Burdon Pty Ltd v Gillford Pty Ltd

[1995] FCA 1121

IN THE FEDERAL COURT OF AUSTRALIA )
  )
NEW SOUTH WALES DISTRICT REGISTRY )    No.  NG 3670 of  1994
  )
GENERAL DIVISION                 )

IN THE MATTER OF BURDON PTY LIMITED

BETWEEN:BURDON PTY LIMITED

Applicant

AND:GILLFORD PTY LIMITED

Respondent

26 JULY 1995

REASONS FOR JUDGMENT
LOCKHART J.
This is an application under s 459G(1) of the Corporations Law to set aside a statutory demand.  The ground of the application is that there is a genuine dispute between the applicant, Burdon Pty Ltd, and the respondent, Gillford Pty Ltd, about the existence or amount of the debt to which the demand relates: s. 459H(1)(a).  It is necessary to say something about the facts; they may be briefly stated.

A proceeding was instituted in this Court in its ACT Registry (AG118 of 1993).  The parties to the proceeding were Gillford Pty Limited (Gillford), Alan Varley Hannaford, Katherine Elizabeth Hannaford, Gregory James Gilbert and Nicola Frances Gilbert as applicants; and Burdon Pty Limited (Burdon) and Robert Graham Kent and Kevin George White as respondents.  After the commencement of that proceeding the parties agreed to settle it without admissions on terms which are recorded in a document headed "Heads of Agreement" and dated 10 June 1994, a copy of which is in evidence.  It is unnecessary to recite all the terms of the agreement; it is sufficient if I mention some of them.  Burdon agreed, as at 4 July 1994, to take over from Gillford the business and accumulated losses of Country Bargains/Fair Dinkum Bargains (Gunnedah) on bases which included the refund of some $40,000, being a franchise fee, and relevantly, the payment of an amount equal to accumulated trading losses in the period 27 July 1992 to 30 June 1994 (clause 3(e)).

Clause 5 provided that the amount of $74,500 was to be deducted from any amount payable by Burdon to Gillford. The agreement was silent as to the procedure to be adopted by the parties to determine the amount of accumulated trading losses referred to in clause 3(e); but subsequently, the parties agreed upon a procedure (the Agreed Procedure) for the determination of those trading losses for the purposes of clause 3 of the Heads of Agreement.  The Agreed Procedure is also in evidence and relevantly it provides (clause 1) as follows:

"Trading losses shall be determined by a currently practising accountant selected by the President of the Institute of Chartered Accountants being an accountant whom the President regards as having current and extensive experience in respect of accounting for retail shops. 

That person is defined as the nominee: also see clause 1.  Clause 2 of the Agreed Procedure provides that:

"The nominee shall determine the amount of the trading losses, if any, incurred by Gillford Pty Ltd in respect of its business known as 'Fairdinkum Bargains' or 'Country Bargains' trading at ... Gunnedah" [during the period to which reference has been made.]

Clause 2 also provides that:

"In reaching his determination the nominee must be satisfied that the trading losses, if any, as determined have been incurred by Gillford."

Clause 3 of the Agreed Procedure has eight sub-clauses lettered (a) to (h).  The relevant sub-clauses for present purposes are sub-clauses (a) and (e).  I have looked at the whole of the sub-clauses and have taken them into account in reaching the views which I shall later express, but I shall set out sub-clauses (a) and (e) because they are the most directly relevant provisions in clause 3.

Clause 3(a) provides as follows:

"All communications between Gillford Pty Ltd or Burdon Pty Ltd and the nominee shall be in writing.  Other than as set out herein Gillford, Burdon or any person acting on behalf of either (each of which is hereafter referred to as "a party") shall not communicate with the nominee.

3(e) provides:

"The nominee may make written request to Gillford to provide to the nominee such information as the nominee directs and Gillford so directed shall furnish, in duplicate, the information requested within 48 hours or such further time as the nominee allows, by written notice to Gillford, granted on written application of Gillford made within the 48 hours first referred to.  The nominee shall forward a copy of any request, application from, or extension granted to, Gillford pursuant to this paragraph to Burdon and the nominees shall within 24 hours of receiving information from Gillford pursuant to this paragraph forward one copy to Burdon.

Burdon asserts, as the ground for setting aside the statutory demand, that there were communications between the "nominee" and the accountants acting for Gillford, Messrs Paisley and Robertson, during the course of the "nominee's" task of determining the trading losses for the purposes of clause 3 of the Heads of Agreement, which were otherwise than in writing.  It is said by Burdon that Burdon was not aware, and is not aware, of the nature or the content of the discussions which took place between the "nominee" and Paisley and Robertson; that it did not consent to any variation of the Agreed Procedure and that the discussions were in breach of clause 3(a) of the Agreed Procedure.

The particulars of claim do not assert a contravention of clause 3(e), but the parties have conducted the case on the assumption that that is also relied upon by Burdon as a ground
for establishing a breach of the Agreed Procedure, either independently of 3(a) or together with it, and I approach the case on that basis.  Because there was, so it is alleged by Burdon, a contravention of clause 3, there is a genuine dispute between the parties about the existence or amount of the debt to which the statutory demand relates.

I should add that the propositions advanced by Burdon rest on the assumptions that Gillford's accountants answer the description of a party for the purposes of clause 3(a) of the Agreed Procedure and that, therefore, the communications which were made between the "nominee" and the accountants for Gillford are to be treated as communications between the "nominee" and Gillford itself, by virtue of the definition provision of clause 3(a).  That proposition is not disputed by Gillford and, in my opinion, is sound.

The statutory demand is a demand dated 6 December 1994, signed by the solicitors for Gillford.  It is addressed to Burdon and asserts that Burdon owes Gillford $149,618.72 arrived at as follows: accumulated trading losses of Gillford in the period 27 July 1992 to 30 June 1994 as determined by the "nominee", $184,118.72, plus the refund of the franchise fee pursuant to clause 3(b) of the heads of agreement, $40,000:  a sub-total of $224,118.72; less the amount to be deducted pursuant to clause 5 of the agreement as previously mentioned, $74,500; (leaving the balance of $149,618.72).  There is no dispute in the proceeding before me as to the correctness of the figures. 

The "nominee" selected by the President of the Institute of Chartered Accountants is Mr G.N. Sandford, a chartered accountant who is a member of the firm Deloittes Touche Tohmatsu in its Parramatta office.

Mr Sandford, after accepting instructions as "nominee" pursuant to the Agreed Procedure (a copy of which he had available to him at all material times, together with the Heads of Agreement) performed his task of determining the amount of the trading losses of Gillford as required by the Agreed Procedure, to which I have referred.  The report which he produced is dated 2 December 1994.  It is an extensive document and, after reciting the task he was to perform under the heading of "Instructions", the procedure in paragraph 3 sets out the sources of information available to Mr Sandford.

They included 10 boxes of accounting documents submitted by Gillford pursuant to clause 3(b) of the Agreed Procedure, financial statements and general ledgers requested by Mr Sandford's firm from Gillford's accountants; certain other financial material which is all detailed in paragraph 3.  The concluding sentence in paragraph 3 reads this way:

"In addition to the above, we have had discussions with Paisley and Robertson.

In the concluding paragraph of the report, Mr Sandford determines that the trading loss has been calculated at $184,118.72 and that after deducting the $74,500 for which clause 5 of the Heads of Agreement makes provision, the amount payable by Burdon to Gillford is $109,618.72.  That does not take into account the refund of the franchise fee pursuant to clause 3(b) of the heads of agreement, but nothing turns on that and no argument has been based upon it.  The essential point is that Mr Sandford's calculation of the trading losses is at the figure of $184,118.72. 

The evidence before the court establishes that there were in fact discussions between a Ms Catherine Barker, an employee of Deloittes, and an officer or employee of Paisley Robertson.  Those discussions took place, it would appear, over the telephone on 3 and 25 November or thereabouts.  There is no evidence from Ms Barker in the case, nor is there evidence from the person or persons with whom she had discussions in Paisley Robertson, but there is evidence from Mr Sandford which has been given by affidavit and in the witness box.

We do not know the details of the discussions that took place between the two persons concerned, but we do know from the evidence that the discussions were held with the knowledge, and indeed on the express authorisation of, Mr Sandford.  The discussions were held because, in Mr Sandford's
view, further information was needed by his firm to carry out its task, the information being sought from Paisley and Robertson. 

It was information which he required on 3 November in order to obtain documentary material to assist in the task of reconciling the stock balance in the Gunnedah stores with invoices and other supporting documentation that had been supplied.  Also, it was sought to obtain work papers or reconciliations.  The conversation on or about 3 November between Ms Barker, and Ms Haddrill (so the evidence suggests) was followed by the dispatch of a fax signed by Mr Sandford to Paisley Robertson setting out the documentation required.  That fax is exhibit 1. 

The conversation on or about 25 November between Ms Barker and Ms Haddrill was to obtain a copy of certain bank reconciliations as at 30 June 1993 and 1991, to satisfy Mr Sandford of the completeness of what is described as the source documentation.  Again, this verbal request was followed by a fax from Deloittes to Paisley and Robertson, setting out the documents required.  Following each of the relevant conversations, and the dispatch of the fax (exhibit 1) and the fax of 25 November 1994 (exhibit 4) requesting written material, there was sent in each case by Mr Sandford or his firm to the solicitors for Burdon, copies of the relevant material which had been obtained by Mr Sandford from Paisley Robertson.

In the case of the 3 November conversation, there was also sent to the solicitors for Burdon a copy of the request for the material which is exhibit 1.  There is some doubt on the evidence as to whether a similar document (exhibit 4) was sent by Mr Sandford or his firm to the solicitors for Burdon.  It is not clear that it was in fact sent and in my view, one should not draw the inference or conclusion that it was in fact sent.  I do not suggest that it was not in fact sent.  I simply do not know.

I should add to my recital of the facts an observation that the report of Mr Sandford, which was substantially prepared and signed by him, and for which he takes responsibility, was a report prepared with the assistance of more than one member of his firm's staff.  Primarily the person on whom he relied for support was Ms Barker, and it is obvious that she too played a major role in the preparation of the material which led to the report.

Burdon now seeks the orders which I have previously mentioned, claiming that there has been a breach of clause 3(a) and/or clause 3(e) of the Agreed Procedure, the breach having been made by both Gillford and Mr Sandford.  It is a breach which is said to be of a serious nature; and clauses 3(a) and (e), it is argued, are conditions of the agreement between the parties embodied in the Agreed Procedure, which of course must be read together with the Heads of Agreement.

In the circumstances it is said by Burdon that there is a genuine dispute between the two companies about the existence or amount of the debt to which the statutory demand relates.  Gillford denies the propositions advanced by Burdon and, although conceding that there is a breach by Gillford and Mr Sandford, says the breach is de minimus and in all the circumstances had no causative role in relation to the preparation of the report of Mr Sandford.

I shall therefore act on the basis (it is the correct basis) that there has been a contravention of clauses 3(a) and (e) of the agreed procedure by both Gillford and Mr Sandford.  Mr Sandford, in fairness to him, said that although he was aware at the time of the conversations between Ms Barker and an officer or officers of the accountants for Gillford, was also aware that there was imposed upon him what he perceived as a serious time constraint to prepare and issue his report, imposed by clause 3(f) of the Agreed Procedure.  However, Mr Sandford conceded in cross-examination that it was not in effect a time constraint in the nature of a straight jacket because clause 3(f) makes it clear that he shall determine the trading losses within three weeks of receipt of the relevant material, if possible to do so, "or so soon thereafter as practicably possible".
     However, no doubt Mr Sandford took the view, as is apparent from his evidence, that he was really required in substance or spirit to produce the report, if he could do so, within the three weeks.  It is because of this that he caused the telephone conversations to be made and he no doubt acted in complete good faith; nor is it suggested to the contrary.  The fact is, however, that it was a contravention of clause 3(a) and (e).

The evident intent of those clauses is that the parties to this dispute, who are fighting the litigation on more than one front very keenly and who are plainly very distrustful of each other, sought to ensure that the "nominee" would be independent of the parties, and that any party would know precisely what material the nominee had before him when performing his task under the Agreed Procedure.  Hence the necessity that any communications between the parties (I include in that expression the extension of the definition to embrace the accountants for Gillford) be in writing so they could see at a glance what was in front of the "nominee" at any relevant time.

It is also true, as counsel for Burdon submits, that we do not know exactly what was said between Ms Barker and Ms Haddrill or other officer or officers of Paisley Robertson because there is no direct evidence touching that question.  However, we do know that the discussions were held under the express authorisation of Mr Sandford, and we know that they were held to obtain the information which I have already mentioned.

We do know that material in writing was furnished to Mr Sandford's firm shortly after the making of the oral request as confirmed by the written request, and we know also that the material that was thus revealed by Paisley and Robertson was sent to the solicitors for Burdon, as was the first request, exhibit 1.

In all the circumstances it is my view that although there was a breach by both Gillford and Mr Sandford of clauses 3(a) and (e) of the Agreed Procedure it is, I think, a breach that had no causative effect in relation to the preparation of the report of Mr Sandford.  It seems to me to be unreal to say that, whatever may have been actually said in the course of the telephone discussions between Ms Barker and Ms Haddrill or other persons of Paisley Robertson, would have been outside the ambit of the written request which followed the discussion and the material that was supplied pursuant to it.

Although the contravention of the clauses was regrettable, I do not think it is a contravention that has led to any relevant result so far as the issues in this case are concerned: cf the reasoning of Burchett J. in the field of administrative review under the Administrative Decisions (Judicial Review) Act (1977), Australian Conservation Foundations v Forestry Commission (1988) 79 ALR 685 at 693.

I would add that I earlier rejected evidence by affidavit from Mr J.G. Florent and I gave reasons at that time for that rejection.  I would add now that, even if I had admitted Mr Florent's evidence, which is essentially paragraph 3 of his affidavit, the evidence would have had, in my opinion, no probative force in the case because the basis on which he expressed the opinion there referred to is not stated by him in his affidavit.  Also, the matters to which he directs his attention are matters solely for the Court to determine, and I have determined them.

In these circumstances, I am not persuaded that there is a genuine dispute between the parties about the existence or amount of the debt, within the meaning of s. 459H(1)(a).  I have, of course, applied the customary tests in cases of this nature, to which I have referred in more than one case, but particularly Chadwick Industries (South Coast) Pty Limited v Condensing Vaporisers Pty Limited 13 ACSR 37. Accordingly, the application is dismissed.

I certify that this and the preceding thirteen (13) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart.

Associate
         Dated:  26 July   1995

Counsel for the Applicant    :        Mr B M J Toomey

Mr C J Leggat

Solicitors for the Applicant :        Donovan Oates & Hannaford

Counsel for the Respondent   :        Mr C P Comans

Solicitors for the Respondent     :        Sly & Weigall

Date of Hearing             :        26 July 1995

Date of Judgment            :        26 July 1995