JTEC v Industrial Development Agency

Supreme Court of NSW|2002-12-16

BACKGROUND 2 On the 11th July 1997, the parties, together with Techniche Limited, the controlling company of the plaintiff, entered into a grant agreement ("the agreement") which provided that the defendant would provide financial assistance towards the cost of expanding the plaintiff's facilities to enable the plaintiff to give employment to fifteen Irish citizens. The defendant agreed to grant the plaintiff the sum of 96,000 Irish pounds (punt) or 8,000 punt for each job created above the first three jobs in accordance with paragraph 7 of the schedule to the agreement, whichever is the lesser. 3 Therefore, the intention was that for the first three jobs created by the plaintiff no grant would be applicable. However, the grant would apply to a maximum of twelve positions above the initial three positions created by the plaintiff for the employment of Irish citizens at its establishment in Cork. The evidence is not clear but it would appear that the plaintiff provided employment for somewhere between one and seven persons after the agreement was entered into. It was contended by the defendant that the plaintiff only ever employed four people, therefore, the grant only applied to the fourth person. It is contended that there has not been substantial compliance with the agreement as the agreement provided for up to twelve people in addition to the original three to be employed. However, the wording of the agreement, in my view, makes it clear that the maximum amount of the grant would be 96,000 punt. The obligation on the plaintiff was to employ between four and fifteen people which would then activate the payment of the grant. 4 The undertaking is contained in the preamble to the agreement:- "B. In accordance with proposals furnished to IDA by the Promoters and has applied to IDA for financial assistance towards the cost of expanding its facilities which is intended to give employment to 12 persons over a base level of 3 ('the Undertaking'); … NOW IT IS HEREBY WITNESSED that in consideration of the Company implementing the said proposals and carrying on the Undertaking in accordance with this Agreement, IDA agrees to grant to the Company the sum of 96,000 Irish Pounds or the aggregate of 8,000 Irish Pounds for each job created over a base level of 3 in the Undertaking in accordance with Paragraph 7 of the Schedule hereto whichever is the lesser ('grant') subject to the following terms and conditions including those contained in the Schedules hereto:" 5 Clause 13 of the agreement is headed 'Cancellation and Revocation of the Grant' and makes the following provisions:- "13. … IDA may stop payment of the grant and/or revoke and cancel or reduce the grant or so much thereof as shall not then have been actually paid to the Company if any one or more of the following events occur:- … 13.5 if the Company should cease to carry on the Undertaking. If the grant be revoked the Company and/or the Promoters shall repay to IDA on demand all sums received in respect of the grant and if the grant be reduced the Company and/or the Promoters shall repay to IDA on demand all sums received in excess of the amount of the reduced grant and in either case in default of such repayment such sums shall be recoverable by IDA from the Company and/or the Promoters as a joint and several simple contract debt." 6 The period of employment was five years after the payment of the grant. The plaintiff's evidence is that from on or about the 11th July 1997 until on or about the 14th August 2001, the plaintiff provided employment for the four people whose employment would activate payment of the grant. 7 On the 3rd December 1997, the defendant paid to the plaintiff the sum of 36,000 punt. It is unclear from the evidence how many people were employed pursuant to the agreement. The plaintiff's evidence is that four persons were employed pursuant to the agreement. The defendant contends that only one person was employed pursuant to the agreement. However, it would appear that, as the defendant has paid 36,000 punt to the plaintiff, the plaintiff did in fact employ four people pursuant to the agreement. The matter is made less certain by the fact that the plaintiff was not paid for four employees at 8,000 punt each, equalling 32,000 punt, but was paid a figure of 36,000 punt, which does not accord with the provision of the agreement. 8 On the 14th August 2001, the plaintiff sold its business to Ericsson Australia Pty Ltd ("Ericsson"). On the 30th August 2001, the defendant wrote to the plaintiff advising that it revoked the agreement and demanded repayment of the 36,000 punt (Exhibit 2). There is no evidence that, prior to the issue of the statutory demand, the plaintiff disputed either the revocation or the demand for repayment. On the 11th January 2002, the defendant's solicitors sent a letter of demand to the plaintiff requiring the payment of 36,000 punt. 9 On the 18th January 2002, the plaintiff's solicitors faxed a letter to the defendant's solicitors concerning the transfer of the business to Ericsson, requesting that no further action be taken whilst the plaintiff explores the continuation of the agreement with Ericsson. Subsequently, on the 26th July 2002, the notice of demand, together with the supporting affidavit, was served on the plaintiff. THE DEMAND 10 The plaintiff seeks to set aside the statutory demand on a number of bases. Firstly, the statutory demand contains defects relating to foreign currency and the absence of an address of the creditor in the demand. Secondly, the plaintiff submits that there is a genuine dispute for the following reasons:-

A) that the undertaking did not cease by reason of the sale of the business;

B) that on the proper construction of the agreement, the defendant cannot require repayment of the entire grant;

C) that there was an implied term that the defendant would not revoke or require repayment of the entire grant where the terms and conditions of the agreement were substantially performed;

D) that the plaintiff had substantially performed the agreement prior to such sale;

E) that the Apportionment Act, 1870 (UK) applies; and

F) that the asserted right to claim the entire grant is void as a penalty. GENUINE DISPUTE 11 It is submitted on behalf of the plaintiff that, on a proper construction of the agreement, the defendant is not entitled to require repayment of the entire grant. It is submitted that the plaintiff substantially performed the terms and conditions of the agreement and that those terms were substantially performed prior to the sale of the plaintiff's business. The evidence is that four persons were employed for a period of just over four years. 12 The plaintiff also relies on the Apportionment Act, 1870 (UK). However, there is no evidence before me which demonstrates that, at the time of independence, the Republic of Eire adopted this piece of legislation nor has there been put before me any evidence of current Irish legislation dealing with this subject. In any event, even if the Apportionment Act applies to Ireland, in my view, s 5 of the Act, which deals with interpretation of various terms, indicates clearly that a grant does not fall within the definition of the words 'rents', 'annuities' or 'dividends'. Therefore, in my view, if the Act applies to Irish law, it does not apply to a grant. 13 In my view, the undertaking ceased on the sale of the business to Ericsson. The purchaser of the business is not bound by the agreement. Therefore, it is open for Ericsson to terminate the employment of the people employed by the plaintiff pursuant to the undertaking. 14 As at the 18th January 2002, there had been no transfer of the agreement to Ericsson. In fact, on that day a letter from the plaintiff's solicitors to the defendant's solicitors indicated that the plaintiff was currently investigating the possibility of a transfer. I assume that nothing came to pass in respect of the transfer as the defendant would also had to have been involved in any transfer and clearly that has not happened as a result of the serving of the demand. There is no evidence that Ericsson continued the arrangement in relation to the employment of Irish Nationals pursuant to the agreement between the parties. Therefore, it seems to me that the issue of vicarious performance does not arise because of the absence of any evidence which would support such a contention. 15 It is submitted on behalf of the plaintiff that there is an implied term that the defendant would not revoke and require repayment of the entire grant where the terms and conditions of the agreement were substantially performed. Clause 13 of the agreement makes provision for repayment of the full amount where the agreement has been revoked. SUBSTANTIAL PERFORMANCE 16 Attached to the agreement is a schedule headed, "Additional Terms and Conditions Relating to the Grant". The relevant clauses in relation to substantial performance are as follows:- "2. A job for the purposes of the grant shall be a permanent full time position in the Undertaking and shall be deemed to be created when a contract of employment has been signed and payment has been made to an employee in respect of work done in the job.

The grant in respect of each job created shall be paid in two moieties. The first moiety shall be payable when the job has been created and the second moiety shall be payable when permanent full-time employment in the job for a twelve month period has been completed.

Claims for payment of an instalment from the grant may be submitted monthly and shall be certified by the Company's Auditors in an agreed format." 17 It is submitted on behalf of the defendant that the agreement is an entire contract and therefore the full amount is due and payable. The defendant submits that there has not been a substantial performance of the agreement. This submission is based on the fact that, under the terms of the agreement, the grant would apply to twelve positions above the base three positions created by the plaintiff. It is submitted on behalf of the defendant that the plaintiff, at best, created four positions but in all probability created one position above the base three positions. It is further submitted on behalf of the defendant that the plaintiff abandoned the agreement within the five year period, namely, four years and one month after the agreement was entered into. It is therefore submitted on behalf of the defendant that there has not been substantial performance by the plaintiff. The defendant submits that, under the terms of the agreement, the plaintiff was obliged to employ up to twelve people over the base three. 18 The plaintiff's position is that four persons were employed pursuant to the undertaking and they continued in that employment up until the time the business was sold to Ericsson. That took place approximately four years and one month after the agreement was entered into. In the context of the employment of those four persons, it is submitted that there has been substantial performance by the plaintiff. The plaintiff submits that the agreement provides for employment of up to twelve persons above the base three positions. Substantial performance, therefore, must be looked at in the context of actual employment. 19 Paragraphs 3 and 4 of the schedule to the agreement make provision for part payment of the grant in respect of each employee. It would seem to me, therefore, that it is arguable that the agreement is not an entire contract. 20 There appears to be two issues which require testing. Firstly, what is the proper interpretation of the agreement and, secondly, whether or not there has been substantial performance of the agreement. 21 The question is then whether there is a genuine dispute. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787-788, McLelland CJ in Eq considered the meaning given to the expression, 'genuine dispute':- "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 495H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat." 22 In Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 34 ACSR 301, Santow J said:- "One still needs to look in that forensic context at the available evidence and the arguments which rely on it … This is to test if there be merely 'an assertion of facts unsupported by evidence', or something of more substance than that." 23 In my view, I am satisfied that there is a dispute between the parties that is not plainly vexatious or frivolous. I am satisfied that the dispute may have some substance. THE DEMAND FAILS TO SPECIFY THE ADDRESS OF THE CREDITOR 24 The statutory demand makes no reference to the creditor's address. However, paragraph 6 sets out the address for service of any application and affidavit. The supporting affidavit sets out in the jurat the address of the creditor's solicitors in Ireland. The affidavit was sworn by an officer of the creditor. It would seem to me, therefore, that it is clear that no substantial injustice would arise by failure to specify the creditor's address. The demand sets out properly an address for service of any application and affidavit to set aside that document and the demand, when read with the affidavit, clearly indicates the address of the creditor. In my view, reading both those documents together, it cannot be said that there would be substantial injustice to the plaintiff should the demand not be set aside because of that defect. In any event, the documents are saved by the Corporations Law Rules, R 1.7. In my view, the particular facts in relation to the address are analogous to the situation in Re: Ad-A-Cab Holdings Pty Ltd (1996) 14 ACLC 1763, where it was held that failure to specify an address in the State did not cause substantial injustice and was therefore not a basis for setting aside the demand. FOREIGN CURRENCY 25 The plaintiff concedes that the defendant may issue a statutory demand expressed in a foreign currency (see Daewoo Australia Pty Ltd v Suncorp Metway Ltd (2000) 33 ACSR 481). The plaintiff's complaint is that the demand refers to two different sums involving two different currencies. It is submitted on behalf of the plaintiff that it is unclear to the plaintiff in which of the two currencies payment is to be made. Further, the plaintiff submits that, if the debt, as expressed in Irish pounds, is to be paid in euro, neither the demand nor the supporting affidavit makes reference to applicable exchange rates or the relevant date of conversion. 26 In Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 12 ACSR 381, Lockhart J concluded, at p 397, that it was not the obligation of the debtor to calculate interest which the creditor requires you to pay and that, "In all the circumstances I am satisfied that the defects in the statutory demand in this case are of such a kind and magnitude that they constitute good reasons why the demand should be set aside under s 459J(1)(b)". In Topfelt (supra), the Court held that there was a defect in the statutory demand because, inter alia, the debtor had to make enquiries of one kind or another in order to ascertain the amount of interest that was said to be payable, whether it makes enquiries from its solicitor or from the Court or from others. 27 In Aldridge Electrical Industries Pty Ltd v Mobitec AB [2001] NSWSC 823 (unreported), Santow J said that where a creditor had nominated a conversion date that was not either the date of the statutory demand or the date of service or the date of the scheduled payment, such date of conversion was not a fundamental flaw in the demand. Information was available to the debtor on either the face of the statutory demand or in the accompanying affidavit, making it clear whether or not the statutory demand was calculated on either an appropriate or inappropriate date. His Honour said that in such a situation a debtor will not be impermissibly burdened with the need to make enquiries outside of the material it holds. His Honour then considered whether or not the defect gave rise to a substantial injustice. In his Honour's opinion, where the selected date for conversion is at least potentially inappropriate, the demand suffers from a defect. However, it is necessary then to determine whether or not the defect would give rise to a substantial injustice so as to require it to be set aside under s 459J(1)(a) of the Corporations Act, 2001. In his Honour's view, the onus was on the debtor to establish that a disadvantage or prejudice may have been suffered by virtue of the defect in the demand. In that case, in the absence of any evidence from the debtor of any prejudice, his Honour was of the view that the defect did not give rise to a substantial injustice requiring the demand to be set aside. 28 In the present case, the plaintiff's concern is that the debt is expressed in two foreign currencies and there is no reference made to the conversion date from Irish pounds to euro. Neither the statutory demand nor the affidavit set out the basis for a reference to the euro. Therefore, it would seem to me that, unlike the position in Aldridge Electrical Industries Pty Ltd v Mobitec AB (supra), the debtor was required to look beyond the documents served on it to determine the relevance of the reference to the euro. 29 In Daewoo Australia Pty Ltd v Suncorp Metway Ltd (supra) at [35], Austin J said:- "In the case of a statutory demand relating to a contractual obligation to make payment in foreign currency, it seems to me that practical considerations point to permitting the demand to be expressed in foreign currency. Ex hypothesi, the debtor has agreed to make payment in the foreign currency, and can be taken to understand what he has to do. In such a case there is no lack of clarity in the foreign currency demand. …" 30 In my view, this comment by his Honour emphasises the problems faced by the plaintiff in the current proceedings. The agreement was expressed in punt. The plaintiff has received the statutory demand seeking payment in punts but also includes a reference to euros. The plaintiff therefore is placed in a position where it entered into an agreement with the defendant expressed in punts but, on the face of the documents in support of the statutory demand, there is no indication of why there is any reference to euros or what the conversion rate is and at what time the conversion rate is applicable. The plaintiff was therefore left with the problem of making its own enquiries as to how it should comply with the statutory demand. 31 The Irish pound (punt) is no longer a legal tender. The last date of the legal tender status of Irish notes and coins was midnight on the 9th February 2002. In order to establish the status of the punt and the euro, one needs to have information available which establishes that the Republic of Eire is a member of the European Union and information of the various regulations dealing with common currency of European Union countries. Thus, the debtor will be required to make enquiries to ascertain the relevance of the reference to the euro. Such enquiries would take the debtor to various Council Regulations of the European Union, namely Council Regulation (EC) 1103/97 and Council Regulation (EC) 974/98 and Irish Legislation, namely Central Bank Act, 1998, the Finance Act, 1998 and the Economic and Monetary Union Act, 1998. The debtor would need to research this material in order to determine the applicability of the euro and would need to enquire of the legal status of the punt when conversion to the euro took place, whether or not the conversion is irrevocably fixed, and of transitional provisions dealing with contracts expressed in either a national currency, euro or both. 32 In my view, having regard to the absolute timeframe placed on compliance with the statutory demand and the requirement for the plaintiff to make the enquiries mentioned above, an impermissible burden is placed on the plaintiff. It was open to the defendant to set out clearly and precisely, in the affidavit supporting the statutory demand, the basis for the reference to the euro. It would also seem to me that, having regard to the fact that the punt is no longer legal tender, any reference to payment in punt requires the plaintiff to meet a demand, which cannot be paid in legal tender. The demand clearly requires the payment to be made in Irish pounds. There is no reference to payment in euro, merely a reference that 36,000 Irish pounds is equivalent to 45,710.57 euro. In the absence of any evidence or any other basis for the reference to the euro, the plaintiff, in my view, is placed in a position where it was likely to suffer a substantial injustice, should the demand not be set aside. 33 Therefore, I make orders in accordance with paragraphs 1 and 2 of the originating process.

Last Modified: 02/27/2003 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.

CITATION : JTEC v Industrial Development Agency (Ireland) [2003] NSWSC 10 HEARING DATE(S) : 16 December 2002 JUDGMENT DATE : 10 February 2003 JURISDICTION: Equity Division JUDGMENT OF : Acting Master Berecry at 1 DECISION : Orders in accordance with paras 1 and 2 of the originating process.

CATCHWORDS : Set aside statutory demand - genuine dispute - interpretation of agreement - entire or severable contract - substantial performance - implied terms - whether serious question to be tried - defects in demand - substantial compliance - foreign currency - failure to provide adequate information - demand expressed in a defunct currency Apportionment Act 1870 (UK) LEGISLATION CITED : Corporations Act 2001, s 459J(1)(a) Corporations Law Rules, R 1.7 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 34 ACSR 301 CASES CITED : Re: Ad-A-Cab Holdings Pty Ltd (1996) 14 ACLC 1763 Daewoo Australia Pty Ltd v Suncorp Metway Ltd (2000) 33 ACSR 481 Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 12 ACSR 381 Aldridge Electrical Industries Pty Ltd v Mobitec AB [2001] NSWSC 823 JTEC Pty Limited (Plaintiff) PARTIES : v Industrial Development Agency (Ireland) (Defendant) FILE NUMBER(S) : SC 4095/02 COUNSEL : P: Mr R Bellamy D: Mr M J Walsh SOLICITORS : P: Dibbs Barker Gosling, Lawyers D: Deacons, Lawyers

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