Re Emerging Energy Solutions Group Pty Ltd (No 2)
[2024] VSC 393
•5 July 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2024 00086
IN THE MATTER of EMERGING ENERGY SOLUTIONS GROUP PTY LTD
(ACN 152 953 412)
BETWEEN:
| EMERGING ENERGY SOLUTIONS GROUP PTY LTD (ACN 152 953 412) | Plaintiff |
| v | |
| BP ENERGY ASIA PTE LIMITED (ACN 132 362 344) | Defendant |
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JUDGE: | Barrett AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 24 June 2024 |
DATE OF JUDGMENT: | 5 July 2024 |
CASE MAY BE CITED AS: | Re Emerging Energy Solutions Group Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 393 (revised 22 July 2024) |
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CORPORATIONS – Corporations Act 2001 (Cth) – Application to set aside a statutory demand pursuant to s 495G – Whether there is a genuine dispute as to existence of the debt – Plaintiff and defendant entered into contracts for the forward sale of carbon credits – Plaintiff defaulted under contracts – Contracts provided mechanism for calculation of amount owing in the event of default – Defendant calculated amount owing in accordance with contractual mechanism and claimed that amount in statutory demand – Whether claimed amount is a debt for purposes of s 459E – Meaning of ‘debt’, ‘liquidated demand’, ‘liquidated claim’ and ‘liquidated sum’ – Held: amount claimed in statutory demand is a debt for the purposes of s 459E – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B Devanny | G E Law Services |
| For the Defendant | Mr D F McAloon | Allens |
Contents
Introduction
Background
Legal principles
Submissions
Consideration
Conclusion
HIS HONOUR:
Introduction
This is an application by the plaintiff[1] pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Corps Act’) to set aside a statutory demand seeking payment of AUD 24,290,939.93 (equivalent to NZD 26,205,066 converted to AUD at the Reserve Bank of Australia Foreign Currency Exchange Rate of AUD 1 to NZD 1.0788 as at 20 December 2023) said to be due and owing upon the termination of seven contracts for the forward sale of carbon credits. The plaintiff contends that the amounts claimed are not debts but rather are claims for unliquidated damages, and therefore not properly the subject of a statutory demand.
[1]By Originating Process filed 11 January 2024.
The plaintiff relies on:
(a)the affidavit of Sandro Kunda affirmed 11 January 2024;
(b)the affidavit of Mohammed Syed affirmed 27 March 2024; and
(c)written submissions filed 15 April 2024.
The defendant relies on:
(a)the affidavit of Emily Joan Robertson affirmed 11 March 2024; and
(b)written submissions filed 22 April 2024.
Background
Between 8 November 2022 and 14 December 2022, the plaintiff and defendant entered into eight contracts for the forward sale of carbon credits. The carbon credits are described as New Zealand units (‘NZU’) as that term is defined in the Climate Change Response Act 2002 (NZ), issued under a New Zealand emissions trading scheme. The total value of the NZU agreements was NZD 78,550,500. The relevant contracts are:
(a)contract number 6067480 dated 8 November 2022;
(b)contract number 6073415 dated 10 November 2022;
(c)contract number 6089554 dated 21 November 2022;
(d)contract number 6101130 dated 24 November 2022;
(e)contract number 6104256 dated 25 November 2022;
(f)contract number 6119780 dated 5 December 2022; and
(g)contract number 6123914 dated 6 December 2022.
In addition to the seven contracts in paragraph 4 above, the parties also entered into contract number 6141067 dated 14 December 2023. The defendant issued a creditor’s statutory demand in relation to this contract. As discussed further below, the plaintiff unsuccessfully sought to set that statutory demand side,[2] and the amount claimed in it has been paid by the plaintiff.
[2]Re Emerging Energy Solutions Group Pty Ltd (Unreported, Supreme Court of Victoria, Efthim AsJ, 6 October 2023) (‘Re Emerging Energy Solutions’).
Each of the agreements adopts a set of standard terms. The agreements include clause 1 which defines ‘settlement amount’; clause 4 which permits the defendant to require adequate performance assurances; clause 5 which describes events of default; and clause 6 which sets out what is to occur in the event of default. Those clauses are below:
1. Definitions
…
“Settlement Amount” means an amount that the non-Defaulting Party in good faith and in a commercially reasonable manner determines to be its resulting losses and costs (or gain, in which case expressed as a negative number) including its loss of bargain (based on the difference between the contract price and the market price), cost of funding (based on actual costs of such Party whether or not greater than market costs) or, without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or re-establishing any related trading position (or any gain resulting from any of them). It does not include legal fees for out-of-pocket expenses).
…
4. Adequate Assurances
If the Seller has reasonable grounds to believe that the Buyers creditworthiness or performance under the Contract has become unsatisfactory, the Seller will provide the Buyer with written notice requesting performance assurance in the form of cash or a letter of credit (in the form and from an institution acceptable to the Seller is reasonably exercise discretion), in amounts determined (sic) the Seller in a commercially reasonable manner. Upon receipt of such notice, the Buyer shall have 2 Business Days to provide such performance assurance to the Seller. The costs of opening any such letter of credit shall be for the Buyers account. Failure by the Buyer to provide such performance assurance within the time specified above shall be deemed an Event of Default under this Contract..
5. Events of Default
An event of default (“Event of Default”) shall mean with respect to the Buyer or the Seller (“Defaulting Party”) any of the following:
(a) failure to make when due any payment required under this Master Agreement if such failure is not remedied within 3 Business Days after written notice has been given;
(b) the material breach of any covenant or obligation set forth in this contract including but not limited to any failure to transfer or accept Carbon Credits in accordance with this Contract, and such failure is not cured within 3 Business Days after written notice is given to the Defaulting Party;
(c) the occurrence of an Insolvency Event;
(d) the occurrence of a Merger Event;
(e) the occurrence of a Material Adverse Change; and/or
(f) for failure to provide the performance assurance in accordance with Clause 4 (Adequate Assurances) above.
6. Formation of contract and remedies
The contract is formed and becomes binding and enforceable upon execution of the contract details by both the buyer and seller.
(a) If an Event of Default has occurred and is continuing, the non-defaulting party may, in its sole discretion, designate a day no earlier than the day such notice is effective as an early termination date (“Early Termination Date”)
(b) On the Early Termination Date, all obligations due on or after the Early Termination Date under this Contract shall be terminated. If an Early Termination Date has been designated, the non-defaulting party shall calculate the Settlement Amount as of the Early Termination Date (or as soon after as is reasonably practicable). The non-defaulting party shall aggregate all amounts due between the Parties into a single net amount (“Termination Payment”) by adjusting the Settlement Amount by any unpaid amounts due and payable under this Contract.
(c) The non-defaulting Party shall notify the Defaulting Party in writing of the amount of the Termination Payment and whether the Termination Payment is due to or from the Defaulting Party. The Party owing the Termination Payment shall make payment of the Termination Payment to the other Party within (2) Business Days after the effective date of such notice.
There is no dispute in this case that:
(a)the plaintiff defaulted under the relevant contracts;
(b)by letter dated 28 April 2023, the defendant issued a Notice of termination and designated an early termination date of 28 April 2023;
(c)the defendant calculated what it submits is the Settlement Amount pursuant to the terms of the contract;
(d)the defendant notified the plaintiff that the Termination Payment was due; and
(e)the plaintiff did not pay the termination payment to the defendant within 2 days of notice.
The schedule to the statutory demand describes the amounts claimed in each of the invoices and sets out how those amounts were calculated. The form of the calculations for each invoice are substantially the same.[3] The description and calculations in relation to invoice 1 are set out below as an example:
[3]The form of the calculations for termination payments 2 to 7 mirror the form of tranche 2 of the first termination payment.
Amount owing by the Company to the Creditor under the Contract for Forward Sale of Carbo Credits (Trade reference No: 60668480) entered into between Company and the Creditor dated 8 November 2022 (First Contract). The amount owing reflects the “Termination Payment” (as that term is defined in the First Contract) of NZD 7,061,093 as detailed in the Notice of Termination issued by the Creditor to the Company dated 28 April 2023 (First Termination Payment).
The First Termination Payment comprises the sum of:
1. Tranche 1
The difference between (a) the Unit Price of NZD 89.95 as stipulated in Contract 6068480, and (b) the spot settlement price of NZD 56 based on the last transacted spot price for NZUs delivered on 3 April 2023 obtained on CommTrade as at 8 p.m. (Wellington time) on 28 April 2023; multiplied by
The Quantity of Carbon Credits to be purchased by the Company under tranche 1 of the First Contract, which is 70,000; and
Converted at the Reserve Bank of Australia Foreign Currency Exchange rate of AUD 1 to NZA 1.0788 as at 20 December 2023.
2. Tranche 2
The difference between (a) the Unit Price of NZD 89.95 as stipulated in Contract 6068480, and (b) the implied market price of NZD 56.04 of Carbon Credits (NZUs) to be delivered on 1 May 2023 (i.e. the agreed delivery date in the First Contract) calculated based on the last transacted spot price and assessed forward prices for NZUs obtained on CommTrade as at 8 p.m. (Wellington time) on 28 April 2023; multiplied by
The Quantity of Carbon Credits to be purchased by the Company under tranche 2 of the First Contract, which is 70,000; minus
The amount of NZD 1,056 (representing a discount) calculated based on the 1 month New Zealand Dolar Overnight Indexed Swap plus 0.32% (being incremental charge reflecting the Creditor’s cost above market funding rate), to reflect the implied gain to the Creditor on the assumption that it will receive payment in advance of the agreed payment date in the First Contract as a result of the termination; and
Converted at the Reserve Bank of Australia Foreign Currency Exchange rate of AUD 1 to NZA 1.0788 as at 20 December 2023.
…
Between 18 October 2023 and 11:00am on 22 December 2023, the plaintiff and defendant communicated in relation to the compromise of the amount claimed. Negotiations ended on 22 December 2023, and the defendant served the Statutory Demand shortly after that. The plaintiff raised the issue of an accord and satisfaction in written submissions but did not press that submission at the hearing. The plaintiff also raised the issue that the demand was served just prior to Christmas and suggested it was an abuse of sorts to do so. This submission was not pressed strongly, and in any case, I do not consider that service of the demand was an abuse having regard to the extensive correspondence leading up to the date of service. I also note that the plaintiff was able to file its application and material seeking to set the demand aside, so there is no obvious prejudice apart from the inconvenience of working during what might otherwise have been a vacation period.
As noted above, prior to this proceeding, the plaintiff had applied to set aside a statutory demand issued by the defendant arising out of the same contractual substrate, in relation to ‘trade reference number: 6141067 (the earlier proceeding). In the earlier proceeding the amount claimed was AUD 1,133,696.35. The schedule to that demand described the debt in a more abbreviated fashion than has been used in this case. In the earlier proceeding the description of the debt in the schedule was in the same form as the very first paragraph quoted above from the first termination payment but did not include the remainder, that is, there was no following section describing what the amount ‘comprises.’
The earlier proceeding was heard on 15 September 2023 before Efthim AsJ with reasons handed down on 6 October 2023. In that case the plaintiff alleged that neither the statutory demand or the affidavit in support provided any independent evidence relating to calculation of the termination amount, or the source or accuracy of the underlying figures. The plaintiff sought to set aside the demand on the basis that there was a genuine dispute because the defendant ‘has not provided any evidence establishing the accuracy of its calculations, or whether the defendant’s alleged loss has been crystallised.’ Efthim AsJ rejected this argument and agreed with the defendants’ submission that ‘neither the terms of the contract, nor the statutory demand process, impose any additional requirement of evidence establishing the accuracy of the defendant’s calculations or an obligation to establish that loss has been crystalised.’[4]
[4]Re Emerging Energy Solutions (n 2) [25].
The plaintiff in the earlier proceeding also sought to set aside the statutory demand for some other reasons under s 459J of the Corps Act on the basis that the description of the debt did not comply with the statutory requirements and was not sufficiently detailed to enable the plaintiff to understand the calculation and consider whether there is a genuine dispute as to the amount claimed. Efthim AsJ rejected this submission in the following terms:
39.In my view, it would have been preferrable for the defendant to provide the calculation but the description of the debt is adequate for the plaintiff to assess whether there is a genuine dispute.
40.The calculation should be a very simple calculation. The calculation to be applied is contained in the contract and is referred to as the settlement amount which is defined as [thereafter is inserted the contractual definition of “Settlement Amount” quoted above.]
41.The calculation is simply the difference between the contract price and the market price. The difference is the loss which is claimed in the statutory demand. The plaintiff has the contract and could have obtained the market price and conducted a simple calculation.
Efthim AsJ also noted later in the reasons that:
At no time prior to the service of the application did the plaintiff:
– Request to be informed of how the defendant had calculated the debt;
– Express any confusion or uncertainty about the quantum of the debt; or
– Assert the debt was not owing or that it had been calculated unreasonably or not in good faith.[5]
[5]Re Emerging Energy Solutions (n 2) [46].
It is apparent that the statutory demands currently in issue were prepared having regard to Efthim AsJ’s comments that it would be preferable to include calculations.
The sole question that arises in this proceeding is whether the amount claimed by the defendant in the statutory demand is a debt?
Legal principles
The legal principles in relation to ‘genuine dispute’ were not in issue. It was also not disputed that a statutory demand may only be issued in relation to a debt[6] and not in relation to unliquidated damages. Section 459E of the Corps Act provides:
(1) A person may serve on a company a demand relating to:
(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or
(b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.
[6]See Edwards v ASIC (2009) 264 ALR 723, 739 [81] (MacFarlan JA with whom Spigelman CJ and Campbell JA agreed) (‘Edwards’).
The only issue in this proceeding concerns the proper characterisation of the claim in the demand. If it is an unliquidated claim, then the demand will be set aside. If it is a claim for a debt, the demand will not be set aside.
The parties relied on a number of authorities that described the difference between a liquidated and unliquidated claim.
In Environmental Systems Pty Ltd v Peerless Holdings[7] (‘Environmental Systems') Nettle JA held that:
The ordinary meaning of “liquidated damages” is a sum fixed by the parties to a contract as a genuine pre-estimate of damage in the event of breach, whether as a pre-determined lump sum, or by means of a specified calculation or scale of charges or other positive data.[8]
[7](2008) 19 VR 358 (‘Environmental Systems’).
[8]Ibid 385 [79] (Nettle JA) (emphasis added).
Nettle JA discussed the decision of Sholl J in Alexander v Ajax Insurance Co Ltd[9] where Sholl J, after an extensive survey of authorities, held:
the expression “debt or liquidated demand” covers any claim for which the action of debt would have lain; or for which an indebitatus or common count would have lain — including those cases formerly covered by the quantum meruit and quantum valebat counts, (notwithstanding that the only agreement implied between the parties in such cases was for payment at a “reasonable” rate); or for which covenant, or special assumpsit, would have lain, provided that the claim was for a specific amount, not involving in the calculation thereof elements the selection whereof was dependent on the opinion of a jury.
A claim for liquidated damages (in the sense of an amount agreed in a contract to be payable as a genuine pre-estimate of damage in the event of breach) would have been a claim for which, after Slade’s case, 55 debt or assumpsit would have lain. Contrastingly, as Sholl J held, a claim for unliquidated damages for breach of contract (in the sense of damages of which the amount remained to be determined as a question of fact) was not a claim in debt or covenant or for which the indebitatus or special assumpsit counts would have lain. It is also clear that a claim for unliquidated damages is not converted into a claim for liquidated damages by reason of the plaintiff having incurred and being able to specify the costs for which the damages are claimed.[10]
[9][1956] VLR 436.
[10]Environmental Systems (n 7) [79]-[81] (Nettle JA) (emphasis added).
The defendant relies on the decision of Rothenburger Australia Pty Ltd v Lumley General Insurance Ltd[11] which was a statutory demand case in which Barrett J described the relevant distinction between a debt and a claim for unliquidated damages:
In the light of this historical analysis, it cannot be correct to say that anything recovered upon a “liquidated demand” is “liquidated damages”. Probably the most commonly encountered form of recovery upon a “liquidated demand” is recovery of a debt. By no stretch of the imagination can recovery of a debt be said to entail recovery of any form of damages. But it may be correct to say that anything other than a debt recovered upon a “liquidated demand” is “liquidated damages”, whether recovered upon an indebitatus count or upon a claim formerly classified as a claim in covenant or special assumpsit where, in Sholl J’s words, “the claim was for a specific amount, not involving in the calculation thereof elements the selection whereof was dependent upon the opinion of the jury”. And it is certainly correct to say that a sum recovered in circumstances where a contract actually provides for the payment of that sum by way of compensation for breach is “liquidated damages”.
The relevant distinction, in my view, is that between agreed compensation calculated and quantified in a way specified in or ascertainable from the contract itself and damages to be assessed according to the ordinary principles for determining damages for breach of contract. The distinction is illustrated by cases in which the purchaser under a contract for the sale of land defaults and the vendor, as a result, may sue for damages for breach of contract in the ordinary way or, if he or she prefers, take advantage of a provision of the contract permitting the vendor to resell and to recover from the purchaser any deficiency on resale together with expenses of resale. A sum recovered by a vendor who pursues the latter course is properly regarded as involving the recovery of a “liquidated sum” (see Tiplady v Gold Coast Carlton Pty Ltd [1984] FCA 280; (1984) 8 FCR 438), while the damages recovered by a vendor who takes the former course are “unliquidated damages” or, in the words of Young J in Jampco Pty Ltd v Cameron (1985) 3 NSWLR 391, “breach of contract damages”. The difference between the two is that between agreed compensation calculated and quantified in a way specified in or ascertainable from the contract itself and damages to be assessed according to the ordinary principles for determining damages for breach of contract.[12]
[11](2003) 58 NSWLR 288.
[12]Ibid 297-98 [26]-[27] (Barrett J) (emphasis added).
The defendant also relies on the decision of Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd[13] in which White J considered whether the difference between the contract price for the sale of land and the price obtained on sale, constituted a debt for the purposes of s 459E of the Corps Act. White J held that a loss calculated in that way was a debt, and in doing so, held that the fact that the quantification exercise involved some manner of assessment would not necessarily mean that a claim was unliquidated and therefore not a debt.[14] This is consistent with the decision of Randall AsJ in AMD Resources Ltd v TRS Management Pty Ltd[15] in which his Honour discussed the terms ‘liquidated claim,’ liquidated demand ‘and ‘debt’. His Honour concluded that:
where a contract or agreement between parties provides for a mechanism to calculate or ascertain a specific amount that is due and payable, that amount is a liquidated sum and is a debt for the purposes of s 459E of the Act….[16]
[13][2007] NSWSC 103.
[14]Ibid [57]-[58] (White J).
[15][2021] VSC 202 (‘AMD’).
[16]Ibid [89] [113], cf Edwards (n 6) 739 [81], where ‘debt and liquidated demand’ were stated to be synonymous for the purposes of s 588G of the Corporations Act 2001 (Cth).
There is some inconsistency between the terms used in this context, particularly between ‘liquidated claim’, ‘liquidated demand’ and 'liquidated sum.’ It is unnecessary to resolve any issues concerning terminology. For present purposes the central principle is that if the contract provides for agreed compensation in the event of breach calculated in a way specified in or ascertainable from the contract, then such an amount will be a debt for the purposes of s 459E of the Corps Act.
Submissions
The plaintiff submits that the defendant’s claim is for unliquidated damages because:
The method of calculation is not simply the difference between contract price and market price, it is a commercial estimate calculated unilaterally by the Defendant, without oversight or power of review by anybody. It is contingent on various factors that are not known or agreed to by the parties, and therefore not certain or readily quantifiable. It then applies a discount arising from unilaterally calculated financing cost.
The plaintiff’s submission is that the claim is unliquidated because the process of determining the amount due requires the application of uncertain components or standards, such as ‘good faith’ and commercial reasonableness’. The plaintiff does not submit that the determination was in fact commercially unreasonable or not in good faith, but rather, submits that its character in light of those requirements is that of an unliquidated claim falling outside the terms of s 459E of the Corps Act.
The plaintiff further submits, employing the language of Nettle JA in Environmental Systems, that the defendant has attempted to convert a claim for unliquidated damages into a liquidated sum by having ‘incurred and specified costs for which damages are claimed.’ The plaintiff contends that in order for the claim to come within the meaning of ‘debt’ in s 459E of the Corps Act, and therefore be susceptible to a valid statutory demand, the defendant would have to obtain an order from the Courts of New Zealand ‘quantifying and fixing the amount of that claim.’
The defendant submits that the amount claimed is for liquidated damages and therefore is a debt, because it was calculated in accordance with the mandatory mechanism provided for in the contact, as set out in the schedule to the statutory demand. The defendant further submitted that the case is strengthened by the fact that under the contract in this case the parties do not have a choice of obtaining damages according to general principles for breach of contract but are obliged to follow the procedure in clause 6 for calculation of any loss suffered.
Consideration
The question is how may the amount owing for breach be determined? If the amount owing may only be determined by the Court assessing damages in accordance with general principles, then the claim will not be a debt. However, if a liquidated sum may be determined by a mechanism set out in the contract, then the claim will properly be characterised as a debt if that mechanism is employed and the amount owing is determined.
As discussed above, the plaintiff contends that in order for the amount of the claim to be determined (or liquidated), the defendant would have to obtain an order from the Courts of New Zealand ‘quantifying and fixing the amount of that claim.’ But as has been observed as long ago as 1906:
There is no special virtue in having the amount assessed by a Court or domestic tribunal, for an assessment between the parties is equally efficacious for the purposes of constituting the amount a liquidated sum.[17]
[17]Re Ahern;Ex Parte Palmer (1906) 6 SR (NSW) 576, 577 (Cohen J), cited in Vimblue Pty Ltd v Toweel [2009] NSWSC 494, [17] (Barrett J) and AMD (n 15) [87] (Randall AsJ).
In this case, I am satisfied that the contract articulates a mechanism for determination of the amount owing, and that that mechanism has been employed, and the figure reached and stated in the statutory demand, is a debt owing under the contract.
The contract uses the word ‘shall’ to impose upon the non-defaulting party (in this case admitted to be the defendant) the obligation to calculate loss according to the mechanism described. That wording is a compelling indication that the parties agreed that it would be efficacious for any loss suffered by breach of contract to be determined by the parties, as opposed to by the Court.
I also agree with Efthim AsJ’s observations about the particular clause, that the calculation is fairly simple and essentially requires consideration of the contract price and the market price. While it is true that there is a small (by the scale of the amounts claimed) discount applied ‘to reflect the implied gain to the Creditor on the assumption that it will receive payment in advance of the agreed payment date in the … contract as a result of the termination’, such a reduction falls comfortably within the direction to act in good faith and in a commercially reasonable manner, and in any case, accrues to the benefit of the plaintiff. The fact that there are matters to be determined by the non-defaulting party, such as the termination date, does not mean that those matters can only be determined by the Court. On one view, the Court may not too readily appropriate to itself the obligation of determining that date, when the obligation falls on the non-defaulting party under the terms of the contract.
I also do not agree with the plaintiff’s characterisation of the process as being the defendant incurring and specifying items of loss and thereby converting an unliquidated claim into a liquidated claim. If the contract did not provide for agreed compensation in the event of breach calculated in a way specified in or ascertainable from the contract, then the submission may have had more force. But when the contract does contain such a mechanism, the process of engaging and performing it, is a process rendered efficacious by the agreement of the parties.
Conclusion
The plaintiff has not established that there is any genuine dispute in relation to the statutory demand on the basis that the claim is not a debt. The proceeding will be dismissed.
I direct the parties to provide a draft form of order within seven days reflecting these reasons including as to costs. If the parties cannot agree on costs, within seven days, the parties are to provide short submissions of no more than five pages for determination on the papers.
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