Sportsco Pty Ltd v Singh Group Pty Ltd (No 2)
[2011] VSC 576
•15 November 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. SCI 6855 of 2010
IN THE MATTER OF SPORTSCO PTY LTD ACN 006 617 545
| SPORTSCO PTY LTD ACN 006 617 545 | Plaintiff |
| v | |
| SINGH GROUP PTY LTD ACN 128 860 319 | Defendant |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 November 2011 | |
DATE OF JUDGMENT: | 15 November 2011 | |
CASE MAY BE CITED AS: | Sportsco Pty Ltd v Singh Group Pty Ltd (No 2) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 576 | |
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CORPORATIONS – Appeal from Associate Judge dismissing application to set aside statutory demand – Whether genuine dispute and offsetting claim – Whether agreement subject to finance – No genuine dispute or offsetting claim – Corporations Act 2001 (Cth) ss 459G, 459H.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Mereine | Mr Andrew Nguyen, Legal Counsel, Sportsco Pty Ltd |
| For the Defendant | Mr S. Hopper | Tasiopoulos Lambros |
HER HONOUR:
Introduction
Singh Group Pty Ltd served a statutory demand on Sportsco Pty Ltd for $70,500, which it claimed was the “Refundable deposit or part payment under franchise agreement that was subject to finance (being $71,500 less $1,000 documentation fee)”. Sportsco applied to set aside the demand on the basis that there was a genuine dispute concerning the debt and that it has an offsetting claim against Singh Group. An Associate Judge dismissed the application and gave detailed written reasons.[1] Sportsco has appealed the orders made. The appeal is by way of a rehearing,[2] although the Court will give such weight to the decision of the Associate Judge as appears proper.[3] The time for compliance with the demand has been extended until determination of the appeal.[4]
[1]Sportsco Pty Ltd v Singh Group Pty Ltd [2011] VSC 390.
[2]Supreme Court (Corporations) Rules 2003 (Vic), r 16.5(1), Supreme Court (General Civil Procedure) Rules 2005 (Vic), r 77.06(7).
[3]Southern Motors Pty Ltd v Australian Guarantee Corporation Limited [1980] VR 187 at 189-190.
[4]Section 459F(2)(a)(i) Corporations Act 2001 (Cth).
The Associate Judge carefully set out the factual background relevant to the application and I gratefully adopt his Honour’s description of those facts.[5] In summary, Sportsco is the franchisor of retail sports and leisurewear businesses. Singh Group applied and was approved to take up a Sportsco franchise. Singh Group’s directors executed an offer to lease the premises from which the franchise was to be operated. However, although a formal franchise agreement was sent by Sportsco, that was never executed by Singh Group. However, Singh Group did pay $71,500 inclusive of GST in respect of the initial franchise fee, training fee and establishment costs. The moneys were paid in two instalments - $5,500 on 15 October 2009 and $66,000 on 20 November 2009. It is those moneys (less $1,000 for a documentation fee) in respect of which Singh Group served the statutory demand on Sportsco. Singh Group says that the money was paid on the basis that it would be refunded if, as occurred, it was unable to obtain finance for the franchise business.
[5]Sportsco Pty Ltd v Singh Group Pty Ltd [2011] VSC 390 at [4]-[36].
Sportsco says that there is a genuine dispute over the debt claimed in the statutory demand as to what constitutes the agreement pursuant to which the moneys were paid, and whether that agreement was subject to finance or some other condition such that the moneys demanded are refundable. Sportsco also claims that an off-setting claim arises because Singh Group is liable to pay it a franchise royalty fee for 5 years and, as that obligation has been breached, Singh Group is liable for damages estimated at $300,000 (that figure being an estimate of what Sportco’s income under the franchise agreement would have been over its five year term).
For the reasons set out below, Sportsco has failed to establish that there is a genuine dispute as to the debt and that it has an off-setting claim.
Legal principles
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. A demand may be set aside where there is a genuine dispute as to the existence or amount of the debt or where the company has an offsetting claim that exceeds the amount of the debt claimed.[6]
[6]Section 459H Corporations Act.
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[7] Dodds‑Streeton JA said:[8]
The court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised. (Citations omitted).
[7](2008) 66 ACSR 67.
[8]Ibid at [56] – [57].
Her Honour also said:[9]
As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should 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. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice.
[9]Ibid at [71].
Has Sportsco established that there is a genuine dispute or offsetting claim?
Having considered afresh the evidence and the submissions that were made on the appeal, I am of the view that the Associate Judge was correct in refusing to set aside the statutory demand. I agree with, and adopt, his Honour’s reasoning with the following additional comments.[10]
[10]Sportsco Pty Ltd v Singh Group Pty Ltd [2011] VSC 390 at [41]-[50].
Counsel for Sportsco submitted that his Honour erred by delving too deeply into the evidence and determining the issues rather than limiting himself to consideration of whether there was a triable issue. I do not accept that submission. The evidence filed on behalf of Sportsco did not rise above the low hurdle required to establish that there is a genuine dispute about the debt. Much of the evidence of Mr Andrew Carter (Sportco’s chief executive officer) was mere assertion. For example, he asserted that Sportsco and Singh Group entered into and executed a franchise agreement in the form of its pro forma franchise agreement. However, no executed agreement was produced. There is no evidence that it was executed, other than the bald allegation by Mr Carter which was not supported by any evidence as to the circumstances of the agreement’s alleged execution. When execution was denied by Mr Hardeep Singh (a director of Singh Group), Mr Carter deposed in an affidavit in reply that Sportsco “understood” that the documents that had been sent to Singh Group for execution on 29 October 2009 (including the franchise agreement) were unconditional, acted on the basis that the franchise agreement was operative and incurred costs in reliance on the conduct of Singh Group (including the making of payments). Counsel submitted on behalf of Sportsco that the effect of Mr Carter’s evidence was that although the franchise agreement was not signed, by their conduct (which it was contended was consistent with its terms), the parties agreed to be bound by its terms. It was submitted that, accordingly, it is arguable that the terms of the franchise agreement should apply and, if necessary, the Court could infer that the Singh Group gave its consent.[11] Alternatively, in the circumstances, it was contended that it would be open to the Court to find that the Singh Group is estopped from denying that the terms and conditions of the franchise agreement did not govern their relationship.[12]
[11]Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523
[12]Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 528.
However, in light of other uncontradicted evidence advanced by Singh Group,[13] Mr Carter’s assertions can be given little (if any) weight and the argument that the parties are bound by the written terms of the pro forma franchise agreement or are estopped from denying them must fail. Taken with the other evidence, Mr Carter’s assertions are insufficient to establish a basis for setting the demand aside.
[13]See [11]-[14] below.
His Honour noted that in his affidavit in opposition to the application to set aside the demand, Mr Singh detailed several oral representations which he alleged were made by representatives of Sportsco that the moneys would be refundable in the event finance could not be obtained.[14] In particular, Mr Singh deposed that Mr Nguyen, Sportsco’s in-house legal counsel, stated that Singh Group was required to pay an application fee of $5,000 plus GST in order to enter into the franchise agreement with that fee being fully refundable if they were not able to secure finance. Subsequently the payment of $5,500 was made. As the Associate Judge noted, there was no affidavit taking issue with that statement and it was not addressed in the affidavit in reply by Mr Carter.[15]
[14]Sportsco Pty Ltd v Singh Group Pty Ltd [2011] VSC 390 at [42].
[15]Ibid at [43].
The most telling evidence as to the moneys being repayable if finance was not obtained is a later email sent by Sportsco’s financial accountant, Mr Gaurav Khanna, in which he confirmed what he referred to as an earlier agreement that had been made over the telephone that the moneys were refundable, save for a $1,000 documentation fee. The email was copied to Mr Carter and Mr Nguyen. His Honour considered that this evidence, in the absence of other evidence, overwhelms Sportsco’s assertion that there are triable disputes to be determined.
Counsel for Sportsco submitted that his Honour erred by failing to have regard to the documentary evidence that he contended was in conflict with the evidence of Mr Singh and Mr Khanna’s email. In particular, counsel pointed to the following:
(a) Mr Nguyen made no reference to the moneys being refundable in an email that he sent to Mr Singh the day after it is alleged he told Mr Singh that the deposit of $5,000 plus GST would be refundable;
(b) the franchise application included a statement that Mr Singh and his co-director were trying to obtain finance for $150,000 but did not state that proceeding with the franchise was subject to finance;
(c) the offer to lease that was executed by Mr Singh and his co-director (although Mr Singh does not say that he signed it) was not made subject to finance and although a number of other handwritten amendments were made to it, there was no amendment made to make the offer to lease subject to finance;
(d) the email sent by Mr Nguyen with the offer to lease to Mr Singh and his co-director did not say that it was subject to finance; and
(e) amongst the documents subsequently sent by Mr Nguyen for execution by Singh Group was a disclosure statement and franchise agreement in the then current form used by Sportsco – neither of which contained a condition concerning finance. The disclosure document stated that the deposit against franchise fee was not refundable.
None of this evidence, nor any other evidence given by Mr Carter on behalf of Sportsco, rebuts the evidence of what Mr Singh says Mr Nguyen stated. Further, it all pre-dates the email that was sent by Mr Khanna as to the arrangement in respect of the moneys paid by Singh Group and following which Singh Group paid a further $66,000 to Sportsco.
It is true that on applications to set aside statutory demands, it is not necessary to have all the evidence that would be required at a trial. But something more than the evidence that Sportsco relied on is required, particularly in circumstances where it would have been a simple matter for Mr Carter in his affidavit in reply to address directly the matters raised by Mr Singh and for Mr Nguyen to have provided a responding affidavit in relation to the allegations made as to what he said.
His Honour stated that Mr Khanna “would be cloaked with the apparent and ostensible authority to make [the] representation [in the email] in the absence of an argument to the contrary from Sportsco, which has not been forthcoming.” Before me, counsel for Sportsco contended that there was no evidence that the accountant had actual authority to bind Sportsco and that it was open to the Court to find that he did not have that actual authority. Counsel contended that Singh Group bears the onus of proving that Sportsco represented or “held out” Mr Khanna as possessing authority to bind the company and that the Singh Group reasonably relied on that representation.[16] It was put that a representation by Mr Khanna alone as to the extent of his authority cannot amount to a “holding out” by Sportsco.[17] Counsel contended that there was no evidence that Singh Group believed that Mr Khanna had authority to bind Sportsco; that Singh Group knew that it was Mr Carter who had the requisite authority to bind Sportsco; that Mr Carter and Mr Nguyen had been involved in the negotiations; that Mr Khanna was involved in the negotiations because he was an associate of the person who introduced the Singh Group to Sportsco; that there is no evidence that a financial accountant would normally enjoy powers to bind a company to a commercial agreement; and the franchise agreement that was sent to the Singh Group required execution by the sole director/secretary of Sportsco such that it would be unreasonable for the Singh Group to rely on any representation to the contrary.
[16]GE Dal Pont, Law of Agency, 2nd edn, (2008) at 517, [20.7] – [20.8]; Hoare v McCarthy (1916) 22 CLR 296 at 305-6.
[17]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [36].
One of the difficulties with these submissions is that Mr Carter’s evidence did not cast any doubt on the authority of Mr Khanna to bind Sportsco in the negotiations. Mr Carter gave evidence that Mr Khanna was involved in the negotiations as he was an associate of the person who introduced Mr Singh and his co-director to Sportsco. He also gave evidence that Mr Khanna is no longer employed by Sportsco, which may explain why there was no affidavit from him. Mr Carter referred in his affidavit to Mr Khanna’s email as part of Sportsco’s records.
Whilst Mr Singh’s co-director referred in an email to setting up a meeting with Mr Carter, it was Mr Khanna who, a couple of days later, sent the franchise application form, other documents and details of the franchise fee structure to the Singh Group directors and asked them to complete the application, pay the deposit and contact him with any questions prior to the next meeting. Mr Carter and Mr Nguyen were copied on that email. As noted above,[18] they were also copied on the critical email that Mr Khanna sent which confirmed the agreement that all amounts paid to Sportsco, other than the documentation fee of $1,000, were fully refundable. There is no evidence that either Mr Carter or Mr Nguyen disputed that that was the arrangement. Nor is there any evidence that they disputed that Mr Khanna had authority to make the agreement, send the email and bind Sportsco to that agreement. Singh Group subsequently paid a further amount of $66,000 to Sportsco. In those circumstances, to the extent that it is necessary, Singh Group has established that Mr Khanna had authority and that it reasonably relied on that authority. Sportsco, on the other hand, has not established that there is a genuine dispute as to the debt that arises out of any argument related to Mr Khanna’s authority.
[18]See [12] above.
It was submitted on behalf of Sportsco that his Honour erred in finding that Singh Group had used all reasonable endeavours to obtain finance but without success. Counsel contended that the evidence did not support this finding. Principally counsel relied on two things that are contained in Singh Group’s franchise application. First is a personal financial statement which shows that the directors of Singh Group had $250,000 in cash and net assets of $692,000. Second is that they were trying to secure a business loan of $150,000. Counsel contended that finance had instead been sought by Singh Group for $250,000 and, given that Singh Group had previously indicated it was seeking finance for a lesser amount and that the financial position of its directors was such that a lesser amount of finance would have sufficed, it could not be said that Singh Group had used all reasonable endeavours to obtain finance. However, as counsel for Singh Group contended, there was no evidence that the condition that the agreement was subject to finance was for finance of any particular amount. In those circumstances, his Honour did not err in finding that Singh Group had made reasonable endeavours to obtain finance. Over a number of months, Singh Group applied for finance from a number of major banks and had assistance from a broker introduced to it by Sportsco. Despite the assistance it received and the number of applications it made, it was not able to obtain finance.
Sportsco bears the onus of establishing that there is a genuine dispute as to the debt and it has failed to satisfy that burden. Sportsco’s asserted claim for damages was not seriously pressed before me. In any event, in the absence of a binding unconditional franchise agreement, such a claim has no basis.
The appeal will be dismissed.
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