Creata (Aust) Pty Ltd v Faull

[2017] NSWCA 300

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300
Hearing dates:	31 October 2017
Date of orders:	28 November 2017
Decision date:	28 November 2017
Before:	Gleeson JA at [1] White JA at [2] Barrett AJA at [3]
Decision:	1. Grant leave to appeal. 2. Direct that the applicant do within seven days file a notice of appeal in the form of the draft notice of appeal in the white folder. 3. Set aside the orders made by the primary judge on 18 August 2017 and make in lieu the following orders: (a) Order that the statutory demand dated 30 January 2017 served on the plaintiff by the defendant be set aside. (b) Order that the defendant pay the plaintiff’s costs of the proceedings. 4. Order that the respondent pay the applicant’s costs of both the application for leave to appeal and the appeal and have a certificate under the Suitors Fund Act 1951 (NSW), if qualified.
Catchwords:	CORPORATIONS – statutory demand – appeal from a decision refusing to set aside – where application based on argument as to correct construction of deed – necessity to exercise restraint where questions of construction has element of rational controversy – where evidence of statement by third party indicates possibility of defence to debt recovery claim – necessity to exercise restraint in judging ultimate cogency of that evidence – genuine dispute or recent invention – sufficient material to show plausible case – leave to appeal granted
Legislation Cited:	Corporations Act 2001 (Cth) Evidence Act 1995 (NSW). Supreme Court Act 1970 (NSW) Suitors Fund Act 1951 (NSW),
Cases Cited:	Be Financial Pty Ltd v Das [2012] NSWCA 164 Bevic Holdings Pty Ltd v Wright [2015] NSWCA 210 Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 Broadspectrum (Australia) Pty Ltd v Centauri Business Services Pty Ltd [2016] NSWSC 1045 Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 91 ALJR 486; [2017] HCA 12 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Geoffrey W Hill & Associates v King (1992) 27 NSWLR 228 Hardel Pty Ltd v Burrell & Family Pty Ltd (2009) 103 SASR 408; [2009] SASC 77 In the matter of Creata (Aust) Pty Ltd (No 2) [2017] NSWSC 1090 In the matter of Creata (Aust) Pty Ltd [2017] NSWSC 1055 In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd (2012) 297 ALR 372; [2012] NSWCA 365 Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd [2015] VSCA 330 MNWA Pty Ltd v Deputy Commissioner of Taxation (2016) 117 ACSR 446; [2016] FCAFC 154 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 Passion Projects (Allyouneedislove) Pty Ltd v Concept Moulding Pty Ltd [2014] NSWCA 415 Reale Bros Pty Ltd v Reale (2003) 179 FLR 427; [2003] NSWSC 666 Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (2004) 185 FLR 130; [2004] NSWSC 527 TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70 Wellnora Pty Ltd v Fiorentino (2008) 66 ACSR 229; [2008] NSWSC 483
Category:	Principal judgment
Parties:	Creata (Aust) Pty Ltd – appellant Gary Adrian Faull – respondent
Representation:	Counsel: J C Giles SC, S M Foda – for the appellant P M Wood, D R Sulan – for the respondent   Solicitors: Connor & Co Lawyers – for the appellant Arnold Bloch Leibler – for the respondent
File Number(s):	2017/256550
Publication restriction:	No
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2017] NSWSC 1090 Date of Decision: 18 August 2017 Before: Black J File Number(s): 2017/51706

Judgment

1. GLEESON JA: I agree with Barrett AJA.

2. WHITE JA: I also agree with Barrett AJA.

3. BARRETT AJA: This is a concurrent hearing of an application for leave to appeal from a decision of Black J in the Equity Division of the Supreme Court and, subject to leave being granted, the appeal itself.

4. On 18 August 2017, his Honour dismissed with costs an originating process by which Creata (Aust) Pty Ltd (“Creata”) applied under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by Mr Gary Faull. [1] Creata contends that this decision was erroneous and that the demand should have been set aside.

   1. In the matter of Creata (Aust) Pty Ltd (No 2) [2017] NSWSC 1090.

Background

5. The debt the subject of the statutory demand was said by Mr Faull to be owing, due and payable by Creata pursuant to a deed made between the parties on 25 July 2014 in consequence of Mr Faull’s ceasing to occupy the position of chief financial officer of Creata. I shall refer to this deed as the “2014 deed”.

6. By the 2014 deed, Mr Faull gave certain undertakings to Creata which, in turn, agreed that it would make certain payments to him. In particular, Creata agreed to pay five instalments, each of US$400,000, within ten business days after 1 January in each of 2015, 2016, 2017, 2018 and 2019.

7. The statutory demand related to a sum of US$400,000 that Mr Faull claimed Creata should have paid him pursuant to the 2014 deed within ten business days after 1 January 2017.

8. In seeking to have the statutory demand set aside, Creata contended principally that there was, as contemplated by s 459H(1)(a), a genuine dispute as to the existence of the debt of US$400,000. [2] Creata’s case was that Mr Faull had breached certain provisions of the 2014 deed before 1 January 2017 and that, having regard to another provision of the deed, there was therefore a plausible contention that he was not entitled to receive or recover the sum otherwise payable within ten business days after that date.

   2. There was a subsidiary assertion of “offsetting claim” within s 459H(1)(b) but that is not relevant for present purposes.

9. For present purposes, only one of the alleged breaches of covenant relied on by Creata is relevant, being breach of clause 4(b) of the 2014 deed. Clause 4(b) was in these terms:

[Mr Faull] agrees that he will not (unless required to do so by law or as required to obtaining [sic] judicial enforcement of the terms of this Deed):

(i) use any trade secrets or Confidential Information for any purposes or(ii) disclose any trade secrets or Confidential Information to any person including, without limitation any client of Creata or client of any Group Entity (“Client”), any supplier of goods and services to Creata or any Group Entity (“Supplier”) and any employee of Creata, any employee of any Group Entity, any employee of any Client or any employee of any Supplier.

10. The effect and operation of clause 4(b) were affected by clause 4(c) which, in connection with an acknowledgement on Mr Faull’s part, defined (or described) “Confidential Information”:

[Mr Faul] acknowledges that during the term of his employment, he had access to and became acquainted with proprietary trade secret information belonging to Creata, Group Entity, Client and Supplier including, without limitation, information concerning their organization, business and affairs of Creata, Group Entity and any Client and Supplier, Client/Customer lists, Member lists, Supplier lists, pricing information, profit margins, referral source lists, vendor services lists, Client presentations [actual and proposed], sales and financing projections, budget information and procedures, accounting and financial records, policy and procedure manuals, industry contacts, computer software, computer programs, techniques of operation, employee compensation and financial structure, strategies of any kind or nature, and marketing, promotion, development or acquisition plans [whether past, current, future or potential] (“Confidential Information”).

11. Clause 4(f) of the 2014 deed was as follows:

[Mr Faull] acknowledges that if [Mr Faull] is in breach of this Clause 4,then Creata’s obligations regarding the making of the Payment pursuant to this Deed . . . shall cease upon Creata becoming aware of such breach and further [Mr Faull] shall be obliged to repay to Creata any and all monies paid by Creata to [Mr Faull] pursuant to this Deed. [3]

3. The primary judge noted that he was not required to consider whether this provision amounted to an unenforceable penalty. Argument in this Court also proceeded on the basis that that is not an issue.

12. The expression “the Payment” referred to payment of the various sums payable under the 2014 deed, including the annual instalments of US$400,000.

13. For reasons about to be mentioned, it is relevant to record that Ms Norma Rosenhain, the founder and a director of Creata, had a substantial interest in another company, NRG Nominees which, at some time in 2016, had served a statutory demand on a company called SAF Foods.

14. The principal witness for Creata before the primary judge was Mr Kenneth Henderson, one of its directors. He was also an officer of (or otherwise associated with) NRG Nominees. Mr Henderson gave evidence of a telephone conversation he had on 26 June 2015 with a Mr Saunders who represented SAF Foods and was trying to persuade NRG Nominees, through Mr Henderson, to withdraw the statutory demand that it had served on SAF Foods. Mr Henderson’s evidence was that Mr Saunders had said to him:

Then let me put it to you this way. We understand from Gary [Faull] that the McDonald’s contract is coming up for renewal. It’s an important part of your business.He’s [Gary Faull] shared certain information with me about Creata’s and Norma’s [Norma Rosenhain’s] tax and business and affairs.If you don’t withdraw your statutory demand then I will send affidavits that I’ve already prepared about those matters to the ATO, the IRS, the Police, the FBI and McDonalds.

15. Mr Faull gave evidence that he had no recollection of any contact with Mr Saunders in 2014 or 2015. He denied having ever discussed with or disclosed to Mr Saunders or anyone else within SAF Foods information about tax or business or affairs of Creata.

16. Creata contended before the primary judge that, having regard to the evidence given by Mr Henderson, there was, to the requisite extent, a plausible contention (requiring further investigation) not only that Mr Faull had committed a breach of clause 4(b) of the 2014 deed but also that, by committing that breach, he had become disentitled, by force of clause 4(f), to receive the sum that would otherwise have been payable by Creata within ten business days after 1 January 2017. That being so, Creata submitted, the primary judge should find that there was a genuine dispute as to the existence of the debt the subject of the statutory demand served on it by Mr Faull.

The decision of the primary judge

17. The primary judge correctly described the approach to be taken in cases of this kind where the ultimate question is as to the existence or non-existence of a genuine dispute. He referred to a number of decided cases including several decisions of appellate courts. For present purposes, it is sufficient to set out a passage quoted by his Honour from the judgment of the Court of Appeal of Victoria in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd [2015] VSCA 330 at [47]-[50] (omitting citations):

The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.

In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.

The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.

The court is not required to accept uncritically 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, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.

18. In addressing the question whether Creata had, to the requisite standard, established the existence of a genuine dispute, the primary judge first considered the weight that should be given to Mr Henderson’s evidence about what Mr Saunders had said to him on 26 June 2015. His Honour had, at an earlier stage of the proceedings,[4] ruled that the evidence was admissible without any limiting order under s 136 of the Evidence Act 1995 (NSW). This was because it was tendered not to prove the truth of the statements said to have been made by Mr Saunders but merely to prove that he had made those statements, a fact relevant to the distinct (and, for present purposes, central) question whether a genuine dispute existed.

    4. In the matter of Creata (Aust) Pty Ltd [2017] NSWSC 1055.

19. In assessing the weight to be afforded to the evidence, his Honour first noted that the specific content of any information that Mr Faull was alleged to have shared with Mr Saunders about Creata’s and Ms Rosenhain’s “tax and business and affairs” was not identified. [5] The words attributed to Mr Saunders therefore did not provide an evidentiary basis for a finding that the unidentified information said to have been referred to by him was of a confidential character. The primary judge recognised that the reported threat of Mr Saunders to disclose the unspecified information to taxation and law enforcement authorities (and to McDonald’s) may have implied that those potential recipients did not or might not already know that information. But, his Honour said, that threat could equally have been made if no such information had been shared with Mr Saunders in the first place, or any such information was already publicly known and Mr Saunders was simply lying or mistaken. The question of the confidential quality of the unspecified information about Creata’s or Ms Rosenhain’s tax and business and affairs allegedly communicated by Mr Faull was therefore seen as depending on characteristics of the information which were not identified. His Honour thought it impossible to draw an inference of breach of confidentiality, even to the relatively low level necessary to establish a serious question to be tried.

    5. Mr Henderson’s assertion in his affidavit that information Mr Faull had about those matters was not public knowledge was admitted with a limiting order under s 136 of the Evidence Act as a submission only.

20. The primary judge then turned to the meaning of clause 4(b) of the 2014 deed. He referred to a submission that it was arguable that that the definition of “Confidential Information” in clause 4(c) “extended beyond ‘proprietary trade secret information’ to information that was not confidential or not proprietary or not a secret”. That submission was dealt with as follows:

I do not accept that that construction of the clause is seriously arguable. The clause defines “Confidential Information” as “proprietary trade secret information” and then gives examples of matters that are included within that category. It does not seem to me that the inclusions within the category of “proprietary trade secret information” could, on any arguable reading of the clause, extend to information that was not proprietary or a trade secret or at least confidential. In particular, it does not seem to me that there is any arguable basis for reading the definition of “Confidential Information” as extending, as Ms Foda [6] suggested, to any matter relating to Ms Rosenhain’s tax and business and affairs, or Creata’s tax and business and affairs, whether confidential or not.

6. Ms Foda appeared for Creata in the court below.

21. Then followed an assessment and a conclusion of particular relevance to the present application:

I also recognise that, as the High Court pointed out in Lee v R above, the cogency of the evidence of what the third party [Mr Saunders] said to Mr Henderson, as to the unidentified information that Mr Faull is alleged to have shared with him, depends upon the question whether the third party was or was not telling the truth. It seems to me that Mr Henderson’s evidence provides no evidentiary basis for any inference, or any serious question to be investigated as to, the truth of the third party’s statement. Mr Henderson’s evidence of the conversation goes no further than to indicate that a third party said something, which may have been true or may have been false, and Mr Henderson chose to proceed on the basis that it may have been true by withdrawing the creditor’s statutory demand issued to SAF Foods. Unless it were assumed, without any adequate evidentiary basis, that the third party’s statement was true and also that either the information as to the McDonald’s contract was not in the public domain or that the “certain information”, the content of which is not disclosed, as to Creata’s and Ms Rosenhain’s tax and business and affairs was also confidential, then no serious question for investigation and no genuine dispute is established on this basis. For these reasons, I am not satisfied that a genuine dispute has been established in respect of any breach of cl 4 of the Deed.

.

Issues in this Court

22. In the notice of appeal it proposes to file if leave to appeal is granted, Creata identifies three grounds of appeal:

1. That the primary judge erred in determining the construction of clauses 4(b) and 4(c) of the 2014 deed.

2. That, in any event, his Honour erred in his construction of those clauses.

1. That his Honour erred in holding that the evidence of Mr Henderson’s conversation with Mr Saunders on 26 June 2015 was insufficient to establish a genuine dispute.

23. The contention of Creata is, in essence, twofold: first, that the primary judge should have proceeded on the basis that a decision as to which of the competing constructions of clauses 4(b) and 4(c) was correct was one that the primary judge should not have made; and, secondly, that the evidence about the conversation on 26 June 2015 warranted a finding of genuine dispute.

24. Creata says that a grant of leave is warranted because a point of principle is involved and an injustice has occurred. Mr Faull’s position is that leave to appeal should not be granted. He does not accept that any issue of principle is at stake or that there has been injustice. At most, he says, the primary judge was arguably in error and that, of itself, is not sufficient to justify granting leave. [7] He points to Passion Projects (Allyouneedislove) Pty Ltd v Concept Moulding Pty Ltd [2014] NSWCA 415 for the proposition that, as the existence of the leave requirement shows, there is a policy of discouraging appeals in statutory demand cases.

    7. Passion Projects (Allyouneedislove) Pty Ltd v Concept Moulding Pty Ltd [2014] NSWCA 415; Bevic Holdings Pty Ltd v Wright [2015] NSWCA 210; Be Financial Pty Ltd v Das [2012] NSWCA 164.

25. As the competing submissions on the leave issue show, that matter cannot be adequately addressed in this particular case without canvassing in some depth the submissions made on the grounds of appeal. I therefor proceed to a consideration of those submissions.

Construction of the 2014 deed

26. The grounds of appeal raise squarely the question of the extent to which it is open to the court to decide questions of construction in s 459H(1)(a) cases. In every such case, the issue is, of course, merely whether it has been shown that a “genuine dispute” exists. In determining that issue, the court is neither required nor expected to avoid all issues of construction. Where a contract contains a simple and unambiguous promise to pay, the court embarks on a task of construction (albeit not a difficult or controversial one) in determining that that promise creates a debt and no argument to the contrary is plausible. But where the question of construction has any element of rational controversy to it, the court must exercise particular restraint.

27. That matter was recently addressed by Gleeson JA in both In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 and In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336. In each of those cases, his Honour quoted the following passage in the judgment in Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [45]:

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 (see Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at 384), 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 (1994) 12 ACSR 785, a “patently feeble legal argument”.

28. Gleeson JA also referred to a similar formulation in Wellnora Pty Ltd v Fiorentino (2008) 66 ACSR 229; [2008] NSWSC 483 at [50] where attention was drawn to what was said by Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 at [4]:

We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), Judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.

29. After referring to a summary of the position in in Broadspectrum (Australia) Pty Ltd v Centauri Business Services Pty Ltd [2016] NSWSC 1045 at [22] and the statement by this Court in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [11] concerning the restraint that a court should exercise in considering the “ultimate question” of the indebtedness of a company served with a statutory demand (as distinct from the question whether genuine dispute exists), Gleeson JA said:

The important points to be derived from the authorities are as follows. First, the court dealing with a s 459G application is not compelled to determine questions of construction of documents. Second, s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. Third, cases in which it will be appropriate for the court to entertain a construction argument on a s 459G application are likely to be few in number. Fourth, the court’s state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared.

30. With those considerations in mind, I turn to the transcript of the hearing before the primary judge. Ms Foda of counsel, who appeared for Creata in the court below, submitted in relation to clause 4(c) of the 2014 deed that “the deed itself defines confidential information as being business and affairs of Creata group entity”. Replying to his Honour’s question whether the submission was that “confidential information is any information whether confidential or not confidential, whether proprietary or non-proprietary, whether secret or not secret”, Ms Foda said:

Well, I would say it is open to that interpretation based upon the wording that is used, and I am focussing more in relation to Ms Rosenhain.

31. In response to a further question from the bench, Ms Foda said that the subject matter referred to in the statements reportedly made by Mr Saunders “fall within the wording business and affairs of a group entity which is found on line 4, and business and affairs of Creata”.

32. The submission by Mr Sulan, counsel for Mr Faull, as recorded in the transcript, was:

The clause 4(c) confidential information obligation plainly must be a breach of proprietary trade secret information belonging to the various entities, and the reference to business and affairs must relate back to proprietary trade secret information because otherwise it would be absurd in the extreme, for example, the business and affairs of Creata would include its address and place of business . . .

33. The conclusion of the primary judge on these competing submissions was as stated at [21] above. In reaching that conclusion, his Honour appears to have decided two things: first, that the words “proprietary trade secret” in the expression “proprietary trade secret information” convey a composite or omnibus description, so that the information referred to is that which is “proprietary” and “trade” and “secret” (or perhaps “proprietary” and “trade secret”); and, second, that the force of the words “including, without limitation” is that the items following those words are brought within the “Confidential information” concept only to the extent that they answer the composite or omnibus description “proprietary trade secret” (whatever its precise import may be). An aspect to which his Honour’s analysis did not extend (except perhaps by implication, given his references to Ms Rosenhain and Creata severally) is whether the words “belonging to Creata, Group Entity, Client and Supplier” require that the information belong to all of Creata, Group Entity, Client and Supplier or whether the reference is to information that belongs to any one or more of them.

34. The construction that commended itself to the primary judge is an available construction. It may be the preferred construction. But other possible constructions are cogently arguable. For example, Mr Giles SC (with whom Ms Foda appeared for Creata in this Court) pointed out that the fact that clause 4(b), in both paragraph (i) and paragraph (ii), refers separately to “trade secrets” (in an undefined sense) and “Confidential Information” (the expression defined or described by clause 4(c)) implies that the parties saw “Confidential Information” (as defined) as something distinct from “trade secrets”. That raises the possibility that “trade secret” in the expression “proprietary trade secret information” does not include “trade secrets” in the undefined sense in which it is used in clause 4(b).

35. Another possibility to which Mr Giles SC pointed is that the words “including, without limitation” serve a twofold purpose of preserving the broadest construction of “proprietary trade secret information belonging to” consistent with the ordinary meaning of those six words (whatever it may be) and then identifying things that are deemed to be comprehended by the expression regardless of the intrinsic meaning of the six words – albeit, no doubt, with some implied reference to Creata and the other entities mentioned. A contractual promise not to sell “vegetables including, without limitation, apples and oranges” would, at least arguably, preclude the sale of apples and the sale of oranges even though neither “apples” nor “oranges” is within the ordinary meaning of “vegetables”.

36. The primary judge was confronted by a dispute about the content of Mr Faull’s contractual promise in clause 4(b), read in conjunction with the clause 4(c) definition or description of “Confidential Information” and, therefore, a dispute about whether clause 4(f) had operated to relieve Creata of its obligation to pay the instalment of US$400,000 to which the statutory demand related. The competing constructions of clauses 4(b) and 4(c) for which counsel contended (albeit briefly, given the nature of the proceeding) were plausible. Neither side’s argument was so obviously correct or incorrect as to put the issue of construction beyond the realms of reasonable debate. Ultimate resolution could only come from an objective determination, in appropriately constituted proceedings, of what a reasonable business person would have understood the clauses to have meant. Central to any such determination would be the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. [8]

    8. Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [22]; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 at [16]).

37. This was not a case in which counsel for Creata presented a “patently feeble argument” as to the true construction of clause 4(b) and clause 4(c). Nor was the answer to the question of construction “as plain as a pikestaff”, to quote again the words used in Spacorp Australia Pty Ltd v Myer Stores Ltd (above). As this Court said in Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd (2012) 297 ALR 372; [2012] NSWCA 365 at [46], s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. This was such a case; and there was nothing to displace the principle ordinarily applicable. Competing but plausible submissions on the question of construction should have led to a finding that there was dispute on that question and therefore dispute as to the existence of the debt the subject of the statutory demand.

Evaluation of the evidence about the telephone conversation

38. I turn now to the question whether Mr Henderson’s evidence about what was said to him by Mr Saunders should have resulted in a finding that there was a dispute whether there had been a breach of clause 4(b), according to at least one of the cogently available constructions of it.

39. The primary judge was, quite properly, cautious about the weight that should be given to Mr Henderson’s evidence about what he had been told by Mr Saunders regarding actions by Mr Faull – the more so because of Mr Faull’s denials. Had the case been one in which it was necessary to prove that Mr Faull had shared information with Mr Saunders about Creata’s and Ms Rosenhain’s tax and business affairs, Mr Henderson’s evidence of what he was told by Mr Saunders would have been excluded by the hearsay rule in s 59 of the Evidence Act 1995 (NSW). That, however, was not the issue. The question was whether there existed, as between Creata and Mr Faull, a dispute as to the existence of the debt claimed by Mr Faull; and the answer to that question depended in part on the availability of a finding that Mr Faull had arguably breached clause 4(b) of the 2014 deed, thereby triggering disentitlement under clause 4(f) to sue for that debt. Mr Henderson’s evidence of what he had been told by Mr Saunders about Mr Faull’s actions was admissible before the primary judge consistently with s 59. [9] This is because it was tendered not to prove the truth of what Mr Saunders reportedly said to Mr Henderson but to prove the existence of a person who, if called to as a witness in a future debt recovery action brought by Mr Faull against Creata, might confidently be expected to give evidence of things said to him by Mr Faull which, if true, would justify or contribute to a finding in that action that Mr Faull had breached clause 4(b) and was not entitled to recover the debt. [10]

    9. By force of s 75, the hearsay rule in s 59 does not apply to evidence in an interlocutory proceeding if the party who adduces the evidence also adduces evidence of its source. On the basis that the character of a proceeding as interlocutory is derived from the nature of the relief sought (Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 3) (1996) 64 FCR 55 at 58), s 75 will permit the adducing of hearsay evidence in a s 459G proceeding if, as recent appellate authority tends to indicate, the order determining the proceeding is properly regarded as interlocutory: MNWA Pty Ltd v Deputy Commissioner of Taxation (2016) 117 ACSR 446; [2016] FCAFC 154; Hardel Pty Ltd v Burrell & Family Pty Ltd (2009) 103 SASR 408; [2009] SASC 77. However, as the primary judge noted in his first judgment (In the matter of Creata (Aust) Pty Ltd [2017] NSWSC 1055) the matter should be regarded as not fully settled. It was not argued in this Court.

    10. The analogous common law position was described by the Privy Council in Subramaniam v Public Prosecutor [1969] 1 WLR 965 at 970, as follows: “Evidence of a statement made to a witness by a person who is not himself called as a witness may or may not be hearsay. It is hearsay and inadmissible when the object of the evidence is to establish the truth of what is contained in the statement. It is not hearsay and is admissible when it is proposed to establish by the evidence, not the truth of the statement, but the fact that it was made”.

40. As this Court emphasised in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the circumstance that the only issue in a s 459H(1)(a) case is whether a genuine dispute exists means that, as White J (as he then was) explained in Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (2004) 185 FLR 130; [2004] NSWSC 527 at [21]–[22], evidence which may be inadmissible as hearsay to establish a fact relevant to indebtedness is not on that account inadmissible to establish a fact relevant to whether there is a genuine dispute. [11]

    11. White J referred to Geoffrey W Hill & Associates v King (1992) 27 NSWLR 228, a case in which an interlocutory injunction was sought to protect confidential information said to have been used by a defendant for the benefit of a third party. Officers of the plaintiff gave evidence of conversations they had had with former customers of the plaintiff concerning activities of the defendant. Noting that the only issue before him was whether there was a serious issue to be tried at a final hearing, McLelland J referred to the distinction between “evidence of the facts, on the one hand, and evidence demonstrating that there will be or is likely to be evidence of the facts, on the other”. McLelland J saw the “proper principle to be applied” as: “that evidence which would be objectionable as hearsay on the issue as to whether an alleged fact is true may, nevertheless, be admitted on the issue (1) whether there is a case for investigation as to whether that alleged fact is true, (2) whether there is a real prospect of that alleged fact being found to be true at a final hearing, or (3) whether there is a serious question to be tried at a final hearing as to whether that alleged fact is true”.

41. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, it was pointed out by Dodds-Streeton JA (Neave and Kellam JJA concurring) at [71] that, in a s 459H(1)(a) case, it is not necessary for the company to advance “a fully evidenced claim”; and that what is required is “something between mere assertion and the proof that would be necessary in a court of law may suffice”. To like effect were observations of Young CJ in Eq in Reale Bros Pty Ltd v Reale (2003) 179 FLR 427; [2003] NSWSC 666. That was a statutory demand case but, in the following passage (at [34]) concerning evidence, a parallel was drawn with an application for an interlocutory injunction:

There are a number of cases where the evidence on a vital element is not readily available in the plaintiff's camp and the court has to exercise some imagination and determine whether it is more likely than not on the evidence produced and the additional material which might be gathered by interrogatories and otherwise in the course of an orderly preparation for trial, it is in the interests of justice to grant an interlocutory injunction.

42. The primary judge correctly recognised that he had before him admissible evidence going to whether there was a genuine dispute on the question whether Mr Faull had breached clause 4(b) of the 2014 deed. His Honour had not only Mr Henderson’s evidence of what he had been told by Mr Saunders about actions of Mr Faull but also Mr Faull’s denial. The question that fell to be determined by reference to that evidence was merely whether the dispute postulated by Creata regarding breach of clause 4(b) existed and was genuine. The primary judge decided, in effect, that the evidence did not ground any conceivably plausible contention that Mr Faull had breached clause 4(b) of the 2014 deed.

43. That assessment was, in part, a product of the primary judge’s opinion that there was no sound basis for finding that the information said by Mr Henderson to have been referred to by Mr Saunders was of a confidential quality. His Honour referred to several possibilities: that the taxation and law enforcement authorities (and McDonald’s) already possessed the information; that the information was already in the public domain; that Mr Saunders was mistaken; and that Mr Saunders was dissembling. At the same time, his Honour recognised that a threat of disclosure to the authorities, made as part of the attempt at persuasion upon which Mr Saunders had embarked in his conversation with Mr Henderson, might imply that the information was of a confidential and sensitive nature.

42. Having identified the capacity of the evidence to ground, at least at the threshold, a case consistent with any of these possibilities, his Honour proceeded to reject as not cogently arguable those of the possibilities that were consistent with breach of clause 4(b). He thereby accepted as exclusively cogent the possibilities inconsistent with such breach. To proceed in that way was, in my opinion, erroneous. Once the possibilities were recognised and it was seen that the evidence, such as it was, might support any of the postulated alternatives, the finding should have been one of serious question to be tried and therefore the existence of cogently arguable dispute.

43. The same observations are pertinent to the no less important question whether any information at all had been communicated by Mr Faull to Mr Saunders. Mr Henderson’s evidence about what had been said by Mr Saunders referred to “affidavits” that had been “already prepared” by Mr Saunders. In litigation between Creata and Mr Faull regarding the US$400,000, Creata might seek to subpoena the production of these “affidavits”. It might also secure cooperation by Mr Saunders as a witness or compel his testimony by subpoena. Those matters needed to be viewed together with Mr Faull’s denial.

44. The primary judge should have held that Mr Henderson’s evidence about what was said to him by Mr Saunders established the existence of a serious question to be tried as to whether Mr Faull had communicated information in breach of clause 4(b), according to at least one of the cogently available constructions of that clause.

“Genuine” dispute or recent invention

47. I have addressed to this point the aspect of the “genuine dispute” concept that concentrates on a showing of serious question to be tried or plausible contention requiring further investigation. Another aspect, no less important, requires that the serious question or plausible contention not be something merely created or constructed in response to the pressure represented by the service of the statutory demand. [12] If the dispute is of that quality and is accordingly not advanced in good faith, it is not “genuine”.

    12. The issue was framed in that way in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [10] and [13].

48. The primary judge referred to this question and to aspects of the evidence relevant to it. But because any issue of possible recent invention was not material to his decision (the question of genuine dispute having been determined adversely to Creata for the reasons already noticed), his Honour expressed no concluded view on it. Given, however, my conclusion, already stated, that the primary judge should have held that there was a serious question to be tried as to both the construction of the 2014 deed and the sufficiency of the evidence to meet the relevant threshold, the question of possible recent invention is one that must now be considered.

49. It was submitted on behalf of Mr Faull that grounds for a conclusion of recent invention exist in this case. Mr Henderson’s telephone conversation with Mr Saunders took place on 26 June 2015. A payment of US$400,000 became due by Creata under the 2014 deed in January 2016. Creata made that payment and there is no suggestion that it disputed its obligation to do so. Nor is there any suggestion that Creata raised with Mr Faull the allegations made by Mr Saunders and their implications for his rights under the 2014 deed at any time before Mr Faull served the statutory demand. In those circumstances, Mr Faull says, it should be inferred that Creata’s case based on what was said by Mr Saunders was merely created or constructed in response to the pressure represented by the service of the statutory demand.

50. That inference is said by Mr Faull to be strengthened by his evidence of events in the early part of January 2017. Mr Henderson emailed Mr Faull on 11 January 2017 and asked Mr Faull to contact him by telephone. Mr Faull, who was in Thailand, telephoned the following morning, 12 January 2017. Mr Henderson said that he would like to meet with Mr Faull because “times have changed at Creata” and some “financial issues” had arisen. The January 2017 instalment of $US400,000 was due within a few days. In the course of the telephone conversation thus sought by Mr Henderson, there was discussion about possible times for a meeting during a then forthcoming visit to Sydney by Mr Faull. There was reference to the possibility of lunch on 23 or 24 January 2017 but no firm arrangement was made. When Mr Faull mentioned during the telephone conversation that the instalment was about to become due, Mr Henderson said, according to Mr Faull’s evidence, “I’ll see what I can do.” Mr Henderson accepted that a conversation took place generally as described by Mr Faull. He also accepted that he did not, at that time, raise with Mr Faull the allegations that Mr Faull had breached the 2014 deed.

51. On the afternoon of the day on which the telephone conversation occurred, Mr Faull sent Mr Henderson an email referring to the conversation and saying:

I should be back in Sydney in good time to meet up on Monday the 23rd. Suggest the Bluegum in Hornsby, say 12.15pm.

52. Six days later, on 18 January 2017, lawyers instructed by Mr Faull sent a letter of demand to Creata. No meeting ever took place.

53. Mr Henderson gave evidence that he thought that what he regarded as breaches of the 2014 deed by Mr Faull would best be raised and discussed face to face. That was why he sought a meeting. He had hoped to resolve matters with Mr Faull during the proposed meeting on 23 January 2017. Mr Henderson had expected Mr Faull to come back to him to reconfirm the arrangement to meet. When he did not hear further from Mr Faull, he assumed that the tentative arrangement to meet at the Bluegum at 12.15pm on 23 January 2017 remained merely tentative.

54. I am satisfied that Mr Henderson’s expectation of reconfirmation was reasonable in light of Mr Faull’s expressed uncertainty about whether he would be back in Sydney “in good time” for a lunch meeting on 23 January 2017. Given Mr Henderson’s evidence that he intended to raise the issue of breaches of the 2014 deed at the meeting he had sought with Mr Faull and that the statutory demand was served after such a meeting failed to materialise, I am not satisfied that a charge of recent invention can properly be levelled at Creata, even when it is recognised that the January 2016 instalment had been paid notwithstanding that Creata was then aware of what Mr Saunders had told Mr Henderson on 26 June 2015.

Leave to appeal

55. Reference has already been made to Mr Faull’s reliance on Passion Projects (Allyouneedislove) Pty Ltd v Concept Moulding Pty Ltd (above). That was a case in which leave to appeal was required not only because s 101(2)(p) of the Supreme Court Act1970 (NSW) makes leave necessary for an appeal from a judgment or order on a s 459G application but also because the amount in issue was considerably less than the threshold of $100,000 referred to in s 101(2)(r). The Court approached the matter by reference to enumerated leave criteria relevant to cases involving less than $100,000. Because there was no separate reference to principles relevant to s 101(2)(p), the decision is not of assistance here beyond the observation (at [3]) that the provision reflects “a policy of discouraging appeals in relation to statutory demands”.

56. In Bevic Holdings Pty Ltd v Wright [2015] NSWCA 210, s 101(2)(p) alone was the source of the requirement for leave to appeal. The applicable test or criterion was described by McColl JA (at [20]), with the concurrence of Sackville AJA, as follows:

Ordinarily it is only appropriate to grant leave to appeal in respect of matters that involve issues of principle, questions of general public importance or where it is reasonably clear there has been an injustice in the sense of going beyond it being reasonably arguable that the primary judge was in error.

57. In Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd (above) which was also an exclusively s 101(2)(p) case, Young AJA said at [25] (Hoeben and Ward JJA agreeing):

The grant of leave is in the general discretion of the court and if the court considers that there is sufficient injustice in permitting the decision below to stand, it will be inclined to give leave.

Conclusions

58. The findings that, in my judgment, flow from the evidence adduced before the primary judge are, first, that there was a serious question to be tried as to the correct construction of clauses 4(b) and 4(c) of the 2014 deed; second, that there was a serious question to be tried as to whether, on 26 June 2015, Mr Faull engaged in conduct in breach of clause 4(b) by communicating with Mr Saunders in the terms referred to in Mr Henderson’s evidence; and, third, that there is no sufficient basis for holding that the case of dispute propounded by Creata was in the nature of recent invention. That being so, there has been an injustice in the sense of something beyond it being reasonably arguable that the primary judge was in error. The decision below must therefore be corrected so that Creata is not wrongly exposed to a rebuttable presumption of insolvency for the purposes of any winding up application brought against it. It follows that leave to appeal should be granted notwithstanding that, as a general proposition, appeals in s 459G cases are to be discouraged; and that the appeal should be allowed.

59. I would make orders as follows:

1. Grant leave to appeal.

2. Direct that the applicant do within seven days file a notice of appeal in the form of the draft notice of appeal in the white folder.

3. Set aside the orders made by the primary judge on 18 August 2017 and make in lieu the following orders:

1. Order that the statutory demand dated 30 January 2017 served on the plaintiff by the defendant be set aside.

2. Order that the defendant pay the plaintiff’s costs of the proceedings.

4. Order that the respondent pay the applicant’s costs of both the application for leave to appeal and the appeal and have a certificate under the Suitors Fund Act 1951 (NSW), if qualified.

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Endnotes

Decision last updated: 28 November 2017