Creata (Aust) Pty Ltd v Faull

Nature of the application

1. By Originating Process filed on 13 July 2022, Showground Pty Ltd ("Showground") seeks to set aside a creditor's statutory demand dated 22 June 2022 ("Demand") issued by KPMG Financial Advisory Services (Australia) Pty Ltd ("KPMG"). The Demand claimed that Showground owed KPMG the amount of $1,210,000, by reference to a tax invoice dated 30 April 2021. The Demand was verified by an affidavit dated 22 June 2022 of Mr James Stewart, described in that affidavit as a partner of KPMG. Mr Stewart there observed that the debt is "owed by [Showground] to [KPMG] relating to the Tax Invoice … dated 30 April 2021 issued by [KPMG] to [Showground] pursuant to an Engagement Letter dated 2 September 2020 [("Engagement Letter")]" and indicated his belief that there was no genuine dispute about the existence or amount of the debt.
2. The bases originally identified to set aside the Demand were that there existed a genuine dispute under s 459H(1)(a) of the Corporations Act 2001 (Cth) ("Act") or an offsetting claim, although that was not pressed at the hearing, or that there was a defect in the Demand for the purposes of s 459J(1)(a) of the Act. The Originating Process was then amended, at the commencement of the hearing, to add reliance on s 459J(1)(b) of the Act, on the basis that there was some other reason to set aside the Demand, that reason being identified as a discrepancy between the amount invoiced by KPMG and the amount claimed in the Demand. I will return to that question below.

Affidavit evidence

1. Showground relies, in support of the application to set aside the Demand, on the affidavit dated 13 July 2022 of its director, Mr Chiha, who refers to the circumstances in which the Demand was served. Mr Chiha refers to the Engagement Letter (Chiha Annexure JC-3, CB25) which identified the terms and conditions on which KPMG was to provide services to Showground, in its capacity as trustee of a trust, in relation to Showground's real estate funding needs for a development project. Clause 3, upon which Showground relied, set out the work which was to be done, the last step of which was described as "achieve financial close". The term "financial close" was not there defined, and that concept was the subject of controversy in this application. The Engagement Letter in turn referred to the timing of the work, identifying the last stage of the work as the completion of due diligence, approvals and legal documentation. It also set out the basis on which KPMG would charge its professional fees.
2. The Engagement Letter provided for a payment of $100,000 due to KPMG on signing off, relevantly, a blended funding terms sheet. It also provided, under the heading "fee description", for a success fee "payable on successful close of the legal documentation". A reference to "fee (exclusive of GST)" in turn indicated, in respect of blended funding, which is the position applicable here, a fee of 2.5% of the total commitment amount (including any capitalised amounts) at financial close. It then added a limitation: "[s]ubject to a minimum of A$500,000 and maximum of A$1 million Success Fees collectively" across, relevantly, the blended funding facility. The description of that fee plainly referred to the fee being payable on successful close of the legal documentation, but there is room for dispute as to the significance of another reference to the "commitment amount ... at financial close", both in respect of the quantification of the amount payable and in respect of when that amount can be calculated. That issue is exacerbated here because, as events emerged, the funding facility had two tranches, one of which has been drawn down by Showground, and the second of which has not yet been drawn down. The Engagement Letter was signed by Mr Chiha on behalf of Showground and by a representative of KPMG. It also attached KPMG's terms and conditions of business, which provided that Showground agreed to pay its fees, expenses and charges within 14 days from the date of issue of invoice, but also provided that, if there was inconsistency between those terms and the terms of the Engagement Letter, then the Engagement Letter prevailed. Mr Kaufmann, who appears for Showground, submits that the provision for payment of an invoice within 14 days would be read as directed to the payment of an invoice that was properly authorised by the Engagement Letter, and that in turn raises the question when the invoice for the success fee could be issued under the Engagement Letter.
3. Mr Chiha then refers to Showground's entry into a blended funding agreement with a funder, Metrics Credit Partners Pty Ltd ("Metrics"), initially in the form of a terms sheet dated 19 November 2020 ("Terms Sheet"). A facility agreement (Ex D1) was then executed between an entity associated with Showground, Ellipse Showground Pty Ltd as trustee for a trust and several lenders. The term "Commitment" is defined in that facility agreement by reference to the commitment amount specified in Schedule 1, and Schedule 1 in turn specifies the commitment amounts in respect of several components of the facility. The term "Facility" is defined in that agreement by reference to the several components of the facility described in Schedule 4, and the concept "Financial Close" is defined as "the time that the first draw is provided (under Senior Facility A)", a time which has already passed. However, as I noted above, that term is not defined in the Engagement Letter, and that term is defined differently Terms Sheet as the funding of both the first and second tranches of the facility.
4. Mr Chiha then refers to a cashflow model prepared, with KPMG's involvement, in November 2020, which then contemplated that the fee payable to KPMG would be paid at the time of the second drawdown, when the facility was fully drawn down. Mr Chiha also refers to the issue of KPMG's invoice dated 30 April 2021, which referred to fees of $1.1 million, a technology and administration charge of $38,500 and GST, totalling $1,252,350. It is apparent, from subsequent correspondence and from simple calculation, that the amount of the Demand omits the claim for the technology and administration charge and the GST applicable to it, and that explains the difference between the invoice and the Demand to which Showground referred in submissions.
5. Mr Chiha refers to subsequent correspondence where he claimed that the maximum fee chargeable was to be $1 million plus GST. That claim was inconsistent with the two components of the fee set out in the Engagement Letter, as Mr Chiha now implicitly recognises in paragraph 18 of his affidavit. Mr Chiha also claimed in that correspondence that the fee was to be paid from the debt raised by KPMG through Metrics and was modelled to be paid on completion of the "second tranche". I have noted above that the relevant modelling adopts that approach, and that Showground has already drawn down the first tranche of the financing available from Metrics. Mr Chiha also notes that the second tranche was originally forecast to settle in March 2021, but notes that that date could be delayed so as to align with development approval.
6. Mr Chiha also refers to a letter which he sent to KPMG, expressly on behalf of Showground, on 8 November 2021 in response to the invoice. That letter, as Mr Chiha fairly acknowledged in his affidavit, provided, inter alia, that: "[Showground] acknowledges: (a) the engagement and services have been properly performed and completed by KPMG in accordance with the Engagement Letter; (b) the amount of A$1 million plus GST totalling A$1.1 million was payable on successful close of the legal documents relating to the Metrics facility and (subject to your approval) (c) the fees payable to KPMG, being the amount, pursuant to the engagement letter for performance of the services are correct, undisputed, due and payable. We kindly request KPMG to agree to an extension of time for the amount listed above to be paid as per the below. We acknowledge that completion was originally scheduled to occur earlier this year, however, has been delayed due to COVID induced circumstances." That letter went on to propose that, in consideration of KPMG providing an extension of time and agreeing to the expected invoice amount, Showground committed to finalising payment to the earlier of settlement of the outstanding properties, expected to be 15 December 2021, or 31 March 2022, described as a revised payment date.
7. Several things should be noted about that letter. The first is that it is plain from that letter that there is no dispute as to the quality of services provided by KPMG and that, at least at that point, Mr Chiha acknowledged that the services had been provided, inconsistent with the contention now put by Showground that the services included "financial close". Second, Mr Chiha, expressly on behalf of Showground, there acknowledged that the amount of the success fee which he quantified as A$1 million plus GST was "payable on successful close of the legal documents relating to the metrics facility". That acknowledgement was not surprising where the Engagement Letter itself expressly provided, as I noted above, in the section dealing with fees, that the success fee was "payable on successful close of the legal documentation", putting aside any confusion which may have been introduced by the reference to the commitment about "at financial close". Third, that letter requests an extension of time for payment, on terms that payment would be made by later dates, which apparently has not occurred. I will return to the significance of that acknowledgement below. Mr Chiha also refers to a further email dated 25 April 2022 to KPMG, which noted that, "[w]e are not disputing the services you provided and in fact are very pleased with" members of the KPMG team and went on to observe that: "[w]e have always had a misalignment on what the amount due was to be and when it was due to be paid".
8. Mr Chiha then says (Chiha [25]) that Showground does not dispute that the amount claimed in the KPMG invoice is correct, implicitly abandoning the challenge to that matter raised in earlier correspondence, but contends that the second tranche of the facility has not been drawn down and that "financial close" as contemplated in the relevant scenario for the payment of the fee has not yet occurred.
9. By his second affidavit dated 19 August 2022, which extended beyond evidence in reply, and was admitted by leave so far as it raised new issues, Mr Chiha referred to a conversation said to have occurred prior to the entry of the Engagement Letter, in which he claimed to have said that KPMG would be paid "when we get paid". He also claims to have said that the payment of KPMG's fees "would be easily covered by the funding" and to have said, "[s]o we get paid and you get paid". That conversation does not take Showground much forward because, obviously enough, Showground has been paid, in respect of the first tranche of the facility to which I have referred above, although it has not yet been paid in respect of the second. The conversation is not sufficiently precise, even where admissible as part of the surrounding circumstances known to both parties, to cast any light on the question whether payment of KPMG's fees were to come from the first tranche, or were due at the point legal documents were executed, or when the first tranche was drawn down, or only when the second tranche was drawn down, as Showground now contends.
10. Mr Chiha also refers to a conversation, after the invoice was issued, in which he contended that the amount was not due and payable because the second tranche of funding had been delayed, because planning approval had been delayed. That conversation, after the event, also does not take matters much forward for Showground, as distinct from disclosing a position that is inconsistent with the position expressed by Showground in the acknowledgement, but consistent with the position which it now puts.
11. KPMG relies, in response to Mr Chiha's first affidavit, on the affidavit dated 5 August 2022 of Mr James Stewart, who is a partner in KPMG and, it appears, also connected with KPMG Financial Advisory Services (Australia) Pty Ltd. He refers to the execution of the Demand and his affirmation of an affidavit supporting the Demand. He also refers to his role within KPMG and within the associated company. He in turn addresses the terms of the Engagement Letter and correspondence between the parties in respect of that Engagement Letter. By a further affidavit dated 20 December 2022, in reply to Mr Chiha's second affidavit, Mr Moussa of KPMG in turn takes issue with Mr Chiha's account of the relevant conversations. The Court would not, in an application of this kind, determine disputed accounts of conversations, but there is no necessity to do so, where any genuine dispute that arises does not depend on what was said in these conversations.

Whether a genuine dispute is established

1. Turning now to the applicable principles, I should first refer to the circumstances in which a genuine dispute may arise for the purposes of s 459H(1)(a) of the Act, before turning to the specific issues which arise where that dispute, as here, depends, at least partly, on the construction of a contract. Obviously enough, the Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Act where there is a genuine dispute between a company and the issuer of the demand about the existence or the amount of the debt to which the debt demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, the Full Court of the Federal Court 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, illusory or misconceived. The reference to a requirement that the demand be "bona fide" and not "spurious" is significant, and I will return to it below.
2. The Courts have often recognised that the threshold to establish a genuine dispute is not high, and the case law establishes that, once an issue has a sufficient degree of cogency to be arguable, then it can give rise to a genuine dispute. In particular, the Court does not engage in any form of balancing exercise between the strengths of competing contentions in determining whether a genuine dispute is established: Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18] (Barrett J). I also have regard to the summary of the applicable principles by Barrett AJA in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 ("Ligon 158") at [8], which approved my observations as to the content of that concept in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22]. Importantly, however, Barrett AJA went on to observe, in Ligon 158 at [10] that: "The issue for the Court is not whether the company would succeed on those grounds [of disputing the debt] in defending a debt recovery action brought against it by the person who served the statutory demand. Rather, the Court must decide whether the grounds of dispute delineated by the affidavit are grounds which, when viewed in the whole of the circumstances emerging from the evidence, indicate a plausible defence propounded in good faith and not one merely constructed in response to the pressure represented by the statutory demand."
3. His Honour there referred to the issues which arose in Ligon 158, so far as they "concern the process of distinguishing a genuine dispute from one that is merely a constructed response to the claim advanced through the statutory demand".
4. The approach which the Court should take, where a genuine dispute arises from a question of contractual construction, has also been addressed in the case law and, in particular, by the Court of Appeal of the Supreme Court of Victoria in Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 at [4], where Brooking and Charles JJA observed that: "We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of a genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question."
5. That question was also addressed in Wellnora Pty Ltd v Fiorentino (2008) 66 ACSR 229; [2008] NSWSC 483 at [50], referring to that decision, and by the Court of Appeal in Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 ("Creata"), where Barrett AJA observed at [37] that: "s 459G proceedings are not ordinarily the occasion for the Court to construe a contract where there are competing views about its meaning. This was such a case; and there was nothing to displace the principle ordinarily applicable. Competing but plausible submissions on the question of construction should have led to a finding that there was a dispute on that question and therefore dispute as to the existence of the debt the subject of the statutory demand."
6. That approach was in turn adopted by Williams J in Re Jana Pty Ltd [2022] NSWSC 112, where her Honour quoted the observations of Barrett AJA in Creata at length.
7. I should, however, note that Barrett AJA also distinguished in Creata (at [47]) between the aspect of a genuine dispute that is concerned with the identification of a serious question to be tried or plausible contention requiring investigation, and: "Another aspect, no less important, [which] requires that the serious question or plausible contention not be something merely created or constructed in response to the pressure represented by the service of the statutory demand. If the dispute is of that quality and is accordingly not advanced in good faith, it is not 'genuine'."
8. His Honour there recognised, including by reference to Ligon 158, the possibility that a dispute may raise a serious question for argument or investigation, but nonetheless fail to be a "genuine dispute", because it has been created or constructed in response to the pressure represented by the service of the statutory demand. The recognition that that is a separate basis for finding that a dispute is not a genuine one necessarily follows from his Honour's distinguishing the two concepts.
9. Here, Mr Kaufmann contends that there is a genuine dispute in respect of the construction of the Engagement Letter, because, on his contention, payment under the Engagement Letter was due not at the point where there was "successful close of the legal documentation", to which I referred above, but at "financial close", which Mr Kaufmann submits is undefined and should be understood as requiring the close of both the first and second tranches of the facility. I bear in mind that Ms Hammond, who appears for KPMG, vigorously contends for the contrary. Ms Hammond submits that the Engagement Letter specifically provides for payment on successful close of the legal documentation, and that the "total commitment about at financial close" can be determined, at that point, because it arises from the amount of the facility agreement. Mr Kaufmann in turn accepts that that amount is determinable, at least unless there is some future variation of the facility agreement. It seems to me that Ms Hammond's submission is plainly strongly arguable, and I need not and should not say more, where the Court of Appeal emphasises the caution that should be exercised by a trial Judge in an application of this kind.
10. Nonetheless, it seems to me that Showground's reading of the Engagement Letter is arguable in the context of surrounding circumstances, particularly where the financial modelling indicated that KPMG's fee would be paid when the second tranche was drawn down. I could not find, within the language of the case law, that it was as "plain as a pikestaff" that that contention must fail, so as to dismiss it without an inquiry on the merits, having regard to the approach adopted by the Court of Appeal in Creata.
11. That, however, is not end of the matter, in the unusual circumstances of this case. As Ms Hammond also points out, the acknowledgement letter acknowledges that KPMG's services have been properly performed and they have been completed in accordance with the Engagement Letter; it also acknowledges that an amount of A$1 million plus GST was payable on successful close of the legal documents relating to the Metrics facility, and, in doing so, adopts a straightforward reading of the Engagement Letter, by reference to the time for payment specified in it, from which Showground now seeks to retreat; and it also acknowledges that the fees payable to KPMG for performance of the services are "correct, undisputed, due and payable".
12. Mr Kaufmann submits, and I will assume, that Mr Chiha is not legally qualified. He is, however, the director of a company that is plainly engaged in a substantial property development, and there is no suggestion that he lacks the commercial qualifications necessary to fulfil that role, or did not understand that development or Showground's dealings with KPMG in that regard. This seems to me to be a rare case where there is arguably a genuine dispute as to the debt claimed by KPMG, in the sense that an argument that can be put to the contrary of the position for which KPMG contends, but that dispute is not genuine on the second basis identified by Barrett AJA in Creata, namely that the dispute now raised by Showground, contrary to the position which it accepted in the acknowledgement, is "merely created or constructed in response to the pressure represented by the service of the statutory demand". The decision in Creata is authority that a dispute which has that character, even if it is arguable, is not a "genuine" dispute. For that reason, I am satisfied that, notwithstanding that the position put by Showground may be arguable in a contractual sense, it does not give rise to a genuine dispute, and the Demand should not be set aside on that basis.

Defect in the Demand

1. The other issues can be dealt with more briefly, and I now turn to them. Mr Kaufmann contends that there is a defect in the Demand, for the purposes of s 459J(1)(a) of the Act and that substantial injustice will be caused unless the Demand is set aside. Two relevant defects are identified, the first that the description of the debt in the invoice was for $1,252,350, whereas the amount of the debt claimed in the Demand was only $1,210,000. Mr Kaufmann submits that that difference is likely to mislead, confuse or fail to properly inform Showground of the amount which it was required to pay, in order to discharge the debt. I do not accept that submission. It is apparent from the evidence that Showground had protested the amount of the technology fee that was included in the original invoice; KPMG had not pressed the payment of that fee; and the Demand did not include the amount of that fee and the GST referable to it. There seems to me to be not the slightest likelihood in that situation that Showground would be was misled, confused or failed to understand the fact that it had succeeded in avoiding a claim for the technology fee under the Demand, and that what was being sought was the payment of the success fee, which it had previously acknowledged was due and payable. According, I do not find that this defect is established, still less any possibility that substantial injustice would be caused unless the Demand was set aside.
2. The second defect for which Mr Kaufmann contends is that the Demand and accompanying affidavit were not signed or made by an authorised officer of KPMG Financial Advisory Services (Australia) Pty Ltd, as distinct from a partner of KPMG, and it would cause substantial injustice if KPMG were allowed to invoke the statutory regime in those circumstances. That seems to me to have not been established, as a matter of fact. Even if it had been established, as a matter of fact, it is not apparent to me that there would be any substantial injustice, or any injustice of any kind, to Showground in facing a Demand issued in the relevant circumstances.

Setting aside the Demand for some other reason

1. Finally, in the additional ground relied on by amendment made today, Showground seeks to set aside the demand for some other reason under s 459J(1)(b) of the Act. That section confers a discretion to set aside a creditor's statutory demand on the Court and is available at least where the issue of the demand would be unconscionable, or amounts to an abuse of process, or where the issue of the demand would subvert the statutory scheme: Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143 at [33]. The Court's power to set aside a demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Act and is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; [1996] NSWSC 199 and see the cases to which I referred in Re Savemore Wholesale Pty Ltd [2021] NSWSC 307.
2. The application to set aside the Demand on this basis again depends upon the discrepancy between the amount claimed in the first invoice and the amount claimed in the Demand, but reliance on this ground seeks to avoid, so far as Showground is concerned, the need to establish substantial injustice. It does not seem to me that that difference, having regard to the fact that it reflected the exclusion of an amount to which Showground had objected, in any way undermines the integrity of Pt 5.4 of the Act or subverts the statutory scheme. I would not set aside the Demand for some other reason on that basis.

Orders

1. For these reasons, the application to set aside the Demand should be dismissed with costs.

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