Zone v Allards

Zone v Allards - [2003] NSWSC 1161 - NSWSC 2003 case summary — Zoe

[23]

If ZPI fails to meet the varied minimum sales target for any month or fails to make strictly when due any payment required by clause 3 of this letter, then Allards may be written notice immediately terminate these terms of variation and except to the extent that any rights have accrued to either party prior to termination, the Agreement shall be construed as if these amendments had never been made. The terms of this letter shall not in any event survive the termination of the Agreement." 7 The plaintiff says that a genuine dispute exists for three reasons: (1) There is a failure to account for some payments. (2) The demand or affidavit in support of the demand is misleading and thus is defective. (3) The agreement properly construed means there is no liability because credits for purchases and payments made in earlier months can be taken into account in respect of a later month's liability to order and pay for the minimum monthly amount of $10,000. 8 I have been referred to a number of authorities in respect of the principles to be applied. I think the most useful summation is that given by McLelland J in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments in respect of a "genuine dispute": "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 459H. 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 (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 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.'

[28]

10 The relevant statement to which I am referring is annexure C to the affidavit of Mr Nolan sworn on 17 October 2003, and it is said in his affidavit to be annexed to the demand. On the face of the demand, it is not and the parties conducted the case on the basis that it was attached to the affidavit. The affidavit is not in evidence, and it is thus hard to see whether the schedule is misleading in some respects. 11 In order to see whether there is in fact a defect in the affidavit substantial injustice does not have to be demonstrated. However, the seriousness of any misleading effect of the schedule should be considered, to see whether there is a defect such that the demand should be set aside. It is only if the defect goes to confusion of some kind or breaches the basic statutory principles behind the regime, then the demand would be set aside. 12 However, it is clear from a comparison of annexures C and D that annexure C does not include the actual payments received in respect of the months of November 2001 to June 2002, but does include the actual payments from October 2002 to June 2003. To this extent, one might say, looking at it on its face, it is misleading. 13 However, it is perfectly apparent from the affidavits the plaintiff filed in support of the application, and the way the plaintiff has treated the demand, that it is not confused and it is clearly able to deal with the discrepancies in the schedule. This is in fact what it does in annexure D. In the circumstances, I do not think the defect is sufficiently serious to warrant the setting aside of the demand. The proper construction of the agreement 14 There is a preliminary point that has to be determined in respect of this claim and that is whether the ground was included in the affidavit filed within time. There has been a dispute in the cases as to whether or not, provided there has been a supporting affidavit filed within the 21 day period of the application, that it may be amended by allowing additional grounds raised after the 21 day period. 15 In Civil Systems Pty Limited v B T Constructions Pty Limited, a decision of mine of 15 December 2000, I drew attention in paragraph 11 to the different first instance decisions to which I had been directed at that time. The matter has been dealt with further by a judge of this Court, and also the Full Court of Western Australia. In Process Machinery v ACN 057 260 590 (2002) NSWSC 45, Barrett J decided that a new ground could not be raised in such circumstances. At paragraph 16 and following, his Honour expressed his views as follows: "Furthermore, the applicant is confined to the grounds shown by the application and supporting affidavit filed and served within the 21 day period to which s 459G refers. This last point is important. It was recently confirmed by the Full Court of the Supreme Court of Western Australia in Energy Equity Corp Ltd v Sinedie Pty Ltd (2001) WASCA 419 920 December 2001). Wallwork J (with whom Steytler J and Olsson AUP agreed) quoted the following passage from the judgment of Perry J in D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1975) 15 ACLC 1794 (in which the opening words refer to an observation of Gummow J in David Grant): 'It seems to be implicit in that observation and from the terms of section 459G(3) that if an affidavit is to be used in support of the application, it must be filed within the defined period of 21 days.

[31]

Wallwork J's conclusion was: "In my view it now seems to be accepted that an affidavit filed outside the 21 day period which raises a new ground or grounds to set aside a statutory demand (as opposed to an affidavit which expands on grounds in an earlier affidavit which has satisfied the threshold test) cannot be used in an application of this nature. The Corporations Law operates throughout Australia and uniformity of approach is desirable." This is consistent with the conclusion reached earlier in the same year by Wilson J of the Supreme Court of Queensland in Raffles Corporation Pty Ltd v Cech (2001) QSC 129: "Under s 459G 'an affidavit supporting the application' must be filed within the 21 days. The affidavit must disclose facts showing a genuine dispute, but it need not go into evidence: as Sundberg J held in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 14 ACLC 1703, the supporting affidavit filed within the 21 days may read like a pleading. It may be supplemented in the sense that a further affidavit containing evidence proving the facts asserted in that affidavit may be filed after the 21 days. Indeed, on the hearing of the application only admissible evidence can be relied upon. However, evidence supporting some other grounds not raised in the affidavit filed within the 21 days may not be relied upon. See also Eden Bay Pty Ltd v Bennett (1997) 15 ACLC 1634. Accordingly, the present applicant may not rely on grounds not set out in the affidavit filed within the 21 days." This raises a question about the nature and extent of definition or assertion required. In Energy Equity Corp the company sought to rely on an offsetting claim in the form of a cause of action in negligence. It was not permitted to do so because this "was not specifically referred to in the first affidavit". D & S Group of Companies was also a case in which a particular offsetting claim was raised for the first time after the expiration of the 21 day period. In Raffles Corporation , the company wished to argue, as part of an asserted genuine dispute, an alleged oral agreement varying the operation of a lease, an alleged termination of that lease and a calculation of interest in a way said not to be consistent with the lease terms. This was in circumstances where the affidavit dealt with the identity of the lessor and a particular deduction of $2500 and did not foreshadow in any way the additional objections later advanced. It is thus reasonably clear that the relevant concept of 'raising' or 'identifying' a particular ground involves some verbal delineation of that ground in the section 459G(3)(a) affidavit. If a debt of $10,000 were claimed as one year's interest under a contract providing for interest at the rate of 9 per cent per annum on a principal sum of $100,000, it would not, in my opinion, be sufficient for the affidavit to annex the loan agreement and say no more. It would have to refer at least to the connection between the contract and the debt claimed and put in issue the calculation of interest - even if it merely said "the debt does not accord with the annexed contract". The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy that it is identifiable with one or more of the grounds made available by ss 459H and 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within that period."

[38]

The plaintiff asks this Honourable Court to make the orders set out in the originating process upon the basis that the debt has been paid." 18 It was suggested in accordance with the words that are in paragraphs 4 and 10 that all this disclosed was a claim for overpayment. I think that is a bit of an oversimplification of what is being said in the affidavit. The form of the annexures clearly indicates that the claim that the total amount actually paid was paid against the amount due as per the contract. Although the contract was not annexed, there is clear reference to the contractual entitlement in annexure D to the affidavit. 19 In these circumstances it seems to me that the affidavit made plain that the overpayment related to the contractual entitlement to demand payment under the contract and it clearly raises the whole question of the contract between the parties. 20 In the circumstances I am satisfied that there has been sufficient included in Mr Nolan's affidavit to raise the ground. The construction argument 21 The plaintiff submits that the effect of clause 2.2C of the agreement, which is incorporated into the variation agreement in paragraph 1, is: (a) to require payments of $10,000 per month; (b) to permit the giving of credit for payments for actual purchases over and above $10,000 so that such credit can roll forward, so that a $10,000 payment is not necessary so long as ZPI was in credit overall. 22 The first thing to observe about this submission is that the variation agreement does not require payment of $10,000 per month. What it requires is that the plaintiff: "Must order AND pay Allards for a minimum of AUS$10,000 worth of Allards TV software ...." 23 It will be noted from clause 6 of the variation agreement that the failure to meet this requirement leads to a right to terminate. It does not give a right to recover the $10,000. 24 That failure to order and pay is a breach of clause 3, which will only lead to a claim for unliquidated damages, the normal measure being the loss of profit on the sales to be made under the clause. The defendant has led no evidence of any such loss, and the claim in the demand is plainly wrong. 25 A statutory demand can only be issued in respect of a debt which means a "liquidated sum of money presently due, owing and payable to one person called the debtor, to another person called the creditor. This does not include a claim for unliquidated damages for breach of contract." See Rothwells v Nommack (No 100) 6 ACLC 1199 at 1200; and First Line Distribution v Paul Whiley 13 ACLC 1216 at 1218; and also the unreported decision of Griffiths Producers Co-operative Limited v Calabria, McLelland CJ in EQ, 28 November 1996. On this basis there is not an appropriate debt to substantiate the demand. 26 The problem, however, for the plaintiff is that this aspect was not raised in the affidavit in support, which in the schedule to it conceded the contract amount due. Nor was the matter argued before me. Accordingly, I must put this matter to one side for the moment. 27 Both agreements have to be read together, subject to the direction as to inconsistency in clause 5 of the variation agreement. Clause 2.2C of the agreement clearly allows a roll over of excess minimum sales to the next period, which have been converted to a monthly period by clause 2 of the variation. Clause 3 of the variation deals with both the ordering and payment. 28 It is certainly arguable, on the basis that clause 1 of the variation applies to clause 2.2C to both minimum sales and the targets "set out in schedule 6 of the agreement as varied by this letter", that the roll over might apply. The contrary construction looks to the additional exclusive rights given and the obligation to "order ... in the first week of each calendar month". 29 It is interesting that the second part of clause 3 of the variation agreement only deals with payments and not orders. 30 In my view the matter is arguable but I should deal with a matter raised in argument which was a reference in clause 2.2C of the agreement to credit being given for "sales in excess of the minimum quota amounts ... but any sales in respect of the upgrade of an existing system ... shall be disregarded". 31 Annexure D clearly shows an excess applying to a roll over but there does not seem to be any evidence that the relevant sales to be rolled over were new system sales. I note that clause 3 of the variation, when describing what "must be ordered", refers to "Allards CCTV software" which is a defined term in the agreement and includes updates. This would tend to suggest the orders for the purposes of clause 3 are not restricted to new system sales. Certainly the matter is one which is the subject of argument on both sides. 32 Accordingly, I am satisfied that there is a genuine dispute in respect of the whole of the sum claimed in the demand. In the event that I came to a different view on this question, I would have reduced the demand by $7,425 and taken steps to address the status of the alleged debt, the subject of the demand. 33 Under s 459P(1) a company may be wound up in insolvency on the application of a creditor (even if the creditor is not a secured creditor but is a contingent and prospective creditor). Under s 459P(2) a contingent or prospective creditor is required to obtain the leave of the Court. 34 By reason of the matters I have mentioned before, the respondent would not ordinarily be a creditor of the company because there is no debt. See also Fire and All Risks Insurance Company Limited v Southern Cross Exploration NL (No 1) (1983) ACLC 971; and R & In Re Garbaume Pty Limited (1984) 2 ACLC 103. 35 There is a dispute on the authorities as to whether a claim for non liquidated damages is one by a creditor in respect of a contingent or prospective debt. The affirmative view is espoused by Mansfield J in Commissioner for Taxation v Simionator Holdings Pty Limited (1997) 15 ACLC 477; and the negative by Santow J in The Roy Morgan Research Centre Pty Limited v Wilson Market Research Pty Limited (1996) 14 ACLC 925. 36 There are many judgments of this Court of single judges that have followed Santow J's view, although there are other judgments that follow Mansfield J's view. Because of the obvious problems with the respondent's claimed debt, I would have been most concerned that an application to wind up or leave to wind up may be made without these difficulties coming to the attention of the Court asked to make such an order. 37 Under s 459M the demand may be set aside or varied subject to conditions when an order is made pursuant to section 459H and section 459J. In the circumstances, and in the absence of any undertaking by the respondent, I would have, as part of my inherent jurisdiction to prevent any abuse of process or under section 459M as a condition of the variation of the demand, required the respondent in any application for leave to wind up, or application to wind up based upon the demand in this Court, to notify the Court to whom the application was made of the terms of this judgment. 38 A similar course was taken by Senior Master Mahoney in Ultimate Manufacturers Pty Limited v Lyall Mines Pty Limited (1995) 13 ACLC 1268. In any event, I only make these comments for the benefit of anyone else in case someone else may take a different view of the arguability of the construction point which I have determined against the respondent, at least so far as a genuine dispute is concerned. 39 Accordingly, the only orders I make are orders A and C in the originating process. I order the exhibits be returned.

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Judgment (39 paragraphs)

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