ACN 078 592 908 Pty Ltd v Access RnD Tax Solutions Pty Ltd

[2016] NSWSC 59

Supreme Court

New South Wales

Medium Neutral Citation:	ACN 078 592 908 Pty Ltd v Access RnD Tax Solutions Pty Ltd [2016] NSWSC 59
Hearing dates:	16 December 2015
Date of orders:	12 February 2016
Decision date:	12 February 2016
Jurisdiction:	Equity - Corporations List
Before:	Robb J
Decision:	(1) Order, pursuant to sections 449G and 449H of the Corporations Act 2001 (Cth) that the statutory demand dated 10 August 2015 served by the defendant on the plaintiff be set aside.  (2)   Order that the defendant pay the plaintiff’s costs of the proceedings.
Catchwords:	CORPORATIONS – winding up – statutory demand – application for order setting aside – whether genuine dispute as to existence or amount of the debt – principles applicable – order made setting aside the statutory demand
Legislation Cited:	Corporations Act 2001 (Cth) Evidence Act 1995 (NSW)
Cases Cited:	Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 Eng Mee Yong v Letchumanan [1980] AC 331 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Category:	Principal judgment
Parties:	ACN 078 592 908 Pty Ltd (Plaintiff) Access RnD Tax Solutions Pty Ltd (Defendant)
Representation:	Counsel: Mr C Bova (Plaintiff) Mr D Robertson (Defendant)     Solicitors: Baker & McKenzie (Plaintiff) Mr James RG Bell (Defendant)
File Number(s):	2015/257646
Publication restriction:	Nil

Judgment

1. This is an application by the plaintiff, now called ACN 078 592 903 Pty Ltd, and formerly called Priava Pty Ltd, for an order setting aside a creditors’ statutory demand (the demand) dated 10 August 2015 served upon it by the defendant, Access RnD Tax Solutions Pty Ltd.

2. The amount of the debt claimed is $34,811, and the schedule to the demand shows that the amount is made up of three invoices dated 1 November 2013, 1 December 2013 and 4 September 2013 for the sums of $2,500, $2,500 and $29,311 respectively.

3. The plaintiff paid $5,000 to the defendant on 25 August 2000, as it accepted that the debts the subject of the two invoices that each claimed $2,500 were owed to the defendant by the plaintiff.

4. The plaintiff applies under s 459G of the Corporations Act 2001 (Cth) on the ground set out in s 459H(1)(a). The issue is whether there is a genuine dispute about the existence or amount of the $29,311 debt claimed in the demand.

Facts

5. The defendant provided services to the plaintiff by way of expert assistance in the preparation of returns to enable the plaintiff to apply for certain research and development incentives made available by the Australian Government.

6. Mr James Pegum is a director of the plaintiff. He was the only person who acted for the plaintiff in its dealings with the defendant.

7. Mr Rodney James Campbell is a director of the defendant who was primarily involved in the defendant’s dealings with the plaintiff.

8. Mr Pegum and Mr Campbell were the only witnesses in these proceedings.

9. Mr Campbell gave evidence that a related company to the defendant had provided services to the plaintiff over a number of years. I will not set that evidence out as I am satisfied that it related to a different service than is relevant to the present dispute. The available evidence on that subject would not justify the court making a finding concerning the existence, or the terms of the agreement that is now in dispute on the basis of that earlier evidence. In any event, the evidence shows that between the earlier period and the date of the formation of the agreement alleged by the defendant in this case, the parties had made a number of ad hoc agreements as to the fees that the plaintiff would pay to the defendant that would render any earlier practices superseded.

10. The defendant provided the relevant services to the plaintiff for the 2011-2012 year. Ultimately, the parties agreed to a fee for those services, and that fee was ultimately paid.

11. The present dispute concerns a claim by the defendant for a fee in relation to services provided to the plaintiff for the 2012-2013 year.

12. On 2 November 2012, Mr Campbell sent an email to Mr Pegum the material part of which was as follows:

Thought I should run our fee on the R&D Tax work past you.

The general industry billing formula is either:

• 2-5% of Notional R & D expense – but usually scaled at thresholds. i.e. 2-5% up to $500K +1% above = $12,500 + $9900*= $22,400 +, (*1% of $991,050), OR

• 10% of the ‘real’ tax credit benefit (45% less tax rate 30% equals 15%) i.e. 10% of (15% × $4,491,051) = $22,400 +

Coincidence these work out to be identical in this instance.

Trust you are OK with above

13. The plaintiff did not respond to this email in writing. There is no evidence that the plaintiff accepted either of the alternatives in the email in writing. The defendant alleges that Mr Pegum on behalf of the plaintiff, accepted the first of the two alternatives orally.

14. A number of observations must be made about the contents of this email. First, it obviously offers two alternative bases for calculating the defendant’s fees, each of which is said to be a general industry billing formula. The email implies that the amount of the fee may be different in particular cases depending upon which formula is chosen. It was a coincidence that the amounts used for the purposes of the examples rendered the same amount of fees.

15. Secondly (focusing on the first alternative that is claimed by the defendant to be the relevant one), it appears to suggest a range of possibilities by means of the reference to “2-5%”. If that is the correct way of reading the description of the first alternative, then an agreement by the plaintiff that the fee payable to the defendant would be on the basis of the first alternative would leave uncertain the percentage fee for the first $500,000 of the relevant expense.

16. It is clear that if the email is read literally, the use of the hyphen between the number 2 and 5 would convey the necessity for a single percentage to be agreed within that range. In fact, during the course of the evidence and submissions I had taken it for granted that the email was intended to refer to this range, and conversed with counsel on that basis, particularly in the course of the submissions of counsel for the plaintiff.

17. In his submissions, counsel for the defendant suggested that the use of the hyphen involved a typographical error, in which the hyphen had been used instead of a point. That is, “2-5%” should have read “2.5%”. This suggestion is significant because the invoice that the defendant rendered in which it claimed the amount of $29,311 was calculated on the basis of the formula in alternative 1 in the email on the basis that the amount payable for the first $500,000 was 2.5%. If that course was justified, the problem apparently caused by the email containing the range of payments for the first $500,000 might disappear.

18. Counsel for the defendant justified his submission on the basis that the example calculation included in the email has been made using the percentage of 2.5% for the first $500,000, as 2.5% of that amount is $12,500.

19. The author of the email, Mr Campbell, did not give evidence that the “2-5%” was a typographical error. In his 14 October 2015 affidavit at par 21, Mr Campbell stated:

…I set out in email dated 2 Nov 2012, a copy of which is annexed marked “A”, alternative engagement terms based on 10% of company tax savings or on our current billing method of 2.5% of R&D expense to $500K and 1%.

20. This evidence contains an assertion that the 2 November 2012 email provided that the percentage fee on the first $500,000 was 2.5%. The plaintiff did not object to this evidence. It was read before counsel for the defendant raised the possibility that the reference to 2-5% was a typographical error for 2.5%. The evidence did not assert that a typographical error had been made. It is strictly inadmissible because it is an assertion of what was contained in the document. I would give it little weight, and in my view it is not sufficient to prove that the email has a meaning other than the meaning that would be derived from a consideration of the ordinary meaning of the words, numbers and symbols used in the email.

21. It must be observed that if a typographical error was made, it was made twice. If, as appears probable from the appearance of the email, it was typed with an ordinary keyboard, the typographical error suggested is difficult to explain given the relatively wide separation of the “.” and “-“ keys. There are also difficulties as a matter of the proper interpretation of the email. The use of the expression “but usually scaled at thresholds” introduces an element of indefiniteness into the first alternative. The words positively suggest that some agreement would be needed as to the relevant percentages and thresholds. In the absence of positive evidence that a typographical error was made, the court could not find that such an error had occurred, particularly in view of the fact that Mr Campbell’s business involved compiling specialist returns to the Australian Government body called AusIndustry for the purpose of justifying the client’s eligibility to benefit from what is called the Research and Development Tax Incentive offered by the Australian Government. While even the most meticulous of professionals may fail to discover typographical errors that they have made, given Mr Campbell’s expertise, and the purpose of the email in stating the bases upon which the defendant would be entitled to fees, the court could not find that the same typographical error had been made twice without positive evidence from Mr Campbell to that effect.

22. In any event, proof by Mr Campbell that the email contained the suggested typographical errors would not establish anything about how Mr Pegum understood that email when he read it. Mr Pegum has been deprived of the opportunity to give evidence on that subject, because the assertion that there were typographical errors was not made until the defendant’s final submissions. The natural way to read the email is to read it literally, and the fact that the example given was calculated using 2.5% for the first $500,000 does not signal to the careful reader that the use of 2-5%, rather than 2.5%, was a mistake. As I read the 2-5% as meaning what it said until a contrary suggestion was made by counsel for the defendant, I could not reasonably find that Mr Pegum ought to have understood, let alone that he did understand, that Mr Campbell intended to say 2.5%.

23. I will return to the significance of this issue again below. However, its apparent significance is that evidence that Mr Pegum on behalf of the plaintiff agreed that the defendant’s fee would be calculated on the basis of alternative 1 would not be sufficient to create a binding contract between the plaintiff and the defendant that would oblige the plaintiff to pay a fee calculated on the basis of 2.5% for the first $500,000. It would be necessary for a further agreement to be made concerning the percentage to be used in calculating the fee for the first $500,000 to be within the range from 2 to 5.

24. On 7 November 2012, Mr Pegum responded to the 2 November 2012 email by saying:

“I wasn’t aware fees were based on percentages, I guess we have never discussed it. I would consider this fee to be calculated like we work with our accountants and lawyers, hourly rate based.

I had budgeted what we paid you last time to assist us with the Audit and could probably stretch it by another 1-2K but that is all I have in the can. Last time was 5K inc GST, so could take that to 6K or 7K tops.”

25. It is unclear whether the defendant carried out the work relating to the 2011-2012 year before or after Mr Campbell sent the 2 November 2012 email to Mr Pegum. There is no positive evidence on this subject. The plaintiff submitted that the work had been done after the email. There is evidence as to when the defendant did the work for the 2012-2013 year. That was in the last days of June immediately before the end of the financial year. The urgency with which the work was done for that year suggests that either it was necessary for the return to be lodged before 30 June 2013, or alternatively that it was highly desirable for that to happen so that the plaintiff could receive the relevant tax incentive as soon as possible after the end of the financial year. There is some basis for inferring that the same would have been the case for the prior financial year. Counsel for the plaintiff submitted that I should not make this inference. If it had mattered, and I had been required to do so in other instances, I would have drawn the inference on the balance of probabilities. However, I do not think it matters in this instance when the defendant did the work necessary for the 2011-2012 year. Whether or not was before the date of the 2 November 2012 email ultimately does not matter.

26. The evidence shows that the parties did not finally agree upon the fee that the plaintiff would pay to the defendant for the work done for the 2011-2012 year until about 27 March 2013. On 19 March 2013, Mr Pegum initiated a discussion with Mr Campbell to deal with the fact that “We still haven’t agreed on last year’s account”. Following a number of emails a meeting apparently occurred on 27 March 2013. On the following day Mr Campbell wrote an email to Mr Pegum in which he said:

Many thanks for calling by yesterday (to my new digs) to clear the way for the on-going R&D Tax work – I am really appreciative.

As discussed, we have cut the first invoice on the 2011/12 work for the payment by instalments over 10 months. Let me know if the text needs any adjustment.

Trust you get some time to relax and enjoy the Easter break.

27. The expression “to clear the way for the on-going R&D Tax work” in the first paragraph is equivocal. On a fair reading, it means at least that the agreement between the parties concerning the amount the defendant would be paid for the 2011-2012 year was necessary before the defendant would commence work for the following year. It could also mean that the parties had agreed on the basis of the defendant’s fee for that following year. While it would be natural to infer that the defendant required certainty as to how it would be paid for the first year before it would embark upon the work for the second year, it does not follow as strongly that the defendant would not start working on the second year before there was a fixed agreement as to how it would be paid for that work. While it might have been commercially sensible for the defendant to require an agreement as to how it would be paid for the second year’s work before it started that work, it must be remembered that the defendant had undertaken the previous year’s work without any specific agreement concerning the basis upon which it would be paid. In any event, the email does not clearly state that the parties had reached an agreement concerning the second year’s fees.

28. The agreement reached in relation to the 2011-2012 year was that the plaintiff would pay the defendant a lump sum of $25,000 payable in ten equal instalments of $2,500.

29. Mr Campbell gave evidence concerning what happened at this meeting about the defendant’s fee for the work relating to the 2012-2013 year. The evidence, which was contained in Mr Campbell’s 14 October 2015 affidavit, was in the following terms:

[21] [Evidence rejected]. I explained that our practice was to charge on the first basis and Mr Pegum subsequently agreed in discussions with Rod Campbell and Dave Sammut of Access RnD on a flat fee (GST inclusive) of $25,000. [Evidence rejected]. At the same meeting Mr Pegum confirmed to me that the agreement for the following tax year would be on the said standard terms.

[24] In the course of the same meeting (referred to in Paragraph 22) the engagement fees for the following year 2011/12 were discussed between me and Mr Pegum. That discussion culminated in Mr Pegum agreeing to engage the services of Access RnD on the first aof (sic) the alternative standard billing terms advised to Mr Pegum in the 2 November 2015 email correspondence, namely calculated on the notional R&D expense. He commented that Access RnD had performed high quality work and agreed the standard fee for work on the 2011/12 year should apply.

30. In par 21, the words “I explained that our practice was to charge on the first basis” were admitted as evidence of what Mr Campbell said to Mr Pegum. The words “and Mr Pegum subsequently agreed in discussions with Rod Campbell and Dave Sammut of Access RnD on a flat fee (GST inclusive) of $25,000” were admitted as evidence of Mr Campbell’s understanding. Ultimately, there was no issue about the $25,000 flat fee being agreed for the 2011-2012 year. The words “At the same meeting Mr Pegum confirmed to me that the engagement for the following tax year would be on the said standard terms” were admitted as evidence of what Mr Pegum said.

31. Paragraph 24 was admitted into evidence on the basis that it was Mr Campbell’s contention concerning the effect of the discussion.

32. There is thus, some evidence that Mr Pegum agreed on behalf of the plaintiff that the defendant’s fee for the 2012-2013 year would be calculated “upon the said standard terms”. As I have explained above, Mr Campbell asserted in par 21 that first alternative in the 2 November 2012 email provided for a fee of 2.5% for the first $500,000. However, the effect of the evidence of the conversations not being given in direct speech, and the consequent generality of the evidence and lack of specificity as to what was actually said, has the result that there is no evidence that Mr Campbell brought to Mr Pegum’s attention the precise operation of the first alternative that Mr Campbell intended.

33. In his 30 October 2015 affidavit, Mr Pegum denied discussing the engagement for the 2012-2013 year at the meeting with Mr Campbell on around 27 March 2013. He denied agreeing with Mr Campbell that the fee would be calculated by reference to the terms set out in the 2 November 2012 letter, at that meeting, or at all. He said: “There was no need for me to discuss with Mr Campbell, let alone agree, the fee for work to be performed in respect of a future possible engagement”.

34. Thus, Mr Pegum denied the subject being discussed at all. He did not accept that there had been some discussion on the subject, but say that no agreement had been reached. He did not accept that there had been discussion about the 2 November 2012 email, but there had been no resolution of the percentage to be charged on the first $500,000. Mr Pegum did not mention the fact that the email contained the expression “2-5%”.

35. Mr Campbell gave evidence of a further meeting that took place on about 26 June 2013 in the following terms:

[30] [Evidence rejected] specifically, James Pegum on behalf of Priava made direct statements to me on behalf of Access RnD on about 26 June 2013 that due to the high standard of service and the flexibility in payment terms previously shown by Access RnD in the face of Priava’s critical financial problems, it agreed to pay Access RnD’s account based on its standard terms in full immediately on receipt of the cash rebate.

36. This evidence is also not in proper form, in the sense of conversations being given in direct speech. It was admitted, however, as evidence of what Mr Pegum said, with the word “agreed” being read as if Mr Pegum had said “we will pay”. Again, the difficulty arises that Mr Campbell used the expression “based on its standard terms”.

37. Mr Pegum’s response to this evidence was to say that he did not make statements of the kind deposed to in par 30 of Mr Campbell’s affidavit.

38. The defendant carried out the work necessary to compile the plaintiff’s 2012-2013 return in about the period 25 to 29 June 2013. This fact is reflected in four emails between the parties over those dates. None of those emails contains any reference to the terms upon which the defendant’s fee for the work would be calculated. The work was carried out with some urgency.

36. The defendant learnt from the plaintiff of the amount that fitted the description of the “Notional R&D expense” as referred to in the first alternative in the 2 November 2012 letter on around 28 August 2013. On that date, Mr Sammut sent an email to Mr Pegum in which he said:

… I’m very pleased to hear that Priava now has its tax refund, and I will diarise to get in contact with you early for next year’s claim.

In the meantime, I will pass the message to my colleagues that you are now ready to receive our invoice, under the terms that you have previously negotiated with Rod.

40. Mr Pegum referred to the part of this email that reads “the terms that you have previously negotiated with Rod” in par 6 of his 16 December 2015 affidavit. He said that he had not negotiated or agreed to any terms with Mr Campbell relating to the amount that the plaintiff would pay for the defendant’s services for the 2012-2013 year. Mr Sammut did not give evidence.

41. Also on 28 August, 2013 Mr Pegum sent a return email to Mr Sammut, which was copied to Mr Campbell. The email said:

Thanks Dave, you guys did a great job getting things out – despite the IT glitch!

Rod, give me a bell when you can so we can finalise what we discussed.

42. Mr Pegum did not provide any explanation of his use of the expression “finalise what we discussed”. In context, given that the work for the 2012-2013 year had already been done successfully, the only inference to be drawn is that the only outstanding matter was the fee payable to the defendant. There is a strong basis for inferring that the words “we discussed” related to a discussion between Mr Pegum and Mr Campbell on the subject of the defendant’s fee.

43. Also, Mr Campbell did not in his evidence, refer to the series of emails now under consideration concerning the defendant’s fee, which refer to previous negotiations and discussions. It may be that the only discussions that the defendant alleges took place occurred on 27 March and 26 June 2013, but that is not clear.

44. Mr Campbell sent an email to Mr Pegum on 10 September 2013 in which he said:

I got distracted last week and overlooked forwarding the Invoice for the 2013 R&D Tax Incentive work as discussed. Would appreciate your early response on payment arrangements as I have to settle with Dave on this work. My commitment is $10K that I have to settle before the end of the month.

45. Mr Pegum did not comment in his evidence on the use by Mr Campbell of the words “as discussed” in this email.

46. Nor did Mr Campbell. It may be of some significance that Mr Campbell asked Mr Pegum to respond “on payment arrangements” in a way which suggests that Mr Campbell did not understand that the plaintiff would necessarily pay the whole of the amount of the invoice at once. He invited Mr Pegum to suggest payment arrangements, and gave a reason why he wanted at least $10,000 to be paid before the end of the month. This evidence is in that respect, inconsistent with Mr Campbell’s assertion in par 30 of his 14 October 2015 affidavit, which stated that Mr Pegum agreed on behalf of the plaintiff to pay the defendant’s account in full immediately on receipt of the cash rebate.

47. The invoice for the $29,311 is dated 4 September 2013, but was apparently sent to the plaintiff as an attachment to Mr Campbell’s 10 September 2013 email. The invoice provided:

Being for preparation of 2012/13 R&D Tax Incentive Registration to AusIndustry and preparation of ATO R&D Tax Incentive entitlement pursuant to ITA Div 355 – For Notional R&D Reduction of $1,914,710

Fee   2.5% for first $500k            12,500

1% for balance $1,414,710         14,147

                                                  26,647

GST   2664

TOTAL             $29,311  

48. The invoice did not make any specific reference to any agreement between the parties relating to the defendant’s fee.

49. Thereafter, the defendant sent a number of emails to the plaintiff to pursue payment of the invoice. On 3 October 2013 Mr Campbell asked Mr Pegum: “Can you give me a bell – we urgently need to sort out some arrangement on fee payment. Our pot is bare!”

50. Then on 29 October 2013, Mr Campbell said:

I have left a few messages to follow-up on the outstanding R & D fees and it is now end or (sic) October.

Can you call me tomorrow – after 10:30 (I am meeting my bank manager for overdraft in the morning which indicates predicament I am in).

51. On 22 November 2013, the defendant sent to the plaintiff the penultimate monthly invoice of $2,500 for the 2011-2012 year. The invoice was dated 1 November 2013, and contained the words:

“As agreed $25,000 including GST”.

52. Mr Campbell sent a further email to Mr Pegum on 2 December 2013, which was also copied to the defendant’s then solicitors. The email said:

You need to give us something that is binding on our outstanding fees as I can’t hold off any more on a whim and prayer. I have other Directors in the business who have had enough – I don’t want to involve lawyers in this but I am in a minority on the matter. I am advised to now copy our lawyers in any communications (see above).

The instalment payments from last year’s work have ceased and need to be brought up to date.

Can you give me something in writing tomorrow with the commitment of at least $15K before the end of next week.

I appreciate you have had your share of the issues – but we have delivered on our work, you receive the entitlement in full and it is only fair and reasonable we should be paid.

53. Mr Pegum gave evidence in par 9 of his 16 December 2015 affidavit that he replied to this email on a without prejudice basis on 3 December 2013. He said that the plaintiff had no evidence of receiving any response to this email.

54. The defendant sought to tender Mr Pegum’s 3 December 2013 email. In a separate judgment, I upheld the plaintiff’s claim that the email was protected by s 131(1) of the Evidence Act1995 (NSW), and rejected the tender. It was necessary for me to read the email for the purpose of ruling on its admissibility. I must put the contents of the email out of mind for the purposes of determining the dispute between the parties.

55. All that can be said on the basis of this evidence is that the plaintiff did make some response to Mr Campbell’s 2 December 2013 email, although there is no evidence about the nature of that response. It cannot be said that the plaintiff did not respond to the defendants’ series of emails entirely. The failure by the defendant to reply to Mr Pegum’s email may also have some significance, as that failure may blunt the significance of subsequent failures by the plaintiff to respond to later emails from the defendant that did not themselves deal with the 3 December 2013 email.

56. It appears that the defendant delivered its tenth invoice for $2,500 in respect of the 2011-2012 year on about 4 December 2013.

57. Mr Campbell sent an email to Mr Pegum on 5 August 2014 that said:

“I have left a few messages for you and haven’t heard from you for 6 months or so – can you give us an update on the state of play”.

58. On 7 December 2014, Mr Campbell sent another email in which he relevantly said:

“I have tried a few times to touch base over the past 6 months. Any chance you can let us know what is happening”.

59. The next step was that on 11 August 2015, the defendant’s solicitor served the demand on the plaintiff.

60. This prompted a response from the plaintiff’s solicitors. As mentioned above, they advised that the amount of $5,000 was undisputed and would be paid. They demanded the withdrawal of the demand. They said that there was:

“a genuine dispute as to the basis on which the work the subject of the invoice would be charged…”

Legal principles

61. There was no dispute between the parties as to the principles that the court must apply in determining whether or not there is a genuine dispute between the parties about the existence or amount of the debt to which the demand relates. Both parties cited the recent decision of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601. The case was concerned with whether there was an offsetting claim for the purposes of s 459H(1)(b), but the Court also made observations relevant to the application of s 459H(1)(a). The Court dealt with the issue at length from [29] to [60]. I have, respectfully, extracted the parts of the joint judgment that are most germane to the present case:

[31] In similar vein, although dealing with the question whether there was a genuine dispute within the meaning of s 459H(1)(a), McLelland CJ in Eq, in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 considered that the expression “genuine dispute” involved a plausible contention requiring investigation and raised much the same sort of considerations as the “serious question to be tried” criterion that applied in the case of an interlocutory injunction.

…

[39] As the court has already noted, the question in contention in this case is whether there was sufficient evidence to establish the existence of an off-setting claim. In dealing with that question, the court has found it of assistance to deal with a line of authority relating to the similar question that arises under s 459H(1)(a), namely, what is required by way of evidence to establish the existence of a disputed debt for the purposes of the section. The distinction between determining whether there was sufficient evidence to establish a disputed debt as opposed to whether the applicant’s claim will succeed was considered by Northrop J in Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229, at 234, where his Honour observed:

Although it is true that the Court, on an application under ss 459G and 459H is not entitled to decide a question as to whether a claim will succeed or not, it must be satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt. If it can be shown that the argument in support of the existence of a genuine dispute can have no possible basis whatsoever, in my view, it cannot be said that there is a genuine dispute. This does not involve, in itself, a determination of whether the claim will succeed or not, but it does go to the reality of the dispute, to show that it is real or true and not merely spurious.

…

[46] In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the court is not concerned to engage in an enquiry as to the credit of the deponent of the affidavit filed in support of the application. However, as McLelland CJ in Eq observed in Eyota, at 787:

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.

[47] What underlay those remarks, of course, was that the court’s concern was to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim. Thus, in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Hayne J stated, at 295:

… 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.

[48] The same approach has been taken to the evidence required in the case of an alleged offsetting claim: see s 459H(1)(b). In Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 Thomas J stated, at 605:

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). (emphases added)

…

[52] Dodds-Streeton JA explained further [in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70 ; 66 ACSR 67] at [71], that:

As the terms of s 459H of the Corporations Act 2001 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.

…

[54] It is also to be borne in mind that the procedure for challenging a statutory demand is intended to be an essentially summary one.

…

[60] However, the existence of evidence that casts doubt, even significant doubt, on an applicant’s contention that there is a disputed debt or an offsetting claim, is not the basis for a rejection of an application under s 459H. In the result, for the reasons that follow, we have come to the conclusion that the email correspondence did not so undermine the appellant’s evidence as to make it implausible or to justify a conclusion that the claim was not genuine.

62. I do not seek to restate any of these principles, but for the purposes of the present case, I take from this decision of the Court of Appeal that the issue is not whether the debt exists, but whether the dispute about its existence is genuine (see [39]). The court must look to whether there is plausible evidence to establish the existence of a genuine dispute (see [47]). Even the existence of evidence that casts significant doubt on the contention that the debt is genuinely disputed does not justify rejecting the application (see [60]). The application may be rejected if the dispute about the existence of the debt can have no possible basis whatsoever (see [39]), and the court may reject statements made in support of the claim that there is a genuine dispute which lack precision, are inconsistent with undisputed contemporary documents or other statements by the same deponent, or are inherently improbable, and do not have sufficient prima face plausibility to merit further investigation (see [46]). The court may reject claims that are merely spurious, bluster or assertion or are fanciful or futile (see [52]). The exercise of determining whether the statutory demand should be set aside must be approached from the perspective that it is intended to be undertaken in a summary way (see [54]).

63. The quality of the evidence that McClelland CJ in Eq in Eyota v Hanave (1994) 12 ACSR 785 apparently had in mind in the passage set out by the Court of Appeal at [46] may be seen in the following extract from the decision of the Judicial Committee of the Privy Council to which his Honour referred; Eng Mee Yong v Letchumanan [1980] AC 331 at 340, 341. The Judicial Committee was concerned with whether a caveat could be supported upon the basis of “oblique and scattered references to an alleged agreement” to extend the time for payment of the balance of the purchase price for a period. Lord Diplock, who delivered the judgment of their Lordships said:

There is nothing to indicate how, when, where and between whom the agreement was made or what were its terms and what was the consideration for it… The omission of any of these particulars was despite the fact that in their affidavit to which the caveator was replying the caveatees had sworn that they had never entered into such an agreement. Later there is a reference to the caveatees "having first agreed and later refused an extension" but without specifying what is the refusal that is relied on; and finally it is said that it was "the refusal for an 'extension' [that] was unreasonable and unlawful bearing in mind all the circumstances of the case." The suggestion that there was any such agreement is inconsistent with the caveator's earlier assertions in the affidavit that it had been agreed from the outset that the date of payment was to be deferred until the "third party" had provided the caveator with the necessary funds; while if one turns to the contemporaneous correspondence it is difficult to reconcile it with the existence before September 28, 1974, of any agreement to extend the time for payment. On October 14, 1974, the caveator's solicitors returned to the caveatees' solicitors the issue document of title to the land - an action quite inconsistent with the time for completion not having expired by then. It was not until after this, on October 25, 1974, that any reference was made to any agreement for an extension of time for payment. That reference was in terms consistent with an agreement giving the caveator another two months to find the money having been reached after the notice of termination had been received. Furthermore the caveator never attempted to comply with its provisions by tendering the balance of the purchase price on or before November 28, 1974, or at all.

In the face of these vague, self-contradictory and implausible assertions on the part of the caveator, the judge accepted the sworn denial of the caveatees that they had ever agreed to any extension of the time of payment beyond September 28, 1974. Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on 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.

Consideration

64. In light of these authorities, the conclusion must be reached that the plaintiff has established that there is a genuine dispute as to the existence of the debt the subject of the demand, and an order should be made setting aside the demand.

65. There are a number of aspects of the evidence that justify considerable suspicion about whether the debt is genuinely disputed, and cast significant doubt on the plaintiff’s contention to that effect. However, the evidence falls short of justifying a finding that the plaintiff’s claim is spurious.

66. The plaintiff responded to the evidence given by Mr Campbell concerning the agreements that he made with Mr Pegum on about 27 March 2013 and 26 June 2013 by denying absolutely that the subject of the defendant’s fee for the 2012-2013 year was discussed at all. It may be probable that such a discussion took place, because it would make good commercial sense for the defendant to secure the plaintiff’s agreement to the basis of its fee for the second year, given the trouble that it had in coming to an agreement with the plaintiff to fix the fee for the first year. Mr Pegum did not acknowledge that any discussion about the fee occurred on the dates given by Mr Campbell, but go on to say that agreement was not reached (for example by reason of the lack of specificity in the first alternative in the 2 November 2012 email). Yet in the three emails that Mr Pegum received or sent between 28 August 2013 and 10 September 2013 there was reference to “terms previously agreed”, “finalise what we discussed”, and “as discussed”. As I have noted, Mr Pegum used the words “finalise what we discussed”. He did not explain the use of those words in his evidence. He did not respond to the emails he received from the defendant to deny at the time that there had been any such discussion. It is telling that the plaintiff did not pay the last two instalments of $2,500 in relation to the 2011-2012 year until 21 and 20 months after the invoices were delivered, and then only after the demand had been served on the plaintiff. The plaintiff did not respond to any of the emails it received from the defendant in which it was asked – or even implored – to start paying the account, with any open claim that it was not indebted to the defendant on the basis claimed.

64. However, the fact is that Mr Pegum has given sworn evidence in which he denies that he entered into the agreement asserted by the defendant on behalf of the plaintiff.

65. It is significant that the alleged fee agreement is not in writing, and the terms of the agreement have not been recorded or referred to in writing. There are only oblique and unexplained references to negotiations and discussions in the August 2013 emails. For obvious reasons the effectiveness of Mr Pegum’s sworn denials is enhanced by the absence of any documentary record of the terms of the alleged agreement.

66. A particular concern is the inconsistency between Mr Campbell’s assertion that Mr Pegum agreed to pay the fee immediately on receipt of the invoice, and Mr Campbell’s apparent readiness to consider payment arrangements, which calls for further investigation.

67. There is also the difficulty that arises as a result of the use of the expression “2-5%” in the statement of the first alternative basis for calculating the defendant’s fee in the 2 December 2012 email. The court simply cannot resolve that issue on the evidence in the present application, and it is thus a matter that requires further investigation. The issue is crucial to the defendant’s claim that an agreement existed that justified the debt the subject of the invoice delivered to the plaintiff. If the plaintiff had understood that the expression “2.5%” was intended, then an enforceable agreement may have been made if Mr Pegum agreed that the fee would be calculated on the basis of the first alternative. If the plaintiff understood that the expression “2-5%” actually used in the email meant that the percentage would fall within a range to be agreed, the acceptance of alternative 1 by itself would not be sufficient to create an enforceable agreement.

68. It cannot be said that the plaintiff entirely ignored the communications that it received from the defendant after it received the defendant’s invoice. It is true that the court does not know the content of the plaintiff’s 3 December 2013 response. However, the defendant did not itself respond to that email, or seek to bring its contents into the open. The defendant only pursued the plaintiff in a relatively desultory way, and did not take any positive step to recover the debt for some 18 months after the invoice was delivered. These matters do not entirely negate the apparent effect of the plaintiff ignoring the defendant’s communications, and not paying the two admitted amounts of $2,500, but they do tend to blunt the significance of these matters.

Orders

72. I make the following orders:

1. Order, pursuant to sections 449G and 449H of the Corporations Act2001 (Cth) that the statutory demand dated 10 August 2015 served by the defendant on the plaintiff be set aside.

2. Order that the defendant pay the plaintiff’s costs of the proceedings.

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Decision last updated: 24 February 2016