Aust Communication Exchange Ltd v Pilot Partners P/L; Premier Fasteners P/L v Pilot Partners P/L; Bridgeman Agencies P/L v Pilot Partners P/L; Accesscomm P/L v Pilot Partners P/L; Direction Fund Ltd v Pilot Partners P/L [2017] QSC 176

CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENUINE DISPUTE AS TO INDEBTEDNESS - ASSESSING GENUINENESS - GENERALLY - where the applicants had each been served with a statutory demand by the respondent - where the statutory demand related to debts said to be owing under oral or implied contracts - where the applicants argued that it was a term of the contracts that the invoices relating to the debt did not become due and owing until a particular payment process was followed - where the respondent argued that there was evidence showing that the applicants had admitted at least to some extent the debts the subjects of the demands - whether the statutory demands should be set aside or the amounts in them varied

Corporations Act 2001 (Cth), s 459H, s 459G

Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570, cited

Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148, cited

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2011] HCA 18; (2011) 244 CLR 1, cited

Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 111 ALR 289, cited

Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd [2017] VSCA 51; (2017) 118 ACSR 592, cited

Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, cited

Brogden v Metropolitan Railway Co [1877] 2 App Cas 666, cited

Building Solutions & Waterproofing Pty Ltd v Robin H Wright Pty Ltd [2017] QSC 110, cited

Byrne v Australian Airlines Ltd (1995) 185 CLR 410, cited

Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184, cited

David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265, cited

Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation [1978] VicRp 9; [1978] VR 83, cited

Ligon 158 Pty Ltd v Huber [2016] NSWCA 330; (2016) 117 ACSR 495, cited

Paterson v Hampton Interiors (1989) 7 ACLC 904, cited

Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1986-1987) 162 CLR 221, cited

The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 2) (1996) 20 ACSR 170, discussed

Vimblue Pty Ltd v Toweel trading as Carpenters Core Building [2009] NSWSC 494, discussed

Woolcorp Pty Ltd v Rodger Constructions Pty Ltd [2017] VSCA 21, cited

[1] Jackson J: These are five applications, each for an order setting aside a statutory demand served on a company.[1] In each case, the ground of the application is that there is a genuine dispute between the company and the respondent about the existence or amount of the debt or debts to which the demand relates.[2]

[2] The respondent creditor is a firm that supplies accountancy and advisory services. In the past it has supplied such services to each of the applicants in the context of the relationship of accountant and client. The applicants are associated companies that have common management and in some instances common members. Australian Communication Exchange Ltd ("ACE") is a not for profit unlisted public company that provides services to people who are deaf or have hearing or speech impairments. Direction Fund Limited ("DFL") owns the technology used by ACE. Premier Fasteners Pty Ltd ("Premier"), Bridgeman Agencies Pty Ltd ("Bridgeman"), AccessComm Pty Ltd ("Access") are subsidiaries of DFL.

[3] The originating applications are to set aside the following statutory demands served by the respondent:[3]

[4] The debt or debts the subject of each of the demands was for accountancy or advisory services. There is no engagement letter or other agreement in writing that evidences any agreement made between the respondent and any of the applicants for the supply of the services.

[5] The relationship between the respondent and ACE dates from August 2007. For DFL and its subsidiaries it dates from 2011. There is no dispute that each of the applicants engaged the respondent to supply accountancy and advisory services. The agreement made between the respondent and each of the applicants was made by Michael Traynor on behalf of the respondent and (it seems) Edward Gilliland on behalf of the applicants. Mr Traynor was responsible for the work carried out by him and his staff as part of the respondent's corporate advisory group.

[6] Each of the debts the subject of a statutory demand is also the subject of an invoice raised by the respondent for an amount claimed to be due and payable for the services supplied. The applicants dispute the existence or amount of the debt or debts to which each of the demands relates. They contend that the dispute or disputes are genuine disputes[4] and that the substantiated amount of the demand calculated in accordance with the statutory formula is less than the statutory minimum, so that the court must set aside the demand.[5] Alternatively, they contend that if the substantiated amount is at least as great as the statutory minimum, the court should make an order varying the demand to that amount and declaring the demand to have had effect as so varied as from when the demand was served on the companies.[6]

[7] Summarising the applicants' grounds of dispute they are that:

(a) it was a term of each of the contracts under which the services were supplied that before the respondent's invoices became due and owing the relevant applicant and the respondent would follow a process for reviewing and agreeing the amount of the invoice or its reduction ("payment process term");

(b) for three particular projects, DFL and the respondent agreed it was a term of each of the contracts under which the services were supplied that no further amounts would be payable until the project is completed ("project completion term"); and

(c) there are specific errors or disputes contained in the invoices ("error issues").

[8] The respondent rejects each of those grounds as raising a genuine dispute.

[9] In addition, it relies on alleged admissions by the applicants of amounts payable under the invoices as constituting an admitted amount.[7] The respondent submits that the admitted amounts repel the conclusion that there is a genuine dispute as to the existence of the debt or debts to which the demand relates for each applicant. The respondent submits that the court should order that each of the demands be varied to the amount that the court is satisfied is not the subject of a genuine dispute.[8]

[10] In support of those submissions the respondent submits further that the applicants are insolvent, in any event. It submits that should lead the court to find more readily that there is no genuine dispute as to the existence or the amount of the debts to which the demands relate.

[11] It is not in dispute that the debts to which the statutory demands relate are claimed to be payable under an oral or implied contract and are not claims for compensation made on a restitutionary basis.

[12] As developed in writing and orally, the applicants' argument as to the payment process term runs as follows. First, the respondent's claim is one for remuneration under an oral contract or implied contract for the supply of accountancy and advisory services. Second, there is no express term authorising the respondent to charge:

(b) administrative costs or overheads incurred in performing work;

(d) learning about work done by the relevant applicant company.

[13] Third, the payment process was carried out as follows:

(a) Mr Traynor would cause the respondent to issue an invoice or invoices to the particular applicant usually on a monthly basis. Whilst the invoices stated they had a 14 day payment term, that period was not observed or expected to be observed;

(b) Mr Traynor would met Mr Gilliland to discuss batches of invoices from time to time, usually for the past two or three months;

(c) at the meeting, Mr Traynor would provide Mr Gilliland with spreadsheets showing individual detailed line entries and they would discuss the invoices and information. Sometimes, Mr Gilliland would dispute part or the whole of an invoice; and

(d) if Mr Gilliland agreed with the invoice, he would authorise payment. If not, the invoice might be reissued or some other commercial arrangement might be reached.

[14] Fourth, compliance with the payment process term is a condition precedent to an invoice becoming payable. Fifth, the invoices the subject of the statutory demands have not been subjected to the payment process.

[15] The respondent submits, however, that there is no genuine dispute as to the existence or the amount of any of the debts based on the alleged payment process term for the following reasons. First, the payment process term which is not a term of any of the contracts. Second, there is no contractual obligation for the respondent to provide any information in support of the amounts claimed in the invoices before the debt the subject of an invoice becomes due and payable. Third, even if there is a payment process term or some other obligation to provide information before the debt the subject of an invoice becomes due and payable, the applicants have admitted the amounts of the debts to the extent that there is a waiver of any requirement to engage in the payment process or to provide more information as to the undisputed amounts and those amounts are due and payable.

[16] Under earlier statutory regimes it was said to be an abuse of process to use the statutory demand and winding up petition processes as a means to collect a disputed debt,[9] although if the company applied for an injunction to restrain the presentation and advertisement of the winding up petition it was required to prove solvency in the usual case. As summarised by the High Court, under earlier regimes, "the presumption that a company was unable to pay its debts could not arise if the debt the subject of the demand was shown to be the subject of a genuine dispute of substance."[10]

[17] That a winding up application is not the proper way to collect a genuinely disputed debt is even clearer under the current legislation than it was under earlier regimes. This follows from the text and context of the applicable provisions. Under the current legislation, the consequence of non-compliance with a statutory demand that is not set aside is presumed insolvency.[11] On the subsequent application to wind up the company on the ground of insolvency, in effect the company is not permitted to dispute that the debt the subject of the demand was due and payable, except with leave and only when the ground is material to proving that the company is solvent.[12] Those serious consequences inform what is required and what is not required by way of evidence before a genuine dispute is found to exist on an application to set aside a statutory demand.

[18] Nevertheless, the requirement that any dispute must be genuine entails that the court must examine the facts alleged to see whether the threshold of a genuine dispute is crossed. Beyond that the court does not go. First, that is what follows from the ordinary meaning of the words "genuine dispute... about the existence or amount" of a debt in s 459H(1)(a) of the CA. Second, s 459H(3) provides that, on the hearing of an application to set aside a statutory demand brought under s 459G, if the "substantiated amount" is less than the statutory minimum the court "must, by order, set aside the demand". The calculation of the substantiated amount requires that any "offsetting total" be subtracted from the "admitted total", but there will not be any "admitted total" unless there is first an "admitted amount" and there is no "admitted amount" if the court "is satisfied that there is a genuine dispute between the company and the [alleged creditor] about the existence of the debt".

[19] An applicant bears the onus of establishing the existence of a genuine dispute on the balance of probabilities.[13] Courts have sought to articulate the nature of the inquiry involved. A recent example in the Court of Appeal of Victoria in Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd is as follows:

"In determining an application under s 459G, the Court's function is to identify whether a genuine dispute or offsetting claim exists, not to determine any such dispute or claim. This means that the applicant under s 459G is required only to establish a 'plausible contention requiring investigation' of the existence of a genuine dispute or claim. The application will fail only if the contended dispute or claim is 'so devoid of substance that no further investigation is warranted'. The resolution of the application should generally not involve the deciding of disputed questions of fact, but might require determination of short points of law."[14] (footnotes omitted)

[20] Courts have also sought to articulate what is required by way of evidence to satisfy the court that there is a genuine dispute. A recent example in the Court of Appeal of NSW, Ligon 158 Pty Ltd v Huber, says "about the forensic approach to be adopted in s 459G proceedings:

(1) While there must be evidence showing a serious question to be tried or an issue deserving of a hearing that evidence cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable.

(2) The short time allowed by s 459G(2) for the preparation of the affidavit supporting the claim for an order setting aside the demand militates against the presentation of the fullest and best evidence in some cases.

(3) In determining whether there is evidence of a genuine dispute regarding the debt, the court is generally not concerned to engage in an enquiry as to the credit of the deponent of the supporting affidavit. At the same time, it is not required to accept uncritically every statement in the affidavit that is inconsistent with undisputed contemporary documents, is inherently improbable, does not have sufficient prima facie plausibility to merit further investigation or is an assertion of facts unsupported by evidence.

(4) Inconsistent contemporaneous documents are not necessarily sufficient to defeat the company's challenge even though they might pose difficulties for the ultimate proof of the case that it would advance if the dispute were litigated." [15]

[21] Although all parties submit that the debts the subject of the demands in the present cases are claimed under a contract or contracts, none of them devoted close attention to the terms of the contracts other than the dispute over whether the facts established by the evidence raised a genuine dispute as to the existence of the payment process term or similar.

[22] The starting point is that there can be an oral contract to supply services for reward without an express agreement as to price. In Pavey & Matthews Pty Ltd v Paul[16] Brennan J said:

"... in the course of the 17th century, the action of indebitatus assumpsit was held to lie when the remuneration or price to be paid for the doing of work or the supply of goods had been left indeterminate."

[23] Professor Stoljar observed in the Law of Quasi Contract,[17] that the emerging indebitatus count made it possible to sue on executed contracts in which the price was left indeterminate. Accordingly, Jordan CJ was able to summarise the position thus in Horton v Jones & Ors (No 2):

"if a person employs another to do work ... nothing being said as to wage or the price, the law implies a promise to pay a reasonable wage or a reasonable price, and an action may be maintained ... In this case, the action is one to enforce an implied term of an express contract ...".[18]

[24] However, there is no term that is usually implied that a supplier must provide details of the services as a condition precedent to being entitled to payment. As a matter of history, the limited extent of the detail which a plaintiff was required to declare as to the facts in pleading a count upon a quantum meruit of this kind can be ascertained from a number of sources.[19] The case law does not support an implied term to provide details of the services supplied as a condition precedent to being entitled to payment. On the contrary, a plaintiff in an action for the value of the services was able to "state his claim in a summary form, omitting many particulars deemed essential where the assumpsit was executory",[20] a practice which has persisted through the pleading forms of comparatively modern pleading books.[21]

[25] Turning to the payment process term, in effect the applicants' contention is that it became a term of each of the relevant contracts by a course of dealing as stated in the evidence of Mr Gilliland and Mr Traynor. A contract or a term or terms of the contract may be made by a course of dealing without an express agreement or even a clear offer and acceptance. Although courts do not lightly infer a contract based on course of conduct or dealing,[22] there are well known examples where it has been done.[23] Even so, it must be accepted that "there are no cases upon which differences of opinion may more readily be entertained" than whether an agreement is made or intended from imperfect or incomplete communications.[24]

[26] When the question is as to the adoption or incorporation of a contractual term by a course of dealing, the factual issues may also be complex. Often the dispute is about whether the parties by their conduct have incorporated a written term, but this is only one class of case.[25] The implication of a term by course of dealing was recognised as a category of implied term in the High Court in Byrne v Australian Airlines Ltd.[26]

[27] Another important step in the applicants' argument is that compliance with the payment process term is a condition precedent to any entitlement to payment. There is an analogy between a conditional entitlement of this kind and the category of contract called an entire contract. In Baltic Shipping Co v Dillon[27] it was said:

"The concept of an entire contract is material when the court is called upon to decide whether complete performance by one party is a condition precedent to the others liability to pay the stipulated price or to render an agreed counter-performance."

[28] The celebrated example of such a case, which shows why the courts lean against construing contracts as entire contracts[28] is Cutter v Powell,[29] where an unfortunate second mate on a ship died before completion of a voyage from Jamaica to Liverpool, but the contract expressly stipulated that a lump sum was payable on completion of the voyage.

[29] It would not be appropriate to discount or reject Mr Gilliland's or Mr Traynor's evidence as to the payment process in deciding whether there is a genuine dispute based on the alleged payment process term. There is nothing impossible about the alleged payment process term. Examples exist of contracts to provide services where no remuneration is agreed, yet the parties by their agreement settle upon a method to determine or fix the amount payable from time to time.[30]

[30] There is also a potential question whether the entitlement to payment of a reasonable amount under an oral contract to perform services can constitute a debt that is due and payable that is not the subject of a genuine dispute if challenged by the alleged debtor. In The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 2),[31] Santow J held that such a claim on a "common money count for work done" was a "liquidated claim" and one for a "debt or liquidated demand" that established the claimant as a creditor. On the other hand, in Vimblue Pty Ltd v Toweel trading as Carpenters Core Building,[32] Barrett J held that where there was no agreed method of calculation and had been no determination of a reasonable reward for the work done there was a genuine dispute as to the existence or amount of the alleged debt in the statutory demand. Neither of these cases was referred to by the parties in argument in the present case, so it would not be appropriate to explore the reasoning on which they were based further, beyond observing that they are potentially inconsistent.

[31] The conclusion I have reached is that there is a genuine dispute as to the existence of the payment process term and a genuine dispute as to the existence of the debt or debts the subject of the statutory demands, subject to the questions raised as to admitted amounts, as dealt with below.

[32] The respondent submits there is evidence that each of the applicants has admitted the debts the subject of the demands to some extent.

[33] First, by letter from ACE to the respondent dated 18 May 2017 it was said as follows:

"For the record, I object to your last email where you say that you have provided all the materials necessary for us to review the outstanding invoices. We have found it impossible based on the detailed WIP provided to reconcile totals towards individual line items within bills. This was essential for us to properly analyse the invoices and what they are for. You have also failed to provide any of the backup materials we have asked for. You have provided no instruction emails for individual projects, no Gantt charts of progress steps, no summary of costs, project by project and no estimate of costs to date, versus costs to complete. In short you have provided very little of the material which I have requested to analyse these invoices. I have, however, reviewed each of them in detail and made an effort to assess their reasonableness. ...

Given the nature of the issues we have found in these invoices we also reserve the right to investigate further not only these invoices but previously paid invoices and have these amended and adjusted."

[34] The letter attached seven pages headed "Detailed Analysis of Pilot Invoices" which was broken into relevant sections relating to specific nominated invoices. Importantly, that analysis included the following statements:

"Invoice 73936 dated 30 November 2016 - We agree to pay an amount of $20,581.47 in respect of this invoice...

Invoice 74381 dated 21 December 2016 - In respect of this invoice we offer to pay $25,465.55...

Invoice 74658 dated 24 January 2017 - ... Whilst we reserve the right to come back and dispute further matters in this invoice for the purposes of providing settlement offer in this matter, we agree to pay $42,862.50...

Invoice 74952 dated 13 December 2017 - This bill we agree to pay $36,202.80 ...

Invoice 75268 dated 8 March 2017 - We agree to pay this invoice in its entirety.

Invoice 75280 dated 8 March 2017 - We object to this invoice ... We would agree to pay $9,164.26 of this invoice...

Invoice 75823 dated 18 April 2017 - We agree to pay $28,226 in respect of this invoice..."

[35] The applicants submit that the general reservation of the right to investigate the invoices further compels the conclusion that the statements set out above are not admissions of the amounts that the applicant ACE agreed or offered to pay. Having regard to the text of s 459H of the CA, in my view, the relevant question is whether the court is satisfied that those amount are not the subject of a genuine dispute.

[36] The effect of the general reservation, even in the context of the earlier complaint about the absence of provision of further information, does not repel the conclusion that I am satisfied that the amounts agreed or offered to be paid are not the subject of a genuine dispute.

[37] That conclusion is not affected by whether the respondent has complied with the payment process term. That term, if it exists, is solely for the benefit of ACE, so it can be "waived" unilaterally. There was no reservation by ACE of compliance with the payment process term before any right to payment for the agreed or offered amounts would arise.

[38] Whether or not there was a "waiver" of a term that is a pre-requisite to an entitlement to contractual payment can be a difficult question. It was explored in some detail by the High Court in Agricultural & Rural Finance Pty Ltd v Gardiner.[33] Again, the parties addressed no submissions to this question, so it would be inappropriate to explore it in detail. But in my view it is sufficiently clear that ACE elected or forbore or generally waived any requirement to comply with the payment process term for the amounts agreed or offered to be paid.

[39] Although the evidence set out above relates to the debts of ACE, there is a similar letter and detailed analysis that was written on behalf of the other applicants. That letter was from by McCullough Robertson Lawyers to the respondent dated 7 July 2017. It is unnecessary to discuss its contents in detail. Mutatis mutandis, the same considerations apply and the amounts agreed or offered to be paid are not the subject of a genuine dispute.

[40] The result of that analysis may be set out in the following table:

[41] It follows that the amount of the demand in each case should be varied to correspond to the amount agreed or offered to be paid by making an order varying the relevant demand to that amount under s 459H(4)(a) of the CA and declaring the demand as varied to have had effect as from when the demand was served on the relevant company.

[42] In the light of those conclusions, it is unnecessary to consider any other points. Accordingly, I do not further consider whether the applicants' grounds based on the project specific term or the error issues are made out, as in each case where they apply they would only be an alternative basis for an order setting aside the demand and they are also subject to the conclusion that the court is satisfied that the amounts agreed or offered to be paid are not the subject of a genuine dispute.

[1] Corporations Act 2001 (Cth) ("CA"), s 459G(1).

[2] CA, s 459H(1).

[3] CA, s 459E.

[4] CA, s 459H(1)(a).

[5] CA, ss 459H(2) and (3).

[6] CA, s 459H(4).

[7] CA, s 459H(5).

[8] CA, ss 459H(4) & (5)

[9] See, for example, Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation [1978] VicRp 9; [1978] VR 83 and Paterson v Hampton Interiors (1989) 7 ACLC 904, 905; cf David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265, 279.

[10] Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2011] HCA 18; (2011) 244 CLR 1, 14 [28].

[11] CA, s 459C(2)(a).

[12] CA s 459S; Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2011] HCA 18; (2011) 244 CLR 1, 12-15 [20]-[32].

[13] Building Solutions & Waterproofing Pty Ltd v Robin H Wright Pty Ltd [2017] QSC 110, [16].

[14] [2017] VSCA 51; (2017) 118 ACSR 592, 605 [47].

[15] [2016] NSWCA 330; (2016) 117 ACSR 495, 498 [9]; and see Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, 608-613 [32]-[55].

[16] [1987] HCA 5; (1986-1987) 162 CLR 221, 231.

[17] SG Stoljar, The Law of Quasi Contract (2nd ed, 1989) p 187.

[18] [1939] NSWStRp 35; (1939) 39 SR (NSW) 305, 319.

[19] For example, Horton v Jones (No 2) [1939] NSWStRp 35; (1939) 39 SR (NSW) 305, 316-317; SG Stoljar, The Law of Quasi Contract (2nd ed, 1989) pp 187- 189; Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1986-1987) 162 CLR 221, 231-232.

[20] SG Stoljar, The Law of Quasi Contract (2nd ed, 1989) p 188.

[21] For example, Bullen. Leake and Jacob's Precedents of Pleading, 12th ed, 1975, Form 562, p 898; Court Forms, Precedents & Pleadings, Qld, Lexis Nexis, Form 180.70.

[22] Woolcorp Pty Ltd v Rodger Constructions Pty Ltd [2017] VSCA 21, [9].

[23] Brogden v Metropolitan Railway Co [1877] 2 App Cas 666.

[24] Brogden v Metropolitan Railway Co [1877] 2 App Cas 666, 671.

[25] Swanton, "Incorporation of Contractual Terms by a Course of Dealing" (1988) 1 JCL 223.

[27] [1993] HCA 4; (1993) 111 ALR 289, 293.

[28] Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184, [94].

[29] (1795) 6 Term Rep 320; (1795) 101 ER 573.

[30] One example is the progress payment arrangements under a construction contract: Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148, 172-173 [82]-[87].

[31] (1996) 20 ACSR 170, 174.

[32] [2009] NSWSC 494.

[33] [2008] HCA 57; (2008) 238 CLR 570, 586-602.