- Creata (Aust) Pty Ltd v Faull

Supreme Court of NSW|2023-08-09|Before: Black J

Solicitors: Concordia Legal (Plaintiff) Hall & Wilcox (Defendant) File Number(s): 2023/180856

The applicable principles

As I noted above, ABAV seeks to set aside the Demand on the basis of a genuine dispute under s 459H(1)(a) of the Act. I first set out the applicable principles, drawing on Counsel's submissions and my judgment in Re PSR Refining Services Pty Ltd [2023] NSWSC 243 at [16]ff.
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 the company and the issuer of the demand about the existence or amount of the debt to which the 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 threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J (as his Honour then was) in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 (at [18]) 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."
Mr Rizk in turn points to Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8], where Barrett AJA approved my observations in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], that summarised the principles applicable to a genuine dispute as follows: "(1) A dispute is "genuine" if it is not "plainly vexatious or frivolous" or "may have some substance" or "involves a plausible contention requiring investigation". A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are "real and not spurious, hypothetical, illusory or misconceived" and which demonstrate the dispute's "objective existence" and "prima facie plausibility". (2) The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section. (3) The task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted. (4) The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute, the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine."'
A similar approach was adopted by the Court of Appeal in Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 ("Creata") and again by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 ("Grandview"). Mr Rizk also points to the observation of Gleeson JA in Re AMP Life Ltd [2018] NSWSC 855 at [35] that the bar for establishing a genuine dispute is not set high.
It is also well-established that the Court will not determine questions of construction in an application to set aside a creditor's statutory demand. This position was emphasised by the Court of Appeal in Creata, where the Court of Appeal referred to the observations of the Supreme Court of Victoria in Spacorp Australia Pty Ltd v Myer Stores Limited (2001) 19 ACLC 1270; [2001] VSCA 89 at [4], where Brooking and Charles JJA indicated that unless it was "plain as a pikestaff" that a particular construction was not tenable, the Court must not express a view on a question of construction. The approach in Creata was applied by Williams J in Re Jana Pty Ltd [2022] NSWSC 112 at [15]. In Grandview at [90], White JA also observed that: "[i]t is usually inappropriate on an application to set aside a statutory demand that the Court attempt to decide competing contentions as to contractual interpretation … fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt".
His Honour also there observed that "where the legal argument propounded in support of a particular construction is 'patently feeble' … or where it is 'as plain as a pikestaff' that it has no basis … then there will be no genuine dispute".

The terms of the Agency Agreement

I now set out the relevant terms of the Agency Agreement, which provide the basis for each of the matters on which ABAV relies to establish a genuine dispute.
The recitals to the Agency Agreement record that ABAV wishes to appoint CBRE as its exclusive sales and marketing agent for the sales of apartments in a development at Villawood, within the Australian market only, and cl 2.1 of the Agency Agreement gave effect to that appointment. Clause 3.1 required CBRE to use "its best endeavours to effect Sales at the highest achievable prices", and the term "Sale" was defined to mean "in relation to the Property means the exchange of a Contract between [ABAV] and the purchaser". Clause 3.1 required CBRE to take steps including: "(b) [conducting] exhibitions of the Property and otherwise [submitting] the Property to prospective purchasers; … (f) [receiving, holding and accounting] for holding deposits and deposits paid on exchange of Contracts on behalf of the Principal or as directed and [transferring] to solicitor's trust accounts as requested. (g) [providing ABAV] the price guideline and marketing plan on or before 15th of August 2015."
Clause 4.1 provided that the term of the Agency Agreement was to begin on 2 August 2015 for a period of no less than the "Agency Period", which was defined, in effect, to mean a period of 6 months from 15 August 2015.
Clause 8 of the Agency Agreement provided for CBRE's entitlement to commission as follows: 8 Commissions 8.1 [ABAV] must pay [CBRE] a commission in accordance with this Agreement if during the Agency Period: (a) [CBRE]; (b) [ABAV]; or (c) any other agent or person effectively introduces a purchaser to [ABAV] or the Property and that purchaser subsequently enters into a Contract whether during or within 1 months [sic] after the expiry of the Agency Period. 8.2 For each Sale (including a Sale made within 1 month of expiry of the Agency Period provided the purchaser has been introduced by [CBRE]), [ABAV] will pay Commission which is calculated as follows: (a) A base fee of 2.25% (two point two five percent) of gross sales price payable to [CBRE]; (b) [ABAV] reserves the right to sell up to 30 (thirty) apartments from local and overeseas [sic] sales within the development for which [CBRE] will not receive a fee. For the 31st sale and any subsequent sale [CBRE] will be paid a full commission as outlined in clause 8.2 (a). 8.3 All Commissions set out in clause 8.1 are exclusive of GST. … 8.5 The commission as specified in clause 8 .2 is due and payable only under the condition that full 10% deposit has been collected from purchaser upon the exchange contract. 8.6 Subject to clause 9 and clause 8.5, the Commission as specified in clause 8.2 is due and payable by [ABAV] after a Sale and will be as follows: (a) 25% of the total Commission is due and payable on exchange of Contracts. 25% of the total Commission is due and payable at the time of construction finance drawdown or by 29 February 2016, whichever is the sooner and the balance on completion of the Contracts; or (b) 25% of the total Commission is due and payable on exchange of Contracts, 25% of the total Commission is due and payable at the time of construction finance drawdown or by 29 February 2016, whichever is the sooner and the balance to be paid within 30 business days after settlement dale if the Principal defaults under the Contract and that Contract is terminated by reason of or following that default; or (c) 25% of the total Commission is due and payable on exchange of Contracts, 25% of the total Commission is due and payable at the time of construction finance drawdown or by 29 February 2016, whichever is the sooner and the balance to be paid on demand by the within 30 business days after settlement dale if the Contract is not completed due to the default of the purchaser and the whole or part of the deposit paid is liable to be forfeited. [emphasis added]
Mr Rizk submits that cl 8.2 of the Agency Agreement has the effect that CBRE was entitled to be paid a commission of 2.25% of the sales price for sales made during the Agency Period (excluding 30 units that ABAV could sell itself), and pursuant to clause 8.5, that entitlement was enlivened once a purchaser had paid the 10% deposit (ordinarily due 10 business days after exchange). He submits that, pursuant to cl 8.6 of the Agency Agreement, the commission would then be payable in three tranches, as to which the first tranche, being 25% of the commission, was payable after exchange upon receipt of the deposit; the second tranche, being 25% of the commission, was payable no later than 29 February 2016; and the third tranche, being 50% of the commission, was payable on completion of the contract; or, if the contract was terminated by the purchaser for a breach of contract by the plaintiff; or (iii) if the contract was terminated by the plaintiff and the deposit was forfeited by the purchaser.
Clause 8.6 of the Agency Agreement is subject to cl 9 of the Agency Agreement which relevantly provides that: "Any Commission payments which become due and payable under clause 8 of this Agreement must be paid by [ABAV] within 30 days of receipt of a tax invoice issued by [CBRE] to [ABAV]." [emphasis added]

ABAV's claim relying on rescission of the sales contracts

First, ABAV contends that it has a seriously arguable claim that CBRE is not entitled to any of the claimed commission in the second and third tranches as the underlying sales contracts which gave rise to an entitlement to commission were rescinded.
It is common ground that CBRE was involved in the prospective sale of 39 apartments during the agency period, between May 2015 and March 2016. It appears that the first tranche of commission was paid to CBRE in respect of all 39 sales contracts. CBRE has not been paid the second and third tranches in respect of 36 sales contracts. Mr Rizk points out, relying on Mr Diab's affidavit, that 36 of the sales contracts entered into during the Agency Period were subsequently rescinded under the applicable sunset clauses, and the deposits were refunded to the purchasers who were entitled to rescind. Mr Rizk submits that it is seriously arguable that that rescission is to be treated to have effect ab initio, as if the sales contracts were never entered into, and points to the treatment of rescission under s 66ZR of the Conveyancing Act 1919 (NSW), while recognising that this provision does not have direct application to this dispute. He submits that: "It follows that any right to commission that CBRE had under each sales contract was likely lost upon the rescission of those sales contracts, and therefore there is no debt owed to CBRE. At the very minimum, there is a genuine dispute raised as to the legal effect of rescission of a contract for sale on the agent's entitlement to commission that is contingent upon that contract."
Mr Ng, who appears for CBRE, responds that: "[ABAV] contends, in its submissions … that the contracts that were rescinded are to be regarded as if they "were never entered into". That proposition is patently erroneous. Speaking in the context of a contract rescinded because of matters which affected its formation, Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477 famously described the effect of rescission as being to restore the parties "so far as may be, to the position they occupied before the contract was made", where this necessarily involves the divestment or discharge of any rights that "have already been unconditionally acquired" under the contract. However, it does not follow that the effect of a rescission is to erase from history the fact that the parties entered into a contract. Certainly, the restoration of the parties' pre-contractual rights and liabilities does not, as a matter of logic, entail the denial that there was ever a contract between the parties. The language of cll 8.1 and 8.2 makes clear that the fact that a contract was entered into was sufficient to enliven an entitlement in CBRE to the payment of a Commission. And there is nothing in cl 8 to suggest that this was subject to a condition subsequent that the contract not be rescinded. Nor, tellingly, does [ABAV] submit that there is some basis for implying such a condition subsequent into the terms of the Agency Agreement. That being so, it is simply not open to submit that the mere rescission of the contracts that did not complete deprived CBRE of any entitlement to a Commission."
It does not seem to me that any genuine dispute arises from this contention. Clause 8.2 of the Agency Agreement provides for commission payable on a "Sale", and a "Sale" is defined as the exchange of a Contract (as defined) between ABAV and the purchaser. The right to commission arose at that point, although it was subject to the collection of the full 10% deposit from the purchaser upon the individual contracts, and was due and payable as specified in cl 8.6 and 9. The fact that a contract was subsequently rescinded as between ABAV and the purchaser does not have the consequence that it did not previously exist, or that CBRE's entitlement to commission on a Sale did not arise at the point at which the Sale occurred, subject to the provisions of the Agency Agreement to which I have referred above. There is no seriously arguable case to the contrary.

ABAV's limitations claim

Second, ABAV contends that it has a seriously arguable claim that CBRE's claim for the second and third tranches of commission is time barred.
Mr Ng put a faint submission that this claim was not available because it had not been squarely raised in Mr Diab's affidavit. This submission invoked the principle sometimes described as the "Graywinter" principle, originating from the decision in Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452 ("Graywinter"). That principle arises from the structure of the statutory regime to set aside a creditor's statutory demand under s 459G of the Act, as discussed below. In Graywinter, Sundberg J referred to the statutory requirement in s 459G(3) of the Act that there be an affidavit supporting an application to set aside a creditor's statutory demand and noted that the affidavit must disclose material facts identifying a genuine dispute between the parties. That principle has in turn been applied to prevent reliance on matters which are not disclosed, within the 21-day period, to establish a genuine dispute.
The balance of authority indicates that the principle raises a fact-specific inquiry as to whether an affidavit in support of an application to set aside a creditor's statutory demand in fact supports that application, and it will do so sufficiently if that dispute is raised expressly or is a reasonably available inference: Hopetoun Kembla Investment Pty Ltd v JPR Legal Pty Ltd (2011) 87 ACSR 1; [2011] NSWSC 1343 ("Hopetoun Kembla"). There are some cases where the principle has been treated as involving notice to the defendant of the relevant claim; however, in my view, that principle is ultimately based, not upon notice of the claim to a defendant, but upon the statutory requirement of s 459G of the Act that the claim in fact be raised within the 21-day period. I will refer below to appellate authority that is consistent with that view. The Court of Appeal in turn considered the principle in Grandview, where Bell P (as the Chief Justice then was) referred to provisions in the former Federal Court Rules 1979 (Cth) which provided some reinforcement of that principle. It seems to me that, as the President's reference (at [38]ff) to the language of the statute implies, the Graywinter principle had its foundation in s 459G of the Act and never depended upon the Federal Court Rules 1979 (Cth) which operated in parallel with it. The provision is a matter which goes to the Court's jurisdiction and not a matter involving any element of discretion on the Court's part. The scope of the principle has in turn been considered, at length, by the Court of Appeal of the Supreme Court of Victoria in Sceam Construction Pty Ltd v Clyne (2021) 64 VR 404; [2021] VSCA 270 at [11]ff, where the Court observed (at [38]) that what was critical was the legislative requirement that an affidavit support the application to be filed with the Court within the statutory period and (at [42]) that the question for the Court is whether the affidavit "supports" the application and, if it does, then the affidavit may be supplemented by evidence filed outside the statutory period and, if it does not, there is no jurisdiction to consider material filed beyond that period.
It seems to me that, consistent with the approach taken in Hopetoun Kembla, Mr Diab's affidavit sufficiently raised the limitations claim where it annexed the Agency Agreement and identified the timing of events, so as to identify the elements of that claim, although it did not specifically identify that it would be put.
Turning now to the substance of this claim, Mr Rizk submits that the second tranche of commission, arising under cl 8.6(b) of the Agency Agreement, was payable by no later than 29 February 2016. He submits that it follows that the cause of action for the failure to pay that tranche accrued to CBRE on 29 February 2016; more than six years has since elapsed; and any cause of action CBRE may have had is time barred pursuant to s 14 of the Limitations Act 1969 (NSW) ("Limitations Act"), and the claim to the underlying debt extinguished pursuant to s 63 of the Limitations Act; and, at the minimum, this issue would give rise to a genuine dispute: Sundarjee Bros (Aust) Pty Ltd v Sundarjee Bros (HK) Pty Ltd (in liq) [2004] NSWSC 1158; Rinfort Pty Ltd & Anor v Arianna Holdings Pty Ltd [2016] NSWSC 251.
Mr Ng responds that: "It is true that cl 8.5 of the Agency Agreement speaks of the second tranche becoming due and payable upon the sooner of construction finance drawdown or 29 February 2016. However, cl 8.5 is expressed to be subject to cl 9, which obliged [ABAV] to make any Commission payment which had become due and payable within 30 days of receipt of a tax invoice issued by CBRE. In other words, while CBRE was entitled, under cl 8.5, to issue an invoice for the second tranche upon the sooner of construction finance drawdown or 29 February 2016, the time for performance of [ABAV's] obligation to pay the second tranche only arose upon the issue of such an invoice. And there was no failure to comply with that obligation unless and until 30 days had passed thereafter without the tender of payment. It was only at that point that "the debt could first have been recovered by action": Reeves v Butcher [1891] 2 QB 509 at 511, conferring a cause of action upon CBRE. In this case, invoices did not issue until 29 November 2022. That being so, time did not begin to run for the purposes of any limitation period until 30 December 2022, being the day after expiration of the 30-day window within which ABA Villawood was required to tender payment. There is accordingly no genuine dispute as to the existence of debts comprising the second tranche of the Commissions owed to CBRE."
I accept that cl 8.5 of the Agency Agreement was subject to cl 9 of the Agency Agreement. However, the latter clause itself describes that relevant amount as having "become due and payable under clause 8 of this Agreement" although it then, possibly inconsistently, providers for payment following invoice. It seems to me that ABAV has a genuinely arguable claim that the relevant amount fell due and was payable in accordance with cl 8.5 of the Agency Agreement and that cl 9 assumed rather than reversed that result. On that basis, a real question of construction arises as to whether the debt was due and payable on 29 February 2016 rather than on 30 December 2022. Mr Ng fairly accepts that, once that proposition is genuinely arguable, then the proposition that the claim is barred by the Limitations Act is also genuinely arguable. For that reason, it is genuinely arguable that the second tranche of the commission claimed by CBRE is not now payable.

ABAV's claim that the entitlement to the third tranche of commission did not arise

Third, Mr Rizk submits that there is a genuinely arguable case that the circumstances in which the 36 contracts came to an end meant that, under cl 8.6 of the Agency Agreement, CBRE was not entitled to the third tranche of commission, because the contracts did not complete; they were not terminated for breach by ABVA; and they were not terminated in a manner that allowed ABVA to retain the deposit.
In his opening outline of submissions, Mr Ng contended that: "… cll 8.1 and 8.2 of the Agency Agreement made CBRE's entitlement to a Commission conditional upon the entry by a purchaser into a contract for sale within certain fixed periods of time. In contrast, cll 8.5, 8.6 and 9 together described the series of events that triggered an obligation on [ABAV] to make good that entitlement by paying amounts invoiced by CBRE. The upshot of this is that the existence in CBRE of an entitlement to receive a Commission was not conditional upon the occurrence of the events described in cl 8.6. Rather, those events served only as milestones by reference to which, by way of supplement to the provision in cl 8.5 that Commission would become due and payable upon the receipt of the deposit from the relevant purchaser, and subject to cl 9, the parties agreed a timetable for the payment of Commission. That being so, the mere fact that cl 8.6 did not refer to any circumstance in which a contract for sale was rescinded without default by either party does not produce the consequence that if such a circumstance arose, then CBRE would not be entitled to receive the third tranche of Commission or a Commission at all. There is, moreover, no scope for an argument that setting aside CBRE's entitlement to the second tranche of Commission for each of the rescinded sales, there may be some debate, having regard to the omission in cl 8.6 of any reference to rescission without default, as to whether the third tranche alone is owing or ever capable of being due or payable. In particular, cl 8.2 is unequivocal in its terms: for each Sale facilitated by CBRE, [ABAV] is required to pay a Commission calculated as a base fee of 2.25 per cent of the gross sale price of the relevant unit within the Maple Village development. Clause 8 does not contemplate CBRE being entitled to receive only a fraction of this base fee."
It seems to me that there is a genuine dispute as to CBRE's entitlement to the third tranche of commission under cl 8.6 of the Agency Agreement, where 33 contracts were rescinded rather than completed so as to trigger the entitlement to commission under cl 8.6(a); CBRE does not identify any basis for a contention that ABAV had defaulted under the purchase contracts, and, even if it did so, it is apparent those contracts were rescinded rather than terminated by reason of or following that default for the purposes of cl 8.6(b) so no entitlement arises under that clause; and there is no suggestion of any default of the purchaser and that the whole or part of deposits paid were liable to be forfeited for the purposes of cl 8.6(c) of the Agency Agreement. Mr Ng accepted, in oral submissions at the hearing, that it was at least genuinely arguable that the conditions for payment of the third tranche of the commission under cl 8.6 of the Agency Agreement were not satisfied.
While I recognise that Mr Ng contends that cl 8.2 of the Agency Agreement creates a right to payment of the whole commission, it seems to me that it is genuinely arguable that right is qualified and narrowed by cl 8.6, and that is a construction question of the kind that a Court should not determine in this application. Mr Ng also relies on cl 8.5 of the Agency Agreement which, as I noted above, provides that the commission as specified in cl 8.2 is "due and payable only under the condition that a full 10% deposit has been collected from purchaser upon the exchange contract." However, it also seems to me to be genuinely arguable that cl 8.5 of the Agency Agreement narrows CBRE's rights to commission, so that it is not payable unless the deposit is paid, rather than expanding that right so that the third tranche is payable irrespective of whether the circumstances in cl 8.6 of the Agency Agreement arise, where the latter construction would marginalise cl 8.6 of the Agency Agreement. That is also a construction question of the kind that a Court should not determine in this application. For that reason, it is genuinely arguable that the third tranche of the commission claimed by CBRE is also not payable.
It is therefore not necessary to address Mr Rizk's further submission that, to the extent that CBRE asserts that the obligation to pay the full commission arose immediately upon receipt of the deposit (and it is irrelevant whether the contracts were not completed), the cause of action would have accrued at the time the deposit was paid, more than six years has elapsed and the cause of action is time barred pursuant to s 14 of the Limitations Act, and the claim to the underlying debt extinguished pursuant to s 63 of the Limitations Act.

Orders

For these reasons, the Demand should be set aside, and CBRE must pay ABAV's costs as agreed or assessed on the ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 August 2023

Federal Court Rules 1979(Cth)

Limitations Act 1969(NSW)

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