- Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation

Judgment 1The Plaintiff, Samkev Investments Pty Limited ("Samkev") applies under s 459G(1) of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 10 November 2011 ("Demand") served on Samkev by the Defendant, Berkley Insurance Company ("Berkley"). The amount claimed under the Demand is $148,555.93 ("Debt") described as amounts due to indemnify Berkley under an Indemnity Agreement made by Samkev on 20 July 2011 in respect of claims made against Berkley under a guarantee dated 20 July 2011. It is plain that the reference to a guarantee dated 20 July 2011 in the Demand is not correct. 2Samkev seeks orders that the Demand be set aside under s 459H(1)(a) of the Corporations Act, which provides that a statutory demand may be set aside when the Court is satisfied that there is a genuine dispute about the evidence or amount to which that demand relates; under s 459J(1)(a) of the Corporations Act which provides that a demand may be set aside when the Court is satisfied that, because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or under s 459J(1)(b) of the Corporations Act on the basis that there is some other reason why the Demand should be set aside. The application to set aside the Demand is supported by an affidavit of Mr Sam Haoui sworn 30 November 2011. Mr Haoui is a director of Samkev. The relevant facts 3Samkev operated service stations at Lakemba and Camden on sites owned by Mobil Oil Australia Pty Limited ("Mobil"), under the terms of an agreement dated 1 October 2010 with another entity, Strasburger Enterprises (Properties) Pty Ltd trading as Quix ("SEP"), which provided for Samkev to operate the service stations and remit the proceeds from sale of petroleum less a commission to SEP ("Commission Agent Agreement"). The Commission Agent Agreement required Samkev to provide security in an amount of $260,000 for the payment of the proceeds to SEP in a form nominated by SEP. 4Mr Haoui's evidence is that Samkev's practice had been to provide a credit insurance guarantee provided by an insurance company to SEP and the insurance company would seek indemnification from Samkev, Mr Haoui and, for a period, his wife for any amounts paid to SEP under the guarantee. Mr Haoui gives evidence as to the process of obtaining guarantees and providing indemnities in previous years. Mr Haoui's evidence is, in general terms, that he understood from that earlier process that the indemnity would be operative on the insurer's acceptance of his application for an indemnity. However, that process involved a different insurer to Berkley and the parties were not under any obligation to follow that process in late 2010 and 2011. 5Earlier guarantees ceased to have effect when Convenience Properties (Operations) Pty Ltd ("7-Eleven") took over the Mobil service stations on 4 October 2010 and new guarantees were required to be provided from that date. Mr Haoui did not then complete an application for the new guarantees since, he says, he understood the current guarantees were in place until November and December 2010 and the sites would be closed from November 2010 to be refitted and for 7-Eleven branding to be installed. 6A representative of a third party which provided administrative services to SEP in respect of the guarantee process, followed up with Mr Haoui on several occasions between October 2011 and April 2011 but he did not complete the application form for the guarantees. His evidence is, importantly, that he had refused to complete that application form in that period because it maintained his wife as a guarantor in circumstances where he was able to list a property owned by him as security. 7Notwithstanding that Mr Haoui had not completed an application for a guarantee or provided the relevant indemnity, and indeed had refused to do so for the reason noted above, he received, in early April 2011, a letter dated 31 March 2011 enclosing two guarantees ("2011 Guarantees"), issued by Berkley in favour of SEP and 7-Eleven to guarantee the Commission Agent Agreement, which were to commence on 4 April 2011 and expire on 4 October 2011, and a further email requesting a completed application. One of the 2011 Guarantees was in a maximum amount of $110,000 and the other in a maximum amount of $120,000. 8After the 2011 Guarantees were issued, Mr Haoui sent an application for a guarantee on 5 April 2011 which deleted the reference to his wife as an indemnifier. He also did not sign the application so far as he was to be treated as an indemnifier and that application was not accepted by or on behalf of SEP or Berkley. 9After further discussions with representatives of SEP, on 12 August 2011, Mr Haoui signed a further document titled Application for a Petroleum Guarantee Bond ("August Application") as a director of Samkev and in his personal capacity, which provided the relevant indemnity ("August Indemnity") to Berkley. That application was then dated 20 July 2011 and Mr Haoui's evidence is that he did not insert that date on it. Mr Haoui contends that, contrary to the usual practice, he was not subsequently advised that the August Application had been accepted and Samkev and Mr Haoui have not paid a premium or an application fee. Whether a genuine dispute is established 10Samkev seeks to set aside the Demand on the basis that there is a genuine dispute as to the existence of the Debt, because, it contends, there is not a binding indemnity agreement by Samkev in favour of Berkley. Samkev also contends the payment made by Berkley for which indemnity is sought was not made in respect of a demand which complied with the requirements of any such guarantee. 11The principles applicable to whether a statutory demand should be set aside under s 459H(1)(a) of the Corporations Act by reason of a genuine dispute as to the existence or amount of a debt are well established. The onus is on Samkev, as the recipient of the Demand, to establish a genuine dispute: Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [15]. The test for a "genuine dispute" used in s 459H of the Corporations Act has been variously formulated as that the dispute is not "plainly vexatious or frivolous" or "may have some substance" or involves "a plausible contention requiring investigation" and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39, Lockhart J observed that: "The notion of a 'genuine dispute' ... 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." 12In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [17], Barrett J noted that the test for a genuine dispute involved a "plausible contention requiring investigation", "real and not spurious, hypothetical, illusory or misconceived" and "perception of genuineness (or lack of it)". His Honour also noted that the tests for a genuine dispute, applied in the context of a summary procedure where it is not expected that the Court will embark on any extended enquiry, mean that the task faced by a company challenging a statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one, and that the company will fail in that test only if it is found, upon the hearing of its application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. His Honour noted that, once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow; and the Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger. 13In Central City Pty Ltd v Montevento Holdings Pty Ltd above at [9], Murphy JA (with whom Buss JA agreed) observed that: "The expression 'genuine dispute' within the meaning of s 459H(1)(a) of the [Corporations] Act, connotes a plausible contention requiring investigation: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [44]. The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds: Createc v Design Signs; Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 at [35]. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie: Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 at [30]. The court will not attempt to weigh or examine the merits of any dispute: Createc v Design Signs; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295." 14The decision of the Court of Appeal of the Supreme Court of Western Australia in Central City Pty Ltd v Montevento Holdings Pty Ltd was in turn followed in Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [4] and in V & M Davidovic Pty Limited v Professional Services Group t/as Rosier Partners Lawyers [2012] NSWSC 134. Whether the indemnity was binding and effective 15Samkev contends that there was no binding agreement because Berkley had not accepted the August Application, although Samkev properly accepted in the course of submissions that acceptance may occur by means other than a specific communication of acceptance. A contractual analysis in the traditional terms of offer and acceptance is not sufficient or necessary to explain all cases and a contract can be inferred from the acts and conduct of the parties as well as or in the absence of their words, and it is not always necessary, in determining whether a contract has been formed, to identify a precise offer or acceptance for the time at which that took place: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110; Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSRLW 153 at 74; Branir Pty Ltd v Ourston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424; Ormwave Pty Ltd v Smith [2007] NSWCA 210 at [68]. On the other hand, a stricter view of the requirement for acceptance, in relation to the provision of a guarantee, finds some support from the decision in Northstate Carpet Mills Pty Ltd v BR Industries Pty Ltd [2006] NSWSC 1057, where the Court noted that an application form which contemplated acceptance by an officer of the guaranteed party told against any suggestion that there could be acceptance by conduct. 16In the present circumstances, it may well be that acceptance can be inferred either from Samkev taking the benefit of the 2011 Guarantees or alternatively by Mr Haoui's signature of the August Application, in circumstances where Berkley had already provided the 2011 Guarantees. However, it is not necessary for me to determine that matter having regard to the other findings that I have reached. 17Samkev also contends that, even if the August Application was validly accepted by Berkley, the only consideration for the claimed indemnity agreement was past consideration which was not effective. As noted above, the 2011 Guarantees are dated 4 April 2011 and apparently took effect from that date, although they were executed no later than 31 March 2011 when copies of them were provided to Samkev. The application completed by Samkev on 5 April 2011 was not accepted by Berkley and postdated the giving of the 2011 Guarantees in any event. The August Application was signed on 12 August 2011, some four months after the 2011 Guarantees were provided. 18By the terms of the August Application, the indemnifiers jointly and severally unconditionally and irrevocably indemnify and agree to keep indemnified Berkley against and for all Indemnified Amounts as defined. The term "Indemnified Amounts" is defined to include: "All amounts paid by [Berkley] under a Guarantee and all costs, expense or loss (including without limitation, all legal fees assessed on a solicitor and own client basis) incurred by [Berkley] in connection with a Guarantee or in connection with this Indemnity. The term "Guarantee" is in turn defined as "any guarantee provided at any time by [Berkley] for the performance of the obligations of [Samkev] in connection with the supply of motor fuels and/or liquefied petroleum gas and/or lubricants." Accordingly, the August Application purports to extend the indemnity given by Samkev to an amount paid under a guarantee predating it. Clause 2 provides that: "[Samkev] acknowledges having agreed to give this Indemnity in return for [Berkley] considering a request to provide, or providing, a Guarantee to a Dealer. [Samkev] considers that there is a corporate benefit for providing this Indemnity." 19However, the August Application is not executed as a deed and cannot take effect as an agreement unless consideration is established. There is no consideration by way of mutual promises in the August Application, since Berkley accepts no obligations to Samkev in it. By the time the August Application was provided, Berkley was not considering a request to provide, or agreeing to provide, a guarantee of Samkev's obligations, because it had previously provided the 2011 Guarantees in favour of SEP and 7-Eleven no later than 31 March 2011. The 2011 Guarantees expressly provided that they remained in effect until 4 October 2011 or otherwise terminated in circumstances which involved Berkley, in effect, meeting its obligations under them, so there was no question of Berkley choosing to continue to provide a guarantee since it already owed binding obligations to SEP and 7-Eleven to do so by the terms of the 2011 Guarantees. 20Where a guarantee is provided after the entry into a financing facility, good consideration can be established by an advance of money pursuant to a request made contemporaneously with or prior to the guarantee: Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88; Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 at 314; Macquarie Bank Ltd v Thomas [2010] NSWSC 843 at [20]. In McKay v National Australia Bank Ltd [1998] 1 VR 173, the Court of Appeal of the Supreme Court of Victoria held that a further guarantee provided after banking accommodation had been provided, where there was no provision of financial accommodation when the guarantee was given and thereafter no forbearance to sue, was unenforceable because there was no consideration. Winneke P observed that a contract of guarantee which is not under seal must be supported by consideration and the onus of proving that there is consideration to support it is on the party who seeks to rely on it; that a mere recital in the document of consideration will not be sufficient to support the guarantee if the evidence demonstrates that no such consideration was given; and that "past" consideration is not sufficient, so that a guarantee given to secure a debt already incurred, but unsupported by any further consideration, will fail for want of valuable consideration (at 177). Ormiston JA noted that mere acquiescence in an existing state of affairs between the relevant parties did not constitute such consideration. 21In this case, there was neither a request made by Samkev prior to the giving of the 2011 Guarantees, at which time Samkev had declined to sign the application in the circumstances noted above, nor was any further accommodation provided to Samkev in circumstances that Berkley will do nothing other than that which it is already under an obligation to SEP and 7-Eleven to do under the terms of the 2011 Guarantees. 22I have also considered whether the circumstances by which the August Application was provided can be characterised as "executed consideration", where the act supplied is part of the same transaction as the promise sought to be enforced, rather than a case of past consideration where the promise is made after an independently constituted and concluded transaction: JW Carter, Elisabeth Reden & GJ Tolhurst, Contract Law in Australia, 5th ed, [6.29]. The authors there refer to Pao On v Lau Yiu Long [1980] AC 614 and Re Douglas; Ex parte Starkey (1987) 15 FCR 475; 75 ALR 97 and observe that: "A promise given at the request of the defendant prior to the rendering of services, and on the understanding that the promisor is to be 'paid' will support a subsequent promise by the requesting party to pay for the services rendered." However, there is also difficulty in applying this characterisation to the present facts, because there was no request of Samkev prior to the provision of the 2011 Guarantees. To the contrary, on Mr Haoui's evidence, Samkev had not been prepared to sign the application at the time the 2011 Guarantees were given by Berkley in favour of SEP. 23It was not suggested in argument before me that anything done by SEP under the Commission Agent Agreement constituted third party consideration given for the 2011 Guarantees and it is therefore not necessary or appropriate for me to determine that question. 24In my view, a plausible contention requiring investigation as to whether the August Indemnity was binding on Samkev is therefore established, and this is sufficient to give rise to a genuine dispute as to the Debt. Whether Berkley was obliged to make payment under the 2011 Guarantees 25Alternatively, Samkev contends that the payment by Berkley was not required to be made under the 2011 Guarantees and therefore cannot be claimed by Berkley from Samkev pursuant to the August Indemnity. 26The 2011 Guarantees set out precise requirements for the making of a demand by SEP or 7-Eleven, providing that such a demand must: