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

Supreme Court of NSW|2024-06-28|Before: Black J

Solicitors: MurdockCheng Legal Practice (Plaintiff) Dentons (Defendant) File Number(s): 2024/184138

Nature of the application

By Originating Process filed on 17 May 2024, the Plaintiff, One GC MQ Park Pty Ltd ("Company") applies to set aside a creditor's statutory demand ("Demand") dated 26 April 2024 served by Dunmore Lang Colleges Ltd ("Dunmore Lang"). The Demand claimed the amount of AUD $1,117,466.33, being an amount described in a schedule to the Demand as: "Liquidated debt under a Put and Call Option Deed entered into between [the Company and Dunmore Lang] dated 28 January 2022 (Put and Call Option), as varied by a deed of variation of Put and Call Option entered between the Company and [Dunmore Lang] dated 29 August 2023 (variation of Put and Call Option Deed). The Liquidated debt is comprised of the following: Final Instalment Amount (being 7.5% of the price specified on the front page of the Contract annexed to the Put and Call Option Deed) payable pursuant to cl 1.1(c) of the Variation of Put and Call Option Deed."
The Demand was verified by an affidavit of Mr Murrie-West, the principal and chief executive officer of Dunmore Lang, which referred to the entry into the Put and Call Option Deed dated 28 January 2022 ("Option Deed") and a Variation of Put and Call Option Deed dated 29 August 2023 ("Variation Deed") and to the Company's obligation to pay Dunmore Lang an "Instalment Amount", being 7.5% of the price of the relevant property on 29 March 2024. Mr Murrie-West noted that that date was a public holiday and proceeded on the basis the instalment amount was due on 2 April 2024, and expressed the view that there was no genuine dispute about the existence or amount of the debt claimed in the Demand.
It will be apparent from the terms of the Demand that the claim made by Dunmore Lang depends on the Option Deed, as varied by the Variation Deed. The Company seeks to set aside the Demand on the basis that it has an arguable case that the debt claimed by Dunmore Lang was not due on the proper construction of those documents or alternatively that the Demand should be set aside because Dunmore Lang's claim raises issues of construction which should not be determined in an application to set aside the Demand.

The terms of the Option Deed and Variation Deed

I will refer to the terms of Option Deed and the Variation Deed before returning to the affidavit evidence, applicable principles and the parties' submissions. The Option Deed provides, in cl 4.1, that: "In consideration of [the Company] paying the Call Option Fee to [Dunmore Lang] in accordance with cl 4.2 and subject to cl 3, [Dunmore Lang] grants to [the Company] during the Call Option Period, the Call Option, which may be exercised as set in cl 7."
That grant is subject to cl 3, which provides certain provisions do not take effect until the Execution Condition (as defined) is satisfied. That condition related to several owners of properties executing and entering into Put and Call Option Deeds in respect of their lots with the Company. There is no suggestion that condition was not satisfied.
Clause 4.1 of the Option Deed, in turn, refers to the payment of the Call Option Fee, which is defined as the amount set out in item 2 of a reference schedule, being 20% of the Price, as defined. The Price is, in turn, set out on the front page of a specified contract. There is no dispute raised in this application as to the amount of the Call Option Fee. Clause 4.1, in turn, refers to the payment of the call option fee in accordance with cl 4.2, which provides that the Company "must pay" that fee in four instalments by specified due dates, although that provision was subsequently varied by the Variation Deed. Clause 4.3 then provided that, if the call option was exercised by the Company on or before the date 18 months after the date of the Option Deed, the balance of the call option fee that was unpaid at that date would become immediately due and payable by the Company. It is apparent from that clause, and from cl 7 of the Option Deed to which I will shortly refer, that the call option could be exercised prior to the last date for its exercise.
Clause 7.1 of the Option Deed provided for the manner in which the call option could be exercised by the Company and specified that it could be exercised at any time during the Call Option Period, as defined, by the delivery of specified items. The term "Call Option Period" was defined as the period between the "Call Option Commencement Date", 1 July 2022, and the "Call Option Expiry Date", namely 19 months after the date of the Option Deed. That provision also made clear that the call option could be exercised at any time during that period.
By the Variation Deed, cl 4.2 of the Option Deed was amended by deleting the table of instalments in that clause and replacing it by a table which provided for five instalments, the last of them being an instalment of 7.5% of the Price on 29 March 2024. Clause 4.3 was also amended in a manner that retained the provision for the payment for the balance of the Call Option Fee if the call option was exercised by the Company on or before 29 March 2024, again proceeding on the basis that the call option could be exercised on or before the last instalment date.

Affidavit evidence

The Company reads the affidavit dated 17 May 2024 of its sole director, Mr Sunito, in support of the application to set aside the Demand. He refers to the fact that the Company and Dunmore Lang are parties to the Option Deed as varied by the Variation Deed and refers to relevant clauses of the Option Deed, to which I have referred above. His evidence is that: "I deny [Dunmore Lang's] claim the amount of $1,117.466.33 is a debt which is due and payable by [the Company]. The call option granted under the Option Deed for the Call Option Period is given "in consideration of [the Company] paying the Call Option Fee to [Dunmore Lang] in accordance with cl 4.2." If payment of an instalment amount is not made by the due date, the call option granted would simply expire and be incapable of being exercised. Accordingly, the non-payment of the amount claimed does not create a debt capable of enforcement by statutory demand."
Plainly, that evidence amounts, in substance, to a submission, which overlaps with the submissions by Mr Chia, who appears for the Company in the application.

Applicable principles

I now turn to the applicable principles, which were common ground between the parties and provide the framework for their submissions and for my determination below. I have drawn, in my summary of those principles, on my decision in Re PSR Refining Services Pty Ltd [2023] NSWSC 423, which referred to the decision of the Court of Appeal in Creata (Aus) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 ("Creata") and to my decision in Re Australian Tailings Group Pty Ltd [2019] NSWSC 1218 ("Australian Tailings Group"), to which the parties also referred in submissions.
Here, the Company seeks to set aside the Demand on the basis of a genuine dispute under s 459H(1)(a) of the Corporations Act 2001 (Cth) ("Act"). The Court has power to set aside a creditor statutory demand under that section where there is a genuine dispute between the recipient of a statutory demand and the issuer of the statutory demand about the existence or amount of the debt to which the demand relates.
In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; [1997] FCA 681, the Full Court of the Federal Court of Australia observed that a genuine dispute must be bona fide and truly exist in fact and the grounds for the dispute must be real and not spurious, hypothetical, delusionary, or misconceived. The threshold to establish a genuine dispute is not high, a matter which Mr Chia rightly emphasises, and it is necessary to bear in mind the observations of Barrett J (as his Honour then was) in Panel Tech Industries (Aust) Pty Ltd v Australian Skyreach (No 2) [2003] NSWSC 896 at [18], that: "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."
I also have regard to the Court of Appeal's decision in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 where, in summarising the case law applicable to offsetting claims, the Court of Appeal undertook a comprehensive review of the cases referrable to whether a genuine dispute was established. The Court there emphasised [at 47] that the Court's role was, in such an application: "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." Here, of course, I bear in mind that there is no underlying dispute as to the facts.
In Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330, Barrett JA in turn approved my observations as to the scope of these provisions in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], consistent with the summary which I have noted above.
Here, Mr Chia places considerable weight on the well-established principle that, with an important qualification, the Court will not determine questions of constructions in an application to set aside a creditor's statutory demand, and I recognise that that position was emphasised by the Court of Appeal in Creata and that judgment was subsequently quoted at length and applied by Williams J in Re Jana Pty Ltd [2022] NSWSC 112 at [15]. However, the Court of Appeal also referred in Creata to the observations of the Supreme Court of Victoria in Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 ("Spacorp"), where Brooking and Charles JJA emphasised the qualification to that principle, namely that a genuine dispute would not be established where it was "plain as a pikestaff" that a particular construction was not tenable.
In Re Litigation Insurance Pty Ltd [2017] NSWSC 334, to which Mr Chia referred, Gleeson JA observed at [30]-[31] that: "Recently the Court of Appeal in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 (Barrett AJA, McColl and Meagher JJA agreeing) emphasised the restraint that a court should exercise in considering the ultimate question of the indebtedness of a company served with a statue demand, referring with approval to the remarks of Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270 ; [2001] VSCA 89 at [3]-[4]. The passage of their Honours' reasons at [4] had been earlier referred to by Barrett J in Drillsearch [Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192] at [46] ... The important points to be derived from the authorities are as follows. First, the court dealing with a s 459G application is not compelled to determine questions of construction of documents. Second, s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. Third, the cases in which it will be appropriate for the court to entertain a construction argument on a s 459G application are likely to be few in number. Fourth, the court's state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared."
In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 ("Grandview"), White JA observed at [90] that: "It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular construction is "patently feeble" (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is "as plain as a pikestaff" that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 at [41] ) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; 125 ACSR 212 at [26]-[29] …" The Court there found that the construction of the subcontract advanced by one party did not have "any element of rational controversy to it" (adopting the language in Creata at [26]), and was a patently feeble argument.
I referred to the same principle in my decision in Australian Tailing Group, by reference to the observations of White JA in Grandview, and observed at [25] that: "Plainly, White JA did not there exclude the possibility of the Court finding that, in a particular case, a contractual argument has so little basis that it does not establish a genuine dispute, because it is, for example, 'patently feeble' or without basis or plainly wrong, since he referred to earlier decisions that reach such findings. The contrary approach would mean that any statutory demand depending upon a contract would likely be set aside, since the meaning of many contractual provisions would be contestable, if no regard is had to whether the contest has any plausibility."
Mr Pokoney, who appears for Dunmore Lang, relies on that proposition in his written outline of submissions, although it was not necessary to call upon him for oral submissions.
I should also note, for completeness, that I have not neglected the applicable principles of contractual construction, although, for the reasons noted below, it does not seem to me that it could properly be put that any real question of construction arises in this case. I bear in mind that the meaning to be given to contractual terms is to be determined by an objective approach, by reference to the text, context and purpose of a contract, and by reference to what a reasonable business person would have understood its terms to mean, by reference to the language used in the contract, the surrounding circumstances known to the parties, and the commercial purposes or objects sought to be secured by the contact: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]; Price v Spoor (2021) 270 CLR 450; 391 ALR 532; [2021] HCA 20 at [27] and [40]-[42]. However, here, no subtle question arises here as to the application of construction principles.

The parties' submissions and determination

I have referred above to the position expressed by Mr Sunito in his affidavit evidence, namely that the call option granted under the Option Deed was granted in consideration of the payment of the Call Option Fee so that, if payment of an instalment amount was not made by a due date, the call option granted would simply expire and be incapable of being exercised. That proposition assumes that the call option granted under the Option Deed was effective for a period, and only lapsed if an instalment amount was not paid, treating the obligation to pay the instalments as a form of condition subsequent in respect of the call option.
Mr Chia, for the Company, put the proposition in somewhat different terms in submissions. He referred to the principles, which I have addressed above, both in relation to whether a genuine dispute is established and as to the question whether the court will deal with competing contentions as to contractual interpretation in resolving that question. He submitted that, by reference to cl 4.1 of the Option Deed, payment of the Call Option Fee was the benefit or consideration in exchange for which the Company granted the call option to Dunmore Lang and that the payment of the Call Option Fee was a condition precedent to Dunmore Lang granting the call option. He there submitted that cl 4.2 of the Option Deed, as amended by the Variation Deed, then stipulated the method by which any payment must be made. He submitted that: "The consequence of non-payment of instalment was simply that the plaintiff did not have the benefit of the call option. In the [Company's] submission, the debt claimed in [Dunmore Lang's] statutory demand simply did not arise or, at the very least, the construction of the Option Deed is a matter that is not for determination in the current proceedings."
In his written outline of submissions, Mr Pokoney in turn referred to those principles, and to the limitation to them to which I have referred above, by reference to Spacorp, Creata and Australian Tailings Group. He submitted that there is no genuine dispute in the present case, by reference to the terms of the Option Deed and Variation Deed, and emphasised that cl 4.1 of the Option Deed provided for reciprocal obligations, and cl 4.2 in its original form, and as amended, established an obligation for the Company to pay the relevant amounts, by way of the price payable for the grant of the option. Mr Pokoney also pointed out that the instalment terms under the Option Deed and Variation Deed would make no sense, if the Company's submission were correct, because the due date for the final and largest instalment was, under the Variation Deed, the same date as the expiry of the Call Option Period. He submitted that, under the Company's interpretation, there would be no reason for it to pay the final instalment, where he could not exercise the option after 29 March 2024 in any event. As I will note below, there are also other difficulties with the Company's construction.
In oral submissions, Mr Chia initially put the Company's position in a manner that was consistent with his written outline of submissions. That submission treated the Company's payment of the instalments in respect of the option as a condition precedent to the existence of Dunmore Lang's obligation arising under cl 4.1 of the Option Deed. That proposition was necessary to the Company's case to establish a genuine dispute, because, unless that term created a condition precedent to the existence of the payment obligation, then it would not establish a basis to contest the mandatory requirement to pay the final instalment under cl 4.2 of the Option Deed, as varied by the Deed of Variation.
As Mr Pokoney pointed out, that construction of the Option Deed is simply not arguable, because the language of consideration in cl 4.1 of the Option Deed records the parties reciprocal obligations, being the obligations created by the Option Deed, by which the Company obtained the right to exercise the option during the Call Option Period and assumed the obligation to pay the Option Fee; and cl 4.2 of the Option Deed expressly created an obligation for the Company to pay the instalment amounts, rather than allowing a choice to it whether to do so.
I also raised with Mr Chia in submissions the fact that the Option Deed, in terms, contemplates that the call option may be exercised by the Company at any time during the Call Option Period. The Company's first construction of the Option Deed is plainly inconsistent with that provision, since there is no escaping the proposition that, if the Company were correct, it was never possible for it to exercise the call option during the Call Option Period because the condition precedent to its exercise of that option would not be satisfied until the final instalment was paid. That would, with respect, make a nonsense of the provision for early exercise of the call option, and deprive the Company of the very rights for which it had bargained under the Call Option Deed, including the right to exercise the call option during the Call Option Period.
Mr Chia did not put an alternative proposition that there existed a condition precedent, not to the existence of the Company's obligations under the Option Deed, but to the exercise of the call option. That alternative proposition would not have assisted the Company, because if the obligation existed, then a debt arose under cl 4.2 of the Option Deed, and it did not assist the Company that the exercise of the call option could not occur until the relevant instalment was paid.
In oral submissions, Mr Chia contemplated a possible alternative position, which overlaps with that expressed by Mr Sunito in his affidavit, namely that, rather than the relevant provision being a condition precedent to the Company's obligation to pay the option fee under the Option Deed, it was a form of condition subsequent, so that the obligations under the Option Deed lapsed if an instalment was not paid. However, that also did not assist the Company, because there is no suggestion here that the penultimate instalment of the Option Deed was not paid, so the obligations under the Option Deed subsisted up to the point the final instalment was due to be paid by the Company, and there is no possible basis for a contention that they then lapsed by reason of the fact of non-payment, so that the obligation to pay was defeated by the failure to comply with it.
On that basis, it seems to me that the construction of the Option Deed, as varied by the Variation Deed, is plain. To that extent, the relatively extensive analysis that I have set out above makes laborious work of what is entirely obvious. These conclusions are fatal to the Company's position. First, so far as the Company contends that there is a genuine dispute arising from the terms of the Option Deed, as varied by the Variation Deed, I do not accept that a genuine dispute arises. Second, so far as the Company retreats to the proposition that this matter involves a question of construction, and the Court should not determine a question of construction in an application to set aside a creditor's statutory demand, the resolution of any such question is here as plain as a pikestaff, within the language of the case law. A genuine dispute is not established by a contention as to the construction of the Option Deed and Variation Deed which is, at the risk of repetition, patently feeble, without merit and plainly wrong.

Orders

For these reasons, the Company's application to set aside the Demand is dismissed with costs.

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: 04 July 2024

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