- Bakewell v Anchorage Capital Master Offshore Ltd

Supreme Court of NSW|2021-11-18|Before: Black J

Solicitors: CCSG Legal Pty Ltd (Plaintiff) Marsdens (Defendant) File Number(s): 2021/249076

Affidavit evidence

I turn now to the affidavit evidence. The Demand claimed the amount of $34,998.99 described as the balance of the Settlement Sum due pursuant to a Deed of Settlement and Release dated 12 May 2021 ("Deed") between PST and Fortis. The affidavit accompanying the Demand was sworn by Mr Michael Fitch, the sole director of Fortis, and indicated that PST was indebted to Fortis in that amount, arising from its failure to pay that amount in accordance with the Deed. That affidavit in turn annexed that Deed, which referred to proceedings originally commenced in the District Court and subsequently transferred to this Court and recorded an agreement (without admissions) to settle the proceedings and a cross-claim in them. That Deed in turn included certain obligations for payment by PST to Fortis, including a conditional obligation to pay $20,000 within seven days of collection of certain items, and a further amount of $75,000 by 30 May 2021. That affidavit in turn refers to the collection of those items, the payment of the amount of $25,000, and a payment made by PST to Fortis of $40,001.01 on 28 May 2021. That amount was obviously short of the amount of $75,000 referred to in the Deed, but the precision of the amount paid implied that a particular amount was deducted and, as the evidence indicates, that was the case. Mr Fitch gives evidence that Fortis had not received the balance of the amount of $34,998.99 which remained owing under the Deed and he gave evidence that he believed there was no genuine dispute about the existence or amount of the debt.
PST in turn relies on the affidavit dated 1 September 2021 of its director, Mr John Easling. Mr Easling refers, in evidence admitted with a limiting order under s 135 of the Evidence Act 1995 (NSW), to an offsetting claim equal to the amount of the debt, arising because one of PTS's customers, trading under the name "Hancock Speedway", intending to pay $34,998.99 to PST, mistakenly paid that amount into Fortis's bank account, because that customer still had Fortis' details on file from when Fortis previously operated the business, and Fortis did not forward that payment to PST and refused to return it to Hancock Speedway who had mistakenly paid it; Hancock Speedway then assigned its right to recoup that payment to PST, instead of making a second payment to PST of an amount that it had already paid to Fortis; and Fortis was liable to pay that amount to PST, offsetting the debt claimed by Fortis against PST. The deduction of the amount of $34,998.99 from the payment made in respect of the Deed corresponds to the amount of PST's asserted claim in respect of the amount allegedly mistakenly paid by Hancock Speedway to Fortis.
Mr Easling then refers to the background to the purchase of the business by PST's holding company from Fortis, and to the background to the particular debt, arising from entry into the Deed in respect of the Supreme Court proceedings. He also refers to two tax invoices issued by PST to the customer trading under the business name "Hancock Speedway" in the amount of $34,998.99 and to the contention, by Hancock Speedway, that those amounts had been incorrectly paid to Fortis, because it had not updated the payment details in respect of the business. Mr Easling annexes contemporaneous correspondence which refers, inter alia, to "the payments made to the old Fortis bank account in error".
As Mr DeBuse rightly points out, there is no dispute as to the fact that Fortis received the relevant payment and that it chose to retain it and, by an email dated 13 February 2020 to Hancock Speedway, Mr Fitch of Fortis was clear as to that matter, indicating that: "We have a large dispute with Colorguard (PST) and they have been selling Fortis coils and paint without our permission to end customers. Your invoices also show evidence of this. We are holding PST funds to offset the losses suffered by Fortis. Please inform PST you have paid the money into Fortis' account for this amount."
Subsequent internal correspondence within PST records the continuance of that position, noting that Hancock Speedway refused to pay PST, where it had previously paid Fortis, and Fortis (or, the email indicated, its director, Mr Fitch) had refused to return the money to Hancock Speedway. In the result, it appears that Hancock Speedway had paid the amount of $34,998.99, albeit to Fortis rather than PST which had issued the relevant invoices; Fortis had received that amount and retained it; and PST had not received that amount, and Hancock Speedway understandably resisted paying it a second time to PST, when it had already paid it to Fortis.
Mr Easling in turn refers to an assignment that PST took from Hancock Speedway dated 28 May 2021, by which Hancock Speedway assigned its claims in respect of the relevant debt against Fortis to PST. That assignment is not a deed, but takes the form of a notice to Fortis, from "Hancock Speedway Pty Ltd" and PST, which records that Hancock Speedway owed the relevant amount to PST; that it mistakenly paid Fortis that amount and was entitled to be repaid that amount by Fortis; that Fortis had refused to repay that amount; and then assigned to PST all of Hancock Speedway's legal and beneficial rights, title, interest and claims to the "Fitch Co Debt (including all rights to recover the Fitch Co debt from [Fortis])". The reference to the "Fitch Co" debt is in turn defined as the amount paid by Hancock Speedway to Fortis. That assignment may or may not have been drafted by a legal practitioner, but it is precise enough in recognising the nature of the claim that is assigned, namely a claim to recover the amount of the debt that had been paid by Hancock Speedway to Fortis.
I have not neglected a matter to which Mr DeBuse draws attention, that that assignment is in the name of Hancock Speedway Pty Ltd, and it appears that "Hancock Speedway" is a business name rather than a company name, and the relevant company is Hancock Sheet Metal Company Pty Ltd trading as "Hancock Speedway". No doubt, any question of whether the assignment of debt can be read, as a matter of construction, as referring to that company trading as "Hancock Speedway", rather than to Hancock Speedway Pty Ltd, would have to be addressed by any Court exercising a merits jurisdiction in respect of a claim brought under the assignment.
Returning to Mr Easling's affidavit, he refers to correspondence that followed, after the issue of the Demand, by which PST's solicitors initially gave notice of the assignment to Fortis, and PST itself subsequently gave notice of the assignment to Fortis. His evidence, admitted with a limiting order under s 136 of the Evidence Act, is that PST has an offsetting claim against Fortis for the entirety of the debt, because Fortis received Hancock Speedway's mistaken payment; Fortis does not dispute failing to return that payment; and, implicitly, PST now relies on its right to recover that amount, by way of the assignment received from Hancock Speedway.

Applicable principles

With that background, I now turn to the principles applicable to whether an offsetting claim is established, before dealing with the parties' submissions, which raise narrow issues. An offsetting claim, for the purposes of s 459H(1)(b) of the Corporations Act, is the amount of a claim or claims that a company has against the person who served a creditor's statutory demand by way of counterclaim, setoff or cross demand, whether or not the amount arises out of the same transaction or transactions as the debt to which the Demand relates.
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70 at [71], Dodds-Streeton JA summarised what was necessary to an offsetting claim, noting that the company that seeks to deploy such a claim: "is required to evidence the assertions relevant to the...offsetting claim only to the extent necessary for that primary task. The dispute or offsetting claim 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...[It] is not necessary for the company to advance, at this stage, a fully evidenced claim. Something 'between mere assertion and the proof that would be necessary in a court of law' may suffice."
In Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal, in summarising the case law applicable to the threshold to determine an offsetting claim, in turn observed (at [30]) that: "It is settled law that s 459H requires the Court to be satisfied that there is a 'serious question to be tried'...or...'an issue deserving of a hearing' as to whether the company has such a claim against the creditor...the claim must be made in good faith...in [Macleay Nominees v Belle Property East Pty Ltd], Palmer J observed, at [18], that good faith, in this context, means that the offsetting claim was arguable on the basis of facts that were asserted 'with sufficient particularity to enable the Court to determine that the claim is not fanciful'."
The Court also there observed (at [47]) that the Court's role is "to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim." Although the Court there referred to the genuine dispute ground to set aside a creditor's statutory demand, the same principle applies in respect of an offsetting claim.
I also summarised the applicable principles in Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]ff and Gleeson JA also did so in Re AMP Life Ltd [2018] NSWSC 855 at [35]-[37]. The Court of Appeal has since also addressed those principles in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60 at [8] and [62]-[66], in the judgment of Bell P, with whom Sackville AJA agreed (at [98]).

The parties' submissions and determination

With this background, the parties advanced relevantly narrow legal submissions, in respect of the question whether an offsetting claim is here established. Mr Edney, in chief, needed to do no more than refer to the matters which gave rise to the offsetting claim, namely Hancock Speedway's claim to have mistakenly paid the relevant funds to Fortis, and to Hancock Speedway's contention, recorded in the correspondence to which I have referred, that that payment was a mistaken payment, plausibly explained by reference to Hancock Speedway's not having changed the relevant account details after the business was sold by Fortis to PST; the fact that Fortis has not returned the relevant payment; and the assignment of Hancock Speedway's right to claim the relevant payment by it to PST, again not neglecting the potential debate as to whether the named assigning party is the correct party, to which I referred above.
Mr Edney submits that those facts give rise to a claim, by Hancock Speedway, for restitution in respect of a payment made by mistake, referring to David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379; (1992) 109 ALR 57; [1992] HCA 353, which is a claim that sounds in money and can properly establish an offsetting claim. Mr DeBuse fairly does not contest that a mistaken payment, if established, can give rise to a claim in restitution in that manner.
Mr Edney in turn refers to the fact of the assignment, such that the claim that was available to Hancock Speedway is now available to PST, precisely corresponds to the amount that is claimed in the Demand. Mr Edney submits that that assignment complies with the requirements for a valid assignment under s 12 of the Conveyancing Act 1919 (NSW) or is alternatively a valid assignment under equitable principles, recording a clear expression of Hancock Speedway's intention to make immediate disposition of its claims to PST, and thereby establishing the requirement for an assignment in equity under Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, applied by this Court in Simonson Properties Pty Ltd v Hardy [2014] NSWSC 229 at [90]ff. The balance of Mr Edney's submissions are responsive to the matters raised by Mr DeBuse's contention that the existence of Hancock Speedway's potential claim for restitution and the assignment of that claim to PST do not give rise to an offsetting claim.
Mr DeBuse submits, first, that there is no evidence in support of the existence of the claim, other than the emails recording Hancock Speedway's contention that it paid the amount in error to Fortis. It seems to me that that, in itself, is not sufficient to exclude a genuinely arguable offsetting claim, although it may be an issue faced by PST, as Hancock Speedway's assignee, in seeking to establish the relevant claim at a hearing on the merits. Second, Mr DeBuse points to the question as to the identity of the party owing the debt and the identity of the assignor, and the possibility that the assignor is incorrectly referred to as Hancock Speedway Pty Ltd where the party owing the debt was Hancock Sheet Metal Company Pty Ltd trading as "Hancock Speedway". Again, that does not seem to me to be sufficient to exclude a genuinely arguable offsetting claim, where an error of that kind may, inter alia, be corrected by the Court reading the reference to "Hancock Speedway Pty Ltd" as a reference to "Hancock Speedway" or to Hancock Sheet Metal Company Pty Ltd, as a matter of construction, without the need for application of principles of rectification. Mr DeBuse points to a potential claim that the party who signed the relevant assignment for Hancock Speedway, Mr Michael Forbes, did not have authority to make the relevant assignment. That, however, seems to me to be a basis for a defence to an offsetting claim, not a matter that undermines the genuine character of the claim where, on the face of it, Mr Forbes is holding himself out as having authority to sign that assignment on behalf of Hancock Speedway.
Mr DeBuse also submits that the form of assignment is not a deed, and creates no rights that can be enforced by PST if it is purely voluntary and can be revoked or is of no effect. It seems to me that that proposition can be put as an argument, by way of defence to a claim relying on the assignment, but it is by no means self-evident that a voluntary assignment cannot at least take effect in equity, where it records the assignor's intention to dispose of the relevant interest. Mr DeBuse points the absence of evidence as to the circumstances of the mistake, and that is no doubt relevant to the strength of Hancock Speedway's claim for moneys had and received, to the extent that it might have been brought by Hancock Speedway and has now been assigned to PST. However, the Court's role in an application of this kind is not to determine the claim on its merits, or even to assess its strength, but instead to assess whether it is genuinely arguable. It seems to me that the claim for moneys had and received, on the basis of a payment by mistake, is genuinely arguable where contemporaneous correspondence from Hancock Speedway records the contention that that had occurred, and the circumstances indicate the plausibility of that contention where payment is made by a customer in circumstances that there has been a sale of the business from a former owner to a new owner, and a suggested failure by the customer to change bank account details.
Finally, and ambitiously, Mr DeBuse submits that the assignment relates to the assignment of a bare right of action, and that a bare right of action is not assignable other than in limited circumstances, including where the assignee has a legitimate commercial interest in the relevant matter. There are, it seems to me, two difficulties with that proposition, to which Mr Edney points in his submissions. The first is that it rightly recognises that there is an exception to any prohibition on the assignment of a bare cause of action, where the assignee has a genuine commercial interest in the claim, recognised in the United Kingdom in Trendex Trading Corporation v Credit Suisse [1982] AC 679 at 703; [1981] 3 All ER 520; [1981] 1 WLR 766 and by the High Court in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; (2012) 286 ALR 12; [2012] HCA 7 at [46]-[53]. It is by no means self-evident that, in the present circumstances, PST would not have a genuine commercial interest in the claim, where it contends that Hancock Speedway paid an amount to Fortis, which should have been paid to it, and that it cannot now be paid by reason that Hancock Speedway does not wish to pay that amount twice.
Second, in any event, as Mr Edney points out, the Court of Appeal has expressly left open the question whether the earlier view that a bare cause of action cannot be assigned is correct, and declined to strike out a claim that a bare cause of action could be assigned, even if the exception in Trendex was not established, Bakewell v Anchorage Capital Master Offshore Ltd (2019) 372 ALR 349; [2019] NSWCA 199 at [50]ff. Where that proposition is sufficiently arguable to survive a strike out application in respect of substantive proceedings, then it is also sufficiently arguable to give rise to a serious question to be tried that, even if the genuine commercial interest exception was not established, a bare cause of action in respect of a claim for restitution against Fortis, available to Hancock, could be assigned by Hancock Speedway to PST.
In these circumstances, notwithstanding Mr DeBuse's valiant attempt to exclude the existence of a genuinely arguable offsetting claim, it seems to me that it was not possible to do so, and he has not done so. I order that the creditor's statutory demand issued by the Defendant to the Plaintiff and dated 29 July 2021 be set aside.

Costs

In its Originating Process, PST sought an order that Fortis pay its costs of the proceedings on an indemnity basis or in the alternative on the ordinary basis. I indicated the preliminary view that an order should be made on the ordinary basis and Mr Edney made what he fairly described as a formal submission that the range of legal issues in this application was such as to warrant costs on an indemnity basis. It seems to me that the issues raised here are of the kind that often arises in applications to set aside a creditor's statutory demand, in respect of an offsetting claim, and that the unsuccessful party should here pay costs, but that there is no reason to make such an order on an indemnity basis.
For these reasons, I make the further order that the Defendant pay the Plaintiff's costs of the proceedings, on the ordinary basis, as agreed or as assessed.

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: 02 December 2021

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