Supreme Court New South Wales Medium Neutral Citation: In the matter of Aegros Ltd [2021] NSWSC 1495 Hearing dates: 11 November 2021 Date of orders: 11 November 2021 Decision date: 11 November 2021 Jurisdiction: Equity - Corporations List Before: Rees J Decision: Dismiss application to set aside statutory demand. Catchwords: CORPORATIONS – application to set aside statutory demand – genuine dispute – construction of contract implied term – non-performance of contract – clear beyond argument that defendant provided services during period for which invoices rendered – suggested construction patently feeble. Legislation Cited: Corporations Act 2001 (Cth), ss 459G, 459H Cases Cited: In the matter of Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 In the matter of Gorji Property Investment Pty Ltd [2018] NSWSC 1671 In the matter of Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 In the matter of Granite Power Ltd [2019] NSWSC 1491 In the matter of Universal Property Group Pty Ltd [2019] NSWSC 796 In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 Burton v Palmer [1980] 2 NSWLR 878 at 895 Newcombe v Newcombe (1934) 34 SR (NSW) 446 Texts Cited: J D Heydon, Heydon on Contract (2019, Lawbook Co) Category: Principal judgment Parties: Aegros Ltd (Plaintiff) Barclay Pearce Capital Pty Ltd (Defendant) Representation: Counsel: Mr PC Silver (Plaintiff) Mr PM Knowles (Defendant) Solicitors: HWL Ebsworth Lawyers (Plaintiff) O'Loughlin Westhoff (Defendant) File Number(s): 2021/285369 Ex Tempore Judgment 1. HER HONOUR: This is an application by Aegros Limited to set aside a statutory demand under sections 459G and 459H of the Corporations Act 2001 (Cth) by reason of a genuine dispute about the existence or amount of the debt. The statutory demand was issued by the defendant, Barclay Pearce Capital Pty Ltd, on 16 September 2021. The debt was described in the schedule to the statutory demand as unpaid fees due and payable incurred under clause 2 of an agreement dated 27 August 2020 in relation to "capital raising consulting work". The schedule listed eight unpaid invoices, each of which were attached to the demand and rendered a fee for "1 Monthly Retainer" of $17,050. One of the invoices also included various amounts for expenses incurred in preparing a corporate video. The total amount of the demand was $139,150. 2. The application to set aside the demand was put on two bases. First, on a proper construction of the agreement, Barclay's entitlement to the Monthly Retainer was said to have been dependent upon Barclay carrying out work aimed at assisting Aegros to raise capital. Second, Barclay did not in fact carry out such work over the period in which the invoices were rendered, such that the condition precedent to Barclay's entitlement to collect the Monthly Retainer was not satisfied. More precisely, Aegros contends that there is a genuine dispute as to both matters. 3. In support of its application to set aside the demand, Aegros relied on the evidence of its managing director, John Manusu, and executive chairman Dr Hari Nair. In opposing the relief sought, Barclay relied on the evidence of process server Paulene Hill, chief executive officer Huynh Quang Ngoc Duy (Jared) Huynh and former Director – Corporate Finance, Timothy Wilson. PRINCIPLES 1. There is no dispute as to the principles. Drawing on my judgment in In the matter of Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 at [77] to [81], the threshold to establish a genuine dispute about the existence of a debt is a relatively low one. Black J conveyed the principles in In the matter of Gorji Property Investment Pty Ltd [2018] NSWSC 1671 at [14]: … In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a "genuine dispute" must be bona fide and truly exist in fact, and the ground for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In Panel Tech Industries (Aust) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J (as his Honour then was) formulated that proposition as follows, in a proposition applied in subsequent cases: "Once the company 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 factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger." 1. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal (Beazley P, Meagher and Gleeson JJA) said in the context of an offsetting claim, at [30]: It is settled law that s 459H requires the Court to be satisfied that there is a "serious question to be tried": see Scanhill v Century 21 Australasia [Pty Ltd (1993) 47 FCR 451] at 467, or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor: see Chase Manhattan Bank Australia Limited v Oscty Pty Limited [1995] FCA 1208; 17 ACSR 128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 84 FCR 454 per Emmett J (as his Honour then was). The claim must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd [[2001] NSWSC 743]. In that case, Palmer J observed, at [18], that good faith, in this context, meant that the offsetting claim was arguable on the basis of facts that were asserted "with sufficient particularity to enable the Court to determine that the claim is not fanciful". Their Honours make it clear that a similar standard of proof is required whether an offsetting claim or a genuine dispute is alleged. 1. It is not for the Court to engage in an assessment of a deponent's credit on an application such as this: Britten-Norman at [46]. What is called for is an assessment of the kind described by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (approved in Britten-Norman at [46]) (citations omitted): 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", or "a patently feeble legal argument or an assertion of facts unsupported by evidence". 1. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67, Dodds-Streeton JA, with whom Neave and Kellam JJA agreed put the test in the following terms, at [71]: As the terms of s 459H of the Corporations Act 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. … 1. Often cited is the judgment of Thomas J in In the matter of Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, which provides useful guidance: 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). 1. Drawing on my judgment in In the matter of Granite Power Ltd [2019] NSWSC 1491 at [31]-[32], where the dispute relied upon to set aside a statutory demand is the meaning of the contract, determination of the meaning may be appropriate if a "patently feeble legal argument" is put forward: In the matter of Universal Property Group Pty Ltd [2019] NSWSC 796 at [15]. However, as Barrett AJA (with whom Gleeson and White JJA agreed) cautioned in Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 at [26], "where the question of construction has any element of rational controversy to it, the Court must exercise particular restraint." Barrett AJA adopted the statement of principle by Gleeson JA in In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 at [31]: The important points to be derived from the authorities are as follows. First, the court dealing with a s 459G application is not compelled to determine questions of construction of documents. Second, s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. Third, the cases in which it will be appropriate for the court to entertain a construction argument on a s 459G application are likely to be few in number. Fourth, the court's state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared. See also Gleeson JA in In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 at [32]. 1. Thus, where there are clearly arguable alternatives as to the meaning of a term and related questions of construction, this of itself gives rise to a genuine dispute within section 459H(1)(a) and no attempt should be made to determine the question in an application to set aside a statutory demand: Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [47] per Barrett J. More recently in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60, White JA held at [90] (emphasis added): It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular construction is "patently feeble" (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is "as plain as a pikestaff" that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 at [41]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; 125 ACSR 212 at [26]-[29] …). FACTS 1. Barclay is a corporate advisory and equity firm which provides advice, trade execution and market research. Barclay assists clients with debt and equity capital raising, assists clients to list on the Australian Securities Exchange (ASX), provides clients with strategic advice, investor relations, investor communication and media relations and support, develops long-term investor relations strategies and assists in engaging investor networks and attracting potential investors through marketing communications programs. 2. Aegros is an unlisted public company which operates Australia's second Therapeutic Goods Administration (TGA) registered plasma fraction facility. The agreement 1. On 27 August 2020, Aegros and Barclay executed an agreement in the form of a signed engagement letter, which provided: 1. Introduction This letter confirms that Aegros … (… the "Company") has engaged (the "Engagement") Barclay … ("BPC"), to act as the Company's Lead Manager and sponsoring broker in relation to the Company's equity capital markets initiatives as set out in this engagement letter ("Transaction"), on a twenty-four (24) month basis commencing from the date of the Company's acceptance of this proposal ("Term" or "Period of Engagement"). 2. Services 2.1. The Company appoints BPC: (a) organise and manage appropriate marketing programs aimed at promoting the Company to high net worth investors, retail clients and institutional investors where appropriate; and (b) assist in undertaking, arranging and managing capital raisings as a Lead Manager during the Term from investors. (c) to manage all public relations, Investor relations and media publications (both print & digital) (d) promote the company through broker roadshows (both deal and non deal) (e) update the market with independent company research 2.2. BPC will perform the Services for the Company in connection with this engagement as is customary and appropriate for transactions of this nature and otherwise as instructed by the Company. These services include: (a) The Company's business - familiarisation to the extent appropriate and necessary with the business, operations, properties, financial condition and prospects of the Company; (b) Valuation: assistance with updating the valuation of the Company. The valuation will contain assumptions and qualifications, and be in such form, as BPC considers appropriate; (c) Financing Strategy: assistance with formulating and recommending an equity or hybrid financing strategy for the Company; (d) Marketing: Assistance with presentation and marketing to potential investors including, but not limited to, preparation of investor presentations, presentations to equity analysts and institutions and road shows; (e) Capital Raising: advising and assisting the Company with: (i) the structure of the capital raisings including terms and pricing of the shares offered or issued by the Company consequent upon the marketing program; (ii) (together with other advisers, should a disclosure document be required) the content and structure of the disclosure documents; (iii) due diligence in accordance with clause 3 below; (iv) discussions as required with appropriate regulatory authorities including ASX and the Australian Securities & Investments Commission ("ASIC"), such discussions undertaken together with the Company's appointed legal advisers where appropriate; (v) market sentiment and impact of the capital raising; (vi) allocation of securities; and (vii) administrative aspects including, but not limited to, the receipt of application proceeds in respect of the issued securities, dealing arrangements and the payment of expenses. (f) perform such other investment banking and financial advisory services as BPC and the Company may from time to time agree in writing. Together 2.1 and 2.2 above, are referred to as "the Services". … … 1. It will be seen that Barclay was appointed to undertake a range of services of which advising and assisting Aegros with capital raising was but one. As to Barclay's entitlement to be paid, the agreement set out a fee structure as follows: Fee Structure … 3.7. Tranche 1 - BPC to raise up to $2,500,000 in equity or debt for the company. 3.8. Tranche 2 - BPC to raise up to $2,500,000 in equity or debt for the company if required. 3.9. Tranche 3 - BPC to raise up to $5,000,000 in equity or debt for the company if required. 3.10. Monthly Retainer - commencing at the completion of Tranche 1 the company agrees to appoint BPC as Lead Manager and to pay or cause to be paid to BPC (and/or its nominees) a fee of $15,500 per month (Plus GST) for a maximum of twelve (12) months, to be paid by Aegros Pty Ltd by the 1st of every month. 3.11. Upon Successful Listing - The company Aegros Pty Ltd agrees to appoint BPC as a Sponsoring Broker and to pay or cause to be paid to BPC (and/or its nominees) a fee of $9,000 per month (Plus GST) for twelve (12) months to be paid by the 1st of every month. 3.12. Capital Raise Fee - In consideration for the raising of capital the Company agrees to pay or cause to be paid to BPC (and/or its nominees) a placement fee of 7% (Plus GST) of the Gross Proceeds raised in the offer. 3.13. Success Fee - A Success Fee of 3% is to be issued to BPC (and/or its nominees) of the market capitalisation of Aegros Pty Ltd upon listing on the ASX in shares in Aegros Pty Ltd. 3.14. Pay or cause to be paid to BPC a handling fee of 2% (Plus GST) of the funds raised outside of a BPC Product Disclosure Document (PDD). … Clause 5.1 of the agreement also provided that Barclay was entitled to be reimbursed by Aegros for expenses. 1. Importantly, Barclay was only entitled to charge a Monthly Retainer on completing Tranche 1. The parties agree that Tranche 1 – and indeed Tranche 2 – were completed in October 2020. Although clause 3.10 does not provide that Barclay's entitlement to the Monthly Retainer was conditional upon anything other than having completed Tranche 1, Aegros contended that the clause should be construed as making entitlement to the Monthly Retainer conditional upon carrying out work in relation to capital raising. Such a construction does not sit well with the fact that, following Tranche 1, Barclay may not be required by the client to embark on Tranche 2 or Tranche 3: clauses 3.8 and 3.9 each refer to those tranches only being raised "if required". That is, on Aegros' construction if Aegros did not "require" Barclay to raise further tranches of equity and debt then, notwithstanding clause 3.10, Aegros would not be obliged to pay the Monthly Retainer even if Barclay were performing other services as described in the agreement. 2. However, it may not be necessary to deal with whether Aegros' construction of the agreement is plausible or patently feeble as it is perfectly clear that Barclay did continue to carry out work in relation to capital raising throughout the period in which invoices were rendered. Tranche 1 and Tranche 2 1. Tranche 1 was completed on 13 October 2020, as was Tranche 2. According to the term sheet used for the capital raise, the funds were to be used to undertake a clinical trial, alter Aegros' existing TGA-approval to include production of a novel Covid-19 hyperimmune and for working capital. 2. On 29 October 2020, Barclay issued the first invoice for the Monthly Retainer, which was promptly paid on 2 November 2020. In November 2020, Barclay began preparing promotional videos for Aegros. Barclay's second invoice for the Monthly Retainer was issued on 11 November 2020 and paid on 3 December 2020. The third invoice was issued on 11 December 2020 and not paid until 9 March 2021. These invoices were the only ones paid by Aegros; the remaining invoices were issued from January to August 2021 and are the subject of the statutory demand. Problems with ASX listing 1. In December 2020, the ASX informed Aegros that an application to list the company on the ASX would likely be declined given the early stage of Aegros' business operations, including that the clinical trial had not yet commenced, nor the good manufacturing practice (GMP) inspection and licence upgrade required for manufacture, nor any application to the TGA nor advice sought from the TGA, and Aegros' limited operating and financial history. ASX recommended that Aegros consider very carefully whether it wished to proceed with its application to list. Obviously enough, a number of matters needed to be attended to before Aegros could list on the ASX. 2. In January 2021, Aegros informed Barclay that it wished to complete another capital raise that month of $2 million to $3 million. According to Barclay's note of the meeting, Mr Wilson asked how these funds were to be used as well as how the funds already raised had been spent. Mr Manusu agreed to provide information ahead of their next meeting "in which we will discuss the strategy moving forward". 3. In January 2021, Barclay also began publishing promotional material about Aegros, using the videos it had made. Barclay published articles on its LinkedIn profile, website, YouTube channel, Twitter profile and Facebook profile. Harsh words 1. On 3 February 2021, a meeting took place between representatives of Aegros and Barclay which, on any version of events, was a difficult meeting. On Mr Manusu's version of events, a "tirade" was delivered by one of Barclay's representatives, who accused him of fraud and said, "In my eyes, your relationship with [the defendant] is well and truly over … however, if you agree to pay out our convertible note holders right here and now I will not report you to ASIC". The Barclay's representative then "stormed out" of the meeting. The remaining two Barclay representatives apologised for their colleague and said they wished to continue the relationship with Aegros if at all possible. Mr Manusu said, "You will have to come back to us with a plan of how to make this work." 2. Barclay's contemporaneous file note of the meeting records: - BPC started the meeting, noting that there are a few issues to be addressed - Listing Date Slipping, Not Keeping promises regarding dates and timelines, Board Issues, Lack of communication with Accountants as they say they have not been given access, lack of transparency in regards to how the money has actually been spent. - If it comes to it and nothing is getting done BPC is happy to cancel the mandate and for Aegros to pay the convertible note back in 7 days. … - We need to come back to the market with a clear message - previous use of funds and milestones achieved … and the next raise use of funds and milestones to be achieved from this. … Capital Raise - Aegros has ~$6m in soft commitments of people who wish to put money into Aegros. Richard specified that this will have to be under our Term Sheet and through the capital raise. - The company want to raise approx $10m in early March with the rest of the ~$4m to be raised by BPC. Next Steps to be covered - CFO to work with Hall Chadwick [auditors], to get the accounts sorted. … - We need a reconcilliation of previous raise, outline the new position of the company and a reconciliation new use of funds… 1. Clearly enough, Barclay was reluctant to embark upon a further capital raise until Aegros could explain to potential investors how it has used the funds raised in Tranche 1 and Tranche 2, and how it intended to use the additional capital now sought to be raised. Aegros also had to get its accounts in order. 2. As to the capital raise, the note records that Aegros said it had about $6 million in "soft commitments" from people who wished to put money into Aegros; Aegros wanted to raise about $10 million in early March 2021, with the rest of the $4 million to be raised by Barclay. The note indicates that Barclay's capital raise was after, or perhaps alongside, Aegros' raising of $6 million. Consistent with the former, Mr Wilson said that Barclay was not prepared to commit to raise the $4 million until Aegros had obtained a firm and binding commitment on the $6 million. Moving on 1. Whatever was said at the meeting, the parties resumed a working relationship the next day and continued to work together in the months which followed, endeavouring to address the various obstacles which lay in the path of another capital raise. Mr Manusu says that he met with his internal management on 4 February 2021 and they agreed to let Barclay's representatives see what they could do to repair their relationship with Aegros. Emails followed as to how the parties would continue to work together. Mr Manusu sent an email to Barclay: (emphasis added) Finally, I have discussed at length how we can work with BPC. It will be based on respect, honesty and a willingness to openly address all issues related to getting the best value for Aegros as part of an IPO to occur post completion of our clinical trial, and hopefully with some pre orders from the NBA. Personal attacks will not be tolerated. As part of this discussion both Hari and I will make ourselves available to talk to any and all of the C/N investors. Happy to take their questions on the delay in the clinical trial/pivot to 2nd fractionator. We can attend a meeting at your office or they can come to our facility. We look forward to working with BPC to achieve this common goal. 1. Further conciliatory emails were exchanged including from Mr Wilson on 8 February 2021: John and Hari, Thank you for your time today. As we spoke about, we are committed to a long term future with Aegros and are looking to move forward as per our initial discussions and strategy. With that said, we are in a position of recovery with regards to the investors/brokers and the list of delays that have taken place since the first capital raise. We do need your commitment to the list of things below in order to keep everything on track. They will need to be completed by Monday 8 March 2021, unless otherwise stated: • Shareholder update - drafted by Friday this week (12 Feb 2021) • Hall Chadwick to be given all docs and records required, by Friday this week (12 Feb 2021) and accounts all in place at a pre audit standard (end of month) • Trials having commenced in both the convalescent plasma and Covimmune • TGA certification finalised or all but finalised with supporting correspondence • New independent chairman shortlist sent upon in the next 2 weeks with the new, agreed chairman having sent confirmation to act or already installed. • Firm commitments for the $6m in funding (BPC to send paperwork and transact on behalf of Aegros) Please come back to me on this email with your commitment asap. 1. Dr Nair responded: Thank you for the email. The email is agreeable to both John and myself and we can move forward on this basis. 1. One particular problem was that Aegros needed to complete the audit of its accounts. Barclay contacted Aegros' auditor to endeavour to progress this task. On 3 February 2021, the auditors informed Barclay that the bulk of the information which the auditors had requested remained outstanding; Barclay offered to assist. The auditor provided Barclay with further details of their efforts to get information from Aegros and Barclay repeated, "We will do our part to move things along". It is apparent that Barclay did so by raising the matter with Aegros and seeking thereafter, as corroborated by a large amount of contemporaneous material, to assist in the completion of the audit. That matter seems to have dragged on for months. 2. Aegros' commitment to raise $6 million went nowhere. On 22 February 2021, Aegros advised that its "new investor" was a foreigner planning to invest $5 million to $6 million, and Aegros was meeting with them on 23 February 2021. On 24 February 2021, Aegros advised that it would draw-down on its R&D facility until the new investor contributed capital. On 3 March 2021, Aegros advised that it had drawn down $1 million on its R&D facility and was meeting with its new investor "later today", that the investor was "performing due-diligence", required a board seat, and the end of next week (viz. by 12 March 2021) was the due date for a term sheet to be agreed to the investment. On 10 March 2021, Aegros advised that its new investor's due diligence and legal processes would be finalised "next week". On 17 March 2021, Aegros advised that it was working with the new investor and was hoping to have a term sheet finalised by Friday "this week" (viz. 19 March 2021) for an investment of $5 million, with further funds coming from "related parties". On 31 March 2021, Aegros advised that documentation from the now $5 million investor should come by "mid-next week" (viz. circa 8 April 2021), that the plaintiff met the requirements for "the visa" and that the price being offered to the investor was roughly $2.30 per share in the plaintiff. 3. On 14 April 2021, Aegros advised that the investor would now be investing through a special purpose vehicle, that Aegros was having discussions with the investor on a "daily basis", that the deadline for the investment was May 2021, and that Aegros would go to Paddington (viz. Paddington Finance) for a further R&D facility to bridge a funding gap if necessary. On 15 April 2021, Aegros advised that the investor was an Indian national looking to invest as part of the 891 visa program and was prepared to invest $5 million at $2.30 per share and that the investment would need to occur "by May when the investor's son turns 23" and that a special purpose vehicle was being formed to make the investment in Aegros. On 28 April 2021, Aegros advised that the $5 million investor was an "ongoing process" with some "to and from" between the special purpose vehicle and immigration. 4. On 5 May 2021, Aegros advised that a term sheet was issued to the new investor but it "needed some amendments" which were to be done by 5 May 2021, and that Aegros was hoping to have the term sheet signed "this week" (viz. by 7 May 2021). From there, the investor would have 21 days to conduct more due diligence before paying any money, and the deadline for the investment – for immigration reasons – was the end of May. On 19 May 2021, Aegros advised that the term sheet with the investor was signed and that Aegros was working on completing the share subscription form, and that the investor's funds were coming within the next two weeks. On 26 May 2021, Aegros advised that negotiations with the investor were still ongoing, that Aegros has raised $850,000 from other high net worth individuals and received another $300,000 from the exercise of previously-issued options. 5. On 9 June 2021, Aegros advised that its investor had agreed to terms and conditions, and a conversation would occur "today" about a share purchase plan, a signed copy of which would be sent to Barclay by the end of the week (viz. by 11 June 2021). On 30 June 2021, Aegros advised that the new investor had signed the share purchase plan and $1 million was due to be paid to Aegros by "Tuesday next week" (viz. 6 July 2021), with a further $3 million due 21-days after signing and a residual $2 million due on obtaining TGA approval. 6. On 7 July 2021, Aegros advised that the new investor was having problems with his visa and this was threatening the investment, "which is why the initial payment has not been made", and that Aegros "is getting impatient with this investor and has threaten[ed] to tear up the agreement if the issues [aren't] sorted by the end of the week". Furthermore, "[l]osing" the new investor was a setback but Aegros had drawn down another $750,000 from the R&D Facility and also expected an R&D refund in August of $4.6 million which would be used to pay back the R&D facility and also go towards working capital. On 14 July 2021, Aegros advised that "after several delays" it had procured an oral agreement from their investor that morning and the share purchase plan would be signed that day, with the first $1 million being paid by 19 July 2021. 7. On 21 July 2021, Aegros advised that the term sheet for the $6 million investment has been signed (again). On 22 July 2021, in response to an email from Mr Wilson, Aegros advised that the "first funds will flow on Monday" (viz. 26 July 2021). On 28 July 2021, Aegros advised it expected $250,000 to be paid by the new investor today (28 July 2021), a further $250,000 tomorrow (29 July 2021), $500,000 "in 5 days" and a further $3 million by 12 August 2021. On 4 August 2021, Aegros advised that a "family dispute" had erupted which had delayed the new investor contributing capital, but this had been resolved and $250,000 would be paid to the plaintiff "either tomorrow or Friday". 8. According to Mr Manusu, on 12 August 2021, Mr Huynh said, "BPC is not able to move forward" and "let's agree to temporarily pause the agreement". Thereafter, Mr Manusu had no significant involvement with Barclay. Matters appear to have come to a head in September 2021, when Barclay learned that Aegros had retained another consultant, Pulse Market, to raise funds. A letter of demand and the statutory demand followed. 9. Through the period when invoices were rendered, Barclay continued to periodically post promotional material concerning Aegros on Linked In, Barclay's website, YouTube channel, Twitter profile and Facebook profile. These publications remained active during the period for which the invoices were rendered. Barclay also suggested that Aegros produce an audio podcast episode. Contemporaneous emails indicate that the purpose of this material was to increase Aegros' profile and brand awareness. Self-evidently this was directed to make Aegros appealing to potential investors and to keep existing investors informed and content. 10. Barclay also organised and attending weekly meetings, requested information from Aegros in order to update existing investors, held meetings to update investors and drafted and settled shareholder updates for dissemination among Aegros' investors. Barclay found one potential investor, Gandel Invest, who was interested in investing about $5 million. However, the investment did not proceed as Gandel Invest was not prepared to invest until TGA approval had been received. 11. Mr Manusu and Mr Wilson agreed that at no point did Barclay and Aegros put in place any plans for Barclay to commence another capital raise over and above Tranche 1 and Tranche 2. Mr Wilson said to do so would have been problematic given Aegros' delays in obtaining TGA approval, the lack of clarity around Aegros' use of the funds already raised and Aegros' resistance to providing Barclay and its investors with documents recording their progress in obtaining TGA approval or achieving other significant business milestones. 12. No dispute was raised at the time as to Barclay's entitlement to render invoices for the Monthly Retainer. On 12 April 2021, Mr Wilson sent an email to Mr Manusu: (emphasis added) Thank you for the chat. Here is the summary, please let me know if I have missed anything: ● Aegros' investor is now committed to funding $5m at a price of ~$2.30 per share ● Aegros will pay and bring all BPC invoices up to date by the end of this month (April 2021) ● Trial was delayed this week but will now start on Monday 19th April 2021 ‐ delay was due to not enough participants enrolled but will be sorted by mid this week for next week's start. We still need to following items from Aegros: ● Audited P&L from December 20 ‐ Present ● Audited B/S from December 20 ‐ Present ● Audited Cash Flow from December 20 ‐ Present ● Bank Statements from December 20 ● Correspondence from the TGA ● Conversion of Notes to Equity Please confirm the above and send the outstanding items asap. 1. Mr Manusu's response, contained in an email dated 13 April 2021, was as follows: I confirm your 3 points below except the … clinical trial will start on Monday 26 April … . Aegros did not pay the outstanding invoices as promised. 1. On 7 June 2021, Barclay sent another email to Mr Manusu, Dr Nair and company secretary Leighton Hopper, attaching unpaid invoices, noting that the invoices remained outstanding and requesting payment as soon as possible. Mr Hopper promptly replied that Mr Manusu "will shortly call you to discuss payment schedule." Submissions 1. Aegros submitted that Barclay did not perform its overarching obligation under the agreement to carry out work aimed at assisting Aegros to raise capital. Properly construed or by way of an implied term, until and unless Barclay had done so, there was no obligation on Aegros to perform its reciprocal obligation to pay for those services: J D Heydon, Heydon on Contract (2019, Lawbook Co) at [21.260], and Burton v Palmer [1980] 2 NSWLR 878 at 895; Newcombe v Newcombe (1934) 34 SR (NSW) 446 at 450. Aegros submitted that the terms of the agreement were directed to raising capital. Properly construed, each of Barclay's obligations was for the purpose of raising capital. An officious bystander would have thought it was obvious that, if Barclay did not provide services to that end, it would not be entitled to payment. Further, the failure to perform amounted to a breach of the agreement; Barclay expressed an unwillingness to perform its overarching obligation to raise capital. There was no obligation to perform its reciprocal obligation to pay for the services that were not provided and in breach of the agreement. 2. Aegros submitted that, following the meeting on 3 February 2020, Barclay's mistrust was not resolved and fatally infected their dealings such that Barclay decided not to raise further capital for Aegros. By its email of 8 March 2020, Barclay imposed conditions on what Aegros had to do before Barclay raised any further capital for Aegros. These conditions were not met and it is said that Barclay did no work in relation to raising capital as a result. The work done promoting Aegros, such as videos, Tweets, Linkedin profiles and Facebook were said not to constitute work done under the agreement, were not part of an effort to raise capital but were part of Barclay's relationship with its investors who had already provided funds. To the extent that Barclay relied on Mr Manusu's admissions that the amount claimed was due, the court was not bound by them: Damberg v Damberg (2001) 52 NSWLR 492; [2001] NSWCA 87 at [151]. 3. Barclay submitted that, whilst the plaintiff sought to confine the remit of Barclay's mandate to the sole task of raising capital, Barclay was obliged to, and did, take up a far more generalist corporate advisory role as was clear from clauses 2.1 and 2.2 of the agreement and the evidence. There were certainly genuine disputes about the reasons for Aegros' delays in obtaining TGA-approval, conducting clinical trials, obtaining an ASX-listing or providing information to its auditors, or as to Aegros' use of funds raised by Barclay. But none of these disputes touched upon the critical issue being whether there is a genuine dispute about the existence or amount of the debt claimed in the statutory demand. 4. Barclay submitted that it was readily apparent from the contemporaneous documents that Aegros had committed to turn some $6 million in "soft commitments" for funding into "firm commitments" by 8 March 2021, following which Barclay would raise another $4 million. The blame for the fact that the $6 million investment did not transpire could hardly be laid at Barclay's feet where it was not responsible for ensuring that these funds were raised and where Aegros had not divulged the identity, or substantiated the existence, of the individual or individuals behind the $6 million investment. Consideration 1. It is not sufficient on an application of this kind for a debtor to raise a dispute which has no prospect of being accepted should the matter proceed in another Court. The Court is entitled to examine, albeit in a fairly uncritical way, whether the genuine dispute which is being suggested meets the relevant test, including to ask whether it is mere bluster or assertion, spurious or lacks the perception of genuineness. 2. The Court is assisted in this case by a thoroughly documented commercial relationship. To the extent that the parties had given different versions of what was said at meetings, the differences do not matter where it is perfectly apparent that, whatever discomfort was experienced to the commercial relationship in the meeting in February 2021, the parties continued to work together to endeavour to get the company in a position to raise further capital. 3. What is abundantly clear from the documents is that Barclay was endeavouring to clear hurdles which lay in the path of a capital raise. Weekly meetings were held, at which progress was discussed, including delays in GMP certification and clinical trials. Mr Manusu recalls that Barclay said investors were concerned by delays and asked what Mr Manusu could say to address investors' concerns. The parties continued to prepare updates for shareholders, provide a reconciliation of the use of the funds from Tranche 1 and Tranche 2, progress the audit and further promote Aegros. Invoices continued to be rendered by Barclay for its Monthly Retainer, which Aegros acknowledged at the time were payable. I am not satisfied that the dispute as to the underlying debt meets the description in the legislation. 4. Having dealt with the second argument, I will return to the first, which is the construction of the agreement. I do not think it is a plausible contention that the Monthly Retainer was conditional upon Barclay performing one specific part of the plethora of services it was obliged to provide. That is at odds with the express terms of clause 3.10, the definition of "the Services" and the surrounding clauses 3.7 – 3.14. Aegros' suggested construction has the consequence that Barclay was obliged to raise capital whether the client required it or not, and whether an attempt to raise capital was foolhardy or doomed. It is not an argument which has any real prospect of success. That is not to distract from the careful and conscientious manner in which that argument was advanced by the plaintiff's counsel. 5. For these reasons, I make the following orders: 1. Dismiss the Originating Process filed on 7 October 2021. 2. Order the plaintiff to pay the defendant's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 November 2021