Lodge Partners Pty Ltd v Pegum

Case [2009] FCA 519

FEDERAL COURT OF AUSTRALIA

Lodge Partners Pty Ltd v Pegum [2009] FCA 519

CORPORATIONS – application to set aside statutory demand – whether a “genuine dispute” as to existence of debt – where only on question of construction of written contract – no factual investigation called for, no conflict in the evidence to be resolved, no question of credit, no oral evidence.
Held:  appropriate to decide the question of construction.

CONTRACT – construction – pre-contract negotiations – contractual provision ambiguous – one of the two competing constructions rejected in antecedent draft of the contract.
Held:   evidence of rejection of draft admissible as showing the subjective intention of both parties as to the meaning of particular word or expression used in contract.

Corporations Act (2001) (Cth)  ss 459G and 459H 

BBX Holdings Ltd v American Home Assurance Co [2007] NSWSC 549 followed
Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 followed
Lifestyle Retirement Projects No 2 Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 705 followed
Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 cited
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 cited

Symbion Medical Centre Operations Pty Ltd v Thomco (No 2113) Pty Ltd [2009] SASC 65 distinguished
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 followed
Prenn v Simmonds [1971] 1 WLR 1381 followed
ProForce Recruit Ltd v Rugby Group Ltd [2008] 1 All ER 569 (Comm)
Yoshimoto v Canterbury Golf International Ltd [2001] 1 NZLR 523 followed
Codelfa Construction Pty Ltd v State Rail Authority(NSW) (1982) 149 CLR 337 followed

LODGE PARTNERS PTY LTD (ACN 053 432 769) v
MICHAEL PATRICK PEGUM AND THOMAS JAMES SHARP

NSD 2023 of 2008

LINDGREN J
20 MAY 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 2023 of 2008
BETWEEN:

LODGE PARTNERS PTY LTD (ACN 053 432 769)
Plaintiff
AND:

MICHAEL PATRICK PEGUM AND
THOMAS JAMES SHARP
Defendants

JUDGE:

LINDGREN J

DATE OF ORDER:

20 MAY 2009

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The application to set aside the statutory demand be dismissed.

2.The plaintiff pay the defendants’ costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


The text of entered orders can be located using eSearch on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 2023 of 2008
BETWEEN:

LODGE PARTNERS PTY LTD (ACN 053 432 769)
Plaintiff
AND:

MICHAEL PATRICK PEGUM AND
THOMAS JAMES SHARP
Defendants

JUDGE:

LINDGREN J

DATE:

20 MAY 2009

PLACE:

SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION

  1. The plaintiff, Lodge Partners Pty Ltd (Lodge), applies under s 459G of the Corporations Act (2001) (Cth) (the Act) for an order setting aside a statutory demand dated 4 December 2008 for $78,443.07 served on behalf of the defendants, Michael Patrick Pegum and Thomas James Sharp.

  2. Lodge provides stockbroking and corporate advisory services…

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Details
AGLC
Lodge Partners Pty Ltd v Pegum [2009] FCA 519
Case
[2009] FCA 519
Decision Date

CaseChat Overview and Summary

In Lodge Partners Pty Ltd v Pegum, the defendants argued that they were entitled to an introduction fee of 10% of Lodge's fee for the second tranche of a transaction. Lodge denied owing this fee, leading to the defendants serving a statutory demand for the amount of $78,443.07. Lodge subsequently applied to the court to set aside the statutory demand, arguing that there was no genuine dispute over the debt. The key issue before the court was the interpretation of the contract clause regarding the introduction fee.

The court found that the clause in question indicated a minimum 10% fee, which could be increased based on the nature of the transaction and the efforts involved, but could never be less than 10%. The court held that the defendants were entitled to the 10% fee as a minimum, and that the additional percentage, if any, was to be determined at Lodge's discretion. Given this interpretation, the court concluded that there was no genuine dispute over the existence of the debt. The statutory demand was dismissed with costs awarded to the defendants.

The court emphasised that a genuine dispute must be bona fide and based on real grounds, but need not be strong or likely to succeed. The mere existence of an arguable issue was sufficient to constitute a genuine dispute. However, in cases where the dispute is purely a matter of contract construction without any factual dispute, the court will decide the construction issue itself, and if the construction is against the company, the dispute will not be considered genuine. The court found that in this case, the interpretation of the contract clause was a matter for the court, and since the court had decided the matter against Lodge, there was no genuine dispute.

The court's final orders were that the application to set aside the statutory demand be dismissed and that Lodge pay the defendants' costs.

Orders

Orders of the court

1. The application to set aside the statutory demand be dismissed.

2. The plaintiff pay the defendants’ costs.

Note:

Background

Background to the litigation

Lodge did not pay the defendants any Introduction Fee in respect of the second tranche, and says that they are not entitled to any. The defendants claim that in respect of that tranche also they are entitled to an Introduction Fee of 10% of Lodge’s own fee (10% of $784,430.70, ie $78,443.07, the amount of the statutory demand).FURTHER FACTS The relevant terms of the contract of employment of Mr Pegum were contained in a letter from Lodge to him dated 24 November 2006. In the letter under the heading “Remuneration” there were six paragraphs of which the fifth was as follows (I have numbered the sentences for ease of reference below):[1] You will be entitled to an ‘Introduction Fee’ on each corporate transactions [sic - transaction] entered into by Lodge or any associated entity with a new client introduced to it by you. [2] That ‘Introduction fee’ will be a minimum of 10% of the gross corporate fee (‘Gross’ is calculated as the corporate fee received in cash or shares at issue price, excluding management fee, less any sub-underwriting fee). [3] The ‘introduction fee’ is dependent on the nature and circumstances of the transaction and effort and risk required of both the introducer and Lodge Partners to complete the transaction, and the percentage payable to you will be determined at Lodge’s discretion. [4] Corporate payments are payable at the time of completion of the transaction and receipt of payment to Lodge Corporate Services. The agreement also provided for other forms of remuneration, some of which were paid to the defendants in respect of the TEC transactions. It is, however, only the Introduction Fee that is of present concern. Counsel for the parties advanced divergent constructions of the paragraph set out at [11] above. It was common ground that whether Lodge was indebted to the defendants in the amount specified in the statutory demand depended exclusively on the construction of this provision. On 6 February 2008 Mr Pegum emailed Lodge’s Troy Graham advising that ETC wished to raise capital of $30 – $40 million to enable it to purchase the remaining 49% of “Nexbis Sdn Bhd”, a Malaysian company. It is not disputed that in doing so, he introduced ETC to Lodge. On 6 May 2008 Lodge wrote to ETC a letter that has been called a “Mandate Letter” setting out the terms on which Lodge would provide its services to ETC. One of the terms was that if there was a successful raising of capital, Lodge would be entitled to a success fee of 4.5% (plus GST) of the first capital raising after the signing of the agreement and a success fee of 5% (plus GST) of each subsequent capital raising. I need not discuss how Lodge’s success fee of $784,430.70 on the second tranche was arrived at. CONSIDERATION Section 459G(1) of the Act provides that a company may apply to a court for an order setting aside a statutory demand served on the company. Section 459H provides that the Court must, by order, set aside the statutory demand in certain circumstances. The circumstance relevant to the present case is that the Court is satisfied that there is a genuine dispute between the company and the defendants about the existence of the debt to which the demand relates.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

LINDGREN J
In relation to the second sentence, I think it clear that the minimum of 10% operates no matter what the nature and circumstances of the transaction or the effort and risk required of the introducer and of Lodge. The reference to a minimum indicates that the Introduction Fee may be greater but that it will never be less. Whether it is to be greater, and if so by how much, depends on the considerations mentioned in the second sentence. In the same vein, it is the percentage above 10% that is to be payable dependent on those factors, that is to be determined at Lodge’s discretion.CONCLUSION For the reasons set out above, the application to set aside should be dismissed with costs.

Ratio Decidendi

Legal Principle Established

Established by: LINDGREN J

On 6 May 2008 Lodge wrote to ETC a letter that has been called a “Mandate Letter” setting out the terms on which Lodge would provide its services to ETC. One of the terms was that if there was a successful raising of capital, Lodge would be entitled to a success fee of 4.5% (plus GST) of the first capital raising after the signing of the agreement and a success fee of 5% (plus GST) of each subsequent capital raising. I need not discuss how Lodge’s success fee of $784,430.70 on the second tranche was arrived at. CONSIDERATION Section 459G(1) of the Act provides that a company may apply to a court for an order setting aside a statutory demand served on the company. Section 459H provides that the Court must, by order, set aside the statutory demand in certain circumstances. The circumstance relevant to the present case is that the Court is satisfied that there is a genuine dispute between the company and the defendants about the existence of the debt to which the demand relates. The concept of a “genuine dispute” has been discussed in the cases. The dispute must be bona fide and must truly exist in fact, and the grounds for alleging the existence of the dispute must be real and not spurious, hypothetical, illusory or misconceived: see, for example, Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464. In Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411, Barrett J said (at [23]), after reviewing the authorities, that the task faced by a company challenging a statutory demand on the “genuine dispute” ground is not a difficult or demanding one. His Honour added:The company will fail in that task only if it is found upon the hearing of its s 459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger. The notion of not warranting further investigation has assumed importance in a particular class of case. Where the dispute relates to a simple question of construction that can be decided following a short hearing and there is no factual issue to be resolved, the Court will decide the question and, if the construction is against the company, the dispute will not be classified as “genuine”: see Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at 384-5 (Delnorth); Lifestyle Retirement Projects No 2 Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 705 at [16]-[17]; BBX Holdings Ltd v American Home Assurance Co [2007] NSWSC 549 at [15]-[17]. In the same vein, in the earlier case of Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq said that the expression “genuine dispute” connotes “a plausible contention requiring investigation” (at 787 – my emphasis).