Freestyle Energy Limited v Renewtek Pty Ltd
[2010] VSC 244
•8 June 2010
worl
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
No. S CI 2009 10847
| FREESTYLE ENERGY LIMITED (ACN 121 453 745) | Plaintiff |
| v | |
| RENEWTEK PTY LTD (ACN 110 232 623) | Defendant |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 May 2010 | |
DATE OF JUDGMENT: | 8 June 2010 | |
CASE MAY BE CITED AS: | Freestyle Energy Limited v Renewtek Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 244 | |
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CORPORATIONS – Statutory demand – Appeal from order of Associate Judge setting aside statutory demand – Whether genuine dispute established – Appeal allowed – Sections 459G(1), 459H Corporations Act 2001.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M.A. Robins | Wisewould Mahoney |
| For the Defendant | Mr J.L. Evans | Foster Nicholson Legal |
HER HONOUR:
Introduction and summary
This is an appeal from the order of 6 May 2010 of an Associate Judge dismissing an application to set aside a statutory demand served by Renewtek Pty Ltd (“Renewtek”) on Freestyle Energy Limited (“Freestyle”).
The statutory demand is dated 11 December 2009 and is for the sum of $105,308.75. Freestyle says the demand should be set aside pursuant to s 459G of the Corporations Act2001. Freestyle says it genuinely disputes the existence of the debt claimed on the grounds that:
(a)Renewtek and Freestyle did not reach agreement on:
(i)the supply of services by Renewtek to Freestyle; or
(ii)the precise nature of any services to be provided; or
(iii)any consideration payable by Freestyle to Renewtek; and
(b)Renewtek has not delivered any services or goods to Freestyle; and
(c)Renewtek has refused to provide any detail of any work which it asserts it has done for the benefit of Freestyle.
Freestyle and Renewtek agree that there was no written contract between them. Renewtek says that there was an oral agreement reached before work commenced on 4 May 2009. Freestyle denies this.
For the reasons set out below, I am satisfied that there is a genuine dispute about the existence of the debt. This is because I am satisfied that there is a genuine dispute about the existence of a binding agreement between the parties and about whether Renewtek has supplied valuable goods or services for which Freestyle should pay.
I allow the appeal and set aside the statutory demand.
The issues
The issue that I have to determine is whether there is a genuine dispute about the existence of the debt. To do this, I must consider whether there is a genuine dispute about the existence of the contract from which the debt is said to arise. If I am satisfied that there is a concluded agreement, I must determine whether the contracted services have been provided or whether there is a genuine dispute about this.
The evidence
Freestyle relies on three affidavits of Andrew Donaghey of 21 December 2009, 22 March 2010 and 23 April 2010. Renewtek relies on the affidavit of Craig Mullan of 11 December 2009 (the affidavit that accompanied the statutory demand) and the affidavits of Fergus Porter of 5 March 2010 and 6 April 2010.
Evidence as to an agreement
From about January 2009, there were negotiations between representatives of Freestyle and Renewtek for the provision of IT related services by Renewtek to Freestyle. As noted above, the parties agree that there was no written contract.
Mr Porter’s evidence is that in late April 2009, he and Mr Donaghey agreed that Renewtek would provide services at the costs which were subsequently recorded in a document entitled “Statement of work: Freestyle Technology FMS” dated 19 May 2009. That document sets out the scope of works to be performed by Renewtek. It also sets out what fees and expenses would be charged, how they would be calculated and the terms of payment. It includes a forecast payment schedule for the period May to October 2009, with notes stating that the August 2009 forecast payment amount would include incurred time and material costs not billed in May, June or July, forecast to be approximately $159,300. The note concludes with the statement that if the contract is terminated before August 2009, all incurred time and materials costs become due and payable.
Mr Donaghey’s evidence is that no agreement was reached between the parties. He says that he did not accept any of Renewtek’s offers and that counteroffers made by Freestyle were not accepted.
Mr Donaghey did not respond directly to that part of Mr Porter’s evidence as to the oral agreement said to have been reached in late April 2009. However, counsel for Freestyle relied upon a paragraph in Mr Donaghey’s first affidavit in which he set out the grounds on which Freestyle disputed the existence of the debt, including that the parties did not reach agreement on the supply of services by Renewtek and the precise nature nor the consideration payable by Freestyle. Counsel also relied on a statement in Mr Donaghey’s second affidavit that, by 2 June 2009, the parties had not reached final agreement on the scope of works and fees to be charged and on Mr Donaghey’s evidence that no offer or counter offer was accepted in respect of the draft written agreements that passed between the parties.
Evidence as to the work performed
Renewtek started providing services to Freestyle on 4 May 2009.
There were a number of meetings in relation to the project during May 2009. Mr Porter says that Mr Donaghey was kept informed of the work that was being performed by Renewtek, including through weekly status reports and timesheets. Mr Donaghey says he does not recall reading the status reports nor did he believe that he had seen the timesheets. He says neither the time sheets nor the summaries explain what work has been done by Renewtek.
There was correspondence in November 2009 between Freestyle’s solicitors and Renewtek, in which the solicitors said that Freestyle would make payment once its technical staff had confirmed the quality and quantity of work carried out by Renewtek. Renewtek responded to say that the issue was not one of acceptance of Renewtek’s services, but rather a timing issue based on Freestyle’s funding arrangement. The solicitors responded by saying Renewtek did not understand why Freestyle would refuse to meet and explain what work was carried out which would justify the May invoice.
Mr Donaghey says that if Renewtek provides evidence of the work it performed and the work product, Renewtek is willing to pay a fair amount for those services. In response, Mr Porter produced a CD which he said contained various documents and source codes. Mr Donaghey says that the information on the CD is inadequate to enable an assessment of Renewtek’s services.
The invoice and part payment – evidence as to the genuineness of the dispute
On 1 June 2009, Renewtek asked Mr Donaghey which entity should be invoiced. Mr Donaghey responded by email nominating Freestyle. Mr Donaghey also provided a purchase order number.
On 2 June 2009, Mr Donaghey requested that Renewtek stop work.
The invoice which is the subject of the statutory demand is dated 29 May 2009. It was sent to Freestyle on 4 June 2009. The invoice does not refer to any contract between the parties. The items charged for are recorded as “Consulting - Melb” and “Fixed Price – Melb”. The descriptions for the items are respectively “Freestyle Energy FMS May 2009, 1st and 2nd June 2009 as per attached timesheets” and “VM Hosting For May and June 2009”.
On 9 July 2009, Mr Porter sought payment of the 29 May 2009 invoice. He said that he did this because although the payment would not have been due until August, once the project was suspended, Freestyle was required to pay. In this regard, he referred to the note in the 19 May statement of work.
After this time, there were a number of telephone and email exchanges between representatives of Freestyle and Renewtek in relation to payment of the invoice.
Evidence as to discussion about the invoice
There is a dispute as to what was said in the telephone discussions. Mr Porter’s evidence is that Mr Donaghey agreed to pay the amount of the invoice. In particular, he says that Mr Donaghey agreed to pay by the end of July 2009 and, when payment was not made by then, he agreed to pay by the end of September 2009.
Mr Donaghey denies this. He says that in early to mid-September 2009, he asked Mr Porter what Freestyle had actually done, and what, if anything, it had produced and that Mr Porter had said he would look at it.
Mr Donaghey says that between July and September 2009, he was receiving calls from Mr Patrick Lehane, a representative of Renewtek, requesting payment as soon as possible. He says that he told Mr Lehane that Freestyle would pay $25,000 but that he needed to talk about Renewtek’s account. Renewtek paid $25,000 to Freestyle on 15 September 2009.
Mr Donaghey says that he also told Mr Porter that he would like to look at Renewtek’s account with him and that, if he was satisfied that Renewtek had carried out work on behalf of Freestyle, the remainder of the account would be paid. He says that no further payment was made, because no further details of the services for which Renewtek charged were provided, and Freestyle never received the benefit of any services from Renewtek.
Evidence in emails about the invoice
The emails on and after 9 July 2009 evidence Renewtek pressing for payment of the invoice. There are few written responses by Freestyle. There is no written response to an email of 18 August 2009 which asserts that Freestyle had agreed to pay the account by the end of July 2009. Mr Donaghey does not address this in his evidence. There were also emails from Renewtek asserting an agreement to pay by the end of September 2009. On 16 September 2009 (the day after the $25,000 was paid), Mr Porter sent an email to Mr Donaghey about the balance saying that he thought that they had agreed that it would be paid in September. Mr Donaghey responded:
Hi Fergus,
We are progressing very well on all fronts.
I will advise when the funds are available.
There is then an email of 28 September 2009 from Mr Porter to Mr Donaghey, asking if they can expect payment in September. There was no written response.
The relevant legal principles
Genuine dispute
Section 459G(1) of the Corporations Act provides that a company may apply to the Court for an order setting aside the statutory demand served on the company. Section 459H of the Corporations Act provides that where there is a genuine dispute about the existence or amount of the debt, or if the company has an offsetting claim, then the Court must calculate the substantiated amount. This is the admitted amount of the debt less any offset amount. If the calculation results in an amount less than the statutory minimum, then the Court must set aside the demand. If the amount is more than the statutory minimum, then the Court may vary the demand.
In TR Administration Pty Ltd v Frank Marchetti and Sons Pty Ltd,[1] Dodds‑Streeton JA said:[2]
The Court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the ‘alternate question’ of the existence of the debt should not be compromised.
[1][2008] VSCA 70.
[2]Ibid at [56] – [57].
Her Honour also said:[3]
As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off‑setting claim. The legislation requires something less.
[3]Ibid at [71].
Her Honour quoted with approval the following statement by Thomas J in Re Morris Catering (Aust) Pty Ltd:[4]
There is little doubt that Div 3 … prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court’s examination are the ascertainment of whether there is a “genuine dispute” and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond perception of genuineness (or the lack of it) the court has no function. It is 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.
The essential task is relatively simply – to identify the genuine level of the claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).
[4](1993) 11 ACSR 601 at 605.
Her Honour also quoted from Eyota Pty Ltd v Hanare Pty Ltd[5] where McLelland CJ stated:
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 Letchumanan [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.
But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or of a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute.
[5](1994) 12 ACSR 785 at 787.
Counsel for Freestyle also relied on Mibor Investments Pty Ltd v Commonwealth Bank of Australia,[6] John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd[7] and Solarite Airconditioning Pty Ltd v York International Australia Pty Ltd[8] which are to similar effect.
[6][1994] 2 VR 290.
[7](1994) 14 ACSR 250.
[8][2002] NSWSC 411.
During the course of the hearing, I referred counsel to the decision of Finkelstein J in JSW Parts Pty Ltd v Daraco Pty Ltd.[9] In that case, Daraco was retained by JSW to assist with obtaining export credits on motor vehicle components. Although there was no dispute about the fee to be paid, the terms of the retainer in respect of the scope of the work to be undertaken by Daraco were unclear. There were two possible sources for the terms as to scope – a conversation between a director of JSW and a director of Daraco and a subsequent letter. The scope discussed in the conversation and the scope set out in the letter were different. The scope of the retainer was important because JSW asserted that the export credits it obtained did not result from work that Daraco said it would perform. JSW also said that the little work undertaken by Daraco was performed in a negligent or deficient manner. Daraco pointed to payment made by JSW after the retainer was terminated and to the fact that until the statutory demand was served, JSW did not complain about how Daraco carried out its retainer. Daraco argued that the conclusion to be drawn from these facts was that the dispute was not genuine, but manufactured to avoid winding up proceedings. Finkelstein J did not accept that submission. His Honour said:
… making payments apparently in pursuance of a contractual obligation and without complaint does not always amount to an admission that those payments were lawfully due or, so far as this case is concerned, that the work required to be performed by Daraco had been performed adequately. There may be other explanations. Here we are dealing with relatively small sums of money. A contracting party may be willing to pay a small sum in order to avoid more significant costs that would arise if a dispute arose and litigation followed. It might be that JSW thought that paying the amounts it did, totalling some $21,000, would be the end of the matter. Or it might be, as Daraco contends, that it had earned its fees and that the payments were made in recognition of that fact.
[9][1997] FCA 753.
Concluded agreements
Counsel on behalf of Renewtek referred to what is sometimes called a fourth category of Masters v Cameron.[10] Counsel relied upon the New South Wales Court of Appeal decision in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd.[11] In that case, it was held that the parties there intended to be immediately bound by an informal agreement, but expected to make a further contract which might contain additional terms by consent. The informal agreement would be binding until such time as a formal contract was entered into by the parties.
[10](1954) 91 CLR 353.
[11](1986) 40 NSWLW 631.
Decision
Counsel for Freestyle submitted that the facts in this case did not fit within the Baulkham Hills case principles nor did they meet the requirements of a first category Masters v Cameron agreement in which the parties have reached finality in arranging all the terms of the agreement, and intend to be immediately bound even though the terms are to be restated in a form which will be fuller or more precise but not different in effect.[12]
[12]Masters v Cameron (1954) 91 CLR 353 at 360.
Counsel for Renewtek submitted that there was an oral agreement between the parties. He submitted that Freestyle and Renewtek had an agreement in which the core terms were in place by the time work commenced in May 2009 or, in any case, by the time work was stopped on 2 June 2009. Mr Evans submitted that in or about late April 2009, the parties agreed in general terms, the scope of the works that would be performed, and the basis upon which payments would be made and invoices would be rendered. However, he also said that the payment terms and the amount that could be charged appeared to be modified in mid-May 2009. He submitted that the facts fitted within the principles espoused in the Baulkham Hills case in that it was the intention of the parties that the agreement would be embodied, along with certain further non‑essential terms to be negotiated, in a formal agreement. Counsel urged me to reject Mr Donaghey’s statements, that there was no agreement, as mere assertion.
It is true that Mr Donaghey’s evidence does not go into detail but in his affidavits he does depose to no agreement being reached on key terms and to there being no acceptance of offers and counter-offers between the parties. Counsel submitted that it is insufficient for an applicant seeking to set aside a statutory demand merely to say that it disputes the debt. He urged me to find that it is similarly insufficient for Mr Donaghey to depose that there is no agreement and say nothing more. However, in my opinion, there is a difference. A party may give reasons for why the debt is disputed. For example, it may be because the party says that goods said to have been supplied have not been received. Here what is said, is that there is a dispute about the debt because there is no binding contract that has been entered into by the parties. Mr Donaghey has sworn that no agreement was reached. There are no contemporaneous documents that clearly evidence that there was an oral agreement, such as to suggest that Freestyle’s argument is spurious. As Thomas J said in Re Morris Catering (Aust) Pty Ltd,[13] the Court’s task is to identify the genuine level of a claim not the likely result of it and it is not helpful to perceive that one party is more likely to succeed than the other. Whether there was an oral agreement or not, is a matter that merits further investigation and it is not for me to inquire as to the credit of Mr Donaghey on this appeal.
[13](1993) 11 ACSR 601 at 605.
Mr Evans submitted that the evidence was such that Freestyle never disputed liability until its lawyers wrote to Renewtek on 18 November 2009. He also relied on the failure of Mr Donaghey to respond to the 18 August 2009 email requesting payment either in writing at the time or in his affidavits. He pointed to the $25,000 payment and submitted that that was an admission by Freestyle. He also relied on Mr Donaghey’s response to the 16 September 2009 email, set out in paragraph 25 above, and submitted that I should take this into account when determining the genuineness of the dispute. As Finkelstein J said in the JSW Parts case, payment without complaint does not always amount to an admission. Here, I am not persuaded that the payment of $25,000, even though it may have been made without complaint about Renewtek’s work, is an admission that there is a contract or that a debt is owed. Nor am I persuaded that it should lead me to the conclusion that there is no genuine dispute about those things. In any event, the evidence of Mr Donaghey is that he told a representative of Renewtek that Freestyle would pay $25,000 but that he needed to talk about the account. He denies that other things alleged to have been said as to the financial difficulties of Freestyle were said. He also deposes that he told Mr Porter that if he was satisfied that work had been carried out, Freestyle would pay the balance of Renewtek’s invoice. The contemporaneous emails do not establish that what was deposed to by Mr Donaghey must be spurious. Nor is what he says so implausible as to lead to a result that there is nothing to be investigated.
This may have been the case if there was no basis, other than contractual, on which Renewtek could be paid for work done by it. However, Freestyle accepts that it is possible that Renewtek may prove to be entitled to remuneration on a quantum meruit basis. There may be other restitutionary principles that would also found an entitlement to payment. Counsel for Renewtek accepted that if restitutionary princples applied, the amount determined could not be the subject of a statutory demand.
Having formed the view that there is a genuine dispute as to the existence of any oral agreement, it is not necessary for me to decide whether what Renewtek submits is a binding agreement falls within the principles in Masters v Cameron or the Baulkham Hills case.
Mr Robins submitted that if I found that there was an oral agreement, the terms of which were incorporated in the May 2009 statement of work (which was never signed by the parties), I should order that the demand be varied to $35,000. He submitted this on the basis that, at best, only $60,000 could be charged on those terms and there had been a payment of $25,000 made. The relevant clause provided that work would be carried out on a time and material basis and would be invoiced as agreed in a forecast payment schedule specifying payments of $60,000 for May, June and July and $311,300 for August. As I have stated above, a note at the bottom of the schedule stated that the August 2009 forecast payment included incurred time and material costs not billed in May, June or July forecast to be approximately $159,300. The note went on to state that if the contract was terminated prior to August 2009, all incurred time and material costs became due and payable. If that was the term of an agreement between the parties, then in my opinion, based on the weekly status reports and the 29 May 2009 invoice, Renewtek would have been entitled to charge the amount that it did.
I also find on the evidence that there is a genuine dispute as to whether Renewtek has provided valuable goods or services for which Freestyle ought to pay. Mr Porter says that it did and Mr Donaghey denies this. All that can be said is that there is a dispute about it, and it is not for me to determine in this application who is right and who is wrong.
For these reasons, I allow the appeal and set aside the statutory demand.
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