Touma Family Super Fund Pty Limited v McNeice

Judgment 1HIS HONOUR: This is an application to set aside a statutory demand. 2The present proceedings were heard concurrently with (and raise almost identical issues as) four other sets of proceedings, namely; Pendle Hill Developments v McNeice [2013] NSWSC 756; RCM Constructions v McNeice [2013] NSWSC 754; Dux Plumbing v McNeice [2013] NSWSC 755 and Wizcorp v McNeice [2013] NSWSC 753. 3I will deal with the common issues raised by the five matters in these reasons and then give brief reasons in each of the other matters. 4In April 2012, an accounting firm, DW & AR McNeice trading as Moneywise Accounting, Taxation and Financial Services ('the Firm'), issued a series of statutory demands to each of five companies in a group operated by three brothers; Norman Touma, Raymond Touma and Charlie Touma. The companies were; The Touma Family Super Fund Pty Limited; Wizcorp Pty Limited; RCM Constructions Pty Limited; Dux Plumbing Pty Limited; and Pendle Hill Developments Pty Limited. At all material times prior to the beginning of 2012, the firm of DW & AR McNeice consisted of the present defendants alone (though previously there had been other partners as well). 5David McNeice, appears to have done all the accounting work for the Touma brother's companies, including preparing income tax returns and business activity statements. 6The Firm issued a "schedule of fees" each financial year that listed about three-dozen items, which were services commonly provided. The cost of each item was set out with and without GST. In most cases, the cost was expressed in the form: "from $...". For example, partnership tax returns were listed as being "from $1,800.00" and land tax returns were identified "from $400". When work was to be done there was a pink form entitled "Client Assignment". This form, , inter alia, asked employees of the Firm to identify if the "CLIENT IS AWARE OF FEES INVOLVED (sighted Schedule of Fees MW03200)."The form also contained a field in which the client was asked to sign and date an "APPROVAL TO PROCEED" by which they declared: "I have read and understand the TERMS & CONDITIONS of CONTRACT of D.W. & A.R. McNeice and agreed to abide by these conditions. ... I also acknowledge that I am aware of the fees involved in preparation of my work". In the instances that are in evidence there is a signature or initials. Mr McNeice says that these are the initials of Mr Raymond Touma. Mr Raymond Touma denied on his oath that that was so. 7The reverse side of the pink form contained, in relatively small print, a series of conditions. These included a clause headed "Default & Consequences of Default" which stated: "11.1 Interest on overdue invoices shall accrue from the date when payment becomes due daily until the date of payment at a rate of 2.5% per calendar month and shall accrue at such a rate after as well as before any judgment. ... 11.4 If any account remains unpaid at the end of the second month after supply of the Services or services the following shall apply: An immediate amount of the greater of $20.00 or 10.00% of the amount overdue shall be levied to administration fees which sum shall become immediately due and payable." ... 8In considering whether there is a genuine dispute it is quite clear that the court looks to the question of the claim and not the likely result of the claim(see, for example, re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, 605). The court looks to see whether the claim involves a plausible contention requiring further investigation; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787. As Mr Assaf shows in the second edition of his "Statutory Demands and Winding up in Insolvency" (F Assaf, Statutory Demands and Winding up in Insolvency (2012, 2nd edition, LexisNexis Butterworths)) , although there are a number of formulations of the test, they all require that the court to be satisfied that: (a) a bona fide dispute truly exists in fact; and (b) the dispute is real and not spurious, hypothetical or illusionary (see para 5.16). 9Accordingly, whilst I do not need to look carefully into each item of the statutory demand to see whether it would, or would not, be allowed in a common law action, I do need to consider whether there is a plausible contention requiring investigation, so that I can see whether or not there is a genuine dispute in respect of all or some of the items claimed. The phase; "a plausible contention requiring investigation" of course comes from the reasons of MH McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; (1994) 12 ACLC 669. 10It is also clear that when the court is considering whether or not to set aside a statutory demand the court can only act under the terms set out in ss 459H or 459J of the Corporations Act 2001 (Cth). 11Section 459H empowers the court to set aside a statutory demand if it is satisfied that: there is a genuine dispute about the existence or amount of a debt to which the demand relates; or that the company has an offsetting claim. 12Section 459J permits the court to set aside the demand if it is satisfied that; because of a technical defect substantial injustice will be caused unless the demand is set aside; or there is some other reason for so doing. 13The matters came on for hearing before me on 22 May 2013. Mr E Finnane appeared for the plaintiffs and Mr R W Tregenza appeared for the defendants. The five matters were heard together by order of Brereton J, with evidence in one to be evidence in the other. As I have said, this present judgment will be an overarching judgment dealing with common issues as well as with the details of the statutory demand over the present company. The supplementary judgments will adopt the basic reasoning of this judgment and deal with the details of the statutory demands against the other companies. 14On 5 April 2012, the Firm issued a statutory demand against the Touma Family Super Fund. It claimed $23,070.44 (being the amount of the debt described in the schedule). The schedule listed five items, viz: (a) invoice #2565 dated 6 October 2011 for professional accounting and GST advice - $10,065.00; (b) invoice #4002 dated 28 February 2011 for professional and accounting and income tax services for the year 2009 - $8,250.00; (c) invoice #4015 dated 28 February 2012 for professional accounting and GST services for the quarter ended 31 December 2011 - $2,365.00; (d) administration charge - $1,006.50; and (e) interest charged on invoice #2565 for five months - $1,383.94. 15The affidavit in support of the present application was sworn by Norman Touma on 2 May 2012. Essentially, he claims that the plaintiff company (the corporate trustee for the Touma Family Super Fund) genuinely believes that it is a victim of overcharging. He says that the invoices significantly exceed the amounts quoted in the firm's fee schedule and are grossly inflated when compared with prior building practices of a firm over previous years. Further, he says that some of the invoices sent by the Firm were for services rendered by a different accounting firm; Tarrant's Accounts and Business Advisors. Mr Norman Touma claims that Mr McNeice may have completed some of the work as an employee of Tarrant's. He also says that Mr McNeice did not carry out some of his instructions and this has caused the company financial prejudice, which it would seek to claim from Mr McNeice. Mr Norman Touma says that; there is a genuine dispute about the existence or amount of the debt; the company does not owe the monies claimed in the statutory demand; and that there is an estoppel operating to prevent the firm from making its demand. 16Mr Norman Touma also alleges that the debts claimed in the statutory demand related to services which were either not provided or were not provided in accordance with the company's requests. He also says that the defendants have no right to interest or administration fees. It was also put that it was unfair for the Firm to issue a statutory demand without affording the company a reasonable opportunity to ascertain that the debt was properly payable. That affidavit was later fleshed out by other affidavits. I will return to the point but it is quite clear from the authorities that an affidavit supporting an application to set aside a statutory demand must support it by detailing the grounds on which the application is made; Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581. However, what must be detailed in the affidavit varies according to the nature of the application and the unique factual matrix of each case; Financial Solutions Australia Pty Ltd v Predella Pty Ltd [2013] NSWCA 51; (2002) 26 WAR 306; 167 FLR 106 at [34]. 17I need now to consider the individual items included in the statutory demand but only for the purpose noted earlier. 18The first item is invoice #2565 for $10,065.00 (dated 6 October 2011), which is for professional services rendered. This amount includes: a fee of $2,850.00 for "Annual Business Activity Statement Reconciliation & Quarterly Business Activity Statement for the period April to June 2011" and a fee of $6,300.00 for "Additional work to summarise share transactions." After accounting for $915.00 of GST, the total amount owing under this invoice is $10,065.00 (including GST). 19According to Mr McNeice's affidavit of 18 September 2012, a fee of $2,500.00 (including GST) was invoiced for the preparation of each Quarterly Business Activity Statement for both the 2010 to 2011 financial years. However, the bulk of invoice #2565 is for "Additional work to summarise share transactions." As to this the company says that Mr McNeice did not do this work. 20Evidence was called on this issue, however it was not very detailed. Mr McNeice says that there were a number of share transactions in the Touma Super Fund and he had to spend many hours working out the profits from material supplied by the brokers. He says he charged at less than his hourly rate for doing this. Ms Janet el Hendy swore that she did an amount of work in this area and that she was not aware that Mr McNeice had done much at all. 21I do not have to resolve this problem but it seems to me that with Mr Raymond Touma and Ms el Hendy disputing what the plaintiff did, it is word against word and not a matter that should just be allowed to be dealt with by a statutory demand. 22So far as the $2,850.00 is concerned, there does not appear to me to be any dispute as to this amount. The Toumas say that they paid Mr McNeice $2,365.00 (on or about 15 December 2011) on account of what they owed, but it is hard to see why this amount should be taken out of the $2,850.00. In my view, this sum should be classed as an admitted amount for the purposes of s 459H(2) and (5) of the Corporations Act. It should be noted that an 'admitted amount' under the definition in 459H(5) does not mean an amount which the company has admitted. Rather, it is the amount that the court is satisfied is not the subject of a genuine dispute. 23Thus, with respect to invoice #2565, I would take $2,850.00 of the total claimed as an admitted debt. 24Invoice #4002 claims $8,250.00 (including GST) for three items, namely; the "2009 Income Tax Return Superannuation"; the "Members Benefit"; and "Additional Cost Share Trading." 25As to the 2009 income tax return, the Toumas say that the first defendant never prepared it. Mr McNeice admits this, but says that he did a lot of work in preparing it before he was discharged from doing any further work. There is also a dispute as to the quantum. Norman Touma says that the charge for a tax return in the 2009 financial year was $3,500.00 (plus GST), rather than the $4,500.00(plus GST) claimed by the Firm. Mr McNeice says that the standard fee was "from" the quoted figure and in any event the work was done later. 26There is also a dispute as to whether the work was done by Tarrants or by the Firm. As indicated earlier, in January 2012 Mr McNeice closed his practice whereupon he and various members of his staff worked for a firm of accountants called 'Tarrants'. Whilst working for Tarrants, Mr McNeice prepared these returns. The Toumas say that both Tarrants and Mr McNeice billed them for this work. They say that as they did not know which entity to pay they paid neither. 27As to the so called 'Tarrants defence', I would have thought that as a matter of commercial common sense this should be no barrier to the Toumas paying for the work that was done for them. It is clear that there was some arrangement between Mr McNeice and Tarrants. It may be that Tarrants and Mr McNeice both sent in bills for the same work but it is clear that only one was payable. The mere fact that one receives two bills does not mean one does not have to pay for the work that was actually done. 28One would have expected payments to be made to one and an indemnity taken against claim by the other. On the other hand, one would also have expected that the answer to this excuse for non-payment would be for Mr McNeice and Tarrants to make it quite clear to the plaintiff which of them was to be paid. This was knowledge solely within Mr McNeice's camp. It would appear that he could have fairly simply put an end to this so-called dispute. 29I should add with respect to the Tarrants defence that the plaintiff's position is clouded by the evidence that there was a meeting between Tarrants and the Toumas. Norman Touma said at [19] of his affidavit of 2 May 2012 that the plaintiff never retained Tarrants. Mr Finnane asked me to accept that this was an error, but it is difficult to disown what ones own witnesses said in his affidavit. If this is to be accepted then there was no grounds for Tarrants sending an invoice. The work, or at least some of the work, appears to have been done before there was a discharge so that it is a little difficult for the plaintiff to say that there was a genuine dispute. However, as I say, the position with Tarrants is cloudy and all that has to be established at this stage is that there is a plausible dispute. I think there is enough to get over that relatively small hurdle. 30Whilst I was not particularly impressed with the Tarrants defence, I consider that technically speaking it does raise a genuine dispute. An alleged debtor must know to whom he or she is liable. It may be that if Mr McNeice can clarify the situation a fresh statutory demand for this matter might not be able to be met with any defence, but at present I think I should hold that there is a genuine dispute. 31There is another dispute about this amount and that is that Mr McNeice never actually prepared the 2009 income tax return. He says that he was discharged before he did it. There is no denial of this by the Toumas and were it not for other disputes it would seem to me that the mere fact that Mr McNeice did not complete the 2009 return is not necessarily an answer to his claim. You cannot commission a man to do some work and then when he is almost finished the task discharge him and not pay for what was done and perhaps for his expected profits as well. 32I should note too that the plaintiffs (and indeed the defendants) never at any stage actually say that the defendants were discharged from completing the tax returns. That has to be inferred from the statement that new accountants prepared the returns. However, nowhere do the plaintiffs say that they "had" to get their new accountants to complete the work, although that is the word used in counsel's submissions. 33Were it not for the Tarrants dispute I would have varied the statutory demand to allow $3,500.00 (plus GST) for this claim. That was the amount in Mr McNeice's schedule for the previous year and it appears from the affidavits that that quantum is not disputed. 34The plaintiff says that it does not understand what the additional fees of $1,500.00 (plus GST) for "Members Benefit" and $1,500.00 (plus GST) for "Additional Cost Share Trading" in invoice #4002 relate to. I can well see why it takes that view. Accordingly, until this is clarified it must be said to be a genuine dispute. 35As to invoice #4015, $2,365.00 (including GST) is claimed for preparing the "Quarterly Business Activity Statement." This invoice is disputed on similar grounds to the 2009 income tax return and the same result must follow. It is not possible on this application to work out any fair fee for the work which Mr McNeice did before he was discharged. 36The final two amounts claimed in the statutory demand are an administration charge of $1,006.50 for non-payment of invoice #2565; and $1,383.94 of interest on the same invoice. As to the administration charge there are two arguments made by the plaintiff, namely: (a) that it never agreed to pay such a charge; and (b) that it is a penalty. 37As to the plaintiff's first argument, clauses 11.1 (interest) and 11.4 (administration fee) were part of the terms and conditions of contract, which were on the reverse side of the client assignment form that the client signed or initialled. Mr McNeice gave evidence that in each relevant case Mr Raymond Touma or Mr Norman Touma signed or initialled the form and accordingly agreed to the terms and conditions. However, Mr Raymond Touma denied in the witness box that he had signed or initialled any of the documents. I must confess that I found it difficult to accept Mr Raymond Touma's denial but that is not the point. The sworn denial that it is his signature is sufficient to cast doubt on the contractual claim made by the defendants and provides sufficient cause for me to say there is a plausible genuine dispute. 38The plaintiff's second argument that the administration charge constitutes a penalty appears to have some foundation. There is no material to suggest that an "administration" fee calculated on the basis of 10% of the amount allegedly overdue has any relationship to the damage suffered by the defendants in having to do extra administrative work. This is particularly so when one considers that the defendants are also charging interest for non-payment. 39This defence was not, however, fairly indicated in the affidavit accompanying the originating process to set aside the statutory demand. Under s 459G(3) of the Corporations Act, it is a mandatory requirement that an affidavit supporting the application be filed with the court within 21 days of the demand. The affidavit must detail the grounds on which the application is made; a requirement often referred to as a Graywinter principle because of the decision of the Federal Court in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581. However, as I showed in Infratel Networks Pty Ltd v Gundry's Telco & Riggings Pty Ltd [2012] NSWCA 365; (2013) 92 ACSR 27 at [27] and following, the Graywinter principle has been modified by subsequent decisions. The most authoritative expression of the law is contained in the judgment of Parker J (with whom Anderson and Scott JJ agreed) in Financial Solutions Australia Pty Ltd v Predella Pty Ltd [2013] NSWCA 51; (2002) 26 WAR 306; 167 FLR 106. His Honour said (at [34]): "[There is no] settled and universal principle, which must be satisfied by an affidavit before it can be accepted as "supporting the application" within the meaning of s 459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires." 40To borrow from the judgment of Ward J in Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 286 ALR 768; 87 ACSR 1 at [34], the effect of the decision in Financial Solutions is that: "What is required in order to satisfy the s 459G(3) requirement is that the affidavit alert the party to the nature of the case sought to be made on the application to set aside the statutory demand, identifying the "area of controversy" so that it is identifiable with one or more of the grounds available under ss 459H and 459J." 41The plaintiff's defence that the administration charge constituted a penalty was not sufficiently revealed in the supporting affidavit and so cannot be relied on. However, because of the problem with the signatures to the documents this conclusion is of little moment. 42The plaintiff says that on or about the 15 December 2011 it paid Mr McNeice $2,365.00 towards satisfying his claims. However, there was no apportionment as to which claims were covered. I mention this lest it be thought that I have not taken it into consideration. My general feeling from the material is that Mr McNeice will eventually receive something more than that sum from any common law proceedings and thus I do not consider it appropriate to take that sum off the $2,580.00. 43I must also note that in some of the other cases the Touma brothers have paid the defendants lump sums on account of fees. I have not overlooked these. However, my overall view is that the great probabilities are that in a common law action, the defendants will receive more than the total of these lump sums, so that it would be unjust in these proceedings for me to make some arbitrary apportionment. 44Accordingly, in my view, the plaintiff is entitled to have the statutory demands set aside, with the exception of the demand for $2,850.00. 45As to costs, the plaintiff has succeeded in all but one respect and in my view the defendants must pay 85% of the costs of these proceedings. 46According, the formal orders are: (1) Order that the statutory demands issued by the defendants on 5 April 2012 against the plaintiff company be varied by substituting for the amount demanded the sum of $2,850.00. (2) Declare that the statutory demand has effect as so varied from 12 April 2012; when it was served on the plaintiff company. (3) Extend the time for complying with these demands for 21 days after the delivery of these reasons. (4) Order that the defendants pay 85% of the plaintiff's costs of these proceedings. 47These proceedings and the other four proceedings have been heard together. Although I have made orders for costs in each, those costs must be assessed bearing in mind that one brief fee should be allowed albeit with loadings to compensate for the additional four matters. Further, the affidavits were often mere copies or a new printout of identical texts. It would seem that there was more photocopying of annexed documents of minimal relevance than would appear to be necessary.