Creata (Aust) Pty Ltd v Gary Adrian Faull

Creata (Aust) Pty Ltd v Gary Adrian Faull - [2017] NSWCA 230 - NSWCA 2017 case summary — Zoe

Judgment

HIS HONOUR: This is an application pursuant to s 459F(2)(a)(i) of the Corporations Act 2001 (Cth) for an order to extend the time for compliance with a statutory demand. Black J dismissed the plaintiff's application to set aside the statutory demand (In the matter of Creata (Aust) Pty Ltd (No. 2) [2017] NSWSC 1090). Today the plaintiff has filed a summons seeking leave to appeal from that order and a notice of motion returnable instanter seeking an order for the extension of time for compliance with the statutory demand. That application has been heard on a contested basis and I am grateful for the assistance of counsel and for their being able to deal with the matters as promptly as they have.
It is accepted that on an application under s 459F(2) for the extension of time for compliance with a statutory demand, where the application to set aside the demand has been dismissed, the matters to be addressed are:

First, the general question of the prospects of success in the appeal and whether an arguable case has been shown;
Second, whether the appeal will be rendered nugatory unless the extension is granted; and
Third, as to the prejudice the respective parties will suffer in the alternative eventualities. (Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd [2004] NSWSC 877; (2004) 50 ACSR 544 at [5] per Barrett J; see also Jem Developments Pty Ltd v Hansen Yuncken [2006] NSWSC 1378; (2006) 60 ACSR 393 and Aus Asia Minerals Ltd v Ball [2015] WASCA 251 at [21] per Murphy JA).

Mr Sulan of counsel who appears for the respondent to the application and the successful defendant in the hearing before Black J submitted at the outset that this application for the extension under s 459F ought to have been brought before the primary judge. He submitted that it is the usual practice that such applications be made to the primary judge and in that connection referred to decisions of Barrett J in N A Investments Holdings Pty Ltd v Perpetual Nominees Ltd [2010] NSWSC 373 and of Black J in Re Britten-Norman Pty Ltd [2013] NSWSC 424. In the latter judgment Black J referred to what Barrett J had said in N A Investment Holdings that in the ordinary course it is preferable for a judge at first instance to extend the time for compliance with a statutory demand only for a relatively short period, on the basis that the matter will then be under the control of the Court of Appeal which can then address the need for any further extension of time for compliance with the demand.
It was not submitted that as a single judge of appeal I did not have power to deal with this application. The matter is now in the Court of Appeal by reason of the filing of the summons seeking leave. I have power under s 46(2)(b) of the Supreme Court Act 1970 (NSW) to make the order sought, which does not involve the determination or decision of the appeal or the application for leave. I do not think I should decline to exercise that jurisdiction on the basis that another avenue for seeking an extension of the time for compliance was available to the applicant. That is particularly so as the matter has been fully argued. To do so would not be consistent with s 56 of the Civil Procedure Act 2005 (NSW). If the application for extension were successfully made to the primary judge, the extension would, in all likelihood, be for a short period and would lead to an application for a further extension before a judge of the Court of Appeal. It is better that the application be determined on its merits now.
Although it is said that the first matter for consideration is whether an applicant has shown an arguable case, or sufficient prospects of success, in an appeal it is convenient to first consider the other two matters that need to be addressed: namely whether, if an extension is refused, an appeal would be rendered nugatory; and prejudice to the parties if an extension is either refused or granted.
It is common ground that if an extension is not granted the application for leave and any appeal will be rendered nugatory. That is because the application for an order setting aside the statutory demand under s 459G has been finally determined for the purposes of s 459F(2)(a)(ii) by the orders of Black J of 18 August 2017. Unless time for compliance with the demand is extended, the presumption of insolvency will arise from 25 August 2017. Any appeal will be otiose. This is clear prejudice the applicant would suffer if leave to appeal should be given and the appeal allowed, so that the statutory demand should be set aside.
The applicant adduced evidence of some additional prejudice. Oral evidence was given by the applicant's solicitor of his having been instructed by a director and chief financial officer of the applicant to the effect that the applicant's bank has considered the judgment of Black J and has adopted a hostile attitude and is considering calling for payment of the applicant's facilities. Although there is no evidence as to whether or not the bank's attitude might change if an appeal were successful, that must be at least a material possibility.
Thus the second and third matters heavily favour the extension sought.
Mr Sulan submits that it is still necessary for the plaintiff to show an arguable ground of appeal and he submits that no such ground has been demonstrated.
I do not purport to determine whether there are sufficient grounds for the grant of leave. Nothing I say should be understood as expressing any concluded view on that matter. As I have determined that an extension of time should be granted, I will confine my observations on the question of the arguability of an appeal to the minimum I think is necessary.
The debt identified in the statutory demand was a sum of US$400,000 described as a payment instalment due and owing under cl 2(c)(ii) of a deed between the applicant and the respondent dated 25 July 2014. That deed recited that the respondent was employed by the applicant in a senior position and that notice of termination of his employment had been given. It provided for the making of what were called termination payments, the grant of a release and the assumption by the respondent of various obligations. The respondent agreed, amongst other things, not to use or disclose trade secrets or "Confidential Information", as the latter expression was defined. He gave a promise not to engage in competition in certain respects.
Clause 2(c) provided for various payments to be made by the applicant to the respondent. Clause 2(c)(ii) provided for the payment of the sum of US$2 million by five instalments each of US$400,000 payable on 1 January each year from 2015 to 2019. There is no dispute that the debt the subject of the demand was not paid. The applicant contended that the respondent was in breach of conditions of the deed: in particular the obligation not to use or disclose Confidential Information which was found in cl 4, and the promise not to compete found in cl 5.
Clause 4(f) provided, in substance, that if the respondent were in breach of cl 4, then the applicant's obligations regarding the making of payments pursuant to the deed should cease upon the applicant's becoming aware of such a breach. It further provided that the respondent would be obliged to repay moneys paid to him pursuant to the deed.
As recited by the primary judge, the applicant relied upon hearsay evidence to contend that the respondent had breached the deed. The primary judge recorded that a director and in-house general counsel of the applicant had given evidence of a conversation with a third party connected with another company. The third party is said to have told the director of the applicant in substance that he, the third party, understood from the respondent that "the McDonald's contract is coming up for renewal. It's an important part of your business", and that he (the respondent) had "shared certain information with me about Creata's and Norma's tax and business and affairs."
According to the director's account of the conversation this statement was accompanied by a threat that if the applicant did not withdraw a statutory demand that had been served on the third party's company then affidavits that had been prepared about those matters would be sent to various authorities and to McDonald's. The applicant contended unsuccessfully before the primary judge that this was sufficient to raise a plausible contention requiring investigation that the respondent was in breach of cl 4 and hence that the debt was disputed.
The primary judge did not consider that the evidence was sufficient to raise such a plausible contention.
The principles in relation to the approach to be taken to applications to set aside a statutory demand on the ground that there is a genuine dispute or an offsetting claim are easy to state. But whether in any particular case there is sufficient evidence to give rise to a serious question to be tried, or an issue deserving of a hearing or a plausible contention requiring investigation, is often difficult to determine. It is a question upon which the evidence advanced can appeal differently to different minds: see for example, Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344.
The applicant submitted in substance that the evidence relied upon was adduced not to establish the facts of what the respondent is alleged to have disclosed, nor to establish that he disclosed it, but to establish that the claim that he disclosed it is a genuine claim giving rise to a genuine dispute.
The applicant disputes the primary judge's conclusion that if the evidence relied upon in this case were sufficient to establish a genuine dispute, the threshold for setting aside a statutory demand would be set too low and that would be liable to defeat the legislative purpose of the provisions.
The applicant submitted below that even if the evidence were insufficient to establish that whatever was said to have been disclosed by the respondent to a third party was in the nature of confidential information as that expression might be generally understood, or proprietary trade secret information (which is an expression used in the definition of Confidential Information in cl 4 of the deed) it nonetheless extended to matters that were covered by cl 4 of the deed.
The primary judge did not consider that there was an arguable basis for that submission. The clause in question defined Confidential Information as follows: "[Mr Faull] acknowledges that during the term of his employment, he had access to and became acquainted with proprietary trade secret information belonging to Creata, Group Entity, Client and Supplier including, without limitation, information concerning their organization, business and affairs of Creata, Group Entity and any Client and Supplier, Client/Customer lists, Member lists, Supplier lists, pricing information, profit margins, referral source lists, vendor services lists, Client presentations [actual and proposed], sales and financing projections, budget Information and procedures, accounting and financial records, policy and procedure manuals, industry contacts, computer software, computer programs, techniques of operation, employee compensation and financial structure, strategies of any kind or nature, and marketing, promotion, development or acquisition plans [whether past, current, future or potential] ('Confidential Information')."
On the hearing of this application a question was raised as to what, if any, effect should be given to the words "including without limitation" before the identified list of specific matters that is said to be included within the expression proprietary trade secret information. The effect of those words, if they have any, was not specifically addressed in this part of the primary judge's reasons.
It seems to me that the arguments that the applicant has foreshadowed are likely to be raised on the hearing of an application for leave to appeal or on the appeal if heard heard concurrently, or if leave is given, should not be characterised as obviously hopeless. I think they have sufficient arguability to justify the application for leave to appeal and the appeal going ahead. If an extension of time is not granted, then the application for leave becomes futile.
I propose to grant the extension, although not in the terms sought. The applicant has proffered an undertaking to do all necessary things on its part to be able to have an expedited hearing of the application for leave and of the appeal. Subject to hearing from the parties as to the appropriate form of the order I propose to make an order in the following terms.
Upon the applicant, by its counsel, undertaking to do all things that are necessary on its part to obtain an expedited hearing of the application for leave to appeal, and of any appeal if leave is granted, order pursuant to s 459F of the Corporations Act 2001 (Cth) that the time for compliance with the respondent's statutory demand issued to the applicant dated 30 January 2017 be extended until seven days after the determination of the applicant's application for leave to appeal and of any appeal.
I make the following orders: 1. Upon the applicant by its counsel undertaking to do all things that are necessary on its part to obtain an expedited hearing of the application for leave to appeal and of any appeal if leave is granted, order pursuant to s 459F of the Corporations Act 2001 that the time for compliance with the respondent's Statutory Demand issued to the applicant dated 30 January 2017 be extended until seven days after the determination of the applicant's application for leave to appeal and of any appeal. 2. Order that the costs of the hearing of the notice of motion filed 22 August 2017 today be the applicant's costs on the application for leave to appeal. 3. Stand over to the Registrar's list for directions on Monday, 28 August 2017.

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