Yarraman Estate v Agrivest

CATCHWORDS : Corporations Law. Application to set aside a statutory demand. Offsetting claim not established. Proceedings dismissed.

PARTIES : Yarraman Estate Pty Ltd v Agrivest Australia Pty Limited

COUNSEL : Mr MJ Heath for defendant

SOLICITORS : Mr M Horton RBHM Commercial Lawyers for plaintiff Herbert Geer Lawyers for defendant

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2009/322323 YARRAMAN ESTATE PTY LTD ACN 101 141 593 v AGRIVEST AUSTRALIA PTY LTD (in liquidation) ACN 124 329 013 JUDGMENT

1 HIS HONOUR: This is an application to set aside a statutory demand served by the defendant on the plaintiff. As the defendant is now in liquidation there is also an application by way of motion filed 5 May 2010 for leave for the plaintiff to proceed against the defendant in these proceedings nunc pro tunc. The demand dated 23 November 2009 in the sum of $34,223.80 is in respect of three invoices for the provision of quantities of apple juice provided by the defendant to the plaintiff. Background 2 The plaintiff entered into discussion with the defendant for the supply of apple juice which the plaintiff would convert to apple cider and then market the produce as alcoholic cider. The discussions commenced in July 2009. 3 The discussions proceeded and eventually the form of the proposed agreement for the defendant to supply apple juice to the plaintiff for a period of 3 years was reduced to writing. However, the agreement was never executed. 4 The agreement also contemplated another agreement to place with the plaintiff a parcel of shares. 5 By 14 July 2009 the negotiations reached a point whereby in an email from the defendant to the plaintiff a redraft of the agreement was enclosed with this comment: "Redraft of the agreement we discussed - it has been around Geoff, George and myself, so probably needs a thorough re-read. Lets have your comments and sign off when you're next in the office." 6 According to the evidence of Mr Gary Blom, a director of Yarraman, there were a number of further meetings and at the last meeting the following conversation occurred: I said: "We are happy with the terms of the agreement." Geoff White and George McDonald both said: "I am happy with the terms of the agreement. We will arrange for the company to sign an agreement.'" 7 No agreement was signed because events overtook the matter. On 19 October 2009 a receiver and manager was appointed to the defendant and on 20 November 2009 a liquidator was appointed pursuant to a creditors voluntary winding up. On 23 November the statutory demand was signed and served on 27 November 2009. The originating process was filed and served within time. Plaintiff's submissions 8 The plaintiff submits that they have a total offsetting claim in the sum of $244,000. The plaintiff sourced an alternative supplier who has agreed to supply the apple juice at a price of $0.51 per litre which is in contrast to the price $0.38 per litre under the proposed contract to which I have referred. The inability of the defendant to deliver the apple juice to the plaintiff over the period of three years (the period of the proposed contract) led to a difference of $234,000 and there was an additional $10,000 expenses incurred in rebranding its product. 9 The affidavit evidence in support of the application, subject to the question of whether there was an agreement, supports the offsetting claim amount in terms of providing appropriate evidence of the quantum. 10 In considering the question of the offsetting claim I bear in mind the comments of Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 as follows:

"In my opinion, a genuine offsetting claim for the purposes of CA s 459H(1) and s 459H (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s 459H." Defendant's submissions 11 In summary, the defendant's contentions are as follows: a. There was no evidence to demonstrate a concluded agreement to supply.

b. There was no breach of any agreement for supply.

a. There was no evidence to demonstrate a concluded agreement to supply 12 The defendant contends that there was no concluded agreement for future supply and that in these circumstances there was no liability for breach of such an agreement that would be for the losses which had been calculated as I have set out above. 13 In Masters v Cameron (1954) 91 CLR 353 a document in relation to the sale of land drawn up by the parties provided that it was subject to the preparation of a formal contract of sale acceptable to the respondents' solicitors. The High Court (Dixon CJ, McTiernan and Kitto JJ) held: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution … Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore to do not have, any binding effect of their own … The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document as in Summergreene v Parker (1950) 80 CLR 304 or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. … in such a case there is no enforceable contract, either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape … When it is not expressly stated to be subject to a formal contract it becomes a question of construction, whether the parties intended that the terms agreed on should merely be put into form, or whether they should be subject to a new agreement the terms of which are not expressed in detail." 14 There is a suggestion in the authorities that a fourth class of cases exists, namely, one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon, while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms. However that is not relevant to the present case.

15 In the present case the defendant claims that this is clearly a case which falls into the third category of Masters v Cameron, namely, that the agreement does not have a binding effect until it is signed by the parties. 16 In considering this question I look at it in the context of deciding whether there is a genuine offsetting claim described by Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd to which I have referred. This is not a simple point of law that can be determined on the hearing of this matter.

17 In this matter I have already referred to the email which enclosed the final redraft of the agreement. As can be seen the author is suggesting that the document will have to be carefully reviewed and that there will be a "sign off". In addition in respect of the conversation which is alleged to have occurred later, the terms of the reply contemplated the agreement needed to be signed.

18 Another matter that appears from the terms of the document itself is its definition of "commencement date". This is defined in the agreement to "mean, unless the parties agree otherwise in writing, the date of this agreement". There is no evidence of any other agreement in writing and this also supports the conclusion advocated for by the defendant.

19 There is also evidence that there was to be a related share sale agreement intended to supplement the returns to the defendant arising from its supply of apple juice to the plaintiff at $0.38 into the future. This proposal found itself reflected in the draft agreement in "Background G" which is as follows: "G. Yarraman has issued 5 million shares to Whinners on behalf of Agrivest to reflect the cost to Agrivest of processing apples to Product." 20 In the draft agreement "11. Processing" is as follows: "11.1 Agrivest will be responsible for processing the Product and all associated costs.

11.2 In order to assist Agrivest manage its cash flows relating to processing the Product, Agrivest can place with Yarraman a parcel of the shares referred to in Recital G at the greater of market value or $0.42 for the total amount of actual processing costs of the Product incurred throughout the prior year. The first year being the FY 30 th June 2010.

11.3 Such placement and payment by Yarraman shall be made and paid within 30 days from the receipt of actual processing costs certified by the directors of Agrivest after the June 30 th for ending date of this Agreement should it not run that full year) 11.4 Agrivest shall use its best efforts to negotiate & minimise these processing costs and will provide a detailed reconciliation for all processing costs for the prior year." 21 There is no evidence that the agreement contemplated by these provisions ever came into existence. One would expect that it would be dealt with at least by the time the supply agreement came into force. 22 In the face of these matters it hardly seems arguable that the third situation in Masters v Cameron was not applicable.

b. There was no breach of any agreement for supply 23 There is no doubt that prior to the concluded agreement and prior to the submission of the document concerning future supply there had been supplies by the defendant to the plaintiff. This is reason why the demand was issued because the invoices the subject of the statutory demand and also some later invoices issued after the demand was served covering subsequent deliveries had not been paid. 24 The defendant submitted that there was no refusal to continue to supply at $0.38 per litre and hence no anticipatory breach of the contract. The defendant's submission and the evidence clearly shows that after the appointment of the receiver managers the plaintiff simply sourced an alternative supplier for reasons probably connected with protecting their own commercial interests as they had committed themselves to forward supplies of the ultimate product. 25 Indeed in Mr Long's affidavit of 12 March 2010 he quotes a conversation he had with Mr Nelson which reinforces that there was a positive commitment by the defendant to continue to supply juice to the plaintiff. 26 It is clear from Mr Blom's affidavit of 12 March 2010 that what in fact happened was that after the appointment of the receiver managers, the plaintiff simply "needed to find an alternative apple juice supplier so as to ensure that their contract could be maintained because there was no certainty that the price of supply from Agrivest or any new owner of the business of Agrivest or of their orchards would necessarily continue supply on the same terms." 27 Accordingly even if there was a concluded contract as alleged there is no evidence of a breach of that contract.

c. The claim is not genuine 28 The defendant submitted that the claim was not genuine on the basis that there is evidence suggesting that the claim had been "manufactured or got up" simply for the purpose of defeating the demand. They referred to the words of McPherson JA in JJMMR Pty Ltd v LG International Corp [2003] QCA 519 at [18] as a basis for this assertion:

"The claim to set off against the debt demanded must not have been manufactured or got up simply for the purpose of defeating the demand made against the company. It must have an existence that is objectively demonstrable independently of the exigencies of the demand that evoked it." 29 There are a number of reasons why the defendant suggests that it is not a genuine claim. These include that there is no dispute about the debt and that there were two further supplies of juice not the subject of the demand and thus no payment has been made in respect of the supply. The defendant also refers to the fact that the plaintiff has taken no steps to prosecute any claim or to obtain leave under s 500(2) of the Corporations Act 2001. However, given the commercial situation of the defendant being in liquidation their only practical course would be to lodge a proof of debt. 30 Having regard to the matter which I have discussed concerning the existence of the contract and its breach I am not satisfied that the plaintiff has an offsetting claim. Application for leave under s 500(2) of the Corporations Act 31 The plaintiff seeks an order that leave be granted pursuant to s 440 and s 500(2) to commence these proceedings, nunc pro tunc. The plaintiff submits that the circumstances are not dissimilar to those dealt with by the court in Home Corp Projects (No 100) v Australian Home Mortgage Corp [2001] NSWSC 701, Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2007] NSWCA 338 and Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186. 32 In Home Corp Projects (No 100) v Australian Home Mortgage Corp in granting the application for leave nunc pro tunc Palmer J at [8] applied the decision in Emanuele v Australian Securities Commission (1997) 188 CLR 114 where the majority held that failure to obtain leave was a mere defect or irregularity in the exercise of the court's jurisdiction which could be cured by granting leave nunc pro tunc and the commencement of the proceedings without leave was not a nullity, so that the court had jurisdiction to make the winding up order which was in fact made. 33 The defendant opposed leave being granted but did not put forward any reasons. 34 Although the application under s 459G to set aside the statutory demand dated 23 November 2009 issued by the defendant fails as the plaintiff failed to demonstrate an arguable case it is appropriate to give leave for the purpose of determining this case. 35 I make the following orders:

1. I give leave nunc pro tunc to commence and continue these proceedings.

2. I dismiss the proceedings with costs. **********

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