WESTPAC BANKING CORPORATION LIMITED v LEICHHARDT DEVELOPMENT COMPANY PTY LTD: IN THE MATTER OF THE COMPANIES (NT) CODE

Supreme Court of the Northern Territory of Australia Asche CJ
29, 30, 31 May, 1 June, 3, 13 & 17 July 1989 at Darwin

BANKING - advances - notice of intention to withdraw existing cheque signing authority - no new authority executed - bank entitled to act on old authority.

COMPANIES - winding up - debt disputed - discretion of Judge in winding up proceedings to determine whether genuine dispute on substantial grounds exists.

COMPANIES - winding up - creditor must show winding up appropriate - whether waste of time to pursue ordinary litigation - numerous creditors with conflicting interests.

Cases referred to:

Australian Mideastern Club Ltd v Elbakht (1988) 14 ACLR 234
Brinds Ltd v Offshore Oil (NL) (1985) 60 ALJR 185 FAI Insurances Ltd v Goldleaf Interior Decorators
Proprietary Ltd (1988) 13 ACLR 675 & No 2 (1988)
14 ACLR 285
Fortuna Holdings Proprietary Ltd v Deputy Commissioner of Taxation (1976) 2 ACLR 349
In Re K.L. Tractors Ltd (1954) VLR 505
IOC Australia Proprietary Ltd v Mobil Oil Australia (1975) 49 ALJR 176
K.		G. Bradica v Audi Constructions Pty Ltd (1983) 8 ACLR 112
Orleans Marketing Company Proprietary Ltd v Neydharting Moor (-Australia) Proprietary Ltd (1985) 3 ACLC 147
Re Great Britain Mutual Life Assurance Society (1880) 20 CD 246
Re Maddison Avenue Carpets (1974) ACLC 40-125 Re QBS Proprietary Ltd (1967) QR 218
Strata Welding Alloys Proprietary Ltd v Heinrich Proprietary Ltd (1980) 5 ACLR 442

Counsel for the Plaintiffs: Solicitors for the Plaintiffs:
Counsel for the Defendant: Solicitors for the Defendant:

Waters
Waters James & O'Neil
John McCormack McCormack & Co

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IN THE SUPREME COURT OF THE NORTHERN TERRITORY OF AUSTRALIA
No. 42 of 1989

IN THE MATTER OF THE COMPANIES (NT) CODE
AND:

WESTPAC BANKING CORPORATION LTD

Plaintiff

AND:

LEICHHARDT DEVELOPMENT CO PTY LTD
Defendant

CORAM: ASCHE CJ

REASONS FOR JUDGMENT
(Delivered on 17 July 1989)

This is an application by the plaintiff seeking that the defendant company be wound up.	The plaintiff alleges that the defendant is indebted to it in the sum of
$1,054,506.99 for periodic advances arising from an overdraft facility granted to it by the plaintiff;	that that amount has increased and is increasing by way of interest;	that formal demand has been made for the amount and not satisfied;	that the defendant is unable to pay its debts and that it is just and equitable that the defendant

be wound up and a liquidator appointed to manage its affairs.

The defendant admits that it is properly indebted in the sum of $345,147.10 and says it has tendered that sum to the plaintiff, which tender has been refused.	It claims that the advances above that amount were not properly authorised by it, that it received no benefit from such advances and that the plaintiff knew, or ought to have known, that such advances were in breach of its duty to the defendant.	It has issued a writ against the plaintiff and certain other persons claiming, inter alia, against the plaintiff a declaration that the defendant is not liable for the excess and an injunction restraining the plaintiff from commencing or continuing proceedings against it, whether by winding up proceedings or otherwise.

The defendant relies upon a somewhat involved series of transactions which the plaintiff submits are not relevant to the issues between itself and the defendant.

The defendant company (Leichhardt) was incorporated on 10 December 1980 as "Rittle Proprietary Limited" changing its name to Leichhardt Company Proprietary Limited on
12 July 1984.	All issued shares are held by a company Universal Waldeck Limited, (Universal).

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In about mid 1987 various discussions took place between directors of Universal and directors of another company, Pipeline Properties Proprietary Limited, (Pipeline).	The basis of these discussions was that the 2 companies, Universal and Pipeline, were to be partners in a joint venture for the development of a rural residential subdivision in Alice Springs known as Ilparpa subdivision, which was the property of Leichhardt.	Broadly speaking, Universal was to provide finance and Pipeline was to carry out the management and construction works needed for the development, and profits were to be shared equally after repayment to Universal of the original monies advanced.

The general scheme appears in a joint venture deed, which was dated 1 July 1987 and executed by Universal but not Pipeline, Exhibit "M".	The deed remained unexecuted by Pipeline because, it appears, that disputes arose between the two companies but that does not seem to have affected the continuance of the enterprise on the broad terms I have set out.	From
31 July 1987 to 31 March 1988, Mr Waldeck was a director of Leichhardt. Thereafter he was appointed an alternate for a Mr Salotti.

Mr Waldeck was chairman and managing director of Universal until the end of January 1988, when that company was taken over by another company, Asia Securities.	Mr Salotti then became became managing director of Universal, although

Mr Waldeck remained as a director.	Mr Waldeck says he became ill in about January 1988 and had no involvement with the day to day affairs of Universal thereafter, which were in the hands of Mr Salotti.

I will assume for the purposes of these proceedings that a Mr Mulally, at all material times, controlled Pipeline.	This assumption is made without prejudice to
Mr Mulally's right in other proceedings to dispute that, for he's not taken any part here, and I'm merely going on statements made by other witnesses or deponents.	Mr Mulally also became a director of Leichhardt in January 1988.

On 6 January 1988, minutes of the board of directors of Leichhardt, Mr Waldeck and Mr Mulally being in attendance as directors, resolved that Leichhardt would open a bank account with the plaintiff bank at Alice Springs and that Leichhardt execute a charge over the Ilparpa land with the plaintiff for bridging finance to a limit of $300,000. (Exhibit "A" to Waldeck's affidavit of 7 March 1989).

On 15 January 1988, Mr Waldeck and Mr Mulally signed an authority to the plaintiff to open an account for Leichhardt.	Clause 2 of that account authorised the bank, on behalf of the company, to overdraw the account to any extent permitted by the bank.	Mr Waldeck signed as chairman of directors of the company and Mr Mulally signed as

secretary.	Both Mr Waldeck and Mr Mulally also provided specimen signatures and opposite those signatures they were described as directors.	(Exhibit "K")

Exhibit "K" was signed at a branch of the plaintiff bank in Perth, but it was directed to the plaintiff's branch in Alice Springs.	Mr Waldeck says he arrived late and Mr Mulally had already signed the document and departed.	Mr Waldeck then signed the document.

Now, Mr Waldeck has expressed some serious reservations about this document and they are these:

After some opening paragraphs, the document, Exhibit "K", reads:	"By a resolution of a legally constituted meeting of the directors of the company, authority was given to any two directors or manager severally, to do, in the name and on behalf of the company, all or any of the following things viz....."	(Then followed various things which the director or manager could do in the name of the company, including drawing and accepting cheques, etcetera, and including clause 2, to which I have already referred, authorising overdrawing the account to any extent permitted by the plaintiff bank). Mr Waldeck says that his recollection is that the words, "or manager

severally" were not typed in at the time he signed the document.

Under the schedule to the document, which contains the specimen signatures of Mr Waldeck and
Mr Mulally, appears a third signature, that of a Mr Sossi.	That signature appears below that of Mr Waldeck and Mr Mulally.

The first column of that schedule is headed "Full names of all persons authorised", and in that column the full names of Mr Waldeck, Mr Mulally and Mr Sossi are typed in.	The second column is headed "Official designation", and Mr Waldeck and Mr Mulally are described as director and
Mr Sossi is described as manager.	The third column contains specimen signatures and the signatures of the three persons named in the first column appear in the third column appropriately aligned to their names and description as given in the first two columns.

Mr Waldeck says he has no recollection of seeing Mr Sossi's name or his description typed in the schedule when he and Waldeck executed it, nor does he recollect seeing Mr Sossi's signature on the document.

Mr Waldeck concedes that he is "not 100 percent sure", but he steadfastly maintains his belief that when he

signed the document, it did not have the additions he has mentioned.

There is another place in the document where the words 'Directors or Manager' is typed in, where it is recited that:	"By the said resolution, any one of the Directors or Managers, for the time being, has been authorised to endorse cheques" (etcetera).

Although I'm not sure that Mr Waldeck specifically says this - see paragraph 12 of his affidavit of 7 March 1989 and his evidence at page 77 - I think it is an inescapable inference, that he is also contending that the words 'or Manager' appearing there were also not present when he signed;	see paragraph 13 of the same affidavit.

If Mr Waldeck's recollection is correct, there has been a serious interference with the document which would have considerable relevance on certain later allegations that unauthorised drawings were made from the account.
There is certainly nothing in the document itself to indicate that there has been any alteration, although it is fair to say that such alteration could be made easily enough because in each case the alleged additional words do not have to be inserted between other words, and could be typed in after the earlier words.

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But all I can say, on the evidence before me, is that nothing appears but Mr Waldeck's recollection to suggest impropriety.	More particularly, if any fraud is suggested, it has certainly not been established on this evidence;	and it seems to me that this could only have relevance as against the plaintiff if it could be shown to have been a party to that fraud.	No such allegation is made, nor could it be established on this material.

Mr Waters for the plaintiff, describes this evidence as 'willing to wound but yet afraid to strike'. I'm far from making any positive finding that I disbelieve Mr Waldeck, and it is not necessary to do so.	It is sufficient to say that, on the present material, I must accept that the plaintiff bank was entitled to act on the authority of that document as it appears, and within its parameters, and until it was revoked.

Mr Waldeck says that at the same time as he signed the document, he also signed a memorandum of mortgage of the Ilparpa land on behalf of Leichhardt, signing as Director.
Mr Mulally signed as Secretary.	This document was undated at the time, although it now bears the date 16 May 1988.	I do not think anything sinister has been suggested in argument about this.	However, Mr McCormack for the defendant does point out that the deed has been stamped twice.	Once to secure $15,000 on 18 May 1988, and a second

time to secure $957,000, on 14 July 1988.	This is conceded by the plaintiff, and on each occasion the appropriate stamp duty has been paid.	The mortgage is for "all monies already advanced ..•or hereafter advanced."	To my mind, nothing turns on this.

Mr Waldeck and Mr Mulally also, apparently on the same day, signed an instrument of guarantee, each personally guaranteeing advances by the plaintiff to Leichhardt.	The guarantees are not limited to any sum.	They are, in fact, dated 14 January 1988, but again nothing seems to turn on this.

Mr Salotti became a director of Universal on
28 January 1988, and a director of the defendant on 31 March 1988.	He says that at some time in early March 1988, he became aware of the existence of a $300,000 loan facility of the defendant, with the plaintiff.	He made enquiries and was verbally advised that the amount then outstanding was
$278,000, together with some cheques that were floating. This however seems to have been a mistake and, on 8 March 1988, the plaintiff sent to the defendant in Perth, by facsimile transmission, a document stating that the defendants overdraft and charges totalled $386,965 - exhibit A.

That document had annexed to it various calculations and also, in blank, a form of authority signed on 15 January 1988.	On one page the accountant of the bank had written in capital letters:	"Note, the bank is legally obliged to pay cheques signed severally by Waldeck or Mulally or Sossi, up until a new replacement completed authority is held."	Below that was written:	"Please return new authority as soon as possible."

This was presumably a reference to a transmission by the defendant on the same day, or to a telephone conversation on that day, between Mr Salotti and the accountant.	r S lotti says that it had been agreed by the directors of the defendant that the defendant's existing bank authority with the plaintiff be cancelled, and a new bank authority would be given requiring the signature of himself or Mr Waldeck, and another person to be nominated by Mr Mulally.

It appears that the facsimile transmission was dated
8 March, and exhibit 0, containing that transmission, indicates it was sent on 9 March.	However, it is possible that that is another copy sent somewhere else on 9 March and that the plaintiff did receive its copy on 8 March, and exhibit A does seem to have some reference to it.	If there is any dispute, I am prepared to hold on the internal evidence, that exhibit A was sent on 8 March 1988, after the defendant had sent exhibit Oby facsimile, and exhibit A is the reply to that.

What the letter exhibit O says is:	"I have agreed with Mr Pat Mulally that existing cheque signing authority on the above account be withdrawn in favour of a new authority requiring myself, in conjunction with one other, to be nominated by P. Mulally, to sign all future cheques. I understand you will be faxing the required authority, together with details of cheques known to be outstanding in excess of the present overdraft of approximately $278,000, later today, in order that the new authorities be in	place
tomcrrow. 11

It. se8n,L clE.zr, therefore, that the plaintiff's letter, exhibit A, was sent in response to that letter and it contained a blank form of authority to be filled in.
That was obviously in response to the reference to the bank faxing the required authority, and all that needed to be done was to complete that authority and send it to the bank.

I accept that that new authority was never received by the bank.	From what Mr Salotti says, it appears that it was sent to Mr Waldeck and Mr Mulally to sign - see page 108 of the transcript - but there is no evidence that it was signed by both, or if so, forwarded to the bank.

A letter from the plaintiff to Messrs Dwyer
& Thomas, solicitors for Universal, dated 17 May 1988,
exhibit D, states inter alia:	"We are still not in receipt

I

of authority.	As a follow up to this, we forwarded a further authority on 29 April 1988."

Earlier in the letter, the plain statement is made that the new authority forwarded by fax on 8 March 1988 was not returned. Nothing appears to indicate that any further authority was forwarded after that letter, and no reply has been made alleging that the authority was sent.

The result is plain enough in legal terms.	The plaintiff could only act on the original authority and could not accept any verbal or written direction without an express new authority.	Mr Salotti, in paragraph 9 of his affidavit of 28 April 1989, concedes that it was a term of the bank's authority that it was to continue in full force and effect, until the branch of the bank at which the account was at the time being conducted received notice in writing from the company of the cancellation thereof.

What occurred subsequently is, to use the vernacular, that the account "blew out".	This seems to have been because various cheques drawn, mainly by Mr Sossi	see paragraph 18 of Mr Salotti's affidavit of 28 April 1989 - were received by the plaintiff and paid, because Mr Sossi was authorised to sign on behalf of the defendant.
(Exhibit "K").

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It is the defendant's contention that the proceeds of those cheques were not applied for its benefit, but for the benefit of Mr Mulally's company, Pipeline.	That may be correct, but there is exhibited to Mr Salotti's affidavit of 28 April 1989, a letter from Mr Mulally dated
29 April 1989, (exhibit F to the affidavit), which can be construed as an argument that the amounts were properly drawn as a result of the joint endeavour agreement, and indeed he claims to look to the defendant for the financing of the project.

Where the truth of that dispute lies is not a matter for these proceedings, but from the plaintiff's point of view, and provided the plaintiff was properly authorised to make the advances, it is not for it to enter the lists on an internal disputes between 2 joint venturers.

But Mr McCormack submits that in fact the plaintiff was in breach of its authority to lend in excess of $300,000.

I think I should first deal with one argument which he raises which is based on certain internal memoranda of the plaintiff and which he submits establishes that the plaintiff knew that the authority was limited to $300,000.

Mr McCormack relies on a memorandum, exhibit 5, from the plaintiff's files, made by a Mr McIntosh, described as chief

manager.	The date is 7 July 1988, and it refers to Leichhardt, and the relevant part is the remarks that:	"Position is most concerning, and it would appear that advances were allowed
to proceed without prior investigation and confirmation of company ownership and directorship."	However, the memo goes on to recommend that demands be made on the debtor company.

Then there is a memo of 21 November 1988, in which another official of the plaintiff comments on the file.
That contains a note:	"Approved by bank manager, within authy" (sic).	"Initial facility $300 -	yes.	Subsequent excesses, no."

Then there is a discussion of how the position developed as the writer sees it, and there is a reference to anticipation of clearance from development finance being arranged.	Then comes the comment:	"Further OD to say $900 was allowed.	Again in anticipation of development finance being arranged."	Then there is a comment that the development finance did not eventuate and the bank left with a debt of approximately $900, subsequently increased by interest.	Then there are various recorrmendaticns of action on the basis that recovery will be protracted.	The references to $300 and $900 are plainly abbreviations for
$300,000 and $900,000.

The evidence of Mr Schintler, a bank manager, indicates that managers have some discretion in these matters.	That is a general statement because Mr Schintler was not the bank manager involved.

However, all this does no more than suggest some internal concern at the amount of the loan and the way in which it was allowed to incn,e1S8.	It doEes howevc.i indicc.t.Eo that approval was given to $900,000 and there is nothing t0 suggest the manager exceeded his authority, although some criticism may well be inferred.

Furthermore, it is conceded by Mr Salotti that he advised the manager by letter, 31 May 1988, exhibit F, that a $3m loan facility had been confirmed from another source and that a second mortgage could be registered to secure the plaintiff's advances of approximately $905,000.	In fact, this loan did not eventuate and it is unnecessary to discuss the details.	It is not, however, suggested in that letter that the plaintiff had exceeded its authority in advancing monies to the defendant.	Although I accept from Mr Salotti that these negotiations were prompted on his part by his desire to find some way out of the difficulty brought about by the sudden increase of the defendant's liability to the plaintiff.	However, Mr Salotti's letter is unambiguous in its terms.

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None of this I think assists the defendant's argument that the advances were in breach of the plaintiff's authority.	It is not to the point that there were some-· internal rumblings over the wisdom of decisions made.	They go no further than a questioning of the manager's judgment.

On the face of it, the plaintiff bank had been requested to lend amounts limited only by its own discretion, (clause 2, exhibit K - "to any extent permitted by the bank"), provided that the authority of any
directors or managers severally was given.	It had a mortgage from the defendant unlimited in amount; and it had guarantees, again unlimited in amount, from Mr Waldeck and Mr Mulally.

Although an intimation was given on 8 March 1988 that those authorised by the defendant to sign on its behalf, pursuant to exhibit K, would be changed, no such new authority was received by the plaintiff, and, on all the material before me, the plaintiff was entitled to continue to act under the old authority until it did receive the new; particularly after it had given express warning in its letter of 8 March 1988, that it would do so.

Whatever the rights and wrongs of the dispute between the defendant and Pipeline may be, they seem to have no bearing on the position of the plaintiff, vis a vis, the defendant.

On the evidence before me it cannot be established that the plaintiff knew, or should have known, that Mr Sossi had no authority to sign cheques for the defendant or that .the defendant had limited the amounts of its advances from the plaintiff to
$300,000, or was under an obligation to ensure that cheques ostensibly duly signed on behalf of the defendant would be for the benefit of the defendant, rather than for any other person.

For these reasons I do not think that tender of a cheque for part of the debt advances the defendant's position.	That was really no more than an attempt by the defendant to have the plaintiff, in effect, adjudicate in  its favour in its dispute with Pipeline by acknowledging the very position which the plaintiff disputes, namely that the defendant's liability to it was limited to the amount tendered.

But it is submitted by Mr McCormack that the defendant has a defence and cross-claim to the extent that the debt is substantially disputed, and that the court ought not to proceed in a winding up where that is the case, see Strata Welding Alloys Proprietary Limited v Heinrich Proprietary Limited (1980) 5 ACLR 442.

In Fortuna Holdings Proprietary Limited v Deputy Commissioner of Taxation (1976) 2 ACLR 349 at 361,

McGarvie J put it this way: "A person is not entitled to present a petition as a creditor unless he actually is a creditor.	In ordinary circumstances, the procedures of a winding up petition are not to be used to determine whether the petitioner is a creditor if the existence of the debt is genuinely disputed on substantial grounds.

In McPherson - Law of Company Liquidation -
Third Edition, 1987 at page 65, the position of a set-off or counterclaim is equated to the position of a debt, bona fide disputed.	The learned author says: "But although neither of them is a complete answer to the application, it seems settled that where it can be shown that the alleged set-off or counterclaim is based on a substantial ground, the court will, by analogy with the case of a debt which is bona fide disputed, refuse to make a winding up order in the exercise of its discretion.

See also In Re K.L. Tractors Limited (1954) VLR 505, particularly at page 511, where O'Bryan J says: "Assuming that such a counter-claim is to be treated by way of analogy to a bona fide dispute of the debt itself, it must surely be a counterclaim which the court can see is based on a substantial ground".

Whether the defendant's opposition is based upon a separate action or cross-claim or a counterclaim or set-off

may not, therefore, be particularly relevant, provided that what can be established is a bona fide dispute between the parties on substantial grounds; so that, by whatever process, the defendant can be shown to be in a position such that if its claim were to succeed the overall result would leave it not indebted to the plaintiff, or at least not indebted in anything like the amount the plaintiff claims.
For it seems to me that the whole winding up procedure depends upon the petitioner being a creditor in the broad sense of being owed monies, after all bona fide and genuine disputes between it and the alleged debtor are brought into account.

See, for example, Re Maddison Avenue Carpets (1974) ACLC 40-125, where a series of set-offs and cross claims was raised by the alleged debtor. His Honour Bowen CJ in Equity found that, prior to the service of the demand under
section 222 of the New South Wales Companies Act, "there were, and there still remain, substantial matters in dispute arising out of the series of transactions between the parties".	Be co clu8ef, at page 27987: "The petitioner on any view of the facts has sought to use the procedure of a section 222 demand where the state of account between the parties is complex and uncertain, and has for some time been the subject of dispute.	I am of opinion that in all the circumstances and as a matter of discretion, I should dismiss the petition".

However the emphasis is on the existence of a bona fide dispute on substantial grounds.	In K & G Bradica
v Audi Constructions Pty Ltd (1983) 8 ACLR 112, Needham J seems to have accepted that the onus was on the defendant to establish this, although in that case he found the onus sufficiently discharged by the sworn evidence of the defendant to which the plaintiff had not replied.	He found that the defendant had a cross claim against the plaintiff based on negl-i ent workmanship.

McPherson, 3rd edition, page 64, refers to the words of Sir George Jessel in Re Great Britain Mutual Life Assurance Society (1880) 20 CD 246 at 253 that the duty of a company which claims disputed debt is a duty to bring forward a prima facie case which satisfies the court that there is something to be trieG.

McPherson comments at page 65 that, "the burden is therefore somewhat heavier than that restin9 upon a defendant who seeks leave to defend an action begun by specially endorsed writ, for in that case leave is always granted unless there is clearly no real question to be decided.	Whether there is, in fact, a substantial ground for the dispute depends upon the evidence which the court Hill examine... "

Once the defendant has satisfied the court that there is a substantial dispute, the court goes no further. It does not normally determine the dispute.	Strata Welding Alloys Pty Ltd V Heinrich Pty Ltd (1980) 5 ACLR 442 at 448, Fortuna Holdings v Deputy Commission of Taxation (1976) 2 ACLR 349 at 361, but in appropriate cases it can do so in the exercise of its discretion.	Brinds Ltd v Offshore Oil (N.L.) (1985) 60 ALJR 185.

In this case, therefore, the defendant must satisfy me that it has a bona fide dispute on substantial grounds of the debt alleged, and in this case it relies upon the existence of the action against the plaintiff which it has, in fact, brought by writ filed in this court on 10 April 1989.	That writ names the plaintiff as the first defendant, Mr Mulally as the second defendant, Pipeline as the third defendant and Mr Sossi as the fourth defendant.

That writ with statement of claim annexed is exhibited to the affidavit of Mr Morris, a solicitor for the defendant, sworn 24 April 1989 and is exhibit B thereto.

I think it is fair to assume that the statement of claim must be the true basis of the defendant's claim that it has a bona fide dispute on substantial grounds, because, after all, it can only obtain the relief it seeks by establishing the allegations set out in this statement of claim.

I apologise if this sounds self evident, but it has a particular significance in this case where the defendant has cast its net somewhat widely.	The relief it specifically seeks, and the only relief it can presently specifically obtain, must be through the statement of claim.

So far as I can see, on the evidence, it has not foreshadowed any other action nor any amendment to the statement of claim.	It is necessary therefore to set out the statement of claim in full.

STATEMENT OF CLAIM
The Plaintiff is a proprietary limited company incorporated in the Northern Territory and carrying on business in Western Australia and the Northern Territory.

At all material times the Plaintiff was engaged in sub-dividing land near Alice Springs known as the "Ilparpa Sub-Division" in the Northern Territory.

The First Defendant is a bank carrying on business in the Northern Territory and on and from the 15th of January 1988 it was the Plaintiff's banker in the Northern Territory. At all material times the First Defendant was

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also the Fourth Defendant's banker in the Northern Territory.

The Second Defendant was at all material times a director of the Plaintiff and of the Third Defendant and he controlled the Third Defendant and managed its affairs.

The Third Defendant is a proprietary limited company incorporated in Western Australia and carrying on business in Western Australia and the Northern Territory.

The Fourth Defendant was at all material times a senior executive of the Third Defendant.

At all material times the Second Defendant was under a duty to the Plaintiff to honestly and faithfully serve the Plaintiff and to advance the Plaintiff's interests.

On the 6th January 1988 the Plaintiff by resolution of its Board of Directors:

resolved to open an account with the First Defendant at its Alice Springs Branch in the Northern Territory;

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resolved to borrow up to $300,000 from the First Defendant to enable the Plaintiff to proceed with and complete the Ilparpa Sub-divisional works; and

authorised the Second Defendant to arrange the said loan for that purpose up to a limit of $300,000.

On the 15th January 1988 the Plaintiff by resolution of its Board of Directors authorised the Second Defendant and Barry Kniest Waldeck jointly to operate the account referred to in paragraph 7 of this Statement of Claim on behalf of the Plaintiff up to an overdraft limit of $300,000.

The Plaintiff did not authorise the Fourth Defendant to draw cheques on the said account or otherwise operate the account.

The Plaintiff did not authorise any person on its behalf to borrow more than $300,000 from the First Defendant or to overdraw the Plaintiff's said account by more than
$300,000.

•

On 31st day of March 1988 Mr T.G. Salotti became a Director of the Plaintiff.

	By facsimile transmission of the 8th March 1988 the Plaintiff by Mr Salotti notified the First Defendant that the Plaintiff cancelled all existing authorisations to operate the Plaintiff's said account and notified the First Defendant of an intention to authorise in lieu thereof two people, including Mr Salotti to operate the said account jointly.

In the premises pleaded in paragraphs 10 and
13 above the First Defendant ought to have dishonoured all cheques drawn upon the Plaintiff's account signed only by the Fourth Defendant and after the 8th March 1988 ought to have dishonoured all cheques drawn on the Plaintiff's account unless counter signed by Mr Salotti.

(a)		Between the 15th January 1988 and the 6th April 1988 the First Defendant debited the Plaintiff's said account with cheques signed only by the Fourth Defendant.

(b)	The Plaintiff received no benefit from the said cheques.	Particulars exceed 1 page and are contained in a separate document marked "A" which is served with this pleading.

(a)		Between the 8th March 1988 and the 6th April 1988 the First Defendant debited the Plaintiff's account with cheques signed only by the Second Defendant notwithstanding that the Second Defendant's authorisation prior to 8th March 1988 required countersigning by Mr Waldeck and after the 8th March 1988 required countersigning by Mr Salotti.

(b)		The Plaintiff received no benefit from the said cheques.

PARTICULARS
Date:  Cheque No: Amount: Particulars:

01.03.88

302038

$19,913.78
Payee was CBFC Leasing Pty Ltd for lease payments

Date: Cheque No: Amount: Particulars:

14.03.88
382073
$11,870.82
Payee was National Westminster Finance Australia Ltd for Lease payments.

(a)		By about the middle of March 1988 the Plaintiff's said account had become overdrawn to the extent of $300,000. Thereafter the First Defendant ought to have dishonoured any cheque presented for payment against the Plaintiff's said account.	Instead the First Defendant continued to honour such cheques.

(b)		The Plaintiff received no benefit from the said cheques.	Particulars exceed 1 page and are contained in a separate document marked "B" which is served with this Pleading.

In the course of his service as a Director of the Plaintiff the Second Defendant determined to operate the Plaintiff's aforesaid bank

account for his own benefit and for the benefit of his company the Third Defendant and the Fourth Defendant.

In breach of his duty to serve the Plaintiff honestly and faithfully and to advance the Plaintiff's interests the Second Defendant:

requested the First Defendant to increase the Plaintiff's overdraft limit beyond
$300,000;

drew cheques against the Plaintiff's account otherwise than for the benefit of the Plaintiff.	Particulars are those referred to in sub-paragraph 16(b) above; and

instructed the Fourth Defendant to draw cheques against the Plaintiff's account otherwise than for the benefit of the
?l i1 t f .	P&rticulars are those
r8ferred t0 ic su -paragraph 16(b) above.

At all material times the Fourth Defendant knew that the Second Defendant was acting in breach of his duty to the Plaintiff in

instructing him to draw the cheques pleaded in sub-paragraphs 15(a) and 19(c) above.

At all material times the First Defendant knew the Plaintiff's overdraft account was for the particular purpose of enabling the Plaintiff to proceed with and complete the Ilparpa
sub-divisional works.

The First Defendant knew or ought to have known that the cheques referred to in paragraphs 15, 16 and 19 above were drawn by the Second Defendant and the Fourth Defendant in breach of their duty honestly and faithfully to serve the Plaintiff and to advance the Plaintiff's interests.

In the premise the First Defendant ought to have dishonoured each of the said cheques.

And the Plaintiff claims:
a declaration that the Plaintiff is not liable to the First Defendant in respect to the cheques pleaded in paragraphs 15,16,17,19 and 20;

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an order that the First Defendant be restrained from commencing or continuing proceedings against the Plaintiff whether by winding up petition or otherwise in respect of the amounts of the said cheques;-
alternatively

against the Second Defendant an account of the proceeds and cheques particularised in paragraphs 16 and 19 above and payment of the same; and

against the Fourth Defendant on account of the proceeding of the cheques particularised in paragraphs 15 and 20 above and payment of the same.

So far as the claim against the bank is concerned, the following matters are relevant.

It is not pleaded th&t. the Lank w2-:c informed that the limit of the overdraft was to be $300,000 or that the resolution of the board of directors of Leichhardt authorised only Mr Mulally and Waldeck to operate the account and then only up to a limit of $300,000.

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It is pleaded, (paragraph 22), that the bank knew or ought to have known that all cheques drawn by Mr Sossi and any cheques drawn by Mr Mulally without the countersignature at appropriate times of either Mr Waldeck or Mr Salotti, and any cheque drawn by Mr Mulally or Sossi not drawn for the benefit of Leichhardt were drawn in breach of their duty to Leichhardt.

The evidence before me does not establish how the bank knew, or ought to have known, this.	The documentary
evidence is to the contrary.	Particularly exhibit K, but also the unlimited mortgage and the unlimited guarantees. And as I have previously pointed out, no suggestion is made, or in my view on the evidence could be made, that the bank was party to any scheme to defraud Leichhardt, if any such scheme is established.

Paragraph 23 relates back to paragraph 22, ("such cheques"), and on the evidence no basis is established that the bank should have dishonoured such cheques.	On
8 March 1988 the bank made it clear that it would continue to act in accordance with the written authority given to it until that was replaced by another duly executed.	No further authority was received by the bank.

The evidence of Mr Waldeck that his recollection that certain parts of the authority to the bank were not

present when he signed it, and by implication must have been filled in later, is at most only evidence of recollection, and on the present material before me, cannot displace the documentary evidence of exhibit K.

The allegation in paragraph 21, even if established, does not in my view support the presumed implication that the bank was thereby under a duty to ensure that all cheques were to be examined to determine whether they were for the purpose of enabling Leichhardt to proceed with and complete the Ilparpa subdivision; and refused, if in the opinion of the bank, they did not do so.

Nor is that allegation specifically pleaded, unless paragraph 23 is called to aid.	But that does not, on its face, and by its reference to "the said cheques", which is a reference back to paragraph 22, appear to refer to
paragraph 21.

Similarly, it is difficult to see how, (if it is so alleged), that the bank was under any duty to dishonour cheques that were not for the benefit of Leichhardt.	How was the bank to know this?

Paragraph 18 pleads that Mr Mulally determined to operate Leichhardt's bank account for his own benefit and that of Pipeline and Mr Sossi.	It is not alleged that the bank knew or should have known this.

Paragraph 19 then alleges that Mr Mulally, in breach of his duty to Leichhardt, requested the bank to increase Leichhardt's overdraft limit beyond $300,000. Assuming that to be established, it is not pleaded that the bank knew, or ought to have known, that Mr Mulally, a director of Leichhardt, was in breach of his duty to Leichhardt in so requesting the bank.

If paragraph 23 is rather globally relied on, no basis is established as to why, in the premises, the bank should have dishonoured cheques drawn over the overdraft limit if so requested by a director with ostensible authority, pursuant to exhibit K.

Paragraph 13 is not correct insofar as it alleges that on 8 March 1988, Leichhardt, by Mr Salotti, notified the bank that it cancelled all existing authorisations to operate Leichhardt's account.	The only basis for this must be the letter from Mr Salotti to the bank, exhibit O.	That letter purported to be forwarding a copy of an extract from the minutes of a meeting of Universal appointing new directors.	That does not seem to have been received by the bank.

Hc,wever, the important part of the letter is:	"I have agreed with Mr Pat Mulally that the existing cheque signing authority on the above account be withdrawn in

favour of a new authority, requiring myself, in conjunction with one other to be nominated by P. Mulally, to sign all future cheques.	I understand you will be faxing the required authority... later today, in order that the new authorities be in place tomorrow."	(Emphasis added).

Although I have some sympathy with the view that this was a notification of cancellation of existing authorisations, the letter, by its very context, acknowledges that any such cancellation, (and the term used is 'withdrawn'), must be done formally, and does not take effect until so done.	Hence the request that the required authority be faxed.	It is therefore not a notification of cancellation but a notification of intention to cancel, a somewhat different thing.	It is certainly an acknowledgement, and properly so, that something further must be done to render the cancellation effective.	In any event the bank, by its immediate reply, in which it included a form of authority to be completed, made its position perfectly clear.

I must repeat what was stated in capital letters in exhibit A:	"Note, the bank is legally obliged to pay cheques signed severally by Waldeck or Mulally or Sossi up until a new replacement completed authority is held.	Please return new authority as soon as possible."

The evidence is quite plain that the new authority was not returned to the bank.	It seems difficult to argue that thereafter the bank was not entitled to do what it quite unambiguously said it would do and would have to do. Mr McCormack valiantly tries to argue that the bank was at least put on notice that the earlier authority had been cancelled.	But surely it was the defendant that was put on notice that that could not be done without the return of the duly completed form.

For these reasons, I am not satisfied on the material before me that the defendant has established that a dispute as to the debt alleged by the plaintiff exists on substantial grounds.	If it is necessary to consider whether there is a bona fide belief in Mr Salotti or Mr Waldeck that a dispute exists, I am prepared to find that both these gentlemen personally hold such a belief, although it may be stronger against Mr Mulally than against the plaintiff.

From my observations of them in the witness box and under cross-examination, I acquit them personally of
mala fides, that is, I do not consider that they, or either of them, have in the words of Helsham, Chief Judge in Equity, in Orleans Marketing Company Proprietary Limited v Neydharting Moor (Australia) Proprietary Limited (1985)
ACLC 147 at 151, "fabricated the dispute for the purposes of the proceedings."

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.;,-
But, as that case establishes, such a belief, in

itself, does not establish that there is any substance in the claimed dispute.	I think it better to use the expression used by McGarvie Jin	Fortuna Holdings v
Deputy Commissioner of Taxation, (supra) and enquire whether the belief is "genuinely disputed on substantial grounds", (page 361).

Using the word 'genuinely' objectively, I find that there is no genuine dispute and certainly not a dispute on substantial grounds.	I consider it appropriate for me to make these findings, because the matter has been argued at length before me, and evidence has been called on both sides
- see Brinds Limited v Off-shore Oil (N.L.) (1985) 60 ALJR 185;	RE QBS Proprietary Limited (1967) QR 218 (per Gibbs J, as he then was, at 225); Australian Mideastern Club Limited v Elbakht (1988) 14 ACLR 234 at 245 (per Mahoney JA).

I must confess that I was somewhat troubled by the decision of Young Jin	FAI Insurances Limited v Goldleaf Interior Decorators Proprietary Limited (1988) 13 ACLR 675 at 682, where His Honour, after reviewing the authorities, rather stressed that the creditor must show some reason why it is that the appropriate proceedings are a summons for winding up, rather than litigation in the ordinary courts.

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His Honour gave various examples which might assist the exercise of discretion, only one of which seem to apply here, and it is one which His Honour categorised as among the 'less obvious' cases.	That was, "where no judgment has been obtained, but there is a significant debt and circumstances to show that it would be a waste of time to pursue ordinary litigation".

Since I felt that point had not been sufficiently argued before me, I set the matter down for further argument and I am grateful for the assistance given by both counsel. That also resulted in a further affidavit being filed by
Mr Schintler, a bank manager of the plaintiff, which sets out a number of the reasons why it would be a waste of time to pursue ordinary litigation.	I gave leave to file such affidavit but with liberty to Mr McCormack to seek to file affidavits in reply or make a further submission.
Ultimately, he did not seek to do this.

The affidavit of Mr Schintler, sworn 5 July 1989, refers in part to matters already before the court, and in part to certain matters not previously before the court, or perhaps previously seen only through a glass darkly.	In my view, the matters referred to in the affidavit make a strong case, if it were necessary to establish it, for showing that it would be a waste of time to pursue ordinary litigation.
In particular, it makes plain that there are not only

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Pipeline and Universal in hot dispute over the _Ilparpa project, but that at least one other party, Hong Kong Bank of Australia Limited, has claims against the assets of Leichhardt, although these claims are disputed by Pipeline which has, in turn, taken action against the Hong Kong Bank.

There is also a lien lodged by Pipeline Properties against the title to stage 1 of the Ilparpa subdivision, and this has also been the subject of litigation.	It would appear that another company, Asia Securities Limited, was endeavouring to register a mortgage.	In other words, the situation now resembles the sort of bubbling cauldron of trouble, beloved of witches on blasted heaths, or liquidators of blasted companies, and can only now be properly controlled by one or other of those categories of experts;	preferably the latter, since the former are not normally susceptible to court control.

In view of the complicated situation and the welter of conflicting interests, I accept that ordinary litigation would do no more than make confusion worse confounded.

Mr Waters has, moreover, drawn my attention to the fact that the FAI Insurance case has been the subject of a successful appeal to the New South Wales Court of Appeal; see FAI Insurances Limited v Goldleaf Interior Decorators (No 2) (1988) 14 ACLR 285.	Here, Their Honours laid

emphasis on the factor of noncompliance with the statutory demand, and the presumption created by section 364 that deems a company unable to pay its debts.	Their Honours referred to the judgement of the High Court in
IOC Australia Proprietary Limited v Mobil Oil Australia (1975) 49 ALJR 176, and in particular to the remarks of Gibbs J, (as he then was), which remarks were adopted by Stephen and Jacobs JJ, at page 182, that:	"The authorities show that as a general rule a creditor who cannot obtain judgement is as between himself and the company that owes the debt, entitled to a winding up order as a matter of right".

In FAI Insurances No 2 at page 301, McHugh JA says: "Nor can there be any fixed rule concerning the availability of other means of collecting the debt.	It follows from what I have said about the exercise of a statutory discretion that consistently with the exercise of the discretion conferred by section 364(1), it is impossible to have a rule that a summons will be dismissed unless the debt exceeds a specified amount, or that the creditor has exhausted other remedies.	That is not to say that the smallness of the debt or the existence of other remedies is never relevant to the exercise of the discretion.	It means only that the discretion mus·t be exercised according to all the circumstances of the case and not upon a rule that the debt· must exceed a particular sum, or upon proof that other avenues of collecting the debt have been exhausted."

Mahoney JA said, at page 299:	"But, for myself, I think that the statutory requirement that the company be deemed to be unable to pay its debts on failure to meet the statutory demand, is a matter which ordinarily relieves the creditor of the necessity to enter upon detailed proof of the actual inability of the company to pay its debts."

I do not consider that the mere filing by the defendant, in this case, of an affidavit that says it is able to pay its debts, sufficiently overcomes the provisions of section 364, and nothing more was put before me in evidence.

In all the circumstances, I consider that the plaintiff should be entitled to the order it seeks.
Although the defendant has tendered some part of the amount owing, it has clearly done that on the basis that nothing further is owed by it to the plaintiff, and that is not a tenable proposition on the evidence before me.

Whatever the disputes between the defendant and other persons, they do not, in my view, affect the position vis a vis the plaintiff.

I should deal with one further argument put forward by Mr McCormack.	He has submitted that, this being a defended case, the matter must be proved by the plaintiff on

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proper evidence and not hearsay, and he submits that much of the evidence relied on the plaintiff through Mr Schintler comes under that category.	He lays stress, also, on the fact that Mr Hart, another officer of the plaintiff, and a person more likely to have direct knowledge of the transactions, was not called and his affidavit was sought to be withdrawn.

I think there is some strength in Mr McCormack's submission, but the matter eventually proceeded on evidence from both sides, and I'm entitled to act on the admissible evidence before me, which is what I hope I have done.
Mr McCormack was in effect put to his election as to whether he should withdraw his own affidavits and witnesses and take the point on the material which would then have been left before the court.	He declined to do that and I am in no way criticising him for that;	I doubt if he had much choice.
But, be that as it may, the result has been that a considerable body of evidence has now been put before me and it is on that, that I make the findings and orders that I do make.

(At the request of the defendant the matter was adjourned before formal orders were made and the matter was subsequently settled).