Yewfern Pty Ltd v Network Exchange Pty Ltd
[1997] FCA 740
•22 JULY 1997
FEDERAL COURT OF AUSTRALIA
CORPORATIONS LAW - application to set aside statutory demand decision - whether genuine dispute about existence of debt.
Federal Court of Australia Act 1976: s 35A(5)
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
State of South Australia v Wall (1980) 24 SASR 189
Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1995) 13 ACLC 94
Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37
Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601
Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229
YEWFERN PTY LTD v NETWORK EXCHANGE PTY LTD
No VG 3017 of 1997
GOLDBERG J
MELBOURNE
22 JULY 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG 3017 of 1997 ) GENERAL DIVISION )
IN THE MATTER OF YEWFERN PTY LTD (ACN 006 997 333)
BETWEEN: YEWFERN PTY LTD
(ACN 006 997 333)
ApplicantAND: NETWORK EXCHANGE PTY LTD
(ACN 055 542 302)
Respondent
JUDGE: GOLDBERG J PLACE: MELBOURNE DATE: 22 JULY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
Paragraphs 1 and 2 of the orders of Registrar Agnew made on 26 June 1997 are set aside.
The statutory demand dated 14 January 1997 served on the applicant by the respondent is set aside.
The respondent pay the applicant its costs of the applications dated 3 February 1997 and 10 July 1997.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG 3017 of 1997 ) GENERAL DIVISION )
IN THE MATTER OF YEWFERN PTY LTD (ACN 006 997 333)
BETWEEN: YEWFERN PTY LTD
(ACN 006 997 333)
ApplicantAND: NETWORK EXCHANGE PTY LTD
(ACN 055 542 302)
Respondent
JUDGE: GOLDBERG J PLACE: MELBOURNE DATE: 22 JULY 1997
REASONS FOR JUDGMENT
Introduction
On 14 January 1997 the respondent served a statutory demand upon the applicant requiring the applicant to pay the sum of $85,303.94, being amounts paid by PacRim Financial Services Pty Ltd (“PacRim”) to the applicant in respect of telecommunication services provided by the respondent which had been procured or arranged by the applicant pursuant to a marketing agreement to which I shall refer.
On 3 February 1997 the applicant filed an application with the Court seeking an order that the statutory demand be set aside. That application came on for hearing before Registrar Agnew on 10 April 1997 and on 26 June 1997 the Registrar refused to set aside the statutory demand, ordered that the amount of it be varied to $77,303.94 and ordered that the applicant pay the respondent’s costs of the application excluding certain costs of notices to produce. The Registrar also ordered that the respondent pay the applicant’s costs of a motion filed on 9 April 1997 by the applicant seeking to set aside certain notices to produce.
On 10 July 1997 the applicant filed a notice of motion pursuant to s 35A(5) of the Federal Court of Australia Act 1976 seeking orders that the orders of Registrar Agnew on 26 June 1997 be set aside and that the statutory demand be set aside.
Background
The factual background to the service of the statutory demand arises out of a memorandum of understanding signed by the applicant and the respondent on 17 March 1994 by which the respondent granted to the applicant marketing rights of the respondent’s products called “Netex Products”. The respondent was in the business of selling telephone lines and telephone time to consumers. The respondent was able to obtain from Telstra blocks of telecommunication time at wholesale prices which it then retailed to customers and it made its profit by charging a higher price to its customers than the actual cost to it for the telecommunication time charged by Telstra. The respondent was liable to Telstra for the payment of these services. By the memorandum of understanding the applicant was to market the sale of these telecommunication services purchased by the respondent from Telstra. In short the applicant was to obtain clients for the respondent in respect of these telecommunication services and such profits as were made by the respondent in respect of the telecommunication services marketed by the applicant were to be split 60% in favour of the respondent and 40% in favour of the applicant.
Pursuant to the marketing agreement the respondent would from time to time prepare an account which it sent directly to the client or customer. However, there was a small group of clients or customers obtained by the applicant which the applicant billed itself rather than having them being billed by the respondent. After deducting its commission under the marketing agreement the applicant would pay the balance due to the respondent.
One of the customers obtained by the applicant for the respondent was PacRim. PacRim used the respondent’s telecommunication services from approximately December 1994 until July 1995. The amount claimed in the statutory demand represents payments made by PacRim to the applicant in respect of the telecommunication services supplied by the respondent but not passed onto the respondent. On 17 July 1995 Telstra sent the respondent an account for $119,494.93 in respect of telephone calls made by PacRim utilising the respondent’s telecommunication time or services. This account was received by the respondent on or about 25 August 1995. According to Mr George Spitzer, a director of the respondent, prior to 25 August 1995 the respondent had not received any bills or invoices from Telstra in respect of calls made by PacRim. On 13 October 1995 the respondent sent a copy of the Telstra bill to the applicant, marking the letter for the attention of Mr Tom Curtain, and stated in the letter:
“Under our discussed agreement, you will bill the customer, with the bill payable by the customer to Network Exchange account. A copy of the bill will be sent to us when issued. Any discount that Netex can negotiate with Telstra will be shared 50/50”.
The respondent in the letter asked the applicant to sign the letter and return it by fax. That letter was signed by Mr Curtain in the following terms:
“I, Tom Curtain, Circa Communications agree with and will comply with the above conditions”.
Circa Communications was a business name used by the applicant. However, before the date of that letter (13 October 1995) the applicant had already billed PacRim for the telecommunication services supplied to it and had received the following amounts on the following dates:
Dates Amounts When Paid December 1994- April 1995 $60,956.62 30 June 1995 May 1995 $16,719.78 27 July 1995
Subsequently in respect of June 1995 $7,627.54 was paid on 15 November 1995.
The applicant does not dispute it has received the sum of $85,303.94 from PacRim but says that it is entitled to retain this amount pursuant to an agreement (the “retention agreement”) it entered into with the respondent in or about December 1994. The applicant submitted that the evidence disclosed the existence of the retention agreement in such a manner as to constitute a genuine dispute in relation to its existence whereas the respondent submitted that there was no more than mere assertion as to the retention agreement and that there was no evidence as to its existence. Mr Ridley who appeared for the applicant submitted that there was no documentation supporting the existence of the retention agreement and that such documentation as existed was inconsistent with it.
Mr Tom Curtain, a director of the applicant, swore two affidavits on 3 February 1997 and 3 March 1997 in which he refers to the existence of the retention agreement. In his first affidavit he simply asserts that the retention agreement had been entered into with the respondent to the effect that all money collected from PacRim was retained by the applicant to compensate the applicant for services it provided to the respondent and that the retention agreement was discontinued between the applicant and the respondent in or about September 1995. In my view Mr Curtain’s first affidavit of 3 February 1997 contains no direct evidence of the making of the retention agreement with the respondent but simply asserts its existence. Mr Curtain says in his first affidavit that when the respondent first began to market its business it did not have the expertise to analyse the records it received from Telstra for the provision of telecommunication services and Mr Spitzer, a director of the respondent, requested him to analyse the records and interpret them in a way that would permit the respondent to prepare accounts for its clients. According to Mr Curtain the respondent did not have the expertise to do this work and he was requested to carry it out for the respondent which he did. This involved travelling to Sydney approximately once a month and carrying out the work requested. Mr Curtain says that it was to compensate the applicant for the time he spent providing the services that the retention agreement was entered into on the basis that the applicant would bill PacRim directly for the telecommunication services supplied by the respondent and it would retain the funds received from PacRim. He says that by September 1995 the need for his services decreased and this led Mr Spitzer to tell him in September 1995 that the applicant was being over compensated for the services provided by him by retaining the funds from PacRim and he agreed to end the retention agreement.
In his second affidavit sworn 21 February 1997 Mr Spitzer says that prior to November 1996 the respondent was not aware that the applicant had issued invoices to PacRim totalling $85,303.94 nor was the respondent aware that that amount had been received by the respondent. He denied that the respondent had ever entered into any retention agreement with the applicant and he denied that in the conversation in September 1995 relied upon by Mr Curtain as constituting the termination of the retention agreement he had said that the parties were “even stevens” and that he never told Mr Curtain that the applicant could retain funds received from PacRim.
Taking that evidence in isolation there would be, in my view, no more than assertion of the existence of the retention agreement by the applicant which was effectively unsupported by evidence. Although Mr Curtain asserted the existence of the retention agreement and Mr Spitzer denied it there was no evidentiary basis raised or relied upon for the existence of the retention agreement as asserted by Mr Curtain.
However, in an affidavit sworn on 3 March 1997 Mr Curtain swore that the retention agreement was made in the following circumstances in early 1995:
“In late 1994 there were various meetings between myself [on behalf of the Applicant] and the Respondent as to the establishment of the Horizon system and the obtaining of clients to utilise the system and the subsequent rendering of accounts. From recollection I believe there was a meeting as early as the 14th of December 1994 at 2 pm (a Tuesday) to discuss our relationship but the actual retention agreement was not entered into until early 1995. I recollect discussing the said George Spitzer (Spritzer) commissions which would become payable to the Applicant, together with the considerable disbursements the Applicant had and would incur, with my having to travel to Sydney on a regular basis. These would include air fares between Melbourne and Sydney, transfers from Sydney and Melbourne airports, accommodation when I was required to remain in Sydney over night plus miscellaneous out of pocket expenditure. I raised with Spitzer the idea of the ‘off setting’ the Applicant’s entitlement to 40% of the 20% charged by the Respondent to the various clients whereby the Applicant would keep all moneys payable by Pacrim to the Respondent including its share of the Telstra accounts which would become payable from time to time. Second, the Respondent would pay Pacrim’s share of the Telstra account which would be borne solely by it. Spitzer agreed with this arrangement”.
Mr Ridley submitted that the facts and evidence to which I have referred did not disclose a genuine dispute as to the existence of the retention agreement asserted by the applicant because there was no evidence of the existence of the retention agreement and there was no act performed by either party consistent with the retention agreement. He submitted that the retention agreement was not particularised in any proper shape or form, was indeterminate and uncertain, ran against practical commonsense and was counter to the action of the respondent in serving the demand. He submitted that not only was there no documentation whatsoever supporting or evidencing the retention agreement; he also submitted that the letter of 13 October 1995 was quite inconsistent with the retention agreement. At the time of that letter PacRim had been billed by the applicant and had paid the account. He also relied upon a letter of 7 March 1996 from Mr Curtain to the respondent in which Mr Curtain raised a number of issues about billing in respect of the respondent’s telecommunication services, in effect complaining that there were difficulties in determining what amounts were to be paid to the respondent. There was no mention in that letter at all about the retention agreement and Mr Ridley submitted that one would have expected to have found such a reference having regard to the subject matter of the letter. He also pointed to the statement in the letter that Mr Curtain had travelled to Sydney at the applicant’s expense.
Mr Panna responded by submitting there may be explanations why the retention agreement was not referred to in the letter of 7 March 1996 and that there would need to be an explanation as to why Mr Curtain had signed the letter of 13 October 1995 but that these matters went to the credit of Mr Curtain rather than to the core issue of a genuine dispute as to the existence of the agreement. He submitted that Mr Spitzer had not denied that the work referred to by Mr Curtain had been carried out and had not explained how that work was paid for, or was to be paid for. In short, he submitted there was sufficient evidence of the retention agreement before the Court to justify a conclusion that there was a genuine dispute between the parties as to its existence.
The authorities in this area are clear. It is no part of the function of the Court to investigate or to determine the merits of the dispute so long as a genuine dispute is held to exist. However, it is insufficient for an applicant simply to assert that it has a defence to the claim or as to the existence of a dispute. The authorities are clear that for a genuine dispute to exist there has to be some evidence in support of the subject matter of the dispute rather than simply its assertion.
In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 McLelland CJ in Eq said in relation to the expression “genuine dispute” 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 in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be’ not having ‘sufficient prima facie plausibility to merit further investigation as to [its] truth’ (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or ‘a patently feeble legal argument or an assertion of facts unsupported by evidence’: cf South Australia v Wall (1980) 24 SASR 189 at 194.
But 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 (at 366-7) 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.”
McLelland CJ referred to State of South Australia v Wall where the full passage to which he referred said:
“No doubt a patently feeble legal argument, or an assertion of facts unsupported by evidence, would more readily disincline the Court to consider the dispute to be a genuine one ...”
In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, Lockhart J said at 39:
“However, what appears clearly enough from all the judgments is that a standard of satisfaction which a court requires is not a particularly high one. I am for present purposes content to adopt any of the standards that are referred to in the cases: Hayne J’s judgment, Thomas J’s judgment or Beazley J’s judgment. The highest of the threshold is probably the test enunciated by Beazley J, though for myself I discern no inconsistency between that test and the statements in the other cases to which I have referred. However, the application of Beazley J’s test will vary according to the circumstances of the case.
Certainly the court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute. The notion of a “genuine dispute” in this context suggests to me that the court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime.”
In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said:
“There is little doubt that Div 3 is intended to be a complete code which 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.
The essential task 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).”
In Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1995) 13 ACLC 94 at 95 Lindgren J noted that this passage had been referred to with approval in several cases in the Federal Court.
In Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 Northrop J said at 234:
“‘Genuine’, essentially in this context, means not spurious; being as represented; represented, real or true. ‘Spurious’ means resembling or simulating something; not true or genuine; false; sham; counterfeit.
Although it is true that the Court, on an application under ss 459G and 459H is not entitled to decide a question as to whether a claim will succeed or not, it must be satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt. If it can be shown that the argument in support of the existence of a genuine dispute can have no possible basis whatsoever, in my view, it cannot be said that there is a genuine dispute. This does not involve, in itself, a determination of whether the claim will succeed or not, but it does go to the reality of the dispute, to show that it is real or true and not merely spurious.”
There are many other decisions of the Court which bear upon the nature and content of the expression “genuine dispute” but it is not necessary to cite them other than to refer to the principles in the cases to which I have made reference.
Applying the principles referred to in these authorities I am satisfied on the material before the Court that there is a genuine dispute between the parties as to the existence of the retention agreement. It is true that the retention agreement is not particularised in any great detail and that, on one view, it might be said to run against practical common sense in that at the time it is said to have been entered into neither party could anticipate how much revenue would be generated by PacRim. Nevertheless in his second affidavit Mr Curtain has sworn that he had discussions or conversations with Mr Spitzer commencing in December 1994, in the terms to which I have referred, in which he raised the issues of commissions payable, the expenses the applicant would incur in Mr Curtain travelling to Sydney, the idea of the applicant keeping the moneys payable by PacRim and he says that Mr Spitzer “agreed with this arrangement”.
Although Mr Spitzer said in his earlier affidavit that the respondent had never entered into any retention agreement, I cannot at this stage reject Mr Curtain’s evidence. It is expressed in general terms but in my opinion it provides some evidence, albeit sparse, verifying the existence of the retention agreement.
I am in no position to form any view about Mr Curtain’s credit and I therefore consider that his second affidavit goes beyond mere assertion as to the existence of the agreement. I acknowledge the force of Mr Ridley’s submissions that the letters of 13 October 1995 and 7 March 1996 tell against the credibility of Mr Curtain’s evidence but it is premature to form any view as to his credibility. Those letters raise significant issues as to whether Mr Curtain’s version of the retention agreement in his second affidavit should be accepted. In these proceedings it is inappropriate for me to form a concluded view on that issue. Further Mr Curtain says that at no time has the respondent paid the applicant its entitlement under the marketing agreement and he says that this is because of the retention agreement. This provides some further evidence, albeit sparse, in relation to the existence of the retention agreement.
Overall, the assertion of the fact of the retention agreement is supported by the evidence of Mr Curtain albeit sparse and limited. I refer in particular to Mr Curtain’s second affidavit. The standard of satisfaction which I am required to have is not a particularly high standard: Chadwick Industries (supra). It is one that that has to be based on more than mere assertion and for the reasons to which I have referred I am satisfied that there is more than simple assertion in Mr Curtain’s second affidavit. Therefore I am satisfied that there is a genuine dispute in accordance with the authorities to which I have referred.
The Registrar found that the respondent's conduct was consistent with their being no retention agreement at all. That may be, but the question arises, and the issue to be determined is, whether or not the applicant has not only asserted an agreement but provided some evidentiary basis for it.
The Registrar found that the applicant's assertion of the fact of the existence of the retention agreement was unsupported by the evidence. I would differ with respect from the Registrar in the sense that in my view, as I have already indicated, the existence of the retention agreement, more than just assertion of it, is supported by some evidence in the terms to which I have referred in the second affidavit of Mr Curtain.
In relation to the question of costs Mr Panna submitted that if I was disposed to make an order setting aside the Registrar’s order and the statutory demand the usual order as to costs should apply. Mr Ridley submitted that if I was disposed to make such an order and that my order was based effectively on the affidavit of 3 March 1997 sworn by Mr Curtain the applicant should only get its costs after the affidavit of 3 March 1997 was sworn and that the respondent should have its costs up to that point of time.
However the affidavit of 3 March 1997 which provides the evidentiary basis for the retention agreement thereby raising the genuine dispute was before the Registrar well before the hearing before the Registrar on 10 April 1997. In those circumstances, having regard to the opportunity which was given to the applicant to file an affidavit in reply, the usual order as to costs should apply, namely that the costs should follow the event. The respondent should pay the applicants its costs of the applications dated 3 February 1997 and 10 July 1997.
The formal order of the Court will be:
Paragraphs 1 and 2 of the orders of the Registrar made on 26 June 1997 that:
(a)The statutory demand dated 14 January 1997 served on the applicant by the respondent is set aside;
(b)The respondent pay the applicant its costs of and incidental to the applications dated 3 February 1997 and 10 July 1997,
are set aside.
The statutory demand dated 14 January 1997 served on the applicant by the respondent is set aside.
The respondent pay the applicant’s costs of the applications dated 3 February 1997 and 10 July 1997.
I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg
Associate:
Dated: August 1997
Counsel for the Applicant: Mr A K Panna Solicitor for the Applicant: N A Young & Co Counsel for the Respondent: Mr A Ridley Solicitor for the Respondent: Mahonys as agent for Lange & Co Dates of Hearing: 21, 22 July 1997 Date of Judgment: 22 July 1997
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