E-Sat Communications Pty Ltd v Tasmatex Pty Ltd;; E-Sat Communications Pty Ltd v E-Sat Equipment Pty Ltd
[2005] TASSC 56
•17 June 2005
[2005] TASSC 56
CITATION:E-Sat Communications Pty Ltd v Tasmatex Pty Ltd;
E-Sat Communications Pty Ltd v E-Sat Equipment Pty Ltd [2005] TASSC 56
PARTIES: E-SAT COMMUNICATIONS PTY LTD
v
TASMATEX PTY LTD
E-SAT COMMUNICATIONS PTY LTD
v
E-SAT EQUIPMENT PTY LTD
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: M294/2004
M295/2004
DELIVERED ON: 17 June 2005
DELIVERED AT: Hobart
HEARING DATE: 24 May 2005
JUDGMENT OF: Evans J
CATCHWORDS:
Corporations – Winding Up - Winding up by court – Grounds for winding up – Application to set aside demand – Genuine dispute as to indebtedness – Assessing genuineness - Whether some other reason for setting aside.
Corporations Act 2001 (Cth), ss459H and 459J.
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, applied.
Aust Dig Corporations [212]
REPRESENTATION:
Counsel:
Plaintiff: D Barclay
Defendant: L Glick SC
Solicitors:
Plaintiff: Page Seager
Defendant: Rae & Partners
Judgment Number: [2005] TASSC 56
Number of paragraphs: 20
Serial No 56/2005
File No M294/2004M295/2004
E-SAT COMMUNICATIONS PTY LTD v TASMATEX PTY LTD
E-SAT COMMUNICATIONS PTY LTD v E-SAT EQUIPMENT PTY LTD
REASONS FOR JUDGMENT EVANS J
17 June 2005
The plaintiff, E-Sat Communications Pty Ltd ("Communications"), applies under the Corporations Act 2001 (Cth), s459G, for orders setting aside statutory demands served on it by E-Sat Equipment Pty Ltd ("Equipment") and Tasmatex Pty Ltd ("Tasmatex"). Equipment's demand relates to a debt alleged to arise from Communications' receipt from the Australian Taxation Office of a GST refund of $186,850 due to Equipment. Tasmatex's demand relates to amounts totalling $1,177,000 it advanced to Communications. Tasmatex now accepts that there is a genuine dispute as to whether $1 million of this amount was paid to Communications for a 15 per cent interest in that company, that is, 15 per cent of its shares. Tasmatex persists with a claim that $177,000, the balance of the amount paid, is a debt due and payable to it from Communications.
Communications was incorporated in December 2002. Its establishment evolved from the need of Doherty Hotels Pty Ltd ("Doherty Hotels") to put in place a system for communicating with its remote hotels which system had the capacity to handle live registrations, accounts and management reports. The means chosen was a two-way satellite carried broadband communication which could be relied upon in regional areas where the existing infrastructure was insufficient. Michael Doherty, a major shareholder in, and a manager of, Doherty Hotels, saw business potential in the development of the system and to that end Communications was incorporated; Mr Doherty being one of its directors and its secretary and Doherty Hotels being a, or its sole, shareholder. Communications entered into an arrangement with Salamanca Consultancy Pty Ltd ("Salamanca") to assist with the investigation and development of the proposed communication system. In March 2003, John Bowden, an investor, became involved in the venture. A memorandum of understanding dated 24 March 2003 records that amongst other things:
"Bowden Group has agreed to purchase a 15% interest in e-Sat Communications at a price of $1 million. These funds will be used as working capital. Share holding ratio will therefore become:-
Doherty Hotels 70%
Salamanca Consultancy 15%Bowden Group 15%
Bowden Group will hold one position on the Board of Directors.
Bowden Group will provide ground station equipment to about the value of $2.4 million in the period May to August 2003. The total amount will be subject to final negotiation as a result of technical requirements and site surveys."
Subsequent to the memorandum of understanding:
·Tasmatex, a company owned by John Bowden, advanced sums totalling $1,177,000 to Communications.
·The Bowden Group purchased equipment for a total of about $2.6 million that was made available for Communications' use.
·In about November 2003 Communications received a GST refund of $186,850 from the Australian Taxation Office that was payable to Equipment arising from its purchase of equipment for Communications' use.
·Various other financial benefits were provided to Communications by the Bowden Group.
The hopes of those involved in the venture were not fulfilled and discussions took place on revising their arrangements which culminated in a teleconference involving representatives of the three interested groups at a board meeting of Communications on 23 January 2004 in the course of which a number of matters were, in substance, agreed, subject to the consent of Communications' bank and the creditors of Communications. They included:
·That Communications and Equipment would amalgamate, whereupon the shareholding in Communications would become:
- Doherty Hotels, 45 per cent of the shares, that being shares valued at $180;
- Tasmatex, 40 per cent of the shares, that being shares valued at $160; and
- Salamanca, 15 per cent of the shares, that being shares valued at $60.
·That the balance of any funds that had been contributed by the participants for shares in Communications would be treated as loans.
·That the equipment purchased for about $2.6 million for Communications' use would be transferred to Communications and Communications' liability in respect of the equipment would be secured by way of a charge over the equipment and the assets of Communications, which charge would have priority over other charges given by Communications.
·That documentation along the lines discussed in the teleconference would be prepared for submission to Communications' bank which had an existing debenture charge over Communications.
Following the teleconference, the relations between the three interested groups deteriorated and the matters canvassed in the conference have not been effected.
By 28 June 2004, Communications and Equipment agreed that equipment specified in a document they signed on that date, which equipment had been purchased by Equipment for their venture, could be sold for the benefit of Equipment.
On 4 August 2004, Communications instituted proceedings in the Federal Court against eight defendants including Equipment, Tasmatex and John Bowden, as well as corporations and persons associated with Salamanca. The proceedings involve a multiplicity of claims including claims that a former employee of Communications has breached contractual, fidelity, fiduciary and confidentiality obligations owed to Communications and that Equipment, Tasmatex and John Bowden have aided, abetted and participated in the breaches. It is not necessary to address the various claims made against Equipment and Tasmatex in the Federal Court proceedings in any detail, as before me Communications has disavowed any reliance upon the claims for the purposes of contending, pursuant to the Act, s459H(1)(b), that Communications has an off-setting claim against Equipment or Tasmatex that provides a basis for setting aside either entity's statutory demand.
On 28 September 2004, Equipment served Communications with a statutory demand under the Act, s459E(2) for payment of the debt alleged to have arisen from Communications' receipt of the GST refund of $186,850 due to Equipment. On the same date, Tasmatex served Communications with a similar demand for the payment of advances totalling $1,177,000. On 18 October 2004, Communications filed originating applications in this Court seeking orders setting aside each of the statutory demands. Each originating application is supported by affidavits sworn by Michael Doherty on 18 October 2004.
As to the Equipment claim in respect of the GST refund, Mr Doherty says in his affidavit that:
"36Accordingly, when the GST refund from the Australian Tax Office was received in about November 2003 it was paid to [Communications] as working capital. This was in furtherance of the understanding that there would be a merger of the business as referred to above. [This is a reference to the discussions which had taken place on the amalgamation of Communications and Equipment that culminated in the teleconference on 23 January 2004.]
37At the time the GST refund was paid to [Communications] this was done with the full knowledge and consent of [Equipment].
38It is noted that at the meeting on 24 [sic] January 2004 a cash summary was produced for [Communications] for 2004. This disclosed GST refunds of $150,000.00 in February and $20,000.00 in March. These were proportions of the GST refund paid into [Communications] as working capital. It is notable that no objection was raised by any person attending the meeting on 23 January 2004 that this had occurred.
39Accordingly it is [Communications'] view that the GST refund is not a debt owed by [Communications] to [Equipment], but is to be regarded as the property of [Communications] which became working capital of [Communications] with the knowledge and consent of [Equipment]."
As to Tasmatex's demand for $1,177,000 in respect of advances it made to Communications (as to which Tasmatex now acknowledges that there is a genuine dispute as to whether $1 million of this amount was paid for a 15 per cent interest in Communications), Mr Doherty says in his affidavit:
"9During the course of the operation of [Communications] in seeking to put into place its telecommunications network [Tasmatex] advanced sums totalling $1,177,000.00. It was, however, intended by all persons that these funds would be injected by way of shareholder equity in exchange for which [Tasmatex] would receive 15% of [Communications]. It can be seen from the Australian Securities & Investment Commission company extract of [Communications] which I annex hereto and mark with the letter 'E' that [Tasmatex] received 30 shares in [Communications] representing a 15% investment.
10The additional sums of money exceeding $1,000,000.00 which, according to the Statutory Demand, were paid during October, November and January were paid during the period that the restructure referred to in [Equipment] affidavit was taking place. At the time the sums of money were advanced during those three months no agreement was made as to the nature of the payments which were made, whether they were loans or whether they were further injections of shareholder's equity. …
…
12Accordingly it is [Communications'] position that there was a genuine dispute regarding the debt in that:
aThe sum of $1,000,000.00 was injected by [Tasmatex] into [Communications] by way of shareholder's equity;
bThat money was paid in exchange for shareholdings, is not a loan and is not repayable on demand;
cThe sums forwarded in addition to the sum of $1,000,000.00 were paid during a period where a restructure of the relationship between [Communications] and [Tasmatex] was being discussed and there was no agreement as to the nature of the payments other than that they were to go into the working capital of [Communications]. In particular no agreement was reached as to whether or not the funds were on loan, whether or not they were repayable on demand or whether or not interest would be payable."
On 25 October 2004, Equipment, Tasmatex and John Bowden filed a cross-claim in relation to the claims brought against them by Communications in the Federal Court. The cross-claim is an extensive pleading that runs to 44 pages and 142 paragraphs. Included amongst the many matters dealt with in the cross-claim is Equipment's claim against Communications in respect of the GST refund of $186,850 and Tasmatex's claim against Communications in respect of the advances totalling $1,177,000. In its defence to the cross-claim:
·Communications admits that in or about November 2003, it received from the Australian Taxation Office a GST refund of $186,850 referable to equipment that had been purchased by Equipment but says that it formed part of the capital of Communications and that the cross-claimants, which included Equipment, "were aware of how the GST refund had been treated as it was referred to in the spreadsheet appearing at p36 of Michael's affidavit and thereby waived, or are estopped from denying that the GST has formed part of the capital of [Communications]".
·Communications admits Tasmatex's payment of each of the advances alleged to make up the total amount of $1,177,000 but pleads that each advance "was made by Tasmatex as part payment for its [Communications] shares pursuant to the MOU". The MOU refers to the memorandum of understanding, an extract from which is set out in par2 of these reasons.
While the affidavits of Mr Doherty and Mr Bowden that have been read for the purposes of these proceedings contain conflicting evidence, neither deponent has been cross-examined. The course adopted by the parties is consistent with the expectation that this Court will not embark upon an extended enquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of a dispute. All that the Act, s479H(1)(a) requires is that the Court considers that there is a dispute and that it is genuine. See Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, Hayne J at 295.
Communications does not deny receiving the funds that are the subject of the claims made against it by Equipment and Tasmatex. Communications does, however, deny that it is indebted to each claimant in relation to the funds. Communications bears the onus of establishing that there is a genuine dispute as to its liability to repay the amounts claimed, Moyall Investments Services Pty Ltd v White (1994) 12 ACSR 320, Ryan J at 324. As to what is required in order to satisfy the Court of a genuine dispute, a commonly cited discussion of the concept is the following passage from Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq at 787:
"It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 450H. 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 investigation as to [its] truth' (cf Eng Mee Yong v Letchurmanan [1980] AC 331 at 341), or 'a patently feeble legal argument or an assertion of facts unsupported by evidence': cf South Australia v Wall (1980) 24 SASR 189 at 194."
With these authorities in mind, I turn to Equipment's claim in relation to the GST refund. It is acknowledged that the refund in question was due and payable to Equipment and was received by Communications. In the absence of any arrangement to the contrary, upon Communications' receipt of the refund it was indebted to Equipment for that amount and Equipment's cause of action against Communications in respect of that amount arose immediately without the need for any demand for payment. For the situation to be otherwise, the parties would need to have made a specific contrary arrangement, Ogilvie v Adams [1981] VR 1041, Fullagar J at 1043. Mr Doherty in his affidavit and Communications in its defence to the Federal Court cross-claim, in substance, asserts that the GST refund was received by Communications as capital. Mr Doherty says that this was in furtherance of the understanding that there would be a merger of Communications and Equipment. The refund was received in about November 2003 by which time there had been discussions about a merger and those discussions culminated in the conditional agreement reached in that regard in a teleconference which took place on 23 January 2004. However, those arrangements have not been effected. More significantly, Mr Doherty does not assert any specific arrangement between Communications and Equipment that the refund was to be a contribution of working capital from Equipment to Communications and an arrangement to that effect is contrary to the outcome canvassed in the teleconference on 23 January 2004; that outcome being that Tasmatex would hold the Bowden Group's equity in Communications - 40 per cent of the shares valued at $160 - and the balance funds contributed by participants would be treated as loans. Mr Doherty says that the refund having been received by Communications with the full knowledge and consent of Equipment, which is not in dispute, it is Communications' "view that the GST refund is not a debt owed by [Communications] to [Equipment], but is to be regarded as the property of [Communications] which became working capital of [Communications]". To bolster this claim, Mr Doherty says that:
"… at the meeting on 24 [sic] January 2004 a cash summary was produced for [Communications] for 2004. This disclosed GST refunds of $150,000.00 in February and $20,000.00 in March. These were proportions of the GST refund paid into [Communications] as working capital. It is notable that no objection was raised by any person attending the meeting on 23 January 2004 that this had occurred."
I am unable to identify the cash summary referred to. It does not appear to have been put into evidence. I conclude that in any event the summary would be of no assistance. The GST refund in question was made in November 2003. I have no evidence as to who was entitled to the GST refunds in February and March to which Mr Doherty refers and there is no basis for suggesting that what happened to those refunds bears on the parties' entitlements in relation to the refund in question. The annexures to the affidavit of John Bowden that was read in relation to the Equipment claim include a facsimile to John Bowden from Doherty Hotels dated 28 October 2003 attached to which is what are described as "a series of full cash flow documents". These documents do not identify GST refunds of $150,000 in February and $20,000 in March as referred to in Mr Doherty's affidavit. In Communications' defence to Equipment's cross-claim in the Federal Court proceedings, Communications pleads that Equipment was aware "of how the GST refund had been treated as it was referred to in the spreadsheet appearing at p36 of Michael's affidavit and thereby waived, or estopped from denying that the GST has formed part of the capital of [Communications]". The reference to Michael is a reference to Mr Doherty. The evidence before me does not include an affidavit of Mr Doherty that contains a spreadsheet. I have no evidence of a spreadsheet that records anything referable to the GST refund in question that might give rise to a claim of waiver or estoppel. The pleadings in the Federal Court proceedings contain two references to a spreadsheet provided by Mr Doherty to Mr Bowden in May 2003. That spreadsheet could have no relevance to the GST refund in question that was received in about November 2003.
No substantive evidence before me provides support for Communications' contention that there is a genuine dispute as to its liability to Equipment for the amount of the GST refund. Patently the vaunted amalgamation of these two companies did not proceed. There is no evidence to suggest that Equipment gave the funds to Communications or contributed the funds as working capital. There is no evidence of anything that might provide a basis for Communications meeting Equipment's claim for the refund with a defence of waiver or estoppel. Communications' "view" that it is not indebted to Equipment for the GST refund is of itself no defence and in the absence of evidence of matters that provide a basis for a defence, I am unpersuaded that there is a genuine dispute between Communications and Equipment as to Communications' liability to repay the refund to Equipment.
Communications does not dispute receiving the payments totalling $1,177,000 that are the basis of Tasmatex's statutory demand. In the face of the agreement recorded in the memorandum of understanding that the Bowden Group would purchase a 15 per cent interest in Communications for $1 million, Tasmatex, not surprisingly, accepts that there is a genuine dispute as to whether $1 million of the total amount paid relates to that purchase. As to the balance of $177,000, Mr Doherty says in his affidavit:
·that when the additional funds were paid:
"No agreement at all was made as to the nature of the payments which were made, whether they were loans or whether they were further injections of shareholders equity."
·the additional funds were paid during a period when a restructure of the relationship between Communications and Tasmatex was being discussed:
"and there was no agreement as to the nature of the payments other than that they were to go into the working capital of Communications".
In the defence filed to Tasmatex's cross-claim in the Federal Court, Communications pleads that each of the payments "was made by Tasmatex as part payment for its [Communications] shares pursuant to the [memorandum of understanding]".
As with the GST refund, in the absence of any arrangement to the contrary, Communications was indebted to Tasmatex for the balance payments totalling $177,000 from the time of its receipt of the same, at which time Tasmatex's cause of action arose. In the first passage quoted above from Mr Doherty's affidavit, he says that there was no agreement as to the nature of the balance of payments; this is an acknowledgment that there was no agreement to the contrary of the prima facie position that Communications was indebted to Tasmatex in respect of those payments. In the second passage quoted above from Mr Doherty's affidavit, he makes the oblique assertion that there was an agreement that the payments were to go into Communications' working capital. This oblique assertion is contrary to Mr Doherty's earlier statement that "no agreement was made as to the nature of the payments which were made" and in the absence of any evidence to support the assertion, I reject it. The most recent accounts referable to Communications put into evidence are described as "General Manager's Financial Report to the E-Sat Communications Board February 2004". Those accounts record Communications' paid up capital as being $170 and include Tasmatex as an unsecured creditor in respect of loan amounts totalling $4,121,505.97. The accounts provide no support for the proposition that the $177,000 in question was agreed to be part of Communications' working capital as asserted by Mr Doherty or was paid for shares as asserted in the defence Communications has filed in the Federal Court. I am unpersuaded that there is a genuine dispute between Communications and Tasmatex in relation to Communications' liability to Tasmatex for the $177,000 in question. In some circumstances the fact that the claim for $177,000 forms part of an overstated demand, could warrant setting aside the demand in toto, Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1998) 16 ACLC 12, I am not satisfied that this is such a case.
As an alternative to the contention that the statutory demands should be set aside as there is a genuine dispute as to Communications' liability to each claimant, it is contended that the demands should be set aside pursuant to the Act, s459J(1)(b), for "some other reason". The reason advanced is that the liabilities in question have been included in the cross-claim advanced against Communications in the Federal Court proceedings. In some circumstances this would, in my view, be good reason for dismissing a statutory demand, see Perlake Pty Ltd v Finance & Mortgage Corporation (NSW) Pty Ltd (1997) 15 ACLC 76. I am not so persuaded in this instance. The cross-claim was delivered in response to the proceedings instituted by Communications in the Federal Court against defendants that included Equipment and Tasmatex, and in my view it was appropriate that Equipment and Tasmatex should include all their outstanding claims against Communications in the cross-claim. Had they done otherwise, to the extent that the applications before me had failed, it would have been necessary to amend the cross-claim. The sort of problems that can be agitated when all related claims between parties are not included in the same action are demonstrated by cases such as Port of Melbourne Authority v Anshun Pty Ltd (No 2) (1981) 147 CLR 589 and Ripper & Ors v Gatenby & Ors [2002] TASSC 45. The claims against Communications as to which I have found there is no genuine dispute, can readily be distinguished from and severed from the other claims made by Equipment and Tasmatex against Communications in the cross-claim. I am not satisfied that their inclusion in the cross-claim is a basis for setting aside the statutory demands pursuant to the Act, s459J(1)(b).
The application to set aside the statutory demand made by Equipment dated 27 September 2004 is dismissed. The amount of the statutory demand made by Tasmatex against Communications dated 27 September 2004 is varied to $177,000 and it is declared that the demand has effect, as so varied, as from the date upon which the demand was served on Communications. The application to set aside that demand is dismissed.
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