Tap Energy (Thailand) Pty Ltd v Northern Gulf Petroleum Holdings Ltd [No 2]

[2015] WASC 351

TAP ENERGY (THAILAND) PTY LTD -v- NORTHERN GULF PETROLEUM HOLDINGS LTD [No 2] [2015] WASC 351

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2015] WASC 351
Case No:	COR:94/2015	Heard:	26 AUGUST 2015
Coram:	TOTTLE J	Delivered:	26/08/15
No of pages:	20	Judgment Part:	1 of 1
Result:	Application granted
Category:	B
PDF Version

Parties:	TAP ENERGY (THAILAND) PTY LTD NORTHERN GULF PETROLEUM HOLDINGS LTD
Catchwords:	Application to set aside statutory demand Genuine dispute Whether dispute is real and not spurious or hypothetical Offsetting claim Turns on own facts
Legislation:	Corporations Act 2001 (Cth), s 459G, s 459H(4)
Case References:	Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : TAP ENERGY (THAILAND) PTY LTD -v- NORTHERN GULF PETROLEUM HOLDINGS LTD [No 2] [2015] WASC 351 CORAM : TOTTLE J HEARD : 26 AUGUST 2015 DELIVERED : 26 AUGUST 2015 FILE NO/S : COR 94 of 2015 BETWEEN : TAP ENERGY (THAILAND) PTY LTD

Plaintiff

AND

NORTHERN GULF PETROLEUM HOLDINGS LTD
Defendant

Catchwords:

Application to set aside statutory demand - Genuine dispute - Whether dispute is real and not spurious or hypothetical - Offsetting claim - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 459G, s 459H(4)

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff : Mr J A Thomson SC
Defendant : Mr G M Slattery & Ms R T Heath

Solicitors:

Plaintiff : Corrs Chambers Westgarth
Defendant : Squire Patton Boggs

Case(s) referred to in judgment(s):

Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85

TOTTLE J:

(This judgment was delivered extemporaneously on 26 August 2015 and has been edited from the transcript.)

Introduction

1 The plaintiff has applied, by originating process filed on 4 May 2015 to set aside a statutory demand against it dated 13 April 2015, pursuant to s 459G of the Corporations Act 2001 (Cth).

2 The statutory demand claimed the amount of $US14,614,500, being a debt said to arise pursuant to a sale and purchase agreement dated 13 October 2010. Under the sale and purchase agreement, the plaintiff was the buyer and the defendant was the seller. There were other parties to the agreement, but it is unnecessary to describe them in any detail.

3 A substantial volume of affidavit evidence has been filed. In addition, the parties have filed extensive and comprehensive written submissions. The plaintiff's submissions extend over 21 pages and comprise 102 paragraphs with detailed footnotes, and those of the defendant extend over 23 pages and comprise 73 paragraphs.

4 The plaintiff relies on four affidavits sworn by Ms Melanie Jane Williams, respectively, on 4 May, 5 June, 1 July and 10 July 2015. At the time she swore those affidavits, Ms Williams was the general counsel and company secretary of Tap Oil Limited, of which the plaintiff is a wholly owned subsidiary. The plaintiff also relies on two affidavits sworn by Mr Dennis Bouclin on 4 May and 1 July 2015 and on an affidavit affirmed by Ms Michele Ryan on 20 August 2015. Ms Ryan appears to Ms Williams' successor as general counsel and company secretary of Tap Oil Limited.

5 The defendant relies upon an affidavit sworn by Mr Chatchai Yenbamroong on 20 May 2015.

6 At an earlier stage in these proceedings, the plaintiff applied for orders restricting access to some of the attachments to Mr Bouclin's affidavit of 1 July 2015. That application was heard by Master Sanderson, who made orders restricting access to some attachments and published reasons for making those orders.

7 By a chamber summons issued on 7 August 2015, the plaintiff made a further application for orders that certain attachments to affidavits and the parties' submissions be placed in sealed envelopes and not be made available for inspection without an order from the court. The chamber summons also sought an order that the parties should have leave to apply for orders suppressing or redacting references to the documents alleged to be confidential to which reference might be made in my reasons for decision. I deferred consideration of this application until after the determination of the substantive application.

8 I turn now to consider the background to this dispute. The facts are not in dispute, and the account that I now give draws heavily on the outline of the history contained in the parties' respective submissions.

9 The plaintiff holds a 30% undivided interest in a petroleum concession in the Gulf of Thailand. This is Concession Number 7/2549/75 and covers Block G1/48. The two other concessionaires are Northern Gulf Petroleum Pte Ltd (NGP) and MP G1 (Thailand) Limited (MP G1).

10 NGP has a 10% interest in the concession, but is currently subject to a default notice. MP G1 has a 60% interest in the concession. The three concessionaires are parties to a joint operating agreement relating to the development of the concession. MP G1 is the operator under the joint operating agreement.

11 Each of the three concessionaires is the wholly owned subsidiary of a holding company. The plaintiff is the wholly owned subsidiary of Tap Oil Limited, which is an Australian public company listed on the Australian Stock Exchange. NGP is a wholly owned subsidiary of the defendant in these proceedings, which is Bermudan company. MP G1 is a wholly owned subsidiary of Mubadala Petroleum (Thailand) Ltd, to which I will refer as Mubadala. In addition, NGP has a wholly owned subsidiary of its own. This is Northern Gulf Oil (Thailand) Co Ltd.

12 Mr Yenbamroong is a director of the defendant and NGP. Mr Yenbamroong and the defendant, are major shareholders of Tap Oil Limited. Between them they have voting control of over approximately 19.98% of its listed capital.

13 The concession includes an oil field, known as the Manora field, and, in the sale and purchase agreement, this is referred to as the Manora Area Development.

The sale and purchase agreement

14 The sale and purchase agreement was made on 13 October 2010. Pursuant to its terms, the defendant agreed to sell 75% of its shares in NGP to the plaintiff. The other parties to the agreement are Tap Oil Limited, NGP, and Northern Gulf Oil (Thailand) Co Ltd.

15 Clause 4.1 of the sale and purchase agreement sets out the consideration for the sale of the shares. Under cl 4.1(c) the consideration included:

(c) additional cash payments of up to USD37,500,000 by the Buyer to the Seller in accordance with clause 4.6 of this Agreement (Additional Payments)

16 Clause 4.6 of the sale and purchase agreement is the provision to which much of the argument on this application has been directed. The clause reads as follows:

4.6 The Additional Payments shall be determined as follows:

(a) The Additional Payments are subject to and conditional upon FID.

(b) the Additional Payments shall comprised (sic) the payments in clauses 4.6(b)(i) and (ii) as follows:


(i) Tap shall pay an amount equal to 50% of the Total Amount determined as follows:

Manora 2P Reserves	Total Amount (USD)
10 MMstb	Nil
35 MMstb	37,500,000

PROVIDED that:

(A) Manora 2P Reserves shall be determined by reference to the reasons stated in the Manora Development Plan;

(B) where the Manora 2P Reserves stated in the development plan is between the amounts specified in the table above, the total amount payable shall be pro-rated accordingly; and

(C) where the Manora 2P reserves are less than 10 MMstb the total amount payable shall be nil and where the Manora SP Reserves are greater than 35 MMstb the total amount payable shall be USD37,500,000.


(ii) Following 31 December of each year during the Adjustment Period, Tap shall pay an amount equal to the Total Amount determine in accordance with clause 4.6(b)(i) and by reference to the Manora 2P Reserves contained in the Reserves Report or Reserves Certification pursuant to clause 4.6(c) (as the case requires) for the relevant year, less:

(A) the amount of the payment shall be made by the Buyer pursuant to this clause 4.6(b)(ii); and

(B) the sum of all previous payments made by the Buyer pursuant to this clause 4.6(b)(ii).


(c) Within 21 days of receipt of a Reserves Report, or if the Operator fails to provide a Reserves Report by 31 March of the following year, either the Buyer or the Seller (Notifying Party) may give notice to the other Party requiring an independent expert to be appointed to provide a Reserves Certification in accordance with the following provisions:

(i) the expert shall be an internally recognised and reputable expert in the field of reserves certification appointed by agreement between the Buyer and Seller;

(ii) if the Buyer and Seller are unable to agree upon an expert within 10 days after the receipt of notice pursuant to this clause, then upon the request of the Buyer or Seller, the International Centre for Expertise of the International Chamber of Commerce (ICC) shall appoint such expert;

(iii) the expert shall be required to provide a certification of the Manora 2P Reserves as at 31 December of the relevant year for the purposes of determining the amount of the payment under clause 4.6(b)(ii) of this Agreement (Reserves Certification).

(iv) the Buyer and Seller agree to cooperate fully in the expeditious conduct of the Reserves Certification by the expert and to provide the expert with access to all facilities, data, books, records, documents, information and personnel necessary to make a fully informed decision in an expeditious manner;

(v) the Reserve Certification by the expert shall be final and binding on the Parties; and

(vi) unless the Buyer and Seller otherwise agree, the costs of the expert shall be paid at the sole cost of the Notifying Party.


(d) the Payment of the Additional Payments pursuant to this clause 4.6 shall be made by wire transfer to a bank account nominated by the Seller as follows:

(i) the payment under clause 4.6(b)(i) shall be made within 30 days of FID; and

(ii) the payments under clause 4.6(b)(ii) shall be made within 30 days of the date on which the:


(A) Reserves Report is provided to the Buyer if notice is not given in accordance with clause 4.6(c); or

(B) Reserves Certification is provided to the Buyer if notice is given in accordance with clause 4.6(c).

17 To understand the provisions of cl 4.6, it is necessary to refer to the meaning of several defined terms which are referred to in the sale and purchase agreement.

FID means Final Investment Decision by the participants in the Thai Exploration Block G1/48 approving the Manora Development Plan.

Manora 2P Reserves means, for the purposes of clause 4.6, the estimated ultimate recoverable proven and probable reserves of oil in relation to the Manora Development Plan, Reserves Report or a Reserves Certification (as the case may be) and otherwise classified in accordance with the Society of Petroleum Engineers PRMS Guidelines (1997) (as amended from time to time).

Reserves Report means a reserves report issued by the Operator containing reserves estimates for the Manora Area as at 31 December of a year during the Adjustment Period.

Adjustment Period means the period commencing on 31 December following the date of commencement of production from the Manora Field and ending on that date which is three years thereafter.

18 It is common ground that the FID, the final investment decision, had been made and it is common ground that production of oil had commenced in November 2014.

19 Pursuant to the provisions of the sale and purchase agreement, which it is unnecessary for me to recite in detail, the plaintiff was entitled to procure the assignment to it of a 30% interest in the concession but, in exchange, the plaintiff would have to hand back its shares in NGP to the defendant. The assignment of a 30% interest in the concession from NGP to the plaintiff occurred pursuant to an assumption agreement executed in 2011.

20 In addition to enabling a party to seek the appointment of an independent expert to provide a Reserves Certificate under cl 4.6, the sale and purchase agreement enabled the parties to invoke a mechanism for the expert determination of certain other issues, namely, disputes regarding the cash value of what was termed the 'Earn-Out' (in cl 6.11), and disputes regarding adjustments payable in the event that certain government approvals were not obtained and the sale and purchase agreement was terminated (cl 9.8).

21 Clause 19 of the sale and purchase agreement set out in some detail the procedure to be followed if the provisions for expert determination were invoked.

22 Clause 20 of the agreement provided that any dispute arising out of or in connection with the sale and purchase agreement should be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre. Clause 20.4 provided that a dispute shall be deemed to have arisen when a party notifies the other party in writing to that effect.

23 Clause 28 of the agreement provided that the construction validity and performance of the agreement were to be governed by the laws of England and Wales. There was no suggestion that there were any features of the law of England and Wales which were relevant to the determination of this application.

24 As oil production commenced in November 2014, 31 December 2014 was within what is defined in the agreement as the 'Adjustment Period'. This gave rise to the need to determine whether additional payments were due to the defendant by the plaintiff pursuant to cl 4.6.

The genesis and development of the dispute

25 In January 2015, Mr Yenbamroong requested a reserves report for the Manora oil field effective 31 December 2014. In response to this request, Mubadala circulated to the parties a report prepared by a firm of engineers who specialise in estimating oil reserves, Netherland, Sewell & Associates Inc, commonly abbreviated to NSAI, which was described as 'the draft NSAI YE 2014 Manora Reserves Report'.

26 On receipt of the draft report, Mr Yenbamroong wrote on behalf of the defendant to the plaintiff setting out a calculation of the sum, said to be $US14,614,500, which he contended was due by the plaintiff to the defendant in respect of additional payments. He requested payment into a nominated bank account. The plaintiff responded to this request for payment in correspondence and contended that the reserves report referred to in Mr Yenbamroong's letter did not comply with the definition of a Reserves Report in the sale and purchase agreement.

27 Other than to observe that the seeds of the dispute which later developed are to be found in the correspondence exchanged in relation to the draft reserves report circulated by Mubadala in January 2015, it is unnecessary to refer to that correspondence in any detail. The defendant did not accept the plaintiff's contentions in relation to the draft reserves report, but did not pursue a claim for payment of additional payments on the basis of it.

28 In March 2015, a further report, prepared by NSAI, setting out estimates of the Manora 2P reserves was circulated by Mubadala. I will refer to this report as the 'March report'. Although I have referred to the March report as a further report, it was common ground that the content and substance of the report was the same as the January report.

29 It is necessary to consider the parties' respective positions, as disclosed in contemporaneous correspondence, in relation to the March report in more detail.

30 The March report was sent to Mr Yenbamroong and Mr Rich, the plaintiff's chief financial officer, under cover of an email sent on 11 March 2015. That email was sent by Mr Ian Warrilow of Mubadala. In that email Mr Warrilow wrote as follows:

As we are all aware the G1/48 Joint Venture is annually legally required to provide the Department of Mineral Fuels (DMF) with an Annual Statement of Reserves. In satisfying this requirement we have today submitted, to the Joint Venture Share Point, Operator reserves report for the Manora Field as of 31 Dec 2014 in compliance with Section 5.1.6(c) of the JOA.

The submitted report (as agreed generated by NSAI an internationally recognised company for the certification of reserves) presents an independent view of our reserve base and one which will, in our view, be suitable for our submission to the DMF.

Could I please request that all partners urgently review the submitted report and provide your support for the plan to submit this report to the DMF no later than Friday 20 March 2015.

31 On 13 March 2015 the defendant sent a letter signed by Mr Yenbamroong to Mr Troy Hayden, the plaintiff's managing director, enclosing a copy of the March report, and demanding payment of $14,614,500 by way of an additional payment into the bank account nominated by him in the January correspondence.

32 The plaintiff's first substantive response to the March report was set out in an email sent on 16 March 2015 by Mr David Rich to Mr Warrilow and Mr Yenbamroong. Mr Rich raised a number of concerns in relation to the March report. These included concerns to the effect that the report had not taken into account data derived from wells drilled and logged between early October and 31 December 2014, and a concern that the March report did not conform to the SPE PRMS guidelines, these being guidelines referred to in the definition of 'Manora 2P' reserves as it appears in the sale and purchase agreement.

33 In response to Mr Rich's email, Mr Warrilow sent an email on 20 March 2015 and wrote as follows:

To assess the impact of these concerns, I can instruct NSAI to review and take account of your points raised and revert with an updated reserves report for the consideration of the JV as soon as possible. Please confirm that this approach would address Tap's concerns and then I will promptly instruct NSAI to provide timing and costs and upon acceptance of this will instruct them to provide a revised report. Please let me know as soon as possible.

Also, as you are aware we are required to furnish the DMF with a 2014 reserves statement (which would be based upon the reserve numbers quoted on the current NSAI report). This will be submitted on the deadline they have given us (ie, by close of business today, Friday 20 March).

34 Ms Williams, on behalf of the plaintiff, responded to Mr Warrilow's email and wrote as follows:

We appreciate Operator addressing these points raised by Tap. We endorse the approach outlined below to obtain an updated reserve and resource estimate from NSAI as at 31 December 2014 in accordance with SPE-PRMS guidelines, including the wells MNA-4, 6, 7 which were all drilled and logged prior to 31 December 2014.

We also acknowledge that, as the NSAI work is ongoing the 2014 reserves statement will today be furnished to the DMF by the Operator on the basis of the limited scope NSAI report.

35 On 23 March 2015, the managing director of the plaintiff, Mr Troy Hayden, wrote at some length to Mr Yenbamroong in response to his letter of 13 March 2015, seeking payment of the $US14,614,500.

36 In his letter, Mr Hayden set out in detail the reasons why the plaintiff considered that the March report was not a 'Reserves Report' for the purposes of cl 4.6 of the sale and purchase agreement. Mr Hayden referred to the fact that the plaintiff had raised its concerns with Mubadala, and recorded that Mubadala had advised that it would instruct NSAI to issue a revised and updated report as at 31 December 2014 which would address the concerns which had been raised by the plaintiff.

37 Mr Hayden also referred to the ability of either party to require an independent expert to be appointed to provide a Reserves Certification in accordance with the terms of cl 4.6(c) of the sale and purchase agreement. Mr Hayden contended that the expert determination procedure could not be invoked until a valid Reserves Report was received.

38 I pause to observe that it is clear from the correspondence exchanged between the parties up to this date that there was, in fact, a dispute about whether the March report was a Reserves Report for the purpose of cl 4.6 of the sale and purchase agreement, and thus whether the payment sought by the defendant by way of an Additional Payment was due. The defendant's position was that this was not a 'genuine' dispute. As a result of that view being held by the defendant, the statutory demand which is the subject of this application was served on 13 April 2015.

39 Following the service of that demand, on 15 April 2015 the plaintiff's solicitors wrote to the defendant's solicitors requesting that the defendant withdraw the statutory demand immediately. The critical paragraphs of that letter are as follows:

3. The 'Additional Payments' under the SPA comprise part of the consideration payable by Tap for the sale and transfer of the Shares (SPA cl 4.1(c)). The Additional Payments described in clause 4.6(b)(ii) recur following 31 December of each year during the Adjustment Period. In such a case 'Tap shall pay an amount equal to the Total Amount determined in accordance with clause 4.6(b)(i) and by reference to the Manora 2P Reserves contained in the Reserves Report or Reserves Certification pursuant to clause 4.6(c) (as the case may be) for the relevant year''.

4. A 'Reserves Report' is 'a reserves report issued by the Operator containing reserves estimates for the Manora Area as at 31 December of a year during the Adjustment Period' (SPA cl 1.1).

5. In the statutory demand NGPH states: 'The Operator provided the Company/Buyer with the Reserves Report on 12 March 2015.' This is incorrect. The report submitted by the Operator to the Joint Venture SharePoint on 12 March 2015 did not provide a reserves estimate as at 31 December 2014 in accordance with SPE PRMS guidelines. This was first identified in an email from Tap to the Operator dated 16 March 2015, which was copied to Mr Yenbamroong and Mr Sakdango from Northern Gulf. It was explained in detailed terms in Tap's letter dated 23 March 2015 (copy attached). It has been repeated to NGPH on a number of occasions. The report submitted by the Operator to the Joint Venture SharePoint on 12 March 2015 was not a Reserves Report for the purpose of the SPA.

6. There is a genuine dispute about the existence of the debt which is the subject of the demand. On this basis alone the demand will be set aside by the Court. However, there are also other reasons why the demand will be set aside.

7. In serving the statutory demand, NGPH has sought to invoke the external administration statutory scheme of the Corporations Act 2001 (Cth) to achieve an outcome in a 'dispute' under the SPA. This conduct is in breach of NGPH's obligation under clause 20.1 of the SPA to refer any dispute to arbitration.

40 By letter dated 21 April 2015, the defendant's solicitors responded to the plaintiff's solicitors' letter of 15 April. The defendant's solicitors maintained the position that the report relied upon by the defendant was a Reserves Report for the purposes of cl 4.6.

41 The defendant's solicitors maintained that the arbitration provisions of the sale and purchase agreement were not applicable to resolving a dispute about the extent of the Manora 2P reserves and that the proper and only course open to the plaintiff would have been to have invoked the provisions requiring an independent expert to be appointed to provide a Reserves Certification. Following the commencement of this application, NSAI produced a further report containing estimates of the Manora 2P reserves.

42 A copy of this report is attached to the affidavit sworn by Mr Bouclin on 1 July 2015 as attachment DB10. The report has been referred to by the parties as the June report and I will refer to it in this way. The report is the subject of the orders restricting access made by Master Sanderson to which I have referred. It is unnecessary to refer to the June report in any detail. It is sufficient to record that it contains an estimate of the reserves which is different to that contained in the March report.

43 The plaintiff says that the June report addresses the concerns that it, the plaintiff, had with the March report and that the June report demonstrates that information that was available in December 2014 to be taken into account in the process of estimating the reserves was not taken into account.

44 Finally, I should record that on 19 August 2015 the plaintiff commenced arbitration proceedings in Singapore in the Singapore International Arbitration Centre against the defendant and others seeking, amongst other things, declarations in relation to the additional payment said to be due pursuant to cl 4.6 of the sale and purchase agreement and other matters, and a declaration that the amount owing to the defendant pursuant to that clause was a sum which was very significantly less than the amount demanded in the statutory demand.

Relevant legal principles

45 I turn now to consider the applicable legal principles. These were summarised by his Honour the Chief Justice in Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [43] - [50]:

Genuine dispute

43. As Santow J observed in Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529:


'[T]he cases have provided various formulations of the test for genuineness with the suggestion of subtle gradations of stringency. They have ranged from a test closely allied with that for an interlocutory injunction, namely, whether there is a serious question to be tried, to the least stringent test, namely, that applicable to a party seeking to resist an application for summary judgment (533).'

44. The verbal formulation of the test to be applied which appears to enjoy greatest judicial support is that of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, where he described the expression 'genuine dispute' as connoting 'a plausible contention requiring investigation' and equated it to the criterion of 'serious question to be tried' which arises on an application for an interlocutory injunction: see Polaroid Australia Pty Ltd (533); Turner Corp (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 [27] - [28] (Owen J); SMEC International Pty Ltd v CEMS Engineering Inc [2001] NSWSC 459; (2001) 38 ACSR 595 [22] (Austin J); and Drewniak v Air Rubber Pty Ltd [2002] SASC 319; (2002) 84 SASR 302 [12] (Debelle J).

45. It is equally well established that the applicant for an order setting aside a statutory demand must establish that the dispute is bona fide and truly exists in fact, and that the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived: see Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 464; (1997) 15 ACLC 1001, 1011; and Turner Corp (WA) Pty Ltd [27].

46. It is also well established that the only function of the court is to determine whether there is a genuine dispute - the court is not expected to undertake an extended inquiry nor attempt to weigh the merits of the dispute: see Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, 295. The written and oral argument advanced on behalf of Createc in support of its appeal ignored this basic proposition. The thrust of that argument was directed to establishing a number of legal propositions which were said to lead to the conclusion that the debt was due and owing. The approach taken by Createc was not directed to the question of whether there was a dispute, but invited the court to resolve that dispute in its favour. Many authorities establish that such an approach is fundamentally misconceived.

Abuse of process

47. As Barrett J observed in Roberts v Wayne Roberts Concrete Constructions Pty Ltd[2004] NSWSC 734; (2004) 50 ACSR 204:


'[I]t was, before the advent of Pt 5.4, an abuse of process to initiate winding up proceedings as a means of attempting to enforce payment of a disputed debt. An early decision to that effect was Cercle Restaurant Castiglione Co v Lavery (1881) 18 ChD 555 the report of which contains, as a footnote, the judgment of Jessel MR in Niger Merchants Co v Capper (1877) 18 ChD 557n where reference was made to an earlier decision of Malins V-C in Cadiz Waterworks Co v Barnett (1874) LR 19 Eq 182 in which the pursuit of winding up proceedings was enjoined 'on the ground that it is the object of the Court to restrain the assertion of doubtful rights in a manner productive of irreparable damage'. The principle was stated in these terms by Vaughan Williams J in In re a Company [1894] 2 Ch 349':

"In my judgment, if I am satisfied that a petition is not presented in good faith and for the legitimate purposes of obtaining a winding up order, but for other purposes, such as putting pressure on the company, I ought to stop it if its continuance is likely to cause damage to the company" [57].
48. Following the introduction of pt 5.4, doubts were expressed as to whether the statutory procedures provided an exclusive code for the resolution of proceedings brought as a result of the issue of a statutory demand. However, in David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265, Gummow J, with whom the other members of the High Court agreed, expressed the following view:

'It also may transpire that a winding-up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz. However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction' (279). (footnotes omitted)

49. Since that decision, it has generally been accepted that the court retains a residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of an abuse of process: see House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527, 528; SMEC International Pty Ltd [35]; Roberts [54] - [58]; and State Bank of New South Wales v Tela Pty Ltd (No 2) [2002] NSWSC 20 [5]. In Roberts, the jurisdiction was exercised on the grounds of impropriety of purpose, and a winding-up application was dismissed with costs. Similarly, in Old Kiama Wharf Co Pty Ltd v Deputy Commissioner of Taxation [2005] NSWSC 929; (2005) 55 ACSR 223, an application to set aside a statutory demand was upheld because the court concluded that the process was being used to 'attempt to apply pressure to a taxpayer to force payment of a debt' [42].

50. Adopting the criterion from Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, suggested by Gummow J in David Grant & Co Pty Ltd, there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt.

Is there a genuine dispute?

46 The parties' submissions raise a number of peripheral issues, many of which it is unnecessary for me to address.

47 In my view, the critical issues are these: first, is the plaintiff's contention that the March report did not constitute a Reserves Report for the purposes of cl 4.6(b) and (c) of the sale and purchase agreement on a true construction of that agreement a plausible contention requiring investigation; second, on the proper construction of cl 4.6(c), is it open to the plaintiff to challenge the conclusions set out in a document produced by the operator which purports to be a Reserves Report otherwise than by invoking the expert determination process provided for in cl 4.6(c); thirdly, am I satisfied that the dispute is bona fide and truly exists in fact and that the grounds are real and not spurious, hypothetical or misconceived.

48 The essence of the defendant's submissions was to the effect that the March report was a report prepared by a world renowned organisation with experience in oil reserves estimation, which on its face provided an estimate of the Manora 2P reserves in accordance with the relevant SPE PRMS guidelines.

49 It was submitted that the only method of challenging the conclusions contained in that report was for the plaintiff to give notice to the defendant requiring an independent expert to be appointed to provide a reserves certification in accordance with the provisions of cl 4.6(c)(i) to (iv). It was submitted, in effect, that the plaintiff's argument that the March report was not a Reserves Report depended upon an interpretation of the sale and purchase agreement which was so improbable and implausible that it could not be said that there was a genuine dispute.

50 As I have noted, it is common ground that the plaintiff did not serve a notice invoking the expert determination procedure. The defendant also submits that the ability of the parties to invoke the procedure set out in cl 4.6(c) for an independent expert determination compels the conclusion that disputes about additional payments to be made as a result of a determination of the Manora 2P reserves are not disputes which can be referred to arbitration in accordance with cl 22 of the sale and purchase agreement.

51 I accept that there is force in the arguments raised by the defendant, but the issue that requires resolution is not whether the defendant's submissions to the effect that the plaintiff cannot go behind, as it were, the March report will ultimately succeed, but whether the plaintiff has raised a plausible contention.

52 In my view, and recognising that the threshold is low, there is a plausible argument that the plaintiff is permitted to challenge whether the March report is a Reserves Report for the purposes of the sale and purchase agreement.

53 It follows that I think it is arguable that the plaintiff is not confined to the remedy of invoking the procedure for an independent expert to be appointed to provide a Reserves Certification.

54 A determination of the Manora 2P reserves in a Reserves Report is a condition of payment for what may be very substantial sums by way of additional payments. The inclusion in the definition of the term 'Reserves Report', of a reference to 'reserves estimates for the Manora area as at 31 December of a year during the adjustment period' suggests that all the latest data available as at 31 December of each year which has a bearing on the existence and extent of the reserves should be taken into account in the reserves report.

55 In my view, it is arguable that a report which does not take into account available data relevant to the extent of the reserves at 31 December of each year of the Adjustment Period is not a Reserves Report within the meaning of that term as defined by the sale and purchase agreement however it might be described, or whoever might have prepared it.

56 The question which then arises is whether the plaintiff's contention that the March report did not provide an estimate of the Manora area reserves as at 31 December 2014 and is thus not a Reserves Report for the purposes of the sale and purchase agreement is supported by cogent evidence.

57 Using the language of the authorities, the question I must ask is whether I am satisfied that the dispute is real and not spurious or hypothetical. In assessing whether a dispute is raised in good faith, it is a significant factor in the plaintiff's favour that the contentions raised by the plaintiff in this application were raised in correspondence which answered the defendant's claim when it was first advanced.

58 In his affidavit sworn on 4 May 2015, Mr Bouclin deposes as to matters which provide the evidentiary foundation for the plaintiff's contention that the March report is not a Reserves Report within the meaning of the sale and purchase agreement. Mr Bouclin's evidence is couched in terms which are precise and not vague or general. He identifies the data which he says was used in the preparation of the March report and identifies the data available in December 2014 which was not taken into account in the March report.

59 More specifically, Mr Bouclin deposed that the data which was used in the preparation of the March report was data which had been collected by 9 October 2014 at the latest. He also deposed to data which was collected and available in 2014 to which no reference was made in the report and he identified the basis upon which it was said that the report had not been produced in accordance with the SPE PRMS guidelines. It is unnecessary to refer to Mr Bouclin's evidence in any more detail. It was not tested.

60 It may be that Mr Bouclin's evidence can be challenged successfully by the defendant in a subsequent stage of the resolution of the dispute that has arisen between the parties. I am not, however, required to find that the March report was not a Reserves Report. I am required to consider whether the plaintiff has raised a plausible contention supported by evidence. As has been said many times, the threshold is low. I am satisfied that there is a genuine dispute and that the statutory demand should be set aside on that basis.

Abuse of process

61 The plaintiff submits that the issue of the statutory demand was an abuse of process for two reasons: first, because the defendant had an ulterior motive in issuing the statutory demand, namely, to assist Mr Yenbamroong in his attempts to bring about a change in the composition of the board of the plaintiff's parent company, Tap Oil; and, secondly, that the defendant has used the statutory demand procedure as a method of collecting a disputed debt.

62 In my view, the material relied upon by the plaintiff does not establish an abuse of process on the first ground.

63 The second basis for alleging an abuse of process was more troubling. In [15] and [16] of his affidavit of 20 May 2015, Mr Yenbamroong made a number of statements which suggest that the defendant's purpose in issuing the statutory demand was not the purpose of winding up the plaintiff on the ground of insolvency, but rather to compel the payment of the debt which he and the defendant considered was due to the defendant. Those paragraphs of Mr Yenbamroong's affidavit read as follows:

15. As a director of Northern Gulf, I along with all other directors of Northern Gulf, voted in favour of issuing the statutory demand. On 13 April 2015 I signed the affidavit in support of the statutory demand. In voting and in signing the affidavit my intention in doing so was to achieve repayment of the debt (about which I believe there is no genuine dispute).

16. I do not understand what benefit the statutory demand has or could potentially have to the other issues. Northern Gulf privately demanded payment from the plaintiff. It was only after the plaintiff refused to pay that it was necessary to take further action to recover the debt. Further there is no dispute that the plaintiff is required to make an Additional Payment under the SPA, the matters raised are whether that obligation has arisen. There is no benefit to me from the statutory demand aside from achieving repayment of the debt due to Northern Gulf. (my emphasis)

64 Mr Yenbamroong knew that the plaintiff disputed the alleged debt. The plaintiff had made it plain in correspondence that that was so and had set out the basis upon which it was disputed. This correspondence preceded the issue of the statutory demand. I am troubled by whether, in the circumstances as I have described them, the statutory demand process was being used as a method of debt collection.

65 In the light of my finding, however, that the statutory demand should be set aside on the grounds of the existence of a genuine dispute, it is not necessary for me to make a finding on this issue and I decline to do so.

Offsetting claim

66 By the time of the hearing, the defendant had accepted for the purposes of this application that the plaintiff had an offsetting claim.

67 At the conclusion of the hearing, I was informed by counsel that the agreed position was that there was an offsetting claim in the amount of $6,687,432, which would reduce the statutory demand to $7,927,068. Had I not set aside the statutory demand, I would have varied it by substituting the figure of $7,927,068 for the figure of $14,614,500, those being, in each case, United States dollars.

Conclusion

68 For the reasons I have given I set aside the statutory demand dated 13 April 2015. I will hear the parties in relation to costs.

Suppression

69 These reasons will be suppressed to provide the parties with an opportunity to make submissions as to any redactions that may be required to protect the confidentiality of information contained in them.