CA & Associates Pty Ltd v Fini Group Pty Ltd
[2020] WASCA 31
•13 MARCH 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: CA & ASSOCIATES PTY LTD -v- FINI GROUP PTY LTD [2020] WASCA 31
CORAM: BUSS P
MITCHELL JA
VAUGHAN JA
HEARD: 11 FEBRUARY 2020
DELIVERED : 13 MARCH 2020
FILE NO/S: CACV 126 of 2019
BETWEEN: CA & ASSOCIATES PTY LTD
Appellant
AND
FINI GROUP PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: MASTER SANDERSON
File Number : COR 130 of 2019
Catchwords:
Contract for provision of consultancy services - Statutory demand - Whether there is a 'genuine dispute' as to the existence of a debt - Construction of Consultancy Services Agreement - Whether appellant's preferred construction was rationally arguable - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 459H(1)(a)
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
| Appellant | : | B Dharmananda SC & J G Abberton |
| Respondent | : | L A Warnick |
Solicitors:
| Appellant | : | Lavan |
| Respondent | : | Clifford Chance |
Case(s) referred to in decision(s):
Apex Minerals NL v Ashley [2013] WASCA 176
Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
CA & Associates Pty Ltd v Fini Group Pty Ltd [2019] WASC 346
Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [No 2] [2018] WASCA 111
Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602
Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Energy Equity Corp Ltd v Sinedie Pty Ltd [2001] WASCA 419; (2001) 166 FLR 179
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306
Infratel Networks Pty Ltd v Grundy's Telso and Rigging Pty Ltd [2012] NSWCA 365; (2012) 297 ALR 372
Ligon 158 Pty Ltd v Huber [2016] NSWCA 330; (2016) 117 ACSR 495
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290
Mineralogy Pty Ltd v The State of Western Australia [2005] WASCA 69
Minister for Immigration, Local Government and Ethnic Affairs v Hamsher (1992) 35 FCR 359
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 3] [2014] WASCA 132; (2014) 46 WAR 483
Proudlove v Burridge [2017] WASCA 6; (2017) 79 MVR 257
Range Resources Ltd v Lind Asset Management LLC [2015] WASCA 233; (2015) 117 ACSR 1
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452
Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14
BUSS P & VAUGHAN JA:
Overview
This is an appeal from a decision of the Supreme Court (Master Sanderson) dismissing an application by the appellant to set aside a statutory demand issued by the respondent.[1]
[1] CA & Associates Pty Ltd v Fini Group Pty Ltd [2019] WASC 346 (primary reasons).
The decision turned on the proper construction of an agreement between the parties described as a 'Consultancy Services Agreement'.[2] The master considered that the relevant question was whether a payment obligation within the Agreement was 'arguably ambiguous'.[3] Accordingly, it was only necessary for the appellant to establish that its preferred interpretation of the Agreement was arguable.[4] The master, having considered the terms of the Agreement, held that there was no serious question to be tried and that the appellant was indebted to the respondent.[5] The application to set aside the statutory demand was dismissed.
[2] The Consultancy Services Agreement was varied by a deed dated 12 February 2018: Primary reasons [3]. See also [5] and [18] below.
[3] Primary reasons [11].
[4] Primary reasons [10].
[5] Primary reasons [15].
On appeal there was no issue as to the master's general approach to determining whether there was a genuine dispute about the existence of the debt claimed in the statutory demand. Subject to one matter, the material question continued to be whether the appellant's preferred construction of the Consultancy Services Agreement was sufficiently arguable to give rise to a genuine dispute. Importantly, there was no suggestion that there was any contentious extrinsic evidence which might assist in determining the proper construction of the Consultancy Services Agreement.
For the reasons that follow the appellant's preferred construction was not rationally arguable. The master was correct to dismiss the application to set aside the statutory demand. The appeal should be dismissed.
Background facts
The parties entered into the Consultancy Services Agreement on 21 December 2015. The purpose of the Agreement was for the respondent to provide consultancy services to the appellant with respect to a tender for, and the acquisition and development of, lots 2 and 3 at Elizabeth Quay in Perth. The Consultancy Services Agreement was varied by a deed dated 12 February 2018. The variations are of limited significance to the issues on the appeal.
The Consultancy Services Agreement contemplated three phases: the tender process (Part A); design development, negotiation and documentation (Part B); and project delivery (Part C). The first and second phases were completed in about March 2017 when the appellant completed the purchase of the Elizabeth Quay properties.
The Consultancy Services Agreement sets out definitions of the terms 'Consultancy Fees' and 'Consultancy Services':
Consultancy Fees means the fees payable by the Project Entity [relevantly the appellant] to [the respondent] for provision of the Consultancy Services, as set out in Schedule 2.
Consultancy Services means the services set out in Schedule 1 and any other services to be provided by [the respondent] pursuant to this Agreement as may be agreed between [the appellant] and [the respondent] from time to time.
Clause 2 of the Consultancy Agreement deals with provision of the Consultancy Services and payment of the Consultancy Fees. It provides:
2.1Provision of Consultancy Services
[The respondent] will provide the Consultancy Services to the Project Entity [relevantly the appellant] as provided in clause 3 and otherwise subject to and upon the terms of this Agreement.
2.2Payment of Consultancy Fees and Costs
[The respondent]:
(a)is to be paid the Consultancy Fees as provided in clause 8; and
(b)is to be paid or reimbursed the Costs as provided in clause 9,
subject to and upon the terms of this Agreement.
Clause 3 addresses the provision of the Consultancy Services by the respondent. As part of cl 3, cl 3.1 states:
[The respondent's] obligation to provide Consultancy Services, no exclusivity by [the respondent]
(a)[The respondent] must provide the Consultancy Services in accordance with this clause 3.
(b)Subject to clause 3.l(c), [the respondent] may provide services of the same or substantially the same kind as the Consultancy Services to any person (including [the respondent] itself) and [the respondent] is not required to provide those services exclusively to the Project Entity [relevantly the appellant].
(c)[The respondent] must not, and must ensure that any Associate of it does not in either case either directly or indirectly:
(1)provide consultancy services to any person; or
(2)maintain or acquire an interest of any kind in any person,
which person is in competition with the Project Entity [relevantly the appellant] with respect to the Project.
Clause 3.2 provided for the respondent to ensure that 'Designated Personnel' devoted their personal time and attention, and applied their personal expertise, so far as was reasonably practicable and necessary in pursuit of the successful outcome of the Project. The definitions section specified the Designated Personnel. Seven persons are named including an Adriano Fini. The respondent was also to make Mr Fini available for appointment as a director of the Project Entity during the course of the Project (cl 3.2(a)). That duly occurred. Mr Fini was appointed as a director of the appellant on 27 November 2015.
Clause 3.2(c) limits the appellant's ability to engage any other person to provide the same or substantially the same kind of consultancy services as are to be provided by the respondent:
No person other than [the respondent] is to be engaged or appointed to provide services of the same or substantially the same kind as the Consultancy Services with respect to the Project except in circumstances where it is necessary to do so to comply with any applicable law or as otherwise agreed in writing by [the respondent].
The appellant's written submissions referred to cl 5.3 of the Consultancy Services Agreement. This dealt with the powers of the board of directors of the Project Entity (ie the appellant). Among other things, the respondent acknowledged that the board had the sole power to manage the business of, and control the day-to-day operations of, the Project Entity. The respondent undertook not to seek to do so except in accordance with the Agreement or as expressly authorised.
Clause 8 is entitled 'Consultancy Fees'. It provides:
8.1Project Entity [relevantly the appellant] to pay Consultancy Fees
The Project Entity [relevantly the appellant] must pay and [the respondent] shall be entitled to be paid the Consultancy Fees for the provision of the Consultancy Services.
8.2Invoicing and payment of Consultancy Fees
[The respondent] may issue Tax Invoices to the Project Entity [relevantly the appellant] for the Consultancy Fees and the Project Entity [relevantly the appellant] must pay [the respondent] the Consultancy Fees the subject of a Tax Invoice as provided in Schedule 2.
Termination of the Consultancy Services Agreement was provided for in cl 10. The Agreement terminated automatically if the submission or tender was unsuccessful with respect to both lots (cl 10.2). Otherwise there were specific termination rights for the respondent (including termination on 60 business days' notice) (cl 10.3) and the appellant (cl 10.4). However, the appellant's right to terminate before completion of the Project was limited to four specified conditions (the respondent ceasing to carry on business, the respondent ceasing to hold necessary authorisations, liquidation of the respondent or the occurrence of an event of default).
Accordingly, by contrast to the contractual rights of the respondent, the appellant had no unfettered right to terminate for convenience (either with or without notice).
Schedule 1 detailed the relevant 'Consultancy Services' by reference to Part A (tender process), Part B (design development, negotiation and documentation) and Part C (project delivery). In respect of each phase the Consultancy Services Agreement provided that the respondent was to 'provide the following assistance to the extent requested by' the appellant. The words 'to the extent requested by' assumed importance for the appellant's construction argument. Thereafter, by dot points, specific activities were identified. For example, as to the project delivery phase there was mention of assisting in the oversight of the project manager, architect and consultant team. There was also to be provision of advice on activities relating to government and public relations.
Schedule 2 deals with the 'Consultancy Fees' by reference to a table. Despite its length, having regard to the importance of the table, it is appropriate to substantially reproduce it below:
Schedule 2 - Consultancy Fees
The Consultancy Fees and times for payment are set out in the following table.
…
MATTER / NATURE OF FEE PAYABLE TO [THE RESPONDENT]
CONSULTANCY FEE AMOUNT
(Not including GST)
TIME FOR PAYMENT (Subject to issue of a Tax Invoice by [the respondent])
Tender Success Fee
If appointed the Preferred Tenderer in respect of both of the Lots:
$1,000,000.00.
If appointed the Preferred Tenderer in respect of one only of the Lots:
$500,000.00.
On or before 5 Business Days after receipt of Notification that CA GOH, CA & A, the Project Entity or an Associate is the Preferred Tenderer for one or both of the Lots.
Contract Success Fee
If the Tender is successful in respect of both of the Lots:
$2,500,000.00.
If the Tender is successful in respect of one only of the Lots:
$1,250,000.00.
On or before 5 Business Days after the Project Documentation becomes unconditional except for any conditions which may be waived by, or are otherwise under the control of, CA GOH, CA & A, the Project Entity or an Associate.
Project delivery fees
If the Tender is successful in respect of both of the Lots:
$75,000 per calendar month.
If the Tender is successful in respect of one only of the Lots:
$37,500.00 per calendar month.
Payable monthly in arrears on the first day of the following month with respect to the Project development and construction phase which is the period commencing on the day immediately following the date of execution of the Project Documentation and ending on final completion of Construction.
Termination Fee:
Payable where this Agreement is terminated and CA GOH, CA & A, the Project Entity or an Associate enters into an Acquisition Agreement within 24 months after termination
$1,750,000.00 per lot On or before 5 Business Days after execution of the Acquisition Agreement.
The deed dated 12 February 2018 had the effect of varying the Consultancy Services Agreement by discounting the monthly 'project delivery fees' from $75,000 (plus GST) per month to $60,000 (plus GST) per month from 1 September 2017 onwards.
It is readily apparent that the initial three rows of the Consultancy Fees schedule - tender success fee, contract success fee and project delivery fees - corresponded with the three phases contemplated by the Consultancy Services Agreement. Accordingly, the 'project delivery fees' arose in relation to the Part C (project delivery) phase of the Consultancy Services under the Agreement.
Prior to February 2018 the appellant requested and the respondent provided services of the kind specified in Part C of sch 1. That is, services were requested and provided during the third or project delivery stage of the Project. However, around February 2018 the parties fell out. After around February 2018 there was no request by the appellant to the respondent for the provision of Consultancy Services. Mr Fini was removed as a director of the appellant on 4 April 2018. Nevertheless, the respondent continued to issue invoices to the appellant.
In January 2019 there was an exchange of views as to whether Consultancy Fees continued to be payable under the Consultancy Services Agreement. The appellant gave notice that it had not requested provision of any of the consultancy services. The respondent was informed that it was not to provide any such consultancy services unless and until specifically requested to do so in writing. In those circumstances the appellant contended that no consultancy fees were payable as the assistance was not required. The respondent rejected that interpretation of the Consultancy Services Agreement contending that the appellant was obliged to pay for the consultancy services whether or not they were requested and provided.
Following January 2019 it continued to be the case that the appellant did not request any consultancy services from the respondent. Nevertheless, the respondent issued monthly invoices for consultancy fees. The appellant did not pay those invoices. Eventually, on 24 May 2019, the respondent issued a statutory demand for $330,000 in respect of alleged consultancy fees under the Consultancy Services Agreement.
There was no dispute that the invoices the subject of the statutory demand had not been paid. The dispute, rather, was one as to the proper operation of the Consultancy Services Agreement. In substance the appellant contended that it could, if it wished, seek consultancy services from the respondent. However, if no services were sought and none were provided, then no monthly payment was due.
The decision below
The master rehearsed the relevant facts (which were said to be 'not in dispute').[6] He identified the nature of the contractual construction dispute and that, for the purposes of the application to set aside the statutory demand, both parties accepted it was only necessary for the appellant to establish that its interpretation of the Consultancy Services Agreement was arguable.[7] In those circumstances the master went on to find that the relevant question was whether the Agreement was arguably ambiguous.[8]
[6] Primary reasons [3].
[7] Primary reasons [10].
[8] Primary reasons [11].
The master referred to the appellant's argument as being one that characterised the Consultancy Services Agreement as a fee for services arrangement, ie if services are asked for, they would be paid for.[9]
[9] Primary reasons [14].
The master rejected the categorisation of the Consultancy Services Agreement as a fee for service agreement.[10] He concluded that it was not arguable that the Agreement was ambiguous.[11] In the master's view the appellant was obliged to pay the respondent a flat fee for consultancy services whether or not the services were provided and irrespective of the extent of services provided.[12] The master found that there was no serious question to be tried; the appellant was indebted to the respondent (inferentially in the amount claimed in the statutory demand).[13] Accordingly, the application to set aside the statutory demand was dismissed.
[10] Primary reasons [14].
[11] Primary reasons [15].
[12] Primary reasons [15].
[13] Primary reasons [16].
Grounds of appeal
The appellant relied on three grounds of appeal. They were that:
1.The master was alleged to have erred in concluding that the Consultancy Services Agreement was not a fee for service agreement and instead obliged the appellant to pay a flat fee whether or not services were provided (Ground 1).
2.The master was alleged to have erred in concluding that there was no serious question to be tried as to the appellant's indebtedness under the Consultancy Services Agreement (Ground 2).
3.It was alleged that the master should have found that, on the proper construction of the Consultancy Services Agreement, no monthly flat fee was payable for services unless requested and provided. Alternatively, it was seriously arguable that this was the case. If so, the master should have held that there was a genuine dispute about the existence of a debt under the Consultancy Services Agreement (Ground 3).
Although the appellant identified three grounds of appeal, subject to what is said at [31] ‑ [34] below, the proper disposition of the appeal turns on a single question inherent in Ground 3. Is it rationally arguable that, on the proper construction of the Consultancy Services Agreement, a monthly 'project delivery fee' by way of a consultancy fee is not payable by the appellant to the respondent in relation to a particular month unless consultancy services are requested by the appellant and provided by the respondent in the relevant month?
The appellant argued that the answer to this question was 'yes'. Indeed, the appellant went further and said that this was not merely seriously arguable but was the proper construction of the Consultancy Services Agreement. However, given the low threshold necessary to establish a 'genuine dispute' for the purpose of s 459H(1)(a) of the Corporations Act 2001 (Cth), it was only necessary that the appellant establish that its preferred construction was rationally arguable.
For its part the respondent sought to answer the appeal by contending that the appellant's preferred construction was untenable.[14] The respondent said that the appellant's construction was a patently feeble legal argument, so implausible that it could not seriously be argued, and therefore did not give rise to a genuine dispute about the existence of the debt.[15]
[14] Respondent's submissions par 1 WAB 18.
[15] Respondent's submissions pars 15 - 16 WAB 22.
At the hearing of the appeal a further argument was advanced in apparent support of Ground 2. The appellant contended that there was no evidence before the court, and nor was there before the master, that the respondent was ready, willing and able to provide the consultancy services. The appellant submitted that this in itself generated a serious question to be tried.[16]
[16] ts 4 - 5.
In addition to the initial difficulty that this further contention was never advanced in the appellant's written submissions, there were three difficulties with this submission. First, the contention was not advanced before the master. Second, the submission seemingly assumed that the respondent bore an onus to establish that it was ready, willing and able to provide the consultancy services on request. But, on its case, the respondent was simply seeking payment of a debt due and payable on the proper construction of the Consultancy Services Agreement. The respondent was not seeking specific performance of the Consultancy Services Agreement. Third, when asked to identify the evidentiary support for the submission that the respondent was not ready, willing and able on request to provide the consultancy services the appellant pointed to three aspects of the evidence.[17] The evidence relied on did not support the proposition. Nor, apart from the affidavit verifying the statutory demand (which itself lent no evidentiary support whatsoever to the submission) were the materials relied on introduced within the 21 day period permitted to file and serve an application and supporting affidavit to set aside the statutory demand.
[17] ts 6 (referring to GAB 142 - 143 par 17); ts 6 (referring to GAB 64 par 8); ts 18 (referring to GAB 130 pars 13 and 14).
The last matter of itself meant that the further argument was not maintainable. Affidavit material filed outside the 21 day period which raises a new ground to set aside a statutory demand cannot be used on the application (as opposed to an affidavit which expands on grounds in an earlier affidavit).[18]
[18] Energy Equity Corp Ltd v Sinedie Pty Ltd [2001] WASCA 419; (2001) 166 FLR 179 [29].
For these reasons the new argument was without merit and need not be further considered. The real issue for consideration on appeal is the question of contractual construction set out at [28] above.
Disposition
The requirement of a 'genuine dispute'
There was no discernible difference between the parties as to what was required to constitute a 'genuine dispute' as to the existence of a debt for the purposes of the statutory demand regime and s 459H(1)(a). It is well-established that:
1.The court's function is to determine whether there is a genuine dispute; the court is not expected to undertake an extended inquiry or attempt to weigh the merits of the dispute. It is not part of the court's function to resolve the dispute.[19]
2.It suffices if there is a 'plausible contention' requiring 'further investigation' - something that may be equated to the criterion of whether there is a 'serious question to be tried'.[20]
3.However, the applicant must establish that: (a) the dispute is bona fide and truly exists in fact; and (b) the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived.[21]
[19] Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602 [4], [46] (referring to Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, 295).
[20] Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306 [22]; Createc Pty Ltd v Design Signs Pty Ltd [44]. (Both decisions referring to Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787.)
[21] Createc Pty Ltd v Design Signs Pty Ltd [45] (referring to Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, 464).
The respondent's submissions drew attention to the often-cited words of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd. Having said that the expression 'genuine dispute' connotes a plausible contention requiring investigation, thus raising much the same sort of considerations as 'serious question to be tried' criteria, his Honour stated:
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' or patently feeble legal argument or an assertion of facts unsupported by evidence.[22] (citations omitted)
[22] Eyota Pty Ltd v Hanave Pty Ltd (787).
Eyota Pty Ltd v Hanave Pty Ltd involved a factual dispute. However, it has been applied where the issue is one of construction. In Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd Barrett J (as his Honour then was) explained:
A dispute as to the existence of a debt that is the product of a dispute about construction is not removed from s 459H(1)(a) just because the issue in contention is one of construction. While it has been said that 'a short point of law or the construction of documents or agreed facts' may, unlike a disputed question of fact, be determined upon a s 459G application, it does not follow that the court is compelled to make such a determination. In the case of a legal argument, determination might be appropriate if it were, in the words of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd, a 'patently feeble legal argument'.
I consider it appropriate to adopt in this case the approach I outlined in Wellnora Pty Ltd v Fiorentino:
Where the basis for the alleged dispute is a legal argument or question of construction which is not 'patently feeble' and does not involve a 'short point of law' and there are clearly arguable alternatives as to the correct outcome, the court should not, upon the s 459G application, attempt to reach a definitive resolution.[23] (citations omitted)
[23] Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 [45] - [46] (referred to with approval in Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 [27] - [28]).
Cases in which the court will determine a disputed question of contractual construction on an application to set aside a statutory demand will be the exception rather than the norm. Two things are established by the authorities. First, in dealing with an application to set aside a statutory demand the court is not compelled to determine questions of construction of instruments. Second, such proceedings are not ordinarily the occasion for the court to construe a contract, especially where there are competing views about its meaning.[24] The corporations list ought not to be used as a convenient means of determining a dispute about whether a putative debt is due and payable, even if the only disputed issue is one of contractual construction.
[24] Creata (Aust) Pty Ltd v Faull [29], [37]. See also Infratel Networks Pty Ltd v Grundy's Telso and Rigging Pty Ltd [2012] NSWCA 365; (2012) 297 ALR 372 [46].
Where the question of contractual construction has any element of rational controversy the court should exercise restraint.[25]
[25] Creata (Aust) Pty Ltd v Faull [26]. See also, as to restraint, Ligon 158 Pty Ltd v Huber [2016] NSWCA 330; (2016) 117 ACSR 495 [11].
Competing but plausible submissions on a question of contractual construction should lead to a finding that there is a dispute on the question and therefore a dispute as to the existence of the debt the subject of the statutory demand.[26] Consistent with the existing authorities - excluding as a 'genuine dispute' only that grounded on feeble legal argument or which is spurious, illusory or misconceived - there is a genuine dispute where a question of contractual construction is subject to rational argument.
[26] Creata (Aust) Pty Ltd v Faull [37].
Thus it is necessary to consider whether the question of contractual construction being relied on for the genuine dispute is so obviously incorrect that it is properly characterised as being incapable of rational argument, ie it is no more than a patently feeble legal argument - one that is spurious, illusory or misconceived - which lacks plausibility.
The appellant's construction argument
The appellant sought to emphasise that by the Consultancy Services Agreement the respondent agreed to provide consultancy services 'to the extent requested' by the appellant (sch 1).[27] It was said that unless there was a request for consultancy services, none would be provided; and if no services at all were provided the evident intent was that no consultancy fees would be payable. Thus there had to be a request.[28]
[27] Appellant's submissions pars 2, 14, 16, 21 WAB 7, 9 - 10; ts 4.
[28] ts 4, 7.
Also of contextual importance, on the appellant's argument, was that the respondent was engaged 'to provide' consultancy services (recital B)[29] and the respondent's primary covenant was that it 'will provide' the consultancy services as provided in cl 3 (cl 2.1).[30] It was said that the parties manifested an intention that the respondent would provide the consultancy services and did not manifest an intention that there would be payment even if no services were provided.[31] The obligation that the respondent 'must provide' the consultancy services was restated in cl 3.1(a).[32] The appellant then pointed out that by cl 8.1 the respondent was entitled to be paid the consultancy fees 'for the provision of' the consultancy services.[33] Emphasis was also placed on the circumstance that the definition of 'Consultancy Fees' allowed for fees that were payable 'for provision' of the consultancy services.[34] As, by sch 1, the appellant said that consultancy services were only to be provided if requested, it followed - according to the appellant - that there was no entitlement to payment unless services were requested and provided.[35]
[29] Appellant's submissions par 11 WAB 9; ts 9.
[30] Appellant's submissions par 12 WAB 9; ts 9.
[31] ts 3.
[32] Appellant's submissions par 16 WAB 9 - 10.
[33] ts 9.
[34] ts 8.
[35] Appellant's submissions par 21 WAB 10; ts 2, 7 - 9, 11.
The appellant argued that sch 2 only dealt with the amount of the consultancy fees, and the times when consultancy fees were payable. It was said not to provide that payment was required even if services were not provided or requested.[36] The appellant also submitted that the fact the Part C (project delivery) phase consultancy fees were payable monthly in arrears indicated that fees were only payable after consultancy services were provided.[37]
[36] Appellant's submissions par 25 WAB 11. See also generally at pars 24 - 30 WAB 11 - 12.
[37] ts 11 - 13.
The appellant accepted, as correct, that a fixed monthly fee was payable if some services were requested and provided in a particular month irrespective of the services actually provided.[38] But the appellant argued that it was not the case, and the master was in error to conclude, that if no services were requested and provided in a month it remained the case that the respondent was entitled to the monthly fee.[39] The appellant contended that sch 2 had to be construed congruently with the various provisions of the Consultancy Services Agreement (particularly cl 2, cl 3, cl 5.3, cl 8 and the definitions in cl 1.1) and sch 1.[40]
[38] Appellant's submissions par 32(a) WAB 12; ts 3, 17 - 18.
[39] Appellant's submissions par 32(b) WAB 12.
[40] Appellant's submissions par 33 WAB 12.
It was said that the respondent's preferred construction made a 'commercial nonsense' of the Consultancy Services Agreement.[41] Finally, the appellant drew support for its preferred construction by suggesting that the obligation to provide consultancy services was not an entire obligation but rather a divisible or separable obligation to provide services to the extent requested.[42] That, in our view, was just a variant of the argument based on the words 'to the extent requested' in sch 1.
[41] Appellant's submissions par 34 WAB 12.
[42] Appellant's submissions pars 35 - 37 WAB 12 - 13.
So understood the appellant did not suggest that there was any extrinsic evidence - disputed or otherwise - which may assist in determining the proper construction of the Consultancy Services Agreement. The appellant did not rely upon any alleged implied terms. The appellant's contended for construction, said to be at the very least arguable,[43] was based entirely on the express terms of the Consultancy Services Agreement.
The respondent's construction argument
[43] Appellant's submissions par 39 WAB 13.
The respondent made three initial points:
1.The exclusivity provision (cl 3.2(c)) was said to be a 'critical contextual indicator' as it demonstrated that the respondent's role in providing consultancy services must be an ongoing and continuous obligation for the life of the Project.[44]
2.The consultancy fee payable in relation to the project delivery phase, as expressed in sch 2, was a fixed amount payable in arrears on the first day of each month. It was not stated by reference to the amount of work done. Nor was there any provision for pro-rating any portion of the fee payable.[45]
3.Given what is stated in [48.2] above, the appellant's preferred construction produced an absurd result. In a month when no assistance was requested, no fee would be paid; but if one simple telephone request for assistance was made and answered a fee of $60,000 plus GST would be payable.[46]
[44] Respondent's submissions par 6 WAB 19 - 20.
[45] Respondent's submissions par 8 WAB 20; ts 20 - 21.
[46] Respondent's submissions par 9 WAB 20.
The respondent submitted that the appellant was wrong to construe 'provision of' the consultancy services in cl 8 by reference to sch 1's provision of 'assistance to the extent requested'.[47] Instead, according to the respondent, the 'Consultancy Services' to be provided were the services of providing specified assistance on request. The respondent relied on the double use of the word 'provide' in cl 2.1 and sch 1. The 'Consultancy Services' were the service of making available the relevant assistance to the extent requested.[48]
[47] Respondent's submissions pars 11 - 12 WAB 20 - 21.
[48] Respondent's submissions pars 12 WAB 21; ts 20, 22 - 23, 26 - 30.
In support of its preferred construction the respondent argued that, far from being commercial nonsense, the construction made good business sense. In order to perform its ongoing obligation to provide the consultancy services the respondent always had to have available resources to meet requests as they were made.[49]
Principles in construing a commercial contract
[49] Respondent's submissions pars 12 WAB 21; ts 27 - 28.
The general principles that apply in construing a commercial contract are well-established:[50]
1.The rights and liabilities of parties under a provision of a contract are determined objectively by reference to its text, context (the entire text of the contract) and purpose.
2.In determining the meaning of the terms of a commercial contract it is necessary to ask what a reasonable business person would have understood the terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
3.The court approaches the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result, ie a commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
4.Ordinarily the process of construction is possible by reference to the contract alone.
5.However, sometimes recourse to external events, circumstances or things is necessary; for example, to identify the commercial purpose or objects of the contract (by reference to the genesis of the transaction, the background, the context and the market in which the parties are operating) or to determine the proper construction where there is a constructional choice due to ambiguity.
[50] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [46] ‑ [52].
The first of these principles illustrates the danger in construing a contractual provision selectively. An instrument must be construed as a whole. A construction that makes the various parts of an instrument harmonious is preferable. If possible, each part of an instrument should be construed so as to have some operation.[51]
[51] Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42(10)].
In acknowledging the accepted wisdom that a commercial contract must be construed so as to avoid it making commercial nonsense or working commercial inconvenience it must also be kept in mind that reasonable minds might differ on business common sense.[52] Nevertheless it is accepted that:
… if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate' …[53]
[52] Black Box Control Pty Ltd v Terravision Pty Ltd [42(9)].
[53] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109.
A contract should be construed practically so as to better give effect to its commercial purpose. The law seeks to uphold commercial contractual obligations and the expectations that derive from them. The court should not adopt a narrow or pedantic approach to construction, particularly in the case of commercial arrangements.[54]
Consideration and determination
[54] Mineralogy Pty Ltd v The State of Western Australia [2005] WASCA 69 [15].
The Consultancy Services Agreement is a sophisticated commercial agreement prepared by lawyers. Its general structure is uncomplicated. The Agreement is predicated on the fact that the appellant is seeking to acquire and develop the Elizabeth Quay lots. The respondent is engaged to provide consultancy services with respect to the tender for, acquisition and development of the lots (recital B, cl 2.1). The respondent must not provide consultancy services to any person in competition with the appellant with respect to the project (cl 3.1(c)) and the appellant is not to engage any other person to provide services with respect to the project of the same kind as the consultancy services (cl 3.2(c)). The consultancy services are to be provided in accordance with certain standards (cl 3) and with the respondent recognising certain matters (cl 4.1, cl 5.3). In return, among other things, the respondent is to be paid consultancy fees (cl 2.2, cl 8).
The key concepts of 'Consultancy Services' and 'Consultancy Fees' are defined (cl 1.1) and then given content by sch 1 and sch 2 respectively.
As the respondent claims to be entitled to payment of consultancy fees it is convenient, initially, to consider the payment obligation (cl 2.2(a) and cl 8). But the payment obligation cannot be considered in isolation; it must be read and construed in the context of the Consultancy Services Agreement as a whole. Moreover, the payment obligation is cast in language that employs the key defined terms of 'Consultancy Services' and 'Consultancy Fees'. It must be recognised that definitions do not have substantive effect and are not to be construed in isolation from the operative provisions in which the defined term is used. Rather, the operative provision is ordinarily to be read by inserting the definition into it.[55]
[55] Black Box Control Pty Ltd v Terravision Pty Ltd [42(11)].
In providing for the respondent to be paid 'Consultancy Fees' cl 2.2(a) directs the parties to cl 8. Clause 8 is then in two parts: cl 8.1 dealing with the appellant's obligation to pay and the respondent's entitlement to be paid; and cl 8.2 dealing with the issuing of tax invoices by the respondent and payment by the appellant.
When cl 8.1 is read with the definitions of 'Consultancy Services' and 'Consultancy Fees' - those two defined terms in turn requiring consideration of sch 1 and sch 2 respectively - the primary payment obligation under the Consultancy Services Agreement should be understood as follows:
The appellant must pay and the respondent shall be entitled to be paid the fees as set out in sch 2 for the provision of the services set out in sch 1, namely, that the respondent will provide assistance of the type as described in sch 1 to the extent requested by the appellant.
Such a natural and ordinary reading of the text of cl 8.1 proceeds as follows. First, it substitutes 'appellant' and 'respondent' for the parties as described in cl 8.1. Second, it adopts and incorporates the definition of 'Consultancy Fees'. However, recognising that the definition refers to the 'provision of the Consultancy Services' - and this is then reproduced in the text of cl 8.1 - it is only necessary to refer to the fees as set out in sch 2. A duplication of the concept would be redundant. So too it is unnecessary to incorporate the 'Consultancy Fees' definition's reference to 'Consultancy Services'. That too is already found in cl 8.1's reference to 'for provision of the Consultancy Services'. Third, it adopts and incorporates the definition of 'Consultancy Services' which in turn requires that the relevant portion of Part C in sch 1 be picked up.
We have avoided, for the sake of simplicity, incorporating the definition of 'Consultancy Services' so far as it directs attention to Part A and Part B in sch 1. That is not presently relevant; it was common ground that the project is now at the Part C (project delivery) stage. In any case the material portions of Part A and Part B are in like terms to the material portion of Part C. Nor is it necessary to incorporate that part of the definition of 'Consultancy Services' dealing with other services as may be agreed from time to time.
The natural and ordinary reading of the text of cl 8.1 as set out in [59] above provides no support for the appellant's preferred construction. It is the antithesis of the appellant's preferred construction being, in substance, the construction contended for by the respondent.
Nor, in our opinion, is any support for the appellant's construction to be found in the text of cl 8.2 or sch 2. Clause 8.2 does no more than provide for invoicing and requires that the appellant make payment as specified in sch 2. Schedule 2 provides for consultancy fees, in the project delivery phase, that are payable monthly in arrears in a fixed amount. Nothing of moment is indicated by the fees being payable in arrears. It merely provides for timing rather than indicating that in the absence of a request (meaning no assistance is in fact carried out) no fee is payable. The more significant contextual indicator is the fixed monthly fee. With sophisticated commercial parties a reasonable business person would expect that a 'fee for service' arrangement would see something providing for a fee calculated by reference to the assistance carried out. That is lacking. There is considerable force in the master's observation that sch 2 does not set out any regime for the payment of services actually provided but rather a regime for the payment of services that the respondent stands ready to provide[56] (although perhaps 'assistance' should be substituted for 'services' to better reflect the language employed in sch 1). Further, although the consultancy fees are payable monthly in arrears for the provision of the consultancy services, sch 1 specifies the services to be provided by reference to each stage of the project and not by reference to each month.
[56] Primary reasons [15].
The appellant's preferred construction relied on the words in sch 1 that the respondent was to 'provide … assistance to the extent requested'. In arguing that those words needed to be given meaning and informed the nature of the services to be provided the appellant contended that without a request no consultancy services were provided. The argument further contended that as, under cl 8.1, the entitlement was to be paid the consultancy fees for the provision of the consultancy services, where no service was provided no fee was payable.
We accept that the words 'to the extent requested' in sch 1 have work to do. But they do not impact on the meaning of the term 'Consultancy Fees'; nor the payment obligation found in cl 8.1 as given content in sch 2. Rather, the words as relied on by the appellant in sch 1 simply limit the assistance that will in fact be provided by way of the 'Consultancy Services'. It could not be supposed that the respondent was to provide assistance of the nature so generally described in sch 1 of its own volition in the absence of a specific request that identified with some degree of particularity what the appellant was seeking from the respondent. The respondent is only to provide the assistance as catalogued in sch 1 to the extent requested by the appellant. In this way the practical day-to-day content of the obligation in cl 2.1 (to provide the 'Consultancy Services') is informed by the words of limitation in sch 1.
Apart from the words 'to the extent requested' in sch 1, the appellant's preferred construction relied heavily on the use of the concept of the 'provision' of consultancy services or consultancy services to be 'provided'.
It must be acknowledged that the Consultancy Services Agreement does use the language of provision. As senior counsel for the appellant submitted, the Agreement refers to engagement 'to provide' consultancy services (recital B), 'provision' of the consultancy services and services 'to be provided' (cl 1.1), that the respondent 'will provide' consultancy services (cl 2.1), that the respondent must 'provide' the consultancy services in a particular way (cl 3.1) and that the respondent is entitled to be paid the consultancy fees 'for the provision of' the consultancy services (cl 8.1). So too the respondent is to 'provide' assistance to the extent requested (sch 1 pts A, B and C). While not mentioned by the appellant, the Consultancy Services Agreement contains numerous other references to 'provision of' or 'provide' in relation to consultancy services or services.[57]
[57] See eg cl 3.1(b) (may provide services); 3.1(c) (must not … provide consultancy services); cl 3.2(c) (provide services); cl 3.3(a), cl 3.3(b)(3), cl 10.4(c), cl 11.3(a), cl 16.3(b)(2) (provision of the Consultancy Services); cl 3.4(a) (provision of Consultancy Services); cl 10.6(b) (provide the Consultancy Services).
Those textual references do not, however, take the constructional question very far. They simply beg this question: what is it that the respondent is to provide under the Consultancy Services Agreement by way of 'Consultancy Services' to the appellant?
The answer to that question is found in the definition of 'Consultancy Services' and the primary obligation to provide such services as appears in cl 2.1. When, in accordance with the orthodox rule of construction, the definition is construed with the operative provision and read with sch 1, cl 2.1 relevantly requires the respondent to provide the services set out in sch 1, namely, the respondent will provide assistance of the type as described in sch 1 to the extent requested by the appellant, and do so in the manner set out in cl 3 and otherwise in accordance with the Agreement.
Accordingly, 'Consultancy Services' could be - and were - provided in the absence of any request for actual assistance being made by the appellant to the respondent. Properly construed the 'Consultancy Services' being provided encompassed the ongoing commitment to provide the assistance as described in sch 1 as and when and to the extent requested by the appellant. In terms of the payment obligation in cl 8.1 there was 'provision of' the services in sch 1 by the respondent assuming the obligation to provide the assistance as described on and to the extent requested.
This understanding of cl 2.1 of the Consultancy Services Agreement - and the concept of 'Consultancy Services' - is supported by cl 3.2(a). Clause 2.1 sets out that the consultancy services are to be provided 'as provided in' cl 3. It is evident from cl 3.1(a) that this means that the respondent must provide the consultancy services 'in accordance with' cl 3. As mentioned at the outset, cl 3.2(a) contains a covenant whereby the respondent must ensure that time, attention and expertise is provided by nominated 'Designated Personnel'. Accordingly, where a request for assistance is made the respondent must be in a position to ensure that it can bring about compliance with cl 3.2(a). Inevitably this will necessitate ensuring on an ongoing basis that the nominated persons have sufficient capacity to provide time, attention and expertise in the event that requests for assistance are made. A reasonable business person would infer that such requests would be made. The types of assistance described in sch 1 are integral to the successful acquisition and development of commercial property such as the Elizabeth Quay lots. By virtue of cl 3.2(c) of the Consultancy Services Agreement the respondent is to be the exclusive provider of such consultancy services.
In addition, a monthly fixed fee is consistent with such an ongoing commitment. The natural and ordinary reading of the term 'Consultancy Services' and the obligation to provide such services in cl 2.1, as set out in [69] to [70] above, is consonant with the text of sch 2 and its operation as described in [63] above.
It remains to address the appellant's assertion that it would make a commercial nonsense of the Consultancy Services Agreement to conclude, in accordance with the respondent's preferred construction, that during the project delivery phase in Part C the respondent was to be paid the fixed monthly fee even if the respondent was not requested to provide any assistance and did not do so.
The argument as so expressed demonstrates the truism that reasonable minds might differ on business common sense. We accept that some might consider it surprising that the respondent is to receive a monthly fixed fee irrespective of whether called on to provide assistance or not. But we are unable to accept that this makes a commercial nonsense or works commercial inconvenience. All the more so we cannot accept that it is capricious, unreasonable or unjust.
A reasonable business person would appreciate that the possibility adverted to by the appellant arises in the wider commercial context of the Consultancy Services Agreement. The Agreement provides two obvious benefits to the appellant. First, as to assistance during the Part C project delivery phase, the consultancy fees are a monthly fixed amount. The appellant pays the same amount even if the respondent is called on to provide considerable assistance and is thereby required to do a considerable amount of work. Each party assumes a risk as to the nature and extent of the work that is required in any given month. Also, from a budgetary perspective, the outgoing is smoothed over the life of phase C. Second, the appellant is able to call on the respondent to provide the nominated assistance as and when required. That is of obvious benefit to the appellant. The appellant is able to obtain immediate assistance on request. But that benefit to the appellant comes at a corresponding cost to the respondent. For the duration of the project the respondent must be in a position to provide the assistance on request. The respondent has an ongoing obligation - and must stand ready to fulfil that obligation - whether or not a request for assistance is made. A reasonable business person would not view it as 'commercial nonsense' that the respondent had an entitlement to be paid the consultancy fees in those circumstances.
To our mind the appellant's preferred construction is more susceptible to the epithet of commercial nonsense. When proper regard is had to the text, context and purpose of the Consultancy Services Agreement it is difficult to understand why, if minor assistance is in fact provided in a particular month, the full monthly fixed fee is payable, but nothing is payable in the absence of any request. The appellant accepted that this was the position under its preferred construction.
There are two further contextual matters within the Consultancy Services Agreement that are incompatible with the appellant's preferred construction. First, cl 3.1(c) restricted the respondent from providing consultancy services in competition to the project. Particularly with phase A (tender process) and phase B (design development, negotiation and documentation) that might have been of considerable benefit to the appellant. As the appellant's preferred construction applied equally to payment of consultancy fees in phases A and B,[58] the restriction under cl 3.1(c) might, on the appellant's case, be without any compensation in the absence of any request for assistance. Second, as mentioned at [14] to [15] above, the appellant had limited termination rights. The appellant's preferred construction would nevertheless allow the appellant to avoid any monetary obligations under the Consultancy Services Agreement by a side wind: on the appellant's preferred construction it could bring an end to its obligation to pay consultancy fees by not making any request for assistance but without having terminated the Agreement in the limited circumstances specified in cl 10.4. Yet at the same time the respondent would remain obliged to stand ready to provide assistance as and when and to the extent requested. The respondent could only bring that obligation to an end by terminating the Agreement on 60 business days' notice in accordance with cl 10.3 of the Agreement.
[58] ts 2 - 3.
For the reasons developed above we are satisfied that the appellant's preferred construction, as relied on in support of its claim that there is a genuine dispute, is so obviously incorrect that it is properly characterised as being incapable of rational argument. None of the appellant's various arguments raise a plausible contention in support of its preferred construction. On the proper construction of the Consultancy Services Agreement the appellant is indebted to the respondent in the amount claimed in the statutory demand. The appeal should be dismissed.
We are conscious that these reasons have required close attention to the Consultancy Services Agreement and the arguments of the parties as to its proper construction. The extent of the reasons might suggest that the appellant has advanced a plausible construction of the Consultancy Services Agreement which satisfies the requirement for a genuine dispute. Two things should be noted lest it is thought that we have been prepared, in examining whether there is a genuine dispute, to undertake an extended inquiry or to simply proceed to determine the merits of the dispute. First, extensive argument may be necessary to demonstrate that a point taken as to the proper construction of a commercial agreement is spurious, illusory or misconceived. The court's reasons will inevitably reflect that argument. Second, out of deference to the detailed argument presented by senior counsel for the appellant, it has been necessary to deal with the various strands of the appellant's argument in support of its preferred construction.
Senior counsel for the appellant properly presented an argument contending that the operative provisions within the Consultancy Services Agreement were pregnant with constructional choice. However, when the parties' respective entitlements and obligations as to the consultancy fees are considered objectively by reference to the text, context and purpose of the Consultancy Services Agreement, this is a case where the appellant's preferred construction is incapable of rational argument. Accordingly, there is no genuine dispute as to the appellant's indebtedness to the respondent.
Conclusion and orders
On 17 October 2019 the court ordered that the time for compliance with the statutory demand be extended until 7 days after the determination of the appeal. The court also ordered that, by no later than 4.00 pm on 25 October 2019, the appellant was to pay the amount claimed in the statutory demand into its solicitors' trust account:
on the basis that, if the appellant's appeal is unsuccessful, then within 7 days of the determination of the appeal the appellant will cause the amount of the respondent's statutory demand dated 23 May 2019 to be paid to the respondent.
There is no need for the court to make any further orders in these two respects. In accordance with the court's prior order the appellant must cause the $330,000 held in its solicitors' trust account to be paid to the respondent. Failure to do so within 7 days will, among other things, mean that the appellant has failed to comply with the statutory demand.
The parties proceeded on the basis that the appellant could appeal as of right. On a number of occasions, where an appellant company has sought to appeal against orders dismissing an application to set aside a statutory demand, this court has proceeded on the assumption that leave is required[59] or left unresolved the question of whether leave is required.[60] By contrast there is authority that an appeal by a putative creditor against an order setting aside a statutory demand may be pursued as of right.[61] It is not necessary to resolve the question of whether leave to appeal is required where an appellant company seeks to challenge dismissal of an application to set aside a statutory demand. This appeal should be dismissed even if leave is required and was granted. As leave has not been sought we would order that, if leave to appeal is required, it is refused; and otherwise order that the appeal is dismissed.
[59] Central City Pty Ltd v Montevento Holdings Pty Ltd[2011] WASCA 5; Apex Minerals NL v Ashley [2013] WASCA 176.
[60] See eg Range Resources Ltd v Lind Asset Management LLC [2015] WASCA 233; (2015) 117 ACSR 1 [50]; Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [No 2] [2018] WASCA 111 [99].
[61] Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 [7]; cf Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 3] [2014] WASCA 132; (2014) 46 WAR 483 [100].
The parties should be heard on the question of costs.
MITCHELL JA:
Buss P and Vaughan JA have set out the background to this appeal, and the relevant provisions of the Consultancy Services Agreement between the appellant and the respondent (Agreement). I will use terms defined by the Agreement in their defined sense in these reasons.
The issue raised by the appeal is whether the master erred in finding that there was no 'genuine dispute', within the meaning of s 459H of the Corporations Act 2001 (Cth) (Act), as to the appellant's liability to pay amounts invoiced under the Agreement. Although the existence of a genuine dispute is a question of fact, this court is in as good a position as the master to answer that question where his decision was based on primary facts established by documentary evidence. The appeal should
be allowed if this court is satisfied that the existence of a genuine dispute should be inferred from that evidence, and the master erred in failing to draw that inference.[62]
[62] Cf Minister for Immigration, Local Government and Ethnic Affairs v Hamsher (1992) 35 FCR 359, 369, cited with approval in many cases including Proudlove v Burridge [2017] WASCA 6; (2017) 79 MVR 257 [127].
For the following reasons, I am not persuaded that the master erred in finding that there was no genuine dispute as to the appellant's liability to pay amounts invoiced under the Agreement.
The statutory task
In deciding whether there is a genuine dispute, the court must be mindful of the nature and purpose of the statutory task it is performing. The statutory context was summarised in the following terms by this court in Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [No 2]:[63]
Section 459G of the Act allows a company, within 21 days of service of a statutory demand on the company, to apply to the court for an order setting aside the statutory demand. Section 459H provides for the court to make an order setting aside or varying the statutory demand on the basis of a genuine dispute about the existence or amount of the debt to which the demand relates and/or an offsetting claim. Section 459J provides for the court to set aside the statutory demand because of a defect in the demand which will cause substantial injustice if the demand is not set aside, or there is some other reason why the demand should be set aside. Unless the court makes an order under s 459H or s 459J, it must dismiss the company's application.
Failure to comply with a statutory demand which has not been set aside gives rise to a presumption that the company is insolvent for purposes which include an application that the company be wound up in insolvency. Failure to pay an undisputed debt on formal demand suggests that the company is unable to pay all its debts as and when they become due and payable. The onus of proving solvency is cast on the company, rather than the person seeking to wind it up in insolvency, in circumstances where a rational inference is that insolvency is the reason for a failure to pay a formally demanded debt which is due and payable. The evident object of s 459H is to confine the effect of a statutory demand to amounts which are undisputedly due and payable (having regard to offsetting claims). The existence of a dispute as to the claim or of an offsetting claim provides a reason, other than insolvency, for why a company may refuse to pay the amount which is demanded. (citations omitted)
[63] Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [No 2] [2018] WASCA 111 [5] - [6].
The issue of a statutory demand is not a means by which the ordinary curial procedures for debt recovery are to be avoided. The purpose of the statutory demand procedure is not to allow claimants to use the spectre of a winding up application to apply additional pressure on a corporation to satisfy their claims. Rather, the purpose of the statutory demand procedure is to facilitate a winding up application where there is no apparent reason, other than insolvency, for the corporation's refusal to pay a demanded amount. That is why, in dealing with an application to set aside a statutory demand, the court must keep in mind that the task which it is performing is the determination of the amount of a genuine dispute or claim, which must exist in fact, rather than resolving the dispute or offsetting claim, or attempting to predict its outcome.[64]
[64] Complete Hire [18].
In my view, the threshold to be met by an applicant seeking to establish the existence of a genuine dispute under s 459H is lower than that facing a defendant opposing a plaintiff's summary judgment application. The question on a summary judgment application is whether there is such a high degree of certainty about the ultimate outcome of the action if it went to trial that summary judgment ought properly be granted.[65] If so, it will be in the interests of justice to resolve the controversy by entering judgment at an early stage of the proceedings. In a summary judgment application, the court resolves the dispute by entering judgment where the court is able to make a certain and concluded determination that the plaintiff would succeed. Even a strong claim may be genuinely disputed, and the proper course for a claimant in those circumstances is to commence proceedings and seek summary judgment.
[65] See Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14 [24] and cases there cited.
On the other hand, the question in the current context is whether the existence of the dispute provides a reason, other than insolvency, as to why the demanded amount has not been paid. The question for the court considering an application to set aside a statutory demand is whether the corporation's basis for disputing the debt is so lacking in merit as to indicate that the professed dispute is not genuine, so that it is not a reason for non-payment of the debt.
The question on an application to set aside a statutory demand remains the same even if the dispute turns on the proper construction of a document which both parties accept is to be construed only by reference to its terms. That is illustrated by the decision of the New South Wales Court of Appeal in Creata (Aust) Pty Ltd v Faull,[66] where the court recognised that such proceedings were not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. The court put the question in terms of whether the applicant presented a 'patently feeble argument', or whether the question of construction was 'as plain as a pikestaff'.
[66] Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 [27] - [29], [37].
That is, even where the question is one of pure construction, it remains the case that the answer must be so apparent that the court can conclude the ostensible dispute put forward by the applicant is not genuine, so that it is not a reason for non-payment of the claimed debt.
Resolution of this appeal
In the present case, there was evidence of an ostensible dispute between the parties as to whether the respondent was entitled to invoice and be paid Consultancy Fees under the Agreement for each calendar month during the project delivery phase, regardless of whether the appellant had requested any services in that month. The question for the master was whether the basis of the appellant's contention, that the respondent was not so entitled, was so patently feeble as to allow him to conclude that the ostensible dispute is not genuine.
The Agreement is a relatively complex commercial agreement with a number of interlocking parts - definitions, operative provisions and schedules - that must be construed coherently. The argument advanced by the appellant in support of its construction of the Agreement proceeds from a reasoned and detailed analysis of the provisions of the Agreement. Determining the proper construction of the Agreement requires close attention by the court to the interlocking parts of the Agreement. The appellant contends that the contracting parties are unlikely to have objectively intended that the appellant must pay a monthly fee even if it has not requested any consultancy services, and the respondent did not in fact provide those services. The argument against construing the Agreement as requiring payment of fees where no services have been requested or provided has some superficial attraction. These factors all stand as impediments to a conclusion that the appellant does not genuinely dispute its liability to pay the respondent's invoices.
It is true that the master had, and this court has, all of the material required to construe the Agreement (there being no suggestion of any relevant evidence extrinsic to the contractual terms). The master was, and this court is, in a position to form a concluded view as to the proper construction of the Agreement. However, the genuineness of the appellant's purported basis for disputing the debt is not to be denied merely because the court is of the view - even firmly of the view - that the appellant's construction is incorrect. That the court holds a firm view as to the proper construction of a contract does not necessarily deny the existence of a genuinely held contrary, albeit erroneous, view by a party to the contract.
I am firmly of the view that Buss P and Vaughan JA have correctly construed the Agreement, generally for the reasons which their Honours give. Further, I have reached the view - albeit with some hesitation - that the basis for the appellant's contrary construction is so lacking as to allow the conclusion that the appellant did not genuinely dispute the debt. The following matters, in combination, lead me to the latter view.
First, the appellant's construction lacks any proper foundation in the contractual text.
Clause 2.2 provides that the respondent is to be paid the Consultancy Fees as provided in cl 8. Clause 8 provides that the appellant must pay and the respondent shall be entitled to be paid the Consultancy Fees for the provision of the Consultancy Services. The definition of 'Consultancy Fees' refers to the fees payable for provision of the Consultancy Services as set out in sch 2. Thus it is clear that fees are payable for the provision of Consultancy Services. However, 'Consultancy Services' are relevantly defined to mean the services set out in sch 1. The services set out in sch 1 are the provision of assistance in each Project phase to the extent requested by the appellant. The words 'to the extent requested by' form part of the definition of Consultancy Services. The Consultancy Services are not the provision of the specified assistance but the provision of the specified assistance to the extent requested by the appellant. If the appellant requests no assistance, the respondent has still provided the specified assistance to the extent requested by the appellant. It has provided the Consultancy Services, as defined, and is entitled to be paid for the provision of the Consultancy Services.
Further, sch 1 defines the assistance to be provided in different phases of the Project. It does not define the assistance to be provided on a monthly or some other periodic basis. Part C of sch 1 identifies the assistance to be provided in the project delivery phase. It is uncontroversial that the appellant has requested, and the respondent has provided, assistance of the kind specified in pt C of sch 1 during this third phase of the Project.[67] The professed dispute only relates to invoices sent for November 2018 to March 2019, after the cessation of requests for the provision of assistance in the project delivery phase. Even on the appellant's construction of the words 'to the extent requested', Consultancy Services have been provided in the project delivery phase. The respondent is therefore entitled to be paid the Consultancy Fees set out in sch 2. The relevant fee is expressed in sch 2 to be a specified amount per calendar month until final completion of construction. The fee is not expressed in sch 2 to be a specified amount for a calendar month in which some assistance is provided.
[67] See the affidavit of Adriano Giacomo Fini sworn 8 July 2019, par 14 - 15.
Secondly, the appellant's central contention - that the respondent's construction would make a commercial nonsense of the Agreement - can ultimately be seen to be baseless when regard is had to the terms of the Agreement. Clause 3.2(a) of the Agreement requires the respondent to ensure the Designated Personnel devote their personal time and attention so far as is reasonably practicable and necessary in pursuit of the successful outcome of the Project. The respondent is required to maintain the capacity to provide the specified assistance as and when requested. That the respondent is to be rewarded for maintaining this capacity, no doubt at some cost to the respondent, cannot reasonably be described as an uncommercial outcome. That is particularly so where it is the appellant which controls whether, and to what extent, assistance of the specified kind is requested and so controls the extent to which it receives value for money.
Further, while the appellant contends that the respondent's construction has the consequence that the respondent might receive reward without work, the appellant's construction only avoids this consequence to a very limited extent. As was noted by the master,[68] on the appellant's construction a question with a simple answer, which is asked and answered in a single phone call, would trigger the obligation to pay the Consultancy Fees for the relevant phase of the Project. If the Project proceeds in respect of both Lots, these fees are $1 million in the first phase and $2.5 million in the second phase of the Project.
[68] Primary decision [14].
Thirdly, the appellant's construction is inconsistent with the structure of sch 2, particularly in relation to the Tender Success Fee and the Contract Success Fee for the first and second phases of the Project. The appellant's construction is advanced in relation to all three phases of the Project.[69] In the case of the first and second phases, the event which is stated to trigger the payment obligation is not the performance of work. Rather, the stated trigger is the achievement of a specified outcome, namely the appointment of the appellant as preferred tenderer and the success of the tender in respect of one or both Lots.
[69] Appeal ts 2 - 3.
Fourthly, the appellant's construction is plainly inconsistent with cl 10.4 of the Agreement, which confines the appellant's right to terminate the Agreement to limited causes (such as insolvency or breach of its material obligations under the Agreement). On the appellant's construction, the appellant can get out of its payment obligations by a side door (not requesting services) when the front door (the right to terminate the Agreement for cause) is closed.
On balance, these considerations combine to satisfy me, albeit by a narrow margin, that the basis for the appellant's construction of the Agreement is so weak that the ostensible dispute does not provide a plausible reason for its refusal to pay the respondent's invoices. That is, the appellant, acting reasonably and in good faith, could not genuinely arrive at the conclusion that the invoiced amounts were not payable under the terms of the Agreement. The basis for the appellant's construction of the Agreement is so patently feeble that the master could properly conclude that the dispute was not genuine, and so was not a reason for the appellant's non-payment of the invoices. I am not persuaded that the master erred in dismissing the appellant's application to set aside the respondent's statutory demand.
For these reasons, in my view the appellant's grounds of appeal are not established, and the appeal should be dismissed on its merits. Given that conclusion, it is unnecessary to consider whether the appeal is incompetent by reason of the appellant's failure to apply for leave to appeal. I agree with the orders proposed by Buss P and Vaughan JA.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
OE
Research Orderly to the Honourable Justice Vaughan13 MARCH 2020
24
25
1