Chemical Plant & Engineering Pty Ltd v Process Design & Fabrication Pty Ltd

[1996] FCA 682

IN THE FEDERAL COURT OF AUSTRALIA                 )

VICTORIA DISTRICT REGISTRY  )       No VG 3014 of 1996

GENERAL DIVISION  )

BETWEEN:CHEMICAL PLANT AND ENGINEERING PTY LTD

Applicant

AND:PROCESS DESIGN AND FABRICATION PTY LTD

Respondent

COURT:Sundberg J

DATE:26 July 1996

PLACE:Melbourne

EX TEMPORE REASONS FOR JUDGMENT

SUNDBERG J:
HIS HONOUR:     This is an application to set aside a statutory demand served on the applicant by the respondent.  The application is made under ss 459G and 459H(1) and in the alternative under ss 459G and 459J(1).  The demand describes the debt in this way - "on or about 20 October 1995 an oral agreement was entered into between Tony Bryant on behalf of the company and David Stahel the creditor's Managing Director on behalf of the creditor (as confirmed orally between Tony Bryant and Clive Catlow, Contracts Manager of the creditor, on 23 October 1995)" to pay the respondent the sum of $75,993.

The affidavit verifying the demand, sworn by Richard Walter Millar, a director of the creditor, says in paragraph 2:

I was informed by Clive Catlow, contracts manager of the creditor and verify believe that a binding agreement was made on 20 October 1995, that the company would pay to the creditor, an amount in the sum of $75,993 in settlement of the dispute referred to in the schedule to the attached demand.

The background to the dispute between the parties is but slightly touched on in the material.  It seems the applicant supplied grease agitators to the respondent for installation at a plant operated by Shell Australia.  The agitators were defective, and rectification work was carried out on them.  Some of the work was carried out by the respondent, and the dispute is about the cost of that work.

The applicant's first affidavit is that of Leonard Anthony Bryant, its General Manager.  He says that on 26 October a letter of demand was received from the respondent in which the respondent said it was prepared to accept 75 per cent of $101,325, an amount that had previously been claimed.  That 75 per cent translates into the sum I have already mentioned, $75,993.  The affidavit goes on to say there was a conversation between Mr Bryant and Mr Stahel on 20 October in which no agreement was reached about the disputed amount.  There was a conversation on 23 October between Mr Bryant and Mr Catlow.  Mr Catlow said the respondent would accept $25,000 payable immediately by bank cheque, another $25,000 a month later and the balance of $25,993 a further month later.  Mr Bryant says he did not agree with that proposal, but said he would prepare a written proposal which he would send to Mr Catlow.  No proposal was ever sent, though as will appear later, a draft proposal was formulated.

The respondent replied by an affidavit by Mr Stahel.  Mr Stahel says he did have a conversation with Mr Bryant on 20 October.  Paragraph 3 of the affidavit is rather curious.  It simply claims, without purporting to record who said what:

The agreement was that CPE pay PDF an amount of $75,993 in full and final settlement of the dispute between PDF and CPE in relation to a claim for warranty rectification costs ....

Mr Stahel goes on to observe that Mr Bryant said the proposal was acceptable, but the applicant had a cash flow problem and would need some time to pay.  He said he would instruct Mr Catlow to negotiate a method of payment with Mr Bryant.

Then there is an affidavit sworn by Mr Catlow on behalf of the respondent.  He refers to the 23 October conversation he had with Mr Bryant and says Mr Bryant accepted the proposal in the 6 October letter.  The matter of the three instalments was raised.  Mr Bryant said he would confirm the applicant's acceptance in writing on the next day.  Mr Catlow exhibits a file note which more or less records what he says in his affidavit about the conversation.  It concludes with this passage:

Tony said that they were hoping for a little more time to pay, but he would by close of business tomorrow night, Tuesday 24 October, confirm in writing CPE's acceptance of my proposal, plus payment options.

Mr Catlow continues that no confirmation arrived on the next day.  He had a conversation on the 26th with Mr Bryant, who said the acceptance of the agreement was "in for typing".  He had another conversation with Mr Bryant on the 27th, in which Mr Bryant said that "Things had changed", by which he seems to have meant that no amount would be forthcoming, and no proposal would be forthcoming either.

Mr Bryant swore a second affidavit on behalf of the applicant in which for the first time he denied he had authority to make any agreement with the other side.  He said it was up to the Board of Directors to approve any settlement agreement, and relied on a letter which he
exhibited dated 16 August 1995 from the respondent to the applicant in which there is a passage which might suggest it was common ground that the applicant's Board would need to approve any settlement.  As to the conversation he had on 20 October with Mr Stahel, Mr Bryant records what was said in this way:

I told [Mr Stahel] that for the purpose of the discussions only I would accept as a starting point the proposal set out in Mr Catlow's letter of 6 October (which was directed to the amount of compensation).  I said however that (a) this was only one aspect of any proposed settlement and (b) that any final agreement must involve terms of payment which were satisfactory to the applicant and that without such agreement there could be no resolution of the dispute on the basis set out in the letter of 6 October 1995.

He then denies that any agreement had been made.  He says he accepted in principle the proposal in the letter subject to agreement on satisfactory terms of payment, that Mr Catlow was to contact him to resolve the question of the terms of payment, and that those terms were never agreed.  As to the 23 October conversation, Mr Bryant said he accepted as a starting point the amount of $75,000 or thereabouts, but there had to be agreement as to the terms, and that he would put them in a written proposal.  He says that he did not agree with Mr Catlow's three instalments suggestion.  He says he prepared a draft proposal which he exhibits, which was never sent and which was never put to the Board.  The draft proposal is not easy to follow, because it depends upon background material that is not referred to in any of the affidavits.  The second sentence reads:

As indicated during our telephone conversation CPE accepts in principle the proposal outlined in the 6 October letter.

It then sets out three alternative scenarios which were designed to facilitate resolution of the dispute, and requests Mr Catlow's comment on which route best suited the respondent.

The parties are not in dispute about the appropriate test to apply when determining an application under s 459H, that is the "genuine dispute" paragraph.  One statement which has been approved on a number of occasions is that of the Chief Judge in Equity in Eyota Pty Limited v Hanave Pty Ltd reported in (1994) 12 ACLC 669. At 671 the Chief Judge said:

It is, however, necessary to consider the meaning of the expression "genuine dispute", where it occurs in s 459H.  In my opinion that expression connotes a plausible contention requiring investigation and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction, or for the extension or removal of a caveat.  This does not mean that the Court must accept uncritically, as giving rise to a genuine dispute, every statement in an affidavit, "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents, or other statements by the same deponent, or inherently improbable in itself, it may be", not having "sufficient prima facie plausibility to merit further investigations to [its] truth" ... or "a patently feeble legal argument or an assertion of facts unsupported by evidence" ....

But it does mean that except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to a dispute.  There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other determining the merits of, or resolving such a dispute.

In the present case there is a clear dispute between the two sets of affidavits.  Each deponent purports to record, I accept honestly, his understanding of what was said in the crucial conversations.  Having regard to the background and context against which the conversations took place, it is easy to understand how different impressions could have been derived from the actual words uttered.  Looking at the matter from Mr Bryant's point of view, he was saying "I will accept the starting point of $75,000 provided we can come to some understanding about the way in which the amount is to be paid because the company has a cash flow problem".  It is common ground that the terms of payment were never agreed.

On the other hand, one can well understand the view that might be taken of the conversations on the respondent's side.  Mr Bryant agreed to pay $75,000, payable immediately unless some arrangement was made about instalments.  The fact that no agreement was made about instalments did not mean that the $75,000 was not immediately payable.  Looking at the matter legalistically, if within a reasonable time terms had not been agreed, an action could immediately be brought to recover the $75,000.

The deponents were not cross-examined.  That, I suspect, would simply have turned this application into the equivalent of a County Court proceeding for the recovery of the disputed amount.  In any event, for the reasons I have given, there is for the purposes of s 459H(1)(a) a genuine dispute between the parties.  In accordance with the passage I have read from Eyota, it is not my task to resolve it, and in the absence of cross examination of the witnesses I could not resolve it.  There is no basis upon which I can sensibly prefer Mr Bryant's account to that on the other side.  The deponents tell different stories, and nothing appears in any of the affidavits to suggest that one is clearly being untruthful.

There might be other difficulties for the respondent.  The first relates to the non-compliance of Mr Millar's affidavit with r 36A(iii).  There is also a question whether the actual foundation of the debt arising out of the conversation on 20 October is made out by the material.  But I need not pursue either of these matters.

This is not a case where an order should be made under s 459M of the type that was made in Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 787. The material before me does not enable me to determine that any amount is plainly not in dispute and is recoverable. As I have said before, the essential dispute is not about quantum, but about whether one party would accept in settlement of the dispute an obligation to pay a particular amount either absolutely or subject to terms and set-offs yet to be agreed.
The appropriate course in those circumstances is to order that the statutory demand dated 21 December 1995 be set aside with costs.

I certify that this and the preceding six pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg

........ ........ ........ ........ ........ ........ .

Associate

26 July 1996

Counsel for the Applicant:  N D Hopkins

Solicitors for the Applicant:               Purves Clarke Richards

Counsel for the Respondent:              M D Purvis

Solicitors for the Respondent:            Madgwick Partners

Date of Hearing:  26 July 1996

Place of Hearing:  Melbourne