltd v Sabine

[1998] FCA 1418

UNIVERSAL GREENING PTY LTD v JOHN ROBERT SABINE AND SABINE HOLDINGS PTY LTD
No. VG 3183 of 1998
FED No. 1418/98
Number of pages - 9
Corporations

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

RYAN JR

Corporations - statutory demand - application to set aside - whether abuse of process - whether genuine dispute - whether genuine counter claim or cross demand

Corporations Law ss 459G, 459H, 459J

Williams v Spautz (1992) 174 CLR 509

Pacific Communications Pty Ltd v Walker (1994) 12 ACLC 5

Intergraph Public Safety v Tess Lawrence Media (1996) 14 ACLC 1234

Dewina Trading Sdn Bhd v Ion International Pty Ltd (1996) 14 ACLC 1603

David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 13 ACLC 1572

Texel v Commonwealth Bank of Australia (1993) 11 ACLC 1059

Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACLC 1062

Japab Pty Ltd v Winter (1994) 14 ACSR 255; 12 ACLC 688

Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601

Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 120 ALR 173; 12 ACSR 341

Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 12 ACSR 37

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

MELBOURNE, 4-5 November 1998 (hearing), 6 November 1998 (decision)

#DATE 6:11:1998

Appearances

Counsel for the Applicant: Mr K. Esser

Solicitor for the Applicant: Rogers & Gaylard

Counsel for the Respondent: Mr D. Hyde

Solicitor for the Respondent: Bazzani Brand

THE COURT ORDERS THAT:

1. The application filed on 27 May 1998 and amended 6 July 1998 be dismissed.

   2. The applicant pay the respondents' costs of and incidental to the application.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

RYAN JR

APPLICATION TO SET ASIDE STATUTORY DEMANDS

On 27 May 1998 the applicant sought to set aside two statutory demands dated 5 May 1998. One demand had been made by the first respondent. The other demand was made by the second respondent. The applicant claimed that the demands should be set aside as constituting an abuse of process pursuant to s 459G and s 459J(1)(b) of the Corporations Law.

Following a Consent Order on 30 June 1998 the applicant filed an amended application on 6 July 1998 claiming that the statutory demands should be set aside because of offsetting claims and a genuine dispute about the existence or amounts of debts to which the demands relate.

The applicant does not dispute that the respondents advanced the sums of money particularised in the schedules to the two statutory demands but asserts that sums of $5,000 and $18,500 were advanced by the first respondent on 4 November 1993 and 15 April 1996 as "conditional loans". The assertion seems to be that these were not loans repayable on demand but contributions by the first respondent as a Director of the applicant company and as part of a process of "passing the hat around" among Directors to obtain contributions to allow the applicant company to continue trading.

The applicant also asserts that a payment of $13,775 by the first respondent on 1 September 1995 to Headerworld Pty Ltd for modification of a compost machine, while made on behalf of the applicant, was not a loan repayable on demand and was not a payment authorised by the applicant.

Likewise, the applicant asserts that the sum of $20,000 advanced by the second respondent on 3 April 1995 was not a loan repayable on demand but a contribution by the second respondent as a company controlled by the first respondent and, in effect, a contribution by the second respondent on behalf of the first respondent as a Director of the applicant. Furthermore, the applicant asserts a payment by the second respondent on 20 December 1995 to Abattoir Engineering Pty Ltd for the purchase of a shredder, while made on behalf of the applicant, was not a loan repayable on demand and was not a payment authorised by the applicant.

ABUSE OF PROCESS

The applicant appears to base the claim that the demands should be set aside as an abuse of process primarily but not exclusively on paragraph 33 of the first respondent's affidavit of 8 August 1998 and paragraphs 19 and 20 of the affidavit of 27 May 1998 of David John Francis Murphy, a Director of the applicant company. The kernel of the claim of abuse of process is that the first respondent on his own behalf and on behalf of the second respondent did not cause the issue of the demands for legitimate purposes within the terms of Part 5.4 of the Corporations Law but for the illegitimate purpose of forcing a wind-up of the applicant company and subsequent negotiations with a view to purchasing a particular compost machine and generally obtaining the intellectual property of the applicant company. It is said that the fact that the first respondent offered Mr Murphy the possibility of a job with him, if the applicant was wound up, was evidence of improper intention on the part of both respondents.

At the conclusion of the hearing yesterday I indicated that the applicant had not satisfied me of abuse of process constituting a reason for setting aside the demands under s 459J(b).

The applicant relied on Williams v Spautz (1992) 174 CLR 509 for the following propositions which I accept:

* Australian superior courts have inherent jurisdiction to stay proceedings which are an abuse of process

* it is the duty of every court to protect itself against abuse of process, first because of the need in the public interest to ensure that its processes are used fairly, and secondly, because the failure to do so will lead to the erosion of public confidence by reason of the concern that the courts' processes may lend themselves to oppression and injustice

* the power must extend to the prevention of an abuse even if the moving party has a prima facie case.

Counsel for the applicant then moved to authorities which he cited in support of his contention that the two statutory demands were an abuse of process namely:

* Pacific Communications Pty Ltd v Walker (1994) 12 ACLC 5

* Intergraph Public Safety v Tess Lawrence Media (1996) 14 ACLC 1234

* Dewina Trading Sdn Bhd v Ion International Pty Ltd (1996) 14 ACLC 1603.

The circumstances in these cases are readily distinguished from the circumstances arising here. In Walker Brownie J found:

* the main purpose of Mr Walker's conduct was to coerce the defendant into meeting his claim, under threat of winding up proceedings, without giving the defendant the opportunity to ascertain its financial position by reference to its books of account

* the defendant was entitled to an injunction

However, it must be noted that in that case

* the plaintiff refused to give the defendant access to books of account

* the plaintiff was held entitled, if so advised, to serve a fresh statutory demand immediately

* cases justifying an injunction to prevent a winding up under Part 5.4 were likely to be very rare indeed and Part 5.4 would generally cover the field.

In Intergraph Heerey J found that there was not the slightest indication that the true purpose for which the statutory demand was issued was a winding up of the company to pay off creditors and distribute whatever surplus remained among the shareholders. His Honour found that the demand was issued for the improper purpose of exerting pressure on Intergraph for the payment of what clearly was, in that case, a disputed debt. However, in this case, I have not yet dealt with whether or not there are genuinely disputed debts and observe that in Intergraph there was no evidence whatsoever of insolvency or of any ground for winding up.

In Dewina, an interlocutory application to stay a winding up application as an abuse of process was dismissed. Indeed, Moore J referred to the observations of Gummow J in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 13 ACLC 1572 and to the strict limitation of a stay of winding up to applications made for an improper purpose amounting to abuse of process.

I am not satisfied of any such improper purpose in this case. Indeed, I note that the intent of Part 5.4 is clear, "may be capable of harsh operation" but "is to prescribe a scheme regulating the winding up of companies in insolvency and the whole statutory procedure; the making of demands, their setting aside, and their variation": see Texel v Commonwealth Bank of Australia (1993) 11 ACLC 1059. For completeness I add that I do not accept that an inference of improper purpose can or should be drawn from the fact that the first respondent conducts another and similar business and refused to sign a confidentiality agreement when a Director of the application company.

GENUINE DISPUTE

If a creditor elects to use the scheme provided by Part 5.4 and to rely on a demand rather than a bankruptcy notice founded in a judgment debt, a debtor or alleged debtor can readily have the demand set aside if a genuine dispute exists as to the existence or amount of a debt. A court dealing with an application to set aside a creditor's statutory demand "is not expected (to) embark upon any extended enquiry 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": Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11

ACLC 1062 at 1066.

Counsel for the applicant referred to many of the recent authorities on "genuine dispute". Most of these are referred to in Japab Pty Ltd v Winter (1994) 14 ACSR 255; 12 ACLC 688. I adopt what Santow J sets out there at ACSR 266-261 and mention the following:

* "There is little doubt that Division 3 is intended to be a complete code which prescribes a formula which 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 offsetting claim ... the essential task was relatively simple - to identify the general 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)": Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605

* in Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 120 ALR 173; 12 ACSR 341 Beazley J applied a test of "whether there was a serious question to be tried"

* Lockhart J in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 12 ACSR 37 at 39 said "the notion of a genuine dispute in this context suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance ... on the other hand the Court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the Court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime"

* in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 McClelland CJ characterised the test as whether there is "a plausible contention which requires investigation". He also said "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".

An applicant in these cases does not have to scale the heights to establish a genuine dispute. It is rightly said that "the bar is low" but there is a bar, modest though it be. The bar is that the applicant must establish that there is a genuine dispute as to the existence or amount of the debt. There is no dispute here as to amounts of money advanced but the applicant vigorously asserts there is a real and genuine dispute as to the existence of the debts at all and as to debts payable on demand.

Although the bar be low, there is documentary and affidavit evidence which does not assist applicant. The applicant may fail to clear the bar.

On 1 April 1998 the Managing Director of the applicant company, Graeme Alan McRae, wrote to the respondents' solicitors as follows:

"I refer to your letter dated 30 March 1998 demanding payment of $128,242.20 on behalf of your clients by 13 April 1998.

Your statement that I had given assurances that payment of this amount would be made is not quite accurate. I have advised Dr Sabine that his company's entitlements would be paid to him as soon as it could be arranged and after the quantum of those entitlements was agreed. No commitment as to timing was made although I did indicate that subject to the completion of certain matters, I expected to be able to give him a firm basis on which payment would be made, and that I would endeavour to do so as quickly as possible.

I am still in the process of completing those matters, but may not be able to fully complete them within the time nominated by you.

I would prefer to deal with this matter in a constructive way given the nature of Dr Sabine's involvement with the company. If, however, Dr Sabine is determined to seek to harm the company and its associates, that action will be strenuously resisted, including disputing the quantum of any amount which might be claimed and the basis on which it might be repayable.

I invite you to discuss this matter with me."

On 14 May the applicant's solicitors spoke and wrote to the respondents' solicitors. A letter from the former to the latter on that date is expressed partly in the singular and partly in the plural but clearly deals with both demands and incorporates two individual demands into one "demand". The letter begins as follows:

"We confirm our telephone advice to you of 14 May, 1998 that the statutory demand, made by your clients and dated 5 May, 1998, have (sic) been handed to us by our client company. We further confirm that this statutory demand shall be paid promptly.

We further confirm that our client accepts your client's desire to disassociate himself and his company from our client company and Universal Greening Holdings Pty Ltd and for this reason we requested that you advise us as to the amount that your clients required for the sale of their shares in our client companies."

The affidavits of Robert John Sabine of 8 August and Nicolas Brand of 12 August provide uncontested evidence that the applicant's solicitor, Mr Mullins, spoke by telephone to Mr Brand, solicitor for the respondent, on 4 May 1998 and advised:

* the company was making arrangements to repay the loans which were then owing to the respondents

* Mr Mullins did not encourage his clients to pursue litigation if it could be prevented and, for that reason, was encouraging the applicant to make the necessary arrangements to repay the loans which were then owing to the respondents

* a firm proposal for the repayment of the loans owing to the respondents would be made within a couple of days.

Mr Mullins also enquired of Mr Brand as to whether the second respondent would be interested in selling its shareholding in the applicant company and was advised by Mr Brand that he would seek instructions.

It is also uncontested that on 14 May Mr Mullins telephoned Mr Brand and indicated that he was disappointed that statutory demands had been served given his previous advice that the applicant company was taking steps to have the loans repaid. Mr Brand advised Mr Mullins that he was surprised at this response given that he had been earlier led to believe that the outstanding loans would be repaid within a short period of time but Mr Mullins repeated that the applicant company would meet both statutory demands promptly and concluded the telephone conversation with the following question:

"How much does your client want for the shares?"

There is no evidence that the applicant opposed or expressed any intention to oppose or contest the existence or amount of the loans set out in the schedules to the statutory demands until Mr McRae wrote on 1 April 1998 that "the basis and quantum" of the demands for payment made on 30 March would be "strenuously resisted" if the "matter" was not "dealt with in a constructive way".

Dr Sabine has claimed that $89,225 detailed in the schedules to the two statutory demands was advanced by him as first respondent and by his company as second respondent and that each of the advances was made by loans repayable upon demand.

I am satisfied that the minutes of the meeting of the Board of the applicant company held 19 August 1995 refer to what was to become a loan on 1 September 1995 of $13,775 to pay Headerworld Pty Ltd for the modification of a compost machine. The minutes refer to Dr Sabine "offering to loan ... $17,000 ... to be paid back a.s.a.p. from $140,000 being negotiated with the National Bank". I am satisfied that the loan initially was for $14,500 with $725 repaid by the issue to the second respondent of 775 $1 shares in the applicant company.

I am satisfied that on 20 December 1995 the second respondent advanced the sum of $32,000 to enable the applicant to purchase a shredder and that the first respondent advised the applicant in writing (part of exhibit C to his affidavit of 8 August) on 3 December 1995 that monies which were to become the loan of $32,000 were to go into the first respondent's loan account at ruling market rate with the loan "redeemable in 6 months (or earlier if funds available)" and with redemption of the loan "to be first call on the (applicant's) funds ... when substantial funds are available".

I note that there is reference in the Board minutes of the applicant company held on 21 December 1995 to what was to become a loan of $32,000. The reference is as follows:

"Temporary Loan Facility

Recommendation

That an offer to provide temporary financial accommodation by Dr John Sabine to the extent of $40,000 for a period of two months and the prepayment of interest of $2000 be approved.

Background

The need to acquire a shredder has been well established and with the proximity of the Christmas break and prospect of a minor delay in clearing the first payment from the new major shareholder, John Sabine has once again offered to step into the breach on a short term basis.

It is recommended that John Sabine's offer be accepted given the importance of demonstrating our capacity to HPC."

I note that the loan of $32,000 is specifically referred to in the minutes of the applicant company Board meeting on 22 December 1995 as follows:

"Temporary Loan Facility - noted that JS has already transferred $32,000 to Abattoir Engineering for the purchase of the shredder".

I note that:

* on 15 April 1996 the first respondent advanced $18,500 to the applicant

* the agenda for the meeting of the Directors of the applicant company on 22 April 1996 refers to the loan as follows:

"Dr J Sabine be reimbursed for patent costs incurred for those countries requiring action by 20 April 1996"

* the minutes of the meeting of the Board of Directors of the applicant company of 22 April 1996 refer to the loan as follows:

"Patents - due to timely action on the part of J Sabine and the loan by him to UG of $18,500, UG now holds the patent rights in USA, Canada, China, Japan and Australia - the Board ratifies that J Sabine has loaned UG the money for the patents and that he be reimbursed the costs"

* the minutes of the meeting of the Board of Directors of the applicant company of 29 April 1996 refer to the loan as follows:

"It was agreed that Dr J Sabine be reimbursed for patent costs incurred for those countries requiring action by 20 April 1996"

* the agenda of the applicant's Board meeting of 27 May 1996 refers to the loan as follows:

"Item 3 Charge over Intellectual Property

Recommendation

That Dr John Sabine be granted a first charge over the Patents on the composting machine as security for advancing approximately $19,000 for the payment of patent registration costs. Dr Sabine is to arrange the appropriate documentation, to be reviewed by the Chairman and the Managing Director and executed by them on behalf of the company.

Background

Patent registration costs of about $19,000 were paid personally by Dr Sabine just prior to 20 April 1996 to enable the company to retain its patents on the composting machine in a number of key jurisdictions. The company did not have sufficient resources to pay those costs, nor did it have the time to raise the funds to do so.

Additional costs of about $15,000 have been committed since, and it must be hoped that sufficient funds will be raised to cover those costs as they are submitted.

The granting of a charge to Dr Sabine should be on the understanding that there are two purposes - to protect Dr Sabine's advance, and in the event of the failure of the company to retain the intellectual property for the group of persons behind Universal Greening Pty Ltd."

* minutes of the meeting of the Board of Directors of the applicant company of 27 May 1996 refer to the loan as follows:

"Agenda Item 3

It was agreed that J. Sabine, in consideration for payment of the patent cots, be granted a charge over the patent for the composter. J. Sabine requested that it be on record that he did not request this.

Payment for N.Z. and European patents is required."

In respect of the loan of $5,000 made by the first respondent on either 4 or 8 November 1993 I am satisfied it is a loan repayable on demand. On 10 November 1994 the accountants, Hughes Pincer stated that the $5,000 contributed by the first respondent had been treated as a loan to the applicant.

In paragraphs 26 and 27 of his affidavit Mr McRae describes the advances of $5,000 and $20,000 and $18,500 as "transactions - repayable at some indeterminate time in the future when (the applicant) was sufficiently capitalised to enable payment to be made".

The loans of $5,000 and $20,000 are described in the minutes of the meeting of the applicant's Directors on 1 May 1995 as follows:

"JR SABINE: The contributions of J R Sabine to the company were

LOAN: gratefully acknowledged. This comprises $5,000 loaned on 10 November 1994 and a further $20,000 loaned on 3 April 1995. It was resolved that these loans be recorded in the company's financial accounts as unsecured loans and that these loans bear interest at 20% per annum simple."

I take the view that all of the loans set out in the schedules to the two statutory demands are acknowledged as due and payable in solicitor to solicitor discussions on 4 and 14 May 1998, in the applicant's letter of 1 April 1998 and in solicitor to solicitor correspondence on 14 May 1998. There is nothing in the affidavits and accompanying material filed on behalf of the applicant and the respondents which satisfies me of a real and genuine dispute as to the existence or amounts of the debts claimed by the respondents.

OFFSETTING CLAIM

In the amended application filed on 6 July the applicant seeks to set aside the statutory demand of 5 May on the grounds that the applicant has an offsetting claim. The claim, such as it is, is described in paragraph 47 of Mr McRae's affidavit in terms of "advice sought (by the applicant) as to possible course of action the company may have against Dr Sabine, (the first respondent) and/or his company, the second respondent, arising out of debts the company was obliged to pay as a consequence of the forced acquisition by (the applicant) of the Abattoir shredding machine". In paragraph 48 of his affidavit Mr McRae asserts:

* the applicant company never approved the acquisition of the machine prior to installation at the Melbourne Wholesale Fruit and Vegetable Market

* the company "felt morally and commercially obliged to pay for the machine given that it had already been installed notwithstanding Dr Sabine's absence of authority"

* Dr Sabine did not disclose at the meeting of Directors on 21 December 1995 that he had already acquired the machine even though the Board decided at that meeting not to proceed with the requested acquisition.

In the absence of any documented claim, with no evidence of a demand made by the applicant on the respondents, and without material to support Mr McRae's assertions, I am in no way satisfied of a genuine offsetting claim.

CONCLUSION

The applicant has failed to establish any of the claims by which it seeks to set aside the respondents' statutory demands of 5 May 1998. Accordingly, the application will be dismissed.

ORDERS

The Court orders:

1. The application filed on 27 May 1998 and amended 6 July 1998 be dismissed.

   2. The applicant pay the respondents' costs of and incidental to the application.