Technology Licensing Limited v Climit Pty Limited

McLaughlins Solicitors as town agents for Simpson Freed Solicitors for the respondents.

[1] CHESTERMAN J: The applicant seeks an order setting aside the respondents' statutory demand for payment dated 19 December 2000 by which the amount of $1,000,000.00 was said to be immediately due and owing by the applicant to the respondents "for forbearance to vote and agreement on related issues". The money is said to be payable pursuant to a written agreement dated 8 November 2000 which is in these terms:

"THIS IS AN AGREEMENT BETWEEN TECHNOLOGY LICENSING LIMITED AND ROBERT PAGE DATED WEDNESDAY, 8TH NOVEMBER, 2000.

$1 million to be paid immediately for the option of the purchase of the shareholding by Robert Page and associated identities.

1. He will agree in principle to an arrangement whereby the whole of his shareholding and those of associated entities are acquired by a third party. Whether this is done by agreement or by put and call option or some other means it must be in agreement which is binding on both parties.

2. The price that he requires for the shares is $0.25 per share.

3. The immediate payment he seeks is $1,000,000.00 as the price of the `option' in addition to the share price.

4. He seeks the remuneration as set out in our letter of 20th October, 2000 under the heading `Robert Page' upon a reasonable time frame agreed between him and the company; this being end of November 2000.

5. The claim of Geraldine Page will be forgone as part of the overall settlement arrangements.

6. The necessary paper work should be done to remove the Page family as guarantors etc. as provided under the heading `Generally' in our letter of 20th October, 2000.

7. This agreement to take effect upon signing of the documents by Page's solicitor."

It was signed by Robert Page, apparently on his own behalf, and by Mr H F Morris on behalf of the applicant who wrote in hand on the document:

[2] The application was argued at some length and with great heat. Each side accused the other of a multitude of sins which it would be tedious, as well as unnecessary, to recite and which tended to cloud the issues properly in dispute. When the acrimony is disregarded the issues, in my opinion, become simple.

[3] The first point in issue is whether the application was brought within time. Section 459G of the Corporations Law provides that an application for an order setting aside a statutory demand must be made within 21 days after service of the demand.

The application was filed on 10 January 2001. The respondents contend that the demand was served on 19 December 2000. The applicant, by contrast, asserts that it was not served until 22 December 2000. The application was brought within time only if service occurred on the later date.

[4] The applicant's registered office was "Level 11, 131 York Street, Sydney". This is a commercial building in the central business district of Sydney. On 19 December 2000 it was occupied by two companies: the applicant and EYAH Pty Ltd. As far as the evidence goes the two companies are unrelated. The latter occupies almost the whole of the floor. The applicant's premises are two small rooms located in a corner of the building almost entirely surrounded by the offices of EYAH Pty Ltd. A freehand sketch depicting the layout of the floor and identifying the respective offices of the two companies was put into evidence and is helpful in understanding the nature of the dispute with respect to service. It is reproduced thus:

[5] The commercial agent engaged to effect service of the statutory demand, Mr Flanagan, deposed to attending the 11th Floor of 131 York Street. Upon exiting the lift he was confronted by a reception desk which was part of EYAH Pty Ltd's premises. He there spoke to a woman and asked whether the offices were those of the applicant. He was told they were and he said he had documents for the company. He asked the woman if she would accept them and she said she would. He then gave her a sealed copy of the statutory demand and the accompanying affidavit. When asked for her name the woman replied "Joanne Huang".

[6] Ms Huang has deposed that she is an accountant employed by EYAH Pty Ltd whose offices are separate and distinct from the applicant's. There is, she said, a sign indicating that the offices are those of EYAH Pty Ltd and a separate sign on the wall to the left as one exits the lift indicating where one might find the applicant's office. As the sketch shows a corridor leads to them. Ms Huang recalls Mr Flanagan speaking to her on 19 December 2000. She agrees he asked whether the offices were those of the applicant. She was, she says, distracted because she was speaking to someone else and answered absent mindedly in the affirmative. She cannot recall him giving her any documents or leaving them on the desk. Ms Huang deposes that she was not an employee of the applicant nor was she authorised by it to accept any documents on its behalf. She was not a receptionist.

[7] The statutory demand and the verifying affidavit were received by Mr Cuthbertson, one of the applicant's directors, in the mail on 22 December 2000. He does not know who sent them.

[8] Ms Huang was cross-examined by telephone, which is never entirely satisfactory, despite such a course often being convenient. I accept her evidence that the applicant did have separate rooms on the 11th Floor of the building and that she was in or adjacent to the premises occupied by EYAH Pty Ltd when she spoke to Mr Flanagan. I also accept her evidence that she was not authorised by the applicant to accept service of documents but that, nevertheless, on occasion she sent to the applicant documents which were meant for it but which were left with EYAH Pty Ltd. I expect she did so as an act of kindness. On the evidence her actions were not pursuant to any commercial or formal arrangement. I accept Mr Flanagan's evidence that he left the documents with Ms Huang and the overwhelming likelihood is that it was she who posted them to Mr Cuthbertson. I expect that she wrongly said that the offices were the applicant's because, as she said, she was preoccupied and because it was not uncommon for documents addressed to the applicant to be left with her company. I accept her evidence that there was a sign, where indicated on the sketch, drawing attention to the separate existence and location of the applicant's offices. I also accept her evidence that those offices could be reached without traversing EYAH Pty Ltd's premises.

[9] From these facts I conclude that the applicant was not served with the statutory demand on 19 December 2000 when it and the affidavit were left with Ms Huang, despite being pressed with the decision of Sheppard J in Golden Orchid Pty Ltd v Comax Pty Ltd [1995] FCA 1349; (1995) 17 ACSR 442 which held that service effected in circumstances with some similarities to this case was good. Whether service has been effected as required by statute or rules of court is in every case a question of fact for which authorities are of limited use. Even small differences of fact can lead to different conclusions. The facts in Golden Orchid were different: the registered office of the company there in question was given as "274 Victoria Street, Darlinghurst". There was at that location a substantial building on the ground floor of which was a shop occupied by a company whose directors and shareholders were the same as the directors and shareholders of the company to be served. That company had its registered office on another floor of the building but conducted the bulk of its business elsewhere. There was no directory board or other signage showing where in the building the registered office of Golden Orchid might be found. The documents were left with an employee of the ground floor shop who told the process server that it was "owned" by the man who "owned" Golden Orchid Pty Ltd and who agreed to give the documents to him.

[10] Young J thought that service on the employee at premises which were at the address given as the company's registered office was sufficient. The case is authority only for the proposition that service in those peculiar circumstances was good. The facts of this case are that the description of the registered office of the applicant referred to a floor of a building at which there were signs indicating that separate parts of it were occupied by two companies. EYAH Pty Ltd's premises were not those of the applicant. The documents were not left at the applicant's registered office. They were left with a neighbour who had no authority to accept them. The matter does not change complexion by reason of Ms Huang's assertion that the offices into which Mr Flanagan wandered were the applicant's. Her (innocent) misrepresentation to that effect does not alter the reality of the situation.

[11] Section 109X of the Corporations Law provides that a document may be served on a company by leaving it at the company's registered office. Other modes of service are, of course, permissible but the section provides a convenient means of effecting service. It is not onerous. There is no warrant for reading the section in such a way as to deem service to have occurred by leaving documents at some office other than those of the company to be served. The strict time limit allowed by s 459G(2) provides a reason why the court should not take too lenient a view of the requirements of s 109X. That section means what it says: a company is served by leaving documents at its registered office. A company which gives an ambiguous address (as did Golden Orchid Pty Ltd) may not complain when documents are left at a place within the limits of the ambiguity, but where a company has its offices at a location more-or-less precisely identified it is not too much to expect that service will be effected at those premises and not some other.

[12] Accordingly I hold that the application to set aside the statutory demand was filed within 21 days of its being served.

[13] The effect of s 459H of the Corporations Law is that if the court is satisfied that there is a genuine dispute about the debt demanded the court must set the statutory demand aside. The role of the court is well settled. As Thomas J said in Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 the sections require:

" . . . the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute . . . 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" . . .

. . . beyond a perception of genuineness (or 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 . . ."

In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 McLelland CJ in Eq said of the expression "genuine dispute",

" . . . 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 . . . 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."

[14] The applicant is a public company listed in December 1999. Mr Robert Page, with whom the agreement which is said to found the debt demanded appears to have been made, effectively controls the corporate respondents. He was the promoter of the applicant and was a director until his resignation in October 1999 when it appears he had a falling out with the gentlemen who presently control the applicant. There were discussions between them about the terms on which Mr Page, and the companies in which he had an interest, might quit the applicant. A difficulty existed in the form of a restriction imposed by the Australian Stock Exchange on the sale of shares and options held by the respondents in the applicant. The securities cannot be sold until 19 November next. On 3 November 2000 Mr Page's solicitors wrote to the applicant:

1. He will agree in principle to an arrangement whereby the whole of his shareholding and those of associated entities are acquired by a third party. Whether this is done by agreement or by put and call option or some other means it must be in agreement which is binding on both parties.

Because some of the shares are held in escrow the arrangement would have to be subject to ASX approval or otherwise capable of being legally achieved.

3. The immediate payment he seeks is $1,000,000.00 as the price of the "option" in addition to the share price.

In order to advance the matter Mr Page seeks a written offer from the company stating that the offer is made with full Board approval . . . I realise that the share acquisition offer will need to come from some other party. At the present time the identity of that party is not important . . ."

[15] The applicant replied by letter of 8 November 2000 that it was:

" . . . willing to settle in accordance with the terms set forth in your letter subject to any requirements of . . . the ASX.

As you would be fully aware our company is unable to deal in its own shares and . . . I have no control over the third party or parties in relation to their requirements to fund the settlement proposal."

[16] 8 November 2000 was the date fixed for the applicant's annual general meeting. Shortly before it commenced Mr Page met with some of the applicant's officers and the document the terms of which I set out earlier was produced.

[17] The voluminous affidavit material raises a contest on almost every aspect of the negotiations for agreement, their antecedents and their consequences. Numerous objections are taken by both sets of parties to the affidavits of the other. The respondents' position in the end was that the entirety of that part of the evidence should be ignored because it offended the parol evidence rule and sought to vary or diminish the written agreement of 8 November 2000 which, it is submitted, should be the only matter to which regard is had for the purpose of determining whether a genuine dispute exists between the parties. It is submitted, as a corollary, that a perusal of the documented agreement will reveal conclusively the respondents' entitlement to an immediate payment of $1,000,000.00.

[19] There seem to be a number of arguable impediments to the respondents' claim. The first is the characterisation of that claim. The statutory demand described it as an agreement to pay $1,000,000.00 "for forbearance to vote" presumably at the annual general meeting which Mr Page did not, in the end, attend having reached an accommodation with the applicant shortly prior to the commencement of the meeting. The document itself does not suggest that the sum was to be paid for anything like that consideration. It was described as "the price of the option in addition to the share price".

[20] A further curiosity is that the agreement is expressly made between the applicant and Mr Robert Page and it records that he (ie Mr Page) seeks the $1,000,000.00 apparently in return for procuring the respondents' agreement to sell their shares at $0.25 each to a buyer procured by the applicant. It is not, however, Mr Page who has demanded payment. The statutory demand was issued by the respondents, the putative vendors of the shares. The respondents submit that the agreement was made by Mr Page as their agent but that fact does not emerge from the terms of the document and appears to be inconsistent with it. Assuming an obligation to pay is established the identity of the payee, and the person entitled to issue a statutory demand, appears to be seriously in contest. It is to be observed that Mr Page does not depose to having signed the agreement as agent for the respondents.

[21] It is distinctly arguable that the agreement was conditional upon stock exchange approval being given to the sale of the shares. The respondents assert that it was not, but the applicant points to the fact that without approval the sale could not occur and that stock exchange approval had been expressly raised as a necessary term in any arrangement made between Mr Page and the applicant. It may be that an investigation of the circumstances which led to the execution of the document will show that it was intended to take effect only upon the grant of approval for the sale by the stock exchange. Evidence of such a condition precedent would not offend the parol evidence rule: Pym v Campbell [1856] EngR 480; (1856) 6 EL & BL 370; 119 ER 903.

[22] There must also be a question whether the document was meant to take effect as a binding agreement. The terms of clauses 1 and 7 suggest that it was a "contract" of the third type described in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360-1

" . . . in which the intention of the parties is not to make a concluded bargain at all unless and until they execute a formal contract. . . . The parties may have so provided either because they had dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document . . . or simply because they wish to reserve to themselves a right to withdraw at any time until a formal document is signed."

It is to be noted that clause 7 refers to the document becoming effective when Mr Page's solicitor signed "the documents". This clearly contemplates the execution of something other than the agreement of 8 November itself. Oral evidence will probably be necessary to identify what other document or documents was or were referred to. The inescapable conclusion would seem to be that further terms were contemplated.

[23] I can also see the distinct possibility of an argument that if stock exchange approval were not forthcoming the consideration for the $1,000,000.00 payment would have entirely failed or that the agreement was frustrated. These questions were not the subject of detailed submissions. Nor should they have been in an application of the present kind. It is, I hope, clear from what I have said that there are substantial questions of fact and law to be resolved before the respondents' entitlement to the $1,000,000.00 claimed is established. There is, therefore, a genuine dispute and the statutory demand should be set aside.

[24] The applicant has another point. Relying upon s 459J(1)(b) of the Corporations Law it submits that there was another reason why the demand should be set aside. It is that the demand was not accompanied by an affidavit verifying that the debt was due and payable by the applicant. Section 459E(3) provides that a demand "must" be accompanied by such an affidavit. The point here is that Mr Page's affidavit was sworn on 15 December 2000 and thus pre-dates the demand by four days.

The point is a good one. A statutory demand can only be issued with respect to a debt that is due and payable at the time of the demand. Section 459E(3) clearly intends that the demand be verified by an affidavit that speaks to the circumstances existing at the time when demand is made. Proof that a debt was owed on 15 December is not proof that it was owed on 19 December.

[25] I conclude that the mandatory requirement of s 459E(3) was disregarded and an important safeguard in the operation of the scheme of proving insolvency to support an order winding up a company was ignored. The decision of Santow J in Dolvelle Pty Ltd v Australian Macfarms Pty Ltd (1998) 28 ACSR 175 does not stand in the way of such a result. The conclusion in Dolvelle was that because this point had not been taken in an application to set aside the statutory demand, s 459F prevented it being taken on the subsequent application for the winding up of the company. It is, I think, clear from his Honour's reasons at 184-5 that had the point been taken on an application brought pursuant to s 459G it would have resulted in an order setting aside the statutory demand.

[26] Accordingly I order that the statutory demand for payment dated 19 December 2000 served by the respondents upon the applicant on 22 December 2000 be set aside pursuant to s 459G of the Corporations Law. I further order that the respondents pay the applicant's costs of and incidental to the application to be assessed on the standard basis.