Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd

Solicitors: Andresakis & Associates (Plaintiff) PJG Solicitors (Defendant) Simpson Partners Lawyers (Supporting Creditor) File Number(s): 2014/280831

Judgment - ex tempore

1. By Originating Process dated 24 September 2014 the Plaintiff, Sinadinos Haulage Pty Limited ("Company"), applies to set aside a creditor's statutory demand issued by Heavy Vehicle & Equipment Rentals ("HVER") dated 3 September 2014 ("Demand"). The Demand described the relevant debt as "hire of walking floor trailer" registered number [omitted] and in turn refers to several tax invoices issued between 20 September 2013 and 27 December 2013 totalling $8,030. The Demand was supported by an affidavit of Mr Tony Govesis dated 3 September 2014 which indicated that he was the sole director and secretary of HVER and was authorised by it to make the affidavit on its behalf. He referred to inspecting the business records of HVER in relation to the Company's account with it and verified the amount of the debt claimed. The invoices which are the subject of the Demand are in turn in evidence, and each refers to a particular trailer, as to which five daily charges each of $100 are made in the course of a week, and GST is added, to give rise to a total claimed of $550 in each week between 20 September 2013 and 27 December 2013.
2. The application to set aside the Demand is in turn supported by an affidavit of Mr Sinadinos, a director of the Company, dated 24 September 2014. Mr Sinadinos refers to an earlier business relationship with two members of the Govesis family, which appears to have involved, at least on Mr Sinadinos' account, some pooling of resources. I should note that Mr Xenos, who appears for HVER, objected to the relevance of that evidence, which at best appears to be background to the application.
3. Mr Sinadinos expressly denies that the Company had a hire contract with HVER. He also says, albeit by way of assertion, that the trailer which is in issue was unroadworthy and was not available for use from 23 August 2013. There is at least some indication that the trailer was damaged, at some point, so far as a quotation for repair work dated 20 September 2013 is in evidence. There is also in evidence a letter of demand from HVER relating to reported damage to the trailer which it claims was done by the Company. Mr Sinadinos also points to the fact that the letter of demand does not mention outstanding hire costs, although it seems to me that that is somewhat equivocal when the letter of demand could have been directed to the particular subject matter.
4. Mr Sinadinos also refers to correspondence to customers of the Company which is said to have been established in respect of the dealings between the Messrs Govesis and Mr Sinadinos, asking them to forward moneys due to that entity to another company associated with the Messrs Govesis. I need say nothing further as to that matter, so far as an offsetting claim is not sought to be established, and there is in any event no evidence which would support its quantification. Mr Sinadinos in turn deposes that the Company is not indebted to HVER.
5. I should add that, contrary to a common practice in winding up applications in the past, I permitted limited cross-examination of Mr Sinadinos, following the approach contemplated by the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, at least where there is a dispute as to the genuineness of the debt claimed. Mr Xenos put to Mr Sinadinos that the Company had hired equipment from HVER, and that was denied by Mr Sinadinos; that it had hired a walking trailer, and that was also denied by Mr Sinadinos; that it had paid for that hire between June and September 2013, which was also denied by Mr Sinadinos; and that the Company had failed to pay from September 2013 to November 2013, which was also denied by Mr Sinadinos. I should pause there to note that that cross-examination identified, neatly, the territory of the alleged dispute. As I understand it, Mr Sinadinos' position, evident from his affidavit and consistent with his responses in cross-examination, is that there was no hire agreement with HVER, and that is consistent with his denial of their being a hire of equipment, which would contemplate the existence of such an agreement. His denial of payment between June and September 2013 is, as I will note below, consistent with the fact that, at least if payment is understood in the sense of money being handed over, that appears not to have occurred in respect of the transactions to September 2013. His denial of a failure to pay from September 2013 plainly reflects the Company's position that it did not have an obligation to pay such amounts.
6. Mr Govesis in turn led evidence in response to Mr Sinadinos' affidavit, and was not cross-examined. He refers to a discussion with Mr Sinadinos in June 2013 in which Mr Sinadinos is said to have offered to hire a trailer and pay $500 per week. That conversation, I should note, was not denied by Mr Sinadinos, and, as I noted, Mr Govesis was not cross-examined to suggest that that conversation did not take place. Having said that, it leaves some questions open. First, the conversation does not identify which corporate entity was to hire the relevant trailer, apparently being put in terms that Mr Sinadinos would hire the trailer. Second, the reference to payment of $500 per week does not appear to have been reflected, at least in the common sense of money being transferred, in what later occurred. I will return to that question below. Third, if the terms of the contract were limited to those set out in that conversation, then a number of matters were plainly not addressed by it, including, as I have noted, the entity which was to hire the relevant trailer and the manner in which payment was to occur.
7. Mr Govesis' evidence is that the Company paid for the use of the trailer from 3 June 2013 until 13 September 2013 at the rate of $500 per week plus GST, and he annexes tax invoices relating to that matter, which he says were "paid by" the Company. The tax invoices themselves do not record the receipt of cash payments, and instead contain, in each case, a note "paid by credit note HV030 CR". Mr Govesis gives no further explanation of the origin of that credit note. Mr Xenos submitted that the credit note related to other work done as between the Company and HVER. That may well be correct, although it is not directly supported by Mr Govesis' evidence. That matter reduces the weight which can be given to the fact of any payment from June 2013 and September 2013, because the practise over that period cannot be said to establish, for example, a practice of making cash payments, which was departed from when cash payments were not made subsequently. The practice described, at least in the invoices, would equally be consistent with a practice by which a trailer was made available and credit notes were issued in respect of other works or dealings between the parties, and not supporting an obligation for payment by cash rather than by the exchange of services reflected in credit notes. I do not, of course, reach any positive finding that that is the case, but that is not the issue before me, where the practice of payment is relevant to seeking to characterise, as best one can, the nature of any arrangement in respect of the trailer from the limited evidence that is before the Court.
8. Mr Govesis' evidence is that the Company continued to use the trailer from 14 September 2014 until 27 December 2014 and did not pay for the use of the trailer. He refers to invoices issued after that date. It is not entirely clear whether Mr Sinadinos accepts or does not accept that such invoices were received, although it is plain that he does not accept that the Company had an obligation to pay them, by reason of his denial of the existence of the hire arrangement on which HVER relies.
9. The Company and HVER each made written submissions, and oral submissions, which were admirable for their brevity and their focus upon the matters in dispute. The Company submitted, on the one hand, that the Demand arose from a dispute between former business partners and that no contract as between the Company and HVER existed for hire of the trailer, and also advanced the allegation that the equipment was not roadworthy and had been in the repairer's yard for a period. The latter submission is weakened by the fact that it depends on no more than an assertion to that effect in Mr Sinadinos' affidavit, and the repairer's quotation, so that it is certainly not clear for what period the trailer was unroadworthy.
10. The Company submits that the arrangements between the parties do not support a contract of hire or that any hiring that did occur was to be paid for, given the other arrangements between the parties. It should be noted, as I have observed above, that the proposition that the arrangements do not support that the hiring was to be paid for, at least by cash payment, finds some support in the credit note mechanism to which I referred above. The Company also submits that there is a dispute evident that should be heard before the Court, in substantive proceedings, and that requires the setting aside of the Demand.
11. HVER in turn draws attention to the relevant case law, to which I will refer below, and submits that Mr Sinadinos' affidavit does not identify the grounds on which it is suggested that the Demand should be set aside. With respect, I cannot accept that submission, since it seems to me plain that Mr Sinadinos' affidavit denies the existence of the loan agreement, on which the Demand is founded, and that is ultimately the substance of the dispute, although he adds the issue as to the roadworthiness of the equipment to it.
12. HVER also submits that the affidavit of Mr Sinadinos does not establish that there is a genuine dispute about the existence or amount of the debt, and that is sufficient to require the dismissal of the application. In that sense, issue is joined between the parties as to a fundamental matter, namely whether the evidence led is sufficient to establish a genuine dispute.
13. Mr Xenos, in oral submissions, accepted, properly, that the test to be applied was analogous to that of summary judgment, and submitted that the true position was that a series of invoices had been paid and subsequent invoices had not. It seems to me that this is a helpful way to identify the issues, but it opens the issue as to an alternative characterisation, which emerges from the evidence, namely that one set of invoices had been credited, rather than being paid by cash, and another set of invoices had not.
14. I turn now to the applicable principles, which are well established. Section 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. The applicable test has been variously formulated as requiring that the dispute is not "plainly vexatious or frivolous" or "may have some substance" or involves "a plausible contention requiring investigation" and is, as Mr Xenos had rightly noted, similar to that which would apply in an application for an interlocutory judgment or summary judgment; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362 at 365; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. The relevant test was helpfully summarised by Barrett J in CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWCA 728; (2003) 47 ACSR 100 at [16] as follows: "[T]he task faced by a company challenging a statutory demand on the genuine dispute grounds is by no means at all a difficult or demanding one. The company will fail in that task only if it is found, upon the hearing of its s 459G application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that on rational grounds indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."
15. His Honour repeated those observations in Roadships Logistics Limited v Tree [2007] NSWSC 1084; (2007) 64 ACSR 671 at [24].
16. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71], Dodds-Streeton JA similarly observed that what was required was that the relevant dispute had "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." That approach is consistent with the Court of Appeal's approach in Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44] and with the exhaustive review of the authorities recently undertaken by the Court of Appeal in Britten-Norman above, albeit there in the context of dealing with an offsetting claim.
17. With this background, the test which the plaintiff, the Company, needs to satisfy in order to establish a genuine dispute is an undemanding one. It merely needs to establish, as I have noted, that it has a plausible contention as to the matters to which it refers so as to establish a genuine dispute.
18. Dealing with the matter, raised by the Company in reverse order, it does not seem to me that the Company has established that it has a genuine dispute arising from the roadworthiness of the vehicle, where the evidence that the vehicle was unroadworthy is no more than an assertion to that effect in Mr Sinadinos' affidavit and the repairer's quotation, with little particularity as to how the damage to the vehicle made it unroadworthy, and no indication of how long it was unroadworthy for.
19. However, the more fundamental aspect of the Company's attack on the statutory demand is the denial of the loan arrangement. It seems to me that a plausible question worthy of further inquiry has been established in respect of that denial, on several bases. First, it is clear from the evidence that the parties had other relationships. Second, the conversation on which Mr Govesis relies to establish the relevant loan does not, in fact, identify the entity which is to be the hiring entity. That seems to me of greater significance, in circumstances where several entities are involved by reason of the parties' other business relationships. Third, it does not seem to me that the evidence, to which I have been taken, in fact establishes a practice of cash payment, or payment by the transfer of moneys, to HVER, where the records of payment refer to credit notes, and, if Mr Xenos' submission is accepted, those credit notes reflect the performance of other work by the Company or HVER. In other words, this is not a matter where there is established a process by which cash was regularly transferred by the Company to HVER over a period, and then ceased to be transferred, allowing an inference that at some previous point the Company had accepted an obligation to make such payments, arising from the conversation to which Mr Govesis refers and the subsequent dealings between the parties. That is not to say that such an arrangement would not ultimately be established in a trial on the merits. However, this is not a trial on the merits. The only question before me is whether a genuine issue worthy of further investigation has been established. It seems to me that such an issue has been established, as to the existence and terms of the relevant loan arrangement. For that reason, I must set aside the Demand with costs.
20. Accordingly, I order that:
21. The creditor's statutory demand issued by the Defendant to the Plaintiff dated 3 December 2014 be set aside.
22. The Defendant pay the Plaintiff's costs of the application as agreed or as assessed.
23. I should add that, after the delivery of judgment, my Associate received correspondence from the "supporting creditor's" solicitors which appears to have contemplated that creditor might in some way be substituted for HVER in this application. That correspondence appears to have misunderstood the nature of this application, which was an application to set aside a creditor's statutory demand, not a winding up application. The application to set aside the demand, and the proceedings, were completed when that demand was set aside. The provision for substitution of a creditor in s 465B of the Corporations Act is directed to substitution in a winding up application, not at the anterior stage of an application to set aside a creditor's statutory demand. It is, of course, open to the supporting creditor to bring a separate winding up application under s 459A of the Corporations Act and, if the supporting creditor relies on its own creditor's statutory demand, s 459P of the Corporations Act, or on proof of insolvency of the company under s 459S of the Corporations Act. A supporting creditor cannot, however, substitute in an application to set aside a creditor's statutory demand issued by another entity after that application has succeeded and that demand has been set aside.

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: 01 June 2015