New South Wales Supreme Court CITATION : iInvest Pty Ltd v Metyor Inc. [2003] NSWSC 879 HEARING DATE(S) : 19 September, 2003 JUDGMENT DATE : 19 September 2003 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Statutory demand set aside; Defendant to pay one-third of Plaintiff's costs. CATCHWORDS : CORPORATIONS - STATUTORY DEMAND - Whether genuine dispute as to offsetting claim. Held: Genuine dispute existed, statutory demand should be set aside. COSTS - Plaintiff abandoned substantial part of offsetting claim at hearing - discretion as to proper order. LEGISLATION CITED : Corporations Act 2001 (Cth) - s.459G, s.459H, s.459M CASES CITED : Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 PARTIES : iInvest Pty Ltd - Plaintiff Metyor Inc - Defendant FILE NUMBER(S) : SC 3149/03 COUNSEL : M.S. White - Plaintiff J. Stoljar - Defendant SOLICITORS : Hills Legal - Plaintiff Gilbert & Tobin - Defendant Ex tempore 1 This is an application by the Plaintiff ("iInvest") pursuant to s.459G of the Corporations Act 2001 (Cth) to set aside a statutory demand issued by the Defendant ("Metyor"). 2 The statutory demand is dated 16 May 2003 and was served on that day. It demands payment of a debt of $11,666.64, being the total of three monthly payments said to be due by iInvest to Metyor pursuant to an agreement dated 16 September 2002 whereby Metyor sold to iInvest a business called the TransData business. The Originating Process was filed by iInvest on 4 June 2002 and is supported by two affidavits of Mr James Harker-Mortlock, one sworn 4 June 2003 and the other sworn 21 July 2003. Two affidavits have been filed in opposition on behalf of Metyor. 3 In his first affidavit, Mr Harker-Mortlock said that iInvest was entitled to an offsetting claim against the Defendant in the sum of some $84,000. Mr White, who appears for iInvest, conceded this morning that that sum could not be supported and he has explained that the offsetting claim is now calculated at $11,062.70. Deducting the amount of the offsetting claim from the debt stated in the statutory demand, one arrives at a balance of $603.94 which iInvest admits it owes to Metyor. Mr White says that as the admitted balance outstanding is now less than the statutory minimum of $2,000, the statutory demand should be set aside pursuant to s.459H(3). 4 iInvest says that the dispute arises out of its claim for reimbursement for expenses which it paid on behalf of Metyor during a period when iInvest was managing the TransData business. The first issue is whether iInvest paid the expenses which total $11,062.70 on behalf of the then owner of the TransData business, that is Metyor, or pursuant to clause 4 of a Consultancy Agreement dated 8 August 2001 between iInvest and an associated company of the Defendant, namely Metyor Australia Limited. Clause 4 of that Consultancy Agreement provides that iInvest may incur expenses for promoting the business and fulfilling its duties under the Consultancy Agreement and that Metyor Australia Limited will reimburse those expenses. 5 If the expenses the subject of the offsetting claim were incurred by iInvest pursuant to clause 4 of the Consultancy Agreement then, of course, the Defendant, Metyor, is not obliged to reimburse them and therefore a cross claim is not available against it to set off against the statutory demand. The reimbursement of the expenses would be payable by Metyor's associated company, Metyor Australia Limited. 6 Mr Harker-Mortlock has sworn in paragraph 14 of his affidavit of 4 June 2003 that iInvest made the payment there summarised and totalling the amount of $11,062.70, to various suppliers relating to goods and services provided to the TransData business prior to 9 September 2002. He is, in effect, saying that the goods and services were supplied, not to iInvest pursuant to clause 4 of the Consultancy Agreement, but directly to and for the benefit of the TransData business. iInvest claims that it is entitled to the reimbursement of those expenses pursuant to the terms of the sale agreement between the Plaintiff and the Defendant dated 16 September 2002. 7 As to the question whether the services and goods were obtained by iInvest pursuant to clause 4 of the Consultancy Agreement or for and on behalf of the present Defendant, that is a matter, in my opinion, which calls for further enquiry. It is not at all clear, as Mr Stoljar urges, that the expenses must have been incurred pursuant to clause 4 of the Consultancy Agreement. This is not the occasion, of course, to engage in the investigation of the truth or falsity of the assertion made by Mr Harker-Mortlock that the expenses were incurred on behalf of the business rather than pursuant to clause 4 of the Consultancy Agreement. 8 The services provided have been particularised so the question to be tried is the circumstances in which they were procured and for whose benefit. That is a matter, as I say, which in my opinion warrants further investigation and is sufficient in my view to lay the foundation for a genuine dispute for the purposes of s.459G of the Corporations Act . 9 There are other issues, however, which in my opinion give rise to a genuine dispute. Mr Stoljar urges that even if the expenses referred to were incurred by iInvest on behalf of the business, then clause 4 of the 16 September Sale Agreement absolves Metyor from any liability for reimbursement of those expenses. Clause 4 reads as follows: "From the effective date of this agreement iInvest will take over responsibility for all supplier and client contracts forming part of the TransData business, including the contract with News Data Corporation." 10 Mr Stoljar submits that it is clear from this clause that iInvest was to take over liability for all supplier and client contract debts, whether those debts arose before or after the effective date of the agreement. He places emphasis on the words " all supplier and client contracts" . Mr White urges the contrary construction. He submits that the effect of clause 4 is prospective only. In other words, he says that the obligation on the part of iInvest to take over responsibility for debts comes into operation only in respect of those debts incurred after 16 September 2002. 11 In my view both constructions are open. However, I must say that a first impression of the clause leads me to think that it has only prospective operation. This is suggested by the opening words of the clause, namely, "From the effective date of this agreement iInvest will take over responsibility" . 12 Mr Stoljar urges that the ambiguity, if there be any, may be resolved by looking at the factual matrix in which the agreement was made. That may be so and an examination of those circumstances may eventually support the construction which he urges. But this is not the occasion for a construction suit. As I say, it is sufficient for the purposes of this application that, at the very least, ambiguity in the operation of clause 4 has been demonstrated and one plausible construction of the clause favours iInvest. 13 Finally, Mr Stoljar urges that the dispute alleged by iInvest is not genuine because there has been a prior admission by iInvest that monies owing under the sale agreement of 16 September 2002 are owing without deduction for any of the expenses which are now sought to be offset. 14 Mr Stoljar points to a letter dated 27 March 2003 from iInvest's solicitors to Metyor's solicitors, following upon the dismissal of an earlier application made by iInvest to set aside a statutory demand which had been issued by Metyor claiming outstanding instalments under the September Sale Agreement. That application had been dismissed because it had not been filed within the time required by the Corporations Act , as iInvest was compelled to concede. The application was therefore, by consent, dismissed with costs. 15 There then ensued correspondence between the parties' solicitors relating to the payment of the amounts which had been claimed in that statutory demand. Because the statutory demand had been filed out of time and therefore had to be dismissed, it was pointless arguing any offsetting claim in respect of the amount claimed in that statutory demand. It is in the light of that circumstance, I think, that the letter of 27 March 2003 from iInvest's solicitors to Metyor's solicitors must be read. The letter states: "We refer to our previous correspondence. Our client is anxious to settle and to pay the outstanding debt. Please note our client will hand over a bank cheque on Monday 31 March 2003." 16 A letter of 28 March from Metyor's solicitors confirms the amount owing as $27,222.16, calculated by reference to the amount shown in the previous statutory demand and two further instalments due on 28 February and 31 March. 17 There is an unexplained gap in the correspondence between that letter of 28 March and a letter of 7 May 2003 from Metyor's solicitors to iInvest's solicitors. That letter refers to receipt by Metyor of a cheque from iInvest in an amount of $10.011.80. It is said that this sum is the sum of $27,222.16, being the total of the amounts referred to in the 28 March letter 2003, less a deduction for PAYG tax. That does not really appear from the correspondence at all. It certainly does appear that PAYG tax was deducted from whatever amount iInvest conceded was owing, but it does not appear from that letter what the amount conceded by iInvest was and what was the amount of tax deducted. There appears then to have been a dispute between the parties as to whether PAYG tax was properly deductible. 18 A further statutory demand was issued by Metyor for further instalments, that statutory demand being the subject of these proceedings. 19 It does not seem to me from this recitation of events that there is a clear and unequivocal admission by iInvest that it is not entitled to offset any amount in respect of expenses paid on behalf of the TransData business against any amount claimed under the sale agreement by Metyor. This is a matter which warrants investigation in proceedings between the parties to establish precisely the amount of Metyor's claim under the sale agreement and whether it is subject to any offset or expenses paid on Metyor's behalf by iInvest, bearing in mind that, as the authorities demonstrate, the threshold which a plaintiff has to surmount in establishing a genuine dispute for the purpose of s.459G is a fairly low one. The decision often cited is Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785. I am of the view that in this case iInvest has surmounted that threshold. The statutory demand will therefore be set aside. 20 Mr Stoljar submits that the statutory demand should be set aside only upon condition, pursuant to s.459M of the Corporations Act , that iInvest pay to Metyor the whole of the monies now payable under the sale agreement. I do not think that that is an appropriate course at this stage. It seems to me that there is nothing in this case to take the matter outside the usual range of disputes which generate statutory demands and applications to set them aside. 21 I am concerned however that there is a debt of some $600 owing to Metyor by iInvest which is admitted by Mr White. Mr White's instructions are simply to seek to have the statutory demand set aside and to rely in that respect on s.459H(3). He says, and I do not criticise him for this, that he does not have instructions as to whether or not his client will pay the sum of $600 which it admits it now owes. 22 The Court has no discretion under s.459H(3) to refuse to set aside a statutory demand where the applicant admits that it owes the defendant a debt which is less than the statutory minimum. But if such a plaintiff indicates that it will not pay that debt, then I think this is a matter which can be taken into account in determining the costs of the application. Costs, of course, are in the discretion of the Court and do not always, of course, follow the event. 23 It does not seem at all meritorious to me to make an application to set aside a statutory demand on the basis that an offsetting claim vastly exceeds the debt claimed in the statutory demand, then at the commencement of the hearing to concede that the offsetting claim is marginally less than the amount claimed in the statutory demand, so that the statutory demand must be set aside under s.459H(3), but to maintain the position that the plaintiff will not pay the balance of the debt because it does not have to, at least for the purposes of obtaining relief under s.459G. As I say, I think that this matter is properly to be taken into account in the exercise of the Court's discretion as to the awarding of costs. 24 Normally the result in this case as to costs would be that Metyor pay iInvest 's costs. However, I will give Mr White the opportunity to take some instructions over the short adjournment as to what his client proposes to do about the balance of the debt which is owing to Metyor. It seems to me just that iInvest should not be left with the benefit of the amount which it owes to Metyor, relatively small though it is, and that the admitted debt should be taken into account in the costs order to be made. I have in mind that that amount should be offset against any costs which Metyor is ordered to pay to iInvest. As I say, that order may not be necessary because Mr White may obtain instructions that the balance of the debt will be paid without further delay and if so, I will accept that assurance and I will not make any variation to the usual costs order, at least subject to what Mr Stoljar may wish to say about it. 25 I will stand the matter over for a short time. Upon resumption: 26 I am now dealing with what order should be made as to the costs of the Plaintiff's application to set aside the statutory demand. 27 Over the short adjournment, Mr White has obtained instructions from his client to the effect that iInvest will pay the sum of $600 odd admittedly owing by it to Metyor within 14 days. I think for better assurance in that respect it would be appropriate to reflect that agreement in any costs order which is to be made. 28 I now deal with the substantive question of costs. As I have recounted at the outset of my reasons for judgment, it was only this morning that iInvest for the first time conceded that it could not support a cross claim in the sum of some $84,000 in opposition to the Metyor debt claimed in the statutory demand. This morning, at the commencement of the proceedings, Mr White informed me that claims for expenses would be abandoned except for such as amounted to $11,062.70, leaving a balance admittedly owing by iInvest to Metyor of some $600. 29 These proceedings have been fought up until this morning upon the basis of a very substantial offsetting claim by iInvest which it could not maintain. If iInvest had informed Metyor as soon as the statutory demand was served that its cross claim was no more than $11,062.70, leaving a balance owing of some $600 to Metyor, it is very likely, in my view, that these proceedings would not have taken the course which they have. To litigate over a sum of $11,000 odd or $600 odd is a very different thing from considering whether to litigate where iInvest sets up in opposition to the debt claimed in the statutory demand a sum of some $84,000, particularly if, as Metyor would have been entitled to believe, there would be a substantial basis for attacking the validity of that claim for $84,000 odd. 30 I do not think that iInvest should have the benefit of an unmodified costs order for proceedings which have been contested on a basis which was abandoned only this morning. True, there is a degree of speculation as to what attitude Metyor may have taken had it been informed as soon as it served its statutory demand that the cross claim was slightly less than the amount in the demand, but I do think it unlikely that a contest involving those sums would have been fought in the Supreme Court, with the costs of the struggle fixed at Supreme Court rates. 31 In my view, bearing in mind that there did not appear to be any claim for expenses made by iInvest in anything like the sum of $84,000 prior to the issue of the statutory demand, bearing in mind that iInvest has withdrawn its allegation as to the substantial part of that cross claim only on the morning of the trial, the appropriate order for costs should reflect that to a considerable measure iInvest has been at fault in the proceedings being fought in this Court on the scale on which they have been fought. 32 In my view, the appropriate order for costs should be that Metyor will pay one-third of iInvest's costs of these proceedings and against that one-third, there should be offset the amount of some $602 which iInvest admits that it owes Metyor. The orders which I formally make are as follows. 33 On the Plaintiff's Originating Process, I order that the statutory demand served on the Plaintiff by the Defendant on 16 May 2003 be set aside. 34 I order that the Defendant pay one-third of the Plaintiff's costs of the proceedings as assessed or agreed. 35 I order that the Defendant be entitled to deduct from any costs payable by it to the Plaintiff in accordance with the foregoing order the sum of $603.94, being a debt admittedly owed by the Plaintiff to the Defendant which the Plaintiff has undertaken to pay to the Defendant. 36 The costs of the Notice of Motion filed by the Plaintiff for security for costs will be the Plaintiff's costs in the proceedings. 37 Exhibits may be returned. – oOo – Last Modified: 09/29/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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