Divas Beverages Holdings Ltd v VA Filtration (SA) Pty Ltd
[2016] VSC 392
•13 July 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2016 1122
IN THE MATTER of DIVAS BEVERAGES HOLDINGS LTD (ACN 162 482 680)
BETWEEN:
| DIVAS BEVERAGES HOLDINGS LTD (ACN 162 482 680) | Plaintiff |
| v | |
| VA FILTRATION (SA) PTY LTD (ACN 103 010 162) | Defendant |
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JUDGE: | RANDALL AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 June 2016 with submissions provided on 30 June 2016 |
DATE OF JUDGMENT: | 13 July 2016 |
CASE MAY BE CITED AS: | Divas Beverages Holdings Ltd v VA Filtration (SA) Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2016] VSC 392 |
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CORPORATIONS – Corporations Act 2001 (Cth) s 459G – Application to set aside statutory demand – Short point of law to be determined – Promise to pay by holding company after subsidiary debtor in liquidation – Consideration – Consideration moving from creditor – Whether enforceable promise to pay.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | R Greenberger | LegalVision ILP Pty Ltd |
| For the Defendant | S J Maiden | Maddocks Lawyers |
TABLE OF CONTENTS
The Statutory Demand...................................................................................................................... 1
Background......................................................................................................................................... 1
The plaintiff’s position................................................................................................................. 3
Consideration...................................................................................................................................... 4
HIS HONOUR:
This is an application pursuant to s 459G to set aside a statutory demand dated 13 May 2016. No material was filed on behalf of the defendant and the defendant conceded that I was entitled to accept what was set out in the 21 day affidavit affirmed by Jae Jang, a director of the plaintiff.
The Statutory Demand
The schedule to the statutory demand describes the debt as:
Moneys due and owing to the creditor by the company for Fortwine sold and delivered to the company by the creditor, which monies are described in the invoice set out below:
Invoice date
Invoice No.
Invoice amount outstanding
31/07/2014
2844
$65,000[1]
[1]Comprises the balance of the invoice unpaid after application of payments made to the creditor by the company.
The sole issue is whether or not the defendant provided consideration to maintain its claim of $65,000 as a debt.
Background
Divas Beverages Pty Ltd (‘the subsidiary’) is a wholly owned subsidiary of the plaintiff. The subsidiary was wound up in insolvency on 3 February 2015. Prior to the subsidiary being wound up, it had placed a purchase order for 100,000 litres of Fortwine from the defendant. The purchase order was dated 17 June 2014 and directed shipment to the subsidiary.
Mr Jang deposed to the best of his knowledge that the defendant delivered the Fortwine to ‘DB’s registered office and principal place of business located at 39A Rimfire Drive Hallam Vic 3803 on or about 8 July 2014’.
On 10 April 2015, after the subsidiary was wound up, Mr Jang proposed to the defendant that:
…
Now, I am planning to make at least part payment even if it starts with $2000 but of course for more will be aimed asap. However, as we have the liquidator on the Divas Beverages Pty Ltd and ATO is looking at our accounts carefully the holding company – (Divas Beverages Holdings Ltd) I need to make sure that I make payments that are not going to be the subject to issues by them.
I had a talk to our lawyer and it seems that the first and most easiest one to start making payments is on the 22% bulk wine we got from you. We still hold substantial amount of this wine in our holding company and if you can invoice us and cancel the old invoice or change the name to our holding company below we will be able to make payment against this.
By email dated 10 April 2015, the defendant replied as follows:
Hi Jae,
Many thanks for your honesty, I have got Revelle to change the invoice and she will send it through to you shortly. Best of luck with the ATO and I hope your family is well.
Revelle Courtney emailed Mr Jang later the same morning. That email set out:
Please find attached revised invoice as requested. We look forward to receiving the payment.
Annexed to that email was the new tax invoice addressed to the company. The invoice was dated 31 July 2014 which coincided with the original supply rather than the date the invoice was issued.
No payment has been made by the plaintiff.
Each of Mr Greenberger and Mr Maiden agreed that I could follow Cohen J in Delnorth Pty Ltd v State Bank of New South Wales,[2] where Cohen J said:
Although questions of disputed fact will not be decided on an application to set aside a statutory demand, the issue of whether there is a genuine dispute can be resolved on that application where the question arises on a short point of law or the construction of documents or agreed facts.
[2](1995) 17 ACSR 379 [384].
The plaintiff’s position
Mr Greenberger’s primary submission is that consideration must flow from the defendant before an enforceable debt crystallises. He concedes that the consideration need only be nominal but contends that the Plaintiff’s request to issue a new invoice and the subsequent compliance with that request constitutes nothing more than a prerequisite or precondition to payment, not consideration.
The plaintiff submitted:
… The arrangement made between the plaintiff and the defendant by way of exchange of emails on 10 April 2015 did not give rise to any legally enforceable agreement or contract. It was purely a gratuitous arrangement. It did not intend to take on any legal obligation, or, to use the conventional legal jargon, it did not intend to create legal relations with the defendant. It was offering to pay the defendant money which it was not under any legal obligation to pay, and it did not ask the defendant anything in return.
…
… The clear inference to be drawn from Mr Jang’s recounting of the problems caused to [the subsidiary] by the ATO, including the garnishing of its accounts, and its going into liquidation, is that he is informing the defendant it will never be paid anything by [the subsidiary]. That explains why there is no mention whatsoever of whether the defendant should lodge a proof of debt in the liquidation. …
…
The defendant would have understood that the offer on behalf of the plaintiff to pay the debt was gratuitous, and that the plaintiff had no legal liability. The defendant would also have understood that Mr Jang was concerned to avoid any problems with the liquidator of [the subsidiary] and the ATO. …
In other words, Mr Jang wished to avoid the risk to the defendant that if the plaintiff made payments, the liquidator or the ATO might make a claim to recover those payments from the defendant.
…
The defendant seeks to characterise this email (referring to the defendant’s confirmation that the invoice would be changed and sent through) as amounting to an ‘acceptance of the offer’. No doubt that is so according to general parlance. But it was an acceptance of a gratuitous offer. …
…
… an invoice which was the same as the invoice originally sent to [the subsidiary], with the only change being that it was addressed to the plaintiff… cannot be treated as consideration. It was merely the fulfilment of the agreed precondition. It was not a quid quo pro provided by the defendant to support the plaintiff’s offer to pay. …
In the present case, the plaintiff offered to pay the defendant a substantial sum of money, and it asked for, and received, nothing in return.
There is no evidence to establish, or even from which it can be inferred, that the plaintiff requested the defendant give up, or the defendant gave up, its rights in the liquidation of the plaintiff’s subsidiary. The proper inference is that the parties had no expectation that the defendant would ever recover any payment from the liquidation. As such, it made no difference to the parties whether the defendant did, or did not, prove in the winding up. It played no part in the arrangement by the parties.
The plaintiff sought to distinguish Bibald Consulting Pty Ltd v Miles Special Builders Pty Ltd[3] on the basis that the principle required that there be a legally enforceable agreement between the creditor and the third party who promised the payment. It was contended that was not the case in this instance.
[3](2005) 226 ALR 510.
The plaintiff further submitted that if I were to still hold that there was a binding agreement, I needed to be satisfied that the consideration, the giving up of rights in the liquidation, was fulfilled.
Consideration
It is trite to say that the consideration must move from the promissee. That is, the consideration to support the agreement to pay the defendant the amount previously owed by the subsidiary company must flow from the defendant.
In Chesire and Fifoot Law of Contract,[4] it is set out that ‘there need not be an express promise either to compromise or to forebear, if such an understanding can be inferred from the circumstances or from the negotiations between the parties.’ Thereafter, the learned authors set out a number of illustrations to support that proposition.
[4]N. Sneddon et al, Chesire and Fifoot Law of Contract (LexisNexis Butterworths Australia, 10th ed, 2012) at [4.28].
In Newton, Bellamy and Wolfe v State Government Insurance Office (Qld)[5] McPherson J said:
Forbearance to sue, even if only for a short period, is consideration for a promise …
[5][1986] 1 QdR 431 [444].
In Australian Woollen Mills Pty Ltd v The Commonwealth,[6] at 460, Dixon CJ, Williams, Webb, Fullagar & Kitto JJ adopted the words of Denning LJ as follows:
Unilateral promises… have long been enforced, so long as the act or forbearance is done on the faith of the promise and at the request of the promisor, express or implied. The act done is then in itself sufficient consideration for the promise, even though it arises ex post facto. …
[6](1954) 92 CLR 424.
Dixon CJ, Williams, Webb, Fullagar & Kitto JJ looked at all the circumstances leading up to the transaction in issue. Those circumstances included documents which had come into existence prior to the contended for contract. At 461 it was said:
When one comes to the documents, it is not, in our opinion, possible to construe them as containing a standing offer, a standing offer capable of acceptance by the purchase of wool. It is impossible to find anywhere anything in the nature of a request or an invitation to purchase wool, or anything which suggests that the payment of subsidy was put forward, in order to induce any manufacturer to purchase wool, or which suggests that the payment of subsidy and the purchase of wool were regarded as related in such a way that one was consideration for the other. Whichever of the possibly legitimate tests is applied, the answer is the same. If we ask (what we think is the real and ultimate question) whether there is a promise offered in consideration of the doing of an act, as a price which is to be paid for the doing of the act, we cannot find such a promise. No relation of quid pro quo between a promise and an act can be inferred. If we ask whether there is an implied request or an invitation to purchase wool we cannot say that there is. If we ask whether the announcement that a subsidy would be paid was made in order to induce purchasers of wool, no such intention can be inferred.
The email exchange occurred in circumstances where the delivered Fortwine had ended up in the hands of the plaintiff. I will neither hypothesise as to such circumstances, nor decide whether or not the liquidator of the subsidiary was aware that the Fortwine had been delivered to the subsidiary and not the plaintiff. All I have before me is what Mr Jang sets out in JJ-5 as follows:
We still hold substantial amount of this wine in our holding company and if you can invoice us and cancel the old invoice or change the name to our holding company below we will be able to make payment against this.
… this is the most simplest and easiest way for me to start paying you as the holding company is the one with the least money as it is trading now and it also has the wine as well.
From the circumstances ensuing at the time of the email transmissions, it does not require any legal gymnastics to infer a request not to pursue rights in the liquidation of the subsidiary in consideration of the promise to pay. Firstly, the email exchange occurred in a commercial context, where the 'business efficacy' test in case of The Moorcock applies.[7] Secondly, the changing of the name of the ‘debtor’ in the invoice may have (rightly or wrongly) assisted Mr Jang in any argument with the liquidator about whether the subsidiary or the plaintiff was entitled to maintain the Fortwine. In those circumstances, the request not to pursue rights in the liquidation of the subsidiary is inferred and, thus consideration moves from the defendant, by the alteration of the invoice as requested.
[7](1889) 14 PD 64, [1886–90] All ER Rep 530.
The defendant’s alternative submission was that consideration moved from the defendant by agreeing to accept payment from the plaintiff as the defendant could no longer sue the subsidiary for the same debt. The defendant relied upon Bibald Consulting Pty Ltd v Miles Special Builders Pty Ltd.[8] Campbell J said at [238]:
… if a debtor owes a creditor a sum of money, and a third party promises the creditor to pay a lesser sum of money in return for the creditor not suing the debtor for the balance, the common law regarded any later attempt by the creditor to sue the debtor for the balance as a fraud or abuse of process which it would not permit, even though the debtor had provided no consideration for that promise …
[8](2005) 226 ALR 510, 556 [238].
The plaintiff sought to distinguish Bibald on the basis that the principle required that there be a legally enforceable agreement between the creditor and the third party (the plaintiff) who promises payment. The plaintiff submitted that:
…in the present case, for the reasons already expressed, the plaintiff contends that no such binding contract exists between the parties.
Such a submission ignores the implied request not to prove in the liquidation (the equivalent of not pursuing curial rights against the subsidiary), where I have already found that there are sufficient circumstances to warrant the formulation of consideration moving from the defendant.
The plaintiff submits that where no formal written contract exists (which describes the present case), ‘evidence of the parties’ post-contractual conduct is admissible for the purpose of determining whether a contract was formed, who the parties to the contract are and whether a particular term should be inferred. It was submitted that:
…it would not be appropriate for the Court to come to a conclusion that the consideration that the plaintiffs offered to pay the defendant was the giving up of rights, by the defendant, in the liquidation of [the subsidiary], without knowing whether the defendant proved in the liquidation of [the subsidiary].
In Re Green Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd,[9] the Court of Appeal noted that ‘the law on the admissibility of evidence of post-contractual conduct has not developed with the same clarity for both processes.’ The Court of Appeal determined that it was unnecessary for it to reconcile the authorities relating to the admissibility of evidence of post-contractual conduct on the implication of the term. As I have already found, there are sufficient circumstances to imply the term contended for by the defendant. I do not need to know whether the defendant subsequently refrained from proving the liquidation of the subsidiary. Given that it was not submitted by the plaintiff that the ‘consideration’ was executory, I do not need to consider this issue further.
[9][2015] VSCA 286 [133]-[140].
Notwithstanding the consensus that I could follow Cohen J in Delnorth Pty Ltd v State Bank of New South Wales,[10] I should add that the plaintiff does not bring itself within the statement of Barrett J in Solarite Air Conditioning Pty Ltd v York International Australian Pty Ltd,[11] where his Honour noted that:
Once the [applicant] shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow.
[10](1995) 17 ACSR 379.
[11][2002] NSWSC 411 [23].
As I have found that the offer to pay was for consideration, the plaintiff’s application must fail. Accordingly, I make the following orders:
1. The plaintiff’s originating process filed 7 June 2016 is dismissed.
2. Pursuant to s 459F(2), the period for compliance with the demand is extended to 5.00pm on 21 July 2016.
3. The plaintiff pay the defendant’s costs on a standard basis.
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