Timberland v Abercrombie Oakland v Abercrombie

Supreme Court of NSW|2012-05-04|Before: Mr J, Macready J

Judgment 1HIS HONOUR: This is the hearing of two separate applications by both plaintiffs in these two matters to set aside statutory demands issued upon them by the defendant. 2In both demands the defendant claims an amount of $75,000 being in respect of the same debt said to be due by both of the two plaintiffs. I have ordered that the matters are to be heard together and the evidence in one matter to be evidence in the other matter. 3The plaintiffs suggest that there is a genuine dispute in relation to the statutory demand and that there is some other reason within the meaning of s 459J of the Corporations Act 2001 (Cth) for setting aside the demand.

Genuine dispute 18In both matters the plaintiffs raise what is said to be a genuine dispute about the construction of clause 2.2 of the deed, which I have set out above. This clause has to be considered in conjunction with clause 3.4 which I have set out above. 19I turn to consider whether there is a genuine dispute within the meaning of s 459H, 'about' the existence of a debt or the amount of a debt. I was referred to a number of cases concerning the principles that apply in respect of setting aside a statutory demand. In Eyota Pty Ltd v Havane Pty Ltd (1994) 12 ACLC 669 at 671; (1994) 12 ACSR 785 McLelland CJ in Equity made the following comments in respect of the expression "genuine dispute": "It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs in s 450H. 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 Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362 (at 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 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 (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Div 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 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).' I respectfully agree with those statements." 20In Panel Tech Industries (Aust) Pty Ltd v Australian Skyreach Pty Ltd (No 2), [2003] NSWSC 896, Barrett J stated at [17] to [18]: "[17] The test to be applied in cases of this kind has been established in several well known cases, of which those most often quoted are Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 and Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601. Those cases refer to tests of "plausible contention requiring investigation", "real and not spurious, hypothetical, illusory or misconceived" and "perception of genuineness (or lack of it)". [18] These tests, applied in the context of a summary procedure where it is not expected that the court will embark on any extended inquiry, mean that the task faced by a company challenging a statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."

Construction of clause 2.2 21The evidence is that the $75,000 referred to in 3.4 which is the July payment has not been paid and indeed neither the October or December payments have been made. It was submitted by the plaintiffs that when one looks at clause 2.2 the second sentence is more particular than the first sentence and accordingly it would have precedence on the proper construction of the clause. All that the second sentence provides for is an obligation on both plaintiffs "to cause" Mr Pang to make the payment of $75,000 and thus there is no debt due and payable. It is submitted that there is nothing more than a breach of a contract which would lead to liquidated damages. On this basis without detailed reference to authority it was submitted that the deed did not create a debt due and payable by either Timberland or Oakland. It was submitted that this was a plausible contention requiring further investigation and it was not the role of the Court to resolve the competing interpretations of clause 2.2. 22The defendants obviously concentrate of the first sentence of clause 2.2 and submit to the court that the first sentence clearly makes the present plaintiffs jointly and severally liable for the payment of the $75,000 and that there is therefore a debt due. 23The plaintiffs did not refer to an authority for their submission. I will however address this. The relevant maxim to which the plaintiffs referred is 'generalia specialibus non derogant', or 'general things or words do not derogate from special things or words'. See Goodwin v Phillips [1908] HCA 55; (1908) 7 CLR 1 per O'Connor at 14: Where there is a general provision which, if applied in its entirety, would neutralise a special provision dealing with the same subject matter, the special provision must be read as a proviso to the general provision, and the general provision, insofar as it is inconsistent with the special provisions, must be deemed not to apply. 24In Purcell v Electricity Commission of New South Wales [1985] HCA 54 (1985); 60 ALR 652 at 657, Mason ACJ, Wilson, Brennan and Dawson JJ clarified 'the maxim only applies where there are two inconsistent provisions which cannot be reconciled as a matter of ordinary interpretation'. Also Stephen J in Reseck v Federal Commisioner of Taxation [1975] HCA 38; (1975) 133 CLR 45, stated it applies 'where contrariety is manifest'. 25If a special provision adds powers to the general the specific is generally not viewed to limit the general. In Australian Securities and Investment Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 263 ALR 411, at 430, Downes and Jagot JJ stated: The insertion of an amending provision dealing with a specific issue...should not be used to read down the natural and ordinary meaning of other provisions. 26Even assuming for the moment that it is the second sentence of clause 2.2 that overrides, it is important to read the whole sentence and not just that part of it referred to by the plaintiffs in its argument. The second sentence has a reason for its insertion, which is that it is Mr Pang who is liable to make the further payment under the terms of clause 3.4. The second sentence does as the plaintiffs suggest, make the defendants liable "to cause" the payment to be made, but it also creates a liability to "pay the further payments". This clearly gives rise to a debt due by the plaintiffs if Mr Pang does not make the payment, which event has occurred. There is not even any room for argument on this construction of the clause and plainly the plaintiffs are liable.

Whether there is a debt due 27Even if the plaintiffs' construction argument did succeed I would need to consider whether the breach of contract gave rise to a "debt due". I will now address this. 28There have been a number of cases that deal with the word debt in the context of demands under the Corporations Law (Cth) and its predecessors. As I said in Reinsurance Australia Corporation v Odyssey [2000] NSWSC 1118, the first of these is Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85; (1988) 6 ACLC 1199. That was a decision of McPherson J of the Supreme Court of Queensland who was considering a notice under s 364 of the Companies (Queensland) Code. That provision required that there must be a "creditor to whom the company is indebted in a sum exceeding $1,000 then due..." His Honour took the word "indebted" to mean a liquidated sum in money presently due owing and payable by one person called the debtor to another person called the creditor. After dealing with some of the facts, his Honour went on deal with what was a debt at common law, which would support an action in debt or indebitatis assumpsit. He indicated that there were three ways in which a debt could arise. They were:

By judgment;
By deed under seal; and
As quid pro quo for a consideration that was executed. 29The factual circumstances related to a promise to pay a sum to a third party. His Honour found that the arrangements did not give rise to a debt, which he saw as importantly different from a claim for breach of contract. 30The next case is First Line Distribution Pty Ltd v Paul Whiley & Ors (1995) 13 ACLC 1216. This was a decision of Cohen J of the Supreme Court of New South Wales and was concerned with a contract that gave a right to distribute and sell the plaintiff company's products. The company was paid money by the defendants for the distribution rights and under the contracts the defendants delivered the company's goods. For a while the defendants bought stock from the company but the company became unable to continue to supply the goods. The statutory demand, under the Corporations Law, claimed that the monies that had been paid for the right to distribute the company's products were now debts owing to the defendants. His Honour referred to the fact that contingent or respective liabilities may not be the subject of a statutory demand. He pointed out that the defendant would be entitled to claim damages for breach of the agreement. His Honour went on to say: "However, as none of the defendants have brought an action for damages there is no judgment debt against the company, the company's claim is, and was at the time the demand was served, merely one for unliquidated damages. The amount of damages has not been ascertained and the company does not owe a debt to any of the defendants until then." 31Plainly, claims for damages for breach of contract for unliquidated claims are not susceptible to creating a debt for the purposes of a statutory demand. 32In Hansmar Investments v Perpetual Trustee [2007] NSWSC 103; (2007) 25 ACLC 282 at 291, White J considered that a promise under contract to pay a specific or readily calculable sum was properly characterised as giving rise to a debt in that sum. 33A case which is useful for its explanation of what is a debt for the purpose of the present provision is Vimblue Pty Ltd v Toweel t/as Carpenters Core Building [2009] NSWSC 494. After referring to the words of McPherson, in Rothwells which I quoted above, Barrett J said: "[14] It may be noted that McPherson J referred to a "liquidated sum", not a "liquidated demand". The nature of a "liquidated sum" was explained by Knox CJ and Starke J in Spain v Union Steamship Co of New Zealand Ltd [1923] HCA 21 ; (1923) 32 CLR 138 at 142 by quoting from the then current edition of Odgers on Pleading: Whenever the amount to which the plaintiff is entitled ... can be ascertained by calculation or fixed by any scale of charges or positive data it is ... liquidated. [15] There was reference in Spain's case to Stephenson v Weir (1879) 4 LR Ir 369. It was held in that case that a common count claim for work done was a "liquidated demand". Palles CB said at 372: [D]emands for work and labour on a quantum meruit, or for goods sold, although the price was not fixed by contract, are clearly "liquidated demands"; ... when the value of the work or the goods as the case may be, is ascertained, that value determines and therefore liquidates the claim. [16] This statement identifies the distinction between "liquidated claim" or "liquidated demand" and "liquidated sum". A process of valuation or assessment or the application of some standard of measurement is necessary to cause the latter to emerge from or be distilled from the former. [17] The process by which a claim is translated into a right to a liquidated sum was described by Cohen J in Re Ahearn; Ex parte Palmer (1906) 6 SR (NSW) 576, a case concerning an unliquidated claim. His Honour said at 577: For failure to meet his contracts he was liable in damages, and, so long as it rested in damages, the liability was not a liquidated sum; before it could become so, it would have to be assessed either under the Stock Exchange rules, or by the ordinary tribunals, or by agreement between the parties, for the parties may meet and agree upon an amount which one shall be deemed to owe the other. There is no special virtue in having the amount assessed by a Court or a domestic tribunal, for an assessment between the parties is equally efficacious for the purpose of constituting the amount a liquidated sum. [18] The same reasoning applies to a liquidated claim upon a quantum meruit for work done. In the Irish case to which I have referred, Palles CB held that an action for debt is maintainable upon such a claim, adding at 373: When it was said that an action of debt would lie only for a sum certain, it was sufficient that the sum should be capable of being ascertained by a jury by positive data, and not merely measured by opinion or conjecture. In the present case, for instance, when the value of the work was ascertained, the sum to be recovered became definite, and the case would not be like one of assault in which there were not any certain data to fix the amount of damages. [19] The words of particular importance in this passage are, "when the value of the work was ascertained, the sum to be recovered became definite". "Definite", in the context, is synonymous with "liquidated" [20] If a mechanic spends half an hour repairing my car and there is no agreement between us as to the amount he will charge and I will pay, his subsequent claim for $1 million may be regarded as a liquidated claim. But no liquidated sum is thereby owing, due and payable by me to him. His entitlement is to be paid a reasonable sum upon a quantum meruit. Until the value of the work is ascertained and in the absence of some process that fixes what is reasonable according to what Palles CB called "positive data", as distinct from "opinion or conjecture", the liquidated claim does not mature into an entitlement to a liquidated sum." 34The question that arises is whether there is a mechanism to determine the amount of the liquidated claim. The contract in clause 3.4 fixes the amount to be paid, namely $75,000. 35As provided in Vimblue Pty Ltd v Toweel t/as Carpenters Core Building this amount is thus a 'liquidated sum' and not a 'liquidated claim' or 'liquidated demand' since there is a mechanism to determine the amount. As a result the plaintiffs are liable for a debt and not just liquidated damages, as submitted by the plaintiffs. I am not satisfied there is a genuine dispute.

Some other reason - Dispute regarding Mercedes Benz motor vehicle 36As originally drafted, the Deed contained a provision whereby the Yassine Group agreed to return a Mercedes Benz motor vehicle as part of the settlement reached between the parties. Clause 3.2.8 of the Deed as originally drafted provided as follows: "3.2.8 The Yassine Group will provide the Pang Group with the keys, title and location of the 2004 E55 Mercedes Benz motor vehicle, registration number [sic] ("the Mercedes"). The Mercedes will be returned in a reasonable condition, having regard to the condition it was delivered to the Yassine Group and noting that the Mercedes has not been driven for almost 18 months. The Parties acknowledge that the Mercedes may be subject to encumbrances." 37The plaintiffs' evidence discloses that on or about 1 July 2011, the date of execution of the Deed, Mr Yassine, a director of the defendant and other entities of the Yassine Group, represented to Mr Pang, representing the Pang Group, that there was no need to expressly refer to the Mercedes Benz motor vehicle in the Deed. Relying upon that representation, clause 3.2.8 appears to have been removed. The evidence further discloses that the Pang Group only entered into the Deed on the basis that the Mercedes Benz would be returned to the Pang Group based upon the representations of Mr Yassine. 38The defendant disputes the plaintiff's version of events in relation to the Mercedes Benz and clause 3.2.8. In that regard, Oakland has commenced proceedings 2011/322642 against Mr Yassine in the Supreme Court of New South Wales seeking return of the Mercedes Benz, or alternatively, an order for damages in the amount of $100,000. 39Not surprisingly when one considers the other evidence that has come forward this claim was not presented as an off-setting claim. This is no doubt because there is no good evidence of any damage suffered. 40It is plain that the only evidence of the value is an estimate by Mr Pang of $100,000 in 2009. Apparently by 19 January 2009 there was $92,828.41 owing on the motor vehicle. There are also claims from the finance provider CBFC requiring possession of the vehicle. Given the passage of time and the increase in further amounts owing there is plainly no equity in the motor vehicle. 41In addition it is to be noted that the motor vehicle is registered in the name of Oakland Property Holdings and was ultimately transferred to Mr B Yassine. Indeed Oakland Property Holdings in proceedings has sued Mr Yassine and not the defendant in the present proceedings. This also of course would stop any off-setting claim. 42Because of these problems the circumstances are said to constitute some other reason to set aside the demand under s 459J(1)(b). The premise for this is the acceptance of the plaintiffs' version of what happened about the dispute. The defendant's evidence denies the plaintiffs' version. I should not resolve the dispute on the conflicting claims in these proceedings and the dispute itself is not relevant in my view to unconscionability in terms of proceeding with the statutory demands. Accordingly I would not set the statutory demands aside for this reason.

Some other reason - Failure to comply with dispute resolution clause 43The dispute resolution clause which I have set above is not a Scott v Avery (1856) 10 ER 1121 clause and it is clear on its face that it is permissive. The effect of such a clause on statutory demand proceedings was dealt with in Arris Investments Pty Ltd v Fahd [2010] NSWSC 309. 44At paragraphs [17] to [20] Justice Palmer had the following to say about the role that such a clause might play in an application to set aside a statutory demand. [17] On the other hand it has been said, in a slightly different context and for a slightly different purpose, that if a mediation or arbitration clause in an agreement would arguably found an application for a stay of proceedings for recovery of the alleged debt, a dispute between the parties as to whether a stay of proceedings should be granted would be a genuine dispute for the purposes of setting aside a Statutory Demand: National Telecoms Group Ltd v Bulldogs Rugby League Club Ltd [2003] NSWSC 654, at [15] per Gzell J. [18] I agree that the existence of a mediation or arbitration clause in an agreement between parties will not automatically preclude one of them from serving a Statutory Demand on the other for a debt said to arise under the agreement. This is so because the Court retains its discretion under s 459J(1)(b) as to what significance to attach to such a contractual term in the circumstances of the case. A dispute between the parties might have to be resolved by compulsory arbitration before one party can enforce the result by judgment against the other, but the Court may see the position taken by one of the disputants is so transparently untenable that it can conclude for the purposes of s 459J(1)(b) that that party is invoking the arbitration clause in bad faith. Again, the Court might give no discretionary weight under s 459J(1)(b) to a compulsory arbitration clause where a plaintiff seeking to set aside the Statutory Demand has continually frustrated the endeavours of the defendant to have the dispute resolved in accordance with the arbitration clause. [19] However, where a dispute is not resolvable by the Court virtually at a glance because the position taken by one of them is transparently untenable, or where there is no conduct making it unconscionable for one party to invoke an arbitration clause, then an express agreement that the parties' disputes must be determined by arbitration rather than by any other form of litigious proceeding should carry great discretionary weight in considering whether a Statutory Demand should be set aside under s 459J(1)(b). [20] There are often good commercial reasons for parties to agree to air their disputes only in the privacy of an arbitration. There are considerations also of savings in time and legal expense in such proceeding. If the dispute is fairly and squarely within the purview of a compulsory arbitration clause, the Court should not lightly permit one party to ignore the clause and precipitate legal proceedings by the issue of a Statutory Demand. In short, the Court should not encourage parties to breach their contracts. 45The plaintiffs at one stage suggested that one of the matters in dispute might be resolved by arbitration if certain settlement arrangements were not accepted. This did not come to fruition and there is no evidence that the plaintiffs have sought to engage in any dispute resolution process pursuant to the clause. This is different from the factual situation in Arris Investments where the plaintiff invoked the arbitration clause prior to the defendant seeking to rely on a statutory demand and subsequently declining to engage in mediation. 46Because the dispute resolution clause is permissive only and the plaintiffs have not sought to engage the operation of that clause, I do not think that it is an appropriate ground to set aside the statutory demand. I also note for completeness that even if this view is not accepted elsewhere, the clause is unlikely to extend to the dispute about the Mercedes vehicle as that does not arise out of the deed and is not subject to the clause.

Some other reason - Abuse of process 47It was submitted by the plaintiffs that the circumstances of the present case discloses an abuse of process in that the defendant has used the statutory demand procedure to apply pressure to compel payment of a disputed debt. 48The plaintiffs referred to what was said in the Western Australian Court of Appeal in Createc Pty Ltd (ACN 094 263 537) v Design Signs Pty Ltd [2009] WASCA 85 where the court said at [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. "[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." 49In support of its application the plaintiffs referred to a letter dated 29 August 2011 from the solicitors for the defendant addressed to Mr Pang shortly before the statutory demands in this case were issued. The letter complained about the default in making the payment of $75,000 and under the heading Recovery Actions the letter went on to say that unless the $75,000 due and owing by the Pang Group is paid within 24 hours the solicitors had instructions from the Yassine Group to take a series of courses of action which it then listed. 50It was an impressive list of actions covering more than a page giving alternatives mostly for the issue of statutory demands against the many companies in the Pang group. It also threatened a Statement of Claim for non-payment of the $75,000 against Mr Pang which he had not paid. In addition there was a suggestion that there would be a receiver and manager appointed to Eastern Oat Pty Ltd one of the Pang group of companies. 51Whether there might have been an abuse of process no doubt depends upon whether the defendant knew that the debt in respect of which the demands were to be served was genuinely disputed. In respect of the genuine dispute adumbrated in this action it is plain that that suggestion was never put in correspondence before action and indeed only emerged during the course of submissions shortly before the trial. The parties certainly had a dispute about the Mercedes Benz car to which I have referred but there was no attempt by the plaintiffs to invoke the dispute resolution clause in the deed prior to the issue of the demands. 52At the time of the demand there were some serious concerns of the defendant as to the solvency of the Pang Group. Primarily of course the $75,000 had not been paid. 53The defendant had good reason then to doubt the solvency of members of the Pang Group for the following reasons: Pang failed to comply with his obligations to make payments of $75,000 on 20 July 2011 pursuant to clause 3.2 of the Deed; Oakland ceased to make repayments on the Vehicle from 14 March 2011 for reasons that are not disclosed in the evidence; CBFC has claimed repossession of the Vehicle; 54It also needs to be noted that there had been settlement of extensive litigation between the two groups and apart from the initial payment there was default in the first payment. 55In these circumstances there is no abuse of process in respect of the Timberland proceedings which, of course, do not involve the Mercedes Benz motor vehicle. 56In respect of the Oakland proceedings although there was some dispute, given the findings I make on the Mercedes motor vehicle, it is not, in my view, a sufficient dispute from the defendant's perspective for me to infer they were commencing proceedings other than for the stated purpose. 57I note that given the construction of clause 2.2 there is nothing extraordinary in issuing a number of statutory demands against different companies which are liable to pay the same debt. 58I dismiss the proceedings with costs.

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: 24 May 2012

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