Ferguson J in Elite Catering Equipment Pty Ltd v Seroshtan [2012] VSC 241 (8 June 2012) considered an appeal from an Associate Justice who dismissed an application to set aside a statutory demand.

FACTS

The Plaintiff (“Elite”) is a manufacturer, importer and wholesaler of commercial refrigeration and catering equipment [1].  The Statutory demand relates to the loan by the Defendant, Seroshtan, of $140,000 and interest of $93,355.07. Elite is a a trustee of a unit trust, with the units held in equal shares by three persons, including Seroshtan.  The three unit holders provided funds to acquire the business operated by Elite in 2006.  Seroshtan provided $133,000. Elite submitted that the funds provided were by way of capital rather than a loan.  The nature of the agreement between the parties was the subject of controversy with no written agreement exhibited. The balance sheets of Elite, from 2006 onwards, show the amount Seroshtan provided as a loan ([20] & [21]) however Elite argued that those entries were characterised in that way for tax purposes [22] or that entries described as loan repayments to directors of Elite were incorrectly prepared and should have been described as wages [23].  Tellingly, at first instance and on appeal the directors had not prepared and filed Tax Returns for the 2010 period.

At first instance the sum was varied to $221,687.32 to take into account money recovered by Seroshtan as at that time [3]. The application was otherwise dismissed.

DECISION

The issue was whether there was a genuine dispute. Elite submitted that the nature of the agreement must be determined at the time the moneys were paid and it was at least arguable that the unit holders agreed that the payments were capital investment in the business [24],  witnesses would be cross examined and there would be discovery [25].  The court had regard to the nature of the transactions, specifically that other sums provided by Seroshtan were described as loans [27], that there was written acknowledgment of the sum as a debt [28] and that similar sums paid by the other directors were repaid by Elite as if a loan.

Counsel for Elite argued that the letter acknowledging the debt, while signed by a director of Elite, gave rise to defences of non est factum, misleading and deceptive conduct and unconscionability.  Her Honour took issue with the material supporting this submission stating:

• at [31] non est factum:
  

“Successful pleas of non est factum are rare. To succeed, the party making the plea needs to persuade the Court that there is a compelling reason why they ought not to be bound by their signature and that they thought they were signing a document that was markedly different from the one that they did sign… Whilst it is not necessary for Elite to have evidence at the level required for proof at trial, Mr Rozenvasser’s evidence is insufficient to show that the defence of non est factum is arguable. For example, his evidence does not touch at all upon what he might have thought the letter was.”

• at [32] misleading and deceptive conduct and unconscionability: there was no evidence that the signatory was in a position of disadvantage or that Seroshtan took overconscientious advantage of anyone.
  

Her Honour had greatest regard for the records which:

• in the company accounts recorded the moneys as being loan funds [33];
• in the income tax returns of Elite recorded the money as loans and which the directors signed off in the financial years 2006 – 2008 [34]
• indicate that the directors of Elite did not pay income tax on the moneys paid to them which they now characterise as wages rather than loan repayments [35]

Elite did not meet the low threshold required to establish a genuine dispute.  Her Honour criticised the evidence given by a director of Elite which conflicted with the documentation, stating:

..it is not sufficient … to make bald statements that suggest that there might be a dispute as to the debt, particularly where those statements are in conflict with contemporaneous documentary evidence and when no satisfactory reasons are given which explain that conflict.

ISSUE

The submissions in support of the application were technical; how to characterise the payments made.  In this context it is not surprising that the court would have regard to the contemporaneous records, especially balance sheets and tax returns which supported the respondent.  Because there was no satisfactory reasons to explain the conflict the affidavit material was not preferred.  Merely highlighting a possible claim is insufficient.  It is not necessary to put on evidence which is akin to a witness statement however the court must be satisfied that there is a basis for a claim made.  That is particularly the case where documents tend not to support the case.