Accordent Pty Ltd v RMBL Investments Ltd

The contract

1. In 2013, under a Consulting and Professional Services Agreement, Granite Power retained Victoral to perform "Services" set out in Schedule A being, essentially, marketing and sales. Schedule A specified "Financial Arrangements" including: Payment Terms are AUD 2,000 (+GST) per day, capped at a maximum of AUD 20,000 (+GST) per calendar month …
2. Clause 2.1 provided that Victoral would invoice Granite Power on a monthly basis "for those Services provided". Initially, a question arose as to whether the contract obliged Granite Power to pay for a whole day or just that part of the day which Victoral actually worked. At the hearing, Victoral agreed that it was only entitled to be paid for work done on a particular day and so this is not an issue I need to determine.
3. Clause 8 dealt with termination of the contract and provided: 8.1 This Agreement may be terminated by Granite Power at any time without cause, penalty or damages upon Granite Power giving thirty (30) calendar days prior written notice of termination to the Consultant. … 8.3 Notwithstanding paragraph 8.2 [termination for breach on notice] or any other provision of this Agreement, Granite Power may terminate this Agreement by written notice of termination to the Consultant to take effect immediate upon receipt of this notice by the Consultant if [further specified breaches occurred]
4. The Services provided by Victoral under the contract expanded beyond those described in Schedule A to include capital-raising, although the contract was not amended in writing as required by Clause 1.2.

A dispute

1. Stephen Lowe is the sole director of Victoral. From April 2017 on, it is reasonably clear from emails passing between the main actors that relations between Mr Lowe and officers of Granite Power were poor.
2. In August 2017, a term sheet was signed in respect of a potential financier. Mr Lowe asked Granite Power for a success fee or bonus in respect of the capital raising. On 25 October 2017, Granite Power emailed Mr Lowe advising that the board had agreed to a success fee of $250,000 in the event that Granite Power raised the US$30 million which the company was then seeking. The success fee or bonus would only be payable from cleared funds received by Granite Power.
3. By late 2017, emails between the parties evidenced a toxic relationship. On 8 February 2018, Granite Power directed Mr Lowe to continue to work from home until further notice and to continue to perform his duties as a business development executive as described in Schedule A to the contract.

First invoice

1. On 1 March 2018, Mr Lowe submitted his invoice for February 2018 for $20,000 plus GST for services provided as marketing director and to lead capital raising during February 2018. Granite Power disputes that Mr Lowe actually provided Services to the extent of this invoice by reference to two matters: 1. Mr Lowe's emails during this month indicate that, whilst he was working from home, he was not fully engaged in work. 2. At about that time, Mr Lowe took two weeks' holidays as his daughter was getting married. In addition to several emails referring to this, Mr Lowe handed over delivery of a presentation to another representative of Granite Power as he was going to be away.
2. Victoral accepts that it is only entitled to be paid for the part of the day that it actually worked, but says that full days were worked. Mr Lowe says that he worked full time in the office until 7 February 2018. There was no decrease in email or WhatsApp traffic when he began working from home which supports the fact that he was working full time from home.

Termination and second invoice

1. On 1 March 2018, Granite Power informed Mr Lowe that the contract was terminated with effect from 31 March 2018 by leaving a telephone message and confirming this in a call with Mr Lowe the next day. On 5 March 2018, Mr Lowe sent an email to Granite Power asking that his password be reset for his email login as it had 'dropped out'. This prompted Granite Power on 6 March 2018 to request the IT provider to terminate Mr Lowe's email access and his email access removed on 7 March 2018.
2. On 1 April 2018, Victoral rendered a further invoice for fees of $20,000 for services provided as marketing director and to lead capital raising in March 2018, together with unpaid out of pocket expenses of $5,450. Granite Power did not dispute $5,405.67 of the out of pocket expenses, which it paid on 12 April 2019 before these proceedings were commenced. Victoral did not press for payment of the remaining $44.33 of out of pocket expenses. Granite Power disputes that Victoral provided the Services in the invoice.

Third invoice

1. On 9 April 2019, Granite Power sent an email to Victoral noting that the final day of engagement was 31 March 2018 and directing that Mr Lowe should not attend any meetings or participate in any conversations regarding Granite Power in the future.
2. On 1 May 2018, Victoral submitted its third invoice being a fee for $20,000 described as "Notice Period as per written instruction on April 9, 2018". The invoice did not suggest that Victoral had rendered any services during April 2018. Whether Victoral is entitled to these fees depends upon a construction of clause 8.1: did the contract require Granite Power to provide a paid notice period to Victoral even if Services were not provided

Fourth invoice

1. On 4 May 2018, Victoral submitted its fourth and final invoice for "Success Fees as confirmed by Board Minutes for Capital Raising offer provided" for $250,000 plus GST.

These proceedings

1. On 27 March 2019, Victoral served a statutory demand on Granite Power in the amount of $346,450 for the four invoices. On 2 April 2019, Granite Power's solicitors wrote to Victoral's solicitors advising that there was a genuine dispute as to the existence of the debt and requesting that the demand be withdrawn. This invitation was declined.
2. On 12 April 2019, Lachlan Martin, chief financial officer of Granite Power, was instructed to prepare an estimate of the work done by Victoral in February 2018 and, on 15 April 2019, payment for four days' work and out of pocket expenses totalling $14,205.67 was tendered. Granite Power accepts that the estimate did not take into account further information apparent from a WhatsApp printout later obtained in the course of these proceedings.
3. On 16 April 2019, these proceedings were commenced. An affidavit in support by Granite Power's chief executive offer, Stephen de Belle, set out Granite Power's corporate history, its efforts to raise funding and the deteriorating relationship between Granite Power and Mr Lowe. The basis on which each of the invoices was disputed was set out.
4. Victoral's solicitors sought production of documents from Granite Power as Mr Lowe had not had access to his email account since March 2018. Documents were produced. Mr Lowe then deposed that, since April 2013, Victoral had rendered an invoice to Granite Power each month for $20,000 plus GST for Services rendered in the preceding month. He described his efforts in obtaining funding for Granite Power and that, in October or November 2017, the board of Granite Power approved a success fee of $250,000 plus GST in respect of these efforts. Since he had been told to work from home on 8 February 2018, Mr Lowe deposed that he had continued to work full time, including when he was out of town attending his daughter's wedding. Mr Lowe gives a different version of the conversation in which the contract was terminated and says that Victoral continued to work full time for Granite Power throughout March 2018. Mr Lowe also deposed to various matters said to indicate that Granite Power was insolvent.
5. Victoral advised in its submissions served shortly before the hearing that it did not press its claim in respect of the fourth invoice.

Genuine dispute

1. As to whether there is "a genuine dispute" within the meaning of section 459H of the Corporations Act, in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [31], the Court of Appeal approved McLelland CJ in Eq's consideration of a "genuine dispute" in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 as involving a plausible contention requiring investigation, raising much the same sort of considerations as the "serious question to be tried" criterion that applies in the case of an interlocutory injunction. As McLelland CJ in Eq stated at 787: 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, it may be" not having "sufficient prima facie plausibility to merit further investigation as to [its] truth", or "a patently feeble legal argument or an assertion of facts unsupported by evidence".
2. The characteristics of a "genuine dispute" were described in similar terms by the Victorian Court of Appeal in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, by Dodds-Streeton JA (with whom Neave and Kellam JJA agreed), at [71]: The dispute … should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. … Something "between mere assertion and the proof that would be necessary in a court of law" may suffice.
3. In respect of the first invoice, Granite Power submitted that was a genuine dispute about the amount of work done by Victoral in February 2018 and whether it is entitled to $20,000 plus GST for that month. Before the proceedings were commenced, Granite Power reviewed the available documents, in particular, Mr Lowe's emails, records of meetings and telephone calls, and estimated that he had spent 3.6 days working in February 2018, and paid him for 4 days work ($8,000 plus GST). Granite Power's pre-proceeding estimate did not take into account further emails and a WhatsApp printout obtained during the course of these proceedings, which led Granite Power to review but not increase its estimate beyond the amount already paid.
4. Victoral submitted that it had provided the Services in the invoice as Mr Lowe had continued to work full time from home. Mr Lowe strongly criticised Granite Power's methodology. In the alternative, Victoral submitted that Granite Power's calculations roughly supported its invoices.
5. It seems to me that there is a genuine dispute in respect of the first invoice. Whilst Mr Lowe says that he worked, effectively, as he had in any other month that Victoral provided services to Granite Power, it seems to me that there were some distinguishing features of February 2018. Mr Lowe was working from home rather than in the office and Mr Lowe's emails do indicate that, whilst he was continuing to progress efforts to raise capital for Granite Power, he may have been working less than full time and, it would appear, did take some time off during this period to attend his daughter's wedding and take a holiday. This is a factual dispute which appears to me to be genuine in nature and not a spurious concoction or late invention by Granite Power.
6. In respect of the second invoice, Victoral accepts that the invoice to the extent that it exceeds one day's fees is the subject of a genuine dispute. As I understood it, Victoral's position that one day's fees were payable without question is based upon the fact that Granite Power did not purport to terminate the contract until its officers spoke to Mr Lowe on 2 March 2018. But having regard to Victoral's acceptance that it was only entitled to be paid for services actually provided, there remains a dispute from Granite Power's perspective as to whether such Services were provided in March 2018, on 1 March 2018 or at all. For the same reasons as I have given for the first invoice, this dispute appears to be genuine in nature.
7. As to the third invoice, there are two questions to be determined: first, whether Granite Power's oral termination of the contract was valid; and, second, whether Victoral was entitled to be paid during the notice period whether or not any Services were provided. As to the first question, Granite Power submitted that it validly terminated the contract as of 31 March 2018 as the parties, since 2013, had ignored the requirement to amend the contract only in writing, with Victoral performing and being paid for Services outside the terms of Schedule A. By that conduct, Victoral and Granite Power were said to have shown themselves willing to conduct their legal relations without compliance with any express requirement for writing in the contract. Granite Power submitted that the email of 9 April 2019 did not terminate the contract prospectively but sought to confirm an oral termination given a month earlier. To this, Victoral submitted that, on 2 March 2018, Mr de Belle orally informed Mr Lowe that the contract was terminated "with effect from 31 March 2018". That was not effective to terminate the contract. No written notice was given until 9 April 2018.
8. Alternatively, Granite Power submitted that its agreement to pay Victoral for capital-raising was a collateral contract. The requirement in Clause 8.1 to terminate the contract in writing did not apply to termination of the collateral contract. To this, Victoral submitted that the suggestion that there was a collateral contract was inconsistent with Granite Power's affidavit evidence that there was only one contract between the parties; while there was an agreement to vary the contract orally in respect of extending the Services to capital raising, this variation did not extend to removing the requirement for written notice when terminating the contract.
9. As to the first question, therefore, it appears that the parties are in dispute as to whether the contract was amended to remove the requirement for notice of termination to be in writing, or whether the capital raising services for which Victoral charged were provided under the contract or a collateral contract. It seems to me that this is a plausible contention requiring investigation and cannot be dismissed as mere assertions unsupported by evidence, or as patently feeble legal arguments, particularly having regard to the fact that the parties conducted themselves for some years otherwise than in accordance with the contract.
10. As to the second question, Victoral submitted that the only commercially sensible construction of clause 8 is that Victoral is entitled to be paid for the notice period. Otherwise, clause 8.3 is of no effect because Granite Power could give notice under clause 8.1 and withdraw any instructions to work, which is exactly what happened. Clause 8.1 was otherwise at risk of "being toothless" because it was within Granite Power's ability to decide whether to give Victoral work or not, and the effect of clause 8.3 was undermined if there was no payment for the notice period. Granite Power disputed this construction.
11. Where the dispute relied upon to set aside a statutory demand is as to the meaning of a contract, determination of the meaning of a contract may be appropriate if a "patently feeble legal argument" is put forward: In the matter of Universal Property Group Pty Limited [2019] NSWSC 796 at [15]. However, as Barrett AJA cautioned in Creata (Aust) Pty Limited v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [26]: But where the question of construction has any element of rational controversy to it, the Court must exercise particular restraint. His Honour, with whom Gleeson and White JJA agreed, adopted the statement of principle by Gleeson JA in In the matter of Litigation Insurance Pty Limited [2017] NSWSC 334 at [31]: The important points to be derived from the authorities are as follows. First, the court dealing with a s 459G application is not compelled to determine questions of construction of documents. Second, s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. Third, cases in which it will be appropriate for the court to entertain a construction argument on a s 459G application are likely to be few in number. Fourth, the court's state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared. See also Gleeson JA in In the matter of Linton Developments (Qld) Pty Limited [2017] NSWSC 336 at [32].
12. Thus, where there are clearly arguable alternatives as to the meaning of a term and related questions of construction, this of itself gives rise to a genuine dispute within section 459H(1)(a) and no attempt should be made to determine the question in an application to set aside a statutory demand: Drillsearch Energy Limited v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [47] per Barrett J. More recently in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 136 ACSR 563; [2019] NSWCA 60, White JA held at [90] (emphasis added): It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular argument is "patently feeble" (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is "as plain as a pikestaff" that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 at [41]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; 125 ACSR 212 at [26]-[29].
13. Clause 8.1 permits Granite Power to terminate the contract "at any time without … penalty or damages". The ability to terminate the contract without penalty or damages may point to a construction contrary to that proffered by Victoral, as paying for Services for 30 days whether or not Services have been provided might be considered to be a penalty or damages. Clause 8.1 may envisage that, within the 30 day notice period, Victoral has the opportunity should it wish to avail itself of it to continue to provide Services under the contract during the notice period, and if those services are provided then Granite Power was obliged to continue to pay in accordance with clause 2.1, but not otherwise. Accordingly, I do not consider that the only commercially sensible construction of clause 8 is that proffered by Victoral. The third invoice appears to me, therefore, to be the subject of a genuine dispute.
14. As to the fourth invoice, Victoral accepted that, in light of Granite Power's email of 25 October 2017, it was not entitled to the success fee, but explained this late concession on the basis that the email was not provided by Granite Power until 9 May 2019, after the proceedings were commenced, in circumstances where Mr Lowe had not access to his email account since March 2018.
15. Victoral's counsel said that, of the amount demanded, $37,400 was the portion in respect of which it maintained there was no genuine dispute. Granite Power says that the invoices are disputed to the extent that it has not always paid them. For the reasons given, the legal and factual disputes remaining between the parties appear to be me be "genuine" in the sense that they involve a plausible contention requiring investigation and cannot be dismissed as mere assertions unsupported by evidence, or as patently feeble legal arguments. Each dispute has a sufficient objective existence and prima facie plausibility, evidenced by contemporaneous documentation, and cannot be said to be spurious, bluster or assertion.

Section 459J

1. Granite Power submitted that the inclusion of the success fee amount, comprising 80% of the amount in the statutory demand, gave rise to a defect in the demand as Granite Power had to apply to set aside the statutory demand even if it paid everything else that was due, and the whole demand should thus be set aside under section 459J(1)(a), relying on In the matter of UGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [12], [42], [44] (per Black J); First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939 at 951 (per Santow J); Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Ltd (1996) 20 ACSR 746 at 750-1 (per Bryson J). Granite Power submitted that given that, at the conclusion of the hearing, Victoral sought an order under section 459H(4) to vary the statutory demand down to some $37,000 or roughly 10% of the amount in the demand, it was not appropriate to vary the order under section 459H(4) but simply to set it aside under section 459J(1)(a).
2. Similarly, Granite Power submitted that the Court should exercise its discretion to set aside a statutory demand under section 459J(1)(b) for some other reason, as there has been a substantial overstatement in the amount claimed: First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939 at 951; In the matter of UGL Process Solutions Pty Ltd [2012] NSWSC 1256. Granite Power submitted that Victoral included an amount of $275,000 (representing 80% of the claimed debt) where it should have been obvious from the outset that Victoral was not entitled to that debt. Victoral apparently based its claim on Mr Lowe having previously seen documents which supported an unconditional agreement to pay that amount. No such documents have been identified, despite Granite Power having given relevant discovery. The evidence in fact suggests the agreement to pay that amount was conditional on the success of the funding, which Victoral ought to have known had not been received, or could with reasonable enquiries have ascertained (including from Granite Power). The integrity of the statutory demand process has been subverted by the inclusion of the claimed success fee and the whole of the statutory demand should be set aside.
3. Victoral submitted that, at the time of issuing the demand, Mr Lowe had an honestly held belief that he was entitled to the sum sought and was dependent in that regard on obtaining documents from Granite Power. When he was given the document, he abandoned the claim to the success fee but the other invoiced amounts were bona fide: First State Computing Pty Ltd v Kyling at 951; Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 296; (1997) 25 ACSR 675 at 700 (per French, Kiefel and Sundberg JJ); Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62; [2009] SASC 248 at [53]-[63] (per Doyle CJ, with whom Bleby and Kelly JJ agreed); In the matter of Halal Meats Pty Ltd [2015] NSWSC 2041 at [23]-[26] (per Black J).
4. Had I not found there to have been a genuine dispute, I would have been inclined to agree with Granite Power as to these contentions. As Black J noted in UGL Process Solutions at [41]-[44], a substantial overstatement, where much of the amount is later conceded to be genuinely disputed, may result in there being a defect and "substantive injustice" for the purposes of section 459J(1)(a), while also being an "improper use of the statutory scheme" such that the demand must be set aside under section 459J(1)(b). It is not necessary for the overstatement to have been "obvious at the outset": at [44]. As the statutory demand must be set aside under section 459H, it is not necessary to decide this point.

Appointment of administrators

1. On 24 October 2019, Victoral's solicitors informed my chambers that administrators had been appointed to Granite Power under section 436A of the Act (that is, voluntary administration where the directors believe the company is or will become insolvent). Victoral enquired of the Court how the matter should proceed in light of the stay it said had been effected by section 440D of the Act. Section 440D(1) provides: During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except: (a) with the administrator's written consent; or (b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
2. Since this application is brought by Granite Power, it is not a proceeding "against the company". Nor is it "in relation to any of its property": while this phrase is of wide import, having regard to the definition of "property" in section 9 of the Act, it is not so wide as to include a bare right of action, since such a definition would have the effect that any action by or against a company would fall within the section: see MG Corrosion Consultants Pty Ltd v Gilmopur (2012) 88 ACSR 170; [2012] FCA 383 per Barker J at [19]. In an action to set aside the statutory demand, no property of the company is being affected by the Court's decision: the debt underlying the demand, if there be one, is not the subject of the proceedings.
3. If I am wrong about this, I would nevertheless grant leave to Granite Power to proceed, if such leave remains necessary after judgment was reserved. The purpose of section 440D is that there be "a complete freeze of proceedings against the company during the administration so that the administrator can have time to assess the situation, and the company' creditors have an opportunity to work out the net position and adopt an attitude under s 439C which will be in their common interest": Foxcroft v Ink Group Pty Ltd (1994) 15 ACSR 203 at 204 per Young J. Where judgment has been reserved on an application to set aside a statutory demand, neither administrator nor creditor is prejudiced in their ability to proceed in the manner prescribed by Part 5.3A of the Act. Given the costs already incurred in bring this matter to a final hearing, the only likely prejudice in the administration is if these costs are wasted. It would be artificial to have regard to, inter alia, the merits of the action at this late stage. It seems to me better in these circumstances to grant any leave required and determine the matter as tried.

orders

1. For these reasons, I make the following orders: 1. Pursuant to section 459H of the Corporations Act 2001 (Cth), set aside the statutory demand issued by the defendant to the plaintiff dated 26 March 2019. 2. Order the defendant to pay the plaintiff's costs of these proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 October 2019