Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd

Court of Appeal (NSW)|2012-10-24|Before: Hoeben JA, Ward J, Black J, Young JA

Judgment 1HOEBEN JA: I agree with Young AJA. 2YOUNG JA: This is a concurrent hearing of an application for leave to appeal from a decision of Black J in the Equity Division of this Court together with the hearing of the appeal if leave be given. 3Black J dismissed an application brought by the appellant under s 459G of the Corporations Act 2001 (Cth) to set aside a Statutory Demand served on it by the Respondent. However, he later extended the time for complying with the Demand until after this Court had considered the matter. 4The Appellant, both here and below contended that the demand should be set aside for any one of a number of reasons which can be summarised as (a) there was a genuine dispute over the alleged debt claimed (vide s 459H(1)(a)), (b) the appellant had an offsetting claim (s 459H(1)(b)) and (c) the Demand should be set aside as unconscionable (s 459J(1)). 5The Respondent's case was to deny that any of those grounds was applicable. It further alleged that because of what is commonly called the Graywinter principle the application needed to be dismissed. 6Black J found most (but not all) of the contentious matters in favour of the Respondent. 7I need to note some background to the matter. The Appellant had a number of contracts with communication companies such as Telstra and Optus to erect communication towers. The Appellant did not consider that it had the expertise to deal with certain aspects of the rigging of those towers and subcontracted with the Respondent to do that work. 8Unfortunately, neither the head contracts nor the subcontract are in evidence. Indeed even the "Purchase Orders" and "Statements of Work" referred to in the subcontract, if they ever existed, were not in evidence. 9The telecommunication companies complained that there were defects in the work done on the towers: they have declined to pay the Appellant. As will be considered in more detail later in these reasons, after the Appellant had informed the Respondent that its claims would be paid when the Appellant itself was paid, it subsequently took the view that as it appeared that its dispute with the telecommunication companies was a result of defective work and it considered that the defective work was that of the Respondent, it was not going to pay the respondent. 10Indeed, the Appellant itself at least partly performed rectification work. It claims (this is the offsetting claim) $230,963.96, but this includes $125,000.00 described as "Loss of revenue to Infratel personnel rectifying sites". 11The basal document is described as "Instrument of Agreement". The copy in evidence is undated. Both parties accept that its terms bind them. In the Instrument, the Appellant is described as "the Company" and the Respondent as "the Contractor". 12Recital B states: The Company wishes to engage the Contractor to perform agreed Services during the Term of the Contract as requested by the Company. 13The Instrument shows that it was intended that the Appellant would give the Respondent Purchase Orders and Statements of Work. None are in evidence. It is clear that not all the work, which the Appellant was to perform on the communication towers, was subcontracted to the Respondent. The Respondent was to perform rigging work; however, how much and where did not appear in the evidence. 14Special Condition 1 of the instrument is as follows: I) Unacceptable works All costs associated with revisits due to unacceptable works are to be bourne [sic] by the subcontractor. These unacceptable works must be fixed in a timeframe acceptable to Infratel Networks Pty Ltd, otherwise Infratel Pty Ltd will rectify the works, and back-charge the subcontractor. 15The only other provisions of the instrument that need be reproduced are cll 11.4, 13.1, 13.2, 13.9, 13.11, 14, 22.3, 28.1, 28.2, 28.3 which are as follows: 11.4 Subject to clause 11.5, neither party shall be liable to the other under the Contract for any indirect or consequential loss of any kind whatsoever in contract or tort (including negligence), including loss of revenue or profit, loss of opportunity or business interruption, arising out of or in connection with the Contract, 13.1 The value of the Services shall be: (a) an amount calculated by multiplying the relevant rates and/or prices in the Schedule of Rates and Prices by the relevant quantities of the Services provided; less (b) the reasonable costs incurred by the Company in remedying any default by the Contractor of its obligations under this Contract including any Purchase Order. 13.2 If the Company on reasonable grounds disputes the accuracy of any invoice, the Company shall give notice of that fact to the Contractor. Such notice shall state the basis of the dispute and give relevant supporting details. The Company shall pay the undisputed portion of the invoice and may withhold payment of the portion disputed. If the parties cannot resolve the dispute within 30 Business Days of the date of the notice, the Dispute shall be determined in accordance with clause 28. 13.9 Invoice not provided If a valid GST tax invoice for Services is not received by the Company within 90 days of the last day of the month in which the relevant Services were provided by the Contractor, the Contractor shall not invoice the Company for such Services and the Company shall have no obligation to pay for any such Services unless agreed otherwise by the Company. 13.11 Setoff Without prejudice to any other rights the Company may have under the Contract, the Company may deduct from any moneys which are otherwise payable to the Contractor any money which is payable by the Contractor to the Company under the Contract. Nothing in this clause 13.11 shall affect the right of the Company to recover from the Contractor the whole of the debt or any balance that remains owing after any such deduction. 14 Defects 14.1 Should all or any part of the work undertaken by the Contractor as part of the Services be found to be defective, the Contractor shall remedy such defect including any consequential effects of the defect at its own expense in accordance with this Clause 14. Defect includes omissions and faults. The remedying of defects shall be carried out at such times and in such circumstances as directed by Company so as to cause as little inconvenience to the Company, its customers and other contractors as possible. Should the Contractor fail to remedy a defect as described above, or where the defect is affecting a Customer service, or where urgent rectification is required to maintain the operation of the clients network, then the Company may arrange for the defect to be remedied by another party instead of the Contractor and the cost of doing so shall be a debt due to the Company recoverable under Clause 13.1. 22.3 The Company may remedy default: Without limiting any of the Company's other rights in relation to a default under this Contract by the Contractor, the Company may in its absolute discretion elect to remedy such default (including by contracting a third party to undertake any Service or Services terminated under clause 22.2) and whenever the Company so elects, all reasonable costs and expenses incurred by the Company in so doing may be deducted from the relevant Service Charges otherwise payable to the Contractor in respect of the Service or Services to be undertaken by a third party and/or at the discretion of the Company, invoiced to the Contractor for immediate payment, provided that the Company shall not require from the Contractor any amount in excess of the total costs and expenses incurred by the Company in remedying such default. Before the Company may exercise its rights under this clause, it must issue a Default Notice to the Contractor in accordance with clause 22.1 unless the Company determines, in its sole discretion, that the default requires more urgent rectification in which case the Company may immediately exercise its rights under this clause. 28 Disputes 28.1 If a dispute or difference arises in relation to any matter relevant to this Contract including any Purchase Order, the Party requiring the dispute or difference to be resolved must give prompt notice to the other Party of the dispute or difference along with sufficient particulars in order for the other Party to understand the facts and likely quantum of the dispute. 28.2 Following receipt of the notice under clause 28.1, the Company's Authorised Representative and the Contractor's Representative must enter into negotiations with a view to resolving the dispute. 28.3 The Parties may agree for the dispute to be referred or elevated to other representatives of the Parties, and also may agree upon an alternative dispute resolution procedure to resolve the dispute, such as mediation or expert determination, but no Party may commence litigation with respect to a dispute prior to 90 days following the issue of a notice under clause 28.1 in respect of the dispute. 16The Respondent's Statutory Demand covered its Invoices 4, 6, 7, 8 and 9 (for September, October and November 2011) totalling $201,136.67. 17There does not appear to be any challenge to the amount of these invoices. Any dispute relates to whether the amount due under them should be rebated because of the alleged defective work. The rebating would be through the operation of cl 13.11. Alternatively, the dispute is whether the Appellant has an offsetting claim of the same magnitude. 18I should state at this stage that the amount to be rebated, or the offsetting claim, could not exceed $105,963.96 as the remaining $125,000.00 of the claim, the claim for lost revenue, is precluded by cl 11.4 of the Instrument. I note that the primary judge rejected this part of the claim in [35] and [36] of his reasons on the merits. 19Thus, even if the Appellant succeeds in this appeal, the Statutory Demand would only be reduced to $95,172.71, not set aside entirely. 20The concurrent hearing took place on 24 October 2012, Mr M R Aldridge SC and Mr J Baird of counsel appearing for the Appellant and Mr J C Giles of counsel appearing for the Respondent. 21The issues on the appeal can be summarised as follows: (A) Whether there should be leave to appeal. (B) The Graywinter Principle. (C) Did the primary judge apply the proper test as to whether there existed a genuine dispute? (D) Did the primary judge err in his construction of the Instrument? (E) Did the primary judge err in determining that no genuine dispute existed? (F) Did the primary judge err in determining there was no offsetting claim? (G) Should the primary judge have set aside the Statutory Demand because it was unconscionable to allow it to stand? (H) What is the result of the appeal? I will deal with each of these matters in turn, though, as will be seen, some of the issues raise identical considerations.

(A) Whether there should be leave to appeal 22Leave to appeal is required because of the provisions of s 101 (2)(p) of the Supreme Court Act 1970 (NSW). 23Mr Giles puts that this is not a case where leave to appeal should be granted. Even if there was some doubt about the result below or some of the reasoning below that would not necessarily entitle the Appellant to get leave to appeal. Substantial prejudice must also be shown. 24I seriously considered that submission as the Court should be wary in permitting appeals from this process which the legislature has intended to be completed in a very short time. Further, it could be argued that, even if the primary judge's decision stands, the Appellant still may establish its solvency, though that would be more difficult to achieve. 25I do not consider that this is the approach that should be taken. The grant of leave is in the general discretion of the court and if the court considers that there is sufficient injustice in permitting the decision below to stand, it will be inclined to give leave. In any event, there would be substantial prejudice in the instant case as the Appellant's cash flow must be affected by the requirement to pay out $201,000.00 now rather than later or else risk corporate death. 26However, The merits of the case on appeal make it doubtful whether leave should be granted in this case. After reading the papers and before hearing Mr Aldridge, I had great doubt as to whether this was a proper case for leave. The main trouble I had about the decision below was whether the primary judge went too far in construing the underlying contract rather than merely determining whether the Appellant had a plausible case. Mr Aldridge convinced me that the case required full consideration. Thus, I would favour granting leave to appeal.

(B) The Graywinter principle 27The so called Graywinter principle stems from the decision of Sundberg J in the Federal Court in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. The "principle" is an exegesis of s 459G(3) of the Corporations Act 2001 (Cth), which mandates the filing of an affidavit supporting the application to set aside a statutory demand within 21 days of its service. 28It is perhaps unfortunate that the principle is referred to as Graywinter as subsequent decisions, although noted as following or explaining the Graywinter case, in fact modify it. 29The most authoritative of these decisions is that of the Full Court of the Supreme Court of Western Australian in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; 167 FLR 106. In POS Media v B Family [2003] NSWSC 147; 21 ACLC 533 at [35] Austin J remarked, "the Financial Solutions case has reduced the Graywinter 'principle' to a more fact-specific inquiry". 30In the Financial Solutions case, Parker J (with whom Anderson and Scott JJ agreed) said at 115 that there was no settled and universal principle, which must be satisfied by an affidavit before it can be accepted as 'supporting the application' within the meaning of s 459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires. 31The same view has now been taken in this State by judges dealing with corporation matters in the Equity Division, see for example Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; 61 ACSR 321 (R W White J) and Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; 25 ACLC 1392 (Barrett J). 32In Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; 87 ACSR 1, [36], Ward J summed up the principle in its present state by noting that whilst "mere assertions" were insufficient, the vital question was whether, expressly or by reasonably available inference, the grounds of challenge of the statutory demand were sufficiently identified in the affidavit. 33The basal problem in the instant case is that the so-called supporting affidavit is so bare of detail. Mr Aldridge sought to excuse this by pointing to the very limited time allowed by the legislation to mount this type of application. That fact makes the deficiency understandable, but even where the legislature has seemingly allowed too little time to do what is required, one still has to comply with the legislative requirements. 34The Graywinter principle is relevant in each of two aspects of this case, first whether the "genuine dispute" is properly supported and, secondly, whether the offsetting claim is supported. 35As to the first, the primary judge considered that the affidavit did pass muster. I have not heard anything in this appeal which would make me doubt that conclusion. However, in respect of the second, the primary judge upheld the Graywinter objection. Mr Aldridge challenges that finding. 36The primary judge said that the Appellant did not comply with s 459G(3)(b) under the Graywinter principle for two principal reasons, (1) [32] the affidavit "neither contained a general statement that the quantum of any offsetting claim exceeded the debt nor did it provide any basis for calculation of the amount of the offsetting claim" and (2) [33] the reason for the offsetting claim was not properly identified in the affidavit. 37I have already considered the way in which the Graywinter principle now operates. Applying that learning, the primary judge's view is unarguably correct. 38Mr Aldridge endeavoured to overturn it by submitting that the primary judge's reasons showed that he was over influenced by formalism and by expanding the decision of Barrett J in Kerslake Superannuation Pty Ltd v C and L Building Pty Ltd [2010] NSWSC 424 into some general principle (called by counsel the "Kerslake principle"). Further, the primary judge followed a South Australian decision in 185L6 Pty Ltd v Strata Corporation 07176 Inc [2011] SASC 164 [25], which is outside the mainstream line of authority. 39In the 185L6 case, Blue J purported to summarize the authorities by saying at [25]: Where the deponent of the original supporting affidavit deposed to quantum exceeding the debt, it was held to be sufficient, and where he did not, it was held to be insufficient to permit the court to receive a subsequent affidavit on quantum. 40I agree with this submission up to a point and in particular, I do not consider it wise to rely on Blue J's summary as being a comprehensive test. One does not merely check the boxes to see if certain form has been observed, but looks to see whether the affidavit supports the claim by expressly or impliedly identifying the real dispute. 41I might observe here also, that it is of considerable concern that many of the hearings of cases in this type of matter spend time considering piles of decided cases discussing nuances in the different terminology used by judges throughout Australia who basically are saying the same thing. This approach defeats the whole purpose of the Act, which is to enable the court to dispose of this sort of dispute in a short, summary way. 42In the present case, it seems to me whatever test one applies within either the wording of the statute or one of the mainstream authorities, the primary judge's ruling was unarguably correct.

(C) Did the primary judge apply the proper test as to whether there existed a genuine dispute? 43Again, there is some force in Mr Aldridge's submission that, whilst the primary judge correctly stated the test, he actually did not apply it. 44This is because, although all the primary judge needed to do was to determine whether there was a genuine dispute, that is one in which a plausible contention has been raised by the company on which the statutory demand was served (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785,787), he went further and determined the dispute. 45The primary judge said at [24] that where the relevant dispute depends upon the construction of the relevant contract, the court will ordinarily determine that question on an application to set aside the statutory demand where the factual matrix for the determination is present and there has been sufficient time to make proper submissions as to the question. His Honour cited Delnorth Pty Ltd v State Bank of NSW (1995) 17 ACSR 379, 384 (Cohen J) and Re Seduce Group Australia Pty Ltd [2011] NSWSC 290 at [27] ff (Ward J). 46With respect, the primary judge has to a degree misstated the principle. The court may determine questions of construction of a contract in an appropriate case. However, this is not, as his Honour said, the "ordinary" situation, it is what may occur on a few occasions (Seduce at [28] and see Trecomax Pty Ltd v Prentice [2004] FCA 1057; 50 ACSR 314 [35] where Sackville J actually said it was not ordinarily the occasion for the court to construe the contract). 47Although, Mr Aldridge put that this was not a case where both parties had requested the judge to take the course of construing the contract (a proposition bolstered by the fact that the primary judge never made this claim), it seems to me on a reading of the material below that the prime focus in the Court below was on the true construction of the contract. However, it is true that the Appellant's counsel did say on a number of occasions that the question was whether there was a genuine dispute about the Respondent's claim. However, I do not remember seeing the phrase "plausible contention" or its equivalent. 48Indeed, Mr Aldridge went further and put that, in any event, the primary judge had not just construed the contract; he had actually made some finding of fact. I will develop this in due course. 49Additionally, Mr Aldridge said that, if the primary judge's construction of the contract was correct, the odd situation arose where the Appellant had spent money rectifying the Respondent's defective work, but could never recover that expenditure. 50Thus, the amended ground of Appeal 1A (that "[t]he Trial Judge erred in engaging in and determining the construction of the Infratel contract on a final basis") did cause me concerns. 51However, although I will deal with the Appellant's submissions, I have reached the view that the view taken by the primary judge was the only realistic approach that could be taken to the construction of the contract and that this ground must fail. 52It is necessary to go into a little detail of the facts of the case to see why this is so. However, before doing so, I must remark that any odd result of the true construction of the contract is really the fault of the Appellant who is its proferens and if one signs a contract with oppressive terms which one's agents have drafted, ordinarily one is stuck with the consequences. 53The primary judge construed the contract by focussing on cl 14. In broad terms, he held that it only operated where the Respondent had been given notice to remedy defects and had had the opportunity to remedy them and had failed to do so. In the instant case, the evidence suggests that no such notice or opportunity was given, thus cl 14 does not apply to bring into play a debt under cl 13.1(b). 54Mr Aldridge put that in reaching his conclusion on construction, the primary judge overlooked at least two vital matters. The first is that cl 14 does not only cover the case where the Appellant notifies the Respondent to cure the defects, but also where the defect is affecting customer service or is urgent. He puts that the primary judge virtually found as a fact that neither of these circumstances applied and that his Honour did so without evidence. 55Mr Aldridge says that the fact that the Appellant's principals were calling for rectification, of necessity, showed that there was urgency. That is not a necessary inference, particularly as we do not know whether any urgency was with respect to defects for which the respondent was responsible. The primary judge did not draw that inference (indeed it does not appear that he was asked to do so) and I do not see sufficient material for me to take any different course. 56There was no submission made to us as to any technical rule as to who bore any onus of proof regarding exceptions or provisoes to the general rule stated in cl 14. The case must be assessed on the basis that the Appellant contends that there was some material before the primary judge from which he could see that here was a plausible case that one of the preconditions to the operation of cl 14 was made out. There was no such material presented by the Appellant. 57The second is that there are other provisions in the contract apart from cl 14 which entitle the Appellant to claim against the Respondent in debt. 58As to the first, the simple answer is that there was no material before the trial judge to suggest that any of the preconditions in cl 14 had occurred. As to the second, despite Mr Aldridge's valiant attempts, it is fairly clear to me that, when one reads the Instrument as a whole, one reaches the same result as the primary judge. With respect, Mr Aldridge's submissions tended to focus on particular clauses without full consideration as to how they related to the context. 59Probably the best point in favour of Mr Aldridge's position is the strong introductory words of Special Condition 1. Under covering clause 1.4 of the Instrument, Special Conditions prevail should there be any ambiguity. However, the condition itself and the general context of the Instrument have the strong flavour of the precondition that the Respondent must be given the opportunity to rectify before the Appellant itself effects rectification. 60Mr Aldridge puts that the primary judge ignored cl 13.2. It may be that he did, but if so, the reason would be that there was no evidence that the Appellant had ever activated it by giving a notice that contained the details required by the subclause. 61Mr Aldridge endeavoured to deflect me from this conclusion by putting that the Respondent made it quite clear that it would not be doing any remedial work unless it was first paid. It was not put, nor could it have been, that this attitude amounted to a waiver of the Respondent's rights under the contract. Accordingly, the submission gets nowhere. 62In my view, the question of law raised by the Appellant as to construction is in the category labelled "patently feeble" in some of the authorities (see eg Eyota at 787 and Seduce at [20] & [29]) and is insufficient to raise a "genuine dispute". 63Thus, despite my cavilling with some over statements of the exact legal principle, in my view in the circumstances of this case, it was appropriate for the primary judge to deal with the matter before him in the manner he did.

(D) Did the primary judge err in his construction of the Instrument? and (E) Did the primary judge err in determining that no genuine dispute existed? 64For the reasons, I have given in C, these questions must be answered, "No".

(F) Did the primary judge err in determining there was no offsetting claim? 65As noted above, not only was the offsetting claim aspect of the case doomed to fail because of the Graywinter principle, for the reasons given in C, it also fails on the merits. The question must thus also be answered, "No".

(G) Should the primary judge have set aside the Statutory Demand because it was unconscionable to allow it to stand? 66As the primary judge held at [38], "A statutory demand may be set aside ... where it involves conduct which is unconscionable or an abuse of process"; see Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; 157 ACTR 22 and Mahon v FBN Bank (UK) Ltd [2012] 2 BCLC 83. However, Mr Aldridge acknowledges that he breaks new ground with the submissions he makes on this part of the appeal. 67The proposition that he advances is that the Respondent knows that the Appellant's basal problem is that the Appellant has not been paid under its head contracts and the problem which caused that non-payment is the defective work on the communication towers which the Appellant says is the fault of the Respondent. Thus, in issuing the Statutory Demand, the Respondent is seeking an advantage despite its own wrongdoing. 68Counsel points out that there is a well-known route for subcontractors to enforce payment under the Building and Construction Industry Security of Payment Act 1999 (NSW), a process, which is quick and effective. Furthermore, the contract itself contains in cl 28 a non-litigious, dispute resolution process. 69It is not unconscionable conduct for a party to avail itself of one of the available courses for recovery of its demand rather than an alternative, at least unless it has made an election as to which course it will take. 70There are a number of difficulties in the way of accepting counsel's proposition. First, the notion of unconscionability traditionally has not comprehended the case where A says to B, "I cannot pay you as C has not paid me". 71Secondly, there is virtually no material from which a court could hold that the defects were caused by the Respondent. The Respondent was only responsible for certain rigging work. There is scant material as to what the defects are as alleged by the proprietors of the relevant towers. The contracts between the Appellant and those proprietors are not in evidence nor are any Purchase Orders or Statements of Work. 72Thirdly, there are a number of emails passing between the parties over a significant period in which the Appellant advises the Respondent that it will be paid in the then near future as it was expected that one of the tower proprietors would pay the Appellant within a short period. This is hardly consistent with a creditor unconscientiously pressing for payment of a claim, which it knew it was making despite its own wrong. 73The primary judge dealt very briefly with this part of the case, and probably, he was justified in so doing. However, even if one looks at the matter in more detail, one reaches the same conclusion that unconscionability is not a reason for this Court acting under s 459J of the statute to set aside or adjust the amount of the demand. 74It should be noted that cl 28 if it is invoked, only prevents the Respondent from commencing litigation (vide cl 28(3)). This does not prevent the issuing of a Statutory Demand, though it may be that a winding up application cannot be filed within the 90-day period. 75The Appellant's assertions, with the lack of detail and with the history of promises to pay which were not honoured, show that there is no basis for the claim that the Respondent is acting unconscientiously or is involved in abuse of process in issuing the Statutory Demand.

(H) What is the result of the appeal? 76For the above reasons, the appeal should be dismissed with costs. 77The primary judge extended the time for compliance with the demand until after the hearing of the appeal. I consider it appropriate that we should further extend the time for compliance for 14 days after the date of delivery of the Court's reasons. 78Accordingly, I favour the following orders: (1)Grant leave to appeal. (2)Draft Notice of Appeal (as amended) already filed to stand as the Notice of Appeal. (3)Appeal dismissed with costs. (4)Time for complying with the statutory demand the subject of these proceedings further extended for 14 days from the date of delivery of these reasons. 79WARD J: I agree with Young AJA.

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: 09 November 2012

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