New South Wales Supreme Court CITATION : Radiata Australia v ABB Australia [2004] NSWSC 919 HEARING DATE(S) : 1 October 2004 JUDGMENT DATE : 1 October 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Statutory demand set aside CATCHWORDS : CORPORATIONS - winding up - setting aside statutory demand - whether bona fide dispute exists - no question of principle LEGISLATION CITED : Corporations Act 2001 Cth) CASES CITED : Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 PARTIES : Radiata Australia Pty Limited - Plaintiff ABB Australia Pty Limited - Defendant FILE NUMBER(S) : SC 2479/04 COUNSEL : A Iuliano - Plaintiff B Skinner - Defendant SOLICITORS : Surry Partners - Plaintiff Brook Worthington - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST CAMPBELL J FRIDAY 1 OCTOBER 2004 2479/04 RADIATA AUSTRALIA PTY LIMITED v ABB AUSTRALIA PTY LIMITED JUDGMENT – Ex Tempore 1 HIS HONOUR: This is an application to set aside a statutory demand on the ground that there is a bona fide dispute as to the existence of the debt which justifies setting aside the demand. The statutory demand in question is one which was served on 31 March 2004. 2 The plaintiff is a company which appears to be involved in the timber industry, while the defendant is a company which supplies electrical equipment. 3 An agreement was entered into in 2003 whereby the defendant would carry out work relating to the engineering and building of a portable switch room, motor control centre and control station/PLC for a sawmill at Oberon. It appears to be common ground that there were various modifications requested to that equipment as the job progressed. There is evidence from Mr Erb, who is an executive of the defendant, that: "Between May 2003 and September 2003 Thomas Crawford orally requested a number of additional works to the initial order. Annexed hereto and marked "B", "C", "D", "E", "F" and "G" are copies of commercial variation orders ordered by Thomas Crawford. All additional works have been carried out by the Defendant except for the works in annexure "G" which is the work for the safety switch to the value of $1,673.00." Mr Erb annexes some documents which appear to be internal documents of the defendant, recording these variations. The date of the final variation, variation G, is not stated in that documentation. However, the defendant acknowledges it as a variation to the original contract and that it has not been performed. 4 It appears to be the case that it was around September 2003 that Mr Crawford, a director of the plaintiff, inspected the machinery which was under construction at the defendant's premises, and that, shortly after that, Mr Crawford arranged for it to be taken away from that factory, for installation. 5 On 13 November 2003 the defendant received a cheque for a little over $54,000, in part payment of an invoice which had been issued on 16 September 2003. That cheque was dishonoured a few days later. 6 There was a meeting on 1 December 2003 between Mr Bradley and Mr Erb, of the defendant, with Mr Crawford of the plaintiff. At that meeting Mr Bradley gives evidence (which Mr Crawford does not contest) that Mr Crawford said: "I am having a short term working capital shortage which is why I tried to make arrangements to pay the debt off by instalments with Kelly. I am sorry for my bank not honouring my last payment as this was certainly not my intention. In order to keep trading I can't pay ABB the amount outstanding before the end of the year and to keep my mill operating and generate cash flow to pay I need pay other suppliers before you get anything. I should be able to pay you 100% of the amount outstanding plus invoices to come in three instalments of about $60,000.00 each over the next three months". 7 On 2 December 2003 Mr Bradley sent Mr Crawford an email, requesting confirmation that the amount outstanding for invoices rendered and invoices yet to be raised, namely $180,836.70, would be paid by 3 instalments, on 20 December 2003, 20 January and 20 February 2004. It confirmed that an amount of $5,000, representing interest on overdue amounts, would be paid to ABB immediately, and that a cheque for $5,000 had been received on 1 December. 8 On 21 December 2003 Mr Crawford requested a delay in the timing of the first payment, saying that there had been a delay in settlement of a land sale, and that by 20 January 2004 the repayment schedule would be in order. 9 This apparently did not satisfy Mr Bradley, and on 22 December 2003 he arranged for the defendant's solicitors to send a letter of demand. That letter of demand was not complied with, and on 27 January 2004 a statutory demand for the sum of $180,845.70 was served by the defendant on the plaintiff. 10 This led to a meeting on 3 February 2004 between Mr Crawford on behalf of the plaintiff, and Mr Bradley, Mr Erb and Ms Holwell on behalf of the defendant. There are vastly different accounts in the evidence of what happened at that meeting. Mr Crawford gives evidence to the following effect: "On 3 February 2004, following receipt of Creditors Statutory Demand 1, I met with the Defendant's representatives, namely, Hanspeter Erb, Vicki Holwell and her assistant, Ms Kelly, with regards to payment of the Defendant's invoices, namely Invoice No. 10007450 and 10008441. During the meeting, I recall words to the following effect being said: Crawford: "Hanspeter, you are aware that we have a major safety and productivity issue with the installation of the HewSaw electrics. According to my electrician, Sam Hayne, to resolve this problem will be complex and technically difficult." Erb: "I don't agree it is complex. We can do the required work and we will do it." Holwell: "Will you show good faith by paying $4,000.00 per week for 1 month, while we get this thing resolved. We should meet again on 5 March 2004." Crawford: "Yes, I will." Holwell: "On that basis, we will take no action on the statutory demand." Crawford: "That's OK, but the rectification work has to be done." 11 Ms Holwell gives evidence of a conversation which runs as follows: "On 3 February 2004 I attended a meeting with Robert Bradley and Hanspeter Erb of the Defendant company and Thomas Crawford of the Plaintiff company wherein Thomas Crawford said words to the following effect: He said: "If you hold action on the Notice of Demand I will pay you $4,000.00 in reduction of my debt over the next month while I organise finance with the banks to pay the debt." I said: "That will be okay. Pay it every Tuesday and we will withdraw the proceedings but if you miss a payment I will instigate action again." He said: "I have the ability to play these games as well. I can instigate matters that will delay this payment for a long period and you will be waiting for a long time for your money." 12 Mr Erb and Mr Bradley also give evidence of Mr Crawford saying words to the effect of the final paragraph just quoted from Ms Holwell's affidavit. Mr Crawford, for his part, denies that he said the words which the other three witnesses attribute to him. It is common ground, however, that that meeting on 3 February resulted in an agreement for the plaintiff to pay $4,000 per week. Payments of $4,000 were made on 10, 18 and 25 February 2004. 13 Mr Peter English is another director of the plaintiff. He gives evidence that he had a telephone conversation with Mr Worthington, the solicitor for the defendant, on 10 February 2004, to the following effect: "English: "There are some installation issues which are in dispute between the parties. Your client has acknowledged this dispute. As you know, with such a dispute, it is not appropriate for your client to issue a statutory demand. You should obtain further instructions from your client to withdraw your client's statutory demand." Worthington: "I was not aware that there was such a dispute. I'll obtain my client's instructions to withdraw the statutory demand." 14 On 18 February 2004 the plaintiff wrote to the defendant, in terms as follows: "Further to our recent telephone conversations, I confirm that the Creditors Statutory Demand that you sent to the company dated 27th January 2004 has been formally withdrawn. I confirm we are going to meet again on the 5 March to discuss the ongoing arrangement in relation to the debt. In meantime, I would like you to discuss with Hanspeter the issue concerning the faults in the electrical control room that leads to a complete power shutdown of the plant from the control switch on the MCC. This problem leads to production delays and inefficiencies, maintenance and repair complications and is serious safety issue in itself. Hanspeter should also be aware that there is an issue associated with the incorrect placement and size of the windows in the control room, which has also lead to safety and production compromises. If Hanspeter is not fully conversant with this issue, the project engineer, Stephane Aubert, is. Until these issues are resolved to our satisfaction we will be unable to agree on what sum is owing, and, accordingly finalise the arrangement to repay the agreed sum." 15 Mr Bradley responded to that letter on 26 February 2004, as follows: "In response to your letter dated 18 February 2004, please note the following: Emergency shut down process The MCC supplied to Radiata was in compliance with the basic schematic drawings given to us by the Saw Mill supplier in Finland, this schematic was revised, forwarded and approved by Radiata. Radiata subsequently requested that a modification be made to the motor control centre incorporating additional feeders for light and power. With these changes the emergency shut down concept will have to be modified. ABB have ordered and are in possession of the stock required to complete this modification and are currently in the process of arranging a convenient time for the work to be undertaken as the main supply will have to be switched off. This work needs to be coordinated with Radiata's electrical contractor. Windows in Control Room Radiata had requested modifications to the windows in the control room however these requests were received subsequent to the manufacture of the building. ABB have agreed to discuss with our building supplier the issue of increasing the size of the current windows. The results of these discussion will be forwarded to Radiata for a decision which may involve Radiata dealing direct with the building supplier. Both of these issues can be discussed further during our meeting on Friday 5 March. Please contact me should you wish to discuss any of the above further." 16 On 3 March 2004 a second statutory demand was served, relating to $180,845.70. No point is taken about how it happens that the amount of that statutory demand is the same as the amount of the first statutory demand, notwithstanding that there had been some payments in the meantime. 17 The service of that statutory demand led to a meeting taking place on 10 March 2004 at the defendant's office, attended by Mr English and Mr Crawford for the plaintiff, Mr Erb, Mr Aubert, Mr Bradley and Ms Holwell for the defendant. Once again, there are significantly different accounts of what happened at that meeting. One thing which is clear is that at the meeting a document was signed, which necessarily must have been prepared by someone on the defendant's side before the meeting, in the following terms: " Arrears Repayment Schedule I, Thomas Crawford, of Radiata Australia Pty Ltd, agree to the following terms and conditions regarding my account for future trading with ABB Pty Limited until such time as my account is back within normal trading terms. Debt outstanding as at 5.3.2004 $164,845.70 I agree to pay $4,121.14 per week off my account to clear the arrears. This amount will be direct deposited into ABB Australia Pty Limited bank account on Tuesday of each week, commencing 12 March 2004. ANZ Bank Kangaroo Point Qld BSB# 014 052 Account# 7753 62971 and thereafter each Tuesday up to and including 28 December 2004 Provided an agreement is reached that this proposal will be accepted ABB Australia Pty Limited agrees to withdraw the statutory demand permanently. If the repayments are not met as per the above schedule ABB Australia Pty Limited will instigate our right to recover any outstanding monies without further reference to you. The signatures below constitute an agreement to this schedule." Both Mr Crawford and Ms Holwell signed the document. 18 Mr Crawford says that at that meeting an exchange to the following effect occurred: "At the meeting, Ms Holwell produced the agreement referred to in Annexure C of my First Affidavit and I recall words to the following effect being said: English: "You make no mention of the rectification works to be carried out at the plant in this agreement." Erb: "What arrangements can we make to have access to the site?" Crawford: "You can access the site as long as you give me prior notice." Aubert: "We can have 2 men attend the site some time in the next fortnight. Can we give you 48 hours notice to have access to the site?" Crawford: "You can call me on my mobile me (sic) to arrange for the access." English: "There is no provision in the agreement that these rectification works will be carried out but we can sign this agreement provided that it is understood you will do the work in the next fortnight." Holwell: "Is that OK with you Hans?" Erb: "Yes that's fine - it should not be a problem." 19 Mr English gives an account of the meeting which, while there are some minor textual difference in the words, is in substance much the same as Mr Crawford's account. The defendants, for their part, swear they have no recollection of any such conversation occurring. Mr Bradley denies that Mr Erb or Mr Aubert said the words which Mr Crawford attributes to them. Mr Erb suggests that at that meeting Mr Crawford made some admissions about the claims he was making. According to Mr Erb, the conversation went as follows: "On 10 March 2004 I attended a meeting with Robert Bradley, Stephen Aubert and Vicki Holwell of the Defendant company and Thomas Crawford and Peter English of the Plaintiff company. During the course of that meeting I had a discussion with Thomas Crawford to the following effect: I said: "Look Tom on the window side of it, it's your fault. If you want the window and the switch that is something you should have picked up as you approved them in the drawings or on your inspection." He said: "Okay, yes I was late. I am going to have to live with it. I have installed some cameras and it's workable now. I can live with it like it is." I said: On the safety switch part it is something we will do for you and we are ready to roll. I would like to see your set up down in Canberra and I will come down to install it on Friday but as you know it will involve a shut down of the power of the plant. If you want me to do it on Friday give me a call and let me know." 20 The plaintiff has paid one instalment of $4,121.14 pursuant to the agreement of 10 March 2004. However - and again it seems to be common ground - no works have been carried out concerning the matters which Mr Crawford says were agreed to be carried out. Mr Erb says that he telephoned Mr Crawford on at least three occasions in the three weeks after 10 March 2004 and sought to make arrangements to install the safety switch, but on each occasion could not reach Mr Crawford, and left a message on a telephone message bank machine, and that Mr Crawford has not got back to him. Mr Crawford, for his part, says that he has not received any telephone messages, faxes or e-mails from Mr Erb since 10 March 2004. 21 The plaintiff's contention is that, if the account of Mr Crawford and Mr English concerning the meeting of 10 March 2004 is accepted, then the obligation to pay which is contained in the document executed on that day is subject to a condition, not expressed in the document, and that condition has not been performed. It asserts, as at least one way in which it puts the case, that the defendant is estopped from enforcing the agreement while the rectification work is not done. 22 The question of whether there is a "genuine dispute", within the meanings of section 459H Corporations Act 2001 (Cth), poses a fairly low threshold. It has been described by McLelland CJ in Eq Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 as involving 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." 23 In the present case, the events which I have outlined of November and December 2003 suggest that, at least at that time, the plaintiff was having severe liquidity problems. That makes one look very carefully at any claim which there might be that a dispute about payment of a debt is a genuine one. The Court needs to be alert that the people behind a company which has received a statutory demand, do not keep an insolvent company in existence by manufacturing disputes. 24 In the present case, I am satisfied of the genuineness of the dispute. The subject matter of it was raised before the statutory demand which is now relied upon. That in itself is entitled to not much weight, when it appears to have been raised after the first of the statutory demands had been served. More significant, however, is the fact that the attitude of the defendant shows that it places at least some credence on the complaints which were made. The response which Mr Bradley gave on 26 February 2004 to the letter of 18 February 2004 did not dismiss the complaints out of hand, or as unjustified. As well, Mr Erb accepts that he made an offer on 10 March 2004 to perform work involving the safety switch. 25 The function of the Court on an application such as the present is not to decide disputed questions of fact. It is not open to me to adopt the course which Mr Skinner urged, of saying that I conclude that there is nothing in the plaintiff's claims. It would only be in the most extreme circumstances that, on an application like the present, the Court could ignore sworn testimony like that of Mr Crawford and Mr English about what happened at the meeting of 10 March 2004. 26 In these circumstances, I am satisfied there is a bona fide dispute about the existence of a debt claimed in the statutory demand. I set it aside. 27 I order the defendant to pay the plaintiff's costs. 28 The plaintiff sought costs on an indemnity basis, on the basis that a letter before action set out the substance of the grounds on which the plaintiff has won today. I do not regard that as a special or sufficient reason for an order for indemnity costs. ********** Last Modified: 10/06/2004 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.