Hardel Property Holdings Pty Ltd v Allmark Property Management Pty Ltd

THE CONTEXT 7 The background evidence establishes for present purposes that a Hardel group company - which Hardel Holdings contends was Stanhope Apartments Pty Ltd - and Allmark entered into a joint venture agreement, the venture involving the development of property at Kew in Melbourne. Pursuant to that agreement (which was not reduced to writing), Allmark provided project management services for which on Hardel Holdings' evidence it was to be paid a fee of "around $10,000 per month". Hardel Holdings also alleges that Allmark agreed to contribute $250,000 in capital but failed to do so. Invoices were rendered by Allmark for project management fees and were paid in full for the period 30 September 2003 to 19 April 2004. Hardel Holdings alleges the payments were made by Stanhope. Allmark contends they were paid by Hardel Holdings with whom it contended it had its joint venture agreement. 8 Pausing at this point, there clearly is a dispute between the parties as to which company within the Hardel group contracted with Allmark. No payments were made in respect of project management fees to Allmark after that made in April 2004. The evidence does suggest that from about this time the relationship between the respective principals of the two groups, Mr Harris (Hardel) and Mr Riggs (Allmark), had deteriorated significantly. On 4 April 2005 a letter was sent by Mr Harris under Stanhope letterhead to Mr Riggs at Allmark which indicated, inter alia, in the following terms: "KEW Greg Robinson has asked me to write to you and clarify the status of the relationship between Stanhope Apartments Pty Ltd and Allmark. First, let me say I am extremely disappointed to observe the relationship has deteriorated to a non-communicative state. I am very happy that the project remains on track and is being well managed under Greg's leadership. Based on discussions, correspondence, agreements and payments made by Stanhope to Allmark to date, I see the arrangements as follows: 1. Allmark to contribute $250,000 to the venture; 2. Allmark to provide a range of project support, outlined in your letter dated 26th February 2004, to the venture; 3. Allmark to earn a management fee from the venture along the following lines: - 25% of a 3.5% management fee of total building costs; - 50% of a 1% marketing coordination fee based upon the retail value of the project. 4. Profit share of: - 20% of net profits up to $5 million; - 25% for any net profits beyond $5 million. To date, project fees of $80,000 including GST have been paid to Allmark. Payments of fees ceased in June 2004 due to the substantial changes in the scope of the venture as well as the lack of confirmed documentation in place with Allmark (profit share agreement in particular). Fees for all parties have now been substantially wound back due to the changing nature of the value of the building dimension of the project. In addition, Allmark has ceased providing support services for the project which I understand is by arrangement/agreement with the project Chairman. The discontinuation of services to the project will require a review of project fee arrangements. My greatest point of concern is the failure of Allmark to make the agreed capital payment some 20 months after the property has been secured and the lack of finalisation of profit share documentation after repeated requests. In my mind, this leaves Allmark in default of arrangements and in a tenuous position at best. It is my desire to repatriate this matter and reconcile issues. Time is of the essence in this respect as funds continue to be expended and we are in court this week. I would appreciate your advice in respect of bringing matters into order. My last contact with Allmark was from David Riggs advising that you were taking legal advice on January 24, 2005 at 10.28 am and that you would get back to me after that time. I responded on the 25th of January, 2005 at 9.40 am that a profit share agreement needed to be finalised, that our collective fees would reduce proportionately based on the change in build costs, that Allmark[']s role in support services needed to be resolved with the project Chairman and that funds committed needed to be paid. I have heard nothing since this time." 9 This letter is of some significance and both parties in differing ways seek to derive some comfort from it. I note first that it purports to provide a clarification of the relationship between Stanhope and Allmark. Mr Riggs and Allmark could not reasonably assert an ignorance of Stanhope as a member of the Hardel group. An ASIC search reveals that a shareholder of Stanhope is Palomine Pty Ltd and that that company in turn has as its Directors Mr Riggs and a David Riggs and as its shareholders persons whom I presume to be the respective spouses of Paul and David Riggs. It is also clear from a chronology prepared by Mr Harris and accepted by Mr Riggs that both Paul and David Riggs attended meetings concerning the Kew joint venture in the period 23 July 2003 to 23 October 2003, this being the period covered by the chronology. The significance of the Riggs' connection with Stanhope will become apparent when I refer to what I will describe as the s 437D matter below. 10 Hardel Holdings relies on the letter to show why payments had ceased, it being said Allmark's failure to provide the capital payment justified the taking of this course. Allmark relies upon the letter to show that there was a project management agreement in existence and that payments were to be made in accordance with it. What the letter does indicate, though, is that by the date of the letter Allmark had ceased providing support services for the project. When this cessation occurred is by no means clear and Allmark accepted that it could have occurred any time between April 2004 and the date of the letter. 11 As I earlier observed, the joint venture agreement insofar as presently relevant appears not to have been reduced to writing. Mr Riggs contends that it was evidenced by various memoranda, email, invoices etc. The statutory demand served by Allmark is founded upon such invoices which, allegedly, were unpaid. These were nine in number and were said to have been rendered on a monthly basis between 27 May 2004 and 31 January 2005, each in the sum of $10,000. Those statutory demands were sent to "Hardel" and referred to a Ms Jenny Hentzschel. Ms Hentzschel was, from 28 December 2003, employed by Hardel Group Pty Ltd as book keeper for the Hardel group of companies. It is Hardel Holdings' case not only that it was not indebted to Allmark in respect of these alleged invoices, but that they were never received by it. It is Ms Hentzschel's evidence that she did receive and pay invoices up until 19 April 2004 and that those invoices were posted to the Stanhope Apartments' ledger. She also denies having previously seen invoices for the period May 2004 to January 2005. 12 Mr Harris' evidence is that Hardel Holdings did not receive any demand for payment from Allmark in respect of alleged outstanding management fees until September 2007. His lawyers then wrote to Allmarks' lawyers "requesting information in relation to the alleged debt owing to [Allmark]". In response he received, inter alia, a copy of 17 invoices "raised in relation to the project management fees, some only of which have been paid". These 17 included the 9 allegedly evidencing the debt founding the statutory demand. All of the invoices were directed to Ms Hentzschel even though some pre-dated her appointment. 13 When this fact was pointed out by Mr Harris in his affidavit, Mr Riggs responded in his affidavit that "when requested to provide copies of invoices [Allmark] arranged for computer generated copies to be made" (emphasis added). I note in passing that no request in such terms was in fact made by Hardel Property's solicitors. Mr Riggs accepted that Allmark did not have originals of the alleged invoices. There is no evidence of any debtor's ledger or other historical company document evidencing the debt. If in the circumstances "the copies" were computer generated ones, it is difficult to see from what they were so copied. Mr Riggs went on to explain that at the time the "copies were requested" the contact at Hardel Holdings who was to receive the invoices had been entered in Allmark's computer as Miss Hentzschel and for that reason it was her name that appeared in all such re-produced invoices. 14 Importantly, apart from these invoices, there is nothing in the evidence before me to show that project management services were in fact provided by Allmark in respect of which the fees were allegedly payable. 15 A distinct matter upon which Hardel Holdings relies is that, from 24 March 2006 until 2 September 2006, Allmark was under external administration and in that time entered into a deed of company arrangement which Mr Harris exhibited to his first affidavit. In that administration, an obligation of the administrator was to collect outstanding debts. Also, under the deed, the Directors or Palomine were required to contribute $125,000 to a distribution fund which was to be made available for distribution amongst creditors. What is apparent from the evidence is that not only did the administrator make no attempt to recover Hardel Holdings' alleged debt, that debt was not disclosed to the administrator by Allmark's Directors. Mr Riggs' explanation of this is that: "In the period that Allmark was under the control of an external administrator, I also spoke with Mr Harris about the outstanding invoices and the monies due to Allmark Property. Mr Harris advised that in his opinion it was best if the administrator was not involved in pursuing the money from Hardel Property as this would impact on Allmark Property's position as a minor shareholder of Hardel Property. Mr Harris promised that Allmark Property would receive the money due to it. I acceded to Mr Harris' request." 16 If there was in fact a debt owing by Allmark Property, this allegedly mutual understanding would have involved a contravention by Mr Riggs of the provisions of s 437D of the Corporations Act in that Mr Riggs purported on behalf of Allmark to enter into a dealing or transaction affecting property of the company. Equally it could have involved a contravention of s 438B(2) and possibly of s 438C of the Corporations Act. What Mr Riggs' explanation suggests is that if there was in fact a real debt owing to Allmark at the time it was not accurately reflected in the company's books. In his second affidavit Mr Harris disputes the explanation given by Mr Riggs. He says he did not make any such request as alleged; the affidavit provided no sensible reason why he should do so; and, in any event, he did not know that Allmark had been in administration until about October 2007. What, it is said, makes Mr Riggs' explanation the more questionable is that Allmark was not a minority shareholder in Hardel Holdings. That shareholder was the Palomine company which he and his family controlled. 17 I earlier referred to proceedings in the Supreme Court between an Allmark company (Allmark Scaffolding Pty Ltd) and a Hardel company (Vendx Pty Ltd) which apparently is owned and operated by Mr Harris' wife. In late 2006 Scaffolding agreed to provide scaffolding in a project being undertaken by Vendx and had received payment for that scaffolding. Mr Riggs said it was his understanding that the scaffolding would be supplied once Hardel Holdings paid Allmark the $90,000 it owed. The scaffolding had not been provided, Mr Riggs asserting because its provision was conditional upon the payment of the $90,000. In his affidavit Mr Harris disputes there was any agreement or understanding that the provision of the scaffolding was conditional upon such a payment and he contends there was no basis set out by Mr Riggs in his evidence as to why he, Riggs, should have such an understanding. The circumstances of the linking of the $90,000 payment with the provision of the scaffolding are explained by Mr Harris as follows: "12. I refer to paragraph 15 of his Affidavit and say that there was never any basis whatsoever for Mr Riggs to believe as a result of communications with me that there was an understanding that the scaffolding which Allmark Scaffolding Pty Ltd had agreed to supply to Vendx Pty Ltd was conditional upon the payment of the sum of $90,000.00. No factual basis is set out as to why Mr Riggs should have such an understanding. 13. After the time that the statutory demand served on Allmark Scaffolding Pty Ltd by Vendx Pty Ltd had expired, Allmark Scaffolding made a request to Vendx through its solicitors for Vendx to agree to withdraw the statutory demand if the scaffolding was delivered. Only after Vendx expressed its willingness to withdraw the demand on this condition did Allmark Scaffolding Pty Ltd assert that not only was the demand unconditionally compromised but that the delivery on the scaffolding was linked to the payment of the sum of $90,000.00 by the Plaintiff." 18 Distinctly, while there has been some objection by Allmark as to the sufficiency of the evidence of solvency of Hardel Holdings, I am prepared to accept the admittedly sparse evidence asserting the solvency of the company. Hardel Holdings has undertaken to pay $90,000 into Court should interim injunctive relief be granted.

CONSIDERATION 19 It is well established that the onus of satisfying the court that there is an abuse of process lies upon the party alleging it. That onus is a heavy one and the power to grant a permanent stay is one to be exercised only in the most exceptional circumstances: Williams v Spautz at 529. The present hearing being only of an interlocutory character, a permanent stay is not being sought. Nonetheless, I am mindful of the gravity of the allegation being made and, in consequence of, the need for a prima facie case to be properly established in light of that. 20 The two main inquiries to be addressed in applications for interlocutory injunctive relief have recently been reiterated by the High Court in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 (see esp [65] ff) and need not be rehearsed at any length here. I would, though, note that the first inquiry - "whether the applicant has made out a prima facie case" - only requires the applicant to "show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial": ibid [65]. The necessary strength of that likelihood depends upon the nature of the right asserted by the applicant and the practical consequences likely to flow from the order sought: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622. I would add, as well, that, if I am satisfied that a prima facie case has been made out in this matter, the balance of convenience favours the grant of relief. The injury likely to be suffered by Hardel Holdings through its financing arrangements if an injunction was refused would outweigh the injury which Allmark would suffer in being held out of its statutory right. Damages would not adequately compensate Hardel Holdings if an injunction was refused and its right were injured. The final matter I should mention is that, while there is a clear conflict between Mr Harris and Mr Riggs as to the occurrence of conversations, etc between them and while there are serious imputations being made and denied, it is quite inappropriate for me on such an application to make, or to foreshadow, findings on credit. 21 I have already indicated that the abuse of process procedure cannot properly be used as a collateral method of disputing the existence of a debt: see generally Braams Group Pty Ltd v Miric (2002) 44 ACSR 124. This said, I reiterate that Pt 5.4 of the Corporations Act does not preclude the allegation of an abuse of process where the abuse is alleged to be the institution of proceedings for an improper purpose. In this matter the plaintiff alleges such to be the case. For the purposes of making out a prima facie case of this, emphasis is placed upon three particular matters. 22 It is said, first, that there is evidence that should sufficiently satisfy me for present purposes of the likelihood that Allmark (through Mr Riggs) has instituted proceedings against Hardel Holdings in the knowledge that no debt was owed by it and/or that any alleged indebtedness arising out of the joint venture arrangement would be the indebtedness of Stanhope in any event. To the extent that this merely calls into question the existence of the debt, it alone would not satisfy me that a prima facie case of abuse of process has been made out. 23 The second matter relied upon relates to the genuineness of the nine invoices alleged to evidence the debt. There is on the evidence a serious issue raised here. The lack of any historical record of the alleged debt and the provenance of the alleged invoices do suggest there may well be a question as to the genuineness of the invoices. There is Ms Hentzschel's evidence that they were never received by the Hardel Group. Additionally, there is no evidence to demonstrate that project management services were in fact rendered in the period in respect of which the claims were made. 24 Thirdly, there is the real doubt raised by the s 437D matter. I have referred earlier to Mr Harris' challenge to Mr Riggs' explanation of the non-disclosure of the alleged debt to the administrator of Allmark. As the evidence now stands, there is a contested issue as to the truth and the plausibility of the explanation. Bearing in mind I do not have to make a final determination on the balance of probabilities and that for present purposes I am unconcerned with forming a view on credit, I am satisfied that if at a final hearing Mr Harris can demonstrate on the balance of probabilities that there was never the understanding alleged by Mr Riggs and that he did not become aware of Allmark being under external administration until about October 2007, then there would be grounds for concluding that the alleged debt was a manufactured one. 25 When one considers cumulatively what is suggested by the three matters upon which Hardel Holdings relies, I consider that a prima facie case in the sense I have described has been made out. A use of the statutory demand procedures in respect of a debt known to be spurious would give rise to an abuse of process if the statutory demand in turn was used to found a winding up application, the more so if, as alleged here, there is some evidence suggesting the likelihood that the statutory demand procedure itself is being used for some tactical purpose relating to proceedings in another court. 26 Finally, I should indicate that I am satisfied for present purposes as to the solvency of Hardel Holdings. I have previously indicated my views on the balance of convenience. I consider that it is appropriate to maintain the status quo and I am in consequence prepared to grant the interlocutory relief sought on the applicant's payment into court of the sum of $90,000. 27 Accordingly I will order that the respondent be restrained until further order, whether by itself, its servants or agents or otherwise from instituting proceedings for the winding up of the applicant in consequence of its failure to comply with the statutory demand dated 12 November 2007. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.

Associate: Dated: 22 January 2008 Counsel for the Applicant: Mr P Slattery QC Solicitor for the Applicant: Duncan Basheer Hannon

Counsel for the Respondent: Mr J Keen Solicitor for the Respondent: Piper Alderman

Date of Hearing: 21 December 2007 and 16 January 2008 Date of Judgment: 22 January 2008