Afro v Hannon - [2009] NSWSC 775

No judgment structure available for this case.

CITATION: Afro v Hannon [2009] NSWSC 775

HEARING DATE(S): 22/07/09, 03/08/09

JUDGMENT DATE :
21 September 2009

JURISDICTION: Equity Division

JUDGMENT OF: Macready AsJ at 1

DECISION: Paragraph 66

CATCHWORDS: Corporations Act. Application to set aside statutory demand under s 459G of Corporations Act. Demand set aside. No matter of principle

PARTIES: Afro Pacific Capital Limited v David Hannon

COUNSEL: Miss EA Collins for plaintiff
Mr A Spencer for defendant

SOLICITORS: Corrs Chambers Westgarth for plaintiff
Gillis Delaney Lawyers for defendant

LOWER COURT JURISDICTION:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

Associate Justice Macready

Monday 21 September 2009

6383/2008 Afro Pacific Capital Limited v David Ross Hannon

JUDGMENT

1 His Honour: This is the hearing of an application under section 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 9 December 2008 served by the defendant on the plaintiff.

2 The statutory demand relates to an alleged debt of $750,000 described in the following terms:

“Incentive bonus payable to the Creditor pursuant to Service Contract between the Creditor and the Debtor Company dated 10 October 2001, which the Debtor Company has failed to repay as at the date of this Demand: $750,000.”

3 The plaintiff seeks to set aside the demand because of a misdescription of the debt in the demand and the affidavit in support. It also raises a genuine dispute.

Background facts

4 The parties’ submissions set out the background facts, which I will incorporate with some modifications.

5 The defendant was employed by the plaintiff as an executive director during the period approximately 1 October 2001 to 30 April 2003.

6 The Service Contract executed by the parties on 10 October 2001 provides for the defendant’s appointment as an executive director of the plaintiff (then known as PSG Afro Pacific Limited). Clause 7 is entitled “Remuneration” and provides for the payment of an annual remuneration package (clause 7.1) as well as providing that “the executive may be entitled to receive an incentive bonus in accordance with Attachment 1” (clause 7.2).

7 Attachment 1 clause 1.2 to the service contract provides that the defendant and another executive, Allan David Doyle, would jointly receive an amount equal to 50 per cent of all income up to a total of $3 million realised in cash out of work introduced to the company up to 28 February 2004. $1.5 million of that amount is to be advanced by PSG Doyle Capital Pty Limited (ACN 098 341 265) (“PSG Doyle”) on the closing date of the PSG Doyle Shareholders Agreement. PSG Doyle is the plaintiff’s parent company.

8 Clause 1.3 of attachment 1 provides that in the event that the value of such work is less than $3 million, the defendant and Doyle undertook to repay the plaintiff fifty cents for each $1 of the shortfall. Further, clause 1.5 of attachment 1 provides that in the event that the employment of the defendant or Doyle, or both, ceases prior to the first two PAT targets of PSG Doyle being achieved, the portion of the loan still outstanding would become immediately repayable and due.

9 The evidence is that the advance of $1.5 million by PSG Doyle referred to in clause 1.2 of attachment 1 to the service contract, was made on or about 16 October 2001, and that it has not been repaid to the plaintiff by either the defendant or Doyle.

10 The existence of a loan of $750,000 to each of the defendants and Doyle is also recorded in the audited financial statements of the plaintiff, including for the years ended 28 February 2002, 2003 and 2004, under the heading ‘Loans to Directors.’ It is owed to the parent company, but is not shown as such in the books of the plaintiff company. The plaintiff companies’ accounts seem to reflect directions in the loan agreement at clause 6 to pay any bonuses payable under the service contract to the lender.

11 In March 2003 the parties had decided to sever their ties and various communications took place about the terms on which the defendant’s employment would cease. Additionally, the topic was canvassed at a meeting of directors on 18 March 2003, a resolution passed and certain other matters noted.

12 The minutes of the meeting held on 18 March 2003 included the following:

“It was RESOLVED that the Company pay on 1 April 2003 a bonus salary payment to David Hannon a total cost to the Company of $750,000, the total cost to the company of $750,00 to include all tax, superannuation and payroll tax attributable thereto.

It was noted that Mr Hannon had agreed to use his bonus to repay in full and final settlement of all monies owing to PSG Doyle Pty Limited the $750,000 outstanding under his loan agreement.
It was further noted that Mr Hannon’s solicitors were preparing a Deed of Release for all parties to execute in order to document this bonus payment and his release from any liabilities associated with the loan and the operation of PSG Doyle Pty Limited and PSG Doyle Capital Limited.”

13 In the context of being pressed for particulars of the amount referred to in the statutory demand, the defendant’s solicitors confirmed:

14 On 22 December 2008, that is, 13 days after the service of the statutory demand, the defendant’s solicitors provided a copy of the resolution as the plaintiff’s officer, who was looking for the resolution, had not found it because he was looking in the wrong minute book.

Defect in the demand and affidavit

15 The plaintiff’s submission was that the statutory demand misdescribes the “debt.” While both the statutory demand and the verifying affidavit describe the alleged debt as relating to an incentive bonus payable pursuant to the service contract, the defendant’s solicitors have disavowed any suggestion that reliance is placed upon clause 1.2 of attachment A (the incentive payment provision of the service contract). The defendant’s position now appears to be not that he had an entitlement to that amount under attachment 1 to his service contract, but rather that a separate agreement was reached on 18 March 2003 that he be paid such an amount.

16 According to the plaintiff the unsatisfactory nature of the description of the “debt” in the statutory demand is also reinforced by the absence of any reference to a net bonus salary payment, in contrast to the explicit reference in the Resolution to a payment of $750,000 on a “total cost to the company” basis, namely, including all tax, superannuation and payroll tax attributable thereto. In other words, even taking the resolution at its highest, it does not evidence a debt payable to the defendant of $750,000, given the statutory requirement for employers to deduct taxation and remit it to the Commissioner of Taxation.

17 The plaintiff referred to what Barrett J noted in Blayney Wholesale Foods Pty Ltd v BIS Cleanaway Ltd [2008] NSWSC 1146 at [28], citing with approval Austin J in LSI Australia Pty Limited v LSI Holdings Pty Ltd [2007] NSWSC 1406 at [54]:

“A statutory demand is required by Form 509H to “describe” the debt that is claimed. If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is an offsetting claim, then there is a lack of something necessary for completeness, and therefore a defect in the demand.”

18 According to the plaintiff’s submissions, the description of the debt is positively misleading. The correspondence between the solicitors after the service of the statutory demand and before the commencement of these proceedings is said to evidence the plaintiff’s frantic attempts to understand the basis for the defendant’s claim within the statutory 21-day period. The fact that the plaintiff’s own records relating to the resolution were not able to be located within that period it is said should not count against it when one considers that the defendant waited more than 5 years before issuing a statutory demand for the “debt” and that no explanation has been provided by him for the delay.

19 As I have mentioned the statutory demand described the debt in the following terms:

“Incentive bonus payable to the Creditor pursuant to Service Contract between the Creditor and the Debtor Company dated 10 October 2001, which the Debtor Company has failed to repay as at the date of this demand: $750,000.”

20 The affidavit of Mr Hannon, which accompanied the statutory demand, described the debt in the following terms:

relating to

21 The defendant submitted that it was clear from the material filed during the 21 days that Mr Hannon was a party to a service contract with the company that had been made on 10 December 2001. The service contract demonstrates that Mr Hannon was also separately a party to a document entitled “shareholders agreement” which was to come into existence shortly after the execution of the service contract and certainly no sooner than 30 November 2001, and a director of another company known as PSG Doyle (WJK-1 page 11). Also party to that shareholders agreement was the parent company of the company, as well as PSG International Financial Engineers Limited (see WJK-1 Page 10). Thus it was said it was obvious that the relationships between Mr Hannon and the group of companies of which the company was a part were not restricted to that of employer employee.

22 It was also submitted that it is equally clear that the contract contemplated Mr Hannon’s employment for a period of 3 years from October 2001, with 6 months notice to be given in the event that either side wished to terminate before that time and that the agreement provided for bonuses to be paid in certain circumstances as well as an incentive bonus payable on pre-conditions, which included particular targets being reached by 28 February 2004.

23 As a consequence, it was submitted that there is no mystery to the proposition that the parties might come to a consensual basis for terminating Mr Hannon’s employment in April 2003, that is before the time provided for reaching targets in February 2004, which included a “bonus salary payment”, in exchange for foregoing other accrued rights and liabilities that might have arisen under the agreement and that amount might be calculated to compensate for the loss of any opportunity to earn an incentive bonus. Such a payment would be a payment “relating to” the incentive bonus. Likewise, it was suggested there is nothing inherently unusual in the proposition that such an agreement may have been reached without the conclusion of other arrangements between Mr Hannon and other companies within the group of which the company was part.

24 A court may look at the accompanying affidavit to determine whether a defect is causative of substantial injustice (see Panel Tech Industries Australia Pty Ltd v Australian Skyreach Equipment Pty Ltd [2003] NSWSC 619 and to the other material in the possession of the company at the time Blayney Wholesale Foods Pty Ltd v BIS Cleanaway Ltd [2008] NSWSC 1146)

25 So far as the affidavit is concerned, it seems to be a more accurate description which certainly encompasses a subtle reference to monies payable by way of incentive bonus. The words “relating to” are very general words. So far as the defect in the demand is concerned it is necessary to establish whether there is any substantial injustice if the demand is to be set aside on this ground.

26 The affidavit evidence does not demonstrate any confusion about the nature of the debt and the matters related to the company's ability to identify the relevant transactions that were some five years earlier. The demand did not expire until 30 December 2008. Although by the time the company received a copy of the resolution Christmas was approaching, there was still time for further investigation and the documents were ultimately filed in time. In my view there is no substantial injustice demonstrated and accordingly I would not set aside the demand on this ground. Given the wide description in the affidavit there is also no reason to set aside the demand.

A genuine dispute

27 I have had the benefit of a number of submissions in respect of the principles to be applied and I think the most useful summation of what is a genuine dispute is that given by McLelland CJ in equity in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669. At page 671 his Honour made the following comments respect of the expression "genuine dispute":

"It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs in s450H. 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 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 v Commonwealth Bank of Australia 11 ACSR 362 (at 366 and 367) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Pt5.4 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."

In Re Morris Catering (Aust) 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.”

28 The basis for the genuine dispute is said to be the following:

“The first ground is that a debt of $750,000 is not due and payable to the defendant because there is at the very least a plausible argument that the parties did not reach a final and binding agreement on 18 March 2003 that the plaintiff would pay the defendant the sum of $750,000. Rather, on 18 March 2003 the parties’ representatives met and agreed that the defendant’s solicitors would draw up a deed to be executed by the parties which documented the proposed arrangement discussed between them.

The Masters and Cameron aspect

29 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 …

Summergreene v Parker

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”.

30 As was pointed out in the plaintiff’s submissions 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.

31 The alleged fourth category of Masters v Cameron is based on an obiter statement made by the High Court in Sinclair Scott v Naughton. In that case a memorandum was produced as evidence of agreements made between the parties whilst negotiating terms for the sale of cattle. The parties entered into further correspondence but nothing was signed. The question was whether there was a binding agreement. Knox CJ, Rich and Dixon JJ agreed with the trial judge Piper J who at first instance stated,

“Upon consideration of the cases, and having regard to the nature and importance of the transaction, and the language of the letter signed on 18th December, I think the parties regarded a more complete contract as essential, and I feel bound to hold that what was agreed was subject to the preparation and execution of a further document which would be the complete contract.”

32 Their Honours went on to explain that the business in question was a going concern and the transaction was of some magnitude, thus the parties must have known there would be many subsidiary questions that would need to be attended to. They state at 317 to 318:

“There was not a final consent of the parties such that no new term or variation could be introduced in the formal document to be prepared — Pollock, Principles of Contract (8th ed ), p 47. On the contrary, the formal contract might contain other terms than those which appear from or are alluded to in the letter, which expresses an agreement to make an indeterminate contract — see Rossdale v Denny, (1921) 1 Ch 57 at p 67, per Lord Sterndale, M.R ; and Chillingworth v Esche, (1924) 1 Ch 97 at p 114, per Sargant, LJ

Love and Stewart Ltd v Instone and Co Ltd

.,

Harichand Mancharam v Govind Luxman Gokhale,

33 This passage has been relied in subsequent cases on as suggesting a possible fourth category. Balkham Hills Private Hospital was concerned with whether there existed an informal contract between the parties arising from letters written by either side during the course of negotiations for the sale for a private hospital. Each of the three letters in question contemplated a preliminary agreement to be superseded by a formal contract, for example, the second letter stated:

“On receipt of such written acceptance, our client would consider there to be a legally binding agreement in principle between yourself and it, until such time as formal Contracts were exchanged as aforesaid.”

34 McLelland J at 628 drew a distinction between the idea that there must necessarily be an agreement on further terms – an agreement to agree – and the expectation of agreement on further terms. The former agreement to agree is a Masters v Cameron type scenario where the future terms will not affect the substance of the initial agreement. The latter represents an expectation that the parties are open to negotiating new or further terms to be formalised in a contract that replaces the terms of the informal agreement.

35 It is conceivable that everyday parties enter into informal agreements, intending to be legally bound and with the expectation the agreement is immediately effective and open to renegotiation, depending on or despite preliminary performance. Arguably this is simply a variation on the first category of Masters v Cameron where the initial agreement is a binding contract to be performed as and when the obligations fall due, whether or not a formal agreement is executed. The variation that has been labelled as a fourth category, is that the parties retain the expectation, or perhaps the caveat, that a further contract containing consensual additional terms will be made in substitution for the first contract.

36 The matter can be looked at on two levels. The first is on the face of the document and the second is on a consideration of subsequent events to see if the parties intended to be bound. In this case, on the second level, there may be complications as to when the relevant material was served.

37 In determining whether or not the parties intended to be immediately bound, the question has been dealt with in a number of cases referring to the admissibility of subsequent conduct.

38 In ABC v XIVth Commonwealth Games Ltd (Commonwealth Games Case)(1988) 18 NSWLR 540, Gleeson CJ at 548 described this question as being for the purpose of showing that “it was not in the contemplation of either party that they were to be bound until all the essential preliminaries had been agreed to, nor until a formal contract had been drawn up embodying all the matters incidental to a transaction of such a nature” (referring to Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 669 per Griffiths CJ).

39 Gleeson CJ went on to note that in such a case it will normally be of importance that the Court have an understanding of the commercial context in which the dispute arises. A most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. In that case:

“The best evidence on that subject is to be found in the actual communications between the parties and, in particular, in the issues which they in fact addressed when they set about drafting their detailed contract.”

40 In Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551 the issue was whether legal proceedings had been settled. In concluding that a final and binding agreement had been reached, Gleeson CJ observed that when draft orders for the disposition of the proceedings were prepared by the vendor’s solicitors and submitted to their opponents they reflected precisely the view of the agreement contended for.

41 In that case Kirby P at 22 said that:

“It is well settled that a Court may have regard to the parties communications after the formation of an allegedly binding agreement in order to determine, objectively, whether or not the parties intended to form a binding agreement” [citations omitted].

42 The President’s judgment is, as the plaintiff suggests, a comprehensive review of the relevant authorities. Two of the authorities referred to are Summergreene v Parker (1950) 80 CLR 304, where Latham CJ said (at 315) that where changes can be made in the terms proposed and new terms are introduced there is no binding agreement between the parties. The second is Film Bars Pty Limited v Pacific Film Laboratories Pty Limited (1979) 1 BPR 9251, where McLelland J held that the conduct of the plaintiff’s solicitors, in continuing to negotiate the terms of the formal contract, could be used as an admission that an enforceable agreement did not exist, and further the fact that it was in the contemplation of both parties that there would be a formal exchange of contracts was strongly suggestive that no binding agreement existed.

43 I return to consider what appears on the face of the document. The defendant argued strongly that the terms of the resolution on their face could not demonstrate any possibility of the application of the rule in Masters v Cameron. The defendant particularly points to the fact that the first paragraph was a definitive resolution whereas the second two paragraphs are the notation of other subject matters which may have required further agreement. There is much force in this argument.

44 The wording of the first paragraph (reproduced at [12]) contains a resolution with no conditional terms. It details an intention on the part of the plaintiff to pay “on 1 April 2003 a bonus salary payment to David Hannon” calculated at a total cost to themselves of $750,000. That amount was to include all tax and superannuation liabilities.

45 The defendant submits that even if a deduction for payroll tax is taken from the $750,000 this does not alter the fact that an employer owes a wage earner the gross amount of their salary as a debt due and payable. They further argue that whether any payroll tax was deductible on that amount is a matter purely within the plaintiff’s knowledge. The superannuation liability is a statutory obligation on the part of an employer to pay a particular percentage of an employee’s salary into their nominated superannuation fund. I accept that this is the case.

46 Regardless of whether or not the $750,000 documented in the resolution is a gross or net figure the fact remains that paragraph one contains terms that are possibly precise and clear enough to allow the Court to determine that there was a concluded agreement.

47 The second paragraph of the resolution stated that “it was noted” that Mr Hannon had agreed to use the bonus to repay the $750,000 outstanding under his loan agreement with PSG Doyle. The defendant has argued that “it was noted” indicates that what was recorded was something that was not a part of the resolution but a fact that was related to the resolution. The defendant suggests that this agreement was not and could not logically be a precondition to payment. This seems to be the case.

48 The defendant has further argued that the money concerned was a repayment owing to the parent company of the plaintiff and the defendant had agreed to the money being used in that way. However this agreement was not expressed as any form of a direction or assignment. Further, there is no basis to infer such a proposition in the face of the express terms of the minute and in the absence of any further facts.

49 Paragraph one, as discussed, contains essential terms and thus should not fail for incompleteness. Paragraph two does read as being more general. However, it too contains essential terms: an agreement on the parties, the subject matter, the consideration and the price. Paragraph two is dependant on performance of the terms as set out in paragraph one – the two cannot be reversed. There is no precondition of execution of a final agreement in either paragraph. Therefore, the question really depends on the effect of paragraph three on the two agreements.

50 The third paragraph states that the deed of release will document the agreements outlined in paragraphs one and two. It states that Mr Hannon’s solicitors were “preparing a deed of release for all the parties to execute in order to document this bonus payment and his release from any liabilities associated with the loan and the operation of PSG Doyle Pty Limited and PSG Doyle Capital Limited.” On the face of it, it is not explicitly stated that the deed was a necessary precondition to the payment of the bonus or the repayment of the loan. The deed was to deal with other matters as well as the first two matters. It reads as if the parties had made the two agreements and intended to formally document those decisions as well as deal with some other matters, namely, some releases.

51 Much depends on the intended form of the deed of release and consideration of the facts and circumstances that may indicate whether the parties had intended to be bound. The plaintiff contends there is a plausible argument that the parties did not reach a final and binding agreement on 18 March 2003. This requires further facts which the defendant argues are not “revealed” in the plaintiff’s timely affidavit but are contained in their further affidavits.

52 The plaintiff's position was that if one could have regard to the correspondence that occurred after the resolution then that correspondence would demonstrate that the parties had not agreed and that in fact no release was ever signed. This raises the question of whether or not I can have regard to that material which is contained in paragraph 16 of the affidavit of Mr Doyle sworn 20 March 2009.

53 The hearing before me was split between two days and on the first day I ruled on the admissibility of the evidence. A consideration of my judgment that dealt with the Graywinter principle and the material served outside the 21-day period shows that I admitted paragraph 16 provisionally. My recollection of the basis for this was that there might be debate about the admissibility of material after the resolution to determine the Masters v Cameron point.

54 On the second day, when the matter resumed before me, counsel for the defendant sought clarifications as to whether he could argue that the material in paragraph 16 should be excluded as it was not served within time. I indicated to counsel that he could, although it now appears that was not the effect of my earlier ruling. I have heard counsel’s arguments and I have considered the matter again and it seems to me that for the reasons which I advanced in my judgment on the 22nd of July 2000, I should make the same ruling.

55 It follows that I should now consider that material to see whether it sheds light on whether there was a concluded agreement. That material is conveniently summarised in the plaintiff’s further supplementary submissions in these terms:

“Further, the first version of the Deed of Release prepared by Mr Brown and forwarded to Mr Goodsall on 20 March 2003 included terms which went beyond the matters apparently discussed between them on 18 March 2003. Second Doyle affidavit , Exhibit ADD-1, tab 4 For instance, a provision was inserted to the effect that the parties acknowledge that the defendant was and was intended to remain the registered and beneficial owner of 15% of the issued capital of the holding company (clause 4.3), and it proposed that both that holding company and another company, PSG International Finance Engineers Limited, be a party to the agreement.

Version 2

On 25 March 2003 the defendant sent an email to the directors of the plaintiff pressing for the execution of the Deed of Release. The inference to be drawn from this email (unrebutted by any evidence) is that the defendant considered it important that execution occur.

On 6 May 2003 the defendant advised Mr Goodsall that “ My Deed of Release was completed yesterday ” and “ please keep me posted as to the methodology involved to complete this transaction .” Second Doyle affidavit, Exhibit ADD-2, tab 7 Again, if a final and binding agreement had been reached on 18 March 2003, one might query why the defendant was so anxious that the plaintiff execute the Deed.

It appears that the first time the parties communicated in relation to the precise amount of taxation that would accrue on the payment of the bonus was 7 May 2003. Second Doyle affidavit, Exhibit ADD-2, tab 8 It was raised again on 19 May 2003.

In conclusion:

the authorities establish that communications between the parties taking place after the alleged agreement are relevant and admissible; and

in the present case those communications in combination with the email sent on 18 March 2003 and the terms of the Resolution itself suggest that there is, at the very least a plausible case that the parties did not intend to be bound on 18 March 2003.

56 The deed of release was never signed and the defendant never received his bonus. Nothing was paid to him or his lender. The proceedings which he commenced in the common law division of this court after the demand expired will finally resolve that entitlement.

57 For the purpose of the present application these steps which occurred after the resolution at least suggest a plausible contention requiring investigation and thus I am satisfied there is a genuine dispute.

The terms of the agreement

58 The plaintiff’s submissions on this point were as follows:

“Both the email and the Resolution record that the agreement (if any) reached on 18 March 2003 comprised both an agreement on the part of the plaintiff to pay the sum of $750,000 and also an agreement on behalf of the defendant to apply that sum in repayment of the PSG Doyle Loan. One simply cannot be divorced from the other. Amongst other reasons, without the latter the defendant apparently provided no consideration for the plaintiff’s promise and consequently there could not be a valid and binding agreement.

In identifying the terms of the agreement the Court will have regard to the matrix of facts and circumstances existing at the time the agreement was reached. In the present case this includes in particular:

any amounts due and payable to [Hannon] as a bonus under clause 7.2

David will be required to pay cash of $350,000 to clear the balance of his loan account

For the above reasons the plaintiff submits that there is a “plausible contention” or “arguable case” that the agreement reached on 18 March 2003 contained an express or implied term to the effect that at the direction of the defendant the sum of $750,000 would be applied by the plaintiff to PSG Doyle in repayment of the loan. This is fatal to the defendant’s claim that the sum of $750,000 is due and payable by the plaintiff to him.”

59 The defendant’s answer to this submission was as follows:

“The answer to the contention that if there was a final and binding agreement, it was a term of that agreement that the amount of $750,000.00 would be applied by the Plaintiff at the Defendant’s direction in discharge of the PSG Doyle loan is twofold:

Mr Hannon had agreed to use the bonus

(ii) Even if there were such a term that does not suggest that the money was not due and payable, simply that Mr Hannon thereafter had an obligation to deal with it in a particular way.

It is not to the point to show as apparently the Plaintiff does that the PSG Doyle loan remains outstanding. The Plaintiff does not suggest that it has paid Mr Hannon the money so, even on its version of events; Mr Hannon was under no obligation to repay that loan.”

60 The loan agreement of 16 October 2001 reflected the terms of the service contract and Mr Doyle and Mr Hannon signed it. The agreed terms were as follows:

“Agreed Terms
1 Advance
The Loan Amount will be advanced by way of immediately available funds by the Lender to the Borrowers on the date this deed is executed by the last of the parties to it or as otherwise agreed.

2 Suspensive conditions
The rights and obligations of the parties under this deed are subject to the fulfilment of the following suspensive conditions by 31 October 2001 (unless an earlier date is specified for a specific condition), or such other date as the parties may determine:

a) the proposed agreement between PSG International Financial Engineers Limited (PIFE) and the Lender for the sale of PIFE's 76% interest in PAPL to the Lender is successfully concluded and implemented;

b) the conclusion and successful implementation of a shareholders' agreement in respect of the Lender between the Borrowers and PIFE ("PSG Doyle Shareholders' Agreement");
c) the Borrowers each signing and executing a service contract in the form attached as schedule 2 to the PSG Doyle Shareholders' Agreement.”

61 The directions in the loan agreement as to payments were:

“

^-

62 The email referred to in the plaintiff’s submission was sent just prior to the director’s meeting which passed the resolution of 18 March 2003. It stated:

“Gentlemen,

I met with Chris Brown to finalise an exit strategy for David H.

Resolved that the simplest and cleanest method is for PSGDC to declare a bonus of $750,000 to David. This will be subject to PAYG tax and superannuation – all up $750,000. The net amount being $750,000 less tax and less super. Assume this figure is $400,000, David will be required to pay cash of up to $350,000 to clear the balance of his loan account. In essence this equates to any funds PSGDC needs to pay out to his super fund and the ATO.

Further, PSGDC, PSGD, AD, PSGIFE, being parties to the shareholders agreement, will be required to execute a deed of release relieving David H of any obligations under the shareholders agreement.

The timing of the transaction is up to David. If it takes place this week then David will need to pay PSGDC residual funds by 15 April. If the effective date is 1 April the payment by David can be deferred until 15 May.”

63 This email does not, in my view, support the plaintiff’s contention that the agreement reached as recorded in the minutes of 18 March 2003 contains at least an implied term that the defendant would use the bonus payment to repay the sum of $750,000, regardless of whether that was to be deployed at Mr Hannon’s direction by PSG Doyle or by Mr Hannon himself. The email was sent to the relevant people before they met to make their agreement if, in fact, an agreement was achieved.

64 The question of consideration depends on whether the payment of $750,000 is viewed as a bonus salary or as a loan. If it is the former, then consideration could be viewed as the defendant’s performance as an employee. If it is the latter, as the plaintiff has suggested, the consideration could be taken to be the defendant’s agreement to pay the loan.

65 The defendant’s suggestion that the amount was due and payable to the defendant and that he may have had a separate obligation to apply it in a particular way, has much merit. In such a case there would be no genuine dispute although other relief may be available to the plaintiff. In any event on the first question I have decided against the defendant and the demand must be set aside.

66 I make order 1 in the originating process. I order the defendant to pay the plaintiff’s costs of the proceedings.

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Citations

Afro v Hannon [2009] NSWSC 775

Cases Citing This Decision

0

Cases Cited

6

Statutory Material Cited

0

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CITATION:	Afro v Hannon [2009] NSWSC 775
HEARING DATE(S):	22/07/09, 03/08/09
JUDGMENT DATE :	21 September 2009
JURISDICTION:	Equity Division
JUDGMENT OF:	Macready AsJ at 1
DECISION:	Paragraph 66
CATCHWORDS:	Corporations Act. Application to set aside statutory demand under s 459G of Corporations Act. Demand set aside. No matter of principle
PARTIES:	Afro Pacific Capital Limited v David Hannon
COUNSEL:	Miss EA Collins for plaintiff Mr A Spencer for defendant
SOLICITORS:	Corrs Chambers Westgarth for plaintiff Gillis Delaney Lawyers for defendant
LOWER COURT JURISDICTION: