Westrade Pty Ltd v Franchised Food Company Pty Ltd - [2010] WASC 231

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WESTRADE PTY LTD -v- FRANCHISED FOOD COMPANY PTY LTD [2010] WASC 231

CORAM: ACTING MASTER CHAPMAN

HEARD: 29 JULY 2010

DELIVERED : 3 SEPTEMBER 2010

FILE NO/S: COR 61 of 2010

BETWEEN: WESTRADE PTY LTD
Plaintiff
AND
FRANCHISED FOOD COMPANY PTY LTD formerly known as THE DEBLEY FOOD GROUP PTY LTD
Defendant

FILE NO/S :COR 62 of 2010

BETWEEN :HUNT CORPORATION PTY LTD
Plaintiff
AND
FRANCHISED FOOD COMPANY PTY LTD formerly known as THE DEBLEY FOOD GROUP PTY LTD
Defendant

Catchwords:

Corporations - Application to set aside statutory demand - Genuine dispute - Turns on own facts

Legislation:

Nil

Result:

Statutory demands set aside on conditions

Category: B

Representation:

COR 61 of 2010

Counsel:

Plaintiff: Mr M F Dwyer
Defendant: Ms S E Russell

Solicitors:

Plaintiff: Mendelawitz Morton
Defendant: Mony de Kerloy

COR 62 of 2010

Counsel:

Plaintiff: Mr M F Dwyer
Defendant: Ms S E Russell

Solicitors:

Plaintiff: Mendelawitz Morton
Defendant: Mony de Kerloy

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

MRL (Palm Gardens) Pty Ltd v PGRV Pty Ltd [2009] SASC 5
Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896
St George Bank Ltd v Emery [2004] WASC 35

ACTING MASTER CHAPMAN: The plaintiffs on 29 April 2010 filed an application in each matter to set aside the statutory demands dated 7 April 2010. The plaintiffs challenge whether or not the statutory demands were in fact served, but for the purpose of these applications does not pursue that issue. The plaintiffs dispute both the existence of and the amount of the debt claimed in the statutory demands.

Background

The parties entered into an agreement for the purchase of shares in Cold Rock Management Pty Ltd and Cold Rock Leasing Pty Ltd (the Agreement) a copy of which is annexure JB7 to the affidavit of John Anthony Howard Booth sworn on 28 April 2010.
Clause 9.4 of the Agreement reads as follows:
9.4Dispute
(a)Subject to clause 9.4(b), if within ten (10) Business Days after delivery of the Completion Date Balance Sheet to the Purchaser, the Purchaser disputes any item or calculation of an item in the Completion Date Balance Sheet and the items have not been agreed in writing by the Vendors and the Purchaser within ten (10) Business Days of delivery of the Completion Date Balance Sheet, the items in dispute must be determined by the Independent Accountant on the reference of either the Vendors or the Purchaser. If the Vendors or Purchaser refer a dispute to the Independent Accountant, that party must give notice to the other party. If the Purchaser fails to dispute the Completion Date Balance Sheet by notice to the Vendors within ten (10) Business Days after delivery, the Purchaser must be treated as having accepted, and is bound by the content of, the Completion Date Balance Sheet.
(b)The Independent Accountant must act on the following basis:
(i)they act as experts and not as arbitrators;
(ii)their terms of reference are to determine an amount which, in their opinion, represents the item or items in dispute, as notified to them in writing by the Vendors or the Purchaser, within ten (10) Business Days of their appointment;
(iii)the Purchaser and the Vendors must provide the Independent Accountant with all the information which they reasonably require and the Independent Accountant are entitled (to the extent they consider it appropriate) to base their opinion on that information and on the accounting and other records of the Company and any Group Company;
(iv)their determination is (in the absence of manifest error) conclusive and binding on the Vendors and the Purchaser; and
(v)the Independent Accountant's costs must be borne by the Purchaser and the Vendors in equal half shares.
The Completion Date Balance Sheet was duly prepared and the defendant disputed items contained therein. That dispute was referred to an Independent Accountant pursuant to cl 9.4 of the Agreement. It is accepted that Mr Barry Jamison was appointed to fill that role and his determination was handed down on 15 February 2010 with a supplementary determination report dated 24 February 2010.
Clause 9.5(a) of the Agreement reads:
As soon as reasonably practical (and in any event within five (5) Business Days) after the receipt of the Completion Date Balance Sheet or resolution of any dispute under clause 9.4, the Purchaser must procure:
(i)an Adjustment Statement which has been prepared by the Company, substantially in accordance with the pro forma form attached as Schedule 14;
(ii)the Adjustment Statement is delivered to the Vendors; and
(iii)the Adjustment Statement is reviewed by an Independent Accountant (if requested by a Vendor), who will provide an opinion that the Adjustment Statement has been prepared in accordance with clause 9.5(b).
The plaintiffs argue that until such time as the dispute involving the Independent Accountant has been resolved the purchasers were not entitled to issue an Adjustment Statement. The plaintiffs also argue that because the Independent Accountant has made manifest errors in respect of certain items his findings on those items are not binding on either party pursuant to cl 9.4(b)(iv), and thus could not be included in the Adjustment Statement.
The review by the Independent Accountant provided for in cl 9.5 relates to whether or not the Adjustment Statement has been prepared in accordance with cl 9.5. Clause 9.7 of the Agreement provides for either party to seek a review by the Independent Accountant where either party cannot agree on all or part of an item referred to in the Adjustment Statement.
The manifest errors said by the plaintiffs to be made by the Independent Accountant are set out in the affidavit of Mr Booth sworn on 11 May 2010 and at par 8 of that affidavit he deposes to the fact the value of the disputed items exceeds the amounts claimed in the statutory demands.
Manifest error is not defined in the agreement but has been considered by Master Newnes (as he then was) in St George Bank Ltd v Emery [2004] WASC 35 [36] ‑ [37] where he said:
Fourthly, it was submitted that by reason of the matters set out in the defendant's affidavit, there appeared to be manifest errors in the certificates such that they should not be relied upon.
What amounts to manifest error was considered in Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203, where Sheller JA described a 'manifest error' as an error such that there were powerful reasons for considering, on a preliminary basis, without prolonged adversarial argument, that it was, indeed, an error. That dicta was referred to with approval by Einstein J in State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587, at 607 - 608.
Whilst helpful, the facts of that case differ considerably from the matters before me, and I consider whether or not a matter falls into the category of a manifest error may depend upon two matters:
1.the interpretation of that term given the context in which it appears in the Agreement; and
2.the consideration of expert evidence.
A further issue which may need to be considered is whether or not the plaintiffs should have pursued the reviews referred to in cl 9.5 and cl 9.7. Counsel for the plaintiffs indicated that there was not a lot of point in pursuing reviews under those clauses given the same Independent Accountant would conduct the review. He further argues that you do not get to that point as the first dispute has not been properly resolved. Whilst I have some sympathy for that view it may be the wording of the Agreement required that course to be followed in any event.
The sums claimed in the statutory demands are the Adjustment Amount arrived at by reference to the Adjustment Statement. On the evidence before me I consider there is a genuine dispute as to the meaning of manifest error as referred to in the Agreement, whether or not the errors complained of fall into that category and, if so, the net effect that may have on the Adjustment Amount. Not only does this exercise require an interpretation of the Agreement, but in my view, resort to expert evidence may also be required.
On that basis I consider the statutory demands should be set aside.
The defendant argues if I were to come to that conclusion I should set aside the statutory demands on condition the plaintiffs pay the amount of the debt into court pending the determination of the dispute. Counsel referred me to the decision of MRL (Palm Gardens) Pty Ltd v PGRV Pty Ltd [2009] SASC 5 where Lunn J said:
While the cases cited do not establish that a condition of the provision of security under s 459M should be imposed wherever there is an unresolved appeal against a judgment for the debt which is the subject of the statutory demand they are a general indicator of the types of considerations which will lead to the imposition of such a condition for giving security under s 459M. They were cases where there had been a judicial determination on the merits of the claim, albeit that there were arguable grounds of appeal to the contrary. This is analogous to the situation here where there had been an expert determination on the merits of the claim which, although not a judicial determination, was generally in accordance with the procedure which had been invoked, and acquiesced in, by the plaintiff until it had received an unfavourable result. Some, but not all, the grounds on which the plaintiff now seeks to challenge that expert determination were put to Mr Walsh QC before he made the second determination, but he ruled against the plaintiff on them. If the plaintiff had raised its present objections to invoking the procedure under cl 13 at the outset, it may well be that the expert determination would not have proceeded and the defendant could by now have been well advanced in pursuing litigation to determine the validity of its claim. The acquiescence of the plaintiff in pursuing a resolution of the issues under cl 17 until 10 July 2008 has probably prejudiced the defendant. Accordingly, I consider that a term should be imposed under s 459M that the plaintiff give adequate security as a condition of setting aside the statutory demand [12].
In the matter before me there has been an expert determination by the Independent Accountant who has found in favour of the defendant.
Counsel for the defendant submits that this is a matter where the plaintiffs assert there is a manifest error which may result in the determination being found to be not final and binding but they have not done anything to establish that. They may not do so which would leave the matter at large.
In that regard he referred me to the case of Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 where Barrett J said :
In short, while I have concluded that there is a genuine dispute, I have significant doubt, based on the quality of the plaintiff's evidence, whether the contest between the parties will eventually be resolved in favour of the plaintiff. This, in my view, makes it appropriate that the order setting aside the statutory demand not be unconditional. Because a genuine dispute has been established, action by the defendant to vindicate the rights it considers itself to have as a creditor of the plaintiff must be by way of debt proceedings at common law. In the particular circumstances to which I have referred, however, the defendant should not have to pursue those proceedings on an entirely speculative basis, assuming it chooses to pursue them at all. It is appropriate that they be pursued in a context where the plaintiff causes funds sufficient to meet the claim to be set aside and held pending its resolution. This should be achieved by making the s 459H order subject to an appropriate condition under s 459M.
The order of the court is accordingly that the statutory demand a copy of which forms part of the annexure A to the affidavit of Jason Li affirmed 4 July 2003 and filed in court that day be set aside on condition that if within 28 days after the making of this order the defendant serves on the plaintiff an originating process filed in a court of competent jurisdiction by which the defendant sues the plaintiff to recover any of the debts claimed in invoices copies of which form part of the affidavit of Brenda O'Connor affirmed 10 October 2002 a copy of which affidavit forms part of the annexure A to the said affidavit of Jason Li the plaintiff shall within 14 days after such service pay into court in the proceedings initiated by that originating process a sum equal to the aggregate of the debts sought to be recovered in the proceedings, such payment in being on the footing that the sum paid in shall remain in court to abide the outcome of those proceedings [30] ‑ [31].
Whilst the plaintiffs have satisfied me there is a genuine dispute as to the determination made by the Independent Accountant, they have not, at this stage, taken any formal action to resolve the situation, and as counsel for the defendant points out, they may not do so. That would leave the defendant in the situation of having a determination in its favour which it could not enforce without taking debt proceedings at common law.
Having taken all of the matters into consideration I will set aside the statutory demands on condition that within an appropriate period of time the plaintiffs take steps to resolve the question of the Adjustment Amount and within that period pay the amount claimed in the statutory demands into a joint account pending the determination of that question. I will hear from the parties further as to the precise wording of the orders.