By Originating Process filed on 26 February 2016 the Plaintiff, Fishbank Development Corporation Pty Limited ("Fishbank"), applies to set aside a creditor's statutory demand dated 3 February 2016 ("Demand") served by the Defendant, Heartland Productions Pty Limited ("Heartland") under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth). In the event, the application is pressed on a single basis, namely that there was a genuine dispute as to the relevant debt, being the basis on which the Court may set aside a creditor's statutory demand under s 459H(1)(a) of the Corporations Act. An offsetting claim to which reference has been made in the affidavit evidence was not pressed and there was no reference in submissions to any application to set aside the Demand on the basis of a defect in it or for some other reason under s 459J of the Corporations Act.
The Demand claimed the amount of $115,5000 [sic] being the total amount of debt due to Heartland as set out in the attached invoices. It was readily apparent that the reference was in fact to an amount of $115,500, and no point was taken as to that minor error, rightly, in this application. A series of invoices each dated 3 August 2015 were attached to the Demand, and referred to services provided by Heartland to Fishbank in February, March, April, May and June 2015. The Demand was supported by an affidavit sworn by Ms Bhavani Ma dated 3 February 2016, by which Ms Ma indicated that the amount of $115,500 was due and payable by Fishbank to Heartland based on the failure to pay for services provided in the attached invoices, and indicated her belief that there was no genuine dispute about the existence of the amount of the debt. I note that Ms Ma is also known as Ms Kerry Anne Hyland and her subsequent affidavit in these proceedings was given in that name. I will refer to Ms Ma, without any disrespect and for convenience, as Ms Hyland in the balance of this judgment.
It is desirable to set out something as to the chronology of events, where I have been assisted by a detailed chronology prepared by Mr Carey, who appears for Fishbank, and where I have been taken to the relevant documents and to the affidavit evidence dealing with those events in the course of the application. Once I have reviewed those events, I will refer to the parties' submissions, then to the applicable legal principles, before reaching a conclusion as to whether the Demand should be set aside.
Deans Property Pty Limited ("Deans Property"), a company associated with Mr Robert Deans, has been associated with a possible development of part of Blackwattle Bay for a considerable period, and Fishbank has recently been involved in seeking to progress such a development. It appears to be common ground that, in June 2013, Fishbank engaged Heartland to supply services in connection with Fishbank's attempt to obtain development rights in the Blackwattle Bay area. That matter is addressed by Mr Deans' affidavit (Deans 26.2.16 [8]) and also in Ms Hyland's affidavit (Hyland 14.4.16 [20]-[22]). There was something of a dispute between the parties as to whether the arrangement was predominantly written, as Ms Hyland contends, or was predominantly oral, as Mr Deans contends. It may be that that is a question of perspective, since it appears to be plain enough that the arrangement, when it was formed, resulted from oral conversations between the parties and, in June 2013, any attempt to determine its terms would have had to have regard to those oral conversations. Subsequently, Heartland issued invoices recording the services that were provided, broadly in terms consistent with the nature of the services which Ms Hyland indicates were to be provided under the relevant contract. It is not necessary to decide for present purposes whether those invoices were capable of having some form of contractual force, as indicating what services were to be provided, or were merely a record of the services that were provided pursuant to the earlier oral arrangement.
For a period of time, Heartland issued invoices and Fishbank paid them, although it appears that they were rarely, if ever, paid in accordance with the payment terms of seven days from the invoice date recorded in the terms of the invoices. However, by late 2014, any process of invoicing monthly for services, as originally proposed (Hyland 14.4.16 [22]), had altered. By email dated 18 November 2014, Ms Hyland advised Mr Deans, and Ms Deans who also worked in the Fishbank business, that the September, October and November invoices had not been sent until then, because Heartland had been conscious of the costs pressures on Fishbank's business and took the decision not to bill Fishbank until there was "external funding". That email does not, in terms, indicate any acceptance by Heartland, at that point, that it was under any legal obligation to take that course, and it appears to suggest it was taken as some form of indulgence.
Mr Deans then gives evidence of a conversation with Ms Hyland, in November 2014, indicating his concern as to Fishbank's capacity to pay Heartland's expenses and suggesting that Fishbank could not continue to engage Heartland after November 2014. His evidence is that Ms Hyland then indicated that Heartland was "prepared to keep supplying it [sic] services to [Fishbank] on the basis that it will only be paid for those services if and when funding is obtained from an external source". Mr Deans' evidence is that he responded that, if Heartland or Ms Hyland was "okay with that" then that "would be great as [Fishbank] still needs your help". Ms Hyland also refers to a conversation with Mr Deans on that date, in somewhat different terms, and suggests that she drew his attention to the need for Fishbank to pay its debts as and when they fell due in order to preserve its solvency but also indicated that, if Fishbank could not afford to pay Heartland on an ongoing basis, it would be "okay with me" for Fishbank to end Heartland's engagement then and pay Heartland the moneys owed. Ms Hyland also refers to Mr Deans having made a proposal for payment by Fishbank of 50 per cent of the invoices "as we can until after we get [i]nvestor" [sic] and to her having indicated that she would discuss it with another person and let Mr Deans know. It is not clear from Ms Hyland's affidavit what thereafter is said to have come of that proposal, or of her discussion with that other person, if it occurred. It is important to note that there is plainly a dispute between Mr Deans and Ms Hyland as to at least some aspects of this conversation, critically whether an agreement was reached, although there is some common ground that a proposal for an alternative payment arrangement had at least been raised by that point.
I note that Mr Deans' evidence is that, but for the agreement which he says was formed in November 2014, he would have terminated Heartland's engagement from that point. That is a matter of some significance, so far as it may found reliance on, or detriment resulting from, the continuance of that engagement on the basis of an understanding, if established, that the billing arrangements would be varied.
There is evidence of a subsequent arrangement formed between Fishbank and a third party which, for a period, offered a prospect that external funding would be obtained, although it appears that proposal did not come to fruition and I need not address it further. During part of that period, Heartland issued and Fishbank paid invoices, albeit on a somewhat irregular basis.
A further transaction occurred in early 2015, by which Deans Property, rather than Fishbank, received a significant commission payment, and it appears that disagreement may then have arisen between Mr Deans and Ms Hyland as to whether further amounts claimed by Heartland should be paid from the amount that had been paid to Deans Property. Mr Deans and Ms Hyland give different accounts of a conversation at that time, as to their respective understanding of arrangements that had previously been reached as to the terms on which Heartland would be paid. Ms Tringali, who appears for Heartland, emphasises that the parties' understanding of those matters is not itself the source of contractual or other obligations. While I accept that proposition, so far as it goes, it is also important to recognise that this discussion refers, at least in part, to the parties' understanding of what earlier contractual arrangement had been reached, by conversations which had in fact occurred, and which are the subject of evidence, at an earlier time. It appears that, following this conversation, the parties continued to engage in a somewhat ad hoc process by which invoices were issued, and from time to time paid, although plainly not in accordance with any original arrangement contemplating monthly invoicing and payment within seven days of invoice.
On 8 May 2015, Ms Hyland sent an email to Mr Deans, apparently at his request, suggesting a payment plan for consultancy services provided by Heartland from January to June 2015 which offered at least some degree of concession as against the terms which the invoices provided for payment. Mr Deans responded by email dated 15 May 2015 which offered some further payments, but on the basis of a concessional arrangement if the development proposal ultimately failed, which would involve two months payment out of the four months invoiced, within six months of the failure of the development proposal. That email also contemplated a concessional arrangement as to what were described as "outstanding payments", which would only be paid when funding came in. Mr Deans refers to a conversation, after he sent the email of 15 May, with Ms Hyland in which he asked whether the proposal in that email was acceptable and Ms Hyland responded: "Yes I got your email, and the proposal is acceptable. When will the payments be made?"
Ms Hyland refers, in her affidavit, to the receipt of the email, but does not directly address, or deny, the existence of that conversation. Again, of course, for present purposes, the question before me would not be to determine which version of events was correct, if there were competing versions of that conversation rather than only Mr Deans' version, but whether a serious question was raised by that conversation and other matters as to whether a genuine dispute exists as to the debt claimed in the Demand.
Mr Deans' evidence is also that, but for the acceptance of the proposal made in mid-May 2015, Fishbank would at that point have terminated Heartland's engagement. After that time, further invoices were issued, and paid, again on a somewhat irregular basis until, in late June 2015, Fishbank terminated Heartland's engagement with effect from June 2015. Mr Deans' evidence that he took that course after he had advised Ms Hyland that Fishbank was no longer able to afford to continue paying Heartland for its services after June 2015 (Deans 26.2.16 [48]). It appears that subsequent discussions between Fishbank and a financier took place, although, so far as the evidence goes, they do not appear to have led to a successful result.
In August 2015, Heartland issued the invoices for February to June 2015 which are the subject of the Demand. The covering email dated 3 August 2015 in respect of those invoices (Ex P1, 75), provides some support for Mr Deans' account of the relevant arrangements, so far as it refers to correspondence from Mr Deans "saying that these will be paid when funding arrives, which we all hope is imminent". That statement is, to say the least, inconsistent with the position adopted by Heartland in this application, which was that the arrangement between the parties had, at all times been that set out in the terms of the invoices, namely that invoices would be paid within seven days of issue. Those invoices were in turn the subject of the Demand to which I referred above, issued in February 2016.
With that factual background, I turn to the parties' position, which were put by Mr Carey and Ms Tringali in an efficient way that has crystallised the issues in dispute. Both Counsel have a largely common view as to the applicable test as to whether a genuine dispute exists, to which I will refer below, and the difference between the parties is essentially whether, on the relevant facts, the dealings between the parties give rise to such a dispute, given the terms of the arrangement between the parties.
Ms Tringali submits that, in substance, a contract arose between the relevant parties, when Fishbank engaged Heartland to supply services in June 2013; that the discussion at that point contemplated monthly invoicing, with payment in seven days; the terms of the relevant invoices continued that term; and nothing that occurred subsequently varied that arrangement. Again, I should pause to note that the question for me is not whether that position is correct, as if I were determining a contract claim on its merits, but rather whether that position is so clearly correct that no serious argument to the contrary can be put by Fishbank, so as to give rise to a genuine dispute as to the debt claimed.
Ms Tringali relies on the decision of Stone J in United Capital Properties Pty Ltd v Handbury Asset Management Pty Ltd [2011] FCA 1075 (2011); 86 ACSR 161, which had at least some possible resemblance with the present facts, so far as her Honour was there asked to determine whether, in the context of contractual arrangements between the parties, suggested oral agreements to postpone the payment of a debt gave rise to a genuine dispute as the obligation to pay that debt. There are, however, two matters which seem to me to suggest that that case is distinguishable from the present facts, and in any event, all cases in respect of creditor's statutory demands at least partly turn upon their own facts. First, that case involved detailed written agreements, including loan agreements between the respective parties and a document described as a deed of settlement and release, and the question to which her Honour appears to have been primarily directing attention was the question whether the suggested oral conversations between the parties were effective to modify the construction of those written contracts, as part of the surrounding circumstances. Her Honour referred to well-established case law in that respect, and held that the suggested conversations did not create a genuinely arguable case that those written agreements were modified.
The position here seems to be distinguishable in at least two respects. The first is that, at least as at June 2013, the arrangement between the parties was oral in character albeit that arrangement was subsequently implemented by the issue of invoices to which Ms Tringali has referred, which contained the reference to payment within seven days to which Ms Tringali has also referred. The second point of distinction is, whatever the limits on the extent to which oral conversations may be introduced, as a matter of construction, to amend the terms of a detailed written agreement, it has never been suggested that such conversations could not provide for the variation of a contract, as distinct from affecting its construction, at least if the contract does not itself prohibit amendment by oral means, nor has it ever been suggested that oral communications cannot be relied on to establish an estoppel, if detriment is established.
Although Fishbank did not seek to elaborate the basis on which its alleged genuine dispute was to be characterised, in legal terms, it was plain enough that it at least sought to establish a variation of the relevant oral contract, by further oral conversations, and I also understand, having regard to its evidence as to reliance on the conversations, that it seeks to establish an estoppel case. It does not seem to me that the principles which may restrict the circumstances in which oral conversations can be relied on to alter the construction which would otherwise be given to a written contract, apply to exclude evidence of oral conversations said to vary an oral contract, or said to support an estoppel case.
Mr Carey, who as noted above appears for Fishbank, in turn traces the development of the relevant agreements, through the chronology of events and conversations to which I have referred, and seeks to establish that there were, in effect, either two variations to the original arrangement, or two further agreements, which brought about a different operation. The first is an agreement formed in November 2014, from the conversations to which I have referred above, which contemplated that Heartland would supply services to Fishbank on the basis that it would only be paid if and when funding was obtained from an external source. The second is the further agreement which is said to have arisen in May 2015 from Mr Deans' email containing a proposal which (on Mr Deans' evidence, to which Ms Hyland did not respond) was accepted orally by Ms Highland, providing for certain payments to be made and for other payments to be deferred and paid in part within six months of the deal failing.
Mr Carey in turn submits that there is a genuine dispute as to these matters, and it is not the Court's task on an application of this kind to determine that dispute, as distinct from determining whether Fishbank's contentions are plausible or, as the case law often puts it, whether they give rise to a serious question to be determined.
With that background, I should now turn to the relevant authorities applicable to determining whether a genuine dispute is established such that the Demand should be set aside. Mr Carey draws attention to my summary of the relevant principles in Re Pages Sales Pty Ltd [2016] NSWSC 616 ("Pages Sales") at [23]-[27], and I will not seek to repeat that summary here. I should note, however, that s 459H(1)(a) of the Corporations Act provides that a creditor's statutory demand may be set aside when the Court is satisfied that there is a genuine dispute about the existence or amount of the debt to which the demand relates, and that test has often been described as requiring simply 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 determining whether a basis for an interlocutory injunction had been established, or an application for summary dismissal of proceedings could be resisted. In Pages Sales above, I referred to Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 and the observations of the Full Court of the Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 and to the observations of the Court of Appeal in Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44], where Young AJA (with whom Hoeben JA and Ward J (as her Honour then was) agreed) noted that the question for a primary judge, in determining an application to set aside a creditor's statutory demand on the basis of a genuine dispute, is to determine whether there was a "genuine dispute", that is one in which a plausible contention has been raised by the company on which the creditor's statutory demand was served.
I should also refer, briefly, to the observations of the Court of Appeal in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 where the Court of Appeal, in summarising the case law applicable to the threshold to demonstrate an offsetting claim, conducted a comprehensive review of the cases referable to establishing whether a genuine dispute was established. Their Honours there emphasised that the Court must be satisfied that there is a serious question to be tried or an issue deserving of a hearing or a plausible contention requiring investigation but also emphasised that the evidence necessarily for that purpose "need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable". Their Honours also observed that:
"In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the court is not concerned to engage in an enquiry as to the credit of the deponent of the affidavit filed in support of the application."
The Court also summarised the position [at 47] as being 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."
It seems to me that application of those well-established principles leads to a clear result in this case. The question before the Court is not to determine whether Mr Deans' evidence or Ms Hyland's evidence should be preferred and, to the extent that there is a dispute between them, that is, as Mr Carey points out, a matter which would tend to establish rather than displace the existence of a genuine dispute as to the debt. In any case, there is no dispute between Mr Deans and Ms Hyland as to some aspects of the matter, including the emails which passed between them, and the somewhat irregular payment arrangements that existed between the parties, which were plainly inconsistent with payment within seven days of invoice, throughout virtually the whole of the period, or the conversation as to which Mr Deans gives evidence, in which Ms Hyland is said to have accepted the proposal put in mid-May 2015, to which Ms Hyland does not respond.
So far as legal issues go, I am unable to accept Ms Tringali's submission that the terms of the invoices prevail and that subsequent conduct cannot give rise to either a variation of the arrangement or an estoppel to prevent reliance on the strict terms of the invoices, at least to the level which would have the result that no serious question for determination of the Court to be tried were established. To put that proposition another way, it seems to me, if Mr Deans' evidence were to be accepted, then there would plainly be a serious question to be determined, whether the matters referred to in that evidence gave rise to a variation of the contract, or an estoppel, so as to constrain Heartland's ability to claim payment of the debt claimed in the invoices that are the subject of the Demand, given the subsequent arrangements between the parties which were (again, if Mr Deans' evidence is accepted) directed to deferring payment of such invoices until external funding were obtained.
In making these observations, I should again note that, as I have previously observed in cases of this kind, it may well be disappointing to a party which issues a creditor's statutory demand that it is set aside, when a dispute emerges as to the debt claimed. However, it must be understood that the creditor's statutory demand procedure should only be adopted where there is no genuine dispute about the debt, and that is well established by the case law. A decision that a creditor's statutory demand should be set aside does not have the consequence that the creditor is unable to recover its debt. It simply has the consequence that the creditor, in order to recover its claimed debt, must take the steps that are ordinarily taken by creditors to recover disputed debts, namely the bringing of proceedings in a court of appropriate jurisdiction, which will determine that claim on its merits, rather than adopting the process of the issue of a creditor's statutory demand, where an application to set aside that creditor's statutory demand can only be dealt with on a summary basis. The costs that are wasted, when a creditor's statutory demand is set aside, will readily be avoided if parties bear in mind the constraints upon the circumstances in which is appropriate to rely on that mechanism in order to give rise to the presumption of insolvency which arises from non-payment of an undisputed debt.
For these reasons, I am satisfied that an order should be made setting aside the Demand. Accordingly, I order that the creditor's statutory demand dated 3 February 2016 served on Fishbank Development Corporation Pty Ltd by Heartland Productions Pty Ltd be set aside.
[3]
Costs
Following the delivery of my judgment, Mr Carey, who appears for Fishbank, sought an order for indemnity costs. Ms Tringali, who appears for Heartland, did not seek to put submissions in opposition to that application. It seems to me that that approach was correctly taken. However, I should briefly refer to the applicable principles to indicate why I would make the order that is sought.
By way of factual background, following the issue of the Demand, the solicitors for Fishbank had written a letter dated 22 February 2016, which invited Heartland to withdraw the Demand, which would have avoided the need to bring an application to set it aside. That letter, was, with respect, a model of clarity, so far as it set out, in some detail, the basis on which the application to set aside the Demand was being pursued, including the matters which have been relied upon to establish a genuine dispute as to the debt claimed in the Demand. In those circumstances, there could be no suggestion that Heartland was not squarely on notice of the matters which would be relied on to establish that genuine dispute, and did not have a full opportunity to consider them. By letter dated 23 February 2016, Heartland's solicitors responded denying the existence of the alleged agreement on which Fishbank relied. That response had the difficulty to which I have referred above, that the question for the Court is not whether such an agreement existed, but whether there was a serious question as to its existence. That letter also indicated that the Demand would not be withdrawn. Fishbank's solicitors again raised the possibility of withdrawal of the Demand by email dated 24 February 2016, and were advised by Heartland's solicitors that its position had not changed.
Mr Carey draws attention to the observations of Barrett J in CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100, where his Honour referred to several decisions in which indemnity costs had been ordered in applications to set aside a creditor's statutory demand. One of those decisions, as Mr Carey points out, was a decision where there was a contest as to the oral agreement said to give rise to the debt claimed in the creditor's statutory demand. In CGI Information Systems Barrett J also noted that:
"[T]here are cases in which attempts to resist the setting aside of the demand are, even on the interpretation of the facts most favourable to the defendant, so devoid of the prospects of success as to be perverse. The opportunity to put the company to proof of the asserted genuine dispute is something to which the defendant should not be regarded as entitled in such obvious cases. A defendant, on having an obvious and irremedial weakness in its position pointed out, ought to withdraw the statutory demand. If, in such circumstances, such a defendant does not do so, it may well be appropriate for the court to award costs to the plaintiff on the indemnity basis".
That observation has been applied in subsequent cases.
I would not, necessarily, characterise Heartland's position in this case in quite the terms which Barrett J there used. Nonetheless, it seems to me that it was squarely on notice of the fact that the debt which it claimed was owed to it by Fishbank was disputed, and elected to resist the application to set aside the Demand, putting Fishbank to the costs of that application. In those circumstances, there is a case for indemnity costs, both because of the unreasonableness of that course, and to compensate the Plaintiff for the costs incurred in setting aside the Demand, which an order for costs on a party/party basis would not do. For these reasons the Court should make the order that is sought, not only because it was not opposed, but because it is warranted in the circumstances.
Accordingly I make a further order that the Defendant pay the Plaintiff's costs of the application to set aside the creditor's statutory demand on an indemnity basis, as agreed or as assessed.
[4]
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Decision last updated: 08 July 2016