Itranex Ltd v Smith
[2001] WASC 329
ITRANEX LTD -v- SMITH [2001] WASC 329
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 329 | |
| 28/11/2001 | |||
| Case No: | COR:392/2001 | 15 NOVEMBER 2001 | |
| Coram: | MASTER BREDMEYER | 22/11/01 | |
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | ITRANEX LTD (ACN 094 813 055) DEBBIE LYN SMITH |
Catchwords: | Corporations Statutory demand Genuine dispute |
Legislation: | Corporations Law, s 459G, s 459H |
Case References: | Del Borrello v Friedman & Lurie (a firm) & Anor [2000] WASCA 348 Bacchus Marsh Concentration Milk Ltd v Joseph Nathan & Company Ltd (1919) 26 CLR 410 Bahr v Nicolay (No. 2) (1988) 164 CLR 604 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commerce Consolidated Pty Ltd v Johnstone [1976] VR 724 Inglis v John Buttery & Co (1878) 3 App Cas 552 NSW Medical Defence Union Ltd v Transport Industries Insurance Company Ltd (1986) 6 NSWLR 740 Powell v Smith (1872) LR 14 Eq 85 R W Cameron and Co v L Slutzkin Pty Ltd (1923) 32 CLR 81 Reardon Smith Line Ltd v Yngvar Hansen-Tangen ([1976] 1 WLR 989 Riverlate Properties Ltd v Paul [1975] Ch 133 Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Stewart v Kennedy (1890) 15 App Cas 108 Taylor v Johnson (1983) 151 CLR 422 The Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
DEBBIE LYN SMITH
Defendant
Catchwords:
Corporations - Statutory demand - Genuine dispute
Legislation:
Corporations Law, s 459G, s 459H
Result:
Application dismissed
(Page 2)
Category: B
Representation:
Counsel:
Plaintiff : Mr B L Oakley
Defendant : Ms K J Bennett
Solicitors:
Plaintiff : Granich Partners
Defendant : Mony De Kerloy
Case(s) referred to in judgment(s):
Del Borrello v Friedman & Lurie (a firm) & Anor [2000] WASCA 348
Case(s) also cited:
Bacchus Marsh Concentration Milk Ltd v Joseph Nathan & Company Ltd (1919) 26 CLR 410
Bahr v Nicolay (No. 2) (1988) 164 CLR 604
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Commerce Consolidated Pty Ltd v Johnstone [1976] VR 724
Inglis v John Buttery & Co (1878) 3 App Cas 552
NSW Medical Defence Union Ltd v Transport Industries Insurance Company Ltd (1986) 6 NSWLR 740
Powell v Smith (1872) LR 14 Eq 85
R W Cameron and Co v L Slutzkin Pty Ltd (1923) 32 CLR 81
Reardon Smith Line Ltd v Yngvar Hansen-Tangen ([1976] 1 WLR 989
Riverlate Properties Ltd v Paul [1975] Ch 133
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Stewart v Kennedy (1890) 15 App Cas 108
Taylor v Johnson (1983) 151 CLR 422
The Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60
(Page 3)
1 MASTER BREDMEYER: This is an application to set aside a statutory demand issued on 16 October 2001 for $83,800 on the basis that the plaintiff has raised a genuine dispute and/or, in relation to part of the demand, an offsetting claim for a laptop computer and printer. On the latter point, the plaintiff says that the defendant, Ms Smith, has wrongly kept the plaintiff's computer and printer and the value of those items should be offset against her demand.
2 In determining whether there is a genuine demand or a genuine offsetting claim I accept the statements of law produced to me by the defendant as follows:
2. "In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLS 669 McLelland CJ held at 671 that the term 'genuine dispute' means:
'… a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criteria 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 documents 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' or 'patently feeble legal argument or an assertion of facts unsupported by evidence.'
3. In Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J stated:
'Division 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 off-setting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's
(Page 4)
- 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 a mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function'.
- 4. A genuine dispute requires firstly, that the dispute be bona fide and truly exist in fact, and secondly, the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 15 ACLC 1001."
3 The statutory demand is based on an agreement between the parties, signed by David Mann, the Managing Director/CEO of the plaintiff and Debbie Smith as "Exiting Director" of 4 April 2001. I quote from the text of that agreement:
"EXIT AGREEMENT - DEBBIE SMITH
DETAILS OF SETTLEMENT:
Debbie Smith's notice of resignation as Director of Itranex Ltd and all its subsidiary businesses will take effect from 16 March 2001.
All company assets have been returned to Itranex Ltd.
All company IP will remain the property of the Itranex Group of Companies.
Domains names and related IP owned by partnership of Directors will revert to remaining Directors without financial consideration.
Mobile phone account 0417 945 125 and the phone to be transferred to Debbie Smith.
Confirmation from the NAB to be required by Itranex Ltd by 15th April that Debbie Smith has been removed from all operating accounts.
(Page 5)
- Copies of all company documents signed by Debbie Smith to be provided to Debbie Smith for her personal record by 30th April (subject to performance by Clayton Utz).
A total consideration of $100,000 is to be paid to Debbie Smith in the following manner inclusive or shares, wages and loans:
• $5,000 per month for five months commencing 15th April 2001 to 15th September 2001 inclusive (or before at Itranex discretion)
• All loans to the company to be repaid in full on or before 30th June 2001
• Balance as a final payment on or before 15th October 2001
Superannuation and taxation payable for Debbie Smith's wages to be met by Itranex Ltd over and above the wages within the $100,000 consideration and wages to date.
Non-performance of financial arrangements outlined above within timeframes specified will be deemed as breach and may cause re-negotiation/s."
4 The plaintiff wants to get in some background material to this agreement to the effect that it was a condition precedent that the defendant would only be paid the agreed sum if the company could raise the necessary funds to pay her. I quote from par 6-9 of Mr Mann's affidavit:
"6. At the Meeting it was agreed by all that an exit package should be worked out for Smith which would involve remuneration in return for the sale of her shares and interests in the Company and the time spent since her appointment as a director.
7. Smith was fully aware of the Company's financial position at the time of the Meeting and that it's future projected financial position depended on a number of fund raising variables all of which she was aware of. As a result of her impending personal needs for funds Smith requested that a time payment arrangement for her be put in place as soon as possible.
(Page 6)
- 8. It was made clear by all present at the Meeting including Smith that any payment arrangement to Smith would be subject to the Company's funding efforts. As such any arrangement to make payment to Smith would be dependent on that and any arrangement to be made would have to be made within these guidelines.
9. All directors including Smith were cognisant that an agreement concerning Smith's exit would include a commitment to pay and a proposed timetable, however, as shown in the final term of the exit agreement, any inability by the Company to pay according to the proposed timetable would require a renegotiation of the timeframe. This was necessary otherwise all directors, including Smith, could have been committing the company to a debt that would make all directors party to driving the company into insolvency should the timeframe not be accommodated. Annexed hereto and marked with the letters DRM - 4 is a true copy of the written part of the exit agreement entered into with Smith."
5 The defendant says I should not look at this background material because of the parole evidence rule: that the contract speaks for itself and that evidence of prior negotiations or of a party's subjective intentions cannot be adduced. What are the rules on interpreting a contract and on allowing, or not allowing, background matters to the agreement to be put before the Court either to supplement, or to contradict the written agreement? In answer to that question I quote from an English case recently cited with approval by Kennedy J (with whom Wallwork and Murray JJ agreed) in Del Borrello v Friedman & Lurie (a firm) & Anor [2000] WASCA 348:
"In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] WLR 896, Lord Hoffman made what he described as some general remarks about the principles by which contractual documents are nowadays construed. At 912-313, His Lordship said:
'I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381, 1384-1386 and Reardon Smith Line
(Page 7)
- Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of 'legal' interpretation has been discarded. The principles may be summarised as follows.
- (1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception of the mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries
(Page 8)
- and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.
- (5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in the formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201: 'if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense'."
6 I do not accept the plaintiff's evidence that the agreement was subject to a condition precedent that the company would only pay the sums set out in the Exit Agreement if it could raise the necessary funds, meaning, if it could not raise the funds, the defendant could not sue and could not take steps to put the company in liquidation. If that term had been agreed between the parties, why was it not put in the agreement?
7 I refer to the last sentence in the Exit Agreement, which I have quoted above and which reads:
"Non-performance of financial arrangements outlined above within timeframes specified will be deemed as breach and may cause re-negotiation/s."
(Page 9)
8 If I were to interpret those words literally I consider they make no sense. The first part "non-performance of financial arrangements outlined above within timeframes specified will be deemed as breach.." does not need to be said. That is a fact. If the money is not paid as required by the agreement, that is a breach. The second part of the sentence taken literally, "and may cause re-negotiation/s" is also meaningless. It says "may". It does not require the parties to re-negotiate the timeframes for the payment of those sums. Parties can at any time re-negotiate a contract, ie reach a new agreement or amend the old. That ability need not be stated. But the correct interpretation, according to Lord Hoffman's points (1) and (4) quoted above, is to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time they made the contract. And here the background facts asserted by the plaintiff's two witnesses are relevant, namely that the company had to fundraise in order to pay out the defendant, that is why the payments were staggered. There was a possibility that the fundraising would not be sufficiently successful to enable the timeframes to be met. If the fundraising was particularly successful, the company was prepared to pay out the defendant earlier. That matter is hinted at in the last few words in brackets of the first payment obligation:
"• $5,000 per month for five months commencing 15th April 2001 to 15th September 2001 inclusive (or before at Itranex discretion)"
9 Bearing in mind Lord Hoffman's fourth point that giving the document the meaning which the parties with the relevant background would reasonably have understood it to mean, can mean in an ambiguous situation, that the parties in fact used the wrong word and I consider that is what happened here. I consider that the last sentence would convey to a reasonable person having the background knowledge of the parties who signed this agreement that, if the payments set out above were not paid within the timeframe specified, that is a breach, but the parties will attempt to re-negotiate the timeframe for those payments.
10 The party to take the initiative in re-negotiating the dates for payment should be the plaintiff because it failed to make the payments on time. The company has not taken any steps to negotiate a different repayment schedule with the defendant and a reasonable time has gone by to allow that to take place. For example, the May 2001 payment of $5,000 was missed. There was no request to re-negotiate that. That payment was not caught up by a double payment in June. The June
(Page 10)
- payment was short, $2,500 instead of $5,000. The August payment was missed. The September payment was short, $3,000 instead of $5,000. And the loan repayment, which I understand was $25,000, due on 30 June 2001, was not paid at all. I consider that the plaintiff has had adequate time to attempt to re-negotiate with the defendant a longer time to make the payments and has not done so. In those circumstances I consider that the plaintiff has offered no genuine dispute to the defendant's claim.
11 I now consider the offsetting claim in relation to the computer and printer. The plaintiff's story, in the affidavit of Mr Mann, is that pursuant to the Exit Agreement, the defendant must return all company property but has not done so. She has retained a laptop computer and printer. Ms Smith's reply to that is as follows:
"When I commenced working with the plaintiff I provided and used my own computer for approximately five months. At that time my computer became infected with a computer virus. The plaintiff then provided me with another computer to use. At the time of leaving David Mann on behalf of the plaintiff told me that I could have the computer because my computer still had a virus. I told David Mann that I would return the computer upon payment under the Exit Agreement. He said to me words to the effect of 'don't worry about it'. This was acknowledged in the Exit Agreement where it states 'all company assets have been returned to Itranex Ltd."
12 If it was simply the plaintiff's word against the defendant's word on what was agreed in regard to the computer and printer, I would say there is a genuine dispute over that issue. However, I consider that the clause in the Exit Agreement concludes the matter in favour of the defendant's position. In full knowledge of the arrangements made in relation to these two items, the agreement states "all company assets have been returned to Itranex Ltd." That is an acknowledgement that the defendant is not required to return any other items to the plaintiff.
13 For these reasons I propose to dismiss the plaintiff's application to set aside the statutory demand.
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