BKW Investments Pty Ltd v Training Connect Limited

Federal Court of Australia|2011-11-18|Before: Ms P, Jagot J, Cowdroy J

REASONS FOR JUDGMENT 1 By originating process filed on 17 August 2011 ('the application') the applicant ('BKW') applies to the Court pursuant to s 459G of the Corporations Act 2001 (Cth) ('the Act') for, inter alia, an order setting aside a Creditor's Statutory Demand for Payment of Debt dated 12 July 2011 ('the statutory demand') issued by the respondent ('Training Connect'). The statutory demand was purportedly served on BKW on 27 July 2011. The application is supported by affidavits of Andrew James Mackenzie, Cameron Stewart Shepherd and David Richard King. Such affidavits were sworn on 16 August 2011. 2 BKW seeks an order that the statutory demand be set aside pursuant to s 459H and/or s 459J of the Act; a declaration that there is a genuine dispute between BKW and Training Connect; a declaration that the statutory demand contains defects and that substantial injustice will be caused to BKW unless such demand is set aside pursuant to s 459J(1)(a) of the Act; and a declaration that there is some other reason why the statutory demand should be set aside under s 459J(1)(b) of the Act. 3 Training Connect is a company registered in the United Kingdom (registration number 06185377). On 17 August 2011 her Honour Justice Jagot ordered that leave be granted to BKW to serve the application on Training Connect outside Australia by email and by international express post at its postal address, namely Clive House, 12-18 Queens Road, Weybridge, Surrey, United Kingdom.

ISSUE 1: IS THERE A GENUINE DISPUTE? 20 The applicant has applied pursuant to s 459G of the Act for the statutory demand to be set aside. In support of the application, the applicant submits that there exists a 'genuine dispute' between Training Connect and BKW pursuant to s 459H(1)(a) of the Act. 21 Sections 459G and 549H of the Act relevantly provide: SECT 459G Company may apply (1) A company may apply to the Court for an order setting aside a statutory demand served on the company. … SECT 459H Determination of application where there is a dispute or offsetting claim (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) … (2) The Court must calculate the substantiated amount of the demand in accordance with the formula: … 22 BKW submits that there is a genuine dispute whether any monies at all are owing to Training Connect in view of clause 3 of Memorandum 2 which provides that in the circumstances that the sale of the shares in BKW should not eventuate, BKW is to provide a non-exclusive perpetual sub-licence to Training Connect to use all of BKW's IPR and that 'the fee for such licence shall be the moneys paid by TCL (i.e. Training Connect) to BKW or nominee'. For this reason BKW submits that the statutory demand should be set aside. 23 Training Connect submits that the provisions of Memorandum 2 may be unclear and that the result contended for by BKW is not entirely apparent. Training Connect refers to the amount of monies which it has advanced in total, namely, $267,000, and submits that the arrangement between the parties may have been frustrated. Training Connect also submits that the existence of a genuine dispute has only become apparent after the service of the statutory demand. 24 In reply, BKW submits that the dispute was made plain in the documents filed with the application which was served pursuant to the orders of Jagot J and that, from the date of service of BKW's application, Training Connect has been on notice of the dispute.

CONSIDERATION 25 Whether a genuine dispute exists was considered by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. In Eyota his Honour concluded that the phrase genuine dispute 'connotes a plausible contention requiring investigation', and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction for the extension or removal of a caveat. 26 Such test was adopted by the Full Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452. The Full Court considered that there were two stages in the determination of whether there exists a 'genuine dispute'. At 464 the Full Court said: In our view a "genuine" dispute requires that: the dispute be bona fide and truly exist in fact; the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived. 27 The Full Court also referred to the observations of Lockhart J in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39 where his Honour said, inter alia: … what appears clearly enough from all the judgments is that a standard of satisfaction which a court requires is not a particularly high one. … Certainly the court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute. The notion of a 'genuine dispute' in this context 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. 28 Memorandum 1 and Memorandum 2 show that the parties have been involved in commercial relations and that prima facie the conditions set out in such documents principally govern their commercial relationship. The subsequent emails and events have shown that there is a genuine dispute concerning the continual application of those conditions. The present role of this Court is to merely determine whether a genuine dispute exists. 29 The Court is satisfied from the surrounding circumstances that the dispute is real and not 'spurious, hypothetical, illusory or misconceived' (see Spencer Constructions at 464). The claim of BKW that the payments made by Training Connect were automatically converted to licence payments and the claim by Training Connect that the agreements have been frustrated will require judicial determination. However, it is not for this Court at this stage of the proceedings to form a view whether Training Connect's claim is likely to succeed. 30 It follows the statutory demand must be set aside.

ISSUE 2: STATUTORY DEMAND 31 In view to the finding referred to above it is unnecessary for the Court to consider whether defects existed in the statutory demand sufficient to set aside such demand pursuant to s 459J of the Act. 32 Section 459J of the Act makes provision for a court to set aside a demand. It provides: Setting aside demand on other grounds (1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect. 33 BKW submits that because there was no address provided in the notice for the service of documents upon Training Connect in New South Wales, it was necessary to approach the Court to obtain leave to serve its application outside Australia. BKW submits that such course placed BKW in a position of severe disadvantage tantamount to substantial injustice. 34 The Court agrees with BKW's submission that the absence of an Australian address for service on the face of the statutory demand constitutes a defect. However, in view of the Court's finding that a genuine dispute exists between the parties, it is unnecessary for the Court to determine whether such defect or any other claimed defect caused 'substantial injustice' to BKW.

ISSUE 3: COSTS 35 BKW seeks its costs, on an indemnity basis, of this application and of the application before Jagot J. Such application is opposed. 36 Pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) the Court possesses a broad power to award costs, which is limited only by the requirement that such power is to be exercised judicially: see Oshlack v Richmond River Council (1998) 193 CLR 72; Ruddock v Vardarlis (No 2) (2001) 115 FCR 229 at [9]. Further Rule 40.02 of the Federal Court Rules 2011 grants the Court the discretion to award indemnity costs. 37 In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397 Woodward J said at 410: I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs whenever it appears that an action had been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion. 38 It has long been recognised that where a genuine dispute exists, a statutory demand procedure cannot be used 'as a mechanism to apply pressure on a party who genuinely disputes the existence of a debt that is claimed': see Equipped Constructions Pty Ltd v Form Architects Pty Ltd [2006] NSWSC 500 at [24] per Austin J. 39 The Court finds that it must have been apparent to Training Connect that a genuine dispute existed between the parties concerning the existence of the debt after the application of BKW and affidavits in support were served upon Training Connect. In these circumstances, it should have been clear to Training Connect from this time that its statutory demand could not be maintained and should be withdrawn. 40 The Court notes that the application before Jagot J would not have been necessary if the statutory demand had been satisfactorily completed by the provision of an Australian address for service upon Training Connect. This omission constitutes a defect in the statutory demand, but such defect alone is not so egregious as to justify an order for indemnity costs of the application before Jagot J. The Court finds that Training Connect should pay BKW's costs relating to the application before Jagot J for leave to serve outside the jurisdiction and the costs of this application. 41 The Court also finds that the costs of the hearing of this application should be borne by Training Connect on an indemnity basis in view of the failure of Training Connect to withdraw the demand once it became apparent that a genuine dispute existed. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.

Corporations Act 2001(Cth)ss 459G, 459H, 459J

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