In the Matter of Trainer Connections Pty Ltd [2012] NSWSC 1204

Supreme Court New South Wales

Medium Neutral Citation: In the Matter of Trainer Connections Pty Ltd [2012] NSWSC 1204 Hearing dates: 8 August 2012 Decision date: 08 August 2012 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Originating process dismissed with costs Catchwords: CORPORATIONS - winding up - creditor's statutory demand - Corporations Act 2001 s 459G - whether genuine dispute exists - whether offsetting claim exists Legislation Cited: (Cth) Corporations Act 2001, s 459G Category: Principal judgment Parties: Trainer Connections Pty Ltd (Plaintiff) BTA Vantage Pty Ltd (Defendant) Representation: Counsel: Mr Fitzpatrick (Plaintiff) Mr M Pesman (Defendant) Solicitors: McCabe Terrill Lawyers Pty Limited (Plaintiff) John Carmody & Co File Number(s): 2012/89985

Judgment (ex tempore) 1HIS HONOUR: By Originating Process filed on 21 March 2012, the plaintiff Trainer Connections Pty Ltd seeks an order pursuant to (Cth) Corporations Act 2001, s 459G, setting aside a creditor's statutory demand dated 23 February 2012 and served on it by the defendant BTA Advantage Pty Ltd on or about 1 March 2012, on the ground that there is a genuine dispute as to the debt claimed in the demand, and/or that the plaintiff has an offsetting demand. 2The defendant, whose principal is one Ms Michelle Durham, provides accountancy and business services. On 4 March 2010, the defendant and the plaintiff, then called Ready to Pace Syndications Pty Ltd, entered into a "fixed price engagement" in the following terms: Further to our meeting of 19 February 2010, as discussed please find below for your review and signature fixed price engagements for services in respect of the company's accounting, taxation and compliance matters: Our fees are agreed as follows: 1. Annual fee for the preparation and lodgement of financial statements and income tax returns including quarterly business activity statements (BAS), business advice, phone assistance, and assistance with the annual audit for the company for financial years ended 30 June 2010 and 30 June 2011: $6,000.00 per year 2. Documentation and assistance as required for compliance matters including lodgement of documents with appropriate authorities, correspondence as required with related bodies and directors for the financial years ended 30 June 2010 and 30 June 2011: $4,000.00 per year Fees are to be renegotiated in June 2011 in respect of any future year or years. Note that these fees are exclusive of GST and do not including audit fees. Business advice and phone assistance will include telephone calls and meeting with you on routine matters and responding to your questions & issues throughout the year. Where a matter is considered non-routine you will be advised accordingly. Fees for non-routine and significant assignments will be discussed and agreed separately. We will bill the annual fee on a quarterly basis with the first bill for the 2010 financial year to be billed on completion of the December 2009 BAS to include September 2009 instalment and the December 2009 instalment and future quarters billed $2,500.00 per quarter in conjunction with completion of your quarterly BAS commitments. Please sign your acceptance of these terms where indicated below and return to our office for filing. We look forward to being of continued service over the following year and thank you for your support. 3It will be apparent that there were two components for the work to be done, and fees to be earned, by the defendant. The first was an annual fee for preparation and lodgement of essentially taxation documentation, including the annual return and quarterly business activity statements and associated advice and assistance. The second was documentation and assistance as required for compliance matters, including lodgement of documents. The engagement provided for fees to be renegotiated in June 2011. Thus, it would seem that it envisaged that services would be rendered, as is apparent from the terminology of paragraphs numbered 1 and 2, for two financial years, namely, the 2010 and 2011 financial years. It is also apparent, from the penultimate paragraph of the engagement, that the first of those years included the quarter ending in September 2009 and December 2009. 4The creditor's statutory demand arose out of the engagement letter, and claimed the following: An amount of $12,900.00 is owed by the Company to the Creditor for unpaid professional fees for services rendered by the Creditor at the request of the Company as per the tax invoices listed hereunder and served on the Company. Amount owed to the Creditor is calculated as follows: Tax Invoice #20110610 dated 24/03/2011 $11,000.00 Less payment received $2,500.00 Amount outstanding for this invoice $8,500.00 Plus Tax invoice #20120414 dated 30/11/2011 $4,400.00 TOTAL AMOUNT OWED BY COMPANY: $12,900.00 5In turn this related, as will be apparent, to two invoices. The first of those invoices, dated 24 March 2011, was as follows: Professional fees for the period ended 24 March 2011 in respect of the preparation and lodgement of business activity statements for the quarters ended 30 September 2009, $2,500; 31 December 2009, $2,500; 31 March 2010, $2,500; 30 June 2010, $2,500 per annual fixed price agreement for the financial year ended 30 June 2010." With GST, the total was $11,000, of which $2,500 had been paid, the remaining balance then being $8,500. 6The second invoice, dated 30 November 2011, was as follows: "Professional fees for the period ended 30 November 2011 in respect of compliance matters per item 2 on fee agreement dated 4 March 2010 for the financial year ended 30 June 2011, $4,000." With GST this came to a total of $4,400. 7It will be apparent that the first invoice then related to both components of the work to be done under the engagement, for the financial year ended 30 June 2010. The second invoice related only to the second component, for the financial year ended 30 June 2011. Thus, it is convenient to see the total claim as involving in all three components, before crediting the amount paid, namely, first, the sum of $6,600 inclusive of GST for component 1 services for the 2010 financial year; secondly, the sum of $4,400 inclusive of GST for component 2 services for the 2010 financial year; and, thirdly, the sum of $4,400 inclusive of GST for component 2 services for the 2011 financial year. 8As to the first of those, namely the $6,600, the plaintiff does not contend that the work stipulated for, or required by or under, the engagement in that respect was not done, but raises two arguments. 9The first is that it is said that there was a double claim in respect of at least some of that work. This is based on the circumstance that, on 19 February 2010, the plaintiff as vendor, and Defined Connections Pty Ltd as purchaser, and two former directors of the plaintiff as vendor's guarantors, and Mr Toglioni and Mr Gaitanis as purchaser's guarantors, entered into a business sale agreement, whereby the plaintiff agreed to sell, upon the terms and conditions set out in the agreement, "the business and goodwill in the business". It is not apparent from the agreement precisely what was the business the subject matter of the sale. However, for present purposes what is relevant is that clause 2.7 of the business sale agreement provided as follows: Accounting and compliance work required to be performed by BTA Vantage Pty Limited is at the liability of the purchaser and will be capped at $8,000.00 plus GST to the date of settlement. The Vendor's guarantor and purchaser's guarantor have agreed separately as to the apportionment of payment responsibility between them. Any appointment after the date of settlement is to be agreed between the purchaser and BTA Vantage Pty Limited. 10Pursuant to clause 3.1 of the agreement, completion was to take place on or before Friday 19 February 2010. The plaintiff argued that, by reason of that being the completion date, this evidenced an agreement to the effect that the defendant would cap its charges at $8,000 (which admittedly has been paid) for the period up to 19 February 2010, and that therefore it included the September and December 2009 quarters, yet remuneration for those quarters was claimed in the invoices referred to in the demand. 11The first problem with this argument is that, whatever clause 2.7 says, it is not an agreement that binds the defendant, who was not a party to it. The second is that, on the face of the 29 April engagement letter, the work covered by that letter clearly included in respect of the September and December 2009 quarters. The third is that there is other evidence, including a letter to one of the former directors of 12 March 2010, and an email which was copied to Mr Toglioni on 16 April 2010, which supports the view that the work intended to be captured by clause 2.7 of the business sale agreement was that up to the end of the 2009 financial year. To my mind, the strongest point on this issue is the terms of the 19 April engagement letter, which make manifest that it included the work for all four quarters of the 2010 financial year. I do not think clause 2.7 raises a tenable argument to the contrary. 12The second matter raised in respect of the $6,600, is an offsetting claim which, as I apprehend it, is in effect one for professional negligence, asserting that delay in lodging the 2010 financial statements resulted in the plaintiff being exposed to late lodgement penalties, to the necessity to engage replacement accountants at greater cost, and to the deferral of the commencement of trading, and consequently to delay in earning the profits that would otherwise have been earned. Without descending to the detail of it, in the course of argument reference was made to email correspondence emanating from the defendant, commencing on 23 June 2010 and continuing in September, and ultimately culminating in February 2011, which makes as clear as could be that the defendant was persistently requesting provision of the relevant documents to enable her to complete the financial statements and returns, and the plaintiff was simply not providing them. When the plaintiff ultimately provided them, in or about February or March 2011, the defendant completed the requisite work within two days. In those circumstances, to suggest that the defendant is arguably liable in professional negligence for the delay in lodging those returns again seems to me quite untenable. 13I turn then to the next element, the $4,400 for the 2010 financial year. In respect of the second component in the engagement, it is important to observe that what it covers is, to place it in full context, "services in respect of the company's accounting, taxation and compliance matters (being) documentation and assistance as required for compliance matters including lodgement of documents..., correspondence...". It seems to me that this was an annual retainer to do such work as might be required by way of lodgement of documents, and associated assistance with appropriate authorities, during the year in question. It was a contract to be available, and to do that work as and when required; even if no work was required, so long as the plaintiff was available to do that work, the fee was earned. 14In the first year in question, it is objected that the defendant did not do everything required, because having lodged with ASIC a form FS70 Australian Financial Services Licensee Profit and Loss Statement and Balance Sheet, and FS71 Australian Financial Services Licensee Audit Report, it did not lodge a form FSO6 Appointment of an Auditor of an Australian Financial Services Licensee. So far as can be ascertained from the documentation provided, it would seem that the FS70 and FS71 were lodged on 2 May 2011. What transpired between then and 1 December 2011, when I infer ASIC ultimately rejected those documents pending receipt of an FSO6, is not entirely clear, but by 1 December 2011, the defendant remained unpaid, and the parties were in dispute, at least in the sense that the defendant was complaining that it had not been paid. The evidence of late payment fees charged to the plaintiff, and contained in annexure G to Mr Sahni's affidavit, does not reveal any such fee associated with the failure to lodge the FSO6 and associated documents. 15The evidence establishes that the defendant did do work of the type described in component 2, namely, the preparation of the FS70 and FS71. The fact that after six months, ASIC apparently rejected those documents, pending lodgment of another document, does not disentitle a party retained to do work of a generic nature from payment of the retainer. This was not a retainer to lodge and complete the FS70, FS71 and any other related form. It was a retainer to be available and perform such compliance documentation as was required from time to time. So viewed, it was not rendered "unperformed" so as to disentitle the defendant from its remuneration by the fact that there was some defect in the work done. If that defect had been causative of loss, of which there is no evidence, then that might have founded an offsetting claim. 16I turn then to the third element, being the second component for the second year in question. In respect of this, the plaintiff does not identify any work that was required to be done and was not done, but objects that as there was none to be done, there was no entitlement to claim the fee. In any event, the argument is wrong. The fee was earned by the undertaking to be available to do work as required during the year in question. During the year in question, the defendant continued to be the nominated compliance person and point of contact for the regulatory authorities. 17After, and well after, the first invoice the subject of the dispute had been issued, it would seem that there was some disagreement between the parties in or about August of 2011. On 26 August, Mr Toglioni of the plaintiff sent to Ms Durham the following email: No doubt you don't want to hear from me. But I felt it important to get in touch and try and put a payment plan in place to pay off your [sic] debt owed to you. I would like to apologise for the way I responded in my correspondence previously to you. That is completely out of character and as you would agree prior to this we had a good working relationship. I guess my frustration stems from the money we have had to continue to pay for the licence from our initial sale discussions. We weren't aware of the all the additional penalties Glenn had accrued i.e. FOCS, Audit fees, ASIC penalties, re applying for registration with the governing bodies racing NSW [sic], unfinalised accounts for more than 12 months which have accrued the $11K. As you know we haven't been able to generate income until we are approved by the racing regulators so it panned out being a very expensive exercise without having the ability to generate income. I don't not pay accounts and hence are [sic] looking to meet up and discuss a payment plan for the outstanding amount. I look forward to hearing from you shortly on a time that suits. 18On 1 September Ms Durham responded: Thank you for meeting with Robert and myself [sic] today. I am currently looking into fee agreements for 2012 and 2013 and a repayment plan for Trainer Connections [sic] current outstanding debt to BTA as discussed. I will have a proposal through to you tomorrow morning. 19Mr Toglioni replied: Was great to catch up. We look forward to having a long (and prosperous) relationship. 20On 26 October 2011 Ms Durham sent the following email: In early September 2011 you came to see me with apologies and promise [sic] of payment arrangements. I have heard nothing from you directly since. The only correspondence I have had was from Heather from your office and I requested she have you call. Please contact me as to whether we are moving forward. I need a resolution on this file and the outstanding debt by week's end. 21In my view, the contents of Mr Toglioni's email of 26 August 2011 tells very strongly against there being a genuine dispute. To the contrary, it contained a representation that he would pay. 22Finally, it was submitted that, having regard to the size of the total debt in question, it was inappropriate to resort to a process designed to trigger winding up proceedings, rather than to sue for the debt in the Local Court. If the plaintiff were evidently solvent, there might be more to be said for that. However, given the history of delays in payment, and proposals for payment plans and so on, revealed by the evidence, it seems to me that a creditor was entirely justified in resorting to a creditor's statutory demand. 23For these reasons, I am not satisfied that there is a genuine dispute as to the indebtedness, nor that there is a genuine offsetting claim.