CGI Information Systems v APRA Consulting Pty Ltd

IN THE SUPREME COURT REVISED OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2549/03 - CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PTY LTD v APRA CONSULTING PTY LTD

1 By its originating process filed on 29 April 2003, the plaintiff, CGI Information Systems and Management Consultants Pty Ltd, makes application under s.459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 1 April 2003 served on it by APRA Consulting Pty Ltd on 9 April 2003. The statutory demand refers to an aggregate sum of $18,557 referable to two invoices issued by APRA to CGI, being invoice No. CG 03014 dated 7 February 2003 for $6,237 and invoice No. CG 03015 dated 12 February 2003 for $12,320. 2 The first invoice has since been paid. The demand now therefore relates only to the sum of $12,320. That sum is said by APRA to be due and payable in consequence of what it regards as termination of a contract between the parties. CGI maintains that the sum is not due and payable on that or any other basis and, in seeking an order setting aside the statutory demand, says that there is a genuine dispute as to the existence of the alleged debt of $12,320, thus activating s.455H(1). 3 The contract in question is in writing and is dated 1 February 2002. By that contract, APRA agreed to provide to CGI the services of Mr Perala, so that CGI in turn might make those services available to its clients or customers. The contract describes CGI as "an IT solutions provider" and it appears that its business is to provide consultancy and advisory services to others. Mr Perala and his wife are the directors and shareholders of APRA. It may be inferred that Mr Perala is a person with skills relevant to the provision of services of the kind CGI supplies. 4 The contract was expressed to subsist for term commencing on 1 February 2002 and continuing for "a minimum period of 100 business days (180 calendar days)" subject to certain other clauses, of which one is relevant for present purposes, namely, clause 3.1 which is as follows: "This agreement will continue for the Term unless terminated by either party giving either party four weeks written notice." 5 It appears that the sum of $12,320 the subject of the second invoice referred to in the statutory demand represents remuneration or fee at the rate applicable under the contract for a period of four weeks. The invoice itself describes the sum in question as "Notice of termination of services, a period of four weeks." 6 The contention of APRA is thus, clearly enough, that there was a termination of the agreement by CGI before the end of the nominated term and that that termination gave rise to an entitlement on APRA's part to be paid remuneration or fee at the applicable rate for a period of four weeks, being the period of notice by which the contract could be terminated within the nominated term pursuant to clause 3.1. 7 In support of its contention that there is a genuine dispute as to the existence of the claimed debt, CGI says, first, that there has been no termination under clause 3.1 or at all, second, that CGI did not breach the contract and, third, that even if CGI did breach the contract, the resultant claim of APRA would be an unliquidated claim for damages, not a liquidated claim for debt. 8 I need to go briefly to the evidence. Having obtained from APRA the services of Mr Perala, CGI sent Mr Perala to work on a project for CGU Insurance in Melbourne. The project was terminated unexpectedly by CGU Insurance for reasons that are presently irrelevant. There are conflicting accounts of what then happened as regards conversations between Mr Perala and Mr Cookney, the relevant CGI staff member in Melbourne. Mr Cookney deposes that he had a telephone conversation with Mr Perala on 5 February 2003 and told Mr Perala of the termination of the project and said, "There is no work for you here in Melbourne. Go back to the Sydney office." Mr Cookney says that Mr Perala then asked, "What about my termination payment?" to which Mr Cookney replied, "In my opinion you are not entitled to any termination payment according to the terms and conditions of your contract. However, I will refer the matter to Joe. Please talk to Joe on your return to Sydney." Joe is Mr Calavassay, a director of CGI. 9 Mr Perala's account of this telephone conversation accords, to a certain extent, with Mr Cookney's, although there are some differences. In particular, Mr Perala does not refer to any instruction to return to Sydney and says that the question of four weeks' termination payment had been discussed between Mr Cookney and himself on the previous day. Mr Perala refers to a conversation at a coffee shop on 4 February 2003 to which he, Mr Cookney and others affected were parties, in which Mr Perala asked, "When our roles are finished here in Melbourne will there be places for us in Sydney?" to which, according to Mr Perala's account, Mr Cookney replied, "There is no role for you in Sydney as I have stated in our previous conversations". Mr Perala says that he replied, "Should I put in my invoices for the work that I have done and four weeks notice?" to which Mr Cookney replied, "Yes, you should". 10 Mr Cookney, in his affidavit in reply filed in court today, agrees that there was a conversation in the coffee shop on the earlier day but denies having said, "There is no role for you in Sydney as I have stated in our previous conversations." 11 There are thus important and pivotal questions of fact requiring resolution before the true position can be ascertained. It may be that CGI, through Mr Cookney, agreed that a termination payment of four weeks remuneration would be made, regardless of the terms of the contract, or it may be that Mr Cookney made it clear that the contract was ongoing and, in effect, that APRA was to present Mr Perala for duty in Sydney as soon as he returned from Melbourne, or the true facts may reflect neither of these circumstances. 12 One thing, however, seems to be clear, namely, that there was no written notice as envisaged by clause 3.1, which indicates that that clause cannot, of its own operation, have caused the contract to terminate after some period of four weeks. At its highest, therefore, APRA's complaint must be that there was a repudiation or other breach of the contract by CGI, unless it is somehow saying that there was a new and collateral agreement by which CGI agreed to pay four weeks remuneration. 13 The submissions made on behalf of APRA make it clear that the complaint of APRA on which the statutory demand was based (as regards the $12,320) is wholly one of breach of contract. The central contentions are stated in the written outline of submissions as follows: "1.1 Pursuant to the first element of section 459H(1)(a) of the Corporations Act , 2001 (Commonwealth) ('the Act'), there is no genuine dispute about the existence of the debt of the second invoice No. CG03015 in the amount of $12,320.00. 1.2 The debt arises from a clear breach of the Agreement … 1.3 The term breached is clause 3.1, which states: 'This Agreement will continue for the Term unless terminated by either party giving either party four weeks written notice.' 1.4 The plaintiff breached clause 3.1 as it did not give the defendant 4 weeks' notice ….. 1.5 The plaintiff, in paragraph 4 of the affidavit of Jon Cookney sworn 29 April 2003 in the first quote contains evidence that the plaintiff terminated the Agreement, by saying on behalf of the plaintiff: 'Ari, the project and all of us have been terminated forthwith. This is your last day on the project.' 1.6 In those circumstances clause 3.1 of the Agreement must then apply, namely the payment of $12,320.00 in lieu of notice. The invoice the subject of the claim is for payment pursuant to the notice period. 1.7 In those circumstances there can be no genuine dispute about the existence of the debt." 14 Even if APRA is correct in saying that CGI repudiated the agreement (a matter as to which there are clear differences at the factual level), it simply does not follow that a sum of $12,320 then and for that reason became owing, due and payable by CGI to APRA. 15 The statutory demand procedure made available by s.459E may be availed of by a person in respect of a "debt that the company owes to the person". A debt is a sum certain owing, as distinct from a right to recover damages for breach of contract. The assertion of the defendant, as stated in paragraph 1.2 of the submissions, is that the relevant debt "arises from" a breach of contract. Such an assertion might, in concept, be correct where a contract requires a stated sum to be paid on a stated day or event and payment is not then made. The contract between CGI and APR did not work in that way. It bound the parties together for a stated term and contemplated the possibility of earlier termination by notice. If, as APRA contends, CGI repudiated the agreement or purported to terminate it otherwise than in accordance with the provision allowing termination, the most that APRA can have is a right to sue for damages for breach of contract, the damages being such as are found by a court to be necessary to compensate APRA for loss flowing from the breach. The breach APRA postulates is not, on any conceivable basis, one which causes to arise in APRA a right to sue for a liquidated sum (or debt). 16 It is unnecessary to canvass in detail here the scope of "genuine dispute" ground under s.459H as laid down in well known cases such as Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, Re Morris Catering (Australia) Pty Ltd(1993) 11 ACSR 601 and Spencer Constructions v G & M Aldridge Pty Ltd (1997) 76 FCR 452. It is sufficient that I repeat what I have said in other cases, namely, that the 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. 17 On this basis and having regard to the fundamental distinction between a debt and a claim for unliquidated damages, CGI has clearly and convincingly succeeded in showing that there is a genuine dispute as to the existence of the debt of $12,320 which remains the subject of the statutory demand and has made out an entitlement to order 1 in the originating process. I therefore order that the statutory demand dated 1 April 2003 and served on 9 April 2003 be set aside.

SUBMISSIONS ON COSTS 18 CGI seeks an order for costs on the indemnity basis. In doing so, it invokes the general principle that an award of costs on that basis is appropriate in cases of what Gaudron and Gummow JJ called, in Oshlack v Richmond River Council (1998) 193 CLR 72, "relevant delinquency", including "some improper defence or other misconduct". 19 In the s.459G field, Santow J warned in a number of judgments that, with the hurdle to be cleared by companies seeking to have statutory demands set aside being so low, creditors persisting with the defence of such applications need to consider carefully, against the possibility of an order for indemnity costs, whether there are valid grounds for their taking up court time and putting the company to expense by doing so: see, for example, Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1997) 16 ACLC 529; Buddies Liquor Pty Ltd v Wah Lai Investment (Australia) Pty Ltd (2001) 19 ACLC 848; Austrac Rail Pty Ltd v Hunter Premium Funding Pty Ltd [2001] NSWSC 654. A clear warning to the same effect was issued by the Full Court of the Supreme Court of South Australia in Drewniak v Air Rubber Pty Ltd (2002) 84 SASR 302. 20 Indemnity costs have been awarded in some s.459G cases. In Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70, an order of that kind was made where the statutory demand asserted debts said to come from an oral agreement, where the supposed conversation was denied by one of its supposed parties and the plaintiff offered to withdraw its application and bear its own costs on the basis that the defendant withdrew its statutory demand, an offer that Master Bredmeyer said should have been accepted. In Wildtown Holdings Pty Ltd v Rural Traders Company Ltd (2002) 172 FLR 35, the Full Court of the Supreme Court of Western Australia found that the statutory demand was grossly defective and its accompanying affidavit was obviously inadequate, yet the defendant persisted in resisting an application to have the demand set aside. The Court saw the case as involving "shortcomings … sufficiently serious … to warrant the conclusion that the respondent's defence of its position was an abuse of the court's process, arguably justifying an award of indemnity costs". In Carinda Homes Pty Ltd v Highlands Austral Pty Ltd [2003] FCA 275, Lindgren J ordered costs on the indemnity basis where the evidence made it plain that the time limit fixed by ss.459G(2) and (3) (which is immutable: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265) had not been met, so that, as his Honour put it, "the proceeding was doomed to fail" and it was "quite unreasonable for it to be pursued once 25 February 2003 had passed without service having been effected". 21 At the same time, it is important to remember that the party by whom a statutory demand is served is entitled not only to test the recipient company's claim that the alleged debt is genuinely disputed but also to see the evidence the plaintiff is able to marshal in support of the claim of genuine dispute. That principle has been stated on several occasions by Palmer J in sounding a note of caution about the award of indemnity costs in this type of case: see Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 165 FLR 72; Club Marconi of Bossley Park v AVR Services (NSW) Pty Ltd[2002] NSWSC 584; Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95. 22 I accept that the possibility of an order for indemnity costs should not be allowed to deter a party by whom a statutory demand has been served from putting the company to appropriate proof of the genuine dispute it asserts. But that principle has a limit to it. As Galaxy Resources, Wildtown Holdings and Carinda Homes show, there 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 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 irremediable 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. 23 On 24 February 2003, solicitors then acting for APRA wrote to CGI making it clear that the subject matter of the invoice now in question was seen as being an entitlement "to claim damages from your company for the loss suffered by our client as a result of your failing to give the four week notice as provided for in the contract of engagement". The letter concluded: "Our client reserves its rights to claim damages from your company for its breach of clause 3.1 of the contract of engagement." 24 In subsequent correspondence, solicitors for CGI denied that it had terminated the contract or committed any breach. In a letter dated 24 April 2003 (that is, after service of the demand on 9 April 2003), CGI's solicitors said to new solicitors acting for APRA: "It should also be pointed out to you, even if my client had some liability to your client for damages (which is denied), that liability for damages is not a debt against which your client is entitled to issue a statutory demand."

The letter went on to say that ACI had given instructions to make an application to have the statutory demand set aside and that the letter would be relied upon for the purposes of an application for indemnity costs unless the statutory demand was withdrawn. 25 APRA's solicitors wrote to CGI's solicitors on 28 April 2003 saying, among other things, "We are instructed that our client's contract with your client was terminated without notice and as such your client remains indebted to our client pursuant to clause 3.1 of the contract."

This, of course, reflects the basic and obvious misapprehension I have already noted as being reflected in the submissions made on behalf of APRA. The letter from APRA's solicitors continues: " Meanwhile, our client is aware of the likely costs that your client will incur by litigating an application to set aside a statutory demand as opposed to the likely costs of our client running a hearing in the Local Court. Our client will win the Local Court proceedings, with a costs order and your client may not win the Supreme Court proceedings. Therefore, we are instructed that our client is prepared to compromise its claim in relation to invoice No CG03015 for $12,320 if by 5pm on 29 April 2003 your client: 1 replaces its company cheque with a bank cheque for $6,237; and 2 provides a further bank cheque for $8,000, in full settlement of the Statutory Demand dated 1 April 2003. If we receive these payments, we are instructed that our client will withdraw its Statutory Demand dated 1 April 2003." 26 The basic and obvious misapprehension to which I have referred (under which, incidentally, APRA's original solicitors apparently did not labour) was pointed out by CGI's solicitors less than two weeks after the statutory demand was served. APRA nevertheless persisted in attempting to treat a claim for damages for breach of contract as if it were a debt. There was no cogent basis for doing so. APRA should have withdrawn the statutory demand as it was invited by the CGI's solicitors' letter of 24 April 2003 to do. The debt of $6,237 had been acknowledged and a cheque for that amount had been given. There remained, at best, a claim for breach of contract sounding in unliquidated damages only. 27 In those circumstances I am satisfied that costs should be awarded against APRA on the indemnity basis. I so order.

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