Champion v Satori

1389/04 - CHAMPION HOME SALES PTY LIMITED v SATORI PARTNERS PTY LIMITED

1 MASTER: This is an application under section 459G of the Corporations Act to set aside a statutory demand dated 8 November 2003 in the sum of $53,845 served by the defendant on the plaintiff. 2 The debt claimed in the demand arrises out of an agreement for the supply of finance by the defendant, who is a finance broker, to the plaintiff, who is a property developer. 3 The specific discussions which led to an agreement concerned a development proposal for a certain number of units or buildings at a place called Yallah on the New South Wales South Coast. There were some pre-contract discussions between Mr Anderson from the defendant and Mr Malesev from the plaintiff about the engagement of Mr Anderson's company to provide financial services, namely, obtaining offers of finance from banks and other finance providers. 4 These particular financial discussions are referred to in paragraph 7 of Mr Malesev's affidavit. In essence, one of the points that Mr Malesev was making is that he would need two lots of finance. First was to purchase the land, and secondly, to build the houses. He did not think 100 per cent was too farfetched; he came to the conclusion he would need at least 80 per cent for the acquisition costs for the properties, and then 80 per cent on the construction mode. 5 There was then a document, which was an agreement between the plaintiff and the defendant, submitted to Mr Malesev and he signed it and returned the agreement. That agreement was dated 13 November 2003. Importantly, page 1 sets out the amount of finance sought, and the type of finance, and reference is made there to $3.24 million, being 80 per cent of the land acquisition cost, and "that amount the lenders offer to finance in order to fund the construction contract upon the security being offered". That was arguably inconsistent with what was required in the particular pre-contract discussions. 6 The other clauses relevant to this present dispute are, firstly, clause 5 of that agreement. That clause is in the following terms: "5. The applicant may determine the Appointment Period early by and upon providing written notice and Determination Payment to DMP (Determination Payments are only deemed to have been made upon DMP's receipt of cleared funds from the Applicant) in the following circumstances:

a. at any time prior to the provision and disclosure by DMP to the Applicant of information about any finance indicatively offered by any financier, by and upon written notice by the Applicant to DMP accompanied by a Determination Payment of 5 per cent of the Service Fee, plus GST;

b. at any time subsequent to the provision and disclosure by DMP to the Applicant of information about any finance indicatively offered by any financier but prior to the Applicant requesting any financier directly, or via DMP, to provide an indicative letter(s) or offer, by and upon written notice by the Applicant to DMP accompanied by a Determination Payment of 50 per cent of the Service Fee, plus GST; or

c. at any time subsequent to the Applicant requesting any financier(s) directly, or via DMP, to provide an indicative letter(s) of offer but prior to the Applicant requesting any finance approval from any financier(s), by and upon written notice by the Applicant to DMP accompanied by a Determination Payment of 75 per cent of the Service Fee, plus GST;

d. at any time subsequent to the Applicant requesting any financier(s) directly, or via DMP, for finance approval, by written notice by the Applicant to DMP accompanied by a Determination Payment of 100 per cent of the Service Fee, plus GST." 7 Another term that also appears in the agreement is the provisions of clause 8. The relevant parts of that clause are: "8. The Applicant will become liable to pay DMP the Service Fee described in Item 4 of the Schedule upon any of the following events occurring within the Appointment Period or within 6 months after the end of the Appointment Period:

a. A financier(s) makes an offer(s) to the Applicant of finance of the type sought by the Applicant for either an amount equal to or more than the amount sought by the Applicant, or an amount the ratio of which to the value of the assets as established by the financier by valuation is equal to or more than the Estimated LVR, on reasonable commercial financing terms and conditions and secured substantially in the manner proposed by the Applicant, whether or not the Applicant accepts that offer(s);

i. The Applicant purports to terminate this agreement, or to determine the Appointment Period, other than by written agreement with DMP or pursuant to clause 5." 8 Clause 18 of the Agreement was an entire contract clause and was to provide that any oral explanation beforehand would not affect the meaning of the contract. 9 After the signatures were appended to this contract, the defendant made approaches to various banks on 20 November 2003 and a power point presentation was supplied. That presentation made reference to it being indicative of information about finance facilities and had a number of options. It also attached what are obviously extracts from the lenders, and they are described as "financier responses", without providing full details of the latter. 10 The relevant one, or the one that will become relevant, is that from the Bendigo Bank. "Bendigo Bank would assess commitment based on the lower 80 per cent of the loan to development costs or 65 per cent of the on completion value"

and gave a maximum figure, and then a substantial number of other requirements. 11 It has the words, after referring to a range of requirements, including financiers: "I trust the above provides an overview of the initial requirements of Bendigo Bank with regard to assessment criteria", and makes reference to the fact that they need to meet their client's requirements. This is in contrast to the other ones, one of which referred to indicative terms. There is nothing on the face of the Bendigo extract other than the statement to which I first referred, that indicates that it might be described as an indicative offer. 12 After that was received Mr Malesev looked at it and he had a conversation with Mr Anderson on 25 November. That is an important conversation and it is set out in paragraph 12 of his affidavit, and it is in the following terms: "I recall that on 25 November 2003 I received a telephone call from Mr Anderson and a conversation ensued using words to the following effect: Mr Anderson: 'Steve, did you get a chance to have a look at my email?'

Me: Yeah I did. I have got some concerns with the information that you provided in that it doesn't fit with what we want. Most of the information relates to proposals of less than 80%. Bendigo looks the closest but as we discussed I need 80% as two stand alone transactions. One for the land acquisition and one for the construction. None of them go near that. I need confirmation that we will get 80% on the land costs plus acquisition costs and 80% for construction. Lets go and get an indicative offer from Bendigo on that basis'.

I deny that I ever instructed Mr Anderson to proceed to obtain a formal loan approval from Bendigo Bank." 13 It will be seen that there is a request to get an indicative offer from Bendigo 14 On the same day there was an e-mail which said: "Steve, thank you for the call this afternoon in order to commence the formal application request for credit approval". 15 That was responded to also on that day by Mr Malesev sending, without reference to the earlier e-mail, details of the costs of land and average selling prices, land details, et cetera. 16 There was then a request from Mr Anderson for him to meet with the Bendigo Bank, which he declined to do in an e-mail of 27 November. Mr Malesev said: "I really don't want any more meetings. Obtain any information you require from Lloyd and submit .... ". 17 The reference to Mr Lloyd was a reference to the accountant for the plaintiff, Mr Lloyd Sullivan, who also gave evidence. 18 By 2 December it was clear that Mr Malesev decided he did not want to proceed any further with the obtaining of finance through Mr Anderson's company and he instructed Mr Sullivan to, in effect, call Mr Anderson and terminate the contract. In paragraphs 10 and 11 the defendant, Mr Anderson, in his affidavit then recounts what happened. Those paragraphs are in the following terms: "10. I recall that in late November 2003 I had a discussion with Mr Malesev who said to me words to the effect 'Ross [Anderson] hasn't delivered what he's promised. I want you to call him and terminate the contract'. I recall that I said 'Why don't we say that we need to terminate the contract because of the problems with the figures we can't go ahead. At leat that saves him the embarrassment'. I recall Steve said 'okay go ahead with it'. 11. I recall that on 2 December 2003 I called Mr Anderson and said words to the effect 'The accounts are wrong and it would be better if we didn't go ahead at this stage. We've had some problems with the figures and it's not really right to proceed at the moment'. Mr Anderson said 'Are you sure that you can't work the figures out?' I recall that I said 'No, not with any accuracy at this stage. I'm not prepared to guarantee these figures. Sorry Ross, it's finished'. The conversation then ended." 19 No doubt immediately after that conversation, also on 2 December, Mr Anderson rang Mr Malesev and he was also told "Don't proceed with finance for us. I don't want to proceed with you any further." Mr Anderson acknowledged that. 20 What thereafter happened was, on 2 December an invoice for $53,845 was sent by the defendant to the plaintiff claiming a termination payment equal to 100 per cent of the service fee. That was received by the plaintiff company and, as a result of that, they then sent a letter of 3 December referring to clauses in the agreement and denying that $53,845 was owing. 21 Importantly, they contended under clause 5(a) they had an ability to determine by payment of only 5 per cent and tendered a cheque for $2692.25, being the fee. Thereafter, there was further correspondence between the parties. 22 The position that is apparent in the correspondence until recently when this matter came on from hearing, was that the defendant considered it was entitled to a payment under clause 5(d) of the agreement, whereas the plaintiff thought paragraph 5(a) applied. 23 In January there was, pursuant to the agreement, an arbitration, or at least a dispute resolution meeting, pursuant to clause 17 of the agreement, but that achieved nothing. I do not think for the purposes of the present application that is particularly relevant. One has to see if there is a genuine dispute. 24 In this respect I have been referred to a number of authorities on genuine disputes, and I think the most helpful discussion is that in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. There, at page 671, McLelland CJ in Equity made the following comments in respect of the expression "Genuine dispute": "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s.459H. In my opinion that expression 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 undisputed contemporary 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' (cf Eng Mee Yong v Letchumanan (1980) APPLICANT 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194).

But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a 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. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3:

'These matters, taken in combination suggest that at least in those 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 Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said:

'There is little doubt that Division 3 ... prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim".

It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is 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.

The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).'

I respectfully agree with those statements." 25 A genuine dispute is said to arise in the following areas:

(a) terms of the contract and whether it included the requirement for at least 80 per cent of both construction and purchase costs; (b) the proper construction of clause 5 of the agreement; (c) whether there has been any performance of the agreement; (d) any relevant estoppel; (e) whether the defendant is entitled under clause 8(i) to the full amount of the fee under the agreement. 26 I turn to clause 5 and its construction. It is apparent that clause 5 deals with what might be called an escalating process in the financial application procedures. It may be seen in clause 5a that what is determined is whether there is information about any finance indicatively offered. The two are linked together so naturally there has to be an indicative offer of finance, not necessarily in writing, and information given to the plaintiff in this case. 27 Clause 5(b) goes one step further and then applies to the period after there has been an indicative offer, but prior to the applicant requesting an indicative letter of offer. 28 Clause 5(c) then moves to the next step, which is after the request for an indicative letter of offer, but before asking for financial approval. 29 Clause 5(d) deals with the situation where there has been a request for financial approval. 30 The question that obviously arises is what stage was reached? I have set out the contention of the parties. 31 When one looks at clause 5(a) one must find that there is an indicative offer of finance. I would have thought, having regard to the words in the quotation from Bendigo Bank that that is the provision of some information which arguably may be an indicative offer of finance, because it sets out certain bases, namely, 80 per cent of the land for development costs or 65 per cent on completion. However, as I say, there are other matters in it which would perhaps tend to indicate it was not really an indicative offer but a statement of what they need in order to provide an offer. 32 Clause 5(b) is the next point that has to be determined, and that is whether there is a request by a financier to provide an indicative letter of offer. The discussion of 25 November, which I have quoted above, does not talk about a letter of offer, it is simply a request to get "an indicative offer". So there probably is an argument as to whether or not that is sufficient for clause 5(b). 33 Of course, there is clearly on the evidence, particularly having regard to the denial of any of the instructions to obtain a formal loan approval, to any entitlement under clause 5(b). Clause 5(c), of course, has been skipped by the parties. Admittedly, on one construction of the e-mail, which came on 25 November, that on its terms makes reference to something which would be an application for finance, but that was not accepted in another e-mail, and it just seems to have floated by. So I think there is a real question for determination on that aspect, more than on the earlier ones. 34 The other matter that is important is clause 8i. This is based upon the timing of the actual events. I have set out above the actual conversations which were between Mr Anderson and Mr Sullivan, and later Mr Malesev, because they all pre-date any documents that flowed either on that day or on Wednesday, 3 December. On the face of those conversations they clearly were a termination of the agreement and, it is submitted, and I think correctly, that termination was accepted by the submission of the invoice which then followed immediately after those conversations. 35 On that analysis, if there was an acceptance of that termination, then it would be a breach and on its face, clause 8i would apply. That provides, of course, as is apparent from the terms of it, for the whole amount of the service fee to be paid. However, that is to be seen in the context of the actual document, which was the invoice that was issued. It is headed "Tax Invoice - company fees, statement", and then follows the words "Re: Determination payment (clause 5 service agreement)". 36 The claim clearly does not purport to be pursuant to clause 8i of the agreement. 37 What then happened was, as I have indicated, that the response of the plaintiff was predicated upon that invoice and it was sought to argue that the appropriate clause was clause 5(a) because there had not been any appropriate information provided. 38 It seems to me that once the conversation had occurred the defendant had a number of alternative remedies under the agreement. He could regard it as a termination under clause 5 and seek to recover under that clause; or he could regard it just simply as a termination outside of clause 5 and recover it under clause 8i. These are clear alternative courses as is apparent on the face of clause 8i, because it refers to termination other than by written agreement or pursuant to clause 5. 39 In those circumstances it seems to me there has been an election, at least arguably, by the defendant, to terminate under clause 5. Therefore it seems to me that there is a genuine dispute on this aspect as well. 40 The other thing that was raised was, of course, the pre-contract discussions. It seems there is little chance of those forming any part of the contract or being relevantly represented to found an estoppel, given the terms of the contract. But the discussion on 25 November, to which I have referred, in my view also raises matters which perhaps relate to a variation of the contract, if the entire contract was included in the written agreement. 41 There must have been an acceptance of that request by Mr Anderson because he proposed to get back shortly to him and obviously did various things to advance the Bendigo application. 42 In the circumstances it seems to me that there is a genuine dispute, not of course in relation to the sum of $2692.25. Accordingly, I vary the demand by reducing the demand to $2692.25. I return to Mr Orlizki exhibits 1 and 1A.

COUNSEL ADDRESSED ON THE QUESTION OF COSTS 43 Having regard to the outcome, the appropriate order is that the defendant should pay the plaintiff's costs of the application.

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