Re Eatertainment Group Pty Ltd

[2024] VSC 512

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2024 01325

IN THE MATTER of EATERTAINMENT GROUP PTY LTD (ACN 639 827 188)

BETWEEN:

EATERTAINMENT GROUP PTY LTD (ACN 639 827 188)	Plaintiff
v
CURTIS FAMILY DEVELOPMENTS PTY LTD (ACN 149 238 273) as Trustee for the CURTIS FAMILY TRUST	Defendant

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JUDGE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	4 July 2024
DATE OF JUDGMENT:	2 September 2024
CASE MAY BE CITED AS:	Re Eatertainment Group Pty Ltd
MEDIUM NEUTRAL CITATION:	[2024] VSC 512

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CORPORATIONS — Application to set aside a statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) on grounds that Plaintiff had offsetting claims in respect of the debt claimed in the demand — Plaintiff had previously entered into Deed of Settlement with Defendant in respect of application to set aside prior statutory demand claiming the same debt and had defaulted in payment — Consideration of whether release in Deed of Settlement operated to bar Plaintiff from raising such offsetting claims — Finding that it was arguable that release in Deed of Settlement should be construed so as not to operate to prevent the Plaintiff from raising the offsetting claims — Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300 —Consideration of evidence surrounding the terms of contract the basis of the Defendant’s demand and whether there was plausible contention which warranted investigation that Defendant’s director represented the Defendant as agreeing to a ‘pay when paid’ arrangement at odds with the formal written contract and negotiations documented in emails between the parties’ solicitors leading up to the signing of the contract — Consideration of evidence filed in support of previous application to set aside the previous demand in which there was no mention of significant offsetting claims now made — Finding that Plaintiff failed to discharge onus that it had genuine offsetting claims — Application dismissed — Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (In Liquidation) [2015] VSCA 330 applied.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Evans KC	Madgwicks
For the Defendant	Mr I Hristovski of counsel	Burch & Co

TABLE OF CONTENTS

Background

Evidence

Eatertainment’s evidence

Resolution of the previous application to set aside the demand

Curtis’s evidence

Mr Pezaros’s affidavit in reply

Eatertainment’s submissions

Curtis’s submissions

Legal principles

Consideration

Does the release under cl 3 of the Deed operate to prevent Eatertainment from raising the offsetting claims it now seeks to make ?

Has Eatertainment established it has a genuine offsetting claim

Conclusion

HIS HONOUR:

Background

1. By originating process filed on 22 March 2024, the plaintiff, Eatertainment Group Pty Ltd (‘Eatertainment’) makes application under s 459G of the Corporations Act 2001 (Cth) (‘Act’) to set aside a statutory demand (‘Demand’) dated 1 March 2024 served on it by the defendant, Curtis Family Developments Pty Ltd (‘Curtis’).[1]  

   [1]In the evidence, Curtis is referred to in some places as ‘AAFS’; an abbreviation of its trading name  ‘AAFS Shopfitting’.

2. The Demand was accompanied by an affidavit affirmed by a director of Curtis, Brett Curtis, verifying it to be in compliance with s 459E(3) of the Act.

3. The schedule to the Demand describes the debt as amounts owing under a Deed of Settlement (‘Deed’) entered into by the parties on 29 January 2024 following Curtis’s service of a prior statutory demand (‘Prior Demand’) on Eatertainment and Eatertainment’s commencement of an application to set it aside (‘Prior Application’).  Under the Deed, Eatertainment agreed to pay Curtis $711,900, comprised of:

   (a)$701,900 pursuant to a tax invoice styled ‘Tax Invoice 2312’ dated 14 October 2022 issued by Curtis under a fit-out contract (‘Fit-out Contract) between the parties; and

   (b)$15,000 in respect of Curtis’s costs incurred in a Supreme Court proceeding  commenced by Eatertainment to set aside the Prior Demand;[2] and

   (c)less a payment received of $5,000.

   [2]Proceeding No S ECI 2023 03716.

4. Eatertainment relies on affidavits of George Pezaros’s sworn 22 March 2024 and 3 May 2024 together with written submissions dated 4 June 2024.

5. In resisting Eatertainment’s application, Curtis relies on an affidavit of Mr Curtis sworn 15 April 2024 together with written submissions dated 30 May 2024.

6. The application has been made in compliance with s 459G of the Act.

7. At the hearing of the application, counsel for Eatertainment, Mr Evans KC, contended the application involved resolution of two issues.[3]  The first was whether the terms of the release in the Deed barred Eatertainment from raising the offsetting claims it now wishes to raise for $2,294,512.  The second was, if it did not, whether, on an application of the tests described in the authorities, Eatertainment has established the existence of an offsetting claim.

Evidence

[3]Mr Evans structured his oral submissions to contend, first that there were  alleged offsetting claims and secondly made submissions in respect of  the operation of the release in the Deed of Settlement. In these reasons it will be seen that I have dealt with these issues in the reverse order.

Eatertainment’s evidence

1. In his affidavit sworn 22 March 2024, George Pezaros, a director of Eatertainment, contends there is a genuine dispute as to the debt claimed in the Demand, that Eatertainment has offsetting claims and that there is ‘some other reason’ why the Demand should be set aside under s 459J of the Act. Mr Evans indicated in his oral submissions that Eatertainment was not pressing the genuine dispute and s 459J grounds and that Eatertainment’s case relied on the offsetting claim ground alone.

2. Eatertainment was incorporated by Mr Pezaros’s interests to operate a restaurant business trading as ‘Paddle Battle’.  Mr Pezaros states UEM Sunrise (La Trobe Street) Unit Trust (‘UEM’)[4] is the owner of premises (‘premises’) situated in Melbourne Central in the Melbourne CBD.  The premises were identified as being suitable to conduct the business and in or about mid-2021, UEM and Eatertainment commenced negotiations concerning the terms of a lease.

   [4]The owner and landlord is more properly identified as the trustee of that trust, as UEM Sunrise (La Trobe Street) Pty Ltd.

3. Those negotiations included provisions relating to financing the fit-out of the premises (‘Fit-out Works’) culminating in Eatertainment negotiating an  incentive from UEM of $5,850,000 to finance the fit-out of the premises.[5]  This was comprised of an 11-month rent-free period of $1,170,000 and a contribution of $4,680,000 toward the costs of the fit-out (‘Fit-out Contribution’).  Eatertainment would receive 60% of the Fit-out Contribution from UEM progressively as the required Fit-out Works were completed.

   [5]The amounts mentioned are ‘plus GST’.

4. On 9 November 2021, Eatertainment and UEM entered into the lease of the premises (‘Lease’) for a 15-year term commencing from the expiration of a specified fit-out period, with an option of a further five-year term. 

5. Clause 4.8 of the Lease provided:

   4.8 Tenant’s obligations relating to the Tenant’s Works

   In carrying out the Tenant’s Works, the Tenant must:

   (a)       make sure that the Tenant’s Works are carried out:

   (i)        promptly and within the Fitout Period;

   …

   Item 21 of the Schedule to the Lease defined the Fit-out Period as 120 days from the Handover Date,  the date on which Eatertainment took possession of the premises in November 2021.

6. Mr Pezaros states that in early 2022, he began discussions with Mr Curtis for the purpose of retaining Curtis as the contractor to perform the Fit-out Works under the Lease.

7. Mr Pezaros states he informed Mr Curtis that the only means by which the Fit-out Works could be funded was from UEM’s Fit-out Contribution, which UEM would only release if the Fit-out Works were completed to its satisfaction.  Mr Pezaros says Mr Curtis stated Curtis was content to perform the Fit-out Works on the basis it would be paid once Eatertainment received the Fit-out Contribution from UEM.  This was referred to by Mr Pezaros in his evidence as the ‘First Representation’. 

8. Mr Pezaros states that between March and May 2022, Eatertainment and Curtis negotiated on this basis, and the drawings for the Fit-out Works were prepared.

9. On 3 May 2022, Mr Pezaros received an email from Mr Curtis which included a proposed budget for the Fit-out Works, stipulating a figure of $2.7 million plus GST and a profit of 15%.

10. On 3 May 2022, Mr Pezaros emailed Mr Curtis informing him that the proposed budget of $3.2 million plus GST was not feasible.  Mr Pezaros states he and Mr Curtis then had a telephone conversation whereby Mr Pezaros informed Mr Curtis that the only means by which the Fit-out Works could be funded was if the Fit-out Works could be performed for $2.97 million, inclusive of GST.  Mr Pezaros states Mr Curtis agreed to this (referred to by Mr Pezaros as the ‘Second Representation’).[6]

    [6]At the hearing of the application, Mr Evans indicated that the Second Representation had no significance in the context of this application.

11. Mr Pezaros states that on that day, Eatertainment’s then solicitor wrote to Curtis’s solicitors and informed them the funding for the Fit-out Works would be provided by UEM in accordance with the Lease.  In addition to providing that the contract sum would be $2.97 million plus GST, he states that  it was agreed the Fit-out Contribution would be payable as Curtis progressively completed the Fit-out Works to UEM’s satisfaction.

12. On 6 May 2022, Curtis’s solicitors confirmed the price of the Fit-out Works as being $2.97 million, which Mr Pezaros states was in accordance with the Second Representation.  In addition, Curtis’s solicitors stipulated the Fit-out Contract must provide for Eatertainment’s obligation to make payments to Curtis within 14 days of invoice (i.e. rather than an agreement that Curtis be paid when UEM paid Eatertainment).

13. On 13 May 2022, Eatertainment’s solicitors wrote to Curtis’s solicitors and stated Eatertainment could not agree to an obligation to make payments to Curtis within 14 days of being invoiced as it could only pay once it received progressive payments of the Fit-out Contribution from UEM.

14. Mr Pezaros states that on or about the same day, he had a telephone conversation with Mr Curtis and informed him Eatertainment could not undertake the project based on the payment terms insisted on by Curtis’s solicitors.  He states he was reminded by Mr Curtis that Curtis was happy to perform the Fit-out Works for Eatertainment on the basis that it would be paid once Eatertainment received the Fit-out Contribution money from UEM.  Mr Pezaros states Mr Curtis reiterated to him that Curtis was still prepared to do this, despite the payment terms in the Fit-out Contract.  He states Mr Curtis said words to the effect that Mr Pezaros should not worry about this, and they would manage this together and progress the project so that UEM would pay the Fit-out Contribution monies to fund the Fit-out Works (referred to as the ‘Third Representation’).

15. Mr Pezaros says that after that conversation, he did not revisit the issue of the payment terms again, as he was comforted by what Mr Curtis had said and believed Curtis would perform the Fit-out Works and await payment until UEM released the Fit-out Contribution to Eatertainment.

16. Mr Pezaros states Eatertainment entered into the Fit-out Contract on 14 July 2022, relying on the First Representation, Second Representation and Third Representation (together, ‘Representations’). 

17. Mr Pezaros states that under the Fit-out Contract, Curtis was required to undertake  the following:

    (a)complete the Fit-out Works in accordance with the requirements under the Fit-out Contract;

    (b)invoice progressively as the Fit-out Works were completed;

    (c)procure the supply of all materials, labour, plant and equipment, and everything else necessary for the execution and completion of the Fit-out Works;

    (d)execute and complete the Fit-out Works in accordance with the requirements of the Fit-out Contract, so that when completed, the premises would be fit for their stated purpose;

    (e)provide valid tax invoices in respect of each claim for payment; and

    the Fit-out Works will be deemed to have reached completion when they are reasonably fit for use or occupation by Eatertainment. 

18. Clause 16.3 of the Fit-out Contract  provided that the Fit-out Contract embodied the whole of the agreement between the parties:

    Entire agreement

    This Contract embodies the entire agreement between the parties with respect to the subject matter of this Contract and supersedes and extinguishes all prior agreements and understandings between the parties with respect to the matters covered by this Contract.

19. Mr Pezaros states that on or about 14 July 2022, Curtis commenced the Fit-out Works under the Fit-out Contract.  Mr Pezaros deposes Curtis did not progress the Fit-out Works expeditiously and to the level enabling Eatertainment to justify to UEM that it should release significant portions of the Fit-out Contribution monies.  He states Curtis performed some works at the premises, as a result of which UEM released $165,000 of the Fit-out Contribution in late August 2022; Eatertainment subsequently paid $100,000 of that sum to Curtis in April 2023.  I note that the payment terms in the Fit-out Contract provided for Curtis’s entitlement for payment of progress claims as being referable to the achievement of specified events, e.g. ‘[o]n confirmed order of kitchen equipment’.

20. Mr Pezaros states that by or about August or September 2022, Curtis slowed down work at the premises and ultimately ceased performing the Fit-out Works.  Mr Pezaros states the reason given by Curtis for this was its own cashflow concerns and, Mr Pezaros says, to his surprise, Curtis seeking to increase the price for the works despite knowing the lack of feasibility of funding the project at an increased price. 

21. Mr Pezaros states on 5 September 2022, he received an email from Mr Curtis (‘5 September email’) in which, among other things, Mr Curtis:

    (a)voiced his concerns about Curtis’s own cashflow;

    (b)informed him Curtis was ceasing work on the fit-out and would not resume work until payments were received; and

    (c)unilaterally sought to increase the price of the works to $3.4 million (plus GST). 

22. Mr Pezaros states this conduct was contrary to the Representations. 

23. Mr Pezaros states that despite the First Representation and the Third Representation, on 14 October 2022, Curtis issued Invoice No 2312 to Eatertainment requiring the payment of $801,900 for Fit-out Works allegedly completed in accordance with the Fit-out Contract (‘Invoice No 2312’). 

24. Mr Pezaros states that on 19 October 2022, contrary to the Second Representation, he received an email from Curtis in which it again sought to unilaterally increase the price of the works to $3.2 million (plus GST).  Mr Pezaros states this was the proposed price of the works Curtis initially put forward on 3 May 2022 and which he indicated was not being feasible.

25. Mr Pezaros says the change in Curtis’s position in this regard gave rise to serious consequences for Eatertainment in respect of its contractual relationship with UEM and its ability to be paid the Fit-out Contribution monies in accordance with the Lease which it relied upon to fund the project.

26. At or about this time, Eatertainment became involved in a dispute with UEM in relation to the release of the Fit-out Contribution.  While UEM released $165,000 in late August 2022, it persisted in its refusal to pay any further Fit-out Contribution monies as it contended no further payments were justified.  Mr Pezaros states he pleaded with Mr Curtis to perform further works to secure the release of additional Fit-out Contribution monies from UEM but Curtis refused to do so unless it was paid the amount it claimed to date, together with additional payments as and when they were invoiced.

27. Mr Pezaros asserts Mr Curtis knew this was not possible as, prior to entering into the Fit-out Contract, Mr Curtis had been made fully aware that the only source of funding for the Fit-out Works was the Fit-out Contribution from UEM under the Lease.  He states the refusal to perform further works contrary to its Representations meant Eatertainment fell into dispute with UEM and suffered significant delays opening the Paddle Battle business for trade.  Eatertainment also ran the risk that UEM would terminate the Lease, leading to Eatertainment suffering very substantial damages.

28. Mr Pezaros states that in late 2022, Eatertainment engaged solicitors to act on its behalf in connection with UEM’s refusal to release Fit-out Contribution monies to it.  He says this became necessary as Curtis continued to act contrary to the First Representation and the Third Representation. 

29. Mr Pezaros states that in late December 2022, Eatertainment and UEM attended an informal settlement conference as required under the terms of the Lease.  Mr Curtis attended this conference on Curtis’s behalf.  No agreement was reached between Eatertainment and UEM. 

30. Mr Pezaros states that on 17 February 2023, Curtis’s solicitors wrote to Eatertainment’s solicitors demanding $801,900 together with default interest in respect of amounts outstanding under Invoice No 2312 for alleged Fit-out Works completed by Curtis (‘February 2023 Demand’).

31. Mr Pezaros states that after Eatertainment’s solicitors received the February 2023 Demand, he spoke with Mr Curtis and informed him the Fit-out Works specified in Invoice No 2312 had not been completed to the level claimed in the invoice. 

32. On 24 February 2023, Eatertainment’s solicitors wrote to Burch & Co, Curtis’s solicitors, advising an agreement had been reached between Eatertainment and Curtis, and that Curtis had withdrawn the February 2023 Demand.

33. On 27 February 2023, Eatertainment’s solicitors received an email from Curtis’s lawyers advising that the February 2023 Demand had not been withdrawn and the amount demanded with respect to Invoice No 2312 remained due and payable.  Eatertainment’s solicitors sought information about a proposed sale of the Paddle Battle business which would operate from the premises.

34. Eatertainment and UEM attended a mediation under the terms of the Lease on 5 February 2023 which was adjourned to 19 April 2023.  The dispute between the parties did not resolve at that mediation but a partial resolution of the issues between Eatertainment and UEM was subsequently negotiated.

35. Mr Pezaros states that in preparing for that mediation, UEM commissioned an expert report which assessed the value of the Fit-out Contribution monies it ought to release to Eatertainment under the Lease.  The expert’s report considered Curtis had not performed the Fit-out Works to the level claimed in Invoice No 2312, and noted the report was prepared six months after Invoice No 2312 was issued.

36. Mr Pezaros states that on the basis of the expert’s opinion, UEM was not satisfied the Fit-out Works performed by Curtis to the date of the report justified the further release of Fit-out Contribution money under the Lease.  Despite this, Curtis refused to perform further Fit-out Works consistent with the First Representation and Third Representation.[7] 

    [7]In his affidavit, Mr Pezaros sworn 22 March 2024 referred to the First Representation and Second Representation.  Based on context, this was likely intended to be a reference to the Third Representation.

37. In or about June 2023, Eatertainment and UEM entered into a deed of settlement, a variation of lease and an escrow deed. Under that deed of settlement and the variation of lease, the Lease was varied in certain respects by providing an extension of the Fit-out Period, such that it was now to end on 4 September 2023. In addition, the Lease was varied to provide that if the Fit-out Works were not completed within the extended Fit-out Period, Eatertainment would breach an essential term of the Lease. Accordingly, UEM would be placed to give Eatertainment a written notice before termination of the Lease under s 146 of the Property Law Act 1958 (Vic). In addition, the Lease was varied to provide a covenant whereby Eatertainment was to be paid an incentive amount.

1. Mr Pezaros deposes that as settlement was being reached with UEM in or about June 2023, he was in communications with Mr Curtis regarding an arrangement to continue progressing the Fit-out Works, alone or supported by another builder engaged by Eatertainment to secure the release of the Fit-out Contribution monies.  He states that at no point did Mr Curtis indicate to him that Curtis intended to instigate debt recovery action against Eatertainment in connection with Invoice No 2312.

2. After the settlement with UEM, UEM paid the balance of the Fit-out Contribution monies in the sum of $3,314,124 in escrow to its solicitors. Under the escrow agreement, UEM was entitled to draw upon those funds for rent if the Fit-out Works were not completed within the extended Fit-out Period which ended on 4 September 2023. 

3. In an email dated 18 July 2023, Burch & Co, Lawyers for Curtis emailed Eatertainment’s solicitors attaching a copy of the 17 February 2023 letter of demand together with a draft agreement embodying the terms of a proposed payment arrangement for  Invoice No 2312. 

4. On 26 July 2023, Eatertainment’s solicitors received an email from Curtis’s solicitors, Burch & Co, containing the Prior Demand, accompanied by an affidavit of Mr Curtis, affirmed 26 July 2023, verifying the Prior Demand. 

5. The debt described in the Prior Demand was with respect to Invoice No 2312 for the sum of $701,900.00, being the face value of Invoice No 2312 of $801,900, less the payment of $100,000 which had been made. 

6. Mr Pezaros states that on 16 August 2023, Eatertainment instructed its solicitors to oppose the Prior Demand and steps were taken to make application to the Court to set it aside. 

7. On 16 August 2023, Eatertainment’s solicitors wrote to Burch & Co to advise that Eatertainment disputed the underlying debt claimed by Curtis in the Prior Demand on a number of grounds. They stated the Prior Demand was liable to be set aside pursuant to s 459G of the Act by reason of a genuine dispute as to the existence and quantum of the works claimed in Invoice No 2312.  That letter demanded Curtis withdraw the Prior Demand by a stipulated date and contended there was a verbal agreement made in or about June 2023 between Messrs Curtis and Pezaros to vary the Fit-out Contract on the basis that Curtis would ‘not seek immediate payment of invoices’ (described by Mr Pezaros as the ‘Verbal Variation Agreement’).

8. The Verbal Variation Agreement cannot be a reference to the Third Representation, which was said to have been made by Mr Curtis prior to entry into the Fit-out Contract in or about July 2022.

9. In their letter, Eatertainment’s solicitors stated the works on the premises had not reached 60% completion because of  issues between Eatertainment and UEM, of which Curtis was well aware.  It was contended that in breach of the Verbal Variation Agreement, Curtis sought to render and enforce invoices under the Fit-out Contract prior to the works reaching 60% completion at the premises and that Curtis had breached the Fit-out Contract and the Verbal Variation Agreement.  Eatertainment also contended Curtis had not conducted works at the premises up to the value of the amounts alleged in Invoice No 2312, rather, the value of the works conducted by Curtis at the site was far less than the alleged outstanding sum of $701,900 claimed in that invoice.  The letter contended that the works had not reached 60% completion because of issues between Eatertainment and UEM of which Curtis was said to be aware.  Eatertainment’s solicitors contended that in breach of the Verbal Variation Agreement, Curtis had sought to render and enforce invoices under the Fit-out Contract prior to the works reaching 60% completion.  It was said that by reason of this, the Fit-out Contract and Verbal Variation Agreement had been breached by Curtis, and the works conducted by Curtis on the site were ‘far less than the alleged outstanding sum of $701,900 that is claimed in respect of invoice 2312…’.

10. I note that in their 16 August 2023 letter,  Eatertainment’s solicitors made no reference  to the Third Representation, which Mr Pezaros states was made by Mr Curtis on or about 13 May 2022.

11. Mr Pezaros states that on or about 16 August 2023, he telephoned Mr Curtis and spoke to him about the Prior Demand and asked him why ‘he was doing this to [Eatertainment]’ given his understanding of the source of the funding for the fit-out prior to entry into the Fit-out Contract, and given his prior Representations that Curtis was ‘completely on board with this’.  He states Mr Curtis responded that Curtis had its own cash flow considerations and he was being advised to maintain a statutory demand so it could recover the debt claimed against Eatertainment.  Mr Pezaros states he responded by saying that this was ‘very unhelpful for everybody, especially given [Mr Curtis] knew [Eatertainment] disputed [Curtis’s] entitlement to payment’.

12. The following day, Curtis’s solicitors informed Eatertainment’s solicitors that the Prior Demand would not be withdrawn. On the same day Eatertainment commenced a proceeding[8] against Curtis making application under s 459G of the Act to set aside the Prior Demand under ss 459H and 459J of the Act on the bases that there existed a genuine dispute, Eatertainment had offsetting claims and there was ‘some other reason’ the Prior Demand ought to be set aside. 

    [8]That being Proceeding No S ECI 2023 03716.

13. The affidavit in support of the application to set aside the Prior Demand was sworn by Mr Pezaros on 17 August 2023.  After making reference to the terms of the Fit-out Contract and the Fit-out Works, he details what he contends was the genuine dispute in respect of the Prior Demand.  In general terms, it involved a contention that the Fit-out Work specified in Invoice No 2312 had not been completed to the level claimed in the invoice.  Mr Pezaros’s affidavit then refers to the letter of 16 August 2023 which is referred to above in which Eatertainment’s solicitors wrote to Burch & Co providing  particularisation of the dispute as to the existence and quantum of the debt claimed in Invoice No 2312. 

14. Mr Pezaros’s affidavit of 17 August 2023 exhibited an expert report prepared by Currie & Brown dated 17 April 2023 which was said to support the contention that the Fit-out Works were not 60% complete as at the date of that report, and that therefore a genuine dispute existed as to the validity and amounts claimed in the invoice.

15. Mr Pezaros’s affidavit then contends there was an offsetting claim in respect of the debt claimed in the Prior Demand.  It stated that under the terms of the Fit-out Contract, Curtis ordered equipment for the purposes of the Fit-out Works, including fryers, grillers, grill plates, under-bench fridges and cook-tops for which Mr Pezaros believes Curtis paid the sum of $50,000.  He states that under Invoice No 2312, $100,000 was paid by Eatertainment to Curtis towards the acquisition costs and the equipment was at that time in Curtis’s possession.

16. It is to be observed there was no reference in Mr Pezaros’s 17 August 2023 affidavit to the offsetting claims for $2,294,512 which Eatertainment now seeks to raise in respect of the very same debt, nor was there any reference to the Third Representation.  I will return to this in my  consideration below but in my opinion it is relevant to the issue of whether the present offsetting claims are genuine claims, or whether they have been, adopting the phraseology employed in the authorities, ‘something merely created or constructed in response to the pressure represented by the service of the statutory demand’.[9]

    [9]Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212 [47] (Barrett AJA, Gleeson & White JJA agreeing and [1] and [2]); Re Straightline Construction Co Pty Ltd [2022] VSC 708 [103] (AsJ Gardiner).

17. Mr Pezaros asserts that if Eatertainment and its solicitors utilised more time preparing this material, the matters contained in the affidavit in support of this application would have been raised or otherwise better articulated in the affidavit filed in the proceeding.  I do not consider that to be a convincing explanation as to why Eatertainment, now contending it has offsetting claims in excess of $2,000,000 against Curtis, did not raise such a claim in resistance to the Prior Demand.

18. The application to set aside the Prior Demand was set down for hearing by Gobbo AsJ on 29 January 2024 after the completion of procedural steps.  This included consideration as to whether the application was validly served and granting adjournments extending the time for affidavit evidence to be filed and to enable settlement discussions to occur. 

19. On 5 September 2023, UEM purported to give Eatertainment a notice of default alleging Eatertainment had failed to comply with its obligations under the Lease and had not completed the tenant’s works and/or the Fit-out within the extended Fit-out Period (‘Notice of Default’).

20. On 20 September 2023, UEM gave Eatertainment a notice of termination of lease which alleged Eatertainment failed to comply with the Notice of Default and noted the provisions of the Lease entitling UEM to terminate it by notice and to treat the default as a repudiation of the Lease by Eatertainment.  UEM stated it accepted Eatertainment’s repudiation, ended the Lease and gave notice of its termination.  It further noted UEM was entitled to recover damages as compensation for the loss of the benefits it expected to receive had the Lease continued for its projected term.

21. Mr Pezaros states Eatertainment successfully obtained injunctive relief against UEM exercising its rights under the notice of termination from VCAT, however VCAT ordered that UEM was entitled to draw rental payments from the balance of the Fit-out Contribution monies sitting in escrow.

Resolution of the previous application to set aside the demand

1. On 29 January 2024, Eatertainment and Curtis entered into the Deed, agreeing that the Prior Demand be withdrawn and the proceeding be dismissed.  On the same day, Gobbo AsJ made orders by consent that the proceeding be dismissed with no order as to costs. 

2. In cl 2.1 of the Deed, the parties acknowledge that the debt owed by Eatertainment to Curtis is $701,900, that this amount was due and payable at the time the Deed was entered into and that there was no dispute the debt was owing.  Clause 2.2 of the Deed provides for Eatertainment to make a series of eight instalment payments to Curtis between 29 January 2024 and 31 July 2024, together with a payment of $15,000 for Curtis’s legal costs of the proceeding.

3. I observe at this juncture that the debt claimed in the Prior Demand has an identical basis to that claimed in the Demand the subject of this application, with the Prior Demand making a claim in relation to Invoice No 2312, whereas the Demand the subject of this application making a claim pursuant to what is in substance the same debt arising from the Deed.  The preamble to the Deed makes no reference to any deduction from the amount claimed in the Prior Demand in respect of the  offsetting claim mentioned in Mr Pezaros’s affidavit to set aside the Prior Demand and Eatertainment agreed to pay the full amount of the Demand. 

4. Of significance in the resolution of the first issue arising for consideration in respect of the construction of the release is cl 3.1 of the Deed, which states:

   Except for the rights arising from this Deed, and subject to the payment by the Plaintiff of the full amount of the Debt and Legal Fees, in accordance with this Deed the parties release and forever discharge each other from all Claims which they have now or at any [time] may have had against each other party, which in any way arises out of, or is connected with or incidental to the Statutory Demand, the SCV Proceeding, the Fitout Contract and/or any dealings between the Defendant and the Plaintiff.

   [emphasis added]

5. Clause 5 of the Deed states:

   (a)Subject to clause 3, in the event that any payment provided for in this Deed is not made by the date required under this Deed then the Plaintiff and the Guarantor irrevocably consents and agrees that:

   (i)the full amount of the Debt and Legal Fees, less any payments made (the ‘Outstanding Amount’), will immediately become due and payable by the Plaintiff and the Guarantor;

   (ii)the Plaintiff and the Guarantor acknowledge that the Debt and Legal Fees are a debt due to the Defendant;

   (iii)the Defendant may issue a further statutory demand demanding payment of the Debt and Legal Fees;

   (iv)the Defendant may commence proceedings against the Guarantor pursuant to the Guarantee;

   (v)the Plaintiff and the Guarantor will not take any steps to defend any legal proceedings issued by the Defendant and hereby consent to the Plaintiff entering default judgment in any such proceedings for the Debt and Legal Fees, plus penalty interests and costs;

   (vi)this Deed shall be produced as evidence of the Plaintiff’s and Guarantor’s consent to such judgment;

   (vii)an affidavit by a solicitor acting for the Defendant will be sufficient evidence of a failure to by the Plaintiff to pay the Debt and Legal Fees; and

   (viii)the Plaintiff will pay interest on any Outstanding Amount at the rate prescribed by section 2(1) of the Penalty Interest Rates Act 1983 (Vic).

6. Mr Pezaros contends the Deed did not fully resolve all issues between the parties, as the release provision in cl 3.1 should be construed only to operate upon Eatertainment’s payment of the full amount of the debt and legal costs.  Mr Pezaros states that in the event of default on Eatertainment’s part, the parties retain their pre-existing legal rights against one another.  This contention forms the basis of the first issue identified by Mr Evans, that is, the operation of the release in cl 3.1 and  consideration as to whether the offsetting claims now made by Eatertainment are still available to it.  

7. Eatertainment paid the first instalment payment required under cl 2.2 of the Deed.  On 1 March 2024, Eatertainment’s solicitors wrote to Curtis’s solicitors requesting an extension of time of seven to ten days for Eatertainment to make the second payment.  That request was refused on the same day and Curtis served the Demand the subject of this application.  

8. After outlining the abandoned ground of genuine dispute, Mr Pezaros asserts the offsetting claims arise as Eatertainment has suffered loss and damage in excess of $2,294,512, comprised of:

   (a)its legal costs and expenses associated with the dispute it had with UEM in the amount of $271,062.54;

   (b)the loss of the benefit of the Rent Free Period under the Lease of $1,287,000;

   (c)the amount of rent paid for May to July 2023 in the amount of $368,225;

   (d)additional liability for rent as deducted under an Escrow Agreement for January 2024 in the amount of $122,741.66;

   (e)additional liability for rent as deducted under the Escrow Agreement for February 2024 in the amount of $122,741.66; and

   (f)additional liability for rent as deducted under the Escrow Agreement for March 2024 in the amount of $122,741.66.

9. Mr Pezaros deposes that the  offsetting claims arise as Eatertainment relied on each of the Representations[10] purportedly made by Mr Curtis in entering into the Fit-out Contract with Curtis.  Mr Pezaros states it would not have done so had it known the truth of them.  In respect of the First Representation and Third Representation, Mr Pezaros states they  are misleading as Curtis did not perform the Fit-out Works within the timeframe required for UEM to pay out the Fit-out Contribution, which Mr Pezaros contends Curtis knew to be the source of funding for the Fit-out Works.

   [10]Affidavit of George Pezaros, sworn 22 March 2024, [40].

Curtis’s evidence

1. In his affidavit affirmed 15 April 2024 and filed 2 July 2024, Mr Curtis deposes in respect of the Fit-out Contract entered into on 14 July 2022, that it provided:

   (a)for a contract sum of $2,970,000 (including GST) (‘Contract Sum’);

   (b)the Contract Sum would be payable by way of progress claims, payable upon the meeting of particular milestones contained in the Schedule to the Fit-out Contract.  Those milestones were not referable to any works at the premises, but rather confirmation that kitchen equipment, signage, lighting, flooring and audiovisual materials had been ordered and joinery had been delivered to the premises;

   (c)Eatertainment’s acknowledgement that Curtis made assumptions regarding the cost of labour and goods required to carry out the works, which may be subject to price fluctuations beyond Curtis’s locus of control;

   (d)Curtis would claim payment of the Contract Sum progressively throughout the term in accordance with the Fit-out Contract;

   (e)if Eatertainment refused to pay any undisputed amount of the Contract Sum within seven days of Curtis making a request for payment, Curtis may immediately cease the works without notice; and

   (f)that it embodied the entire agreement as between the parties with respect to its subject matter and extinguished all prior agreements and understandings between the parties.

2. Mr Curtis states that on 14 October 2022, Curtis issued a tax invoice to Eatertainment in the sum of $801,900 pursuant to the Fit-out Contract, which included the following claims:

   (a)$118,800 payable on confirmed order of lighting, flooring and signage;

   (b)$178,200 payable on completion of joinery;

   (c)$297,000 payable on delivery of joinery to the premises; and

   (d)$297,000 payable on order confirmation with the AV/Audio supplier.

3. Mr Curtis denies the existence of a genuine dispute as to the debt owed to Curtis, and states that prior to sighting Mr Pezaros’s affidavit, he had never been provided with a copy of the Lease or Deed of Variation.

4. Mr Curtis denies making the First Representation, and states that at his meeting with Mr Pezaros on 24 March 2022, he and Mr Pezaros discussed the project, Curtis’s budget proposal to complete the works and funding so Curtis could be paid to complete the work.  Mr Curtis deposes the Lease between Eatertainment and UEM was not discussed at this meeting.  He states the total billed by Curtis to date is $801,900 and the Contract Sum under the Fit-out Contract is $2.97 million (inclusive of GST), which was not a price cap and subject to any variations or cost overruns in accordance with cl 3 of the Fit-out Contract.  Mr Curtis states Curtis has not invoiced Eatertainment for a sum greater than $2.97 million.

5. In what I consider to be significant evidence in the context of assessing whether Eatertainment has a genuine offsetting claim, Mr Curtis refers to extensive and protracted correspondence that passed between the parties’ solicitors leading up to the entry into the Fit-out Contract:

   (a)on 26 April 2022, Ross Archibald of Burch & Co, solicitors for Curtis, emailed a draft Fit-out Contract to Alexander Panagiotidis of Andrew Pandali & Co Lawyers, the former solicitors for Eatertainment (’26 April email’).  The draft Fit-out Contract included a provision for Curtis to be paid within 7 days of issuing an invoice;

   (b)on 3 May 2022, Mr Panagiotidis responded to the 26 April email and requested that Eatertainment only be required to pay invoices once it was paid by UEM.  Mr Curtis states he did not agree to this amendment;

   (c)on 6 May 2022, Mr Archibald emailed Mr Panagiotidis and stated:

   At clause 4.2, we have amended payment terms to be 14 days from receipt of a tax invoice.  [Curtis] requires certainty as to when payments will be made, it cannot be open-ended to the extent of ‘when the Landlord makes payment to the Tenant’.  [Curtis’s] usual payment terms are 7 days however [Curtis] are happy to extend to 14 days due to the process the Landlord and Tenant will undertake to make payment.

   (d)on 13 May 2022, Mr Panagiotidis wrote to Mr Archibald and reiterated the request that the Fit-out Contract include a provision for Curtis to be paid within three days of Eatertainment receiving the Fit-out Contribution monies;

   (e)on 14 June 2022, Mr Archibald emailed Mr Panagiotidis with an updated draft of the Fit-out Contract (‘14 June email’).  Clause 4.2(b) of that draft provided for payment within 14 days of invoice;

   (f)in response to Mr Archibald’s 14 June email, Mr Panagiotidis emailed Mr Archibald and stated ‘the issues raised in [his] email to [Mr Archibald] on the 13/5/22 have not been addressed’ and indicated he would need to seek further instructions from his client;

   (g)on 15 June 2022, Mr Archibald emailed Mr Panagiotidis and restated ‘[Curtis] is unable to agree to open ended payment terms’ and indicated it was prepared to agree to be paid within 14 days of issuing an invoice despite its usual terms that payment be made within 7 days;

   (h)on 27 June 2022, Mr Archibald, by way of email, requested an update from Mr Panagiotidis as to Eatertainment’s comments on the draft Fit-out Contract;

   (i)on 28 June 2022, Mr Panagiotidis emailed Mr Archibald and stated he had ‘instructions to advise that [his] client is agreeable to the terms and will sign this week’.

1. Mr Curtis deposes he did not accept Eatertainment’s proposal that it only be obliged to pay Curtis once it received payment from UEM.  Mr Curtis states Eatertainment accepted the 14-day payment terms as agreed to by the parties as evidenced by its execution of the Fit-out Contract.

2. Mr Curtis denies he made the Third Representation and states Curtis continuously maintained it could not agree to open-ended payment terms.  He argues Eatertainment accepted the 14-day payment term included in the Fit-out Contract on 28 June 2022.

3. Mr Curtis states Invoice No 2312 was issued on 14 October 2022 and reflected the milestones reached by that time as provided for in the Fit-out Contract.  Curtis was paid  $100,000, which it only received in April 2023.  By 5 September 2022, Curtis had made payments of approximately $600,000 to subcontractors to progress the Fit-out Works.  Mr Curtis states this placed financial strain on Curtis and, in order to make payments to subcontractors, he was anxious to receive payment of its issued invoices, in light of Eatertainment having received $165,000 from UEM. 

4. Mr Curtis refers to the $3.4 million discussed in the 5 September email and states the sum was calculated based on costs for mechanical works not within the initial scope of work or considered part of the Contract Sum.  Mr Curtis states this amount was not a price cap and was subject to variations or cost overruns.  The Fit-out Contract was ultimately never varied and Eatertainment has not been invoiced for an amount greater than $2.97 million.

5. Mr Curtis refers to the 19 October 2022 email and states this provided an up-to-date list of costs incurred, partly incurred or anticipated.  This list included costs for mechanical works not part of the initial scope of works at the time of entry into the Fit-out Contract.  Mr Curtis deposes Curtis has only sought to recover the $801,900 it billed to Eatertainment pursuant to Invoice No 2312. 

6. Mr Curtis states Curtis did not agree to defer receiving payments until Eatertainment was paid by UEM, and equally, it did not agree to continue working at the premises in the absence of payment. 

7. Mr Curtis takes issue with Mr Pezaros’s interpretation of the Deed and refers to cl 2.1 of the Deed, which states:

   The parties acknowledge and agree that:

   (i)the amount owed to the Plaintiff [sic] in respect of the Invoice is $701,900 (the Debt);

   (ii)the Debt is currently due and payable;

   (iii)there is no dispute as to the Debt;

   (iv)the Fit Out Contract and the Guarantee are binding and enforceable; and

   (v)they have each had an opportunity to obtain their legal advice in relation to this Deed.

8. Mr Curtis states Eatertainment has only made payments of $105,000, comprised of $100,000 in April 2023 and the initial payment of $5,000 pursuant to the Deed.  No other payment has been made pursuant to the Deed.

Mr Pezaros’s affidavit in reply

1. In his affidavit sworn 3 May 2024, Mr Pezaros deposes that, at a meeting with Mr Curtis in March 2024, he informed him that 60% of the Fit-out Works had to be completed to secure 60% of the Fit-out Contribution from UEM.  Mr Curtis purportedly responded that the works would proceed on the basis that Curtis would be paid after Eatertainment obtained the Fit-out Contribution.

2. Mr Pezaros refers to a phone call which took place on 13 May 2022, and states he was informed by Mr Curtis that ‘he wanted the [Fit-out Contract] to be in place, and set out in the way it was’ but irrespective of its written form, he would agree to agree to undertake to perform the work in accordance with the manner described in para 88 above.

3. Much of the balance of Mr Pezaros’s evidence was concerned with matters associated with the Second Representation which Eatertainment no longer presses.  Mr Pezaros refers to payments of $600,000 made by Curtis to subcontractors, and states he was unaware those payments had been made.

Eatertainment’s submissions

1. In written submissions, Eatertainment contends that the Deed, by its terms, did not resolve all issues between the parties fully and finally and  submits  the release contained within cl 3 of the Deed is conditional on the completion of the payment obligations under it, and where there is a default, as there has been, the parties retain their pre-existing rights.  As Eatertainment has not complied with its obligations under the Deed, it contends that the releases provided for under cl 3 are not in operation.  This has the effect that it has not released the claims it has against Curtis and it is entitled to still raise the offsetting claims it now makes.

2. The submissions identify the basic principles relating to offsetting claims. Eatertainment contends an offsetting claim may be raised where a plaintiff has any claim for damages existing at the time the application to set aside the relevant statutory demand was made.[11]  To determine whether an offsetting claim exists, such factors, including whether the offsetting claim sounds in money, or whether there is a serious question to be tried that the person on whom the demand has been served has an offsetting claim needs to be considered.  The test for determining whether an offsetting claim exists is similar to that employed as in a case alleging a genuine dispute.[12]

   [11]John Shearer Limited and Arrowcrest Group Pty Ltd v Gehl Company [1995] FCA 1789 (O’Loughlin J); Brandon Industries (Vic) Pty Ltd v Locker Pty Ltd [2016] VSC 373 [13] (Gardiner AsJ).

   [12]Ozone Manufacturing Pry Ltd v Deputy Commissioner of Taxation [2006] SASC 91 [47] (Debelle J).

3. Eatertainment submits that where an offsetting claim is raised in good faith with steps taken to quantify it, the threshold for establishing the existence of either an offsetting claim or a genuine dispute is ‘relatively low’.[13]  Eatertainment further contends it is not for the Court to resolve the parties’ competing claims, and that the company resisting the demand need not advance a fully evidenced claim at the set-aside stage.[14]

   [13]Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 12 ACLC 490 (Young J); John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 (Young J).

   [14]Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 (Hayne J); Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344 (Beazley P, Meagher & Gleeson JJA); TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70 [71] (Dodds-Streeton JA).

4. These contentions are all uncontroversial.

5. Eatertainment contends the quantum of its offsetting claim which exceeds $2,294,512 overwhelms the debt claimed in the Demand,[15] with its loss stemming from Curtis’s failure to progress, and the ultimate ceasing of, the Fit-out Works. 

   [15]In2Ply Pty Ltd (in liq) (receivers and managers appointed) [2014] VSC 603 (Randall AsJ)..

6. In anticipation of Curtis’s contention  regarding the Security for Payment Act 2002 (Vic) (‘SOPA’) outlined below, Eatertainment contends the Representations were false and misleading, and made for the purpose of inducing Eatertainment to enter into the Fit-out Contract.  Eatertainment contends that SOPA is State legislation which deals with interim, not final, payments; it offers no benefit to Curtis as the alleged offsetting claims are not in respect of those interim payments, but rather, false and misleading representations made by Curtis in contravention of the Australian Consumer Law.

7. Eatertainment submits it is clear from the language of the Deed the parties contemplated that rights arising outside its scope are to remain extant and be preserved.  Eatertainment refers to cl 2.7 of the Deed as an example, and states that pursuant to this clause, Curtis preserved its rights outside of the Deed to enforce the full terms of the Fit-out Contract and Deed of Guarantee and Indemnity entered into on 14 July 2022 pursuant to which Mr Pezaros and Eleanor Barratt as guarantors, guaranteed the plaintiff’s obligations.  Eatertainment contends it is evident the parties intended to keep the Fit-out Contract on foot and preserve their rights thereunder in the context of cll 2.7 and 3 of the Deed.

8. As has been mentioned, in his oral submissions Mr Evans contended the application gave rise to two issues for consideration. The first involved a consideration of whether the offsetting claims which Eatertainment now makes were barred by operation of cl 3 of the Deed such that they were not available to be raised in response to the Demand the subject of this application. Mr Evans submitted the second issue involved a consideration of whether prior to the execution of the Deed on 29 January 2024, Eatertainment had offsetting claims in the meaning of s 459H against Curtis. Mr Evans accepted the debt claimed in the Demand was due and payable and determination of the matter essentially concerned whether Eatertainment had an offsetting claim not extinguished by operation of the release provided for in the Deed.

9. Mr Evans went to the terms of cl 3.1 of the Deed which are extracted in para 69 above. He submitted that when the terms of cl 3 are construed, on the plain meaning of the words it does not operate so as to exclude Eatertainment from asserting the offsetting claims.  In this regard, he focused on the inclusion of the words ‘and subject to the payment by the plaintiff of the full amount of the debt and legal fees in accordance with this Deed’.  He submitted that in the absence of those words, the effect of the clause would be to release each party from all claims arising out of the four matters which are identified.  He submitted that by the inclusion of the words, if they are to be given ‘work to do’, that work is that the releases do not operate unless and until Eatertainment makes payment of the full amount of the debt and legal fees in accordance with the Deed. 

10. Mr Evans submitted that given their express meaning, the releases provided by cl 3.1 were only intended to come into effect upon the payment of all of the amounts of the debt and legal fees.  This has not occurred and the parties did not, and have not, agreed to a release of the offsetting claim which Eatertainment now seeks to raise in this application. 

11. Mr Evans observed that cl 5(a) provided for eight rights to be conferred upon Curtis in the event that any payment provided for in the Deed was not made by the date required.  The Deed provided for  instalments for payment of the whole of the amount claimed in the Prior Demand. 

12. He accepted that cl 5(a) includes a right to issue a fresh statutory demand in the event payments were not made as provided for, and Curtis exercised that right by service of the Demand.  Mr Evans observed the Deed does not say, at any point, that Eatertainment is not permitted to contest, or apply to set aside, the statutory demand, and in the course of doing so, raise any offsetting claim available to it.  He contended that while cl 5 provided Curtis could issue a further statutory demand or commence an ordinary inter partes proceeding and obtain judgment, there was no provision that Eatertainment could not resist a fresh statutory demand by raising an offsetting claim that was available against it.

13. As to the enforcement of the Deed, Mr Evans referred to cl 2.7 which states:

    Subject to clause 3, nothing in this Deed affects the right of the Defendant to enforce the full terms of the Fit Out Contract and the Guarantee.

14. Mr Evans stated the language in cl 2.7 says nothing about the existence of claims which are outside the terms of the Fit-out Contract; namely Eatertainment’s claim under the Australian Consumer Law. He contended that in those circumstances, the extent of cl 2.1(d)’s operation falls to be construed in the context of the whole of the agreement, including the operation of the release in cl 3.1. He notes cl 2.7 is expressly identified as being subject to cl 3; that is, subject to the release. Mr Evans contended Mr Hristovski appeared to accept that as the precondition to the activation of the release under cl 3.1 had not arisen, the rights under cl 2.7 could not be said to have arisen. Mr Evans contended cl 5 defines what Curtis’s contractual rights and entitlements were in the event of default; the intention was to set out and identify with clarity and precision what those rights were.

Curtis’s submissions

1. In its written submissions dated 30 May 2024, Curtis contends the principles applying to setting aside statutory demands are well-established, and collected in Re Simmoll Pty Ltd.[16]

   [16][2021] VSC 693 [7]–[19] (Hetyey AsJ).

2. As to the Representations the basis of Eatertainment’s offsetting claims, Curtis contends that the evidence supports the position of Curtis that the First Representation and the Third Representation:

   (a)were never made by Mr Curtis;

   (b)the Fit-out Contract required payments to be made when the milestones identified in para 75 were reached;

   (c)these milestones were not directly referable to the progress of any works at the premises and were not related to the time UEM would pay Eatertainment, but rather, the confirmation of orders and the like as outlined above;

   (d)it would have been evident to Mr Pezaros at the time of signing the Fit-out Contract that it required payment when the milestones were reached, not when Eatertainment was paid by UEM;

   (e)the Third Representation was made on 13 May 2022, and the Fit-out Contract was signed on 14 July 2022.  Between those two dates, there was significant correspondence exchanged by the parties’ legal representatives over the course of which Eatertainment’s request to make payment when it was paid was denied, and the parameters of what was agreed to were clarified;

   (f)as Eatertainment has confirmed in the Deed that the terms of the Fit-out Contract are enforceable and binding, there is no dispute regarding the debt, which negates its offsetting claim;

   (g)the ‘pay when paid’ arrangement Eatertainment seeks to establish is prohibited at law by s 13 of SOPA, which provides that:

   Effect of pay when paid provisions

   (1)A pay when paid provision of a construction contract has no effect in relation to any payment for –

   (a)construction work carried out or undertaken to be carried out under the contract; or

   (b)related goods and services supplied or undertaken to be supplied under contract.

   (2)In this section –

   “money owing”, in relation to a construction contract, means money owing for –

   (a)       construction work carried out under the contract; or

   (b)       related goods and services supplied under the contract.

   “pay when paid” provision of a construction contract means a provision of the contract –

   (a)that makes the liability of one party (the first party) to pay money owing to another party (the second party) contingent on payment to the first party by a further party (the third party) of the whole or any part of that money; or

   (b)that makes the due date for payment of money owing by the first party to the second party dependent on the date on which payment of the whole or any part of that money is made to the first party by the third party; or

   (c)that otherwise makes the liability to pay money owing, or the due date for payment of money owing, contingent or dependent on the operation of another contract.

   (h)as the ‘pay when paid’ arrangement is specifically precluded by statute, consumer law and equity would not assist Eatertainment in enforcing such an arrangement.

3. Curtis contends there was nothing in the Fit-out Contract requiring it to progress the Fit-out Works where the milestones for payment are unrelated to the progress of the fit-out, and where it is entitled by cl 4.5 to suspend all work when it is not paid. 

4. Mr Hristovski contended that cl 5.1(a)(v), extracted above in para 70, provided that Eatertainment and the guarantors would not take any steps to defend any legal proceedings issued by Curtis. Mr Hristovski argued it made provision for consent to enter into a judgment, which might mean Eatertainment could not raise a set-off argument in defence of a claim for judgment, given the definition of offsetting claim in s 459H of the Act, to prevent it being raised in the context of an application to set aside the Demand.

5. Curtis submits it has complied with the Fit-out Contract and seeks payment of the money owed to it as acknowledged in the Deed.

Legal principles

1. Section 459G of the Act states:

   Company may apply

   (1)A company may apply to the Court for an order setting aside a statutory demand served on the company.

   (2)An application may only be made within the statutory period after the demand is so served.

   (3)An application is made in accordance with this section only if, within that period:

   (a)an affidavit supporting the application is filed with the Court; and

   (b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

2. Section 459H of the Act provides:

   Determination of application where there is a dispute or offsetting claim

   (1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:

   (a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

   (b)that the company has an offsetting claim.

   (2)The Court must calculate the substantiated amount of the demand in accordance with the formula:

   Admitted total – Offsetting total

   where:

   “admitted total” means:

   (a)       the admitted amount of the debt; or

   (b)the total of the respective admitted amounts of the debts;

   as the case requires, to which the demand relates.

   “offsetting total” means:

   (a)       if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or

   (b)       if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or

   (c)otherwise—a nil amount.

   (3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.

   (4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:

   (a)       varying the demand as specified in the order; and

   (b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.

   (5)       In this section:

   “admitted amount”, in relation to a debt, means:

   (a)if the Court is satisfied there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or

   (b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or

   (c)otherwise—the amount of the debt.

   “offsetting claim” means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).

   “respondent” means the person who served the demand on the company.

   (6) This section has effect subject to section 459J.

3. The principles governing the setting aside of statutory demands are well settled and have been collected in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liquidation) (‘Malec’).[17] The Court held that s 459H requires the plaintiff only to establish the existence of a genuine dispute or offsetting claim, and as that claim need not be fully evidenced, the plaintiff does not face a difficult or demanding task.[18]  

   [17][2015] VSCA 330 (Kyrou, Ferguson & Kaye JJA) (‘Malec’).

   [18]Ibid, [47]; TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA); Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 [23] (Barrett J).

1. The Court in Malec further held that:

   In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute.  This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim.  It is therefore 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.  Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.

   The court is not required to accept uncritically 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, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth.  The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or offsetting claim.  Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.

   Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd involved a demand for payment of a debt alleged to be due under a contract for the supply of goods.  The applicant relied on four matters, each of which had the potential to affect the respondent’s entitlement to be paid the entire amount of the debt.   Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute.  He relevantly stated:

   The [applicant] will fail in [the] task [of establishing a genuine dispute] only if…the conventions upon which it seeks to rely…are so devoid of substance that no further investigation is warranted.  Once the [applicant] 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 [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.

   [citations omitted][19]

   [19]Malec, [48]-[51].

2. In Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[20] Dodds-Streeton J observed, in respect of the  role of the Court in these applications in going about determining whether a dispute or offsetting claim was genuine:

   While it is not a very exacting standard, on the other hand mere assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice.  The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which ‘bears on whether or not the asserted dispute or off-setting claim is genuine’.  Indeed, that is its necessary function.[21]

   [20][2006] VSC 508 (Dodds-Streeton J).

   [21]Ibid, [48].

3. In Re Alliance Paper Pty Ltd (‘Alliance’),[22] I stated:

   [22][2024] VSC 457 (AsJ Gardiner) (‘Alliance’).

   In Ligon 158 Pty Ltd v Huber, Barrett AJA described the role of the Court in this context in the following way:

   The issue for the Court is not whether the company would succeed on those grounds in defending a debt recovery action brought against it by the person who served the statutory demand.  Rather, the Court must decide whether the grounds of dispute delineated by the affidavit are grounds which, when viewed in the whole of the circumstances emerging from the evidence, indicate a plausible defence propounded in good faith and not one merely constructed in response to the pressure represented by the statutory demand.  Issues of credibility will generally be confined to the question whether the asserted grounds are of that quality, as distinct from questions going to the ultimate merits of the postulated defence itself …

   In Yoogalu Pty Ltd v Intentia Australia Pty Ltd, Barrett J stated:

   The learned Master was echoing sentiments expressed by Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 … it was emphasised that a court considering a s.459G application is not a debt collecting court. Its sole function is to determine whether or not the state of account between the parties is (as to the particular matters referred to in s.459H(1)) so clear-cut and uncontroversial that non-payment of the sum demanded by the defendant should, entirely of itself and without further inquiry, mean that the plaintiff must, in a subsequent winding up proceeding, be regarded as insolvent unless it can itself affirmatively prove its solvency.

   In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2), Barrett J described the threshold to be passed in order for an applicant to succeed in its application to set aside a demand as follows:

   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.

   In my decision of Re McKeown Marrs Pty Ltd, I discussed the nature of the threshold which a plaintiff was required to satisfy for a statutory demand to be set aside:

   In his work ‘Assaf's Winding Up in Insolvency’ the author provides a detailed discussion concerning the approach of the Courts to determining whether a genuine dispute exists (or if the circumstances are such, there is a genuine offsetting claim). After observing that the threshold is a low one and by no means a difficult or demanding one to satisfy, the author, with reference to observations made in settled case law, observes that the Court's state of mind concerning the existence of a genuine dispute or claim may range from ‘a clear conviction that the debt does not exist’ to ‘an opinion that the genuine dispute hurdle has only just been cleared’.

   The approach in some authorities is likened to that of a Court considering an application for summary judgment. Reference was made to the observations of the Queensland Court of Appeal in JJMMR Pty Ltd v LG International Corporation where it was observed that the task of the Court in a genuine dispute case is to decide whether there is a dispute ‘such as would warrant subsequent adjudication’.  Put in another way, the Court attempts to ascertain whether the alleged dispute or claim raises a ‘triable issue’ in relation to the demand.

   Assaf makes reference in this context to the decision of Lindgren J in Rohalo Pharmaceutical Pty Ltd v RP Scherer SpA & Pharmagel SpA where it was observed that a creditor will not be entitled to summary judgment if the defendant raised a defence or cross-claim deserving of trial and concomitantly, a defence or cross-claim would not be struck out or dismissed if it raised an issue deserving a trial. An application to set aside a demand involving the extra-curial ‘remedy’ of ‘presumption of insolvency’ under s 459C of the Act is no less draconian than the summary curial remedy of judgment for debt. For this reason, the author observes that the standard of satisfaction which a court requires in being satisfied of the existence of a genuine dispute is not a particularly high one. Mr Assaf states that the task of an applicant to set aside a statutory demand is no more onerous than that which would confront it if it were seeking to meet an application from the creditor for summary judgment.

   The author draws attention to other principles which come into play in the exercise. First, the Court should not embark upon any extended inquiry and will not attempt to weigh or assess the merits of the dispute. In the present context, as Mr Fary contends, the Court should not engage in an inquiry as to the credit of the deponent of the affidavit filed in support of the application except in extreme cases. Nor should the Court decide or resolve contested issues of fact and law which have a significant or substantial basis. The jurisdiction of s 459H obliges the Court to conclude whether there is a genuine dispute or claim; the Court should not express a view as to the issue of the existence of the debt. The Court's jurisdiction is restricted to determining whether there is plausible evidence to establish the existence of a genuine dispute or claim, not whether the evidence was disputed or even likely to be accepted at a final hearing of any such claim at a conventional inter partes proceeding.

   Assaf made reference to the observations of Barrett J in Panel Tech Industries Aust Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) where it was observed:

   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.

   In a similar vein, the Victorian Court of Appeal observed in Spa Corp:

   The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.

   We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.

   Mr Assaf concludes his review of the relevant principles with the observation that another aspect of assessing genuineness requires that the serious question or plausible contention not be something merely created or constructed in response to the pressure represented by the service of the statutory demand.

   [citations omitted][23]

   [23]Alliance (n 22), [160]–[163].

4. Eatertainment presses a contention that the release provided for in cl 3.1 in the Deed be construed to operate in the way contended by Mr Evans in his submissions.  The jurisdiction of the Court to resolve questions of construction in applications of the present type was considered by the Court of Appeal of the New South Wales Supreme Court in Creata (Aust) Pty Ltd v Faull (‘Creata’).[24]  Creata concerned an application which required consideration of the terms of a deed entered into by the appellant and respondent as a consequence of the respondent ceasing to act as chief financial officer of the appellant.  The deed provided that the respondent gave, inter alia, a confidentiality undertaking to the appellant, who agreed to pay five annual payments to the respondent.  The appellant’s obligation to make those payments was to cease upon discovery of any breach by the respondent of the confidentiality undertaking.  The respondent served a statutory demand relating to an instalment payment he claimed was payable pursuant to the deed on the appellant.  The appellant’s case was that the respondent breached the confidentiality undertaking, in the context of ‘confidential information’ as it was defined in the deed and the dispute turned on the construction of the confidentiality undertaking as contained in the deed.

   [24][2017] NSWCA 300 (Gleeson & White JJA, Barrett AJA) (‘Creata’).

5. Barrett AJA described the following principles for application on the question of construction of the Deed:

   The grounds of appeal raise squarely the question of the extent to which it is open to the court to decide questions of construction in s 459H(1)(a) cases. In every such case, the issue is, of course, merely whether it has been shown that a “genuine dispute” exists. In determining that issue, the court is neither required nor expected to avoid all issues of construction. Where a contract contains a simple and unambiguous promise to pay, the court embarks on a task of construction (albeit not a difficult or controversial one) in determining that that promise creates a debt and no argument to the contrary is plausible. But where the question of construction has any element of rational controversy to it, the court must exercise particular restraint.

   That matter was recently addressed by Gleeson JA in both Re Litigation Insurance Pty Ltd [2017] NSWSC 334 and Re Linton Developments (Qld) Pty Ltd [2017] NSWSC 336. In each of those cases, his Honour quoted the following passage in the judgment in Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [45]:

   A dispute as to the existence of a debt that is the product of a dispute about construction is not removed from s 459H(1)(a) just because the issue in contention is one of construction. While it has been said that ‘a short point of law or the construction of documents or agreed facts’ may, unlike a disputed question of fact, be determined upon a s 459G application (see Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at 384), it does not follow that the court is compelled to make such a determination. In the case of a legal argument, determination might be appropriate if it were, in the words of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, a ‘patently feeble legal argument’.

   Gleeson JA also referred to a similar formulation in Wellnora Pty Ltd v Fiorentino (2008) 66 ACSR 229; [2008] NSWSC 483 at [50] where attention was drawn to what was said by Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 (‘Spacorp’) at [4]:

   We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), Judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question.  For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.

   After referring to a summary of the position in in Broadspectrum (Australia) Pty Ltd v Centauri Business Services Pty Ltd [2016] NSWSC 1045 at [22] and the statement by this Court in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 (‘Ligon’) at [11] concerning the restraint that a court should exercise in considering the “ultimate question” of the indebtedness of a company served with a statutory demand (as distinct from the question whether genuine dispute exists), Gleeson JA said:

   The important points to be derived from the authorities are as follows. First, the court dealing with a s 459G application is not compelled to determine questions of construction of documents. Second, s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. Third, cases in which it will be appropriate for the court to entertain a construction argument on a s 459G application are likely to be few in number. Fourth, the court’s state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared.[25]

   [25]Ibid, [26]–[29].

Consideration

1. I accept Mr Evans’ submission referred to above in para 7 that resolution of this application requires an analysis of the two issues he has identified concerning first the terms of the release and the second, whether there is a genuine offsetting claim.

Does the release under cl 3 of the Deed operate to prevent Eatertainment from raising the offsetting claims it now seeks to make ?

1. The case law to which I have referred above in respect of resolutions of construction in applications to set aside statutory demands provides that if the question  is straightforward and of little complexity, it is permissible for the Court to resolve the issue of construction  in the application.  In my opinion, this is such a case.

2. The terms of the release are found in cl 3.1 of the Deed and set out in para 69 above.  Upon execution of the Deed, Eatertainment agreed to pay the full amount of the debt claimed in the Prior Demand without any deduction.  This was to be done by payment of several instalments, and Eatertainment would not pursue its application to set aside the Prior Demand, in consideration for Curtis agreeing to withdraw its Demand.  There is no controversy that Eatertainment has not made the payments it was obliged to make under the Deed.

3. The authorities to which reference has made been indicate that my task in the present context  is confined to determining whether it is arguable that the release provided for by cl 3 is conditioned by the inclusion of the words ‘and subject to the payment by the plaintiff of the full amount of the debt and legal fees in accordance with this deed…’ so as to operate in the way that Mr Evans contends.

4. In my opinion, for the purpose of the present context, it is arguable the releases provided by the terms of cl 3.1 are conditional on payment in full by Eatertainment of the debt and legal fees, and it is only when this event has occurred that the mutual releases come into operation.  If the words in the italicised phrase in the previous paragraph are to be given ‘work to do’, which I consider they have to be, they arguably have the effect for which Mr Evans contended.  Rather than Curtis receiving a release in consideration for entry into the Deed, and Eatertainment’s release only being given when it has made payment of the full amount of the debt and legal fees, as might be expected having regard to the general substance of the transaction, the operation of the releases provided by the parties in the Deed first required Eatertainment to perform its payment obligations. 

5. By reason that Eatertainment has not made ‘payment…of the full amount of the Debt and Legal fees’, it is arguable that the releases provided by cl 3.1 are not in effect and Eatertainment is not prevented by that clause from raising an offsetting claim in the present application.  For this reason, I consider that Eatertainment succeeds on that issue, thereby entitling it to a consideration of whether it has an offsetting claim. 

Has Eatertainment established it has a genuine offsetting claim

1. In essence, Eatertainment’s offsetting claim for the various categories of loss it identifies involve a contention that, by the First Representation and the Third Representation, Curtis induced Eatertainment to enter into the Fit-out Contract and represented that it was prepared to await payment for invoices until such time that Eatertainment had been put in funds to make that payment by UEM.  Eatertainment says that by Curtis subsequently insisting upon payment of Invoice No 2312, the subject of the Demand, it brought about a breakdown in the commercial relationship between UEM and Eatertainment, resulting in the  losses the subject of the offsetting claims totalling $2.97 million.  I note however, that in his first affidavit, Mr Pezaros contended that the offsetting claims arose because Curtis did not perform the Fit-out Works within the timeframe required for UEM to pay the Fit-out Contribution, which Mr Pezaros contends Curtis knew to be the source of funding for the Fit-out Works.[26]

   [26]Affidavit of George Pezaros, sworn 22 March 2024, [101].

2. At the outset of my consideration of whether Eatertainment has established that it has such a genuine offsetting claim, it is appropriate to refer to several significant features of the evidence in respect of the negotiations leading up to the entry into the Fit-out Contract and subsequently when Eatertainment made application to set aside the Prior Demand and entered into the Deed. 

3. The communications between the solicitors engaged by the parties to prepare the Fit-out Contact are detailed above.[27]

   [27]See para 79 and following.

4. After the initial discussions between Messrs Pezaros and Curtis, the preparation of the Fit-out Contract was commenced by the parties solicitors in late April 2022.  It is clear the issue of when Eatertainment was required to make payment of invoices was very prominent in the negotiations conducted by the lawyers respectively engaged by the parties in the drafting of the Fit-out Contract. 

5. On 3 May 2022, Eatertainment’s solicitor, Mr Panagiotidis, after receiving a copy of the draft Fit-out Contract from Mr Archibald of Burch & Co, emailed Mr Archibald stating that Eatertainment could not agree to Curtis’s payment terms and made a specific request of Mr Archibald that the Fit-out Contract provide that Eatertainment only be required to pay invoices once it had been paid by UEM.  Mr Panagiotidis stated that ‘all other terms of the agreement are generally acceptable’. 

6. Mr Curtis states in his evidence that he did not agree to this amendment. Consistent with this evidence, on 6 May 2022, Mr Archibald emailed Mr Panagiotidis stating that the draft contract had been amended to extend the payment time from seven days to 14 days, but that Curtis required certainty as to when payments would be made and would not agree to a ‘pay when paid’ provision as sought by Eatertainment. 

7. On 13 May 2022, Mr Panagiotidis restated his request to Mr Archibald, suggesting there be a provision for Curtis to be paid within three days of Eatertainment being paid by UEM.  It is at this time Mr Pezaros states Mr Curtis made the Third Representation which was not mentioned in his affidavit in support of the application to set aside the Prior Demand of 17 August 2023.  Mention was only made of the Verbal Variation Agreement, which Mr Pezaros contended was reached well after the formation of the Fit-out Contract in June 2023.

8. There is no evidence of any communications between the parties occurring from 13 May 2022 until 14 June 2022, when Mr Archibald emailed Mr Panagiotidis with an updated draft of the Fit-out Contract which contained a provision (cl 4.2(b)) providing for payment within 14 days of invoice.  In response, Mr Panagiotidis emailed Mr Archibald, observing that the issues raised by Mr Panagiotidis in his 13 May 2022 email had not been addressed, and stated he would need to seek further instructions from his client.

9. On 15 June 2022, Mr Archibald emailed Mr Panagiotidis and restated Curtis was not able to agree on open ended payment terms and but was prepared to agree to a term whereby it would be paid within 14 days of issuing an invoice, despite its usual terms which required seven day payment.

10. On 27 June 2022, Mr Archibald followed up with Mr Panagiotidis by way of email, seeking Eatertainment’s comments on the draft Fit-out Contract sent on 14 June 2022. 

11. On 28 June 2022, Mr Panagiotidis emailed Mr Archibald stating he had instructions that his client was agreeable to the terms and would sign the Fit-out Contract.  The Fit-out Contract was signed on 14 July 2022. 

12. The Fit-out Contract is, as may be expected having regard to the scale of the transaction involved, a detailed and formal legal document, particularising the parties respective obligations.  On the front page, under the heading ‘payment terms’, various milestones identifying Curtis’s entitlement to progress claims are set out.  It was in respect of the achievement of several of those stages that Curtis sought payment under its invoice.  As contemplated in the exchanges which took place between the solicitors culminating in the indication that Eatertainment would sign the agreement, cl 4.2 provided that Eatertainment agreed to pay all tax invoices within 14 days of the provision by Curtis for the valid tax invoice.  The terms of the entire agreement clause, cl 16.3, are extracted in para 25 above and provide that the Fit-out Contract embodied the ‘entire agreement’ between the parties and superseded all prior agreements and understandings between the parties.[28]

    [28]See para 25 above.

13. Curtis commenced the Fit-out Works on or about 14 July 2022.  On 14 October 2022, Curtis issued Invoice No 2312, relying on the achievement of several of the milestones identified in the Fit-out Contract. 

14. At about this time, Eatertainment apparently became involved in a dispute with UEM in relation to the release of the Fit-out Contribution.  UEM released $165,000 in late August 2022, but declined to pay any further Fit-out Contribution monies stating no further payments were justified.  Mr Pezaros’s evidence is that in late 2022, Eatertainment engaged solicitors to act on its behalf in connection with UEM’s refusal to release Fit-out Contribution monies to it.  While he says this became necessary because of Curtis’s acting contrary to the First and Third Representations, Eatertainment did not seek to initiate proceedings against Curtis.  While Eatertainment contended in its written submissions that its grievance with Curtis ultimately gave rise to Eatertainment’s losses by reason of its relationship breakdown with UEM because Curtis had not performed the work to justify payment, it has been seen that ultimately, in the Deed it agreed to pay the full amount of the invoice  claimed in the Prior Demand.

15. On 17 February 2023, Curtis’s solicitors sent a demand to Eatertainment’s solicitors demanding $801,900, together with interest in respect of the amounts outstanding under Invoice No 2312. 

16. The dispute between Eatertainment and UEM continued until about June 2023, when they entered into a deed of settlement, a variation of lease and an escrow deed, the terms of which are described in para 44 above. 

17. On 18 July 2023, Curtis’s solicitors emailed Eatertainment’s solicitors, enclosing a copy of the February 2023 Demand, together with a draft agreement setting out a proposed payment schedule regarding the payment of Invoice No 2312. 

18. On 26 July 2023, Eatertainment’s solicitors received an email from Burch & Co containing the Prior Demand, seeking payment of the invoice for the sum of $701,900, being the amount of the invoice less the payment of $100,000 which had been paid on April 2023. 

19. On 16 August 2023, Eatertainment’s solicitors wrote to Curtis’s solicitors advising that their client disputed the debt claimed by Curtis in the Prior Demand on a number of grounds.  They contended there was a genuine dispute as to the existence and quantum of the works and made reference to what is described by Mr Pezaros as the Verbal Variation Agreement said to have been made in or about June 2023 between Messrs Curtis and Pezaros to vary the Fit-out Contract on the basis that Curtis would ‘not seek immediate payment of invoices’  In their letter, Eatertainment’s solicitors stated that the works on the premises have not reached 60% completion by reason of issues between Eatertainment and UEM.  The Verbal Variation Agreement referred to, which was said to have been made in June 2023, is, by reference to its date, clearly not the Third Representation which is said to have been made in May 2022, prior to the entry into the Fit-out Contract on 14 July 2022.

20. In the 16 August letter, Eatertainment’s solicitors contended that, in breach of the Verbal Variation Agreeement, Curtis sought to render and enforce invoices under the Fit-out Contract prior to the works reaching 60% completion and that Curtis had thereby breached the Fit-out Contract and the Verbal Variation Agreement.  It was said that the value of the works conducted by Curtis was far less than the alleged outstanding sum of $701,900 claimed in the invoice.  This is despite the fact that the invoice was making a claim based on the achievement of the milestones provided for in the Fit-out Contract for payment.

21. On 17 August 2023, Eatertainment commenced a proceeding making application under s 459G of the Act to set aside the Prior Demand under ss 459H and 459J on the bases that there existed a genuine dispute, Eatertainment had an offsetting claim and there was ‘some other reason’ the Prior Demand ought to be set aside.

22. Mr Pezaros swore an affidavit in support of the application to set aside the Prior Demand.  After making reference to the terms of the Fit-out Contract, he contended that there was a genuine dispute which involved a contention that the work claimed in the invoice had not been completed to the level claimed in it.  Reference was made to the letter of 16 August from Eatertainment’s solicitors, providing particularisation as to the dispute, including the agreement said to have been reached in June 2023 to vary the Fit-out Contract on the basis that Curtis would not seek immediate payment of invoices.  Again, this cannot be a reference to Mr Pezaros’s contention as to the Third Representation, but was allegedly made after the entry into the Fit-out Contract.  There is an obvious inconsistency and the affidavit in support of the Prior Application to set aside the Demand which made no mention of the Third Representation, only the Verbal Variation Agreement of June 2023. 

23. Mr Pezaros’s affidavit in support of the application to set aside the Prior Demand also contends that there was an offsetting dispute in respect of the debt claimed.  That offsetting claim is described in para 59 above.  It is an offsetting claim of quite a different character and magnitude to that now sought to be raised by Eatertainment. 

24. Certainly, there was no reference in Mr Pezaros’s 17 August 2023 affidavit to the offsetting claim for $2,294,512 which it now seeks to raise in response to what is, in essence, the very same debt. 

25. Mr Pezaros asserts that if Eatertainment and its solicitors had utilised more time in the preparation of his affidavit in support of the application to the set aside the Prior Demand, the matter contained in the affidavit in support of the current application would have been raised ‘or otherwise better articulated’.  I consider that to be a most unconvincing explanation as to why it is only now that a claim of such magnitude is being raised.  The scale of the claim and the facts giving rise to its existence would have been apparent and formed the basis of an obvious response to the Prior Demand in the application to set it aside.

26. The dispute between UEM and Eatertainment persisted, and came to a head in September 2023 with UEM asserting Eatertainment repudiated the Lease, which it accepted.  Eatertainment obtained injunctive relief against UEM in VCAT.  The losses said to have been incurred by Eatertainment which it seeks to visit on Curtis by the offsetting claim in this application are said to directly or indirectly arise from these events occurring in the dispute between UEM and Eatertainment. 

27. The application to set aside the Prior Demand was set down for hearing after the completion of interlocutory steps on 29 January 2024.  On that day, Eatertainment and Curtis resolved the application by entering into the Deed, the terms of which are detailed above.  In substance, the Deed amounted to a complete capitulation by Eatertainment.  There was no discounting or allowance made in respect of the offsetting claim raised in the application, the only concession being granted to Eatertainment being the provision of payment of the full amount of the Prior Demand by instalments.  Such capitulation was inconsistent with any contention that Eatertainment had offsetting claims of the scale and type it now raises.

28. Mr Pezaros asserts the Deed did not fully resolve all issues between the parties.  Although, as I have said, I consider it as arguable that the release provision in cl 3.1 should be construed only to operate upon Eatertainment’s payment and full amount of the debt and legal costs, the Deed contains no mention or reservation of Eatertainment’s rights in respects of claims it may have under the Fit-out Contract.  It entered into the Deed whereby it admitted the debt and no mention is made of any contention that the debt was not payable by reason of the Representations said to have been made by Mr Curtis.

29. Eatertainment made two payments to Curtis under the terms of the Deed, but in March 2024 sought an extension of time to make the next payment under the Deed.  Curtis refused that request and served the Demand subject of this application. 

30. It is contended by Mr Pezaros that contrary to the First Representation and Third Representation, Curtis did not perform the Fit-out Works within the timeframe required so as to require UEM to pay out the Fit-out Contribution.  Such an assertion was not made in support of the application to set aside the Prior Demand, despite the fact that such a contention would have been apparent and available at that time.  The offsetting claims involve a contention that, by reason of Curtis’s requirement to be paid within 14 days of invoice, this was the source of all the categories of loss which it seeks to visit on Curtis by its offsetting claims.  As I have observed, all of the elements and events giving rise to the various alleged categories of loss had arisen by the time of the Deed or flowed from events which had occurred prior to the terms of the Deed being struck.

31. The jurisdiction I exercise in determining whether there is a genuine offsetting claim requires that I be satisfied that Eatertainment, which bears the onus, has proved there is a plausible contention requiring investigation as to the existence of that offsetting claim.  In that exercise, the authorities confirm that the Court is not obliged to accept uncritically every statement in an affidavit without regard to its prima facie plausibility.  I consider that the position being put by Mr Pezaros in regard to the First Representation and Third Representation flies against all the contemporaneously generated documentation.  It was clear the issue of the ‘pay when paid’ term was of considerable importance to both parties and this is reflected in the protracted and concerted exchange between the solicitors acting on behalf of the parties in regard to it.  This culminated in Eatertainment, through its solicitors, accepting Curtis’s position in that regard and Eatertainment executing the Fit-out Contract embodying an obligation to make payment within 14 days of invoice.  The Fit-out Contract contains an entire agreement clause.[29]

    [29]See cl 16.3 of the Fit-out Contract which is extracted at para 25 above. 

32. Further, Eatertainment, which bears the onus of establishing it has genuine claims, has not in my view established that the losses it claims are attributable to any alleged conduct by Curtis.  The various categories of loss would appear to flow directly from its ongoing disputes with UEM, which it contends should be visited on Curtis.

33. I consider that, having regard to the various features of the evidence which I have highlighted, Eatertainment’s offsetting claims are not bona fide, are spurious and have the hallmarks of being ‘merely constructed in response to the pressure represented by the statutory demand’.[30]  As such, I consider that Eatertainment has not discharged the onus which it bears and that its application should be dismissed with costs.

    [30]See passage of Ligon 158 Pty Ltd v Huber extracted at para 116 above.

Conclusion

1. I will order that the plaintiff’s application be dismissed and that the plaintiff pay the defendant’s costs, including any reserved costs.  

SCHEDULE OF PARTIES

S ECI 2024 01325
BETWEEN:
EATERTAINMENT GROUP PTY LTD (ACN 639 827 188)	Plaintiff
- v -
CURTIS FAMILY DEVELOPMENTS PTY LTD (ACN 149 238 273) AS TRUSTEE FOR THE CURTIS FAMILY TRUST	Defendant