Austotel Pty Ltd v Franklins Self-Serve Pty Ltd

Judgment - EX TEMPORE 1By application made on 6 May 2012, the plaintiff, Cancer Care Institute of Australia Pty Ltd ("CCIA") applies under section 459H of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 16 May 2012 ("Demand") served on it by the defendant, Varian Medical Systems Australia Pty Limited ("Varian"). 2The Demand was in the amount of approximately $9.784 million, described in the schedule as amounts payable by CCIA to Varian under an agreement dated 27 April 2009, pursuant to which Varian supplied CCIA with medical equipment, software and services, and invoiced by four invoices issued 30 September 2010, 4 November 2010, 1 April 2011 and 14 December 2011. The amount claimed in the statutory demand reflected a deduction of $100,000 paid by CCIA on 13 December 2011. 3CCIA relies on an affidavit of its director, Mr Grant Smith, sworn 6 June 2012 and two affidavits of Mr Smith in reply sworn 20 July 2012 and 15 August 2012. Varian relies on an affidavit of its managing director, Mr Christopher Cowley, sworn 3 July 2012. Factual background 4The relevant facts are in short compass and, with one exception in respect of the content of a conversation on 11 November 2011, are not substantially disputed. 5In summary, Varian quoted to supply medical equipment known as linear accelerators to CCIA in April 2009 and the relevant quotations were accepted. On 11 August 2009, CCIA was approved by the Commonwealth Department of Health and Ageing to be paid a grant ("HPG") toward provision of radiation oncology services. On 30 September 2010, Mr Smith advised Varian that the financier to the equipment would no longer finance it. Varian rendered subsequent invoices to CCIA, which was unsuccessful in raising finance for the equipment, and did not pay for it. 6On 11 November 2011, the equipment required repair and Mr Cowley of Varian advised Mr Smith of CCIA that, for Varian to proceed with the repair and complete the installation, it would need to see a payment of its account which would at least cover the costs of the part, which would be deducted from the current debt. At least that aspect of the conversation seems to be common ground, although there is a dispute as to the balance of the conversation on that date. In the context of an application to set aside a statutory demand, it is not necessary or appropriate for the Court to resolve disputed questions of fact, including whether that conversation took place in person or by telephone, or resolve differences between competing versions of the conversation. It is sufficient, for present purposes, that I proceed on the basis of Mr Smith's version of the conversation which involved the following essential elements. In doing so, I do not prefer one version of the conversation over the other, but instead adopt the most favourable version of that conversation to CCIA's case in order to determine whether a genuine dispute has been established. 7On Mr Smith's account, the essential elements of that conversation were that: (a) Mr Cowley indicated that he could not get support for the machines from the US unless CCIA made a substantial payment and that he needed CCIA to have a plan B for payment of Varian if it could not get finance. (b) Mr Smith suggested that CCIA could pay from the HPG and give control of the account into which payments were made by the Health Department to Varian once the machines were running and patients were being treated. (c) On Mr Smith's account, Mr Cowley stated: "[I] If we are going to move forward on that basis, we are going to have to pay $100,000 and pay up front for any parts, servicing and adjustment of the machines as we move forward to completion". (d) Mr Smith stated that, "Okay we will do that", and indicated that, if CCIA could not get finance, it would pay for equipment by use of the HPG and Varian could have a percentage of its revenue once the equipment was operational, which Mr Smith estimated at 10 per cent. (e) Mr Cowley reiterated that CCIA would need to make a payment of $100,000 to be deducted from the amount of its debt and that further servicing costs would need to be paid in advance and that, on Mr Smith's account, when CCIA started payment, it would have to pay Varian the HPG payments and revenue percentage until it got financing or paid Varian out. (f) Mr Smith responding, "Good, I'll arrange payment". 8It should be noted on Mr Smith's version of the conversation, there had been an indication as to a percentage of revenue which would be payable, but no agreement as to a precise amount, and no express undertaking by Varian not to exercise its rights in respect of its debt if CCIA took the contemplated course. I will return to that matter below. 9Mr Cowley disputes Mr Smith's account of the conversation and gives evidence of a narrower conversation, directed to the question of a repair of a particular part, in which Mr Cowley says that he acknowledged the part was covered by warranty, but that CCIA would at least have to pay the cost of the part, $100,000, against the debt and Mr Smith agreed to do so. Mr Cowley sent an email on the same date confirming the relevant conversation, including a confirmation that Varian needed to see payment into the account of at least the cost of the part, which would be deducted from the current debt, to proceed with the repair and complete the installation of the equipment. As I noted above, it is not appropriate, in an application of this kind, to reach a determination between the competing versions of the conversation, nor would it be possible to do so in the absence of cross examination. CCIA in turn paid the amount of $100,000 on 13 December 2011 and Varian subsequently rendered a final invoice in respect of the cost of the equipment. CCIA also paid further charges for equipment service totalling $15,488 in April and May 2012. 10A further meeting took place on 16 December 2011. Mr Cowley's evidence is that Mr Smith referred at that meeting to CCIA having the option of giving Varian the HPG as part of a payment; Mr Cowley responding "[t]hat would be great, however it's not enough" and that CCIA would require a substantial initial lump sum payment, if it were to enter into such a plan; and Mr Smith indicating that he was talking to financiers, might be able to get enough money to pay for all equipment in one amount and, if he could not get enough for full payment, should be able to pay an initial lump sum. Mr Smith, in his second affidavit, disputed Mr Cowley's version of that conversation but does not offer an alternative version. It will be noted that Mr Cowley's account of that conversation is radically inconsistent with the agreement asserted by Mr Smith and by CCIA to have been formed on 11 November, so far as it contemplated payment from the HPG as an "option", and also so far as Mr Cowley indicated that option would not be enough. I repeat that it is not appropriate for me to determine between competing versions of this conversation in this application. 11Subsequent correspondence followed. By letter dated 29 December 2011, Varian's solicitors sought confirmation as to how CCIA would pay for the equipment by 31 January 2012. By letter dated 27 January 2012 from CCIA's solicitors to Varian's solicitors, did not allege that there was an existing agreement or estoppel in respect of payment of the debt, as CCIA now contends, but instead referred to CCIA's difficulty in obtaining finance for the equipment from HPG and went on to state: "4. As has been discussed with your client, CCIA has offered to provide Varian with security over the bank account into which the HPG payments will be made and an agreed rental for the machines that could be extracted from the HPG payments. 5. We are instructed that our client is willing to engage in discussions with your client aimed at formalising the offer referred to in paragraph 4 above." 12Again, the terms of this letter seem to be radically inconsistent with the agreement and estoppel formed on 11 November 2011 for which CCIA now contends, so far as payment from the HPG account is characterised as an "offer" and also so far as there is an invitation for discussion as to the terms on which such an arrangement might go forward. 13By letter dated 7 February 2012, Varian's solicitors suggested different terms for a payment program and security. Varian characterises this as a counter-offer and CCIA as an attempt to vary an earlier agreement. On either view, that letter made clear that Varian did not then consider itself bound to leave the debt of $9.784 million outstanding on the basis that it would receive only payments from the HPG and a percentage of revenue. 14The medical centre was opened in about May 2012, with no further payment for the equipment having been made. Further correspondence between the solicitors surrounded that opening, in which Varian objected to, in effect, the use of the equipment without it having been paid for it. On 22 May 2012, Varian terminated the licence to use the relevant software for the equipment and disabled that software. What is required to establish a genuine dispute 15With this background, I turn to the relevant legal principles in respect of an application to set aside a statutory demand under section 459H(1)(a) of the Corporations Act by reason of a genuine dispute as to the existence or amount of the debt. I note that CCIA does not seek to set aside the demand on the basis of an offsetting claim under section 459H(1)(b) of the Corporations Act or on any other basis. 16The principles applicable to whether a statutory demand should be set aside under section 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 and were not ultimately contentious in these proceedings. Something more than assertion is required to establish a dispute sufficient to set aside a statutory demand, since otherwise any company could simply contend that it does not own the relevant debt: John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253. The test for a "genuine dispute" has been frequently 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 summary judgment: Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1992) 11 ACSR 362; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39; Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [17]. As Barrett J noted in Panel Tech, this test is applied in the context of a summary procedure, without extended inquiry, so that the task faced by a company in establishing a genuine dispute is not a difficult one, and it will fail only if the contentions it advances are so devoid of substance that no further investigation is warranted. The Court does not determine the merits of a dispute, once the fact of a genuine dispute is established: Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [9]; Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [4]. CCIA's Contractual Claim 17CCIA accepts that a sale contract between Varian as vendor and CCIA as purchaser was formed on 27 April 2009. It seeks to establish a genuine dispute as to the relevant debt on the basis that Varian is prevented from enforcing payment of the invoices by reason of an agreement or estoppel arising from negotiations between Mr Smith for CCIA and Mr Cowley for Varian. Although CCIA need only establish a genuine dispute, being a plausible contention requiring investigation as to the existence of the debt, that would require that it establish, and it seeks to establish, a contention requiring investigation that the debt cannot be enforced. It would not be sufficient to establish, for example, that the enforcement of the debt involved a breach of contract giving rise to a claim for damages against Varian, because that would not prevent enforcement of the debt and a claim for damages would not assist where CCIA does not attempt to rely on an offsetting claim. 18It does not seem to me that CCIA has established such a claim in respect of its contractual claim, for reasons that I note below. Mr Marshall, who appears with Mr Maconachie for CCIA, fairly acknowledged that there were some challenges facing CCIA's claim in respect of contract and placed most weight on its claim in estoppel, to which I will refer shortly. CCIA, in its written submissions, identified the circumstances which gave rise to the alleged contract but not its terms. In oral submissions, Mr Marshall responded to a question from the Court by indicating that the terms of the contract were that the proceeds of the HPG would be paid to Varian, by means of payments being made into an account to which Varian was signatory; there was an implied term that CCIA would make applications; Varian would apply payments to the reduction of the debt; Varian would cooperate in maintaining the machines in service and CCIA would pay for service in advance; and at least 10 per cent of revenue would be paid to Varian by CCIA. Mr Marshall contended that there was an express term that the arrangement would remain in place until CCIA achieved financing or was paid out. That contention appears to be founded in Mr Smith's account of Mr Cowley's statement that the HPG payments would have to be paid and the revenue percentage paid "until you get financing or pay us out". 19Mr Marshall, as I have noted, fairly identified the difficulties with this claim, or at least acknowledged the difficulties which had been identified by Varian in that regard. The first was the possibility that in any consideration given by CCIA for the alleged agreement was, in substance, a promise to pay part of the debt which CCIA was already obliged to pay. I do note, however, the possibility that other comments made by Mr Smith, if properly treated as promissory in nature rather than indicating steps which CCIA could take without committing CCIA to take them, could arguably constitute consideration given by CCIA. The second difficulty acknowledged by Mr Marshall was that clause 21 of Varian's terms and conditions for the sale of the equipment provided that the agreement could be amended only in writing signed by both parties and this did not occur. That clause makes it more difficult to establish a variation of the kind that CCIA contends was made orally, but it does exclude that possibly as a matter of law, so it would not prevent a general dispute arising. 20However it seems to me that the fundamental obstacle to a contractual claim that would warrant further investigation, so as to give rise to a serious dispute, arises from the terms of the conversation to which Mr Smith deposes. Those terms contemplate that CCIA would need to take certain steps until its debt to Varian was financed or repaid, but this does not in terms amount to an undertaking by Varian not to require repayment of the debt, at least after giving notice of its intention to do so. To put that proposition another way, the fact that a lender requires a borrower to do something until it is repaid, does not, without more, constrain the lender's ability to require repayment. Mr Smith did not seek, and Mr Cowley did not give, a commitment that Varian was content to leave this arrangement in place on a permanent basis, if CCIA took the limited steps it had offered to take, or would not in future enforce its legal rights. Taking Mr Smith's account of the conversation at its highest, this seems to me to have been a discussion of a payment plan and a deferral of action, at least for the time being, not a surrender of Varian's right to require payment of the debt. 21Nor could a term preventing Varian relying on its debt be implied, either on the test indicated in BP Refinery Westernport Pty Ltd v Shire of Hastings [1997] HCA 40; (1977) 180 CLR 288 and approved in Codfela Constructions Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 347, or on the broader approach to implication of terms in incomplete agreements in Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410. A term requiring the permanent surrender of Varian's rights to enforce the debt was not obvious, nor necessary to give effect to the reasonable or effective operation of the alleged agreement, and was hardly so obvious that it went without saying. It was also significantly inconsistent with other provisions in the contractual terms, specifically the software licence, which contemplated termination for default. CCIA's Estoppel Claim 22I turn now to the question of estoppel, on which Mr Marshall puts greater weight. An estoppel claim may, but will not necessarily, give rise to a genuine dispute as to a claimed debt that is sufficient to set aside a statutory demand. Such a claim did not, for example rise to the level that required further investigation so as to support a genuine dispute in Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd [2004] FCA 111 or Hardel Pty Ltd v Burrell & Family Pty Ltd [2009] SASC 77; (2009) 103 SASR 408. 23The requirements for an equitable estoppel are well established and do not need to be repeated here: see Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 428; Silovi v Barboro (1988) 13 NSWLR 466 at 472. In Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582 at 610, those elements were formulated by Priestley JA (with whom Kirby P agreed) as requiring: "the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable." 24In Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394, Deane J observed that the law does not permit an unconscionable departure by one party: "from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation." 25In Summer Hill Business Estate Pty Ltd v Equititrust Ltd [2010] NSWSC 776 at [42]ff, Pembroke J identified three key elements of an estoppel as being that the defendant's words or conduct must be clear and unambiguous; the plaintiff's conduct in relying to is detriment on those words or conduct must be reasonable; and the defendant must know or intend that the plaintiff will act or abstain from acting in reliance on those words or conduct or in effect, have some reasonable expectation that its words or conduct will induce some detrimental reliance by the plaintiff. 26In the present case, a genuine dispute would only be established if a serious question were shown, worthy of further investigation, as to whether the representations that Mr Smith contends were made by Mr Cowley gave rise to an estoppel that would prevent Varian now taking steps to recover its debt. I do not consider that, even on Mr Smith's version of the conversation, Mr Cowley made a representation to that effect, and still less a representation to that effect that was clear or unambiguous. As I noted above, a statement that payments by way of HPG payments and the revenue percentage would need to be made until there was financing or payment of the balance due, did not itself constrain Varian's right to require that it be paid that balance out. Nor, in my view, was it reasonable for CCIA to rely on any assumption that, on the basis of that conversation, Varian would leave a debt of nearly $10 million outstanding for the indefinite future and, even if such a view had briefly been formed, it would rapidly have been rebutted by the further communications between the parties, shortly thereafter, where Varian made clear that it had more demanding requirements as to the payment of its debt. 27Finally, even on the unexacting test applicable in an application of this kind, I do not consider that a question warranting further investigation is established that CCIA could obtain relief by preventing Varian seeking repayment of its debt, rather than, for example, an order for compensation for any detriment suffered by CCIA by reliance on the suggested arrangement in, for example, incurring servicing charges. In Commonwealth of Australia v Verwayen above at 413, Mason CJ observed that: "There must be a proportionality between the remedy and the detriment which is its purpose to avoid. It would be wholly inequitable and unjust to insist upon a disproportionate making good of the relevant assumption." I am conscious that the formulation which had once been frequently used of the "minimum equity" to do justice has been qualified by the High Court decision in Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [40]-[48]; see Delaforce v Simpson-Cook [2010] NSWCA 34 at [3]. 28Here, any detriment suffered by CCIA was in fact limited by the fact that the amount of $100,000 paid was already due and was credited against the debt and because later amounts for services were paid after Varian had made clear that it was requiring different payment arrangements. I cannot see any basis on which a proportionate relief to the contended detriment would be to require Varian to leave its debt on foot permanently, and CCIA have not sought to establish any lesser claim for compensation of a more limited character giving rise to an offsetting claim. I note that CCIA's choice in that regard may well be a sensible one, since it is almost inconceivable that any offsetting claim could have been of a size that would have made any significant impact on the amount of the debt. 29For these reasons, I make the following orders: