Ketrim v Jaeger

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5880/01 Ketrim Pty Ltd v Jaeger Corporation Pty Ltd JUDGMENT 1 MASTER: This is an application to set aside a statutory demand under section 459G of the Corporations Act. The demand dated 14 November 2001 was served by the defendant on the plaintiff and claimed the sum of $100,000. The description of the debt in the schedule to the demand was as follows: -- "Part of the sum payable by the company to the creditor pursuant to an agreement made on or about 30 October 2000 between the company in the creditor, as varied by deed of variation made on 29 March 2001" 2 The plaintiff is a special-purpose entity incorporated for the purpose of property development. It is a wholly owned subsidiary of Stuart Pty Ltd, which company conducts building and construction work. The defendant formerly known as Valeclaw Pty Ltd is a corporate vehicle controlled by Mr Robert Britt. Mr Britt is a former director and employee of Stuart Pty Ltd. He was also a director of Ketrim Pty Ltd the plaintiff. He apparently was appointed a director on 4 February 2000 in respect of both companies and resigned on 1 December 2000. 3 The claim concerns the entitlement to part of what is claimed to be the defendant's entitlement to profit from a development of certain properties. The amount claimed relates to a development of some land at Clontarf a suburb of Brisbane. 4 The plaintiff says that there are three reasons why there is a genuine dispute and consequently the demand ought to be set aside. In short these grounds are: --

There is no contractual basis for the agreement alleged by the defendant as the agreements were with other bodies who are not the parties in the demand.

The second agreement relied upon was executed under a common mistake of fact as to the party liable upon the first agreement.

That the debt is not presently due and payable. 5 It was also suggested in submissions that the court should resolve the matter as a short point of construction of the agreement and set aside the demand as the defendant never had an entitlement to the amount claimed. 6 It was also submitted that there was an offsetting claim as a result of what was said to be mismanagement of the project by Mr Brett between February 2000 and September 2000. In the result no admissible evidence was given of any amount of that offsetting claim and accordingly it cannot succeed. In addition it also seems that such offsetting claim would be against Mr Brett personally in his position as an employee of Stuart Pty Ltd or his position as a director of that company or the plaintiff company. Whichever way one looks at it there would be no claim on this basis against the plaintiff company as there is no suggestion that Mr Brett was an employee of the plaintiff company. 7 On 23 December 1999 Chima Pty Ltd and two other companies as grantors gave an option to Muskfate Pty Ltd to purchase the Clontarf property. That option allowed Muskfate Pty Ltd to appoint nominees to exercise the option. On 7 February 2000 Muskfate appointed the plaintiff and the defendant (which was then called Valeclaw Pty Ltd) as its nominees pursuant to the deed of option. It will be recalled that Valeclaw Pty Ltd, now the defendant, was Mr Brett's company. He had been appointed a director of Stuart Pty Ltd a few days before on 1 February 2000. 8 The option was exercised on 7 February 2000 by the plaintiff and the defendant and contracts were entered into for the purchase the Clontarf property. On 21 September 2000 and 30 October 2000 meetings were held in offices of Stuart Pty Ltd between Mr Stuart and Mr Britt. Thereafter on 30 October 2000 a letter was sent on the letterhead of Stuart Pty Ltd to Mr Britt care of Stuart Pty Ltd in the following terms: -- "Mr. R. Britt C/- Stuart Pty. Limited 156 Pacific Highway GREENWICH NSW 2065

Further to our meeting in our office on Thursday 21 September, 2000 and our subsequent meeting on 30 October, 2000 I have pleasure in confirming the following:

1 . By agreement between Ketrim, the 100% beneficial owner of the property at Colebard Street East, Acacia Ridge, Valeclaw and Chima, the net development profit realised on the development of the rear block will be split equally at one third to each party. This new arrangement replaces the previous agreement wherein Ketrim and Valeclaw were to share the net development profit 90:10 respectively.

2. In addition to the standard items that constitute the development costs (see definition in item 9), the net development profit for the rear block at Acacia Ridge will be after deducting any shortfall in the selling price for the front block compared to the total development costs of the front block. (refer Appendix A attached for costs to date).

3. No company other than Ketrim, the 100% beneficial owner of the property at 9 Elizabeth Avenue, Clontarf, shall be noted on any contract, lease, agreement, document or undertaking, in any matter related to the Clontarf project.

Prior to committing Ketrim to any undertaking, agreement, contract or lease you shall obtain the written approval from Ketrim.

The Clontarf project will be developed for sale as a going concern as soon as possible and not held for a long term investment.

In respect to the Clontarf project, Ketrim will retain 90% of the net development profit and your nominated company shall retain 10% of the net development profit. In addition to this profit sharing arrangement, your nominated company shall receive a lump sum figure of $100,000, payable as Clause 11 states, or earlier by agreement.

Any amount of net development profit in excess of $1 million will be shared equally 50:50 between Ketrim and your nominated company. This bonus fee is based upon the Clontarf feasibility agreed to on the 15 December 1999, as submitted to Redcliffe Council on 31 January, 2000.

Should the Clontarf development require major redesign to accept other tenants and/or to comply with Council requirements in a manner that significantly changes or adversely impacts upon the 15 December, 1999, feasibility, then the new feasibility for the development will become the new base net development profit for the means of calculating the 90% split to Ketrim and 10% split to your nominated company. The 50% share of net development profit over $1 million to each party will apply to this new feasibility.

Net development profit for Clontarf and Acacia is defined as the amount remaining after deducting the purchase cost of the real estate and all specific project costs associated with Stuart management fees, the actual construction costs and overheads, agents commissions, fees to consultants, legal fees, taxes (excluding company taxes), stamp duty, Council fees, local authority fees, interest on loans, repayment of loans, fees to financiers and agents, incentives to tenants, advertising and marketing fees and any legitimate cost incurred by the development in completing the project, including those costs in selling the project on completion.

A. Stuart and R. Britt will be responsible for agreeing on the above costs.

The distribution of the Clontarf and Acacia net development profits will be made after settling the debts owed to Stuart's for each project. 12. Should the parties fail to agree on the distribution of the development profits, or the allocation or application of project development costs as defined above, then Martin Green of Raglan Street, Mosman, will be engaged to determine the distribution of profits or allocation and application of costs as applicable. 13. Stuart's agree that the payment to R. Britt of his current employment package and reimbursement of legitimate expenses associated with his employment and duties will continue unchanged from the period 1 July, 2000 to 31 December, 2000, at which time he shall cease to be an employee of Stuart's or any associated company. R. Britt can elect at an earlier date to have these payments made to a company of his choice by notifying Stuart's in writing at which time his employment will automatically cease as stated above though the payments will continue unchanged to the 31 December, 2000. 14. After the 31 December, 2000, Stuart's will pay to a company nominated by R. Britt, a fee for service for the continued involvement of R. Britt in the Clontarf and Acacia Ridge developments as required and agreed. It is also understood that there may be other development or construction projects Stuart's and/or Britt will identify and continue to co-operate on, to their mutual benefit on a consultancy basis. 15. It is agreed that Stuart's have invested time and money in the Taylor's Rushcutters Bay property and Lauderdale Avenue development and, as part of this new agreement and recognition for it's investment, it is agreed that Stuart's are to be identified as the nominated builder in any contract to build either site, subject to Stuart being reasonably able to meet the construction cost budget, program and contract conditions for the development. 16. On Britts resignation date as an employee and director of Stuart's he will receive, in addition to all his other legal entitlements, the gross sum of $100,000 paid in accordance with his request, subject to the laws and regulations covering such payments. 17. As a condition precedent to all others in this letter, Britt must sign the Acacia Ridge transfer document formally and legally acknowledging the 100% beneficial ownership of the site by Ketrim.

18. This agreement shall take effect on the receipt of the executed Acacia Ridge transfer document and on the signing of this letter by the parties shown below.

19. The terms and conditions of this agreement outlined in this letter constitute the full extent of the agreement between Stuart Pty. Limited and R. Britt and both parties agree that there shall be no other claims made against company's or individuals in respect to the agreement or it's terms and conditions.

We trust that this letter meets with your approval and look forward to your written acceptance below.

Agreed on behalf of Agreed by R. Britt STUART PTY LIMITED ALEX STUART Managing Director" 9 Mr Britt signed the letter on 8 November 2000. It was on 1 December 2000 that Mr Brett ceased to be an employee of and a director of Stuart. In the following year on 29 March 2001 there was a further agreement which was in the following terms: -- "DEED OF VARIATION KETRIM PTY LIMITED (ACN 091 467 168) and JAEGER CORPORATION PTY LINITTED (ACN 086 377 620)

Reference is made to the agreement dated 30 October 2000 between Ketrim Pty Limited and Jaeger Corporation Pty Limited and in particular the Clause 6 reference to the "Clontarf Project".

It is hereby agreed by both parties to vary this agreement as provided therein as follows:-

A It is proposed that 10% of the net development profit up to a maximum of $100,000 (by way of an interim payment) and the agreed lump sum in an amount of $100,000 be paid on settlement of the Clontarf site purchase. B That the payment envisaged in Clause 6 of the agreement referred to in "A" above be paid on or before settlement of the Clontarf site purchase.

Signed on behalf of Ketrim Pty Limited by Alex Stuart

Signed on behalf of Jaeger Corporation Pty Limited by Robert Britt

Witness" 10 The document was signed by the named persons and witnessed.

11 In addition on 29 March 2001 the defendant executed a transfer of its interest in the Clontarf site to the plaintiff Ketrim Pty Ltd.

12 In due course the contract for the purchase of the Clontarf site was settled on 24 October 2001. The defendant having heard that settlement was to take place had previously on 3 October 2001 written and asked the plaintiff to pay the $100,000 said to be owing on completion and also putting in train other matters to do with the assessment of other amounts which would become due later. A letter from the defendant's solicitors on 6 November 2001 made a formal demand for the payment of the sum of $100,000 that was then alleged to be due. 13 It is necessary for the court to consider whether there is a genuine dispute in respect of the liability to pay the sum of $100,000. I think the most useful summation of what is a genuine dispute is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments respect of the expression "Genuine dispute": "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s.459H. 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. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194). But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.' In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Division 3 prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim". It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simply - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).' I respectfully agree with those statements."

14 I turn to the first matter raised by the plaintiff and this concerns the parties to the agreement. Shortly put it was the plaintiff's contention that the parties to the agreement were Stuart Pty Ltd and Mr Britt. In particular it relied upon the express provisions of clause 19 and the attestation to the letter. It also relied upon the fact that the letter was on the letterhead of, not the plaintiff but Stuart Pty Ltd. It is perfectly apparent that the subsequent document varying or purporting to vary the initial agreement clearly incorporates both the plaintiff and the defendant in express terms as the parties to that variation. The second point was raised to explain what is apparent on the face of the second agreement. It was said that the subsequent agreement was entered into upon the basis of a mutual mistake of fact as to the identity of the contracting parties. 15 Clearly both matters have to be considered together and I will deal with the matter in this way. As I have mentioned above counsel for the plaintiff submitted that I should decide the short point of construction. Reference was made the decision of Delnorth Pty Ltd v State Bank of New South Wales (1995)17 ACSR 379. In that case His Honour was faced with a question of construction in an application to set aside a demand. At page 384 he said the following: -- "Section 459H(1) refers to the court finding that there is a genuine dispute. The parties have argued this case on the issue of whether the proper construction of the agreement and the facts results in the plaintiff owing money to the defendant. The facts were not in dispute and there was thus no question of whose evidence would be accepted on a final hearing. Under the previous legislation, when there was a claim that there was a bona fide dispute on substantial grounds as to the debt claimed, the court could decide that dispute if it arose from a question of law or was of short compass. See, for example, Offshore Oil NL v Acron Pacific Ltd (1984) 2 ACLC 8. I consider that under the provisions of the Corporations Law , the same approach can be taken. Although questions of disputed fact will not be decided on an application to set aside a statutory demand, the issue of whether there is a genuine dispute can be resolved on that application where the question arises on a short point of law or the construction of documents or agreed facts. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; 12 ACLC 669, McLelland CJ in Eq said that the expression `genuine dispute' connotes a plausible contention requiring investigation. Where no further investigaiton is required, I consider that the court on an application under s 459G may decide as a matter of law if there is a genuine dispute. The occasions when this is possible may be few, but in my view this is one of them." 16 These comments of His Honour have been adopted in part in a number of cases. In the full Federal Court in Burdon Pty Ltd v Gillford Pty Ltd (unreported) 1 December 1995 Hill J, with whom Whitlam J. agreed, accepted that it is appropriate for a question of law and perhaps question of construction in cases where the facts are not in dispute. Katz J. adopted that expression of the principle on 21 April 1999 in New Era Installations Pty Ltd v Don Matheson and Staff Pty Ltd (1999) 31 ACSR 53. The formulation referred to by the Full Court was considered by Santow J in Land and National Development Corporation Pty Ltd v Tatebrook Pty Ltd [1999] NSWSC 669. At paragraph 41 His Honour, concluded by saying: -- "Often the construction of a document or the explanation of conduct said to constitute such an express or implied waiver, or to substantiate a conventional estoppel, can give rise to a degree of doubt as to its having that consequence. In those cases, it would be inappropriate for the present equivalent of interlocutory proceedings to attempt any final conclusion resolving that doubt, certainly in the case where the full extent of that evidence is unlikely to be forthcoming before the substantive trial. Essentially, the Court has to decide whether the only possible conclusion in the circumstances is that contended for by the party, here the Defendant, whose statutory demand is the subject of a claimed genuine dispute. It is not enough, in other words, for the Defendant merely to have the better of the argument at this point unless the balance in favour of the Defendant could not be expected to be affected by further possible evidence as might substantiate a different construction." 17 There are a number of other first instance decisions where the comments in Delnorth have been referred to and, where factual matters are likely to intrude into what is put forward as a simple construction argument, the courts have been reluctant to deal with the matter in an application such as the present. 18 I have earlier recounted the reliance in the plaintiff's case upon the identity of the signatories and the form of paragraph 19 of the agreement. It is worth noting that in clause 1 there is reference to agreement between Ketrim, Valeclaw and another company. The last sentence of paragraph 1 on its face purports to change that agreement between the three parties. This is an indication that perhaps the signatories were also acting as agents for those companies. Another matter to note is that paragraphs 1 through to 12 deal with agreements in relation to various developments. Paragraph 13 to 16 deal with an entirely different subject matter namely the current employment package of Mr Brett. As a consequence when one turns to paragraph 19 the statement about the full extent of agreement between Stuart Pty Ltd and R Brett could well be construed to refer to that part of the letter between paragraphs 13 and 16. 19 It is of course always the case that extrinsic evidence could be given for the purposes of showing who were the contracting parties. See Gilberto v Kenny (1983) 48 ALR 620. It is hard to see at this stage what other evidence would be given other than the positions held by Mr Stuart and Mr Britt and that information is mostly before me on this application. An area that is always likely to raise extensive factual issues is rectification. The plaintiff suggests that the second agreement can be simply dismissed by a claim for rectification to set out the true intention of the parties. Such true intention presumably is that when the document very carefully was drawn to be between Ketrim Pty Ltd and Jaeger Corporation Pty Ltd that this was not intended. There is nothing in the evidence to suggest any area of evidence that might be called to deal with this claim for rectification. 20 It is hard to imagine how these could be rectification to change the parties when the subject matter of the deed of variation is a matter which concerns the entitlements of the expressed two parties and has nothing to do with the parties who would be substituted as the parties pursuant to this suggested claim for rectification. In my view such a suggestion is fanciful having regard to the subject matter of the deed of variation. 21 Returning to the question of construction the first alternative in respect of the matter seemed to be that the parties who signed the first agreement as well as dealing with their own matter were also acting as agents for the three relevant companies. Alternatively the first part of the letter is merely making reference to an agreement between the three companies, which was reached at the meetings referred to at the start of the letter. If it were the former the second agreement clearly is consistent with that construction. If it is the latter, the second agreement is also quite consistent with the earlier agreement reached at the meetings referred to at the start of the letter. Either way the terms of the amendment are absolutely clear. Absent any real claim for rectification in respect of the second agreement I do not consider that the construction advocated for by the plaintiff in respect of the first agreement in anyway discloses a genuine dispute. 22 Accordingly I order that the proceedings be dismissed with costs.

Last Modified: 06/17/2002 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.