Apex Minerals Nl v Ashley - [2012] WASC 499

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: APEX MINERALS NL -v- ASHLEY [2012] WASC 499

CORAM: LE MIERE J

HEARD: 26 NOVEMBER 2012

DELIVERED : 26 NOVEMBER 2012

FILE NO/S: COR 181 of 2012

MATTER :Apex Minerals NL

BETWEEN: APEX MINERALS NL
Plaintiff
AND
MARK JOHN ASHLEY
Defendant

Catchwords:

Corporations - Statutory demand - Time to comply with a statutory demand - Order to preserve position pending appeal - Arguable case - Turns on own facts

Legislation:

Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth), s 43
Corporations Act 2001 (Cth), s 200B, s 200F, s 459F(2)(a)(i), s 459H, s 459J, s 1322(4)(d)

Result:

Extension of time granted

Category: B

Representation:

Counsel:

Plaintiff: Mr S J Davis
Defendant: Mr P G McGowan

Solicitors:

Plaintiff: Allion Legal
Defendant: Karp Steedman Ross-Adjie

Case(s) referred to in judgment(s):

Apex Minerals NL v Ashley [2012] WASC 411
Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd [2004] NSWSC 877; 50 ACSR 544
Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290

LE MIERE J: The plaintiff has applied under s 459F(2)(a)(i) and/or s 1322(4)(d) of the Corporations Act 2001 (Cth) for an order extending the time for compliance by the plaintiff with a statutory demand, in order to preserve the position pending an appeal by the plaintiff from the decision of Master Sanderson made on 7 November 2012, to dismiss the plaintiff's application in Supreme Court proceedings COR 113 of 2012 for orders that the statutory demand be set aside.
The plaintiff submitted that the court has power under s 459F(2)(a)(i) of the Corporations Act to make the order sought extending the time for compliance with the statutory demand. The defendant did not argue to the contrary. I find that I do have that power.

Principles for exercise of power to extend time

The principles by which the power should be exercised were discussed by Barrett J in Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd [2004] NSWSC 877; 50 ACSR 544. Barrett J said:
It is not, I think, contentious that there are three matters to be addressed upon the present application: first, the general question of the prospects of success in the appeal and whether an arguable case has been shown; second, whether the appeal will be rendered nugatory unless the extension is granted; and third, as to the prejudice the respective parties will suffer in the alternative eventualities [5].
In addition, the defendant submitted that the court should have regard to the fact that the appeal to the Court of Appeal is in fact an application for leave to appeal from the decision of the Master. To obtain leave to appeal the plaintiff will have to satisfy the Court of Appeal that it has an arguable case and that a substantial injustice will be done if the decision sought to be appealed from is not reversed.
I am satisfied that if the Court of Appeal were to find that there is an arguable case then it is likely that the court would find that substantial injustice would be done if the decision were not reversed. I adopt the words of Murphy J in Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 where his Honour said:
I am satisfied that the decision of the master, if left unreversed, will cause substantial prejudice. If the decision is unreversed, there is a substantive effect on the first appellant's rights. It will have to pay what is a large sum to the respondent, or become subject to the statutory presumption of insolvency: section 459C of the Act. The statutory presumption of insolvency, although rebuttable, is a serious matter for a trading corporation [52].

Arguable case

I turn then to consider whether there is an arguable case. The court may set aside a statutory demand under s 459H of the Corporations Act where the court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of the debt to which the demand relates; or
(b)that the company has an offsetting claim.
The court may also set aside the statutory demand under s 459J where the court is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
What is required for the court to consider in ascertaining whether there is a genuine dispute was referred to by the Chief Justice in Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85, where his Honour said, with the agreement of Owen and Miller JJ:
The verbal formulation of the test to be applied which appears to enjoy greatest judicial support is that of McClelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, where he described the expression 'genuine dispute' as connoting a 'plausible contention requiring investigation and equated it to the criterion of serious question to be tried' which arises on an application for an interlocutory injunction [44].
After referring to authority his Honour continued:
It is equally well established that the applicant for an order setting aside a statutory demand must establish that the dispute is bona fide and truly exists in fact and that the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived [45].
After referring to further authorities, his Honour continued:
It is also well established that the only function of the court is to determine whether there is a genuine dispute - the court is not expected to undertake an extended inquiry nor attempt to weigh the merits of the dispute [46].
The plaintiff says that there is a genuine dispute because the payment of the amounts the subject of the statutory demand are prohibited by s 200B(1) of the Corporations Act. Section 200B(1) provides relevantly:
An entity mentioned in subsection (1AA) must not give a person a benefit in connection with a person's (the retiree's) retirement from an office, or position of employment in a company or related body corporate if:
(a)the office or position is a managerial or executive office; or
(b)…
unless there is member approval under section 200E for the giving of the benefit.
It is common ground that the plaintiff is an entity mentioned in s 200B(1AA). There is evidence that there was no member approval and that is not disputed. Section 200B does not apply in the circumstances described in s 200F(2), which in effect exempts the payment of benefits given in connection with a person's retirement from office or position in relation to a company (retirement benefits) in certain circumstances from the requirements of s 200B.
Section 200F is found in pt 2D.2 div 2 of the Corporations Act, which was introduced into the Act by the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth), which I will refer to as the Amending Act. Prior to the Amending Act, the payments to the defendant would in the circumstances have been exempt retirement benefits to which s 200B(1) would not apply. However, after the Amending Act, s 200F does not apply so as to exempt the payments to the defendant from the prohibition under s 200B. The principal issue before the master and on the hearing of this application is whether s 200F, as amended by the Amending Act, applies to the payments to the defendant. That in turn depends upon s 43 of the Amending Act.
Section 43 of the Amending Act provides that the amendments made by pt 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.
Part 1 included the amendments to s 200F. The commencement date was 24 November 2009.
The plaintiff accepts that the employment contract, under which all but one of the four items which make up the payment to the defendant under the settlement deed, and which are the subject matter of the statutory demand, was not entered into after the commencement date. Further, the plaintiff does not contend that the agreement was renewed or extended after the commencement of that part of the Amending Act. However, the plaintiff contends that all of the amounts claimed by the defendant under the statutory demand are payments under his employment agreement made on 13 April 2006, for which a variation of the condition of the agreement happened after the commencement date.
The plaintiff contends that the agreement was relevantly amended when the defendant's remuneration was increased by the plaintiff from 7 December 2009 and again on 3 December 2010 by letters from the plaintiff of those dates to the defendant. The relevant amendments are two increases to Mr Ashley's base salary, first on 7 December 2009, an increase immediately to $550,000 per annum backdated to 1 July 2009 and, secondly, an increase to $600,000 per annum from 31 March 2010, subject to the company meeting its production targets as detailed under the Azure Model, from 1 November to 31 March 2010.
The plaintiff further contends that the remuneration increases notified on 3 December 2010 constitutes a variation of a condition of the contract. By a letter of 3 December 2010, the plaintiff informed the defendant that his remuneration package had been reviewed and in light of industry standards it had been amended to the sum of $650,000 per annum plus superannuation, to give a total of $708,500 per annum; and further, that the defendant would be entitled to a cash short-term incentive based on his ability to earn up to 50% of his base salary over a 12-month period upon achieving certain predetermined targets. Details of the targets were then set out.
In addition to those changes in remuneration, the plaintiff also informed the defendant that there was a change in relation to his entitlement for a motor vehicle. Under the contract cl 4.2 provides:
In addition to the package the company will provide the executive with a motor vehicle to the value of $65,000 and the company will be responsible for costs associated with the maintenance, licensing, running of and repairs to the vehicle together with any fringe benefits tax payable in relation to the vehicle.
On 3 December 2010 the plaintiff informed the defendant:
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 per annum. Again you will be able to change this (via traditional salary sacrifice).
Further in the letter of December 2010 the plaintiff stated:
Finally and in respect of a long-term incentive the board has agreed to offer you 10 million options in the company at a strike price of .06 dollars.
Under the contract cl 4.3 provided that in addition to the package the company will, subject to [(b)], issue the executive or his nominee with two million options to acquire shares in the company on the terms and conditions set out in the schedule to this agreement.
The defendant maintains that none of those matters constitute a variation to a condition of the employment contract.
The explanatory memorandum circulated to the Amending Act provided the following statements in relation to the amendments effected by the Amending Act. At [2.6] to [2.8] it is stated:
The new arrangements will not apply retrospectively to existing contracts. The new arrangements will apply to contracts that are entered into and renewed or extended.
Additionally, the arrangements will apply to existing contracts for which a variation of a condition is made. Minor changes to an existing contract would not be considered a variation of a condition. However, changes that effect an essential term, including any term relating to remuneration would be considered a variation of a condition.
The amendment strengthen the existing regulatory framework applying to termination benefits by; better empowering shareholders to disallow excessive termination benefits, particularly where they are a reward for poor performance; improving the accountability of company management in setting remuneration; and promoting responsible remuneration practices.
I find that it is arguable that the increases in the remuneration of the defendant in December 2009 and December 2010 constitute a variation of a condition of the agreement which happened at or about those times.
The master held that it was not arguable that there had been a variation to the employment agreement. The master said in [17] of his reasons for decision that the changes to the defendant's base salary and superannuation and the short term incentive based on achievement of certain targets and the long term incentive in the form of share options did not amount to a variation of the contract: Apex Minerals NL v Ashley [2012] WASC 411. The master said:
On 3 December 2010 Mr Robinson again wrote to the defendant informing him the plaintiff had agreed to increase his base salary to $650,000 plus superannuation backdated to 1 July 2010 he was also to receive other benefits. These included a cash short-term incentive based on achievement of certain targets and a long-term incentive in the form of share options. This it is said amounted to a variation of the contract. In my view it was no such thing. What was anticipated under cl 4.1(b) was an annual review of the defendant's entitlements. What was done by the board was nothing more or less than fulfil their obligations. Another way of looking at the contract is to say it anticipated a variation of the defendant's package and that was built in to the terms of the Employment Agreement. There was no variation of the contract in the sense there was some novation or new arrangement entered into between the parties.
In my view, it is arguable that an increase in the plaintiff's remuneration constitutes a variation of a condition of the agreement even where the increase occurs pursuant to a review provided for in the agreement itself. Furthermore, the plaintiff's argument in this case is strengthened by the fact that the changes in December 2009 and December 2010 provided for, in addition to the salary and superannuation increases, the entitlement to short term and long-term incentive payments. Further, there was a change to the arrangements in relation to a motor vehicle. The review provided for under the agreement relates only to the base salary and the superannuation. It does not relate to other long term or short term incentives or to the entitlement to a motor vehicle.
It might be that on further investigation the change in relation to the motor vehicle may be found to be not substantial and it might be that the entitlement to a company car with an annual cost of $45,000 per annum might be equivalent to or approximately equivalent to the defendant's entitlement under cl 4.2 of the agreement. However, that is not for me to determine on this application where I am concerned only with whether or not there is an arguable case.
There is a further ground on which the plaintiff argues that there was a variation of a condition of the agreement which happened after 24 November 2009. In January 2012 the defendant gave instructions to an officer or an employee of the plaintiff to in effect add to his annual leave entitlement an entitlement flowing from weekends and public holidays that the defendant had worked. In the settlement deed the plaintiff agreed to pay to the defendant an amount of $233,000 for that additional annual leave payable for time in lieu as agreed by the board. It is arguable that the contract of employment as entered into between the plaintiff and the defendant confers no such entitlement.
Clause 6 of the agreement deals with leave and does not contain any express provision that the defendant is entitled to annual leave in lieu of weekends or public holidays worked. It is therefore arguable that that entitlement agreed to by the plaintiff was a variation of a condition of the agreement and it was one which happened after 24 November 2009.
For those reasons I find it is arguable that there was a variation to the contract of employment subsequent to 24 November 2009. It follows that the appeal from the master is arguable and it is also arguable that there is a genuine dispute between the company and the defendant about the existence of the debt to which the statutory demand relates or, alternatively, that the statutory demand should be set aside under s 459J of the Corporations Act.
There is a further ground on which the appeal is arguable and which gives rise to a genuine dispute. The third of the four items making up the amount demanded by the defendant under the statutory demand is an amount for additional annual leave payable for time in lieu as agreed by the board. As I have said, it is arguable that the contract entered into provides for no such entitlement. It follows that it is arguable that s 200F does not apply to exempt that payment from the provisions of s 200B(1) and it therefore falls within the prohibition of s 200B(1).
In the course of his reasons the master touched upon other matters which may have formed further or alternative reasons for finding that there was no genuine dispute, or which may have affected the master's reasoning that there was no genuine dispute on the grounds advanced by the plaintiff. The master said:
In this case there was no disagreement between the parties as to the applicable test. But it is clear the dispute must be 'genuine'. It is difficult to see that is the case here. What seems to have happened is that the management of the plaintiff changed perhaps because of a change of share ownership. The new management did not want to pay out the defendant. So they looked around for any means they could find to manufacture a dispute which would allow them to resist a statutory demand. This is a case where there is a concocted or manufactured dispute not a genuine dispute [22].
In that context the master had earlier observed that the plaintiff's present solicitors were of the view prior to the parties entering into the deed that shareholder approval was not required.
In Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, 292 ‑ 293, Hayne J said:
It was said that the cross‑examination would deal with two subject matters: first, that the defences filed on behalf of the companies were a recent invention in that on the day that the statutory demands were made there was no suggestion that liability to repay the facility provided by the bank to Redlock and Laminer was in issue or that the guarantees of that facility were not then on foot, and secondly, that there was material which would demonstrate that the allegation that the dispute between the bank, its customers and the guarantors had been compromised was untenable. I refuse the bank leave to cross-examine the deponents. In my view neither of the matters which it was sought to explore by cross-examination goes to any issue arising on the companies' applications to set aside the statutory demands. Whether the defences can be described in the sense used in the bank's submissions are 'recent inventions' does not in my view bear upon the existence in this matter of a genuine dispute. That is to be judged according to whether there is now a genuine dispute about the alleged debt ‑ not according to how recently that dispute may have arisen.
It is arguable that if and to the extent that the master made findings based upon the change in position by the plaintiff the master was in error. Furthermore, it is arguable that the master's conclusion that the plaintiff had looked around for any means they could find to manufacture a dispute which would allow them to resist a statutory demand is in error.

It is not either necessary or appropriate for me to attempt to determine in the course of this application whether there is a genuine dispute within the terms of the legislation or whether the master erred in finding that there was not. It is sufficient that I find that there is an arguable case and I do so find.

Appeal should be nugatory

The next question is whether the appeal will be rendered nugatory if the extension of time sought is not granted. In Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd, Barrett J said:
The first of these involves the question whether the appeal will be rendered nugatory unless the extension is granted. The answer is clearly in the affirmative and I refer in that connection to the decision in the Victorian Court of Appeal in Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85 where the consequences of appeal against a section 459H order in the absence of a section 459F(2)(a)(i) extension of time are starkly illustrated [12].
I find that if the extension of time is not granted than the appeal will be rendered nugatory for the reasons stated by Barrett J.

Prejudice

The third matter to be addressed is the relative prejudice to the parties from the extension of time or refusal of an extension of time. Again, this matter was addressed by Barrett J in Australian Beverage Distributors. Barrett J said:
That leads to the implications for the parties on what might be generally termed balance of convenience grounds. From the defendant's point of view, the only apparent prejudice is delay in its ability to initiate a winding up application until the appeal is dealt with, assuming that the plaintiff does not pay whatever balance is ultimately found to be the proper amount of the statutory demand. Provided the appeal is pursued diligently and promptly, that cannot be a particularly compelling consideration, in the light of the matters concerning the viability of the appeal to which I have referred [13].
I am satisfied that an extension of time for compliance with the statutory demand should be granted in order to facilitate the appeal and prevent it becoming nugatory.

Extension on conditions

The defendant submitted that if the period for compliance with the statutory demand is to be extended, it should be on condition that the amount of the demand is paid into court or into a joint account of the plaintiff and the defendant. I find it is inappropriate to make such an order for the reasons stated by Barrett J in Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd where Barrett J said:
The defendant says that the plaintiff should be required to pay into court, to abide the outcome of the appeal, the full sum of $158,051.21 to which the Master reduced the statutory demand. The plaintiff says that the defendant should not be given the form of priority or security that that would entail. I accept the plaintiff's submission. This is, after all, not a debt recovery action. A company on which a statutory demand is served is in no sense required to comply with it. It may, if it wishes, allow the statutory presumption of insolvency to arise (by not paying the demanded sum) and, if a winding up application follows, seek to show that it is in fact in a solvent state so that a winding up order is not justified. The statutory demand process is no more than a process that defines where the burden of proof lies in winding up proceedings [16].

Conclusion

For those reasons I will make orders in terms of [1] and [2] of the originating process, that is I will order that the time for service of this application be abridged and that the time for compliance by the plaintiff with the creditor's statutory demand for payment of debt dated 26 June 2012 and served on the plaintiff by the defendant on 27 June 2012 be extended from 26 November 2012 to the date seven days after the appeal by the plaintiff from the decision of Master Sanderson made on 7 November 2012 to dismiss the plaintiff's application for orders that the statutory demand be set aside is finally determined or otherwise disposed of.