Apex Minerals NL v Ashley
[2013] WASCA 176
•7 AUGUST 2013
APEX MINERALS NL -v- ASHLEY [2013] WASCA 176
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASCA 176 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:134/2012 | 17 JUNE 2013 | |
| Coram: | PULLIN JA NEWNES JA MURPHY JA | 7/08/13 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Application for leave to appeal, and appeal, allowed | ||
| B | |||
| PDF Version |
| Parties: | APEX MINERALS NL MARK JOHN ASHLEY |
Catchwords: | Statutory demand Genuine dispute Whether genuine dispute as to prohibited termination payments to director Alleged variations to employment contract |
Legislation: | Corporations Act 2001 (Cth), s 200B, s 200E, s 200F, s 459E, s 459G, s 459H(1)(a), div 2 of pt 2D.2 Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth), s 43(1) |
Case References: | Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383; (2012) 202 FCR 354 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 Silver v Dome Resources NL [2007] NSWSC 455; (2007) NSWSC 455 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : APEX MINERALS NL -v- ASHLEY [2013] WASCA 176 CORAM : PULLIN JA
- NEWNES JA
MURPHY JA
- Appellant
AND
MARK JOHN ASHLEY
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : MASTER SANDERSON
Citation : APEX MINERALS NL -v- ASHLEY [2012] WASC 411
File No : COR 113 of 2012
Catchwords:
Statutory demand - Genuine dispute - Whether genuine dispute as to prohibited termination payments to director - Alleged variations to employment contract
Legislation:
Corporations Act 2001 (Cth), s 200B, s 200E, s 200F, s 459E, s 459G, s 459H(1)(a), div 2 of pt 2D.2
Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth), s 43(1)
Result:
Application for leave to appeal, and appeal, allowed
Category: B
Representation:
Counsel:
Appellant : Mr S Davis
Respondent : Mr P McGowan
Solicitors:
Appellant : Allion Legal
Respondent : Karp Steedman Ross-Adjie
Case(s) referred to in judgment(s):
Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115
MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383; (2012) 202 FCR 354
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723
Silver v Dome Resources NL [2007] NSWSC 455; (2007) 62 ACSR 539
1 REASONS OF THE COURT: This is an application for leave to appeal against a decision by Master Sanderson dismissing an application by the appellant to set aside a statutory demand. For the reasons which follow leave should be granted and the appeal upheld.
Background
2 On 13 April 2006, the respondent entered into an employment agreement (employment contract) with the appellant, under which the respondent was appointed as the managing director and chief executive officer of the appellant. In these reasons, we will refer to the appellant as 'the company', and the respondent as 'the director'.
3 By deed of termination, settlement and release (deed) entered into between the company and the director on 24 February 2012, subject to certain terms and conditions (which are unnecessary to examine for present purposes), the director agreed to resign as a director of the company and the company agreed to pay the director a 'Settlement Sum'. The 'Settlement Sum' was defined by the deed:
Settlement Sum means the sum of the following gross (before tax) payments to be made to the Director as follows:
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4 On 26 June 2012, the director issued a statutory demand in respect of the Settlement Sum in the amount of $497,592 pursuant to s 459E of the Corporations Act 2001 (Cth). For present purposes it is unnecessary to go into the details of how that sum was calculated, but in substance it reflected the director's view of the 'after tax' amount that he was due in respect of the Settlement Sum, a credit for a previous payment made to the director of approximately $107,000, and an offset in respect of a sum of $250,000 due to the company with respect to the allocation to him of certain shares.
5 The company applied to Master Sanderson to have the statutory demand set aside. It contended that there was a genuine dispute as to the existence and amount of the alleged debt. The company contended, inter alia, that the first item of the Settlement Sum, being the termination payment (in the gross amount of $720,000) and the third item, being additional annual leave payable for time in lieu as agreed by the Board (in the gross amount of $233,000) were not payable, in the circumstances, by virtue of the relevant legislative scheme regulating termination payments to officers of corporations: div 2 of pt 2D.2 of the Corporations Act.
6 Division 2 of pt 2D.2 was amended by the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth) (the Amendment Act). In broad terms, both before and after the Amendment Act, the legislative scheme was as follows. Under s 200B(1) of the Corporations Act, a company is prohibited from giving a person a benefit in connection with his or her retirement from a managerial or executive office in the company unless there is a member approval under s 200E of the Act. It has been held that it is the making of the payment, rather than the making of the agreement which provides for the payment, to which the prohibition in s 200B(1) is directed: Silver v Dome Resources NL [2007] NSWSC 455; (2007) 62 ACSR 539 [85] - [87]. Section 200B is, however, subject to certain exceptions and limitations, including in s 200F. Under s 200F(2), the prohibition in s 200B(1) does not apply if subsection (a) of s 200F(2) is satisfied and if the value of the benefit (plus certain other benefits) does not exceed a threshold amount calculated in accordance with s 200F(3) and s 200F(4).
7 The company's principal argument was to the effect that the Amendment Act applied, thereby prohibiting it from making payments in accordance with the first and third items of the Settlement Sum, and (as we understood it) that the alleged debt was not, accordingly, 'due and payable' for the purposes of s 459E of the Corporations Act.
8 It was not in dispute before the master or this court that the first item of the Settlement Sum, the termination payment of $720,000, would exceed the threshold provided for in s 200F(3) and s 200F(4) if the Amendment Act applied, but would not exceed the relevant threshold under the former s 200F. It was also common ground that member approval had not been obtained for payment of the Settlement Sum, if s 200B(1) did apply.
9 In relation to whether the Amendment Act applied to the payment of the Settlement Sum, s 43(1) of the Amendment Act provided:
43 Application
(1) The amendments made by Part 1 apply in relation to a retirement from an office, or position of employment, held under:
(a) an agreement entered into; or
(b) an agreement renewed or extended; or
(c) an agreement, for which a variation of a condition of the agreement happens;
on or after the commencement of that Part.
11 The master rejected the company's contentions and dismissed the application to have the statutory demand set aside. The company has sought leave to appeal to this court.
12 In this appeal, the director's counsel said, in effect, that if the master erred in relation to the director's claim with respect to the first item in the sum of $720,000, the company would (at least arguably) have a claim for the $250,000 previously offset, with the result that there would not be a net amount due by the company to the director (ts 40). In that event, the statutory demand should be set aside. Again, it is unnecessary to go into the mathematics.
Grounds of appeal
13 There were seven grounds of appeal. In substance, they raised five issues. Ground 1 was an 'umbrella' ground for the other grounds.
14 Grounds 2 and 6 depend upon the contention that the master erred in finding that there was no genuine dispute as to whether there had been a variation of a condition of the employment contract so as to attract the new, lower threshold under s 200F of the Corporations Act. We will call this the 'variation issue'.
15 Ground 3 alleged, in effect, that irrespective of the variation issue, the third item of the Settlement Sum was, in any event, the subject of prohibition by s 200B(1) of the Corporations Act.
16 Ground 4 alleged, in effect, that the master erred in finding that there was no genuine dispute as to whether certain sums were payable to certain third parties, rather than the company, after the director had signed an 'irrevocable authority' in favour of the third parties.
17 By ground 5 the company alleged that the master erred in finding that the new management of the company had, in effect, 'manufactured' a dispute to allow them to resist the statutory demand. The director, for his part, contended with respect to ground 5 that the master was correct, and that this finding indicated that there was no 'genuine dispute' even if the master erred with respect to the variation issue.
18 By ground 7, the company alleged, in effect, that the master erred in finding that the amount of tax to be withheld was not uncertain and that this constituted 'some other reason' for setting aside the statutory demand under s 459J(1)(b) of the Corporations Act.
19 There was also a notice of contention by the director. However, counsel for the director said that it did not raise anything in substance beyond the points addressed by the director in response to the grounds of appeal.
Principles applicable to an application to set aside a statutory demand
20 Section 459G of the Corporations Act provides that a company may apply for an order setting aside a statutory demand served on the company. Under s 459H(1)(a), the relevant question is whether 'there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates'. The principles applicable to s 459H(1)(a) were recently summarised in Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 [9] - [16] and it is unnecessary to repeat them here.
The variation issue
21 It appears that the principal issue before the master, and certainly the principal issue before this court, was the variation issue. The evidence before the master included the following.
22 There were provisions of the employment contract (when originally entered into) to the effect that:
• the director's appointment commenced in April 2006 and would continue for three years unless otherwise terminated in accordance with the agreement, and that upon expiration of that term, the director's appointment would continue on the same terms unless the agreement was otherwise terminated (cl 3);
• the director would receive a minimum remuneration package of $300,000 per annum base salary, plus superannuation; the package would be 'reviewed' annually and could not be reduced in any review; and to the extent that the company and the director could not agree on the combination of the components of the package, it would comprise the minimum superannuation contribution required by law, plus cash salary only (cl 4.1(a) to cl 4.1(d));
• in addition to the salary/superannuation package, the company would provide the director with a motor vehicle 'to the value of $65,000' and would be responsible for costs associated with the maintenance, licensing, running of and repairs to the vehicle together with any fringe benefits tax (cl 4.2);
• the director was entitled, in addition to normal public holidays, to four weeks paid leave for each completed year of service (cl 6(a)).
• if the company wished to terminate the agreement in a manner for which notice was required, the company could, at its option, in lieu of the notice period, pay the director an amount equal to a proportion of the director's total remuneration package referred to in cl 3, corresponding to the period for which notice was not given (cl 10.4(a)); and
• the agreement could not be varied except in writing and signed by the parties (cl 12(b)).
23 On 7 December 2009, the non-executive chairman of the company wrote to the director and said, inter alia:
I am pleased to confirmthat the Board has approved an increase to your salary package, as follows:
• Your base salary component will be increased immediately to $550,000 per annum, backdated to 1 July 2009. This amount is inclusive of the standard 9% superannuation contribution amount and all other benefits, but excludes the motor vehicle benefits detailed at clause 4.2 in your Services Agreement.
• Your base salary component above will be increased to $600,000 per annum from 31 March 2010, subject to Apex meeting its production targets as detailed under the 'Azure model' (which was provided to investors and underwriters who participated in the recent Apex rights issue) from 1 November 2009 to 31 March 2010. (emphasis added)
24 On 3 December 2010, the non-executive chairman of the company, purportedly on behalf of the Board of the company, wrote to the director and said:
This is to confirm that the non-executive Directors of Apex Minerals have recently reviewed your current remuneration package in light of industry standards, and have agreedto amend it effectively 1st July 2010 as follows:
Superannuation (9%) TOTAL |
$58,500 pa $708,500 pa (currently $550,000 pa) |
With regard to your superannuation, you may amend the allocation of your salary/superannuation (eg salary sacrifice) so long as the total doesn't exceed $708,500 pa.
…
In respect of your entitlement to a company car, this has also been reviewed and has been amended. You are now entitled to a company car with an annual cost of $45,000 pa. Again you will be able to change this (via traditional salary sacrifice). (emphasis added)
25 The letters of December 2009 and 2010 were written after the commencement of the operation of the relevant provisions of the Amendment Act. The director was, it appears, subsequently remunerated in accordance with the terms of the correspondence referred to above. The company alleged that there were numerous variations of the employment contract disclosed by the evidence. It is unnecessary to refer to all of them. For present purposes it is sufficient to observe that the company's contentions included the following matters.
26 The company contended that there was, at least, a plausible contention to the effect that it is to be inferred in all the circumstances, including from the correspondence and from the director's alleged acquiescence by conduct, that the director's remuneration was varied after 24 November 2009 from $300,000 pa (excluding superannuation) under the original employment contract, to $550,000 pa (including superannuation) with effect from 1 July 2009, to $600,000 pa (excluding superannuation) from 31 March 2010, and to $708,500 pa (including superannuation) from 1 July 2010. Similarly, the company argued that there was a plausible contention to the effect that the employment contract had also been varied in December 2010 with respect to the nature and amount of the director's entitlement to a motor vehicle. It also alleged that the third item of the Settlement Sum itself involved a variation to the employment contract after 24 November 2009 in that it involved, in effect, a variation to the entitlement to annual leave. It was said that these alleged variations constituted, or at least there was a genuine dispute about whether they constituted, variations of conditions of the director's employment contract within the meaning of s 43(1)(c) of the Amendment Act.
Disposition
27 The director's submission, which the master in effect upheld, was that cl 4.1 of the employment contract expressly contemplated annual reviews of the director's remuneration, with the result that any subsequent alterations to the director's remuneration could not, even arguably, be regarded as variations to the employment contract as they would merely be the implementation of the original terms of the employment contract.
28 The director's submission, and the master's finding, depended upon, amongst other matters, the final resolution of two sub-issues. The first is the proper construction of cl 4.1 of the employment contract, and, in particular, whether the company's promise to carry out an annual review under cl 4.1 comprehended the power to increase the director's salary package without further agreement by the director, or whether a review, on the proper construction of the employment contract, was intended to involve and lead to a consensual change in salary package. No authority was cited which would support the construction implicit in the master's conclusion. The second is the meaning and effect to be ascribed to the terms of the correspondence in December 2009 and December 2010, within the setting of any admissible extrinsic circumstances - which would ordinarily raise questions of fact. Further, the master has apparently concluded that, on its proper construction, a review under cl 4.1 permits the company to change the director's entitlement to a motor vehicle under cl 4.2, even though the review under cl 4.1 appears, on its face, to be directed only to salary and superannuation. Although it is not entirely clear, the master also appears to have regarded cl 4.1 as applying to a sum calculated by reference to increases in annual leave claimed by the director (the third item of the Settlement Sum), although, on its face, the provision for annual leave is dealt with in cl 6 of the employment contract. In relation to the motor vehicle point, the director submitted that even if cl 4.1 did not apply to changes in the motor vehicle entitlement under cl 4.2, there was, in any event, no material difference between the entitlement under cl 4.2 (a motor vehicle to 'the value of $65,000') and that provided for in the letter of 3 December 2010 (a company car with an 'annual cost' of $45,000 per annum). The director further contended in this appeal that, in any event, cl 12 of the employment contract prohibited variations other than in writing. On the other hand, the company submitted that such a clause does not preclude the contract being varied in some other way that satisfies the necessary elements of the contract, and referred in this regard to Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723, 750 - 751.
29 In this appeal, the director further submitted that even if, arguably, the employment contract had been varied, the alleged variations were, incontrovertibly, not variations of any 'condition' within the meaning of s 43(1)(c) of the Amendment Act. That submission itself, however, depends upon both the proper construction of s 43(1)(c) of the Amendment Act, and the proper construction of the employment contract (see Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 [48]. In relation to the former matter, ie the proper construction of the Amendment Act, each party referred to different aspects of the Explanatory Memorandum to the Amendment Act (which, again, it is unnecessary to go into for the disposition of this application) in support of the respective constructions of the Amendment Act which each propounded.
30 In our respectful view, the matters which we have outlined in the preceding two paragraphs indicate that there were plausible contentions requiring investigation in relation to the variation issue, and that the variation issue could not properly have been determined summarily in the context of an application to set aside a statutory demand. In our view, the company has, in this regard, established grounds 1, 2 and 6.
31 In relation to ground 5, the master found that any dispute over the variation issue was 'manufactured'. He was particularly influenced, it seems, by the fact that the company's solicitors had, prior to the entry into the deed, informed the director, in effect, that no shareholder approval would be required (GB 307).
32 In our view, ground 5 should be upheld. At the time of the application to set aside the demand (which is the relevant time to consider - Central City v Montevento Holdings [14]) there was, objectively, for the reasons given above, a genuine dispute as to whether the alleged debt was due and payable without approval by the company in a general meeting. The dispute was not 'manufactured' as found by the master, but rather owed its existence to historical events, the significance of which was to be judged against the relevant statutory backdrop. Further, the solicitors' advice to the director may be relevant to the question of whether the director may or may not have any claim against the solicitors. However, this is not, and was not, the occasion to determine the correctness of the solicitors' advice, nor to investigate or make assumptions about the nature and scope of their instructions or their retainer. The director, nevertheless, submits that it was not a genuine dispute because the company could, at any time, call a general meeting and seek shareholder approval. Assuming that be correct, it may provide other remedies to the director against the company, but, again, it would not, in our view, deny the existence of a plausible contention, requiring investigation, that the debt as presently claimed is not due and payable without shareholder approval.
33 It is unnecessary to deal with grounds 3, 4 and 7.
34 For the above reasons the appeal has merit, and the statutory demand should have been set aside by the master. The decision below was wrong. Ordinarily, if an erroneous decision not to set aside a statutory demand is left unreversed, there would be a substantive effect on the company's rights in that it would have to pay the significant amount claimed by the alleged creditor, or become subject to the statutory presumption of insolvency which, although rebuttable, is a serious matter for a trading corporation: see Central City v Montevento Holdings [52].
35 Finally, it is to be noted that, after the hearing of the appeal, the company advised the court by letter dated 26 June 2013 that receivers and managers had been appointed to the company, as well as an administrator pursuant to s 436C of the Corporations Act. Neither party sought leave to file submissions dealing with the consequences (if any) of this development. In particular, it has not been suggested that an application to set aside a statutory demand or an appeal therefrom is 'a proceeding in a court against the company or in relation to any of its property' for the purposes of s 440D(1) (see also MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383; (2012) 202 FCR 354 [6] - [23]). Nor was it contended that an application for an order that the company be wound up is on foot, with the result that the company would be presumed insolvent pursuant to s 459C(2) of the Corporations Act. Therefore, there would appear to be no impediment to giving effect to the conclusions in the preceding paragraphs.
36 Accordingly, there should be leave to appeal and the appeal should be allowed.
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