BARRETT AJA: The plaintiff, which I shall call "Broadspectrum", makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 4 February 2016 served on it by the defendant which I shall call Centauri.
The debt to which the statutory demand relates is described as "moneys due and payable under" four identified invoices. The total of the invoiced sums is $4,888,808.41. These sums are said by Centauri to relate to services performed by it for Broadspectrum and to be due pursuant to a contract between the two companies.
Broadspectrum has paid the amounts referred to in three of the four invoices. It maintains that it is not liable for the amount the subject of the fourth invoice, being $4,704,513.95. Broadspectrum's position is that it is not indebted because the work or services the subject of the fourth invoice did not fall within a particular definition in the contract between the parties.
The contract is a written contract executed by both companies. It envisages the provision of two types of services by Centauri to Broadspectrum. These are defined in the document as "Recovery Services" and "Support Services". Both kinds of services involve the application of accounting expertise.
The invoice in question refers to "Recovery Services". Broadspectrum maintains that such services as are covered by the invoice are not within the definition of "Recovery Services" and should be remunerated instead as "Support Services". The question of which category particular services fall within is of significance because Support Services are charged for on the basis of time spent, whereas Recovery Services attract a percentage fee based on savings achieved or other financial benefits obtained by virtue of the provision of the services.
The contract contains a definition of "Recovery Services" in a schedule containing a description of services, as follows:
For the Total Period, the Contractor will analyse:
1) Accounts Payable transactions;
2) Direct payment transactions; and
3) Supplier payments;
To identify
- payments made by Transfield Services in error (including overpayment of GST);
- discounts offered to Transfield Services but not taken;
- entitlements as a result of overcharging;
- entitlements as a result of claw backs;
- rebates and other amounts claimable from customers, suppliers, financial institutions and /or government agencies;
Following completion of the Analysis, the Contractor will provide a report in respect of the findings of the Analysis. Such report will include details of amounts recovered, findings of the Analysis as well as recommendations for system, process or other improvements.
The Contractor will provide status updates on the progress as necessary during the term of the agreement which will include details of potential claims, actual claims made and details of any issues arising during the analysis.
The Contractor will manage the claims process and will liaise directly with Transfield Services' debtor where required to gather information, advise of a claim, arrange recovery etc, unless requested by Transfield Services to liaise through a Transfield Services' representative.
The parties accept that the part of the definition relevant to this case is the part preceding the second of the dot points after "to identify".
In his affidavit filed with the originating process, Mr Sutherland outlined why Broadspectrum denied that the work the subject of the relevant invoice was within the definition of "Recovery Services". He said in essence that the process described by Mr Lamond, the principal of Centauri, as involved in the work covered by that invoice was "a reconciliation process" and that that did not, as contemplated by the relevant definition, amount to an analysis of errors in specific Accounts Payable transactions, Direct payment transactions or Supplier payments. Rather, Mr Sutherland says, the errors are of a kind that would have been identified by processes of reconciliation in the ordinary course. Mr Sutherland refers to contemporary email correspondence making that point.
In his affidavit, Mr Lamond takes issue with the proposition that the work involved a reconciliation process. He refers to contemporary email correspondence. Paragraph 39 of Mr Lamond's affidavit reads:
First, in paragraph 28 of Mr Sutherland's affidavit, it is suggested that "the process that Mr Lamond describes in his email to me of 21 August 2015 is a reconciliation process. From this starting point it appears to be suggested that, as a result, the work carried out under invoice 2015012 was not Recovery Services under the Contract. However, as is plain on the face of the email sent on 21 August 2015 at 6.21pm, that email does not purport to describe the process followed by Centauri in order to identify the amount of $17,476,802.53 recoverable by the plaintiff for over paid GST which formed the basis of invoice 2015012. Rather, it responds to the request made by Mr Sutherland in his email sent on 21 August 2015 at 10.17am to itemise a total of $2,200,000 of credits referred to in my email sent on 21 August 2015. A copy of this email chain is located at pages 96 to 100 of exhibit GL-1. The credits identified in my email sent on 21 August 2015 at 6.21pm (totalling $2,200,000) did not form any part of the amount of $17,476,802.53 recoverable by the plaintiff for over paid GST identified in the GST - Credit Error Advice submitted on 5 June 2015. These credits were amounts recorded in the general ledger relating to the net benefit received to that date by the plaintiff from all of the Recovery Services work and to other potential write backs to profit which would not be subject to any success fee under the Contract. The explanation of how these credits had arisen in the accounts given in my email sent on 21 August 2015 at 6.21pm is completely unrelated to the process followed by Centauri to identify the amount of $17,476,802.53 recoverable by the plaintiff for over paid GST set out in the GST - Credit Error Advice submitted on 5 June 2015.
Mr Sutherland's affidavit in reply accepts some but not all of what Mr Lamond said in his affidavit at paragraph 39. Mr Sutherland deposed
I refer to paragraph 39 of Mr Lamond's affidavit. In that paragraph, Mr Lamond refers to paragraph 28 of my earlier affidavit, where I refer to an email from Mr Lamond to me dated 21 August 2015 (which email appears at tab 19 of exhibit NJS-1 to my earlier affidavit). In my earlier affidavit I said that the process that Mr Lamond describes in his email of 21 August 2015 is a reconciliation process. I accept Mr Lamond's criticism of my evidence in paragraph 28 so far as Mr Lamond's email does not purport to describe the process followed by Centauri. I did not appreciate that error at the time of swearing my earlier affidavit. I now recall that Mr Lamond described the process that he carried out in relation to the transactions the subject of the Disputed Invoice orally in meetings that we had during 2015. I do not now recall the precise words that Mr Lamond said to me, or precisely when the meeting in which those words were said to me occurred, but those meetings did not occur until after the Disputed Invoice had been issued. I do not accept any of the other matters in paragraph 39 of Mr Lamond's affidavit, and the substance of that is considered below.
It is also relevant to quote the witnesses' positions on another aspect. Mr Lamond says at paragraph 40 of his affidavit:
In any event, the suggestion of the plaintiff appears to be that, as the errors identified by Centauri in the GST - Credit Error Advice submitted on 5 June 2015 "are of a kind" that the plaintiff would have detected during a hypothetical reconciliation process (had it ever undertaken such a process), it must follow that the process followed by Centauri must also be a reconciliation process. This suggestion is illogical. There is no reason why the accounting errors identified by Centauri can only have been identified by one process. It may be accepted that, if carried out properly, a reconciliation of the GST accounts against the general ledger would have revealed disparities between those accounts which would have provided a means to trace the disparity back to the original Accounts Payable records. But this does not in any way mean that the same error was not actually identified at its source by analysing the Account Payable records and then tracking that transaction through the general ledger and GST accounts to determine whether there had been an over payment.
Mr Sutherland replies at paragraphs 7 and 8, as follows:
I refer to paragraph 40 of Mr Lamond's affidavit. As I understand it, Mr Lamond asserts in that paragraph that the method that he adopted to identify the transactions the subject of the Disputed Invoice is the same as the method that he adopted to identify the transactions the subject of the other invoices issued by Centauri to Broadspectrum (i.e. for undisputed "Recovery Services" transactions). I do not accept that Mr Lamond could have identified the transactions the subject of the Disputed Invoice through the processes that he undertook to identify other undisputed "Recovery Services" transactions.
The undisputed "Recovery Services" identified errors that had been incorrectly coded or not coded at all. To do this, Mr Lamond identified anomalous transactions through the use of a software analysis process (as referred to in paragraph 14 of Mr Lamond's affidavit). In contrast, the Disputed Invoice is for transactions that were correctly coded and entered into the general ledger, but not replicated on the BAS report. As set out in paragraphs 12 and 13 of my earlier affidavit, the identification of these errors involves a reconciliation process. Whether or not this process forms "Recovery Services" under the Contract is what the parties are in contest about.
In the same way, I refer to Mr Lamond's paragraph 41:
The position of the plaintiff involves a false assumption that the Recovery Services under the Contract cannot involve any process of reconciling amounts between various accounts. In fact, as explained in paragraph 17 above, in relation to the over payment of GST (where GST was paid through Business Activity Statements), the process of identifying whether an error in an Accounts Payable transaction or any related process resulted in an over payment of GST necessitates reconciling the General Ledger against the BAS report to trace the amount involved in the transaction to a BAS return. This "reconciliation" of the accounts is a necessary outcome of the process. This in no way prevents the process from being Recovery Services under the Contract.
Mr Sutherland's response is in paragraph 9:
I refer to paragraph 41 of Mr Lamond's affidavit. I do not accept Mr Lamond's characterisation of the plaintiff's position in that paragraph. I agree with Mr Lamond that once a tax coding error or duplicate payment is identified, it is necessary to trace that transaction through to Broadspectrum's BAS reports, which is a form of reconciliation. In effect, this is an isolated audit enquiry about a specific transaction, which is very different to a reconciliation of many thousands of entries in the general ledger against Broadspectrum's BAS reports to identify transactions that appear in the general ledger but not the BAS reports. It is this latter type of reconciliation to which I refer in paragraph 28 of my earlier affidavit, and that is a necessary part of Broadspectrum's usual accounting that my team performs.
The pattern is repeated in paragraph 42 of Mr Lamond's affidavit and paragraph 10 of Mr Sutherland's. Mr Lamond says:
Further, it is not correct (as suggested in paragraph 28 of Mr Sutherland's affidavit) that the errors identified in the other invoices rendered for Recovery Services were "fundamentally different" and would not have been detected by the hypothetical reconciliation process (had it ever been carried out by the plaintiff). In fact, invoice 2015007 (commencing at page 22 of exhibit GL-1) and 2015011 (commencing at page 40 of exhibit GL-1) both charge in relation to amounts for transactions which had no tax code, which amounts were recorded in the balance sheet (so as to set up a disparity which needed to be reconciled) and which would have been detected during the reconciliation process described by the plaintiff in exactly the same way that the plaintiff says the amounts under invoice 2015012 would have been detected. The plaintiff does not raise any dispute in relation to invoices 2015007 and 2015011 and has paid those invoices. The only relevant difference between those invoices and invoice 2015012 is the size of the amount recovered by the plaintiff.
Mr Sutherland replies:
I refer to paragraph 42 of Mr Lamond's affidavit. I do not accept the matters set out paragraph 42 of Mr Lamond's affidavit. In particular, I disagree with Mr Lamond's statement that "the only relevant difference between those invoices and invoice 2015012 is the size of the amount recovered by the plaintiff"'.
It is clear from this affidavit material that there is disagreement between Mr Sutherland and Mr Lamond about whether the activities of the defendant that caused it to submit the invoice in question were "Recovery Services" as defined. Their views are, of course, not determinative but they do serve to show competing contentions. Broadspectrum's position, broadly stated, is that the defendant did not discover anything that would not have been brought to light by the plaintiff's staff in the ordinary course. Centauri says that, even if that is so, it is irrelevant.
Broadspectrum's basic argument is that "Recovery Services" involve the application of forensic skill beyond that which would ordinarily be applied by staff members. In addition, the required analysis is restricted to entries in the general ledger and does not extend to transfers from the general ledger to BAS reports on the view Broadspectrum takes. Centauri says that no such characteristic appears from the definition of "Recovery Services" and, moreover, that some services that Broadspectrum has previously paid for as recovery services without objection involve the very kind of work that Broadspectrum now says is outside the definition. Also Centauri points to evidence suggesting that the kind of reconciliation work Mr Sutherland says is excluded because performed by staff members in the ordinary course was not done by staff members at all at the time the agreement was entered into.
The law as to the approach the court should take to the question of genuine dispute under section 459H(1)(a) is well settled. Relevant principles were summarised by the Court of Appeal of Victoria in Malec Holdings Pty Limited v Scotts Agencies Pty Limited [2015] VSCA 330 at [47] - [50] (footnotes omitted):
The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.
In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a 'plausible contention requiring investigation' of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the 'ultimate question' of the existence of the debt at a substantive hearing should not be compromised.
The court is required to determine whether the dispute or offsetting claim is 'genuine'. It has been said that the criterion of a 'genuine' dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.
The court is not required to accept uncritically every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.
In the end, the core question here is as to the meaning of "Recovery Services" in the parties' contract and precise characterisation of work actually done. There is ambiguity and imprecision in the definition. Broadspectrum submitted that the determination of the precise intent of the definition might well require evidence of circumstances surrounding the making of the contract. One can readily accept that, consistently with the principles most recently refined in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 89 ALJR 990 at [46] - [50], it might be necessary to adduce evidence of what was and was not ordinarily done within Broadspectrum when the contract was made in order to identify fields of work on which, as an objective matter, it might be expected to have sought external help.
I would add that if there were litigation in which Centauri sued for the fee, it might well be necessary to resort to expert evidence of accountants as to precisely what tasks would and would not be undertaken in making an analysis of the kind described in the scope of work envisaged by the Recovery Services definition according to its correct interpretation.
In cases of this kind the court will not decide between competing contentions on a matter of construction of an instrument unless the point is a short and straightforward point. The notion that the court may, as it were, descend into the arena to that limited extent probably first emerged in Delnorth Pty Limited v State Bank of New South Wales (1995) 17 ACSR 379 but, as the Court of Appeal emphasised in Infratel Networks Pty Limited v Gundry's Telco and Rigging Pty Limited [2012] NSWCA 365; 297 ALR 372, that is not the course that should ordinarily be taken. In fact, the Court of Appeal there endorsed the observation of Sackville J in Trecomax Pty Limited v Prentice [2004] FCA 1057; 50 ACSR 314, that s 459G proceedings are not ordinarily the occasion for the court to construe the contract where there are competing views about its meaning.
In the present case there is a dispute between the parties. Disputed matters of fact emerge from the affidavit extracts I have set out. There are also differing views as to the correct construction of the definition of "Recovery Services" that could only be resolved by proceedings in which one party sought to enforce the contract against the other. There is, for those reasons, a genuine dispute concerning the existence of the debt the subject of the statutory demand.
This conclusion makes it unnecessary to consider subsidiary arguments based on delay in resort to a dispute resolution mechanism provided for in the contract.
The orders are as follows:
Order that the statutory demand dated 4 February 2016 served on the plaintiff by the defendant be set aside.
Order that the defendant pay the plaintiff's costs of the proceedings.
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Decision last updated: 19 April 2018