Lifese Pty Limited v Lee Crane Hire Pty Limited

Federal Court of Australia|2012-03-28|Before: Edmonds J

Introduction 1 This is an application made by the applicant ("the Company") under s 459G of the Corporations Act 2001 (Cth) ("the Act") for an order setting aside a statutory demand for payment of debt dated 21 November 2011 served on the Company by the respondent ("Lee Crane Hire") on or about 5 December 2011. 2 The grounds relied upon by the Company are: (1) That there is a genuine dispute between the Company and Lee Crane Hire about the existence or amount of the debt to which the statutory demand relates: s 459H(1)(a) of the Act; alternatively (2) that the issuing of the statutory demand was, in the circumstances of the case, an abuse of process: s 459J(1)(b) of the Act.

Background 3 On or about 7 February 2011 the Company and Lee Crane Hire entered into an Agreement for Dry Hire ("agreement") of a 280 tonne Hitachi Sumitomo Crane ("Crane"), pursuant to which the Company hired the Crane from Lee Crane Hire. The agreement was in writing and the first page provided the following particulars: "OWNER: Lee Crane Hire Pty Ltd HIRER: Lifese Engineering PO Box 17 5 Junction Street BILOELA QLD 4715 AUBURN NSW 2144 Attn: Noury Dannoun / Marwan Baytie TELEPHONE: (07) 4992 2866 TELEPHONE: 0405 524 912 HIRER'S ORDER NO: SITE LOCATION: Lihir Island, PNG SCHEDULE OF EQUIPMENT HIRE RATES VALUE FOR INSURANCE 280 Tonne Hitachi Sumitomo Crane $14,000 per week $2,500,000.00 Unit 71 GST Exclusive COMMENCEMENT DATE: 23 February 2011 (approx). Hire rate will commence when the crane arrives at Lihir Island HIRE PERIOD: 3 months (approximately) TRANSPORTATION: Mobilisation of crane to Brisbane Wharf - $25,000.00. Demobilisation of crane from Brisbane Wharf - $25,000.00 OTHER CHARGES: Supervisor Hire for Assembly of Crane - $110.00 per hour PURPOSE FOR HIRE: General hire SPECIAL CONDITIONS / ARRANGEMENTS: Mobilisation of crane from Brisbane Wharf to Lihir Island to be paid by the client. Demobilisation of crane from Lihir Island to Brisbane Wharf to be paid by the client. All airfares/travel costs/accommodation & meals for supervisor to be supplied by client." 4 Relevantly, the terms of the agreement provided: "GENERAL CONDITIONS FOR HIRE OF UNMANNED EQUIPMENT 1. DEFINITIONS 'Owner' means whether or not property in the equipment is vested in the Company. 'Hirer' means the person, firm or corporation taking the equipment on hire. 'Equipment' means the equipment and any accessories scheduled above which the Owner agrees to hire to the Hirer. 2. AVAILABILITY OF EQUIPMENT The equipment is offered for hire subject to it being available to the Owner when the owner receives the Hirer's acceptance of the contract. 3. CONDITION OF EQUIPMENT - SURVEYS Prior to delivery the equipment will be subject to an 'On Hire Survey' by an independent surveyor to establish the general condition thereof. At the completion of the hire period the equipment will be subject to an 'Off Hire Survey' to be arranged by the Owner. Any damage caused during the hire period will be established by reference to the two Surveys and boom damage of any description and howsoever caused shall be the responsibility of the Hirer. Notwithstanding anything herein contained the cost of repairs, if any, necessary to re-instate the equipment to its 'on hire' condition, will be paid by the Hirer and the hiring charges will continue, uninterrupted, during the period of repair. The Owner shall pay for the 'On Hire Survey' and the Hirer shall pay for the 'Off Hire Survey'. 4. TRANSPORTATION TO AND FROM SITE Unless quoted in this Agreement, transportation costs to and from the site, including the supply of additional labour, equipment, materials and transportation expenses and other requirements are to be the subject of a separate order by the Hirer, and shall be payable in total at the time of transportation to the site is about to commence. 5. ERECTION AND DISMANTLE Unless otherwise specified in this Agreement it will be the Hirer's responsibility after delivery of the equipment to the site to supply all necessary cranage, labour and other handling equipment to off-load, assemble, erect, dismantle and load the equipment at no cost to the Owner. 6. INSURANCE The hirer at his own expense shall maintain an All Risks Insurance Policy acceptable to the Owner, covering the equipment for the duration of the hire period. The sum insured shall be the full market value of the equipment, as nominated by the Owner. Such Policy shall be in the joint names of the Owner and the Hirer and shall cover the respective rights of each party relative to personal injury, property damage (including damage to the equipment) and all other losses of whatsoever nature arising out of the use of the equipment excluding liability for claims being the subject of compulsory third party bodily injury insurance on vehicles registered by the Owner. A copy of the Insurance Policy shall be delivered to the Owner prior to commencement of hire. The Hirer shall fully and completely indemnify the Owner in respect of all and any costs and charges arising from the accident or other loss, which is uninsured. … 11. HIRE PERIOD The hire period shall commence from the date specified herein and shall continue until the return of control of the equipment to the Owner and the receipt by the Owner of the 'Off Hire Survey' certifying that the equipment is in an undamaged, complete and serviceable condition or until such other earlier date that is agreed by the Owner. 12. HIRING CHARGES The client shall pay hiring charges for the entire period on the equipment at the rate herein specified. Hire rates shall not be subject to deduction on account of non-working time. In the event of the actual hire period being less than that specified in this Agreement, the Owner reserves the rights to amend the hire rate commensurate with the actual hire period. Should the Hirer wish to extend the hire period to beyond the period nominated such extended hire shall be subject to availability of the equipment and on such terms and conditions as are agreed. The amount of any hiring charges payable for any part of a hire period at the beginning or end of the hire period shall be on a pro-rate basis. In addition to hiring charges, the Hirer shall pay any sales, rental or other taxes, stamp duty, import duties, bonds or any other charges which may be levied upon the user or delivery of the equipment." 5 It is common ground that: (1) The Crane was transported from the Brisbane Wharf to Lihir Island Port in Papua New Guinea by a third party engaged by the Company on or about 23 February 2011. (2) The Crane was demobilised on or about 6 June 2011 and transported from Lihir Island Port in Papua New Guinea by a third party engaged by the Company in or about mid June 2011. (3) Parts of the Crane, including the Crane's boom sections, head section, track frames, hook and counter weights, were lost or damaged at sea during the course of the Crane being shipped from Lihir Island Port in Papua New Guinea to Brisbane Wharf. (4) At no time between the Crane's demobilisation and its transportation via ship from Lihir Island Port in Papua New Guinea to Brisbane Wharf did Lee Crane Hire retake possession or control of the Crane. (5) Pursuant to the agreement, Lee Crane Hire issued the following invoices to the Company, which have been paid by the Company to the extent indicated: Invoice No. Date Amount Amount Paid Balance 38167 31/03/2011 $126,494.50 $126,494.50 0.00 38192 30/04/2011 $77,000.00 $77,000.00 0.00 38525 31/08/2011 $61,600.00 $61,600.00 0.00 39159 30/06/2011 $61,600.00 0.00 $61,600.00 39951 31/07/2011 $77,000.00 0.00 $138,600.00 39973 31/08/2011 $95,694.50 $25,000.00 $209,294.50

6 There does not appear to be any evidence as to when the damaged Crane, minus the parts lost at sea, arrived back at Brisbane Wharf or as to the possession and location of the damaged Crane from that time until it was returned to Lee Crane Hire at Biloela, Queensland, in February this year, although the fact of its return to Lee Crane Hire at Biloela in February of this year is also common ground. 7 The debt the subject of the statutory demand corresponds with the final balance referred to in the table in [5(5)] above and is particularised in the schedule to the statutory demand in the following way: Description of the debt Amount of the debt Invoice Number Date Details 39159 30/06/2011 Dry Hire of 280T Sumitomo Crawler Crane on Lihir Island Papua New Guinea & Australia $61,600.00 39951 31/07/2011 Dry Hire of 280T Sumitomo Crawler Crane on Lihir island Papua New Guinea and Australia $77,000.00 39973 31/08/2011 Dry Hire of 280T Sumitomo Crawler Crane - Lihir Island Papua New Guinea & Australia $70,694.50 Total Owing $209,294.50 Total Debt Owing $209,294.50

8 The invoices referred to in the schedule to the statutory demand were in evidence and relate, inter alia, to the hire of the Crane for weeks 16 to 29 inclusive; that is, from 2 June to 1 September 2011. 9 Lee Crane Hire has continued to issue the Company with monthly invoices (September 2011, October 2011, November 2011 and December 2011) for the hire of the Crane. These invoices were not in evidence and there was no evidence to indicate that these had been paid. Indeed, having regard to the earlier unpaid invoices the subject of the statutory demand, I would infer that these later invoices have not been paid. 10 Finally, evidence was given by Mr Gregory Lee (Ex C) of Lee Crane Hire, that on 12 January 2012 Lee Crane Hire invoiced the Company for the replacement of missing or damaged items from the Crane in the sum of $191,224.72. A credit note was issued to the Company in respect of that invoice on 17 January 2012 because an invoice for the same amount was issued to the Company's insurer (Cerno), which has since indicated it has accepted the claim.

Whether there is a Genuine Dispute 11 The first ground on which the Company relied in support of its application was that there was a genuine dispute as to the existence or amount of the debt to which the statutory demand relates. Two of the invoices - #39159 and #39951 - for hire of the Crane for weeks 16 to 24 inclusive had not been paid at all while the third invoice - #39973 - for, inter alia, hire of the Crane for weeks 26 to 29 inclusive had only been paid to the extent of the demobilisation of the Crane from the Lihir Island site to Brisbane Wharf, a fee of $25,000. 12 The Company contended that it was only obliged to pay the hiring charges for the relevant hire period - a period of three months (approximately) from 23 February 2011 (approximately) - and that this period represented "such other earlier date that [was] agreed by the Owner" within those words as they appear towards the conclusion of cl 11 of the agreement. So much is denied by Lee Crane Hire, which maintained throughout the hearing that the provisions of cl 11 prevail in the absence of any "such other earlier date that is agreed by the Owner" and that no other earlier date was agreed by Lee Crane Hire as owner. There is, thus, immediately raised an issue of fact for determination as well as an issue of construction of the agreement. 13 Lee Crane Hire referred to what was said by a Full Court of this Court in Spencer Constructions Pty Ltd v G & M Auldridge Pty Ltd (1997) 76 FCR 452 at 464F: "In our view a 'genuine' dispute requires that: • the dispute be bona fide and truly exist in fact; • the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusionary or misconceived." 14 However, to properly understand the purport of what the Full Court there said, it is necessary to have regard to the context in which it was said and, in particular, what was said beforehand. At 463C-464A, the Court said: "There have been numerous decisions of single judges in this Court and in State Supreme Courts which have analysed, in different ways, the approach a court should take in determining whether there is 'a genuine dispute' for the purposes of s 459H of the Corporations Law. What is clear is that in considering applications to set aside a statutory demand, a court will not determine contested issues of fact or law which have a significant or substantial basis. One finds formulations such as: ' ... at least in most cases, it is not expected that the court will embark upon any extended enquiry 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.' See Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 294-296; (1993) 11 ACSR 362 at 366-367, followed by Ryan J in Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320 at 324. Another formulation has been expressed as follows: 'It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt ...' See John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250; 12 ACLC 716 at 252-253; 718, followed by Northrop J in Aquatown Pty Ltd v Holder Stroud Pty Ltd (unreported, Federal Court, Northrop J, 25 June 1996). In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, Thomas J said: 'There is little doubt that Div 3 is intended to be a complete code which 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 simple - 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).'" (Emphasis added.) 15 Immediately before the passage from the reasons of the Full Court extracted in [13] above, the Full Court said at 464D and E: "In Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 Northrop J referred to the formulations of Thomas J in Re Morris Catering (Australia) Pty Ltd at 605 and Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia, where he noted the dictionary definition of 'genuine' as being in this context 'not spurious ... real or true' and concluded (at 234): 'Although it is true that the court, on an application under ss 459G and 459H is not entitled to decide a question as to whether a claim will succeed or not, it must be satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt. If it can be shown that the argument in support of the existence of a genuine dispute can have no possible basis whatsoever, in my view, it cannot be said that there is a genuine dispute. This does not involve, in itself, a determination of whether the claim will succeed or not, but it does go to the reality of the dispute, to show that it is real or true and not merely spurious.'" 16 Having regard to the following objective indicia, namely, that - (1) The Company paid the hire charges up to and including week 15, the week ending 01/06/11 - approximately three months after the commencement of the hire; (2) the Company paid the demobilisation charge of $25,000 in invoice #39973 dated 31/08/11; and (3) the terms of the agreement, including, in addition to the provisions already referred to, that there is no definition of "period of repair" in cl 3 of the agreement, I am satisfied that there is a genuine dispute between the Company and Lee Crane Hire as to the company's liability to pay the hire charges beyond week 15, notwithstanding that on the state of the evidence as it stood before the Court on the hearing of the Company's application, I think Lee Crane Hire is more likely than the Company to succeed.

Whether the Statutory Demand is an Abuse of Process 17 On the hearing of the Company's application to set aside the statutory demand, there was no evidence before the Court that the Company was insolvent. Moreover, Lee Crane Hire put nothing in the way of submission before the Court, either orally or in writing, to the effect that the Company was insolvent. In those circumstances, the only inference open is that the issue of the statutory demand was for a collateral purpose, namely, to put pressure on the Company to pay the debt the subject of the statutory demand. Counsel for Lee Crane Hire steadfastly refrained from addressing that proposition, even though I expressly put it to him. 18 In Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602, Martin CJ, presiding in the Court of Appeal of Western Australia, said at [2]: "The issue of the statutory demand, and the appeal from the decision of the master setting it aside, reflect a fundamental misconception as to the purpose of the statutory demand process created by Pt 5.4 of the Corporations Act. That purpose is to provide a means whereby the insolvency of a company may be established for the purposes of an application to wind up that company. Its purpose is not to provide a means whereby those claiming a genuinely disputed debt can avoid the obligation of establishing their entitlement to that debt in a court of appropriate jurisdiction by placing commercial pressure on the party resisting payment. There is a clear inference from the evidence that Createc's purpose in issuing the statutory demand was the improper purpose of using the statutory demand process to enforce payment of a debt which it knew to be genuinely disputed. That is an abuse of process." 19 Later at [48]-[50], his Honour said: "[48] Following the introduction of Pt 5.4, doubts were expressed as to whether the statutory procedures provided an exclusive code for the resolution of proceedings brought as a result of the issue of a statutory demand. However, in David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; 131 ALR 353; 18 ACSR 225; [1995] HCA 43 (David Grant), Gummow J, with whom the other members of the High Court agreed, expressed the following view (at CLR 279; ALR 362; ACSR 234): 'It also may transpire that a winding-up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz. However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction. [Footnotes omitted.]' [49] Since that decision, it has generally been accepted that the court retains a residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of an abuse of process: see House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527 at 528; SMEC at [35]; Roberts at [54]-[58]; and State Bank of New South Wales v Tela Pty Ltd (No 2) (2002) 188 ALR 702; [2002] NSWSC 20 at [5]. In Roberts, the jurisdiction was exercised on the grounds of impropriety of purpose, and a winding-up application was dismissed with costs. Similarly, in Old Kiama Wharf Co Pty Ltd v DCT (2005) 55 ACSR 223; [2005] NSWSC 929, an application to set aside a statutory demand was upheld because the court concluded that the process was being used to 'attempt to apply pressure to a taxpayer to force payment of a debt': at [42]. [50] Adopting the criterion from Williams v Spautz (1992) 174 CLR 509; 107 ALR 635; [1992] HCA 34; (Williams), suggested by Gummow J in David Grant, there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt." 20 On this ground alone, the statutory demand must be set aside. 21 Lee Crane Hire submitted that if the Court was not minded to dismiss the application then the Court had power to set aside a statutory demand on conditions that may include the Company paying the amount of the alleged debt into court: see Natcraft Pty Ltd v Win Television Pty Ltd [2001] 1 Qd R 196 per Muir JA (with whom Williams JA and Atkinson J agreed). Further, the power to impose conditions is "as the Court thinks fit": see Natcraft, above, per Williams JA at [2]. As such it is within the Court's power to set the statutory demand aside on condition that the debt is paid into Court and that the Company commences proceedings. 22 This exemplifies what the true purpose of Lee Crane Hire's recourse to the statutory demand process is all about; to secure payment of the outstanding amounts alleged to be owing on the invoices referred to in the schedule to the statutory demand. It leaves undetermined, the liability of the Company on the invoices for hire charges for the months of September to December 2011 (see [9] above), for which a further statutory demand might be issued. So much exemplifies the inappropriateness of the procedure in a case such as this when alternative proceedings in another court could bring all matters in dispute between the parties to a head for resolution. 23 The statutory demand must be set aside and Lee Crane Hire must pay the Company's costs of this application. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

At a glance

Court

Decision date

Before

Source

Judgment (6 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (9)

Cited By (5)