Re Olympic Domain Pty Ltd

Case •

[2023] VSC 113

•

16 March 2023
IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2022 00479

IN THE MATTER of OLYMPIC DOMAIN PTY LTD (ACN 115 759 245)

BETWEEN:

OLYMPIC DOMAIN PTY LTD
(ACN 115 759 245) 		Plaintiff
v 
COHIBA MINERALS LIMITED
(ACN 149 026 308) 		Defendant

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JUDGE:

Hetyey AsJ

WHERE HELD:

Melbourne

DATE OF HEARING:

14 July 2022

DATE OF JUDGMENT:

16 March 2023

CASE MAY BE CITED AS:

Re Olympic Domain Pty Ltd

MEDIUM NEUTRAL CITATION:

[2023] VSC 113

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CORPORATIONS — Corporations Act 2001 (Cth) — Part 5.4 — Insolvency — Statutory demand — s 459G — Application to set aside — Where debt claimed relates to expenditure under joint venture for exploration of mining tenements — Where defendant appointed by joint venture participants as manager and agent — Where defendant incurred expenditure in excess of amount approved for current program of works — s 459H — Whether genuine dispute about existence and/or amount of debt — Whether genuine dispute that debt claimed in demand due and payable — Demand set aside.

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APPEARANCES:

 Counsel Solicitors
For the Plaintiff Mr J Davaris Holding Redlich
For the Defendant Mr G Bloch Weinberg Lawyers

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Background......................................................................................................................................... 1

Procedural history.............................................................................................................................. 7

Statutory provisions and legal principles..................................................................................... 8

Overview of material on genuine dispute ground.................................................................... 12

Plaintiff’s evidence............................................................................................................ 12

Defendant’s evidence........................................................................................................ 13

Key submissions made by parties................................................................................... 16

Consideration of genuine dispute ground.................................................................................. 18

Conclusion......................................................................................................................................... 27

HIS HONOUR:

Introduction

  1. By originating process dated 18 February 2022, Olympic Domain Pty Ltd (‘Olympic’ or ‘plaintiff’) applies to set aside a statutory demand dated 28 January 2022 (‘statutory demand’ or ‘demand’) served on it by Cohiba Minerals Limited (‘Cohiba’ or ‘defendant’) for the sum of $112,121.64 in connection with a mining joint venture. The plaintiff seeks to set aside the demand on the genuine dispute ground found in s 459H of the Corporations Act 2001 (Cth) (‘Corporations Act’).

Background

  1. Olympic is a mining company that operates in the highly prospective area of the eastern Gawler Craton in South Australia, known for its gold and copper deposits.  As at 7 March 2018, Olympic held and was beneficially entitled to the rights, titles, and interests in several mining tenements granted under the Mining Act 1971 (SA) within the region[1] (‘Tenements’).  Cohiba is listed on the Australian Stock Exchange (‘ASX’) and is in the business of mining and mineral exploration. It invests in the resources sector through direct tenement acquisition, joint ventures, farm-in agreements,[2] and new project generation.

    [1]Exploration licenses 5082; 5083; 5084; 5085; 5086; 5224; and 5970.

    [2]In general terms, farm-in agreements govern activities between parties in relation to the ownership, exploration, and exploitation of mining tenements.  A common form of farm-in agreement entails the holder of a tenement entering into an agreement with an exploration company, by which the exploration company agrees to undertake and/or fund exploration of mining activities on the tenement over a period in return for which it may be granted rights over the tenement.  This may entail the tenement holder transferring to the exploration company legal and beneficial title of an agreed percentage interest in the tenement, either progressively or at the end of the relevant term: see Tania Mykyta, ‘Farm-In Arrangements in the Mining Industry: The GST Implications’ (2000) 19(3) Australian Mining and Petroleum Law Journal 247.

  1. On 7 March 2018, the parties entered into a ‘Farm-In Agreement’ (‘FIA’), under which Olympic agreed to grant Cohiba the right to earn up to an 80% interest in the Tenements and to fund part of the expenditure incurred by Cohiba in performing exploration activities on the Tenements.  The FIA was structured so that Cohiba could acquire an interest in the Tenements in three stages: Stage 1 (as to 30%); Stage 2 (as to a further 21% interest); and Stage 3 (as to the remaining 29%).  Clause 3 of the FIA prescribed the manner in which Cohiba could acquire its interest in each stage.  In summary, Cohiba was required to incur defined levels of expenditure in each stage and, subject to certain conditions, make reimbursement payments to Olympic for any prior expenditure in connection with the Tenements. 

  1. Clause 3.6(a) of the FIA relevantly provides:

The parties agree to act reasonably and in good faith to develop exploration programmes and budgets in consultation with each other during the period while [Cohiba] is funding Expenditure to seek to earn the Stage 1 Interest, Stage 2 Interest and/or Stage 3 Interest …

  1. Clause 1.1 of the FIA defines ‘Expenditure’ to include all outgoings, costs and expenses incurred by or on behalf of Cohiba in respect of any activity, including exploration, directly connected to the discovery and location of minerals on the Tenements, and incidental activities, such as feasibility studies, drilling, and maintenance of the Tenements.

  1. Clause 6 of the FIA stipulates that the parties must appoint a ‘Manager’ to, among other things, carry out and conduct ‘Exploration’ on the Tenements in accordance with programs and budgets agreed to by the parties.  ‘Exploration’ is taken to mean any activities directly connected to the discovery, location, and delineation of minerals on the Tenements and any reasonably incidental activities, such as feasibility studies, drilling, maintenance of the Tenements, and accessing the land on which the Tenements are located.  Clause 6.5 of the FIA specifies that the Manager must provide the ‘Non-Manager Party’ with information pertaining to project expenditure, project asset data, and reasonable rights of access to the Tenements, when reasonably requested.  It is common ground that Cohiba assumed the role of Manager under the FIA and remains in that role.

  1. Clause 4.2(a) of the FIA provides that, as soon as practicable after the ‘Establishment Date’ (being the date when Cohiba obtains a Stage 1 interest in the Tenements), the parties are to negotiate the terms of a joint venture agreement (‘JVA’) in good faith based upon certain joint venture principles set out in Annexure 1 of the FIA (each a ‘JVP’ and collectively, ‘JVPs’).  Further, by cl 4.2(c) of the FIA, the parties agree that pending the execution of the JVA, the JVPs govern their relationship.  Clause 4.3 of the FIA confirms that the FIA itself shall terminate upon the execution of the JVA, so long as it affirms and records the farm-in rights of Cohiba existing at the time of its execution.

  1. Notwithstanding that the ‘Establishment Date’ was reached on or about 27 February 2019, when Cohiba obtained its Stage 1 interest, the parties are yet to finalise the terms of a JVA.  Accordingly, the relationship between the parties continues to be governed by the JVPs, a number of which have particular relevance here.

  1. JVP 2 provides that:

Obligations and liabilities are imposed pro rata … on the Participants [defined to be Olympic and Cohiba or its nominee] in proportion to their respective Participating Interests in the Joint Venture from time to time and will be borne by the Participants severally in their respective Participating Shares …

  1. JVP 4 states:

Conduct of Joint Venture: The Manager [as determined under cl 6 of the FIA] shall conduct the operations of the Joint Venture on behalf of the Participants as their agent and for this purpose will have possession and control of all the property of the Joint Venture and shall maintain, operate and protect the property of the Joint Venture (including maintaining the Tenements).

  1. JVP 6 requires the Manager to regularly furnish each participant with a summary of the operations of the joint venture in addition to informing each participant immediately of any significant discovery of minerals.

  1. JVP 7 is in these terms:

Programs and Budgets; Management Committee: The approval of programs and budgets (to be prepared by the Manager) and other policy matters will be decided by a committee consisting of a representative appointed by each Participant (the Management Committee).  Each Participant may appoint one representative to the Management Committee.  The Management Committee must convene on a quarterly basis to discuss exploration progress and determine forthcoming work activities.

  1. In or about October 2020, a dispute arose between the parties, which was resolved by way of a deed of settlement and release dated 24 March 2021 (‘Settlement Deed’).  By cl 2.1 of the Settlement Deed, the parties agreed that Cohiba had acquired its 80% interest in the Tenements under Stage 3 on and from 23 December 2020.  This meant that Olympic’s resulting pro-rata liability with respect to future expenditure was 20%.  Under cl 2.2(a) of the Settlement Deed, the parties determined that Olympic’s pro-rata liability under the FIA would only apply to ‘Expenditure’ incurred by Cohiba performed from 15 January 2021, ‘concerning which Cohiba shall render tax invoices’.  The term ‘Expenditure’ was accorded the same meaning as was given to it in the FIA.  Under cl 2.2(b) of the Settlement Deed, tax invoices are to be paid by Olympic within 45 days of Cohiba emailing them to a nominated email address.

  1. From April 2021 onwards, in its capacity as Manager under the FIA, Cohiba undertook exploration activities on the Tenements, such as exploration drilling (engaging third-party drilling contractors) and technical investigations, including in respect of the drill results.  Cohiba also provided to Olympic various documents containing a proposed budget and program of work (‘PoW’).

  1. On 19 April 2021, Cohiba provided Olympic with a document titled ‘2021 Exploration Strategy Overview — Olympic Domain Tenements’ (‘exploration strategy’), which included a budget estimate (‘April budget estimate’).  The April budget estimate followed a format also used in later budget estimates by providing two PoWs: a current PoW for work to be undertaken over an estimated three-month period (‘current PoW’); and a proposed PoW for work to be pursued beyond this time horizon (‘proposed PoW’).  On the same day, Mr Jason Peterson, the sole director of Olympic, appointed Mr Philip Re and Mr Robert Spadanuda, who were both directors of a shareholder company of Olympic, to sit on the Management Committee established under the JVPs as Olympic’s representatives.

  1. The Management Committee met over a six-month period on 19 April 2021, 6 July 2021, and 12 October 2021, respectively.  On each occasion (or shortly thereafter) an updated exploration strategy was supplied to Olympic by Cohiba, detailing a revised budget for the current PoW.  This meant the budget presented in July 2021 (‘July budget estimate’) contained changes to the April budget estimate and the budget estimate for October 2021 (‘October budget estimate’) made changes to the July budget estimate.  The changes were in the nature of increases in total estimated expenditure compared to the previous budget estimate.  The October budget estimate is a critical document in this case. 

  1. The October budget estimate itemised tasks comprising the current PoW as amounting to $580,200, in respect of which Olympic’s 20% pro-rata liability was $116,040.  The current PoW included an item described as: ‘Diamond drilling at Pernatty C (3x500m = 1,500m)’.  The proposed PoW then contemplated a further $4.51 million worth of work (which, when combined with the current PoW, totalled approximately $5 million).  The October budget estimate relevantly provided the following guidance:

The current PoW represents that work which is currently being undertaken and is expected to be fully expended in the next 3 months.  The proposed PoW will commence at the completion of the current PoW and be fully expended in a 12-to-15-month period.

…

In relation to the estimated expenditure the 20% contribution that will be payable by Olympic Domain Pty Ltd = $1,000,078.

These budget numbers are estimates only and are subject to change depending on the results that are forthcoming.

  1. The Management Committee’s meeting on 12 October 2021 was held via teleconference and involved discussion of the October budget estimate (‘October meeting’).  The October meeting was attended by Mr Mordechai Benedikt (a director of Cohiba) and Mr Andrew Graham on behalf of Cohiba and Mr Spadanuda, Mr Re, and Mr Bert Mondello on behalf of Olympic.  It is Mr Peterson’s evidence that at this meeting, the Management Committee agreed to adopt the ‘budget and PoW as set out in the [October budget estimate]’.

  1. In the months following the October meeting, Cohiba issued three tax invoices to Olympic in respect of the October budget estimate: Invoice No 2021-016 dated 5 November 2021 for the amount of $113,149.80 (including GST) (‘November invoice’); Invoice No 2021-017 dated 13 December 2021 for the amount of $112,121.64 (including GST) (‘December invoice’) (being the subject of the demand); and Invoice No 2021-018 dated 12 January 2022 for the amount of $69,507.20 (including GST) (‘January invoice’).

  1. On 1 November 2021, Olympic sent a letter to Cohiba (‘first November letter’), which stated, among other things, the following:

Based on our recent conversations we’re keen to understand more detail of the thinking and planning behind the PoW.  As you know the program and budgets need to be decided by the Management Committee, and we need some more information to give comfort about the revised proposed program.  This information is important for us to be able to fully inform those with interests in Olympic …

  1. The first November letter also noted that, whilst an ASX release by Cohiba dated 14 September 2021 (‘September market release’) referred to drill holes of 900 metres deep, this did not reflect the content of the most recent revised budget.[3]  Olympic stated that it needed to ‘understand the reasoning behind these plans and the criteria on which reviews will be based’ and requested Cohiba provide it with specific information, including ‘the detailed drilling plan which the [exploration strategy] and PoW are based on’, geological reports, and sampling analyses.  Additionally, Olympic included the following paragraph, which is of significance:

The reasoning behind the ramping up of the exploration — we’re obviously looking at a significant up-tick in spend under the current PoW and we’re keen to understand the reasoning for this.  Importantly, what are the planned review points and criteria for recommending either progressing or terminating the drill?

[3]As already noted at [17] of these reasons, the current PoW in the October budget estimate specified drilling at Pernatty C to be ‘3x500m = 1,500m’.

  1. Before responding to the first November letter, Cohiba issued the November 2021 invoice.  Then, on 12 November 2021, Cohiba’s solicitors responded to the first November letter by asserting that the exploration strategy ‘contains all the detail necessary for Olympic … to be able to consider its position on the proposed expenditure for the purposes of the [FIA]’.  In addition, Cohiba’s lawyers deferred consideration of Olympic’s request for information and documents pending clarification from Olympic about: to whom the requested information would be disclosed; to whom existing information provided had been disclosed; and how the confidentiality of any information provided to Olympic would be protected.  Cohiba’s lawyers also questioned the capacity in which Mr Mondello and Mr Re had attended various meetings as representatives of Olympic.

  1. On 25 November 2021, Olympic’s solicitors responded to the letter from Cohiba’s lawyers (‘second November letter’), stating that despite Olympic having received the exploration strategy, Olympic considered that further information was required ‘to be able to assess the merits of the programme and provide a meaningful response’.  The second November letter also addressed various queries posed by Cohiba’s lawyers and emphasised that it was ‘proper and reasonable’ for Olympic ‘to request further information in order to properly carry out and discharge its duties through the Management Committee’.

  1. Cohiba then rendered the December invoice, which is the subject of the demand.  Whilst Olympic paid the November invoice, it did not pay the December invoice, which was due on 27 January 2022.  Nor has it paid the January invoice, which was due on 28 February 2022. 

  1. As a result of the non-payment of the December invoice, Cohiba issued the statutory demand.  In the schedule to the demand, Cohiba claims the sum of $112,121.64 by reference to the December invoice and pursuant to cl 2.2 of the Settlement Deed. 

  1. Pursuant to its originating process, the plaintiff now applies to set aside the demand under ss 459G and 459H of the Corporations Act on the basis there is a genuine dispute about the existence and/or the amount of the debt the subject of the demand.

Procedural history

  1. At the first return of the proceeding on 9 March 2022, the Court made timetabling orders, including for the filing of affidavits and submissions and the referral of the matter to mediation, having regard to the underlying commercial relationship between the parties.  The mediation process was unsuccessful and the matter proceeded to final hearing on 14 July 2022, which was conducted via videoconference technology.

  1. In support of its application, Olympic relies on the affidavit and exhibits of its director Mr Jason Peterson sworn on 18 February 2022 (‘Peterson affidavit’), in addition to written submissions dated 17 May 2022. Whilst the demand is sought to be set aside on the basis of a genuine dispute, in his affidavit, Mr Peterson says Olympic will suffer substantial injustice if the demand is upheld as it would require payment to Cohiba that far exceeds the approved budget estimate. Presumably, this was an argument sought to be made under s 459J(1) of the Corporations Act.  However, Olympic’s written submissions confirm such an argument was not pressed and the ground was not pursued at hearing.

  1. In resisting the plaintiff’s application, Cohiba relies on the affidavit and exhibits of its director and chief executive officer, Mr Jason Graham affirmed on 5 April 2022 (‘Graham affidavit’), together with an outline of written submissions dated 31 May 2022.

Statutory provisions and legal principles

  1. Section 459E(1) of the Corporations Act relevantly provides that a person may serve a statutory demand on a company relating to a debt or debts that the company owes, which are ‘due and payable’. For the purpose of s 459E, a debt is due and payable when it is ascertainable, immediately payable, and presently recoverable or enforceable by action.[4]  

    [4]Re Elgar Heights Pty Ltd [1985] VR 657, 669, 671 (Ormiston J); Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59, [39]–[42] (White J) (‘Remuneration Data Base’); NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd (2010) 79 ACSR 544, 552–3 [63] (Lindgren AJA); Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726, 731–2 [17] (Barrett J); Re ReNu Waste Pty Ltd [2020] NSWSC 108, [22]–[32] (Rees J) (‘ReNu Waste’); Re Simmoll Pty Ltd [2021] VSC 693, [44] (Hetyey AsJ).

  1. Section 459G(1) of the Corporations Act provides that a company may apply to the Court for an order setting aside a statutory demand served on the company.

  1. Section 459H(1) of the Corporations Act is in these terms:

(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.

  1. Where a company applies to set aside a statutory demand under s 459H of the Corporations Act, the Court must calculate the ‘substantiated amount’ of the demand in accordance with the formula prescribed in s 459H(2). Section 459H(3) of the statute provides that where the substantiated amount is less than the ‘statutory minimum’,[5] the Court must set the demand aside.

    [5]Pursuant to ss 459E(1) and 9 of the Corporations Act 2001 (Cth) (‘Corporations Act’) and r 5.4.01AAA(1)(b) of the Corporations Regulations 2001 (Cth) (‘Corporations Regulations’), the statutory minimum is $4,000.

  1. The following well-established statements of principle explain what constitutes a genuine dispute for the purpose of s 459H(1) of the Corporations Act:

(a)   for a dispute to be ‘genuine’, it must be ‘bona fide and truly exist in fact’;[6] 

[6]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 464 (Northrop, Merkel and Goldberg JJ) (‘Spencer Constructions’), cited with approval by the Victorian Supreme Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330, [49] (Kyrou, Ferguson and Kaye JJA) (‘Malec’).

(b)  ‘the grounds for alleging the existence of a dispute … [must be] real and not spurious, hypothetical, illusory or misconceived’;[7]

[7]Ibid.

(c)   the dispute must have ‘a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile …  Something “between mere assertion and the proof that would be necessary in a court of law” may suffice’;[8]

[8]TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA) (‘TR Administration’); Malec, [49] (Kyrou, Ferguson and Kaye JJA).

(d)  a genuine dispute may involve a ‘plausible contention requiring investigation’ and raising the same sort of considerations as the ‘serious question to be tried’ test that applies in the case of interlocutory injunctions;[9]

(e)   the Court should not uncritically accept statements about an alleged genuine dispute that are ‘equivocal, lacking in precision, inconsistent with undisputed contemporary documents … or inherently improbable …’;[10] and 

(f)    if the dispute appears to be something ‘merely created or constructed in response to the pressure represented by the service of the statutory demand’, then it is not advanced in good faith and will not be regarded as genuine.[11]

[9]Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601, 608 [31] (Beazley P, Meagher and Gleeson JJA) (‘Britten-Norman’); Malec, [48] (Kyrou, Ferguson and Kaye JJA).

[10]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 (McClelland CJ in Eq), cited with approval by the Victorian Supreme Court of Appeal in TR Administration, 78 [64] (Dodds-Streeton JJA) and Malec, [50] (Kyrou, Ferguson and Kaye JJA).

[11]Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212, 224 [47] (Barrett AJA, Gleeson JA agreeing at 213 [1], White JA agreeing at 213 [2]) (‘Creata’).  See also JJMMR Pty Ltd v LG International Corp [2003] QCA 519, [18] (McPherson JA), where the same point was made in respect of an offsetting claim.

  1. The Court’s role in determining the existence or otherwise of a genuine dispute can be summarised as follows:

(a)   whilst the underlying nature of the dispute about the existence of a debt ‘must be exposed’, the Court will not deal with the merits and nothing of substance will be decided;[12]

(b)  it is unhelpful to perceive that one party is more likely to succeed or that the account between the parties is more likely to be one result than another.[13]  That is because the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised;[14] and

(c)   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 the opinion that the genuine dispute hurdle has only just been cleared’.[15]

[12]Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd [2004] FCA 111, [4] (Finkelstein J). See also Malec, [48] (Kyrou, Ferguson and Kaye JJA).

[13]Malec, [48] (Kyrou, Ferguson and Kaye JJA).

[14]Ibid.

[15]Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270, 1271 [3]–[4] (Brooking and Charles JJA); Re Litigation Insurance Pty Ltd [2017] NSWSC 334, [31] (Gleeson JA) (‘Re Litigation Insurance’).

  1. Whilst the bar for establishing a genuine dispute or offsetting claim is a relatively low one, an applicant must nevertheless satisfy the Court that such a dispute (or offsetting claim) exists on the balance of probabilities.[16]  It is usually the case that the application will only fail if the asserted dispute (or offsetting claim) is ‘so devoid of substance that no further investigation is warranted’.[17]  Once the applicant company can demonstrate that even one ground has a sufficient degree of cogency to be arguable, a finding of genuine dispute will follow.[18]

    [16]See Farid Assaf, Assaf’s Winding Up in Insolvency (LexisNexis, 3rd ed, 2021) [6.25] (‘Assaf’s Winding Up in Insolvency’), citing Re Speedy Loans Pty Ltd [2014] VSC 273, [17] (Gardiner AsJ); Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320, 324 (Ryan J); Southern Canola Producers Pty Ltd v Painter Griffith & Associates (1997) 15 ACLC 956 (Santow J) and Sterling Estates (SA) Pty Ltd v Bradley (2000) 34 ACSR 177, [16] (Hamilton J).

    [17]Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Ptd Ltd (2017) 118 ACSR 592, 605–6 [47]–[48] (Santamaria, Ferguson and McLeish JJA), citing Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411, [23] (Barrett J) (‘Solarite’).

    [18]Malec, [51], citing Solarite, [23].

  1. Importantly, a proceeding brought under s 459G of the Corporations Act is not ordinarily an occasion for the Court to construe a contract where its meaning is in dispute.[19]  In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd,[20] White JA explained the principle in this way:

It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact.  But where the legal argument propounded in support of a particular construction is ‘patently feeble’ (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is ‘as plain as a pikestaff’ that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 at [4]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [26]–[29]).[21]

[19]Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 92 ACSR 27, 34 [46] (Young AJA); Broadspectrum (Australia) Pty Ltd v Centauri Business Services Pty Ltd [2016] NSWSC 1045, [22] (Barrett AJA); Re Litigation Insurance, [31] (Gleeson JA); Creata, 219 [29] (Barrett AJA; Gleeson JA agreeing at 213 [1], White JA agreeing at 213 [2]).

[20](2019) 99 NSWLR 397.

[21]Ibid 417, [90]. See also Re Aurora Funds Management Ltd [2021] VSC 690, [44] (Gardiner AsJ).

  1. Further, where there are clearly arguable alternatives as to the meaning of a term and related questions of construction, this, of itself, may give rise to a genuine dispute.[22] 

    [22]Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192, [47] (Barrett J); Re AA Management Co Pty Ltd [2019] NSWSC 1443, [60] (Rees J); Re Australian Builders Group Pty Ltd [2022] VSC 254, [39] (Hetyey AsJ).

Overview of material on genuine dispute ground

Plaintiff’s evidence

  1. In his affidavit, Mr Peterson refers to the contractual dealings between the parties, including the FIA, the JVPs, and the Settlement Deed.  As previously noted, Mr Peterson says that at the October meeting, the Management Committee agreed to adopt the ‘budget and PoW as set out in the [October budget estimate]’.  He confirms that given the current PoW in the October budget estimate amounted to $580,200, Olympic’s 20% pro-rata liability for this amount was $116,040.  However, he observes that the November and December invoices form a combined total of $225,271.44, which he says is ‘an increase of 194% more than the approved budget for the Current PoW [for the October budget estimate]’.  I pause to note that, on my calculations, the November and December invoices are actually 94% more than Olympic’s $116,040 pro-rata liability for the current PoW in the October budget estimate.  Mr Peterson goes on to say that when the January invoice is added to the November and December invoices, the result totals $294,778.64, which is an increase of 254% on the approved budget in the current PoW for the October budget estimate.  I calculate the increase to be 154%.

  1. Mr Peterson deposes that the documents accompanying the December invoice lack sufficient detail to enable Olympic to confirm whether all of Cohiba’s claimed expenditure in the December invoice relate wholly to work performed within the Tenements.  For example, whilst an accompanying invoice issued by Euro Exploration Services refers to the Tenements, an invoice issued by Titeline Drilling Pty Ltd (‘Titeline’) dated 30 November 2021 does not.  Further, the information provided apparently does not enable Olympic to ascertain whether the expenditure claimed in the December invoice has been completed in accordance with the current PoW in the October budget estimate, as approved by the Management Committee.  Additionally, notwithstanding Olympic’s requests for information set out in the first and second November letters, Cohiba has not responded to Olympic’s requests and has continued to incur expenditure and issue invoices to Olympic, including invoices ‘in excess of the approved budget set out in the [October budget estimate]’.

  1. Mr Peterson concludes his evidence by asserting there is a genuine dispute about the existence or amount of the debt the subject of the demand because:

(a)   Cohiba has incurred expenditure that far exceeds the current PoW in the October budget estimate and, by issuing the December invoice, is seeking compensation far in excess of the current PoW;

(b)  Cohiba has not provided Olympic with information and documents sought in the first and second November letters, in circumstances that would otherwise assist Olympic to better understand the nature of the works being performed during the period covered by the current PoW; and

(c)   Cohiba has not provided any justification or explanation for the increased expenditure claimed in the December invoice.

Defendant’s evidence

  1. In his affidavit, Mr Graham emphasises that the October budget estimate made clear that the relevant figures were ‘estimates only and are subject to change depending on the results that are forthcoming’.  He explains this is because exploration drilling is a dynamic process whereby updated drilling results can lead to changing of the drilling strategy.  If mineralisation is found in a drill hole, the usual practice is to continue drilling until there is no further visual evidence of mineralisation or a known un-mineralised rock unit is encountered.  The process is entirely unpredictable and drilling cannot be interrupted whilst approval is sought.  Further, the estimates were subject to change because the anticipated works were potentially affected by factors beyond either party’s control, which can lead to unexpected changes in drilling activity.   Such factors included decisions by third parties, such as the South Australian government, the Kokatha Aboriginal Corporation, and external providers, such as geologists and other consultants.  Mr Graham explains that other external and unforeseen factors affecting the estimates include the availability of necessary equipment, such as drill rigs and drilling personnel.

  1. Mr Graham disagrees with any suggestion by Mr Peterson that the October budget estimate was formally adopted at the October meeting of the Management Committee as an approved budget.  However, he accepts that representatives of Olympic did not raise any objection to the budget estimate or PoWs.  He recalls stating words to the effect that Cohiba had entered into discussions with multiple drilling contractors with a view to concurrently engaging two drill rigs to ‘ramp up’ Cohiba’s exploration efforts.  This was to offset historical delays and take advantage of a reduction in drilling activity by other companies in the region.  He says he also informed the Management Committee of another possibility, which involved Cohiba running multiple shifts of a drill rig, subject to the availability of suitable drilling operators.  No objection was apparently raised by Olympic’s representatives at the meeting.

  1. Mr Graham states that to the best of his knowledge and belief, Cohiba has not undertaken any drilling on any location other than the Tenements since the parties entered into the FIA.  Further, the drilling undertaken by Titeline referred to in the November, December, and January invoices was undertaken on the Tenements, specifically in the area known as Pernatty C (which is referred to in the current PoW of the October budget estimate). 

  1. Mr Graham also says that the primary reason for works undertaken between October and December 2021 at the Tenements costing significantly more than the current PoW was because of an increase in drilling exploration and associated costs ($425,000 as forecasted in the October budget estimate and approximately $1.64 million in actual drilling exploration and associated costs during the relevant period).  Further, the estimates provided at the October meeting of the Management Committee had assumed that drilling could only occur for 12 hours a day, but Titeline’s drilling equipment was utilised for 24 hours a day for much of the period between October and December 2021, subject to some disruptions.  Mr Graham explains the consequences of drilling 24 hours a day as follows:

[It] allowed the drilling program to accelerate and make up for time lost earlier associated with delays in sourcing available drilling operators.  In effect, it brought forward some of the accelerated drilling which had been assumed under the [proposed PoW] in the [October budget estimate].  The [p]roposed PoW had assumed the use of two drills operating 12 hours a day to accelerate drilling progress; the use of a single drill operating 24 hours a day achieved essentially the same outcome.

  1. Delay caused by weather events also apparently contributed to increases in drilling costs because of the need to make standby payments to drilling operators.  Additionally, because of an assessment carried out by a geologist at the drill site, Mr Graham decided that the drill depth of the drilling holes needed to ‘urgently continue’ beyond the original depth of 500 metres to 1,110.50 metres.  Because the drilling was ‘live’, Mr Graham says there was no opportunity to provide an updated budget.  He states that the extent of further costs due to the increased depth of drilling cannot be known prior to it being incurred.

  1. Finally, Mr Graham addresses the requests for information by Olympic in the first and second November letters, which he characterises as lacking in reasonableness.  He says a number of the questions concern highly confidential and proprietary information that would generally be unavailable and would likely be material to Cohiba’s share price.  For instance, he identifies the ‘detailed drilling plan’ requested by Olympic to be a ’closely held secret’ of Cohiba that ‘would allow an informed reader to know the innermost workings of [Cohiba] to current [sic] and the foreseeable future’, which, if made available to people outside of Cohiba, may give rise to the risk of insider trading.  He believes the terms of the FIA were not sufficiently broad to protect confidential information of the type sought in the first and second November letters.  Some of the data sought was also highly technical, requiring specialist expertise to interpret, which Olympic did not have in-house.  Mr Graham also expresses concern about Mr Re and Mr Mondello’s respective involvement in the Management Committee, all of whom do not appear to be officers of Olympic.

Key submissions made by parties

  1. The parties make a number of competing contentions about whether there is a genuine dispute as to the existence or amount of the debt the subject of the statutory demand. 

  1. In summary, Olympic submits that:

(a)   the contractual arrangement between the parties required Cohiba to undertake certain actions before billing Olympic.  In particular, work programs and budget estimates had to be approved by the Management Committee and Cohiba was required to provide prompt and full access to data upon reasonable request.  However, Cohiba unilaterally changed the work program, refused Olympic’s requests for information and billed Olympic for an amount double the current PoW approved at the October meeting;[23]

[23]Transcript of hearing on 14 July 2022, 2 (‘Transcript’).

(b)  Cohiba concedes it significantly exceeded the budget estimate for the current PoW in the October budget estimate, however, Olympic was never consulted or informed of the change to the PoW by Cohiba.  Nor did Cohiba provide any justification or explanation as to why its expenditure substantially exceeded the October budget estimate;[24]

[24]Plaintiff’s outline of submissions dated 17 May 2022, 4 [8] (‘Plaintiff’s written submissions’).

(c)   because the underlying contractual provisions had not been followed by Cohiba, the debt the subject of the statutory demand was not properly incurred;[25]

(d)  by the first and second November letters, Olympic made two requests for information and documentation to better understand Cohiba’s reasoning for the increased expenditure in the current PoW and address discrepancies between the proposed works set out in the current PoW and September market release.  These requests for information and documentation occurred prior to the issuance of the December invoice;[26] and

(e)   Cohiba did not provide the information requested and its assertions about confidentiality and lack of reasonableness in relation to the requests are dubious.[27]  Instead, Cohiba continued to incur expenditure and issue invoices for amounts exceeding the approved budget estimate.[28]

[25]Transcript, 2.  See also at 27.

[26]Ibid.

[27]Ibid.

[28]Ibid 14.

  1. By contrast, Cohiba’s main submissions are:

(a)   no bona fide dispute exists between the parties.  The failure of Olympic to pay the December invoice is unjustified under any accepted legal principle;[29]

[29]Defendant’s outline of submissions dated 31 May 2022, 1 (‘Defendant’s written submissions’).

(b)  certain drilling works were accelerated and therefore payments for such drilling have found their way into the December invoice, rather than into a later invoice;[30]

[30]Ibid 2.

(c)   whilst Olympic suggests that the Management Committee at the October meeting only approved the current PoW, the entirety of the October budget estimate was, in fact, approved;[31]

(d)  Olympic has ‘mischievously raised the spectre’ that Cohiba carried out drilling on tenements other than the Tenements and improperly charged Olympic for those drilling works.[32]  This innuendo amounts to a serious allegation of fraud that cannot be sustained; and

(e)   Olympic is ‘manufacturing a dispute’ in a cynical attempt to avoid its monetary obligations.[33]

[31]Transcript, 33, 35–7.

[32]Defendant’s written submissions, 3 [12].

[33]Ibid 2 [8].

Consideration of genuine dispute ground

  1. For the reasons set out below, I am satisfied there is a genuine dispute as to the existence or amount of the debt claimed in the demand. Further or alternatively, there is a genuine dispute as to whether the debt claimed in the demand is due and payable within the meaning of s 459E of the Corporations Act.  The dispute manifests in the following ways. 

  1. First, there is a genuine dispute about whether, as a matter of contractual interpretation, Cohiba, as Manager and agent for the parties, was permitted to incur expenditure significantly in excess of the amount set out in the current PoW of the October budget estimate without reverting to the Management Committee.  That question turns on the legal construction of, and interaction between, key provisions of the contractual arrangements in place between the parties.  Those provisions include JVP 4, which requires the Manager (Cohiba) to conduct the operations of the joint venture on behalf of the participants as their agent; JVP 6, which requires the Manager to ‘regularly furnish’ each participant with a summary of the joint venture operations; and JVP 7, which vests the Management Committee with authority to approve programs and budgets and to decide policy matters. 

  1. As regards the interpretation of JVP 4 in particular, it will be necessary to consider the scope of the actual authority conferred upon Cohiba as agent for the participants to the joint venture.  As a matter of law, an agent is a person who acts by agreement (which may be express or implied) on behalf of another and is subject to that other person’s control or direction.[34]  Such a relationship is fiduciary in nature.[35]  The express terms of Cohiba’s authority as agent will need to be interpreted having regard to the terms of the contractual arrangements itself and also the circumstances in which those arrangements operate.[36]  Further, it may also be necessary to consider whether Cohiba’s authority as agent is partly implied from the conduct of the parties and circumstances of the case, including the office or position in which Cohiba was placed.[37]  Whether, as agent, Cohiba was empowered to make executive and operational decisions that materially increased the expenditure for the current PoW will be a matter of contractual interpretation in the context of the joint venture activities.  Such an examination cannot occur in a summary proceeding of this type.

    [34]See South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541, [136] (Finn J), cited with approval by the New South Wales Court of Appeal in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [175] (Allsop P, Bathurst CJ agreeing at [1], Campbell JA agreeing at [303]) (‘Tonto Homes’).  See also Snowden v Australian Mortgage Assist Pty Ltd [2019] NSWSC 1799, [128] (Ball J).

    [35]Tonto Homes, [175]–[176].

    [36]GE Dal Pont, Law of Agency (LexisNexis, 4th ed, 2020) 153 [7.12], citing Ashford Shire Council v Dependable Motors Pty Ltd [1961] AC 336, 349.

    [37]Ibid [7.3] and the authorities cited there.

  1. Other terms of the contractual arrangements may also be examined in context.  For example, although cl 2.2 of the Settlement Deed permits Cohiba to render invoices to Olympic for ‘Expenditure’ incurred during ‘Exploration’, the question arises as to whether such ‘Expenditure’ must first be approved by the Management Committee in accordance with JVPs 6 and 7. 

  1. Whilst Cohiba contends that as Manager it was legitimately entitled to accelerate work approved by the Management Committee in the proposed PoW, Olympic says the process of approval of work programs and budgets by the Management Committee enabled Olympic to conduct its affairs with a degree of certainty as to the quantum and timing of its expenditure under the FIA and Settlement Deed.[38]  In other words, there are sound commercial reasons for a governance process that required the authorisation of expenditure by the Management Committee within the current PoW prior to that expenditure being incurred and invoiced.  An interpretation of the relevant contractual provisions (particularly cl 2.2 of the Settlement Deed and JVPs 6 and 7) which frames the governance and approval processes in this way is clearly open.  When construing a commercial contract, a court is entitled to approach the task on the basis that the parties intended to produce a commercial result which makes commercial sense,[39] as opposed to a result which leads to commercial nonsense or commercial inconvenience.[40] However, questions of contractual interpretation should not ordinarily be considered in an application to set aside a statutory demand under s 459G of the Corporations Act.  There are no compelling reasons to resolve such questions in the present proceeding. 

    [38]Transcript, 26.

    [39]Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16]–[17] (Kiefel, Bell and Gordon JJ).

    [40]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan and Kiefel JJ); Amcor Ltd v Barnes [2021] VSCA 6, [648] (Ferguson CJ, Beach and Whelan JJA).

  1. I note, in passing, there may be other consequences associated with a court examining the contractual arrangements between the parties.  It is conceivable that a court may imply a common law obligation of good faith and fair dealing as a legal incident of the commercial contract in place between the parties.  In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL,[41] Hollingworth J was prepared to proceed on the assumption that an obligation of good faith could be implied, as a matter of law, as part of an unincorporated joint venture.[42]  Aside from the fiduciary relationship of agency, it is also possible that a court may find a fiduciary relationship exists between the parties as prospective joint venturers prior to the formal implementation of a joint venture agreement.[43]  If found to be fiduciaries, each of the participants in the joint venture may owe a duty of the utmost good faith to the other[44] and an obligation not to withhold material information from each other.[45]  It follows that the actions of Cohiba in incurring the relevant expenditure claimed in the December invoice may ultimately be considered by a court through the lens of a fiduciary relationship and/or the implied obligation of good faith.

    [41][2004] VSC 477.

    [42]Ibid [137]–[143]. Her Honour ultimately found there was no lack of good faith or fair dealing by one party in acting to promote its own interest consistently with the basis on which it was taken to have entered the contract. The decision was affirmed on appeal in Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228.

    [43]See United Dominions Corporation v Brian (1985) 157 CLR 1, 13 (Mason, Brennan and Deane JJ).

    [44]Ibid 6 (Gibbs CJ); Baila Pty Ltd v Mallina Holdings Ltd (1993) 11 ACSR 785 (‘Baila v Mallina Holdings’). 

    [45]Baila v Mallina Holdings, 831–2 (Ipp J). See also Diversified Mineral Resources NL v CRA Exploration Pty Ltd (1995) ATPR ¶41-381, in which the plaintiff brought an action against the defendant alleging misrepresentation and non-disclosure in relation to the discovery of mineral deposits in the context of a farm-in agreement performed on the plaintiff’s tenement. Whilst Whitlam J found that a fiduciary relationship existed between the parties, his Honour also held that such a relationship rested on the terms of the farm-in agreement itself (at 40,284–5).

  1. Secondly, depending on the ultimate construction of the contractual arrangements between the parties, there is a bona fide dispute as to whether Cohiba actually complied with its legal obligations by unilaterally deciding, on an unspecified date or dates:

(a)   to bring forward or ‘accelerate’ the drilling schedule, including by permitting drilling 24 hours a day; and

(b)  to increase the drilling depth of the drill holes beyond the original depth of 500 metres to 1,110.50 metres.

  1. Further, because the escalation of drilling and exploration activities significantly increased the expenditure for the current PoW in the October budget estimate, there is a plausible contention requiring investigation that Cohiba ought to have sought approval for changes to the current PoW from the Management Committee before embarking on that course.  While Cohiba submits there is nothing unlawful about a discrepancy emerging between the budget estimate of expenditure, considered at the October meeting, and the actual expenditure incurred, I accept Olympic’s argument that the discrepancy is not trivial.  When the November, December, and January invoices are added together ($294,778.64), Cohiba has billed Olympic $178,738.64 or 154% more than its $116,040 pro-rata share of the current PoW approved by the Management Committee at the October meeting.  The size of this discrepancy adds weight to the argument that further approval was necessary.

  1. Even though Mr Graham says there was no opportunity to provide an updated budget to the Management Committee whilst the drilling was being undertaken, this does not explain why the changes were not communicated to the Management Committee after the apparent discrepancy in drilling depth was queried by Olympic in the first November letter.  Nor does it address whether it was appropriate and/or practicable for Cohiba to seek retrospective approval for the change to the current PoW and to defer billing Olympic for the cost increases until the changes were ratified.

  1. Moreover, to the extent Cohiba has incurred expenditure outside the process contemplated by JVPs 4, 6, and 7 and beyond the scope of its authority as agent, there is a reasonable argument that such expenditure has not been properly incurred in accordance with the contractual arrangements between the parties. 

  1. Thirdly, I accept Olympic’s submission that there is uncertainty about precisely what was approved by the Management Committee at the October meeting.  In particular, it is unclear whether the Management Committee at the October meeting gave approval to Cohiba to:

(a)   incur expenditure not only in relation to the current PoW, but also in respect of items comprising the proposed PoW; and

(b)  unilaterally bring forward work contemplated under the proposed PoW into the period covered by the current PoW.

  1. Similarly, there is a clear conflict of evidence between the parties about whether the Management Committee agreed to formally adopt the October budget estimate as an approved budget or as an estimate only.  No minutes of the October meeting have been produced by either party and it is unclear whether any such minutes exist.  The question of what was approved by the Management Committee at the October meeting is a triable issue that may ultimately turn on the evidence of witnesses under cross-examination.  It is a dispute that is real, bona fide, and rises above a mere assertion. 

  1. Fourthly, because it is contestable whether Cohiba was authorised to incur expenditure not only in relation to the current PoW, but also in respect of items comprising the proposed PoW, there is a genuine dispute about whether the majority of the amount claimed in the demand was due and payable to Cohiba as at the date of the demand (being 28 January 2022). 

  1. The question of whether there is a genuine dispute about whether a debt is due and payable within the meaning of s 459E of the Corporations Act may be considered under s 459H(1)(a) (the genuine dispute ground), or alternatively, s 459J(1)(a) (on the basis of a defect causing substantial injustice) or s 459J(1)(b) (where the demand should be set aside for some other reason).[46] There are a number of cases in which a statutory demand has been set aside under s 459H(1)(a) on the basis of a genuine dispute about whether the debt claimed is due and payable.[47]

    [46]See ReNu Waste, [32] (Rees J), following her Honour’s extensive review of the authorities at [26]–[31].

    [47]Remuneration Data Base, [42]–[43] (White J); AR Pilot Pty Ltd v Gouriotis [2007] NSWSC 396, [18] (Barrett J); Re Carbon Polymers Limited [2013] NSWSC 376, [17], [24]–[25] (Brereton J); Re Forza Plumbing Systems Pty Ltd [2013] NSWSC 1234, [14], [19] (Brereton J).

  1. It is important to recall here that: Olympic’s pro-rata liability for the current PoW approved by the Management Committee at the October meeting was $116,040; the November invoice, which claimed for work undertaken in the period covered by the current PoW, was for the sum of $113,149.80; Olympic paid the November invoice on 17 January 2022; and the December invoice, which was rendered in the same period and is the subject of the demand, was for the amount of $112,121.64.  There is a plausible contention requiring further investigation that any amount in excess of Olympic’s pro-rata amount of $116,040 was not due and payable for the period covered by the current PoW.  Put differently, it is contestable whether such an amount was immediately payable and presently recoverable or enforceable.

  1. On this analysis, the portion of the statutory demand that is not in dispute would be the difference between Olympic’s $116,040 pro-rata share under the current PoW and the $113,149.80 paid by it in respect of the November invoice. The resulting sum of $2,890.20 would then be the ‘substantiated amount’ for the purposes of ss 459H(2) and (5) of the Corporations Act in the event the demand was varied.  However, because this amount is less than the current statutory minimum of $4,000[48], the demand would be set aside in its entirety under s 459H(3) of the legislation.

    [48]See ss 459E(1) and 9 of the Corporations Act and reg 5.4.01AAA(1)(b) of the Corporations Regulations.

  1. Lastly, there is a genuine dispute as to whether Cohiba was permitted to render, and seek payment of, the December invoice prior to complying with Olympic’s requests for information and documents contained in the first and second November letters.  Similarly, the submission by Olympic that Cohiba was not entitled to defer the provision of the requested information and documents has a sufficient degree of cogency so as to be arguable. 

  1. Relevantly, the first November letter specifically identified the potential for a ‘significant up-tick’ in spending under the current PoW in the October budget estimate and sought information to understand the reasoning for this change.  The second November letter confirmed that further information is required ‘to assess the merits of the programme and provide a meaningful response’ so that Olympic can ‘properly carry out and discharge its duties through the Management Committee’. 

  1. As is apparent, Cohiba did not provide the information and documents sought prior to the work being undertaken and/or completed and the December invoice being issued.  Whether Cohiba was entitled to adopt this course depends on the proper interpretation and application of cl 6.5 of the FIA, which relevantly requires the Manager (Cohiba) to provide the Non-Manager Party (Olympic) with information concerning project expenditure and project asset data when reasonably requested.  A close examination of the joint venture arrangement between the parties and the scope of Cohiba’s duties and obligations in accordance with JVP 4 (concerning the scope of Cohiba’s duties as Manager and agent for the parties) and JVP 6 (regarding the Manager’s obligation to regularly furnish each joint venture participant with a summary of the operations) will also be required.  However, it is not appropriate to investigate those matters in a summary proceeding of this nature.

  1. In reaching the above findings, I do not accept the following further submissions made by Cohiba in contending against the existence of a genuine dispute:

(a)   I am unpersuaded that Olympic is ‘manufacturing a dispute’ in a cynical attempt to avoid its monetary obligations.  By the first and second November letters, Olympic sought to better understand Cohiba’s reasoning for a potential increase in expenditure in the current PoW and address discrepancies between the proposed works set out in the current PoW and Cohiba’s September market release.  Each of these letters were sent prior to the December invoice being rendered and well before the demand was issued.  I do not attach great weight to the fact that the enquiries were made after authorisation was given by the Management Committee at the October meeting.  As I have said, the content and extent of such authorisation is a matter of bona fide dispute.  The first and second November letters provide sufficient objective existence and prima facie plausibility to distinguish the asserted dispute from a merely spurious claim, bluster or assertion;

(b)  while Cohiba contends certain drilling works have simply been accelerated and have found their way into the December invoice rather than a later invoice, Olympic argued at the hearing that the changes to the work program were not limited to an acceleration of work, but also involved new drilling work because the depth of the drill holes was changed from 500 metres to 1,110.50 metres.[49]  This argument is reasonably open on the material.  Nowhere in the October budget estimate is there a reference to a drilling depth of beyond 500 metres.  Further, there is no evidence before the Court that the proposed PoW has been reduced because of the increased billing under the current PoW; 

[49]Transcript, 24–5.

(c)   at the hearing, it was argued that Olympic’s counsel had conceded that because the September market release (which referred to a drilling depth of 900 metres) was a public document, it must have been known by Olympic’s representatives on the Management Committee at the time of the October meeting that the drilling would go much deeper than 500 metres.[50]  Debate then ensued as to whether such a concession was made.  The transcript of an exchange between the Court and Olympic’s counsel bears out what was conceded:

[50]Ibid 33.

HIS HONOUR:  So, I suppose what I’m trying to understand is, this discrepancy that’s been identified in the 1 November letter from Olympic to Cohiba as between the two respective drilling depths.  Was that discrepancy evident or apparent when the program for works and the budget was [ostensibly] approved on 12 October[?] 

MR DAVARIS:  I would say, Your Honour, it’s a public announcement so it could be assumed that it was available.  If it was publicly — it’s a public release, but in terms of when that discrepancy is being queried is in this 1 November letter after the meeting.[51]

[51]Ibid 12.

It follows that Olympic did not make a concession in the terms contended for by the defendant.  Olympic’s counsel later submitted that even though the September market release is a public document and would have been publicly available at the time of the October meeting, there is no evidence that it was ever discussed at the meeting.[52]  However, even if Olympic was specifically aware of the September market release at the October meeting, Olympic actively questioned the apparent discrepancy in drilling depths in the first and second November letters;

[52]Ibid 53.

(d)  Cohiba’s counsel also submitted at the hearing that Olympic’s entire submission hinges upon the false premise that all that was approved by the Management Committee at the October meeting was the first part of the October budget estimate (the items comprising the current PoW), when in fact the items in the proposed PoW were also authorised.[53]  As I have already explained, the very question of what was approved by the Management Committee at the October meeting is the subject of a genuine dispute between the parties;

[53]Ibid 33, 35–7.

(e)   although Cohiba submits that the references in the Peterson affidavit to the January invoice are irrelevant to the enquiry of whether there is a genuine dispute, I accept Olympic’s submission that the January invoice goes to the underlying question of whether Cohiba was entitled to incur expenditure not only in relation to the current PoW, but also in respect of items comprising the proposed PoW, and whether it was entitled to bill Olympic in excess of 20% of the amount set out in the current PoW; 

(f)    Cohiba says it is deserving of comment that Olympic has refused to pay any part of the December invoice and has not even offered to pay, much less paid, 20% of the budget estimate or any other sum, including the January invoice.  However, it did pay the November invoice in the sum of $113,149.80, which was only $2,890.20 less than Olympic’s $116,040 pro-rata share under the current PoW.  As already mentioned, even if the Court varied the statutory demand to be the sum of $2,890.20, it would still be set aside because it would be less than the statutory minimum.  Further, I accept Olympic’s submission at the hearing that its refusal to pay the January invoice is further illustrative of the extent of the genuine dispute between the parties; and

(g)  lastly, Cohiba seeks to characterise Olympic’s assertion of an inability to confirm whether all of Cohiba’s expenditure claimed in the December invoice relates to the Tenements as tantamount to a serious allegation of fraud.[54]  With respect, this overplays the point.  Fraud was never alleged.  Olympic’s concern was raised in the context of a significant increase in invoicing by Cohiba without an accompanying explanation being provided at the relevant time.  I note that Mr Graham has since given unchallenged evidence that Cohiba has not undertaken any drilling on any location other than the Tenements.  Regardless, the concern initially raised by Mr Peterson did not appear to be pressed at the hearing and I have arrived at the conclusion that there is a genuine dispute without needing to examine this point.

[54]Defendant’s written submissions, [12]–[13].

Conclusion

  1. For the reasons set out above, I am satisfied that Olympic has cleared the requisite evidentiary hurdle in establishing a genuine dispute in relation to the existence or amount of the debt the subject of the statutory demand. Alternatively, there is a genuine dispute about whether the amount sought in the demand is due and payable. Accordingly, the demand will be set aside under s 459H(3) of the Corporations Act.

  1. I will hear the parties on the question of costs.


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