Yoogalu Pty Ltd v Intentia Australia Pty Ltd

[2006] NSWSC 278

CITATION:	Yoogalu Pty Ltd v Intentia Australia Pty Ltd [2006] NSWSC 278
HEARING DATE(S):	21/03/06, 22/03/06
JUDGMENT DATE :	12 April 2006
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Statutory demands set aside
CATCHWORDS:	CORPORATIONS - winding up - application for order setting aside statutory demand - whether grounds for arguing genuine dispute and offsetting claim sufficiently delineated by supporting affidavit - whether genuine dispute shown - whether offsetting claim shown - relevance of context to requirement as to quantification of offsetting claim
LEGISLATION CITED:	Corporations Act 2001 (Cth) ss.459G, 459H(1), 459H(3)
CASES CITED:	Anderson Formrite Pty Ltd v Rapid Metal Developments (Aust) Pty Ltd [2002] WASC 232 Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452 JJMMR Pty Ltd v LG International Corporation [2003] QCA 519 John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 Tuta Healthcare Pty Ltd v Nipro Asia Pty Ltd [2005] NSWSC 664
PARTIES:	Yoogalu Pty Limited - Plaintiff Intentia Australia Pty Limited - Defendant
FILE NUMBER(S):	SC 2286/05; 3090/05
COUNSEL:	Mr F.P. Carnovale - Plaintiff Mr J.B. Simpkins SC - Defendant
SOLICITORS:	Brown Wright Stein - Plaintiff PricewaterhouseCoopers Legal - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

WEDNESDAY, 12 APRIL 2006

2286/05 YOOGALU PTY LIMITED v INTENTIA AUSTRALIA PTY LIMITED
3090/05 YOOGALU PTY LIMITED v INTENTIA AUSTRALIA PTY LIMITED

JUDGMENT

1 The defendant served a statutory demand dated 16 March 2005 on the plaintiff on or soon after that date. The defendant served a second statutory demand on the plaintiff on or soon after 6 May 2005, the date it bears. Each statutory demand related to an alleged debt of $1,952,539.35, being, in each case, the total of invoiced amounts set out in a schedule. Each schedule refers to the same series of 21 invoiced amounts and the same “description” in respect of the respective amounts. The difference between the two schedules is that the schedule in the first demand shows, in respect of fifteen of the invoiced amounts, invoice dates ranging from 31 August 2004 to 30 November 2004, while the schedule in the second demand shows the date 21 April 2005 for each of those invoiced amounts.

2 The plaintiff filed two originating processes, one on 6 April 2005 (2286/05) and the other on 23 May 2005 (3090/05). In the first proceeding, the plaintiff claims an order setting aside the first statutory demand. In the second proceeding, the plaintiff claims an order setting aside the second statutory demand. Each application is made under s.459G of the Corporations Act 2001 (Cth). The two applications were heard together.

3 The invoiced amounts are said by the defendant to have become due by the plaintiff for services rendered by the defendant to the plaintiff which is a wholly owned subsidiary of Harvey Norman Holdings Ltd. It is not in dispute that the defendant rendered services to the plaintiff in connection with the development of computer software for use in the retailing operations of the Harvey Norman Group. The plaintiff was the procurer of such services for the group as a whole.

4 I have referred to the difference between the two statutory demands as relating to the dates of fifteen of the invoices. The relevant fifteen invoices referred to in the first statutory demand and dated between 31 August 2004 and 30 November 2004 were addressed to Harvey Norman Holdings Ltd rather than the plaintiff. Of the total of $1,952,539.35 referred to in the first statutory demand, $1,461,987.70 relates to the fifteen invoices addressed to Harvey Norman Holdings, while the balance relates to invoices addressed to the plaintiff. The fifteen invoices dated 21 April 2005 referred to in the second statutory demand are, in effect, re-issues of the earlier fifteen invoices totalling $1,461,987.70, with the re-issued invoices all bearing the date 21 April 2005 and addressed to the plaintiff instead of Harvey Norman Holdings.

5 Each originating process embodying an application under s.459G was accompanied by an affidavit as required by that section. In accordance with the principle derived from Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452, the plaintiff is limited to the grounds stated (expressly or by implication) in that affidavit in pursuing its claim for an order setting aside the particular statutory demand. The several cases that support that proposition (including three decisions of the Western Australia Court of Appeal) are referred to in the judgment of Campbell J in Tuta Healthcare Pty Ltd v Nipro Asia Pty Ltd [2005] NSWSC 664. It is therefore necessary to address each statutory demand separately by reference to the content of the affidavit supporting the application for an order setting it aside. In that way, the contentions advanced by the plaintiff to which regard may be had in determining the particular s.459G application will be discovered and isolated. Evidence relevant to those contentions contained in subsequent affidavits may, of course, be received.

6 The supporting affidavit in relation to the s.459G application in respect of the first demand is the affidavit of Mr Byrne sworn on 6 April 2005 in 2286/05. Mr Byrne is the General Manager, IT, at Harvey Norman. In that capacity, he manages part of the operations of the plaintiff. He is the officer in charge of the particular software procurement project. The grounds relevant to the s.459G application concerning the first demand, as summarised in paragraph 38 of that affidavit, are that

(a) the plaintiff has an offsetting claim against the defendant in the sum of $3,000,000 for liquidated damages pursuant to a written agreement between the plaintiff and the defendant dated 8 January 2000 and designated “Project Agreement”;

(b) the plaintiff paid the sum of $1,051,483.29 in the mistaken belief that it was required by the terms of agreements designated “Java Conversion Agreement” and “Amended Java Conversion Agreement” to do so, with the result that the defendant “is therefore obliged to repay that sum to” the plaintiff – this clearly being the assertion of another offsetting claim.

(c) the invoices detailed in the statutory demand included charges (not yet calculated by the plaintiff) for work done in correcting certain programming errors in the Movex FAM in Java already delivered by the defendant to the plaintiffs, being work for which the plaintiff was not required to pay by the applicable contract;

(d) as an alternative to (c) and if the contract did require such payment, the contractual term requiring payment was affected by mistake and the plaintiff was not required to make the payment; and

(e) invoices covering $1,461,987.70 out of the total $1,952,539.35 were issued to Harvey Norman Holdings Ltd and were not payable by the plaintiff.

7 The matters I have just outlined appear, as I have said, in paragraph 38 of the supporting affidavit. The defendant maintains that those matters represent the whole of the delineated objections. But further relevant information is contained in paragraph 34. It is there said that the invoices totalling $1,952,539.35 referred to in the first statutory demand contain charges of $1,458,948.45 for work “in converting Movex FAM in RPG to Movex FAM in Java”; plus $493,590 for “other work”. Paragraph 32 is relevant to this:

“Yoogalu entered into the Java Conversion Agreement and the Amended Java Conversion Agreement under a mistake – the mistake was that Yoogalu believed that Intentia was entitled to charge Yoogalu an extra fee, over and above the fees agreed under the Project Agreement (as varied by the First and Second Letters of Understanding) for the work done by Intentia in converting Movex FAM in RPG to Movex FAM in Java when, in truth, Intentia’s obligation always was to deliver Movex FAM in Java for the fees agreed to be paid under the Project Agreement (as varied by the First and Second Letters of Understanding).”

8 I accept that paragraphs 34 and 32 together represent, in Graywinter terms, a further element of the plaintiff’s stated grounds and that they refer to a dispute as to the plaintiff’s liability to pay anything to the defendant for conversion of RPG language components into Java language components (I shall mention the significance of this presently).

9 When the matter came to be argued, the plaintiff did not rely on the offsetting claim for $3,000,000 referred to in the affidavit relating to the first statutory demand. It relied solely on the contention that there is a genuine dispute as to the existence or amount of the debt, plus the contention that the subject matter of the dispute affected also some payments already made so as to give rise to an offsetting claim for the recovery of moneys previously paid although not required by the relevant contract to be paid.

10 Having regard to the content of the supporting affidavit and the Graywinter principle, the only grounds upon which the plaintiff can rely in advancing a case of genuine dispute (as distinct from offsetting claim) in relation to the first statutory demand are, first, the circumstance that invoices representing $1,461,987.70 were issued to Harvey Norman Holdings and were therefore not payable by the plaintiff; and, second, that certain of the work covered by the invoices was work for which the applicable contract did not require the defendant to pay. There was only one articulated aspect of this second ground, that is, the aspect involving $1,458,948.45 for conversion of RPG items to Java items referred to in paragraphs 34 and 32 as mentioned above.

11 The point about the name on the invoices referred to in the first statutory demand (that is, that fifteen of them were issued to Harvey Norman Holdings, not the plaintiff) may be dealt with shortly. The plaintiff accepted that a number of earlier invoices intended for it had been addressed to Harvey Norman Holdings, that it had recognised that they were intended for it and that it had accepted and dealt with them accordingly. In light of that acknowledged course of conduct, I do not accept that there is a genuine dispute based on the fact that a large number of the relevant invoices are addressed to Harvey Norman Holdings.

12 So far as the first statutory demand is concerned, there accordingly remains for consideration the genuine dispute contention based on absence of contractual liability to pay for certain work, coupled with the related offsetting claim contention as to sums already paid despite the absence of such liability. I shall come back to that after identifying the relevant area of controversy in relation to the second demand.

13 The affidavit supporting the application for an order setting aside the second statutory demand is the affidavit of Mr Byrne sworn on 20 May 2005 in 3090/05 (he swore an affidavit of the same date in the other proceeding as well). That affidavit sets out succinctly at paragraph 61 the grounds on which the statutory demand is challenged. Three grounds are stated: first, that there is an offsetting claim in the sum of $3,000,000 for liquidated damages on the basis stated in the earlier affidavit relating to the first demand; second, that there is an offsetting claim in the sum of $1,460,582.34 on the basis stated in that earlier affidavit; and, third, that the sum of $1,106,976.60 represents “Java Conversion charges” for the period from about August 2004 to December 2004 for which the plaintiff was not liable under the contract between the parties. This third ground corresponds with the ground stated in paragraph 32 of the earlier affidavit to the extent that it referred to charges for “converting Movex FAM in RPG to Movex FAM in Java”. The amount of $1,458,948.45 referred to in that connection in the earlier affidavit was, however, revised to $1,106,976.60 in the supporting affidavit relating to the application for an order setting aside the second statutory demand.

14 In the application related to the second statutory demand, the plaintiff again no longer relies on an offsetting claim in relation to the sum of $3,000,000. The only extant ground, therefore, is the ground related to alleged lack of liability for charges for converting RPG items into Java, which, in the plaintiff’s view, gives rise to a genuine dispute as to certain of the amounts allegedly due under the invoices referred to in the statutory demand plus an offsetting claim for recovery of sums previously paid in the absence of contractual obligation to pay.

15 Against that background, I turn to the relationship between the parties.

16 The defendant’s parent company owned the rights to management system software known as “Movex”. This consisted of a large number of integrated programs and was marketed by the defendant for use in large enterprises to assist in the management of inventories, distribution and financial accounts. Movex was written in the RPG programming language. In late 1998 and early 1999, the defendant’s parent company announced that Movex had become available in the Java programming language.

17 In May 1999, the defendant submitted to the plaintiff a proposal for the supply and installation of Movex for use in the Harvey Norman operations. After negotiation, a written agreement was entered into by the plaintiff and the defendant on 8 January 2000. The defendant was to produce a modification of the standard Movex product to suit Harvey Norman’s needs. The defendant was also to provide and install the modified Movex.

18 The agreement of 8 January 2000 was supplemented by a “letter of understanding” dated 13 September 2001 which was signed by two representatives of each of the plaintiff, the defendant and the defendant’s parent company. That document was expressed to represent “the revised commercial terms and conditions agreed between” the parties and to “form an addendum to the original Project Agreement No (MOV X 9908) dated 8 January 2000”.

19 A second “letter of understanding” is dated 23 December 2002. The copy in evidence is not signed by any representative of the defendant’s parent company. There are also in evidence a number of other documents which refer to the parties’ contractual arrangements and purport to confirm and supplement them.

20 The plaintiff places emphasis upon a particular provision of the original agreement (clause 2 of appendix 7):

“The Supplier [defendant] will uplift any modifications delivered in the Movex Project to the Movex NextGen (Java) version at no cost.”

21 The first “letter of understanding” said at clause 5.2:

“Modifications delivered in the Movex Project will be uplifted to NextGen (Java) version at no cost to Harvey Norman.”

22 By the time the first letter came into existence, the plaintiff had, on its account, received some hundreds of individual Movex programs, being a large number of standard programs and a large number of modified programs. According to the evidence given on behalf of the plaintiff, all were in the RPG language. Evidence also given on behalf of the plaintiff was that by about October 2001, the plaintiff had received from the defendant all the modified Movex system package related to the FAM component of the Movex project and that all was in the RPG language. This was installed and made operational in the RPG language.

23 The plaintiff contends that the effect of the second letter of understanding was to vary the parties’ contract so that it extended to an additional component known as Project EuroPOS. The plaintiff says that, during 2003, it received a number of standard and modified EuroPOS programs which were in the RPG language.

24 There is also evidence from the plaintiff to the effect that from about August 2003 to July 2004, it received and paid for both Movex FAM and Movex EuroPOS programs in the Java language intended by the parties to be functionally identical to, and replacements for, those previously supplied in the RPG language. There were also a number of replacements in Java for items previously supplied in Java which were found to be deficient.

25 It is the contention of the plaintiff that (as it now knows but previously did not fully appreciate) clause 2 of appendix 7 to the project agreement and clause 5.2 of the first letter of understanding mean, upon their proper construction, that the finished Movex product was to be wholly in the Java language and that any components delivered in the RPG language would be upgraded or converted to Java by the defendant at no cost to the plaintiff. On that basis, the plaintiff says, it has in the past paid a substantial sum for upgrading or conversion work that it was not contractually required to pay; and that it is not contractually required to pay some of the unpaid invoices which are the subject of the statutory demands. As a matter of construction, these are plausible contentions.

26 The defendant takes the view that clause 2 of appendix 7 to the project agreement does not apply to all components. It places emphasis on the words “in the Movex Project”. According to the defendant’s view of matters, the only modifications being delivered “in the Movex Project” were those identified in a modification summary (attachment 8 to appendix 8) as “incorporated into the standard Movex Project”. The defendant was, in its view, entitled to charge for all other modifications, including conversions from RPG to Java. The defendant construes clause 5.2 of the first letter of understanding in the same way. That is a possible construction.

27 The defendant also says that the plaintiff did not, at any earlier stage – that is, any stage before what the defendant regards as insufficient delineation in the supporting affidavit relating to the first demand – enunciate its argument that it was not liable to pay for any conversions from RPG to Java. That, says the defendant, indicates that the dispute upon which the plaintiff now seeks to rely is not a genuine dispute. In support of that contention, the defendant has referred to the correspondence and other communications (both oral and written) between the parties from December 2004 to April 2005 and the absence from them of any prior articulation of the plaintiff’s lack of liability (past and present) in respect of the Java conversion charges. The points the defendant makes in that respect are validly made, having regard to the evidence.

28 But there is no rule or principle requiring that the dispute upon which a s.459G plaintiff relies must have been communicated before the s.459G application is made. The fact that the present plaintiff may have mentioned only other matters in preliminary correspondence asserting its lack of liability under the invoices in question is irrelevant to the present proceedings. I have found that the contention that it was not liable to pay for invoiced Java conversion work was advanced by the plaintiff (as to $1,458,948.45) in the affidavit supporting the first s.459G application and (as to the revised figure of $1,106,976.60) in the affidavit supporting the second s.459G application. The fact that the point had not previously been taken is irrelevant.

29 The defendant next says that the plaintiff has not provided a satisfactory quantification of the Java conversion sums about which it complains – that is, both those the plaintiff says are covered by the invoices listed in the statutory demands (as to which I have regard only to the reduced sum of $1,106,976.60) and those already paid under mistake (or under a contract affected by mistake) and, in the plaintiff’s view, recoverable accordingly (these are said by it to total $1,460,584.34).

30 It is true that the quantification the plaintiff has provided is the result of Mr Byrne’s calculation and his understanding of what was covered by particular invoices and what was paid for what in the past. The defendant says that this source means that the quantification is merely unsupported assertion. I do not accept this. Mr Byrne is the officer within the plaintiff who is in charge of the project. He is familiar with all aspects of it and is involved in its day-to-day progress. I am satisfied that he is in a position to assemble sufficiently reliable figures for present purposes. The basis on which he did so is exposed in his affidavits of 20 May (he swore one of that date in each proceeding). The assertions he makes are not “mere” assertions: they are assertions backed up by descriptions of calculation methodology and stated bases for the conclusions expressed. It is not the task of a plaintiff in a case such as this to prove the relevant quantum. It need only show some reasonably cogent basis of quantification, even if in part theoretical.

31 As the Queensland Court of Appeal reminded us in JJMMR Pty Ltd v LG International Corporation [2003] QCA 519, the task of the court in a case such as this is to decide whether there is a dispute or offsetting claim “such as would warrant subsequent adjudication”. Context may play a part in that task. Where one person sells a tonne of coal to another for a clearly stated price and payment is not forthcoming, the context will be of a simple kind where the court can see with relative ease whether the buyer has an arguable case for not paying or for setting up some offsetting claim. Other contexts are not so simple. In Anderson Formrite Pty Ltd v Rapid Metal Developments (Aust) Pty Ltd [2002] WASC 232, Master Sanderson of the Supreme Court of Western Australia said at [23]:

“Building disputes are notorious for their mind-numbing complexity and it must be a rare case where a challenge to a party’s claim will not be seen as giving rise to a genuine dispute.”

32 The learned Master was echoing sentiments expressed by Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 where it was emphasised that a court considering a s.459G application is not a debt collecting court. Its sole function is to determine whether or not the state of account between the parties is (as to the particular matters referred to in s.459H(1)) so clear-cut and uncontroversial that non-payment of the sum demanded by the defendant should, entirely of itself and without further inquiry, mean that the plaintiff must, in a subsequent winding up proceeding, be regarded as insolvent unless it can itself affirmatively prove its solvency.

33 The present case involves an apparently complex contract or series of contractual documents for the provision of services in relation to the development of a sophisticated computer system. The technical issues are of such a kind that full blown proceedings between the parties would, in all likelihood, turn on expert evidence, bearing in mind that a multitude of items has been delivered over a long period and it would be a major task to judge the compliance of each item with contract specifications or its status under provisions with respect to a particular programming language. At the same time, some of the contractual documents appear to have been drawn by non-lawyers and involve difficulties of interpretation. The situation is akin to that which might arise under a building contract. The fact that it took the best part of two days for the case of genuine dispute and offsetting claim to be argued by reference to the contents of no less than twelve lever-arch files of documents speaks for itself.

34 I am satisfied that the plaintiff has, to the requisite degree, made out its case of genuine dispute as to $1,106,976.60 and offsetting claim as to $1,460,582.34. Since the aggregate of those sums exceeds the total amount of each statutory demand, the result dictated by s.459H(3) is that each demand must be set aside.

35 In each of proceeding 2280/05 and proceeding 3090/05, the order of the court is that the statutory demand the subject of the proceeding be set aside and that the defendant pay the plaintiff’s costs of the proceeding.

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