Mere assertion is not enough: The Federal Court provides a reminder of the evidence required to set aside a creditor’s statutory demand for genuine dispute

In Aussie Hoist Property Pty Ltd v Mulqueen [2018] FCA 1493, the Federal Court has given a timely reminder that a company receiving a creditor’s statutory demand (Stat Demand) cannot have that Stat Demand set aside on the basis of genuine dispute as to the existence or amount of the relevant debt merely by asserting that it disputes the debt.

Background

Aussie Hoist Property (AHP) was the trustee of a property trust. Under an oral agreement, it obtained loan funds from three family trusts to undertake a development project in Victoria. The defendant, Ms Mulqueen, was the trustee of one of those trusts (her husband was a director of AHP).

As trustee, the defendant issued a Stat Demand to AHP demanding repayment of her loan (as trustee) to AHP (the Loan) on the basis that the Loan was repayable on demand.

AHP filed an originating application under section 459G of the Corporations Act 2001 (Cth) seeking to have the Stat Demand set aside on the basis that there was a genuine dispute as to the existence or amount of the debt to which the Stat Demand related.

AHP’s case

AHP admitted the existence and amount of the Loan, but asserted that the Loan was not yet due for repayment. Its principal argument was that:

1. the three directors of AHP, including the defendant’s husband, had engaged in a number of conversations over the course of a 2-month period, during which they agreed that:

1. 1. each of the directors’ respective family trusts would provide funds for the development project; and
   2. the funds loaned would be repayable only when the development was completed and AHP could obtain refinance based on an increased valuation of the development land; and

2. AHP’s assertion of this alleged term meant that there was a genuine dispute as to the existence or amount of the debt to which the Stat Demand related.

Ms Mulqueen’s case

Ms Mulqueen simply argued that the onus to satisfy the Court that a genuine dispute existed lay with AHP, and that AHP had failed to provide sufficient evidence to do so.

Insufficient evidence

The Court reiterated that the onus on the recipient of a Stat Demand to show sufficient evidence of a genuine dispute is not difficult to meet.  Some evidence that raises “a plausible contention requiring investigation” is enough to satisfy the requirement. Even if that evidence seems weak, it will be sufficient if it leads the Court to see “any factor that, on rational grounds, indicates an arguable case”. However, mere assertion that there is a dispute is insufficient.

Here, the Court agreed with Ms Mulqueen, finding that AHP had failed to provide enough evidence to clear this low hurdle.

First, AHP had provided no evidence that Ms Mulqueen, who as trustee of the Mulqueen family trust had advanced the Loan, had ever been party to one of the alleged conversations where the repayment term was discussed.

Second, the Court was critical of the affidavits on which AHP relied, sworn by AHP’s two directors other than the defendant’s husband. This was because instead of setting out the directors’ best recollection of the conversations alleged and leaving it to the Court to assess whether that evidence established an agreement, these affidavits simply stated the directors’ subjective conclusions that an agreement had been reached on the terms they alleged. The Court gave this evidence little or no weight as mere assertion of a dispute.

The Court rejected AHP’s evidence, and held that the oral agreement under which the Loan was made was silent as to repayment terms. Where a loan is silent as to repayment, the common law states that the loan is repayable on demand. The Loan was therefore repayable, as demanded under the Stat Demand.

The Court therefore held that AHP had not satisfied its onus to point to evidence raising a plausible contention requiring investigation and dismissed AHP’s application to have the Stat Demand set aside.

Key takeaway

This case provides a helpful reminder that, although the threshold for evidence sufficient to show a genuine dispute to have a Stat Demand set aside is not high, mere assertion of a dispute will not be sufficient. Some evidence must be provided that raises a plausible contention requiring investigation of the alleged dispute.

From a procedural perspective, practitioners should take care to ensure that affidavits regarding oral agreements must recount the deponent’s recollection of what was said and avoid mere assertion of an agreement.

Authored by:
Guy Edgecombe, Partner
Craig Melrose, Solicitor