Ayrton Investments Pty Ltd v Andrlik

Judgment 1By Originating Process dated 18 December 2012, the plaintiffs, Nader Group ACT Pty Limited, Investcorp International Pty Limited and Circle Recruitment Pty Ltd, each applied under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) to set aside statutory demands ("Demands") in substantially identical terms served by Mr Vicken Berberian. The Demands claimed that the respective companies each owed Mr Berberian the amount of $160,582.78 made up of pay in lieu of notice, accrued annual leave and superannuation guarantee payments from April 2012 to December 2012. (No issue was raised in the course of argument before me as to whether an employee could be entitled to recover superannuation guarantee payments in his or her own right under the applicable statutory regime). 2The application to set aside the Demands, in respect of each company, was supported by an affidavit of a director, Mr Emile Nader, dated 18 December 2012 which, in each case, contained a statement that: "I am aware that a company called ETN Employment Services Ltd employed [Mr Berberian]." That affidavit also annexed a copy of a PAYG summary for the year ended 30 June 2012 for Mr Berberian, which stated the payer's name was ETN Employment Services Pty Ltd. No submissions were made before me as to the discrepancy between Mr Nader's affidavit which referred to the employer as a limited company and the PAYG payment summary on which Mr Nader relied which referred to the employer as a proprietary company. 3Mr Nader noted that entity was presently the subject of a creditors' voluntary winding up and claimed each of the relevant companies: "has never, to my knowledge, entered into any contractual relationship with [Mr Berberian] and has never employed [Mr Berberian] in any capacity." Mr Nader also stated the relevant companies had not made any payment to Mr Berberian. Mr Nader's affidavit also annexed a letter dated 14 December 2012 from the Defendant's solicitors referring to the PAYG payment summary which stated that the "employer name" was ETN Employment Services Pty Limited, although the document, in fact, referred to the "payer's" name rather than the "employer" name, and that demanded the Demands be withdrawn. I will return to these matters below. 4Mr Berberian has now unconditionally withdrawn each of the Demands, and the question before me is limited to one of costs. The Plaintiffs do not seek, and would not be entitled to seek, an order for costs under Uniform Civil Procedure Rules 2005 (NSW) r 42.1 which provides that costs generally follow the event, since that rule does not apply where there has been no adjudication on the merits. The Plaintiffs instead claim their costs on the basis of s 459N of the Corporations Act. There is an authority the court may make an order for cost under that section although the substantive issues between the parties have not been determined: Hornet Aviation Pty Ltd v Ansett International Air Freight (unreported, Federal Court of Australia, Northrop J, 6 December 1994). However, the Court will be less likely to order costs, where it has not determined the matter on the merits, where that would require the trial of a hypothetical action between the parties; however, the court may award costs in this situation, if it is satisfied that one party would almost certainly have succeeded if the matter had been fully tried: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-625. 5The primary basis of the plaintiff's application for costs is that the issue of three separate Demands to the three separate companies for the same debt was an abuse of process. The Plaintiffs put that proposition by analogy to the position where a plaintiff makes inconsistent allegations in different proceedings. That approach has been applied in the context of a statutory demand where that demand was inconsistent with claims made against individuals in respect of the same debt: Perlake Pty Ltd v Finance and Mortgage Corporation (NSW) Pty Ltd (1996) 15 ACLC 76. I do not consider that analogy is apt to the present case, because Mr Berberian's approach of issuing letter three demands to the three plaintiff companies was consistent with treating each of the plaintiffs as jointly and severally liable for the claimed debt. It seems to me that, if the plaintiffs were liable at all, then they would only be liable on the basis that they were jointly and severally liable, for reasons I will note below. 6Mr Southwick, who appeared for the Plaintiffs, accepted that a statutory demand for the amount of the debt claimed could properly be issued to each debtor who is jointly and severally liable for a debt, although he did not accept that was a proper characterisation of the present position. That proposition seems to be at least implicit in the decision of White J in Hills Motorway Ltd v UBS AG [2005] NSWSC 1086, where his Honour set aside creditor's statutory demands issued to two entities jointly liable for a debt, but only on the basis that the issuer of the demand could not choose to split the amount of the debt between debtors who were jointly and severally liable for it. 7It seems to me that the real question to be determined in order to determine whether the Plaintiffs would have succeeded in setting aside the demand on that basis is whether there is a proper basis for Mr Berberian to treat each of them as jointly and severally liable for the debt claimed. In my view, the evidence on which Mr Berberian relied, and in particular, a conversation which he claims occurred on 11 April 2012, between himself and Mr Nader, a director of each of the companies, is consistent with that characterisation. In particular, Mr Berberian relies on a previous arrangement under a proposed consultancy agreement, which would have treated each of the companies as jointly and severally liable for the consultancy fees, and the conversation in turn refers to the existence of an employment relationship with all three companies, albeit it also contemplated that a service company would make the actual payments. The reference to an employment relationship with all three companies was, in my view, sufficient to support a claim that they were jointly and severally liable for wages, albeit that those wages in fact would be paid by the service company referred to. 8Where that claim was properly open, it does not seem to me that a demand served on that basis was inconsistent with the statutory regime or otherwise an abuse of process so as to permit, or require, the Demands to be set aside under s 459J of the Corporations Act. It does not follow, of course, that the Demands could not be set aside on the basis the debts were genuinely disputed, a matter to which I will now turn. 9Mr Berberian contends there should be no order for costs in respect of the application to set aside the Demands, or at least no order for costs for the period prior to 23 or 25 February 2013, when affidavits of Messrs Nader and Sfeir, in opposition to the Demands were respectively sworn and served. The basis for that proposition emerges from the chronology of events which I set out below. 10Mr Berberian claims to be employed within the Nader Group, by the Plaintiffs, between 11 April 2012 and 2 November 2012. The Demands are, as I noted above, for entitlements arising from that employment. Mr Berberian's evidence is that, as I noted above, he agreed with Mr Nader that his employers were the three plaintiff companies, although he was to be paid by the service company. The Plaintiffs contend the conversation on which he relies is inconsistent with his case, so far as it refers to payment by the service company. I do not accept that proposition, since the conversation could properly be understood as contemplating that the Plaintiffs are the contracting or employing entities, which would be liable if the service company did not make the relevant payment. 11Prior to the service of the demands, Mr Berberian's solicitor had written a letter of demand addressed to the three Plaintiffs on 16 November 2012, setting out Mr Berberian's understanding he was employed by, and had claims against, the three companies and foreshadowing the issue of the Demands. The plaintiffs did not respond. Mr Southwick, who appears for them, contends correctly that Mr Berberian's solicitor's letter did not specifically ask for a response. Nonetheless it would not have been difficult for the Plaintiffs to then put the proposition, which was later put in affidavits served on 25 February 2013, over three months later, that there had been an express agreement between Mr Berberian and Mr Nader that Mr Berberian's employer was the service company, ETN Employment Services Limited (or as I have noted above, possibly ETN Employment Services Pty Limited) ("ETN"). That was, after all, a straightforward proposition. It was necessarily known to Mr Nader, since he was party to the relevant conversation. If it was true, it was a complete answer to the claimed debts, so far as they were claimed against the Plaintiffs. As Mr Berberian contends, if that statement then been made, it would have made clear that there was a genuine dispute arising out of the competing versions as to the conversations giving rise to the employment relationship. That did not emerge until significantly later. 12The Demands were issued on 3 December 2012, and on 14 December 2012, the plaintiff's solicitors wrote a letter attaching the PAYG summary to which I have referred above, and stated that it showed that the employer was ETN and invited withdrawal of the Demands. As I noted above, that PAYG summary did not describe ETN in terms as the "employer", but as the "payer". The distinction might not be material in many cases, where a reference to a payer could only be understood as the employer entity, but it was material in circumstances that Mr Berberian's account of events (as it later emerged from his affidavit evidence), was that a component of the agreement was the paying entity would be different from the employing entity. The Plaintiffs' solicitor did not, in that letter, refer to the conversation between Mr Berberian and Mr Nader which was later deployed as demonstrating the agreement that ETN was not only the paying entity but also the employing entity. 13There is evidence that Mr Berberian's solicitors then made diligent inquiries to try to confirm ETN's role. Somewhat confusingly, those inquiries indicated ETN had been placed in liquidation on 13 September 2012 and the Plaintiffs' solicitors, not unreasonably, did not think that that was consistent with ETN being Mr Berberian's employer when his wages had continued to be paid until November 2012. 14Mr Nader's initial affidavit in support of the application to set aside the Demands was served on 18 December 2012. It went somewhat further than the Plaintiffs' previous correspondence in that, as I noted above, it asserted Mr Nader's knowledge that ETN had employed Mr Berberian, but it also did not refer to the conversation later relied upon to establish that employment relationship. I raised with Counsel, in the course of argument, whether it could be expected to have done so when a plaintiff only has 21 days in which to serve such an affidavit. On reflection, it appears to me that it could readily have done so in the particular circumstances where the conversation was obviously critical, a party to it was a director of the Plaintiffs and where, as I noted above, it would have plainly put Mr Berberian and his advisors on notice of the basis of the dispute of the claim, rather than merely asserting knowledge of the employer entity without identifying its basis. 15Mr Berberian's solicitors subsequently wrote to the Plaintiffs' solicitors on 29 January 2013, raising a concern, in effect, as to the veracity of the claim that Mr Berberian was employed by ETN, and received no substantive response. They unsuccessfully sought production of pay slips from the Plaintiffs and from ETN's liquidator, who advised that he held no such documents. 16On 25 February 2013, the Plaintiffs filed further affidavits in support of the application to set aside the demands. Mr Nader referred, in his further affidavit, to a conversation, to which he had not previously referred, with Mr Berberian in April 2012, in which he claims to have said that he would arrange for Mr Berberian to be employed by ETN, the service company that employed everyone in the Nader Group of companies. A second affidavit of Mr Sfeir, also filed on that date, deposed that ETN was a service company which employed staff in the Nader Group; the payment was made by whichever company had available cash flow, and that movement of funds between companies in the Nader Group was recorded as intercompany loans. There is evidence of Mr Berberian's solicitor that, on his instructions, Mr Berberian was not aware of several matters alleged in these affidavits. 17Plainly, these affidavits raised a genuine dispute as to the debts claimed. That did not require, of course, that the evidence led by the Plaintiffs would necessarily be accepted at a contested hearing, as to which I express no view because it was sufficient to raise a genuine dispute now that there was a contest as to conversations which would either identify the Plaintiffs on the one hand and ETN on the other as the employing entity. The resolution of that contest would necessarily involve credit issues which would not be determined on an application to set aside a statutory demand. In these circumstances, the Defendants were correct, albeit after some delay, in withdrawing the Demands on 8 April 2013. By letter dated 12 April 2013, Mr Berberian offered, on a without prejudice except as to costs basis, to pay the Plaintiff's costs from 23 February 2013 to that date. That offer was not accepted. 18Mr Berberian contends that it was only when the Plaintiffs disclosed their reliance on the alleged conversation with him to which I have referred, by the affidavit of Mr Nader served on 25 February 2013 that he appreciated the matters giving rise to a genuine dispute as to the debts. The Plaintiffs contend that other matters should have placed Mr Berberian on notice of that matter, including the fact that his bank records did not disclose payments by the Plaintiffs, but instead by other entities within the Nader Group, and the PAYG summary to which I have referred above, which Mr Berberian seems to have had in some form at an earlier date. I do not consider those matters disclosed such a dispute, or at least disclosed a dispute that would necessarily rise to the level of a genuine dispute, where the payments into Mr Berberian's account were also not made by the entity which the Plaintiffs claim is the employer entity, and where the PAYG summary referred, as I noted, to the payer rather than the employer entity. 19I turn now to the applicable case law. There are, of course, several cases where persons issuing demands have been ordered to pay the Plaintiff's costs, where those demands have been set aside by consent or withdrawn; however, there are also cases where no order as to costs has been made, where the Court has considered that the plaintiff has acted unreasonably in not, in effect, disclosing its hand at an early point. The significance of early disclosure of a party's case is, of course, reinforced by the obligations arising from s 56 of the Civil Procedure Act 2005 (NSW) although the cases which take this matter into account in respect of costs include cases preceding the introduction of that section. 20In Felkro Nominees Pty Ltd v Austissue Pty Ltd [1993] FCA 455; (1993) 11 ACSR 607, Heerey J drew attention to the fact that a creditor which invoked the statutory demand provisions ran the risk of an order for costs, if a debtor established that the amount claimed was subject to a genuine dispute. In Ranford Gold Mines Pty Ltd v P & H Earth Moving Pty Ltd [1994] NTSC 49, Kearney J referred to that case but emphasised, rightly, that the cost outcome must depend on the circumstances of each case. 21On the other hand, in Eyota v Hanave Pty Ltd (1994) 12 ACSR 785 at 790, McLelland CJ in Eq did not order costs in favour of a plaintiff which succeeded in setting aside a statutory demand in a contested application where its representatives had failed to disclose the basis of its case in a timely way. In Ayrton Investments Pty Ltd v Andrlik [2000] ACTSC 55 at [19] Higgins J observed that a person who issued a statutory demand faced a risk as to costs and "not an inevitability". His Honour also expressed the view (at [26]) (which I previously observed, in Dynamics Co Pty Ltd v G & M Nicholas Pty Ltd [2012] NSWSC 206, seemed to me to have substantial force) that: "The focus is on the reasonableness of the decision to issue [the statutory demand] whether on the material known to the creditor before the note is issued, it should have been apparent there was a dispute which, viewed objectively, was genuine, that is, warranting further inquiry. If so, the creditor must expect to pay costs, in any event, once the notice is set aside. If it was reasonable to issue the notice, but thereafter it appears that there is a genuine dispute, then, as soon as that appears, the creditor must withdraw or cease to oppose the setting aside of the notice. Otherwise, the creditor risks an adverse costs order." 22In Chameleon Mining NL v Atanaskovic Hartnell [2009] NSWSC 602 at [72], Austin J ordered the issuer of a statutory demand should pay the cost of the proceedings to set it aside, although it had been issued reasonably, where it had unreasonably pressed the demand after being advised of the matters giving rise to a genuine dispute. That is consistent with the approach to which Higgins J referred in Ayrton Investments. The present case is distinguishable, because Mr Berberian withdrew the Demands, and did so unconditionally once the affidavits of 25 February had been served. 23In Dynamics and Co Pty Ltd v G and M Nicholas Pty Ltd above, I reviewed the authorities to which I have referred above and expressed the view, which I continue to hold that: "...consistent with the approach adopted by Higgins J in Ayrton Investments, the reasonableness of a party serving a statutory demand must be determined by reference to what that party knew as to the nature of any dispute as to the debt; conversely, a debtor which fails to pay a debt which is apparently due and undisputed, and also fails to disclose the basis of any dispute, can scarcely complain when the statutory demand procedure is invoked by a creditor who is acting reasonably on the basis of the information which is then known to it." 24In the present case, the parties were each party to a largely undocumented employment relationship. It seems to me that, so far as the Plaintiffs seek to rely on an express agreement arising from a conversation between their director and Mr Berberian that the employing entity was ETN, it was necessary for them to disclose that position promptly. Had they done so these proceedings may never have occurred. In these circumstances, I am satisfied that the proper course, which seems to me to be consistent with the obligations imposed upon the parties and the Court, by s 56 of the Civil Procedure Act, is to order that there be no order as to costs up to and including 25 February 2013, the date of service of the affidavits of Messrs Nader and Sfeir dated 23 and 22 February 2013 respectively. Mr Berberian should pay the costs referable to the application to set aside the Demands, excluding the costs referable to this application, from 25 February 2013. 25In this matter, the Defendant, Mr Berberian, has been substantially successful in the application for costs before me. The result that I have reached is, on one view, marginally better than the position which he had previously offered to the Plaintiffs. In these circumstances, Mr Berberian seeks the costs of and incidental to this hearing before me today. Mr Southwick, properly, has recognised that there is little that the Plaintiffs could put in opposition to that order. I will therefore order the Plaintiffs pay the cost of and incidental to the hearing before me today. 26The parties should provide to my associate by email, by 4pm on 30 April 2013, short minutes of order to give effect to this judgment.