Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Limited

Judgment 1By Originating Process dated 21 November 2012, the Plaintiff, Solar PV Commercial Pty Limited ("SPC") seeks to set aside a Creditor's Statutory Demand dated 29 October 2012 ("Demand") issued by the Defendant, Silex Solar Pty Limited ("Silex"). That application is brought under ss 459H(1)(a) and 459J(1)(b) of the Corporations Act 2001 (Cth). Those sections relevantly provide for the Court to set aside a creditor's statutory demand where it is satisfied that there is a genuine dispute between the company and the party that issued the demand about the existence or amount of the debt to which the demand relates (s 459H(1)(a)) or there is some other reason why the demand should be set aside (s 459J(1)(b)). An alternative application to set aside the Demand under s 459(J)(1)(a) of the Corporations Act 2001, raised in the Originating Process, was not pressed in SPC's submissions. 2The Demand issued by Silex claimed an amount of $72,952.61 being the total of debts described as follows: Invoice No 883 dated 24 October 2011 $38,912.50 Invoice No 842 dated 24 September 2011 $73,054.30 Less amount paid $34,014.19 Total amount outstanding $72,952.61 3The Demand was verified by an affidavit of Ms Lauren Goulden sworn 1 November 2012. Ms Goulden is the Group Financial Controller of Silex Systems Pty Limited, the parent entity of Silex, and the verifying affidavit stated that: "The debt is due because of outstanding invoices for goods sold and delivered between 24 October 2011 to 30 September 2011 to Solar PV Pty Limited and subsequently assigned to [SPC] at the request of and with the Debtor's [sic] company's consent." 4The relevant debt is there identified as arising from the supply of goods to a different entity, Solar PV Pty Limited ("Solar PV") and the Demand (by necessary implication) and the verifying affidavit expressly rely on the assignment of the debt to SPC, which is said to have occurred "at the request of" and with consent of the "debtor company". It is not clear whether the reference to the "debtor company" is to SPC, which is said to have become the debtor by reason of the assignment, or to Solar PV which was the debtor prior to the purported assignment. 5SPC relies on an affidavit of its director, Mr Samuel Perdriau, dated 21 November 2012 in support of its application to set aside the Demand. Mr Perdriau was also a director of the original debtor, Solar PV, and gives evidence of the appointment of a liquidator to that entity on 7 February 2012. That matter has some significance as I will note below. Mr Perdriau also gives evidence, admitted only as a submission as to the basis of the alleged dispute, that there was no "assignment" of the alleged debt; there was no agreement between SPC and Silex that SPC would guarantee or assume the alleged liability between Silex and Solar PV; and, even if the amount alleged in the schedule to the Demand is outstanding, Solar PV (implicitly, as distinct from SPC) owes that amount. 6Mr Perdriau also gives evidence that payments of $46,497.68 made by Solar PV in January 2012 and $28,488.70 in February 2012 which, he contends, Silex applied to the invoices on which it relies in the Demand and that, since March 2012, SPC has paid the sum of $40,626.50, although Mr Perdriau denies that it was under any obligation to do so. Mr Perdriau annexes statements issued by Silex dated 31 January 2012 and 29 February 2012 which show payments totalling the amounts referred to in Mr Perdriau's affidavit against invoice 842 and a further payment in the amount referred to in Mr Perdriau's affidavit against invoice 883. Although those statements also indicate a total of $97,592.61 is outstanding, after that course of transactions, they are on their face inconsistent with the claim made in the Demand for a debt arising from the two invoices in the specified amounts less the specified payment. The outstanding amount referred to in those statements is also not the amount claimed in the Demand. 7By a further affidavit of Mr Perdriau dated 22 February 2013, he refers to emails exchanged with Ms Yan of Silex in late March and early April 2012 and an email from Ms Phoebus of Silex dated 3 April 2012 which provide the factual background to the "transfer of the" debt from Solar PV to SPC. Those dealings are also referred to in an affidavit of Ms Yan dated 19 March 2013, on which Silex relies. Relevantly, Ms Yan refers to a telephone call which she received on 27 January 2012 from Mr Jeremy Rowe, who she understood to be a director of SPC, who said words to the following effect: "We have made a major reconstruction of business. The new business name is Solar PV Commercial. Just transfer the debt on Tuesday when my accountant is back. She is currently on leave." A company search of SPC is in evidence confirming that Mr Rowe was a director of SPC on that date. 8Ms Yan then sent an email to others within Silex on that date recording that: "[Mr Rowe] from Solar PV just rang and mentioned that his company has made major restructuring. The new company name is [SPC] (the current company called Solar PV Pty Ltd). He would like us to transfer the current debt $208K to the new entity. The date of this transaction will happen on Tuesday 31 December while his accountant is back from her annual leave. Could you please advise our actions on this request so I can get things prepared?" Ms Yan's evidence is that the reference to 31 December should have read 31 January 2012, and that correction is consistent with surrounding events. 9On 29 March 2012, Ms Yan sent a further email to Mr Perdriau requesting that he complete an attached credit application for SPC and "confirm the transfer of current debt $143,579.12 from Solar PV Pty Ltd to [SPC] by return email". Mr Perdriau responded by email dated 2 April 2012 stating that: "I can confirm that the debt has been transferred over to [SPC] as of today. A total outstanding is: $143,579.12 less the $5,000 paid last Friday = $138,579.12." 10On 3 April 2012, Ms Phoebus of Silex responded to Mr Perdriau's email stating that: "Just to clarify, our understanding is that the debt transferred to [SPC] occurred on 27/01/2012 when you contacted us regarding the change in your business. At that point the debt owing was $163,579.10." That email refers to payments received since that date and states the current balance owing by [SPC] at 31 March 2012 was $138,579.12. Mr Perdriau responded on the same day stating that "what you have laid out below is correct as per my understanding" and referring to confirming that matter with accounting staff. The language of Mr Perdriau's email is somewhat unclear as to whether what was confirmed was the amounts owing and paid, or the further proposition that the debt transferred to SPC occurred on 27 January 2012, as Silex had stated it understood. 11Silex also relies on an affidavit of Ms Goulden dated 21 March 2013. Ms Goulden gives very detailed evidence as to goods supplied to Solar PV and payments received from it and contends, inconsistently with the statements issued by Silex on which SPC relies, that no payments were made against invoices 842 and 843 by Solar PV and that some payments were "incorrectly referenced" on those statements. Ms Goulden also gives evidence (admitted as a submission) that "[t]he debt was novated, guaranteed or assigned" by SPC by agreement of SPC and Silex. That evidence evidences alternative characterisations of the transaction to that adopted in the affidavit verifying the Demand which referred only to an "assignment" of the Debt. 12It might, of course, be thought that there is little commercial merit in SPC's position, since the correspondence to which I have referred above, which SPC does not dispute, plainly requested a transfer of the debt owed by Solar PV to Silex to SPC and acknowledged the amount outstanding by SPC following that transfer. However, it is important to recognise, first, that the Demand expressly claims the amount due under two specified invoices that are alleged to be unpaid less a specified amount. Second, the question before the Court is not whether SPC's position has commercial merit but rather whether there is a genuine dispute as to the debt claimed in the Demand or some other reason to set aside the Demand. 13The principles applicable to whether a statutory demand should be set aside under s 459H(1)(a) of the Corporations Act by reason of a genuine dispute as to the existence or amount of a debt are well established and need not be rehearsed at length. The test for a "genuine dispute" under s 459H of the Corporations Act has been variously formulated as 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 an application for an interlocutory injunction or a summary judgment. 14In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McClelland CJ in Eq observed (at 787) that the expression "genuine dispute" used in s 459H of the Corporations Act: "... connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with uncontested contemporaneous documents or other statements by the same deponent, or inherently improbable in itself it may be' not having 'sufficient prima facie plausibility to merit further investigation as to [its] truth ..." However, his Honour also pointed to the clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving such a dispute. 15In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporises Pty Ltd (1994) 13 ACSR 37 at 39, Lockhart J in turn observed that: "[T]he Court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute. The notion of a 'genuine dispute' in this context suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance." 16In John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253, Young J similarly observed that "[s]omething more than mere assertion is required because if that were not so, then anyone could merely say that it did not owe a debt". In Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 at [23], Barrett J observed 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." 17In Offshore and Ocean Engineering v Greenwich Contractors [2012] NSWSC 889, McDougall J summarised the position at [7] as that: "The threshold that the recipient of the demand must satisfy is not strict. Nonetheless, something more than mere assertion is required. The Court is required to be satisfied that there is a dispute that is not plainly vexatious or frivolous, or that there is a claim (either as to the existence of the debtor as to some offsetting claim) that may have substance." 18In this case, I am compelled to find that a genuine dispute exists as to whether SPC is indebted to Silex for the amount claimed in the Demand. As I have noted above, the claimed debt arises from the supply of goods under two specified invoices to Solar PV, not SPC, and the Demand (as verified by the accompanying affidavit) relies on the assignment of that debt to SPC. The reference to assignment in the verifying affidavit is consistent with a contemporaneous emails which contemplated the "transfer" of the debt from Solar PV to SPC. 19First, it seems to me that there is a genuine dispute as to the amount of the debt owing on the relevant invoices, given the statements issued by Silex recording payments credited against the relevant invoices, in the sense of a plausible contention requiring further investigation. The detailed evidence of Ms Goulden to the effect that those payments were, or ought properly have been, allocated to other invoices, and asserting that the contemporaneous account statements issued by Silex were incorrect, emphasises the need for such an investigation, establishing rather than excluding the existence of a genuine dispute in that regard. 20Second, the obligation owed by Solar PV to Silex could not be assigned to SPC, but only novated by a tripartite arrangement between Solar PV, SPC and Silex: Olsson v Dyson (1969) 120 CLR 365 at 388. Mr Johnson, who appears for Silex, accepted in submissions that the claimed debt could not be supported on the basis of an assignment. I accept, as Mr Johnson submits, that the "transfer" of the debt referred to in the relevant emails, which use the language of commercial parties rather than the language of lawyers, might well be characterised as novation to which each of Solar PV, SPC and Silex were party, in an appropriate case. While Silex also sought to support the transaction as a guarantee given by SPC of Solar PV's obligations, the contemporaneous correspondence does not contain any suggestion that SPC was intending to give, or Silex intending to accept, a guarantee as distinct from undertaking a "transfer" of the debt in some manner. 21The characterisation of the transaction as a novation then faces a difficulty in the present case, where there is uncertainty in the correspondence as to whether such a novation, if it occurred, took effect in late January 2012, when SPC contacted Silex regarding the suggested restructuring of its business, or on 2 April 2012 as Mr Perdriau suggested in his affidavit dated 2 April 2012. Silex's later position that the "transfer" of the debt occurred in late January is at least potentially inconsistent with emails sent well after that date, in late March 2012, seeking confirmation of the transfer. A difficulty arises if the transfer was only agreed at the later date, even if it was intended to take effect at the earlier date, because a liquidator was appointed to Solar PV on 7 February 2012. At that point the directors of Solar PV ceased to have its authority to commit it to the transaction by reason of s 495(2) of the Corporations Act, even if the transaction may have been to the advantage of Solar PV and its creditors. There is no suggestion that the liquidator authorised the directors to agree to the relevant transaction after the date of his appointment, or that he himself agreed to the transaction, or that he has subsequently ratified the transaction, if it were open to him to do so. 22SPC also seeks to set aside the Demand under s 459J(1)(b) of the Corporations Act on the basis that there is some other reason to set aside the Demand. I summarised the applicable principles in Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [43] as follows: "The Court's power under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd above; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; CP York Holdings Pty Ltd v Food Improvers Pty Ltd [2009] NSWSC 409. A statutory demand may be set aside under that section where it involves conduct which is unconscionable or an abuse of process: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22. In First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939, Santow J observed that a statutory demand could be set aside under s 459J(1)(b) by reason of a substantial overstatement in the amount claimed, and that, where a statutory demand has been so grossly inflated as to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served, then an order under s 459J(1)(b) setting aside that statutory demand may well be required to prevent such an abuse of the regime under Pt 5.4 of the Act." 23I have held that a genuine dispute is established for the purposes of s 459H of the Corporations Act, for the reasons noted above. I do not consider that it would necessarily have been evidence to Silex, at the time it served the Demand, that a genuine dispute would exist, having regard to the fact that the issues as to the structure of the novation and the effect of a liquidation on the powers of the directors of Solar PV are, perhaps, somewhat technical in nature, and to the acknowledgments by Mr Perdriau of other amounts owed to Silex (but not relied on in the Demand) to which I have referred above. For this reason, I would not hold that the service of the Demand was inconsistent with the statutory scheme or that an abuse of process was established so as to require the Demand to be set aside under s 459J(1)(b) of the Corporations Act. Orders 24The Demand must nonetheless be set aside under s 459H(1)(a) of the Corporations Act, for the reasons noted above. Costs must follow the event. Accordingly, I order that: