TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70

Court of Appeal (Vic)|2008-05-05|Before: NEAVE, KELLAM and DODDS STREETON JJA

INSOLVENCY - Application to set aside creditor's statutory demand claiming debts for labour hire services.

Whether genuine dispute over, or off-setting claim for, breach of agreement to achieve WorkCover premium reduction - Whether sufficiently evidenced or plausible - Corporations Act 2001 (Cth) ss 459G, .

1 For the reasons given by Dodds-Streeton JA, I agree that the appeal should be dismissed.

2 I have had the advantage of reading the draft judgment of Dodds-Streeton JA. For the reasons stated by her Honour, I agree that the learned trial judge was not in error in concluding that the respondent had a genuine dispute or off-setting claim in the context of an application to set aside a statutory demand pursuant to section 459G of the Corporations Act 2001 (Cth). The appeal should be dismissed.

**3 In this appeal, the appellant, Frank Marchetti & Sons Pty Ltd ('Marchetti'), appeals from the judgment of a judge of the trial division made on 18 September 2007. His Honour allowed the appeal of the respondent, TR Administration Pty Ltd ('TRA'), from a Master's decision made on 2 July 2007 to dismiss Marchetti's application to set aside TRA's statutory demand dated 2 March 2007 ('the statutory demand'). He also ordered that the statutory demand be set aside and that TRA pay Marchetti's costs of the appeal and the application before the Master.

4 The appellant appeals on the following principal grounds:**

(1) The trial judge erred in holding that the evidence was sufficient to support a genuine claim that the appellant agreed to achieve savings of WorkCover premiums for the respondent.

(2) The trial judge erred in holding that the indemnity contained in the agreement between the appellant and the respondent dated 1 October 2002 ... was sufficient to establish any such prior oral agreement between the parties.

(3) Alternatively, the trial judge should have held that the evidence was not sufficient to establish that it was arguable that any such prior oral

agreement included a term that the appellant had agreed to achieve savings of WorkCover premiums for the respondent.

(4) The trial judge erred in holding that the respondent had a valid offsetting claim in relation to the fees properly charged by the appellant in the sum of $55,593.95.

(5) The judge should have held in particular, that the respondent did not have a valid offsetting claim -

(b) based on a claim for "damages or restitution or howsoever for the fees of some $58,343" paid by the respondent to the appellant;

6 Marchetti is a trucking company which, in 2002, employed a number of employees for whom it paid WorkCover premiums and payroll tax.

7 The amount of the WorkCover premiums was determined by reference to Marchetti's predominant activity, Long Distance International Road Freight Transport. The payroll tax was assessed on its total payroll and did not apply until that reached a specified minimum amount.

8 In late 2002, Ross Taylor, Marchetti's longstanding external accountant who is, inter alia, the sole director of TRA, proposed to it a scheme aimed at the lawful reduction of its WorkCover premiums and payroll tax.

9 The scheme involved the use of five outsourcing labour hire companies, including TRA, which would provide administrative services staff to Marchetti. It was envisaged that reductions could be achieved because the administrative services classification attracted a lower WorkCover premium than Long Distance International Road Freight Transport and Marchetti's total payroll would be lower.

10 Mr Taylor was a director of TRA only. TRA and the other four companies (collectively, 'the employer companies') entered agreements with Marchetti to implement the scheme.

11 A letter on TRA's letterhead, signed by Mr Taylor as 'director', to Frank Marchetti of Marchetti, dated 1 October 2002 stated:**

Thank you for appointing us with effect from 1 October 2002 to provide your Victorian business with administration personnel.

We have already engaged staff in Victoria to meet your requirements, and we have made application for Workcover insurance in Victoria.

On a weekly basis employees will be provided with a Pay Slip setting out their gross, tax, other deductions [eg child support and voluntary super], and net pay.

On an annual basis, each employee will be given a Group Certificate which will be generated from our computer payroll system. The superannuation provider will provide them with their annual member's statement.

As we discussed, we will invoice you on a weekly basis according to net wages paid, plus our outsourcing fee. At the end of each month, or when other payments such as PAYG, Superannuation, and Workcover premiums are required to be paid, these will be invoiced to you, again plus our outsourcing fee. Of course , all invoices will bear GST.

At this stage, as our Australian payroll is well below the threshold for Payroll Tax, this impost will not be relevant. However, if, at some future date, we are required to register for Payroll Tax, this cost will also be invoiced to, plus our outsourcing fee, and GST.

As is the case with all outsourcing and bureau arrangements, you will need to indemnify us for all costs, expenses, disbursements and liabilities incurred on your behalf. For example, this indemnity would include liability for income tax rate changes, changes in direct and indirect labour costs, both prospectively and retrospectively. This would also include re-rating by various authorities such as workcover, payroll tax, superannuation and any costs incurred as a result of re-rating or audit.

As you have acknowledged when agreeing to this indemnity, it doesn't really impose any further obligations on you than you were previously exposed to when you were employing staff in Victoria.

Although we are confident you will enjoy economies which will flow from the administrative efficiencies in outsourcing, if you wish to vary or terminate this arrangement, we will require one month's notice in writing from you.

Of course, upon receipt of notice of termination, we will cooperate fully and promptly with you in the hand-over period until you engage staff to take over the roles our staff were previously fulfilling.

We would not seek any termination penalties, other than recoupment of costs incurred or arising from our provision of outsourcing services to you, regardless of whether such costs arise before during or after termination of this outsourcing arrangement.

Naturally, if there were any outstanding fees due to us we would expect them to be paid before we retreat from the relationship.

We trust that the above information accurately reflects the basis of our relationship. If you are satisfied that it does, we would be grateful if you would sign the enclosed copy of this letter and return it to us. We have provided you with a signed copy of this letter for your records.

**12 Between October 2002 and October 2006, TRA supplied Marchetti with administrative staff.

13 In 2005, WorkCover reviewed the operations of the employer companies providing personnel to Marchetti pursuant to the scheme. By a letter to TRA dated 6 June 2006, it advised that the employer companies were operating from workplaces that were incorrectly recorded. It determined that, as the companies were hiring staff solely to Marchetti, which was exercising operational control and direction, from 1 July 2004 the employer companies and Marchetti would be treated as members of the same group within the meaning of the relevant WorkCover legislation. Marchetti's premises would be their deemed common workplace for the purpose of determining the predominant activity and relevant industry rating.

14 Due to WorkCover's determination, the administrative staff supplied to Marchetti by the employer companies were reclassified as working in Long Distance Interstate Road Freight Transport and the applicable WorkCover premiums for the current and previous years of the scheme were reassessed.

15 A review subsequently occurred, but WorkCover maintained its initial determination.

16 By a letter to Marchetti dated 1 May 2007, WorkCover advised that pursuant to s 66A of the Accident Compensation (WorkCover Insurance) Act 1993, Marchetti was jointly liable to WorkCover for any premiums (including adjusted premiums and penalties) payable by any member of the group of employer companies during its period of deemed membership.

17 WorkCover therefore sought direct payment from Marchetti of the sum of $359,396.77 in relation to the incorrectly calculated premiums from October 2002, made up as follows:**

18 Marchetti terminated the agreement with TRA by the letter of its lawyers, Macpherson & Kelly Lawyers Pty Ltd, dated 12 October 2006, which stated:

We refer to the arrangement for labour out-sourcing.

The arrangements with you for the supply of labour is [sic] terminated effective as at close of business 9 October 2006.

The reasons for the termination is that it is alleged by the Victorian Workcover Authority that the arrangements are not bona fide, and penalties are being sought to be imposed, and grouping provisions. This seems to the then resulting in a claim against our client.

Our client rejects completely that the scheme has not been bona fide [at least insofar as it is concerned and was led to believe] and now finds itself embroiled in that process, with a potential for exposure.

You will recall in the Agreement itself the representations made, and the reliance placed upon the representations made at the time about the efficacy of the relationship.

This conduct has placed the business in very serious jeopardy, and our clients look to you and the directors personally for full indemnity.

Our clients will no longer contribute to the costs incurred by you with Fisher Cartwright Berriman, and indeed view the involvement of Fisher Cartwright Berriman, again based on your advice and recommendation, to be a clear conflict of interest.

Our client also has a claim against you and the Directors personally and others for its damage, including the monies paid to you for fees charged for providing the services of the company.

All future correspondence in relation to these matters are to be directed through us and not the client direct.

**19 By the statutory demand served on Marchetti pursuant to 459E(1) of the Corporations Act 2001 (Cth) ('Corporations Act'), TRA claimed payment of debts described in the schedule, totalling $242,398.92.

20 The schedule listed 28 invoices dated from 31 January 2006 to 16 January 2007. The invoices referred to labour hire, being net wages and an outsourcing fee. Almost 80 percent of the $242,398.92 related to a single invoice, Invoice 7130, which was for $186,804.97. The balance of $55,593.95 related to 27 invoices for amounts ranging between $163.86 and $19,932.

21 The affidavit of Ross Taylor sworn 2 March 2007 accompanying the statutory demand relevantly stated:**

On 1 October 2002 the Creditor and the Debtor company entered into a written agreement whereby the Creditor agreed to provide the Debtor company with finance and administrative personnel ('the Agreement').
It was a term of the Agreement that the Creditor would send to the Debtor company weekly invoiced for net wages paid for personnel services together with an outsourcing fee and monthly invoices to [sic] for any other payments such as PAYG, Superannuation, workcover premiums together with an outsourcing fee.
It was a further term of the Agreement that the Debtor company would indemnity [sic] the Creditor for all costs, expenses, disbursements and liabilities that the Creditor incurred in behalf of the Debtor company.
On 17 January 2006 by letter from the Creditor to the Debtor company the agreement was amended in writing to include a term that from 1 January 2006, the rate for labour hire would increase to 4% of all labour costs, including, but not limited to, wages, superannuation and workcover for all invoices paid within 7 days. Invoices paid outside the 7 day terms were to be reinvoiced at a default rate of 5% of all labour costs.

**22 Mr Taylor deposed that the invoices for the supply of personnel services pursuant to the Agreement between 31 January 2006 and 25 January 2007 remained unpaid.

23 Marchetti, by an originating process dated 29 March 2007, applied pursuant to s 459G of the Corporations Act to set aside the statutory demand.

24 By an affidavit sworn 29 March 2007 in support of the application to set aside the statutory demand, Stephen Campbell, the chief executive officer of Marchetti, deposed on information and belief that Mr Taylor had had a long and detailed involvement in Marchetti's affairs, was its 'external accountant and trusted adviser in regards to all aspects of the Company's business' and had 'a thorough understanding of the Company's financial affairs...'. He deposed that:**

[i]n or about September 2002, .... Mr Taylor implemented a scheme that was meant to be an economical alternative to [Marchetti] employing labour directly and as such, its workcover premiums would be significantly reduced. As part of the scheme, Mr Taylor was to arrange for various companies to be set up as labour hire companies and in return for this, each company would receive a percentage fee of wages and other expenses invoiced. In effect, the percentage to be charged was calculated by Mr Taylor to split the savings to be made by [Marchetti] on workcover premiums between [Marchetti] and the labour hire companies.

[o]n or about 1 October 2002 [TRA] provided to [Marchetti] an agreement for the supply of labour to [Marchetti] by [TRA] ("the Agreement") and labour hiring commenced.

Pursuant to the Agreement, [TRA] was entitled to render invoices for fees for its services in providing labour hire to [Marchetti].

**26 Mr Campbell deposed that Mr Taylor was integral to the construction of the scheme, the Agreement and alleged amended Agreement (which increased the percentage fee). Further, he was 'informed by Mr Marchetti ... that they relied on the advice of Mr Taylor. As a result of the same, [TRA] has obtained financial advantage, as has its director, Mr Taylor indirectly.'

27 Mr Campbell stated that, as Mr Taylor was aware, '[s]ince possibly as early as 2003', the scheme came to WorkCover's attention. He deposed to WorkCover's subsequent determination, the unsuccessful review and Marchetti's consequent termination of TRA's services. He stated that, as a result of WorkCover's determination, 'the labour hire arrangement between [Marchetti] and [TRA] was completely ineffective in its purpose. That is, there has been no saving at all made by [Marchetti] on workcover premiums.' He therefore asserted a total failure of consideration.

28 In relation to Invoice 7130, Mr Campbell asserted that, because Marchetti was currently being pursued by WorkCover for the sum comprising the WorkCover premium component of $178,932.27, it disputed its liability to pay that sum.

29 Further, because WorkCover had assessed Marchetti as liable for additional WorkCover premiums in relation to incorrectly calculated premiums, Marchetti counterclaimed for the repayment of all service fees it had paid to TRA, on the ground of total failure of consideration.

30 Mr Campbell also asserted that Marchetti had a counterclaim for misleading and deceptive conduct against Mr Taylor and TRA, as it had suffered loss and damage as a result of the scheme, including the service fees it had paid to TRA and the WorkCover debt. Further, or alternatively, it had a counterclaim against TRA based on the negligence of Mr Taylor and/or TRA.

31 Mr Taylor, by an affidavit sworn 2 May 2007, disputed that TRA's service fees represented a split of savings. Rather, he asserted that from 2002 to date, TRA charged service fees calculated as a percentage of the cost to TRA of paying the employees it supplied to Marchetti, together with all statutory charges. The percentage was originally 3 per cent and increased to 4 per cent from January 2006.

32 Mr Taylor acknowledged 'that the primary objective of the arrangement between [TRA] and [Marchetti] was to reduce [Marchetti's] WorkCover premiums...', but stated that the secondary objective of reducing Marchetti's payroll tax liability had been substantially achieved.

33 Mr Taylor asserted that '[i]t was never a term of any agreement between TRA and [Marchetti] that TRA would be required to repay any Service Fees if there was no saving made by [Marchetti].' He also deposed that Marchetti had made significant savings on its WorkCover premiums for the years 2002 to 2004.

34 He deposed that all amounts referred to in Invoice 7130 relating to WorkCover premiums related to personnel supplied by TRA to Marchetti.

35 Mr Taylor stated that he was unaware of any basis for a misleading or deceptive conduct or negligence claim against TRA or himself.

36 Mr Campbell, by a second affidavit sworn 16 May 2007, again denied that Invoice 7130 was due and payable and contended that TRA had not satisfied the liability for $186,804.97 which, in any event, should be paid directly to the WorkCover Authority.

37 He referred to WorkCover's review of the premium liability from 1 October 2002 and its demand, served on Marchetti, for $359,396.97 for unpaid WorkCover premiums and penalties, calculated from 1 July 2004 in respect of the employer companies, which amount exceeded TRA's claimed debt.

denies that this liability would have arisen but for the failed labour hire arrangements proposed and set up by [TRA] and Mr Taylor. If [TRA] and/or Mr Taylor had provided proper advice and had set up labour hire companies with proper work place addresses then Marchetti would not have been exposed to liability for the WorkCover demand.

**39 Mr Campbell reiterated that under the scheme suggested by Mr Taylor Marchetti and the employer companies, including TRA, would share Marchetti's savings resulting from the use of the scheme. He deposed that the service fee was not reflective of actual cost to the entities and that Mr Taylor, TRA and the other employer companies did not incur any significant costs in providing the employees to Marchetti.

40 Mr Campbell deposed that Mr Taylor invoiced Marchetti through his accounting firm, 'Figured Out', for all his involvement regarding WorkCover, even if arising in relation to TRA or the other employer companies. He also instructed solicitors on behalf of his own accounting company, TRA, the other employer companies and Marchetti.

41 By his second affidavit sworn 7 June 2007, Mr Taylor deposed to a creditor's statutory demand dated 19 December 2006 for $164,859.98 served on TRA by WorkCover and a subsequent winding up application dated 3 April 2007, which was resolved by an agreement between TRA and WorkCover.

42 By his third affidavit sworn 7 June 2007, Mr Campbell deposed that Invoice 7130 for $186,804.97 comprised WorkCover's overdue account statement for $178,931.96 to TRA, together with TRA's 4 per cent service fee. The WorkCover overdue account was issued to TRA as a result of its adjusted premiums for the period from 2002 onwards, together with penalties, as a result of the audit. The only WorkCover premium amount TRA sought in the statutory demand thus related to the increased premiums and penalties, which would not have arisen, but 'for the failed labour hire arrangements proposed and set up by [TRA] and its director Mr Taylor'. Mr Campbell asserted that TRA 'is not entitled to seek an indemnity from [Marchetti] for liabilities that it has incurred solely as a result of its failure to set up a labour hire arrangement which compiled with the requirements of the Workcover legislation and the [Victorian WorkCover Authority].'

43 Marchetti had, he deposed, engaged a new labour hire company, Network Personnel Pty Ltd, which had its own workplace. Marchetti now paid a WorkCover premium below that applied to TRA under the WorkCover audit. Therefore, Marchetti should not be liable to indemnify TRA for premiums attributable to its ineffective business set up, as the WorkCover demand for $359,396.97 was attributable solely due to TRA's failure to have its own complying workplace.

44 On 2 July 2007, the Master dismissed Marchetti's application to set aside the statutory demand on the basis that the letter of 1 October 2002 contained the entire agreement between TRA and Marchetti which, by its indemnity clause, clearly covered the liabilities (expressly including re-rating) claimed in the statutory demand. Further, he considered that Marchetti's cause of action against Mr Taylor did not extend to TRA.

An agreement was entered into by [Marchetti] for [TRA] to provide to [Marchetti] with administration personnel. [Marchetti] was to be invoiced on a weekly basis according to net wages paid plus an outstanding fee. The agreement contained an indemnity for all costs, expenses, disbursements and liabilities incurred on behalf of [Marchetti]. The indemnity related to re-rating by various authorities such as Workcover and payroll tax.

The scheme failed in relation to workers' compensation payments but not payroll tax. The scheme in relation to Workcover did not comply with the requirements of Workcover legislation and Workcover payments have been re-assessed. [TRA] has done what it is required to do pursuant to the agreement and has provided the labour services.

The fact that Mr Taylor is a director of [TRA] does not enable [Marchetti] to claim a genuine dispute against [TRA]. There is clearly an arguable offsetting claim but not against [TRA]. On the evidence before the Court, any application against [TRA] would be summarily dismissed. There is no credible evidence before the Court, which could lead to the conclusion that there is an offsetting claim against [TRA].

A Counterclaim for loss and damage in the sum of $80,770 for service fees that have already been paid is claimed. Any claim in that regard should ... be made against Mr Taylor personally and not [TRA].

**46 The learned trial judge outlined the factual background and relevant legal principles.

47 His Honour concluded that Marchetti had established a good defence or, more probably, a good off-setting claim, to the debt claimed in Invoice 7130.

48 Invoice 7130 totalled $186,804.97, comprising additional WorkCover premiums and penalties imposed through the reclassification of TRA's employees ($162,665.40), service fees thereon ($7157.28) and GST on those amounts ($16,982.27). His Honour found that there was sufficient evidence to support a genuine claim that TRA had breached an oral term of the agreement which obliged it to achieve savings by attracting a lower rate of premium than applied to administration staff as employees of Marchetti. The breach arguably led to the incurring of the additional premiums and penalties in Invoice 7130.

49 His Honour referred to the letter of 1 October 2002 and stated:**

I turn to the agreement itself, which is Exhibit SJC4, and in particular I refer to the indemnity which is set out at the top of page 2. I should indicate that the letter is under the letterhead of TR addressed to Mr F. Marchetti of Frank Marchetti & Sons Pty Ltd and signed by R.D. Taylor, Director. Under the heading "Indemnity", the letter provides:

"As is the case with all outsourcing and bureau arrangements, you will need to indemnify us for all costs, expenses, disbursements and liabilities incurred on your behalf. For example, this indemnity would include liability for income tax rate changes, changes in direct and indirect labour costs, both prospectively and retrospectively. This would also include re-rating by various authorities such as WorkCover, payroll tax, superannuation, any costs incurred as a result of re-rating or audit.

As you have acknowledged when agreeing to this indemnity, it doesn't really impose any further obligation on you than you were previously exposed to when you were employing staff in Victoria."

The letter refers to Mr Marchetti agreeing to this indemnity thereby confirming, what is apparent, that there was a prior oral agreement between the parties. The letter has to be read in the light of the oral agreement there referred to. The evidence of the oral agreement we have is limited to the evidence given on the information and belief by Mr Campbell referred to above. Under the heading of "Termination", it is provided in the first paragraph of the letter of 1 October 2002:

"Although we are confident you will enjoy economies which will flow from the administrative efficiencies in outsourcing, if you wish to vary or terminate this arrangement, we will require one month's notice in writing from you."

In my view, the evidence that I have referred to and which includes the necessary inferences which must be drawn from the words in the letter is sufficient to support a genuine claim that TR had agreed to achieve savings in respect of administration staff through them being rated at a lower rate than they currently bore as employees of Marchetti. In my opinion there is sufficient evidence to raise a genuine claim, whether it be by way of defence or counter-claim, to argue that TR has failed to perform its agreement and its failure to do so has led to the incurring of the additional premiums and penalties that are the subject of Invoice 7130.[1]

**50 He concluded that for the invoices other than Invoice 7130, which totalled $58,343 for service fees and GST, Marchetti did not have a defence of total failure of consideration.

51 His Honour accepted, however, with some reservations, Marchetti's argument that it had an offsetting claim for fees of $58,343 paid to TRA for services provided in the financial years 2004/2005, 2005/2006 and 2006/2007, based on the failure of TRA and the other employer companies to achieve the reduced WorkCover premiums, for which each company was jointly and severally liable.

52 Alternatively, his Honour accepted that Marchetti had an offsetting claim for damages or restitution in relation to the claim for $58,343.

53 He concluded that Marchetti had a genuine claim for damages to the extent of the fees incurred, as the primary objective of the scheme was not achieved. It sufficed, his Honour said, that the claim was open to be genuinely made and it was unnecessary for him to 'fine tune' the quantum of any damages.**

54 Section 459 G of the Corporations Act provides:

(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.

(2) An application may only be made within 21 days after the demand is so served.

(3) An application is made in accordance with this section only if, within those 21 days:

(a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

55 Section 459H of the Corporations Act provides:

(1) This section applies where, on an application under section 459G , the Court is satisfied of either or both of the following:

(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(2) The Court must calculate the substantiated amount of the demand in accordance with the formula:

(b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates.

(a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim; or

(b) if the Court is satisfied that the company has 2 or more offsetting claims - the total of the amounts of those claims; or

(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.

(4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:

(a) varying the demand as specified in the order; and

(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company.

(a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt - a nil amount; or

(b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt - so much of that amount as the Court is satisfied is not the subject of such a dispute; or

offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).

respondent means the person who served the demand on the company.

(6) This section has effect subject to section 459J.

**56 The Court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.

57 No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the 'ultimate question' of the existence of the debt should not be compromised.[2]

58 On appeal, the sole question is usually whether the primary judge erred in determining that there was, or was not, a genuine dispute or off-setting claim. That is, of course, a different question from whether the debt exists.

59 As Brooking and Charles JJA observed in Spacorp Australia Pty Ltd v Myer Stores Ltd ('Spacorp'):[3]**

The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.

We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.[4]

**60 In Spencer Constructions Pty Ltd v G A M Aldridge Pty Ltd ('Spencer'),[5] the Full Federal Court cited a variety of different formulations of the principles applicable to determining the existence of a genuine dispute or off-setting claim. Their Honours considered the different articulations helpful, but warned that they should not become a substitute for the words of the statute.

61 As recognised by Heerey J in Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd,[6] any tendency to 'trawl through a myriad of judgments' and plethora of formulations is equally to be avoided.

62 The Full Federal Court in Spencer concluded that:**

In our view a genuine dispute required 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, illusory or misconceived.[7]

**63 That statement was endorsed by Ormiston JA (with whom Brooking and Charles JJA agreed) in Spacorp.

64 One of the many formulations referred to by the Full Federal Court in Spencer was that of McClelland CJ in Equity in Eyota Pty Ltd v Hanare Pty Ltd,[8] where his Honour stated:**

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.

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.

65 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.[9]

**66 In the present case, the appellant stressed the formulation of 'a patently feeble legal argument or an assertion of facts unsupported by evidence' set out in South Australia v Wall.[10]

67 In South Australia v Wall, the Full Court of the Supreme Court of South Australia construed the meaning of the phrase 'genuine dispute' in a different legislative context. The Workers' Compensation Act 1971-1979 (SA) required an employer to pay compensation to a worker for personal injury, but by s 53(3)(b) of the Act provided for the Court to order that payments not apply in relation to so much of the claimed compensation as was the subject of a genuine dispute.

68 Cox J (with whom Mitchell and Walters JJ agreed), observed that under the relevant provisions, absent establishing a genuine dispute, an employer was liable to pay compensation immediately on the basis of the employee's assertions and materials (which could be limited or unpersuasive). The policy underlying the establishment of a genuine dispute was to ensure that an employer did not have to pay compensation (which was ordinarily irrecoverable) on a claim that was unmeritorious.[11] In such circumstances, his Honour considered that a dispute that was not supported by 'independently obtained evidence' would not inevitably fail to qualify as genuine.

69 Cox J stated that, bearing in mind the policy, there was good reason for giving the words 'genuine dispute' a plain and uncomplicated meaning as a safeguard against allowing a colourable and insincere denial of liability to frustrate the goal of the provisions.

70 He rejected the view that any objective appraisal of the dispute was appropriate. His Honour stated that while 'a patently feeble legal argument or an assertion of facts unsupported by evidence would more readily disincline the Court to consider the dispute to be a genuine one, so far as the employer is concerned', [12] the merits were otherwise not relevant. Only a dispute which was frivolous or 'one made without adequate inquiry and consideration' would run the risk of not being considered genuine.[13]

71 As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something 'between mere assertion and the proof that would be necessary in a court of law' may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.

72 As Barrett J recognised in Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd:[14]**

the task faced by a company seeking to set aside a statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one.[15]

**A rigorous curial approach is nevertheless essential to the effective operation of the statutory scheme.

73 As in the present case, the relevant issues are frequently presented and argued more extensively or with different emphases on appeal and it may be difficult to draw the line between, on the one hand, evidence which is of a quality and particularity sufficient to support a genuine dispute or off-setting claim, and, on the other hand, that which is not.**

**74 The appellant contended that there was insufficient evidence to support his Honour's finding of a genuine dispute or offsetting claim based on an arguable breach of contract.

75 Although the appellant conceded that there was evidence of antecedent discussions and a prior oral agreement between Marchetti and TRA, it argued that there was no evidence of any terms additional to those contained in the letter of 1 October 2002. In particular, there could be no implied or oral term, or representation, to the effect that TRA would achieve reductions in premiums, as that was inconsistent with the express terms of the letter of 1 October 2002. The letter provided for the supply of administration personnel, and the indemnity clause required Marchetti to indemnify TRA for the liabilities TRA thereby incurred on its behalf, expressly including liabilities for re-rating or audit by authorities such as WorkCover. The appellant further emphasised that the letter contained no contractual warranty that TRA would achieve the relevant savings. The indemnity thus precluded a finding of a guarantee or promise that savings would be achieved. It contemplated that the steps to be taken by TRA could be ineffective, but provided that irrespective of re-rating or audit, Marchetti would be liable.

76 The appellant further argued that a term or representation to the effect that TRA would achieve reductions, as found by his Honour, was unsupported by any credible evidence.

77 The evidence of Mr Campbell, on which the trial judge relied, was, counsel submitted, vague and unsatisfactory. Mr Campbell initially deposed only that Mr Taylor proposed and implemented the scheme for the purpose of achieving reductions. No discussions between Messrs Taylor and Marchetti were set out. In subsequent affidavits, Mr Campbell asserted that the failed labour hire arrangements 'were proposed and set up by [TRA] and/or its director Mr Taylor' who failed to 'provide proper advice' and failed to 'set up labour hire companies with proper work place addresses', thus giving rise to a counterclaim against them for misleading and deceptive conduct. There was, however, counsel submitted, no factual basis for identifying TRA with its sole director, Mr Taylor, in relation to the proposal or implementation of the scheme. Rather, the evidence established that the agreement between TRA and Marchetti was a narrow labour hire contract, fully documented by the letter dated 1 October 2002, albeit concluded as an element of the wider scheme proposed by Mr Taylor alone.

78 As such, the appellant submitted that his Honour's inference that TRA represented or agreed that it would achieve the WorkCover premium reductions was contrary to the express terms of the letter dated 1 October and based on speculation, contrary to the principles recognised in Nesterczuk v Mortimore[16] and Lend Lease Development Pty Ltd v Zemlicka.[17] The judge was not, it argued, entitled to conclude that there was breach of an oral term to the effect that TRA had agreed to achieve savings, or that any liability of Ross Taylor for negligent advice or breach of duty sounded against TRA. Further, the appellant contended that reductions in payroll tax had been achieved, so the scheme had succeeded in part.

79 In my opinion, in the present case, the trial judge did not err in concluding that there was sufficient evidence and factual particularity to render it arguable that TRA agreed to achieve the WorkCover savings, which it failed to do, thus incurring the additional premium and penalties included in Invoice 7130.

80 It is, in my view, arguable, as the trial judge held, that the terms of the agreement or arrangement between Marchetti and TRA are not exhaustively set out in the letter dated 1 October 2002. The appellant ultimately did not press its contention that there was no oral agreement, or dispute that there were antecedent discussions between Mr Taylor and Marchetti in relation to the scheme.

81 Mr Taylor's role in proposing and implementing the scheme does not preclude his making an agreement or representation on behalf of TRA (an entity he wholly controlled and which derived revenue from the scheme), to the effect that reductions would be achieved or, more probably, that TRA would take reasonable and competent measures in order to achieve them. It is common ground that TRA commenced its labour hire operation in order to implement the scheme, the primary purpose of which was to achieve a reduction in premiums. The letter of 1 October 2002 speaks as 'we' and arguably blurs the separate legal identity of TRA and Mr Taylor. It also states '[w]e are confident that you will enjoy economies which will flow from the administrative efficiencies in outsourcing'. That express assurance tends to undermine the appellant's contention that TRA was wholly divorced from the wider scheme and made no representations or promises as to the achievement of its primary purpose. While the letter does not state that TRA has any obligation necessary for that purpose (such as classifying the employees appropriately), as the trial judge recognised, arguably the agreement does not make sense unless there was some obligation on TRA to achieve the primary purpose of the scheme.

82 Mr Campbell's evidence was that the scheme was already implemented in September 2002, prior to the letter of 1 October 2002. The letter makes clear that an agreement or arrangement was already in place, as the appointment of TRA, although only operative from 1 October 2002, was taken to be already achieved. The letter refers to 'previous discussions' and states that 'we have already engaged staff in Victoria to meet your requirements.'

83 The indemnity clause also refers expressly to a prior agreement. It states '[a]s you have acknowledged when agreeing to this indemnity, it doesn't really impose any further obligations on you than you were previously exposed to when you were employing staff in Victoria' (emphasis added). It further states 'you will need to indemnify us for all costs, expenses, disbursements and liabilities incurred on your behalf'. It provides examples of the liabilities covered by the indemnity, stating 'this would also include re-rating by various authorities such as workcover', but does not purport to set them out exhaustively.

84 While the appellant contended that the indemnity is exhaustive and unqualified, it is arguable that Marchetti's liability is limited by reference to its existing exposure to obligations, so that liabilities in the nature of penalties, or which exceeded the then applicable quantum, would not be covered.

85 The letter of 1 October 2002 is a summary and relatively informal document, which assumes a prior oral agreement. Arguably, it does not exhaustively set out the terms of the agreement between Marchetti and TRA, which may have included an implied or oral promise that the scheme would constitute an economical alternative to Marchetti's current direct labour hire or that reasonable and competent steps would be taken to reduce its WorkCover premiums.

86 The evidence of Mr Campbell, including of the WorkCover demands, re-rating and penalties, WorkCover debt and the lower premiums currently paid pursuant to Marchetti's arrangement with Network Personnel Pty Ltd, renders it arguable that although it was possible to achieve lawful reductions, TRA failed to do so, and instead attracted penalties.

87 The appellant's contentions that the letter of 1 October 2002 unarguably constitutes a discrete, narrow contract, divorced from the wider context of the scheme, and that the evidence establishes a strict separation of the roles and legal obligations of TRA and its sole director, are not, when analysed in context, persuasive.

88 The appellant's approach, in my view, conflated a reasonable inference and assessment of plausibility which his Honour was entitled to make on the available evidence, with speculation.

89 His Honour distinguished between the claim under Invoice 7130 and the remaining 27 invoices for a total of $55,593.95, which related to fees properly charged for labour hire. His Honour's different and more reserved approach to the off-setting claim in relation to the remaining invoices, was, in my opinion, unnecessary.

90 Having held it arguable that TRA agreed, but failed to achieve the premium reductions (or to take competent and reasonable steps to do so), it followed, in my view, that the trial judge was also entitled to conclude that, as Marchetti was arguably liable jointly and severally with the employer companies for WorkCover premiums and penalties totalling $359,396.77 due to TRA's breach, there was an off-setting claim in relation to the balance of the invoices.**

91 In my opinion, the trial judge did not err in concluding that the respondent had a genuine dispute or off-setting claim. It follows that the appeal should be dismissed.

[1] Frank Marchetti & Sons Pty Ltd v TR Administration Pty Ltd [2007] VSC 352 (Unreported, Supreme Court of Victoria, Robson J, 18 September 2007) [22]-[24].

[2] Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270.

[4] Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) VSCA 89, [3]-[4].

[7] Spencer Constructions Pty Ltd v G A M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, 464.

[9] Eyota Pty Ltd v Hanare Pty Ltd (1994) 12 ACSR 785, 787.

[10] (1980) 24 SASR 189, referred to in Eyota Pty Ltd v Hanare Pty Ltd (1994) 12 ACSR 785.

[11] South Australia v Wall (1980) 24 SASR 189, 194.

[15] Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWCA 411, [23].

Compensation (WorkCover Insurance) Act 1993

Workers' Compensation Act 1971

Compensation (WorkCover Insurance) Act 1993

Workers' Compensation Act 1971

At a glance

Court

Decision date

Before

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Judgment (182 paragraphs)

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Legislation Cited (4)

Cases Cited (4)