Valleyarm Digital Ltd v Shanaaz Peake
[2016] VSC 98
•15 March 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 04274
IN THE MATTER of VALLEYARM DIGITAL LTD (ACN 143 359 568)
| VALLEYARM DIGITAL LTD | Plaintiff |
| v | |
| SHANAAZ PEAKE | Defendant |
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JUDGE: | Randall AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 and 28 January 2015 |
DATE OF JUDGMENT: | 15 March 2016 |
CASE MAY BE CITED AS: | Valleyarm Digital Ltd v Shanaaz Peake |
MEDIUM NEUTRAL CITATION: | [2016] VSC 98 |
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CORPORATIONS – Corporations Act 2001 (Cth) – Setting aside statutory demand – Genuine dispute – Genuine dispute about breach of consultancy agreement giving rise to an offsetting claim – s 459H – Failure to particularise offsetting claim other than by director’s statement; limitation of liability clause in consultancy agreement – Whether there is ‘a serious question to be tried’ or ‘an issue deserving of a hearing’ or ‘a plausible contention requiring investigation’.
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APPEARANCES: | Counsel | Solicitors |
| For Valleyarm | Mr J Kohn | J A Lawyers Pty Ltd |
| For the Defendant | Mr M Galvin QC | DSA Law — Lawyers & Consultants |
HIS HONOUR:
This is an application to set aside a statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Act’).
The defendant, Ms Peake (‘Peake’), served a statutory demand on the plaintiff, Valleyarm Digital Ltd (‘Valleyarm’) for the sum of $38,542.59 in unpaid consultancy fees. Valleyarm has applied to set aside the statutory demand on two bases. First, that there is a genuine dispute about the existence or amount of the unpaid fees. Second that Valleyarm has an offsetting claim. Both bases are disputed.
Background
Valleyarm operates a digital music distributor business. In its outline of submissions, Valleyarm described its major business as follows:
… An artist or record label provides Valleyarm with music and/or artwork [which] Valleyarm converts into digital formats required by digital outlets such as iTunes. The digital outlets then place the material in their catalogues which are available to customers to purchase. The digital outlets track how often songs or albums are purchased. The outlets provide a sales report and forward the royalties earned on the sales. Valleyarm collates the information from the outlets and generates its own sales reports for the individual artist or record label. Valleyarm then distributes the royalties to the artists or record label once it receives a tax invoice.
The artists or record labels use Valleyarm’s website to generate tax invoices. The tax invoices are emailed … for payment. Valleyarm uses MYOB to monitor the payments required to be made to the artists or record labels.
Each of the officers of Valleyarm and each of the creditors of Valleyarm were able to monitor what was due from time to time.
Peake was engaged by Valleyarm. Valleyarm and Peake entered into a consultancy agreement bearing date 22 October 2010. The 22 October 2010 consultancy agreement contained the following provisions:
·Recital
… [Valleyarm] desires to engage the services of [Peake] to perform for [Valleyarm] consulting services as a Bookkeeper regarding the functions for the operation as an independent contractor; …
·Paragraph 3 — Liability Clause:
With regard to the services to be performed by [Peake] pursuant to the terms of this agreement, [Peake] shall not be liable to [Valleyarm], or to anyone who may claim any right due to any relationship with [Valleyarm], for any acts or omissions in the performance of services on the part of [Peake] or on the part of the agents or employees of [Peake], except when said acts or omissions of [Peake] are due to wilful misconduct or gross negligence. [Valleyarm] shall hold [Peake] free and harmless from any obligations, costs, claims, judgments and attachments arising from or growing out of the services rendered to [Valleyarm] pursuant to the terms of this agreement or in any way connected with the rendering of services, except when the same shall arise due to the wilful misconduct or gross negligence of [Peake] and [Peake] is adjudged to be guilty of wilful misconduct or gross negligence by a court in the State of Victoria, Australia.
Valleyarm and Peake entered into a further consultancy agreement bearing date 1 April 2013. It is accepted that the 2013 consultancy agreement superseded that of 2 October 2010. There is debate about whether or not the April 2013 expanded the role performed by Peake.
Provisions of the April agreement are as follows:
·First recital
… [Valleyarm] desires to engage the services of [Peake] to perform for [Valleyarm] consulting services for Artists/Labels Account and Royalty Manager/Office Manager plus Special Projects and use the title Head Office and Special Projects Manager regarding the functions for the operation as an independent contractor; …
·Liability Clause
This clause is in the same terms as that set out in paragraph 3 of the October agreement.
·Clause 4 — Compensation
That clause provides that Peake would render an invoice to Valleyarm on a monthly basis for services performed at the rate of $4,167 per month. In addition to submitting invoices for services, that provision provided for reimbursement of Peake for out of pocket expenses on the fifth day of the next succeeding month.
·Clause 6 — Termination
Clause 6 provides for the termination of the agreement by either party giving 30 days’ written notice.
Valleyarm gave Peake verbal notice of termination of her services on 26 February 2014. Peake submits that she was entitled to remuneration for any work that she did up to 28 March 2014 being the 30 day period.
Genuine dispute
Valleyarm submits that there are four key issues to be determined in relation to whether the demand claims debts the existence of which are genuinely disputed:
(a) the scope of duties owed by Peake to Valleyarm;
(b) whether the second agreement changed the scope of those duties;
(c) the amount due and payable by Valleyarm; and
(d) whether Peake failed to perform her duties pursuant to the consulting agreement and is thus disentitled to any payment.
Duties owed by Peake to Valleyarm
Valleyarm submits that Peake was required, inter alia, to consult with senior management, the Board and company officers in relation to her duties. In the 21 day affidavit, Campbell set out Peake’s duties as follows:
(a) entering royalty payments owed to clients in Valleyarm’s MYOB and/or book of accounts;
(b) clearing and administering the royalties to clients and ensuring that any artist or label royalties that Valleyarm received from digital outlets were properly distributed to the relevant artists or labels on behalf of Valleyarm within the time frame that was agreed between the artists or label and Valleyarm;
(c) being the contact points for clients with respect to all royalty queries;
(d) reporting to the officers of Valleyarm and to the Board a true reflection of the finances of Valleyarm including all royalties that it had received that were to be distributed to its clients; and
(e) at all times acting in the best interests of Valleyarm.
Peake submits that the scope of her duties were limited and included
(a) Reviewing the royalty reports and preparing EFTs;
(b) Presenting EFTs to management for approval to pay artists and labels;
(c) Receiving phone calls from clients and assisting with customer service matters;
(d) Liaising between different departments in relation to royalties; and
(e) Reporting to Mackenzie directly;
but did not include reporting to the Board, paying artists or labels, or entering MYOB data. Specifically, Peake deposes that she ‘was instructed by Mackenzie specifically not to report to the Board, but to him directly This practice continued once Campbell became CEO, in that I would only report him’.
Valleyarm’s evidence, in the form of affidavits sworn by Campbell, Wing, Georgiou and Gao, is inconsistent with Peake’s evidence.
Second agreement
The parties dispute the nature of Peake’s work duties arising from the second agreement. Valleyarm submits that ‘it is clear on an ordinary reading of the agreements [that Peake’s] role changed’ and that ‘there is no evidence to support’ Peake’s submissions that ‘the second consulting agreement did not broaden her duties. The additional titles was a mere marketing ploy’. Valleyarm submits that:
according to the defendant’s own evidence she undertook activities which were beyond the scope of a mere bookkeeper and more consistent with the titles referred to in the second agreement. The exact scope of Peake’s duties is relevant as to whether she has performed her duties, she is entitled to be paid and Valleyarm’s offsetting claim.
Amount due and payable by Valleyarm
The parties dispute the amount due and payable.
The debt claimed was described as follows: ‘The company owes Shanaaz Peake (‘the creditor’) the amount of $38,542.59, being the amount of the debt described in the Schedule’. The schedule is scant. It merely describes the debt as ‘consultancy fees due’ and the amount of the debt is said to be $38,542.59. The affidavit accompanying the statutory demand at paragraph 4 sets out:
The debts referred to in the present Statutory Demand relate to unpaid fees for consulting services rendered by me to the Debtor Company at the request of the Debtor Company and unpaid reimbursement requests between 20 May 2013 and 3 March 2014 for all of which invoices have been sent by the Creditor to the Debtor Company and which invoices have not been paid.
Valleyarm points out that ‘the debt is described differently in the affidavit accompanying the statutory demand’. Valleyarm submits that ‘the affidavit does not provide any particulars of the alleged consultancy fees or details of the tax invoices allegedly due and owing’. I am not impressed by such a contention in circumstances where the records are available to Valleyarm and in circumstances where Valleyarm terminated the consultancy. Accordingly, the period of outstanding fees, at least, was well known to Valleyarm.
The invoices are contained in exhibit MJC-6 to the affidavit of Matthew James Campbell sworn 18 August 2014 (‘the 21 day affidavit’). The invoices span the dates 25 June 2013 through to 3 March 2014. All but the last invoice of 3 March 2014 set out consultancy services with respect to the previous month. An invoice, dated 3 March 2014 (VA0067) also includes a claim for reimbursement in relation to a second-hand refrigerator, a staff kitchen table, a vacuum cleaner and printed cards. The total with respect to reimbursement is $692.34
The demand claims the sum of 12 tax invoices (VA0055 and VA0057 to VA0067), as set out in correspondence between the parties. Valleyarm submits that it has paid a total of $8,334, comprised of paying tax invoices VA0055 and VA0056 in full, and VA0057 in part. Peake submits that Valleyarm’s payment of $8,334 was for ‘invoices prior to that date’, rather than for tax invoices VA0055 to VA0057. She does not identify, however, the tax invoices to which the $8,334 was applied. Valleyarm submits that only a curial hearing can determine which invoice(s) to which the $8,334 was applied.
Valleyarm submits that the full amount of invoice VA0067 is not due and owing, and that the amount claimed from that invoice must therefore be reduced. Valleyarm submits that it terminated Peake’s services on 26 February 2014. Peake’s demand seeks payment for the entire week beginning 24 February 2014, which includes days after her employment was terminated. Peake submits that she voluntarily went to work for the period ending 3 March 2014 to complete handover. However, irrespective of whether she attended to a handover for that week, she was contractually entitled to payment up to 24 March 2014.
In response, Valleyarm submits that even if Peake attended work voluntarily, Peake has no legal obligation to pay. Campbell deposes that:
there was no handover period after 26 February 2014, although Peake did offer, several times. Given the nature of her conduct and circumstances of her dismissal, I considered that a handover was completely inappropriate.
Valleyarm submits that tax invoice VA0067 seeks reimbursement for a second hand fridge, kitchen table, vacuum cleaner and printed cards. It submits that it has no contractual obligation to pay these amounts, and that Peake has not explained why she is entitled to payment of that invoice.
Peake submits that the issues raised by Valleyarm do not support the setting aside of the statutory demand. Peake submits that 12 invoices (including three that Valleyarm claims not to have received) form evidence for the $38,542.59 claimed in the statutory demand. Even if the Court reduced the amount, the total amount due and payable by Valleyarm would be $30,208.59.
Offsetting claim
Valleyarm submits that it discovered Peake’s breach of her duties by failing to upload royalty information to client accounts and MYOB, blocked users from their accounts, failed to resolve outstanding royalty payments due to clients and failed to provide accurate information to the board. An example given by Valleyarm is the invoice from Smartartists dated 10 December 2013 for outstanding royalties of $89,452.19, which was not entered into Valleyarm’s records. Valleyarm argues that Peake was responsible for ensuring payment of that invoice. Valleyarm submits that Peake’s failure to ensure payment resulted in Smartartists’ statutory demand against Valleyarm, and Smartartists’ termination of its contract with Valleyarm.
Valleyarm submits that during a meeting of the board of directors, the directors told Peake to document the royalties due and payable and to provide a full list of creditors. Campbell contends that Peake told him that she had entered the invoice in MYOB and then removed the entry — conduct which Valleyarm submits is Peake’s breach of her duties to it. When Campbell confronted Peake about the impugned conduct he said that she said she acted under instructions from Mackenzie, who was a director of Valleyarm from 8 May 2012 to 30 September 2013. Valleyarm points out that the Smartartists invoice is dated 10 December 2013, which Peake received after Mackenzie had left Valleyarm. Valleyarm thus submits that even if Mackenzie instructed Peake to remove the Smartartists invoice (however implausible in the circumstances), Peake should have told the Board. Peake did not advise any company officer that she had removed any invoice from Valleyarm’s MYOB records.
Peake disputes Valleyarm’s allegations about breach of contractual obligations. Peake submits that she brought the removal of the Smartartists invoice to Campbell and Tulett’s attention, which Valleyarm denies. Valleyarm has not been able to find emails substantiating Peake’s claims. Neither has Peake tendered evidence that substantiates her claims.
After Peake left Valleyarm, Valleyarm has had its accounts audited. The audit showed that royalties due to several artists had been removed from MYOB records and books of account in late 2012, November 2013 and December 2013. Valleyarm submits that Peake removed that information and that such conduct resulted in ‘major problems with clients and affected the company’s financial position’. Valleyarm also submits that it suffered loss and damage, including loss of the Smartartists contract and other client contracts. Peake disputes these allegations, submitting that she told Valleyarm about the removal of entries from its MYOB records.
Valleyarm submits that where facts are disputed, the Court should be reluctant to accept evidence from Peake. Valleyarm gave the example of Peake’s evidence as to the events of 26 February 2013 in paragraph 17 of her affidavit sworn 28 October 2014, evidence described by Valleyarm as ‘farfetched and fanciful’. Valleyarm submits that ‘it is implausible that Campbell told Peake her contract was terminated by Valleyarm still wanted her to continue working for the company on the “MCM Work” which was a “special project”’. My role is not to prefer evidence from one party over the other. It is sufficient, in the absence of a determination that any such evidence is fanciful or futile, to note that there is a conflict of evidence.
The material relied upon by Valleyarm is as follows: an extract of Valleyarm’s trade creditor account of $5000 payable to Smartartists as of 30 September 2013 (Exhibit CG-01) and 5 November 2013 (Exhibit CG-02); Valleyarm’s Secretary’s affidavit of 22 January 2015, which contends that these are ‘incorrect’ based on his reconciliation of the Smartartists account (Affidavit paragraph 9); and the letter from Smartartists’ lawyer, Brett Oaten Solicitors, claiming $101,952.32 payable as of 26 March 2014 (Exhibit CG-03).
Adrien Wing, Valleyarm’s Director and Company Secretary from 26 November 2012 to 11 April 2014, emailed Peake on 31 May 2013 requesting ‘a full and detailed schedule of all creditors, including a detailed schedule on all royalty payables’. Georgiou states that these emails supplemented Wing’s ‘speaking to Peake regarding his concerns about her failure to enter all data in the Company’s computer system’. Exhibit AW-1 to Wing’s Affidavit of 26 November 2014 is an email to Peake notifying her:
On the back of the statutory claim for debt from Macro Music … I have reviewed the creditor list of Valleyarm … I have not been able to locate Macro Music … in the creditors ledger … My serious concern is that the creditor was NOT accounted for and disclosed in the creditors list to date … We need to ensure that the accounts are accurately reflected. Please get back to me ASAP on this matter.
Wing sets out that on 29 May 2013 Peake assured him verbally that all accounts and records were in order and accurately reflected.
Exhibit MJC-10 to Campbell’s further affidavit of 24 November 2014 is an email from Valleyarm’s IT manager (Fabio Marraccini) that shows that user accounts had been blocked from accessing Smartartists’ online account. Marraccini writes, ‘For this account I cannot log in to VMA2 not even using the master password’.
Valleyarm’s contract with Smartartists was scheduled to terminate in 2016 (Exhibit CG-04) unless extended. Clause 7.2(a) provides that Smartartists’ ‘fail[ure] to terminate by the end of the term… will automatically continue [the agreement] for a further 36 months’. Georgiou deposes that but for the failure to pay the Smartartists tax invoices, Valleyarm ‘had no reason to suspect that the cont[r]act would not be extended’.
However, there is nothing from Smartartists to suggest that Smartartists would have sought an extension of the contract if it had been paid its royalties on time. Further, I note that there is no material filed on behalf of Smartartists dealing with any of the issues attributed to it.
As to the existence of an offsetting claim the following issues arise:
(a) Whether Peake breached her contractual duties by removing (or failing to upload) royalty information from client accounts and MYOB, blocking users from their accounts, failing to resolve over $89,000 of outstanding royalty payments due to clients, and failing to provide accurate information to Valleyarm’s board of directors (overstating value of net assets by over $300K); and
(b) Whether Peake’s breaches caused over $200,000 of loss and damage to Valleyarm (eg loss of the Smartartists contract and other client contracts).
Whether Peake’s impugned conduct gives rise to Valleyarm’s offsetting claim, turns on whether Peake breached contractual duties, and whether any such breaches amounted to ‘wilful misconduct or gross negligence’.
Peake submits that there is insufficient evidence to quantify Valleyarm’s offsetting claim against her. She argues that insufficient evidence supports the estimated $120,000 loss of earnings and $80,000 loss of forecasted and booked revenue. She also argues that insufficient evidence links her to such loss.
Further, Peake submits that the indemnity clause in the second agreement operates in her favour. This is because the clause provides that Peake would
not be liable to [Valleyarm] … for any acts or omissions in the performance of services on [her] part … except when said acts or omissions … are due to wilful misconduct or gross negligence
and that she would be
harmless from any obligations, costs, claims, judgments and attachments arising from or growing out of the services rendered to [Valleyarm] pursuant to the terms of this agreement or in any way connected with the rendering of services, except when the same shall arise due to [her] wilful misconduct or gross negligence … and [she] is adjudged to be guilty of wilful misconduct or gross negligence by a court in the State of Victoria, Australia.
Due to that clause, Valleyarm must prove, among other things, ‘wilful misconduct or gross negligence’ by Peake to establish the offsetting claim.
Applicable legal principles
In an application pursuant to s 459G, s 459H provides:
Determination of application whether it is a dispute or offsetting claim.
(1)This section applies where, on an application under s 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.
The various tests require me to identify whether there is a genuine dispute without resolving the same:
While it is not a very exacting standard, on the other hand mere assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which “bears on whether or not the asserted dispute or off-setting claim is genuine”. Indeed that is its necessary function.[1]
[1]Powerhouse Australasia Pty Ltd v Viarc Pty Ltd [2006] VSC 508, [48] (‘Powerhouse Australasia’).
‘The dispute or off-setting claim should, as has been recognised, have some objective existence’.[2] That is, as the Full Federal Court has held, the dispute or off-setting claim must be ‘bona fide and truly exist in fact’, with ‘real and not spurious, hypothetical, illusory or misconceived’ grounds for claiming its existence.[3]
[2]Ibid [49].
[3]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 (‘Spencer Constructions’), 464.
Further, applicable principles have been set out by this Court in Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd.[4] In Rescom Asia Pacific Pty Ltd v Reapfield Property Consultants Pty Ltd,[5] Almond AJA identified the applicable principles with respect to setting aside statutory demands. Almond AJA referred to the judgment of Osborne JA (Ashley JA concurring) in Troutfarms Australia, which emphasised that ‘[t]he phrase “a genuine dispute” uses ordinary English words and its meaning in any particular set of circumstances must be a question of fact’.[6]
[4][2013] VSCA 176 (‘Troutfarms Australia’).
[5][2014] VSCA 92.
[6]At [5] (Osborn JA).
In Troutfarms Australia, Osborne JA applied Robson J’s decision in Rhagodia Pty Ltd v National Australia Bank,[7] which in turn had referred to authorities that illustrate the application of the definition of ‘genuine dispute’. Those three authorities are TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[8] Eyota Pty Ltd v Hanave Pty Ltd,[9] and Re Morris Catering (Aust) Pty Ltd.[10]
[7][2008] NSWCA 73 (‘Rhagodia’), [91]-[94]; see also Powerhouse Australasia; Spencer Constructions, 464.
[8][2008] VSCA 70 (‘TR Administration’).
[9](1994) 12 ACSR 785 (‘Eyota’).
[10](1993) 11 ACSR 601.
On the point of identifying, without resolving, a genuine dispute, in TR Administration Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) said:
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.[11]
[11]At [57].
Her Honour further outlined the evidentiary requirements with respect to making out a s 459H claim:
As the terms of s 459H (sic) of the Corporations Act 2001 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…[12]
[12]At [71].
In Eyota,[13] McClelland CJ of the Supreme Court of New South Wales clarified the meaning of ‘genuine dispute’:
It is … necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit however equivocal, lacking precision, inconsistent with undisputed contemporary documents or other statements by the same deponent …
But if it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments[14] Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 3:
These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.[15]
[13]At 787–8.
[14]Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 270; (1993) 11 ACSR 362, 366-7.
[15]At [3] (citations in original).
In the third authority referred to in Rhagodia by Robson J, Re Morris Catering (Aust) Pty Ltd, Thomas J described the scope of the Court’s role in identifying a genuine dispute between the parties as an ‘essential task [that] is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it)’:
There is little doubt that Div 3 ... prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court’s examination are the ascertainment of whether there is a “genuine dispute” and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.[16]
[16]Re Morris Catering (Aust) Pty Ltd, 605.
Another useful statement of the test is found in Solarite Airconditioning Pty Ltd v York International Australia Pty Ltd.[17] Barrett J said:
The [applicant] will fail in [the] task [of establishing a genuine dispute] only if … the contentions upon which it seeks to rely … are so devoid of substance that no further investigation is warranted. Once the [applicant] shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any fact of that, on rational grounds, indicates an arguable case on the part of the [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.[18]
[17][2002] NSWSC 411.
[18]At [23].
Valleyarm bears the onus of establishing the genuineness of the dispute or offsetting claim.[19]
[19]Powerhouse Australasia, [49].
Genuine dispute
The scope and discharge of Peake’s duties is hotly contested. Albeit, that Peake refutes that her obligations included the entry of MYOB data and disputes that she had any conversation with Campbell or the Board to the effect that she had been instructed to remove entries, I am satisfied that the issue has been sufficiently raised by Valleyarm to require further investigation. It is not my role to decide the issue. However, I note that her dealings with Sonny Spudvilias of Smartartists in December of 2013[20] are inconsistent with the concept that Peake had been failing to disclose liabilities either on instructions or otherwise.
[20]See, for example, the email train exhibited to Campbell’s affidavit sworn on 30 July 2014 and marked exhibit MJC-9.
Notwithstanding that I have determined that there is an issue to be investigated, the plaintiff did not make any submissions in support of the contention that any breach disqualified Peake from recovery at all. It is not as though it is contended that the consultancy agreement contained any disqualifying provision or its breach was akin to part performance of an entire contract.
Again, without deciding the issue, I identify that the question of appropriation of payments is also an issue which requires further investigation. I am satisfied that the sum of $8,334 was paid by the plaintiff. The question of whether or not Peake was entitled to apply the same to earlier invoices, which were not produced, requires investigation. Accordingly, the amount claimed in the statutory demand will be reduced by that amount.
Much is made of invoice VA0067 which includes services for the week beginning 24 February 2014 and the reimbursement for the purchase of a second-hand fridge, kitchen table, vacuum cleaner and printed cards.
The plaintiff relied upon Peake’s concession that she attended voluntarily in the time after 24 February to conduct a handover. On that basis the plaintiff relies upon authorities such as Steele v Tardiani.[21] Dixon J (as the Chief Justice then was) said:
It is a commonplace of the law that there can be no implied contract as to matters covered by an express contract until the express contract is displaced … But where work is done outside the contract, and the benefit of the work is taken, a contract may be implied to pay for the work so done at the current rate of remuneration, and the terms of the express contract may remain binding in so far as they are not inconsistent with the implied contract. … But, “taking the benefit of the work” means that the defendant has done so in the exercise of some choice that was actually open to him. As it is put in a recent treatise, “An implicit promise to pay connotes a benefit received by the promisor, but the receipt of the benefit is not in itself enough to raise implication. No promise can be inferred unless it is open to the beneficiary either to accept or to reject the benefit of the work.[22]
[21](1946) 72 CLR 386.
[22]At 402.
Valleyarm submits that having terminated her services, it did not accept any work or benefit that may have resulted from Peake’s further attendance.
Reliance upon Steele v Tardiani ignores the 30 day notice period required under the contract. Hence my earlier observation that it was surprising that Peake had not claimed for the full month. I will not allow the deduction.
Likewise, I will not permit a deduction in relation to the out of pockets referred to in tax invoice VA0067. It was submitted by the plaintiff that there was no contractual obligation to pay amount and Peake had not explained why she was entitled to payment pursuant to that invoice. However, this again ignores the provisions of the contract. Peake was entitled to reimbursement on the fifth day of the next succeeding month. In the absence of any contention that the items referred to were just not purchased, I reject the submission on behalf of the plaintiff. Accordingly, there will be no deduction in relation to these matters.
Offsetting claim
There are two issues to be determined. The first is whether the offsetting claim is genuinely founded. The second is whether the provisions of the contract between the parties disentitles the plaintiff to seek recompense from the defendant.
The offsetting claim contended for by the plaintiff is set out as being quantifiable in the sum of $200,000.00. The 21 day affidavit sworn by Matthew Campbell on 18 August 2014 sets out at paragraph 43 as follows:
(a)The Company has lost Smartartists as a client, who was one of the Company’s top five revenue-generating labels. The Company estimates that it has lost earnings in the sum of at least $120,000 from the client on the basis that the Company was earning a minimum $10,000 a month in revenue prior to them ceasing to be a client and there was another 13 months to go on the contract between it and the Company.
(b)the company has lost at least another $80,000 in forecast and book revenue over the next 12 months as a result of loss of other clients on the basis of early termination of their agreements with the Company.
George Georgiou’s affidavit of 22 January 2015 sets out a detailed analysis of the trading account with Smartartists for the period 1 July 2010 through to 6 March 2014. There is a further entry for 20 May 2014 which I will ignore for this exercise. What it demonstrates is from 29 July 2010 through to 6 March 2014, Smartartists invoiced (subject to one credit) the total sum of $144,258.57 over a period of 45 months. Accordingly, the monthly average was $3,205.75. If I were to ignore the first entry in July 2010 and commence the exercise from February 2011, then the average monthly payments were $3,566.49.
It is all very well to set out what the monthly payments were historically but that is no guide to the exercise I must perform to determine the quantum or likely quantum of any offsetting claim. I cannot distil from the material ‘the genuine level’ of the offsetting claim.
I am provided with an assertion that the revenue generated was $10,000 per month and a historical table which sets out payments to Smartartists of considerably less than $10,000 per month. I have not been provided with any guide as to expenses incurred by Valleyarm nor any guide as to profit per month. It would be tempting to dismiss the quantification of the offsetting claim out of hand.
In Karimbla Construction Services Pty Ltd v Alliance Group Building Services Pty Ltd, Barrett J said:
Despite this clear need, according to the terms of the legislation, to quantify an offsetting claim in money terms, it is not necessary that the party seeking to have the statutory demand set aside should particularise the amount of the claim to the last dollar and cent. Particularly where the claim is of an unliquidated kind, there may be various ways of approaching the issue of assessment of damages and there may be elements of the assessment that are, of necessity, based on broad estimate. It is sufficient that there be, on the evidence, a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty as to details of calculation, can be seen to be, in any event, greater than the amount of the debt the subject of the statutory demand. Of course, the narrower the margin between the alleged debt and the plaintiff's estimate or initial quantification, the greater will be the need for particularity in asserting the “amount” of the offsetting claim.[23]
[23][2003] NSWSC 617, [28].
In Federico’s Restaurant Pty Ltd v Warwick Entertainment Centre Pty Ltd[24] Lehane J was faced with the difficulty in assessing an offsetting claim. Lehane J said:
… [T]hat I must be satisfied for the purposes of the calculation required by s 459H(2) of the existence of an offsetting claim. The difficulty, however, is that the calculation requires the attribution to the offsetting claim of an amount. The particular difficulty is that this claim in any ordinary sense of the word does not have an amount. Its amount or value is on the material before me indeterminate. The provisions of the Corporations Law do not give me any clear guidance as to what in these circumstances I should do, particularly as to what, in which the word is used in the provisions, the amount in this particular offsetting claim is. I do not believe, however, that that difficulty means that I must take the amount of the claim as nil. That conclusion, seems to me, would be almost a perversion of what the statutory scheme is intended to do.
…
I have of course as yet said nothing about value to be attributed to the goods themselves. This is perhaps one of the most difficult aspects of this case, to the point almost of impossibility. Unfortunately, I do not think that the statute allows me simply to throw up my hands and say, as I might be tempted to, it is impossible.[25]
[24](1995) 18 ACSR 702.
[25]At 709.
I am faced with the same difficulty. Rather than rejecting the quantum contended for absolutely, I will do the best I can. The copy of the Valleyarm distribution terms and conditions provided to Smartartists was agreed to online by Smartartists on 6 March 2010. That agreement at 1 sets out:
… We charge a once-off upload/administration fee for each of your releases and then charge an annual renewal fee for the use of our hosting and distribution services. We pay you 100% of net funds received from the digital sales of your recordings under this agreement for standard distribution and we can also act as a sub-publisher (should you agree by selecting the check box), paying you 70% of all publishing monies collected from public performance and mechanical royalties generated from your compositions, with relation to publishing and third party revenues including, but not limited to, synchronisation for your recordings.
If your release or aggregate releases generate more than $1,000 AUD within a calendar quarter you will automatically commence a new 36 month term and be upgraded to a managed supported distribution service that qualifies you to receive priority marketing pitching your releases for consideration to receive front page features and banners on digital stores, as well as reviews and/or interviews in Music Weekly Asia. Should you qualify for supported managed distribution you will also be exempt in paying annual fees on your current releases and no upfront fees will be incurred on any future new releases whilst you remain qualified under the service, instead Valleyarm will charge a 30% distribution fee on all digital revenues generated.
I am not appraised of the proportion of payments to Smartartists, which represents ‘100% of the net funds received from digital sales’ or what proportion which represents ‘70% of all publishing monies collected from public performance’. I note that Campbell deposed that there had been discussions prior to 26 February 2014 with Smartartists to become a managed supported model client. Accordingly, the across the board charge for 30% of distribution fees on ‘all digital revenues generated’ did not apply as of 26 February 2014.
Further, I cannot ascertain what expenses (ignoring fixed expenses) which are directly attributable to generating income with respect to Smartartists.
At paragraph 7 of his first affidavit, Campbell deposed that:
The company charges the artist or label an annual fee that is renewable every year based on a fixed price, which is currently $100 plus GST for each release. A release is a track or an album from an artist or label that the company keeps in its database or account to be distributed to all relevant digital platforms. A label can release as many times as it wishes in a given year. For labels earning more than $4,000.00 per quarter, they are eligible to enter into the managed support model provided by the company, which is a model where the company provides digital marketing and advertising for the label and excludes any upfront fees or ongoing costs that the label would otherwise pay. In return, the company takes a 30% share of the revenue from the label’s digital music sales.
From what Campbell set out in paragraph 7 of his affidavit, I have taken it that the ongoing costs and fees equate to something more than 30%, otherwise there would be no incentive for Smartartists to become a managed supported model participant. The only material I have as to the release which would incur the $100 annual fee is that contained in the exchange between Peake and Smartartists in August to December 2013 which is part of exhibit MJC-9. That sets out the identification of ten different albums or songs with track status of 67 different tracks. The tracks were created in a period 2011 through to 2013. Accordingly, it does not necessarily apply that an annual fee was payable with respect of each track from July of 2011. However, even if it were put at its highest, that would equate to 67 x $100 which equals $6,700 per annum.
I reject outright Campbell’s unsupported contention of a loss of earnings of at least $120,000 based upon a minimum $10,000 a month in revenue prior to Smartartists ceasing to be a client. However, I am willing to undertake an exercise which is on the generous side. Rather than using the $3,200.75 historically paid to Smartartists I will use the higher amount of $3,566.49 (on that note they would not qualify as being a managed client within the terms of the agreement referred to in paragraph 64 based upon either monthly figure). I will also assume (without any basis) that Valleyarm was entitled to retain 30% of the revenue generated rather than 0% with respect to the digital sales. I will accept Campbell’s evidence that the Smartartists agreement had 13 months to run but for the termination.
The total retention for 13 months would $19,870. Although there is material to suggest that the company is financially distressed I am prepared to impose only half of that amount as the costs of required digital formats required by the digital outlets, the cost of placing tracks in retail catalogues and making the single or album available for customers for purchase and other costs which might include digital marketing and advertising for Smartartists. Accordingly I assess the claim to be potentially no more than $9,935. The alternative would be to assess the lesser sum of $7,258 based upon the $100 charge per track.
In Sewmail (Australia) Pty Ltd v Booby Traps Pty Ltd[26] a company director’s unsubstantiated ascertains of an offsetting claim without evidence supporting the claim amounting to ‘non-genuine’ offsetting claim. Burley J said:
While I am satisfied, on the basis of the affidavit evidence filed by the plaintiff, the genuine offsetting claim exists, I am not satisfied that the claim amounts to $50,000 or any other amount. To support the genuineness of an offsetting claim amounting to $50,000 the plaintiff relies upon the unsubstantiated assertion of Mrs Taylor, a director with the plaintiff, that the offsetting claim amounts to $50,000. That in my view is not sufficient. There needs to be evidence supporting quantum of the offsetting claim so that the Court may determine whether or not there is a genuine offsetting claim of a given amount. It is not necessary that the evidence be such as might be advanced at a trial, but it is, in my view, necessary to adduce some evidence in that regards … In the absence of such evidence it is impossible for the Court to determine whether or not the statutory demand must be set aside in accordance with the provisions of s 459H of the Law. For these reasons the ground relied upon by the plaintiff in relation to the offsetting claim must fail.[27]
[26](1997) 23 ACSR 339.
[27]At 342–3.
Likewise in this proceeding there is simply no evidence, rather than no sufficient evidence, to support the $80,000 assertion.
Given that assessment compared to the assertion made by Campbell with respect to Smartartists, which I have determined to have no foundation, I am not prepared to assign any value to the other forecast and book revenue over the next 12 months which is contended to have been lost. Accordingly, that part of the quantum is rejected.
Causation
I accept that Smartartists terminated its agreement with Valleyarm in circumstances where a statutory demand had been served by it. The repayment schedule set out in paragraph 9 of Georgiou’s affidavit of 22 January demonstrates that two months were required to meet the demand of 6 March 2014 served by Smartartists.
As I have previously set out, the attribution of blame for the loss of Smartartists as a client is hotly disputed. The letter of 6 March 2014 from Smartartists’ solicitors tends to independently corroborate Peake’s position. That letter relevantly sets out:
I am instructed that Valleyarm has not paid this amount [$101,000.00] to Smartartists, and no payments have been made to Smartartists since June 2012.
My client’s efforts to talk to you[r] [sic] staff have been generally fruitless and your staff have been evasive, when they are contactable at all. My client can no longer assess your site electronically to determine whether sales continue. My client is not encouraged at all by your email to Michael Lynch of 3 March 2014.
…
That action [referring to legal action] will include the issue of a statutory notice, with a view to winding up Valleyarm. As you know from this firm’s previous dealings with Valleyarm on similar issues, that notice will be issued within the time frame set out in this letter.
The natural inference which emanates from that letter is that it was all staff of Valleyarm whom had been dealing with Smartartists which Smartartists commented on in an uncharitable manner and whatever had been said by Campbell was also unsatisfactory. That email transmission or perhaps a chain of correspondence was not produced to the Court. I am not informed of the position put by Valleyarm to Smartartists. The letter also highlights problems with payments since June 2012 and previous dealings with Valleyarm on similar issues which I have taken to be non-payment.
However, I am not required and should not determine whether or not the losses are in fact attributable to any conduct or breach on the part of Peake. That is a matter for curial proceedings. It is sufficient that the issue raised genuinely. I am left with a conflict on oath. There is a temptation to dismiss Campbell’s evidence as fanciful given the non-production of the email transmission to Smartartists, the bluster with respect to the quantum of losses, the non-clarification of past dealings with Smartartists, the failure to meet other creditor demands (Macro Music and perhaps, Smartartists on an earlier occasion) and the suggestion, on Valleyarm’s own evidence, that its asset position was distressed. However, I am also appraised with material such as the affidavit of Sharon Gao sworn 24 November 2014 which sets out what she was told by Peake as to the scope of Peake’s responsibilities. That corroborates aspects of Campbell’s evidence and raises the issue of Peake’s responsibility with respect to monitoring MYOB entries and creditor payments.
Liability
The final issue for determination is identifying whether or not the terms of the agreement between Peake and Valleyarm act as a bar to recovery pursuant to an offsetting claim contended for by Valleyarm.
I refer to paragraph 5 of these reasons where I set out the terms of the liability clause. For convenience I will call it a ‘wilful misconduct or gross negligence clause’.
I was taken to various authorities dealing with such clauses. It was put upon behalf of Peake that insofar as there is any evidence to support the allegations against Peake that conduct cannot be fairly characterised as ‘wilful misconduct’ or ‘gross negligence’.
Having regard to Valleyarm’s material, it is difficult to characterise any failure by Peake to record creditor information as negligence or ‘gross negligence’. ‘Gross negligence’ has been characterised as:
Serious negligence amounting to reckless disregard, without any necessary implication of consciousness of the high degree of risk or the likely consequences of the conduct on the part of the person acting or omitting to act.[28]
[28]Red Sea Tankers Ltd v Papachristidis [1997] 2 Lloyd’s Rep 547, 586.
Instead, Campbell contends for a conscious wrongdoing on the part of Peake. ‘Conscious wrongdoing’ is not an element of negligence or ‘gross negligence’ no matter how gross.[29] Accordingly, it leaves me to consider ‘wilful misconduct’.
[29]Armitage v Nurse [1997] 2 All ER 705, 712–3.
In Law Society of New South Wales v Cunningham[30] the members of the Administrative Decisions Tribunal of New South Wales were required to consider the characterisation of conduct. The Tribunal referred to various authorities including that of Hardie J in a decision of the New South Wales Court of Appeal in Re Hodgekiss[31] and cited it as follows:
Hardie J in his Judgment at P352, dealt with the meaning of the phrase “wilful failure” as follows:
… [I]n that case the question for decision was the meaning of the phrase “wilful neglect or default” in a provision in the articles of association of the company limiting the liability of directors for loss suffered by the company by reason of the exercise of their powers and duties. Romer J. reviewed a number of earlier decisions dealing with the phrases “wilful default” and “wilful misconduct” in contracts of sale and other instruments, and then proceeded … “the difficulty is not so much in ascertaining the meaning of the adjective “wilful”, as in ascertaining precisely what is the noun to which the adjective is to be applied. An act … is wilful where the person … knows what he is doing and intends to do what he is doing. But if that act or omission amounts to a breach of his duty, and therefore to negligence, is the person guilty of wilful negligence? In my opinion that question must be answered in the negative unless he knows he is committing, and intends to commit, a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is or is not a breach of duty” … “Wilful misconduct means misconduct to which the will is party as contradistinguished from accident and is far beyond any negligence, even gross or culpable negligence, and involves that a person wilfully misconducts himself who knows and appreciates that it is wrong conduct on his part in the existing circumstances to do, or to fail or omit to do (as the case may be), a particular thing, and yet intentionally does, or fails or omits to do it, or persists in the act, failure or omission regardless of consequences … or acts with reckless carelessness not caring what the results of his carelessness may be”.[32]
… “[A] person is not guilty of wilful neglect or default unless he is conscious that, in doing the act which is complained of or in omitting to do the act which it is said he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not”.[33]
[30][2004] NSWADT 236.
[31][1962] SR (NSW) 340.
[32]Ibid 352.
[33]Re Vickery (1931) 1 Ch 572, 583.
I was referred to other authorities where the test was expressed in much the same terms.
It is not for me to determine whether the bar operates or not. It is sufficient and appropriate that I merely identify that if Campbell’s evidence is ultimately accepted by a Court, after the parties have had an opportunity to examine and cross-examine, it may be established that the contended for removal of Smartartists as a creditor from the accounting files constitutes conduct in the category of ‘wilful misconduct’.
Conclusion
There will be an order that the admitted total for the purposes of s 459H of the Act is $30,208.59 as referred to in paragraph 25 of Campbell’s first affidavit. The offsetting total is $9,935. Accordingly, the statutory demand will be rewritten to the substantiated amount of $20,273.59.
Pursuant to s 459F of the Act the period for compliance with the statutory demand is extended to 4pm on 25 March 2015.
The plaintiff pay the defendant’s costs, including reserved costs, on a standard basis.
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