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

Supreme Court of NSW|2016-11-04|Before: Black J

Solicitors: Coleman Greig (Plaintiff) K H Legal (Defendant) File Number(s): 2016/170999

A chronology of events

I turn now to a brief chronology of events. Mr Austin had a previous relationship with LBHG, having provided consultancy services to it by another entity, First Consulting Group Pty Ltd ("First Consulting") (Zhu 14.7.16 [4]). Mr Zhu's evidence in his third affidavit is that LBHG engaged Mr Austin as its General Manager, through First Consulting, between September 2013 and September 2015.
By email dated 28 May 2015, Mr Austin put a proposal to Mr Zhu for replacement of then current arrangements with LBGH with a different arrangement, which would include payments of $100,000 plus GST by mid-June 2015 and $100,000 plus GST by mid-September 2015 (Ex D1, CB 525). Mr Austin gave evidence of an exchange of emails in late May and early June 2015 by which he claimed to have negotiated a payment of $200,000 plus GST, half to be paid by mid-June 2015, and the remainder by mid-September 2015, as consideration to take over works which LBHG was not able to construct (Austin 23.8.16 [6]; Ex D1, CB 115-122). By email dated 2 June 2015, Mr Austin proposed to Mr Zhu an arrangement by which all revenue directed to certain building activities would be directed to LBHG; all expenses incurred as to such activities would be paid by LBHG; fees of $100,000 would be paid in mid-June or when a specified event occurred; and $100,000 would be paid in mid-September (Ex D1, CB 523-524). That arrangement differed from that which was subsequently implemented, so far as it contemplated that revenue would be received by LBHG rather than PPG, and contemplated a payment in mid-September 2015, whereas the invoice in issue in this case required payment on 1 September 2015. By email dated 3 June 2015, Mr Zhu confirmed his agreement with an email of that date (Ex D1, CB 119).
In his third affidavit dated 23 September 2016, Mr Zhu referred to further conversations between him and Mr Austin between June and September 2015, in respect of an arrangement by which PPG would do building work in respect of projects for LBHG. The parties appear to have negotiated, and may or may not have implemented, an arrangement by which LBHG would in some way access the benefit of home warranty insurance obtained by PPG, where its own access to such insurance was too limited for the volume of work it contemplated. By email dated 24 August 2015, Mr Austin suggested to Mr Zhu that PPG having secured eligibility for $4 million of home warranty insurance triggered payments of $100,000 and the balance of $100,000 by the end of September 2015 and referred to the correspondence in early June 2015 (Ex D1, CB 523). Mr Zhu referred (Zhu 23.9.16 [15]) to a conversation on 25 August 2015 as to whether an amount of $100,000 should be paid to PPG, in which he rejected Mr Austin's suggestion that the fact that PPG had $4 million of home warranty insurance "triggers a payment" but suggested that: "I will only pay you some money to help PPG with its cashflow and to get the houses started, then I need to get that money paid back to me. I have to make sure that I control the accounts and you have do [sic] give me weekly reports."
Mr Austin also refers to various emails to Mr Zhu from August 2015 requesting payments and to his handing a copy of his invoice for the amount of $220,000 to Mr Zhu on 1 September 2015. Mr Zhu's evidence (Zhu 23.9.16 [23]) is that he responded to that invoice by stating that LBHG "never pay up front for using home warranty insurance only at the end when the work is done [sic]."
In his third affidavit dated 23 September 2016, Mr Zhu also led evidence that the TCA was not signed on 1 September 2015, but on or about 29 October 2015. Contemporaneous emails indicate that a draft of the TCA was sent by Mr Austin to, inter alia, Mr Zhu on 28 October 2015 (Zhu 23.9.16, Annexure B) and that a copy of the agreement executed by the directors of LBHG and PPG was sent by Mr Austin to two other persons, with a copy to Mr Zhu, on 29 October 2015. The TCA recited that its purpose was to develop business opportunities between LBHG and PPG within the residential home market in New South Wales; that LBHG was to source land for on-sale in the form of home and land package(s) in the residential home market; and that PPG would undertake the role of builder. Clause 2.1 provided for a process to apply "for the first $4 million of projects", which included, in paragraph 2.1(d)(1) a fee structure described as: "Payment to PPG of 5% based on $4,000,000 of works payable in advance."
Shortly after the TCA was executed, on 31 October 2015, Mr Austin sent another invoice, now on the letterhead of First Consulting, to LBHG, also in the amount of $220,000 inclusive of GST, and his cover email referred to two of the payments which were set-off against the claim by PPG against LBHG (Zhu 23.9.16, Annexure C).
In his third affidavit dated 23 September 2016, Mr Zhu also referred to the issue of a notice of suspension by PPG of the works, about a week after the TCA was executed, on 6 November 2015. Following the suspension notice, Mr Zhu put an offer to Mr Austin to purchase the "NSW division" of PPG, by email dated 11 November 2015 and gave one month's notice of termination of the "contract we have signed last month", which must be the TCA (Ex D1, CB 541). By a further email dated 16 November 2015, Mr Austin emailed Mr Zhu confirming that they had reached agreement. Although the terms of that agreement are not entirely clear, it appears to have included terms that: "Item 1 Payment terms are agreed and pending execution of a Deed of Agreement. Item 2 is withdrawn pending a new agreement to be signed." (Ex D1, CB 546)
It appears that the parties thereafter negotiated further arrangements, which may or may not have been consistent with the TCA, in respect of the suggested work. Mr Zhu's evidence was that payments made by LBHG to PPG between October and November 2015 were advances to assist PPG's cashflow for building work, and that three of the projects referred to in Mr Austin's affidavit had not proceeded.
Mr Zhu's evidence is that, on 23 December 2015, he had a further conversation with Mr Austin in which he stated that (Zhu 3.6.16 [6.3]): "[Zhu]: LB are after more HWI (home warranty insurance) and I do not need you to build my client's [sic] houses, so that contract between LBHG and PPG is basically terminated. Whatever the money I paid you, you keep it and I won't pay you any more money." [Austin]: "That's fine for me, I just want to help, not to make money from you, but for the best interests of my company I want to build houses for you." [Zhu]: "I understand that and thanks for that, but as you know I have lost so much money in LBHG, I just cannot afford to lose any more."
Mr O'Connor contended that the words attributed to Mr Austin in that conversation were so unlikely that Mr Zhu's evidence of them should not be accepted. An application to set aside a creditor's statutory demand is not ordinarily an occasion on which an assessment can be made as to the credit of competing accounts of conversations, particularly where the witnesses were not cross-examined in this application. In particular, PPG did not seek to cross-examine Mr Zhu as to that conversation, although leave to cross-examine will more readily be granted in applications of this kind since the decision of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601; Re Diveva Pty Ltd [2015] NSWSC 794.
By a further email dated 21 January 2016, Mr Austin wrote to Mr Zhu in relation to the termination of an agreement between LBHG and First Consulting and stated that: "[T]he amount of $200,000 inclusive of all GST components shall be paid in satisfaction of both the FIRST Consulting Group Pty Ltd contract and the [PPG] contract." (Ex D1, CB 549)
A letter dated 21 January 2016 from a different entity, LB Group Limited, in turn referred to termination of a contract between LB Group and First Consulting on the basis that an amount of $200,000 inclusive of all GST components would be paid: "[I]n satisfaction of both the FIRST Consulting Group Pty Ltd contract and the [PPG] contract." The amount referred to in that letter was inclusive rather than exclusive of GST. Drafts of a separation agreement and termination of contractor agreement were thereafter prepared, which provided for payment of a "termination fee" under the termination of contractor agreement and a "separation fee" under the separation agreement.
Mr Austin also addresses these matters in his affidavit and his evidence is that, in December 2015 and January 2016, he and Mr Zhu entered into discussions concerning the termination of their arrangements on a basis which Mr Austin claims included that the amount of $200,000 be paid immediately. He refers to a separation agreement and novation agreement (Ex D1, CB 548-616) and his evidence is that "eventually the parties have agreed on the terms of the agreements, however the agreements were not executed" (Austin 23.8.16 [25]). Mr Zhu also refers to a further conversation with Mr Austin on 8 February 2016 indicating that LBHG could obtain more home warranty insurance and that Mr Zhu did "not need [Mr Austin's] help for building those houses" (Zhu 3.6.16 [6.4]).
Mr Austin refers to letters of demand issued in February and March 2016, and claims that no objection to payment was made until after the Demand was served. I can give some weight to that matter, consistent with the nature of this application, which will not ordinarily permit the determination of contested facts, although I am require to determine whether the dispute in respect of the Demand has a genuine character, in the sense noted below.
The Demand was issued about three months later, in May 2016, and claimed the amount of $140,092.02, described as the balance outstanding from an invoice issued on 1 September 2015 in the amount of $220,000; stated that PPG had invoiced LBHG "in accordance with the executed agreement" the total sum of $220,000 including GST on 1 September 2015; and annexed a copy of that invoice. That invoice described that amount as "LBHG Tender and Construction Agreement". The invoice was dated 1 September 2015 and provided for a due date of payment on that day.
The Demand was verified by an affidavit of Mr Austin dated 12 May 2016, which described that debt as "relating to the provision of construction services" and referred to the invoice issued on 1 September 2015. That affidavit also referred to payments made by LBHG toward the debt, referring to a total amount of $17,710 paid in two amounts on 14 October 2015 and 30 October 2015, an amount of $11,000 paid on 30 November 2015 and an amount of $51,197.98 paid on 29 April 2016, which the evidence indicated was in fact withheld by Mr Austin from the sale of a motor vehicle sold by Mr Austin on Mr Zhu's behalf. Mr Austin also stated that: "Mr Zhu has made several verbal promises to pay the outstanding amount giving dates for full payment including: 23rd December 2015, 8th February 2016 and 30th April 2016 each time without full payment being effected."
As I noted above, it is plain from the contemporaneous evidence that the TCA was not executed until the end of October 2015, although it is dated 1 September 2015, and it necessarily follows that it was not in effect at the time the invoice dated 1 September 2015 was issued. Mr Zhu denied, in his affidavit dated 3 June 2016, that he made the promises referred to in Mr Austin's affidavit in support of the Demand.

The applicable principles

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. 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.
The content of a "genuine dispute" has been described in several well-known decisions including Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787, Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 and TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71], and I summarised the applicable principles in Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]-[22]. The test for a genuine dispute is not a particularly demanding one and the court would not embark upon any extended inquiry as to the claims in determining whether a genuine dispute exists.
In Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295; (1993) 11 ACSR 362, Hayne J observed that: "in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute."
In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd above at 464, the Full Court of the Federal Court of Australia held that a "genuine dispute" must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at [16], Barrett J (as his Honour then was) summarised the principle as follows: "[T]he task faced by the 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."
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd above at [71], Dodds-Streeton JA observed that a company which seeks to establish a genuine dispute or offsetting claim: "… is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting 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. … [I]t 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 Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44], Young AJA (with whom Hoeben JA and Ward J agreed) referred to Eyota Pty Ltd v Hanave Pty Ltd above and noted that the question for a primary judge, in determining an application to set aside a statutory demand under s 459H(1)(a), is: "[T]o determine whether there was a genuine dispute, that is one in which a plausible contention has been raised by the company on which the statutory demand was served."
In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd above, 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 (at [36]) 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 necessary for that purpose "need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable". Their Honours also observed (at [46]) 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."

Whether a genuine dispute is established as to whether the invoice is supported by the TCA

This issue arises at two levels of generality, one in respect of the TCA generally and the other in respect of the construction of cl 2.1(d)(1) of the TCA. In opening submissions, Mr Afshar submitted that there was a serious question whether there was any agreement as to payment of the monies claimed in the Demand, whether the June "arrangement" or the TCA or a later agreement applied, what were the terms of that agreement, what was any amount that was payable under it, and when any monies needed to be paid, and that all of those matters were the subject of a genuine dispute.
In response, Mr O'Connor placed primary weight on the fact that the majority of issues raised were, he contended, outside the scope of Mr Zhu's affidavit of 3 June 2016 and not open to LBHG under the Graywinter principle. The proposition that a debt was not accrued, or at least was not accrued on the terms of the TCA is open to LBHG, given the rulings which I made in respect of evidence. The proposition that the debt was not payable forthwith under cl 2.1(d)(1) of the TCA, as a matter of construction, was also open to LBHG where that agreement was annexed to Mr Zhu's first affidavit and that was sufficient to allow it to raise construction arguments which might emerge on the face of the TCA. I accepted that two other matters that LBHG sought to raise, namely that the debt was owed to a different entity, First Consulting, rather than PPG, and that an offsetting claim existed, were not open to it where they had not been raised by Mr Zhu's first affidavit filed within the 21 day period specified in s 459G of the Corporations Act.
Mr Afshar submitted that, first, a genuine dispute was raised as to the legal and contractual basis on which the invoice dated 1 September 2015 was issued. It seems to me that the primary question as to that submission was whether the evidence that supported it was admissible, having regard to the Graywinter principle. Once I had admitted that evidence, with hesitation, it seems to me that it must follow that a genuine dispute is raised as to that matter. The TCA had not been executed, and there is no evidence that its substantive terms had been agreed, as at 1 September 2015, the date specified for payment in the invoice. It seems to me that a genuine dispute is therefore established as to whether a payment obligation could be established as at 1 September 2015, by reference to the TCA which was not then executed, and a genuine dispute is also established as to whether the previous dealings between the parties gave rise to any obligation to pay an amount of $200,000, inclusive or exclusive of GST, on 1 September 2015.
The second issue raised by Mr Afshar, against the contingency that no genuine dispute was established as to whether the invoice was supported by the TCA, was whether the monies were due under cl 2.1(d)(1) of the TCA. Mr Afshar submitted that the terms of the TCA, and specifically cl 2.1(d)(1) was unclear as to the time or event, in advance of which a fee was payable. Mr Afshar submitted that the Court could have regard to the objective background in determining that question. In opening written submissions, Mr O'Connor submitted that the words of cl 2.1(d)(1) of the TCA were clear and that: "5% of the amount of $4,000,000 of the work is payable in advance of the work being undertaken."
It seems to me that a genuine dispute is raised as to the construction of cl 2.1(d)(1) of the TCA. I accept that that clause is clear that a payment is to be calculated by reference to a percentage of 5% and based on $4 million of works, and that payment is "payable in advance". However, it seems to me that that clause is unclear, as Mr Afshar contends, as to what the payment was payable in advance of. I accept that it is arguable, as PPG contends, that the amount would be payable in advance of any of the work being undertaken, although there is some force in Mr Afshar's response that that construction would leave LBHG exposed to the possibility that the work would not be undertaken, particularly where the agreement contained no provision for a refund or reduction of that amount if that occurred. However, it seems to me that it is also at least arguable the clause contemplated a payment on a staged basis, in advance of the works which were to be undertaken from time to time, possibly by reference to each particular project. That interpretation would be consistent with, for example, the fact that PPG was to incur the construction works, and would require funding to do so, in addition to payments made by the respective clients.
Although it is open to the court, in some circumstances, to determine a construction question in an application to set aside a creditor's statutory demand, it does not seem to me that I could or should seek to determine this question of construction in this application, where it may well depend upon evidence of surrounding circumstances, as to which cross-examination of witnesses may well be relevant. In these circumstances, it seems to me that a genuine dispute is established as to whether the amount of $200,000 was payable in a lump sum in advance, as distinct from on a progressive or some other basis in advance. This finding is sufficient to require that the Demand be set aside.

Whether there is a genuine dispute on the basis that the parties reached agreement that no further amount was due under the TCA

Mr Afshar submitted that there was a genuine dispute as to whether the Demand should be set aside on the basis that subsequent arrangement between the parties, including the oral arrangements referred to in Mr Zhu's affidavits and the emails and further agreement referred to in Mr Austin's affidavit, have given rise to an alternative arrangement for a payment of an amount, which was no longer referable to the invoice or to the TCA. On that basis, a genuine dispute would arguably arise as to whether a debt was owed on the basis claimed in the invoice and the Demand, albeit a debt might be owed on some other basis.
Mr O'Connor submitted that the conversation on 23 December 2015 to which Mr Zhu referred, in which he claims to have offered that PPG could keep the money that had been paid but LBHG would not pay any more, was the high point of Mr Zhu's first affidavit and was not supported by contemporaneous documentation. Mr O'Connor also submitted that it was not clear how the assertion that the contract was terminated would render an invoice that was already submitted "no longer valid" and that that proposition made "little sense". Mr O'Connor also submits that the words attributed to Mr Austin are "plainly ridiculous and should be dismissed out of hand". Indeed, Mr O'Connor went so far as to submit that: "The words attributed to Austin are so unlikely to have ever been said by anyone that the plaintiff's maintaining of the proposition is just silly." I accept that the words attributed to Mr Austin in that conversation have a degree of implausibility about them. However, it does not seem to me that that implausibility rises to a degree that I could say, without cross-examination, that the dispute raised by them is not "genuine" or does not require a further hearing, particularly when I have regard to the approach adopted by the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd above.
It seems to me that the conversation to which Mr Zhu refers, combined with the acceptance of that proposal attributed to Mr Austin could give rise to a variation of the arrangement, or an estoppel, if Mr Zhu's evidence of those matters were accepted at a final hearing. I do not accept Mr O'Connor's submission that the statement rises no higher than a bald assertion that the debt is not owing, where it amounts instead to evidence of an arrangement between the parties which, if the Court were to accept that evidence, could bring about a termination of the contract on the basis that no further monies were payable by LBHG to PPG. It seems to me that a genuine dispute is also established on that basis.

Whether there is a genuine dispute as to GST

A further issue raised by Mr Afshar was whether the TCA supported the invoice for the amount of $200,000 plus GST, where the TCA did not indicate whether the amount payable was payable on a GST inclusive or GST exclusive basis. Mr Afshar fairly accepted that both parties appear to have proceeded on the basis that the amount payable was exclusive of GST, although he submitted that the terms of the TCA did not have that effect. He also fairly accepted that that matter would lead only to a variation of the Demand, and not to it being set aside. Mr O'Connor emphasised the absence of contemporaneous correspondence taking issue with the claim to GST, although that matter has limited weight following the decision in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd to which I referred above. It is not necessary to determine that question given the findings that I have reached on other grounds.

Whether a genuine dispute is established as to the amount of the debt

Mr Afshar also submitted, again against the contingency that a genuine dispute was not established as to the invoice as a whole, that a serious question arose as to whether the debt could be quantified as 5% of $4 million, or only 5% of the amount of home warranty insurance obtained by PPG, which Mr Austin had quantified in the amount of $3,191,800. Again, that matter would lead only to a variation in the amount of the Demand and not to it being set aside. It is also not necessary to determine that question given the findings that I have reached on other grounds.

Sale of the motor vehicle

Mr Zhu also led some evidence as to the circumstances of the sale of the motor vehicle by Mr Austin. I accept Mr O'Connor's submission that it is not necessary to address that matter, where it is plain that the amount realised from the sale of that vehicle was set-off against the amount claimed in the Demand.

Conclusion

For these reasons, the creditor's statutory demand dated 12 May 2016 served by PPG upon LBHG should be set aside. PPG must pay LBHG's costs of this application 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: 28 November 2016

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