Supreme Court New South Wales Medium Neutral Citation: In the matter of Domicgra Trading Pty Ltd [2015] NSWSC 1918 Hearing dates: 11 December 2015 Date of orders: 17 December 2015 Decision date: 17 December 2015 Jurisdiction: Equity - Corporations List Before: Robb J Decision: (1) Order pursuant to section 459H(1)(a) of the Corporations Act 2001 (Cth) setting aside the statutory demand served by the defendant on the plaintiff on 21 August 2015 and dated 20 August 2015. (2) Order the defendant to pay the plaintiff's costs of the proceedings. Catchwords: CORPORATIONS – winding up – statutory demand – application for order setting aside – whether genuine dispute as to existence of the debt – whether due to defect in statutory demand, substantial injustice will be caused unless the demand is set aside – whether the debt the subject of the statutory demand arose under a contract between the plaintiff and the defendant or between another company, controlled by the same persons as the plaintiff, and the defendant – on the evidence the plaintiff was probably not party to the contract –genuine dispute regarding existence of the debt – debt claimed by defendant in statutory demand not misdescribed – no defect in statutory demand – statutory demand set aside because of genuine dispute as to the existence of the debt Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Blayney Wholesale Foods Pty Ltd v Bis Cleanaway Ltd [2008] NSWSC 1146 Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Category: Principal judgment Parties: Domicgra Trading (plaintiff) M & J Holdings (NSW) Pty Ltd (defendant) Representation: Counsel: P Folino-Gallo (plaintiff) T Bors (defendant) Solicitors: Pateman Legal (plaintiff) The Law Man (defendant) File Number(s): 2015/265999 Publication restriction: None Judgment 1. The plaintiff, Domicgra Trading Pty Ltd (Domicgra) applies for an order that a creditor's statutory demand served upon it by the defendant, M & J Holdings (NSW) Pty Ltd (M & J), on 21 August 2015, and dated 20 August 2015, be set aside. 2. The demand required payment of the sum of $167,843.11, and described the debt as "being the balance owing for goods (being formwork equipment & materials) sold & delivered by the Creditor to the Company". 3. The following particulars of the debt were set out in the demand: INVOICE No. DATE AMOUNT 10 8/06/2012 $242,607.20 11 29/06/2012 $23,904.10 12 31/10/2012 $84,475.60 13 31/01/2013 $19,617.40 14 4/01/2014 $17,476.50 Total: $388,080.80 Less Payment Received 1/02/2013 $100,000.00 22/10/2013 $19,932.99 16/10/2013 $304.70 21/04/2015 $50,000.00 23/07/2015 $50,000.00 $220,237.69 Total: $167,843.11 1. Domicgra argues, first, that the demand should be set aside on the ground contained in s 459H(1)(a) of the Corporations Act 2001 (Cth) because there is a genuine dispute about the existence of the debt; and secondly on the ground in s 459J(1)(a), because there is a defect in the demand and substantial injustice will be caused unless the demand is set aside. 2. The basis of Domicgra's first ground is that the debt claimed by M & J did not arise under a contract between Domicgra and M & J, but under a contract that M & J entered into with another company called, at the time of the contract, Transform Formwork Contractors Pty Ltd (Transform), and subsequently called Dom's Catering Pty Ltd. Transform was placed into liquidation on 23 September 2013. Before its winding up, Transform was controlled by the same persons who control Domicgra. 3. Domicgra's second ground is based upon the understanding that M & J's case is that it had initially entered into a contract with Transform to sell to it second hand formwork equipment and related goods, and after Transform was placed into liquidation, the contract was novated between Domicgra and M & J by reason of representatives of Domicgra requesting M & J to reissue the invoices originally issued to Transform to Domicgra. If that is M & J's case, then, Domicgra says the demand wrongly described the debt, as the description was to the effect that goods had been sold and delivered to Domicgra, when in fact they had been sold and delivered to Transform. This defect in the description of the debt was misleading because it would cause the recipient, Domicgra, to understand that the debt arose out of a contract for the sale and delivery of goods to it, when that was not the case, so that substantial injustice would be caused if the demand was not set aside. 4. M & J in fact put its claim differently to Domicgra's understanding. M & J said that its principal, Mr Christopher John Banks, had dealt with the person who at relevant times was the principal of both Domicgra and Transform on a regular basis over a number of years. That person was Mr Dominic Giallombardo. It was Mr Giallombardo's consistent practice to enter into agreements with Mr Banks on behalf of himself and various companies controlled by him as if Mr Giallombardo was entering into the contract personally. Mr Giallombardo would use personal pronouns, such as "I" in the discussions, as if he would be the party entering into the agreement. In fact, Mr Giallombardo might intend that the contracting party be one or other of the companies that he controlled. Mr Banks, and thus M & J, would not know the specific identity of the party to the agreement until told by Mr Giallombardo. That information might be received after the time the agreement was entered into. 5. M & J's case is that it entered into the agreement to sell the formwork and related materials by an oral agreement made between Mr Banks and Mr Giallombardo, and that M & J did not know the identity of the other party. It assumed that Transform was the other party and issued invoices in Transform's name. Subsequently Mr Banks was told by representatives of Domicgra that the invoices should be reissued to Domicgra. M & J puts its case on the basis that the relevant events did not have the legal effect that an initial contract between M & J and Transform was novated to make Domicgra a party in lieu of Transform. Rather, there was only ever one contract between M & J and an unidentified company represented by Mr Giallombardo. The first set of invoices was simply issued to the wrong company on the basis of a misunderstanding by M & J. The reissue of invoices did not relate to a new contract, but simply represented the issue of invoices for the formwork and materials sold and delivered to the correct party. 6. On M & J's case, there will still be a question as to whether there is a genuine dispute between Domicgra and M & J about the existence of the debt. There would be no defect in the demand because M & J's only case is that there was one contract, and that contract was between M & J and Domicgra. The demand did not misdescribe the debt as being a debt under the contract by which goods had been sold and delivered to Transform and then novated to Domicgra as being a contract under which the goods were sold and delivered to Domicgra. 7. I will first consider the issue of whether there is a genuine dispute between the parties about the existence of the debt claimed in the demand. 8. Domicgra does not say that M & J did not deliver all of the formwork and related materials that it claims to have delivered. Nor does Domicgra say that the amounts claimed by M & J as the price were in any way wrong. The only issue is whether Domicgra owes the debt or Transform does. 9. Domicgra relies primarily on the fact that M & J originally issued invoices numbers 10, 11 and 12 addressed to Transform. Not only that, but some of the supporting vouchers that accompanied the invoices referred specifically to Transform. For example, Invoice No 11 was accompanied by a schedule that identified all of the goods delivered, together with a calculation of the prices, which was headed "TRANSFORM FORMWORK CONTRACTORS STOCK LIST", with another heading "all Materials OUT TO TRANSFORM BETWEEN 09/06/12 and 29/6/12". The Schedule accompanying Invoice No 12 contained the same headings, but was for the period 1/07/12 to 31/10/12. 10. The three invoices were accompanied by vouchers called "return docket" and "delivery docket". Most of the dockets did not note the name of the customer. Instead they noted the site to which the formwork and materials had been delivered. The vouchers accompanying the invoices did, however, occasionally refer to Transform. The vouchers for Invoice No 10 included documents at Court Book (CB) pp 101 and 139 which described the builder or project as Transform. The delivery dockets at CB pp 106 and 107 dated 29/11/11 and 8/12/11 described the customer as Transform. There are similar documents for Invoice No 11 at CB pp 147, 152 and 153; and for Invoice No 12 at CB pp 167 to 171, 173 to 189, and 192 to 197. The point of these observations is that the evidence shows not simply that the three invoices were addressed to Transform, but there is also considerable evidence that the persons who prepared the accompanying vouchers on a day-to-day basis understood that the purchaser was Transform. 11. It must also be noted that all of the return dockets and delivery dockets that have a header described the issue of the documents as Conequip Pty Ltd (Conequip), and not M & J. 12. On 31 January 2013, M & J issued Invoice No 13 to Domicgra for a total of $19,617.40 for the sale of formwork and related materials. The vouchers that accompanied the invoice contained various references to Transform in the same way as had the earlier invoices (see CB pp 200, 205 and 208 to 213). 13. Invoice No 14 dated 4 January 2014 claimed $17,476.50 and was also addressed to Domicgra. (Vouchers referring to Transform can be found at CB pp 227 to 229). 14. The evidence suggests that M & J reissued Invoices Nos 10, 11 and 12 addressed to Domicgra with their original dates but delivered in a single bundle on about 4 January 2013 without supporting vouchers. 15. Mr Giallombardo gave evidence that, during the time that he was a director of Domicgra between 11 April 2011 to 18 February 2014, the company had never purchased any equipment in the form of formwork equipment and materials, and had never traded with or entered into any transactions whatsoever with M & J. He said that Transform was a building and construction company, which had the need to acquire and use formwork equipment and materials. He said that, in various ways, Mr Banks assisted Transform with projects in which it was engaged. He said that Mr Banks arranged for appropriate formwork and related materials to be delivered to Transform's worksites and storage yards. He said that in June 2012 Mr Banks provided him with a draft deed of agreement. The parties to the draft deed of agreement were M & J and Transform. The draft deed recited that Transform operates a construction formwork business, and also recited that Mr Giallombardo would try to raise $300,000 to advance to Transform to enable Transform to purchase formwork and related materials from M & J. The terms of the draft deed were to similar effect. Mr Giallombardo said that the deed was not executed. However, its terms are consistent with an understanding by Mr Banks that it was Transform that required formwork and related materials, and that Transform intended to purchase those goods from M & J. 16. Mr Giallombardo also gave evidence that Domicgra was only ever used for the purpose of holding real property interests and other assets. It did not trade in the same way that Transform traded. 17. In his affidavit, Mr Banks gave evidence to support M & J's argument that in substance it dealt with Mr Giallombardo personally without specific regard to individual companies that Mr Giallombardo may have represented. Mr Banks said in par 8 of his affidavit: "In virtually all of my conversations with Mr Giallombardo, he referred to himself and his company, Transform, interchangeably". While this may have been so, this evidence demonstrates that the company that Mr Banks knew Mr Giallombardo was referring to was Transform. 18. Mr Banks also referred to having his solicitor draft a short agreement in May 2012 to formalise an arrangement between himself and Mr Giallombardo to pay for the formwork and other materials that M & J had delivered. 19. Mr Banks also gave the following evidence in his affidavit 22. At about that time, I received a telephone call from Amalia Amendola, who I knew to be employed by Mr Giallombardo as his Accounts Manager Ms Amendola said words to me to the effect of: "Transform is in liquidation. Dominic is going to use Domicgra Trading Pty Ltd as his asset holding arm. Can you please reissue the invoices for plant and equipment to Domicgra, and it will then pay those invoices". 23. A few days later I had a conversation with Mr Giallombardo and said to him words to the effect of: "Amalia has asked me to invoice Domicgra Trading for the gear. Is that right?" He said: "Yes, Transform is in liquidation. Domicgra holds all the assets." 1. Ms Amendola gave evidence in the proceedings. She denied making the statements attributed to her by Mr Banks that have been set out in the extract from Mr Banks' affidavit in the preceding paragraph. 2. Mr Giallombardo also denied that he had the conversation attributed to him in par 23 of Mr Banks' affidavit. 3. Even if the conversations deposed to by Mr Banks occurred in the terms related by him, they appear to me to be much more consistent with representatives of Domicgra asking M & J to reissue invoices properly delivered to Transform for goods sold and delivered to it, for the reason that Transform was in liquidation, and would not be able to pay for the goods itself. The conversations do not readily support M & J's case that it mistakenly issued the invoices to Transform, and then at a later time reissued the same invoices to Domicgra because it had learned information that caused it to realise that Mr Giallombardo had always intended the contract to be between M & J and Domicgra. 4. M & J also relied upon the fact that it received some payments of the amount it was owed, some of which payments were made after the commencement of the winding up of Transform on 23 September 2013. The repayments are listed in the table that forms part of the particulars of the debt in the demand. 5. It appears that the repayment of $100,000 made on 1 February 2013 was made by direct debit from Mr Giallombardo's wife. The payments of $19,932.99 and $304.70 made in October 2013 were made by way of endorsement of cheques payable to Transform that were endorsed in favour of Conequip. The two amounts of $50,000 that were paid in 2015 were paid by direct deposit after Mr Banks had asked Mr Giallombardo for payment because he had a pressing need for funds. The source of these monies is not clear on the evidence. 6. The evidence suggests that notwithstanding the winding up of Transform, Mr Giallombardo and Mr Banks maintained a reasonably cordial business relationship until sometime this year. 7. M & J placed heavy reliance on the information that was given to the liquidators of Transform during its winding up. In particular, the report as to affairs (RATA) dated 23 September 2013 listed the assets of Transform as being cash at bank of $344. There was no reference to Transform owning any formwork and related materials. 8. Furthermore, of the unsecured creditors of $1,034,770.50, there was no reference to Transform owing any debt to M & J. 9. M & J submitted that the court should not accept that Domicgra's claim that there is a dispute as to the existence of the debt is genuine, because the liquidators of Transform were not informed that it was indebted to M & J. 10. However, I note that one of the unsecured creditors listed in the RATA is Conequip in respect of a debt of $315,162. 11. The RATA appears to have been signed by Mr Paul Winters in the capacity of director. There was no evidence concerning Mr Winters' involvement in the matter. 12. While it is clear that all of the invoices were issued in the name of M & J, it is equally clear that all of the return dockets and delivery dockets that bear a name are in the name of Conequip. 13. As at the date of the RATA, the total debt owed on the invoices was $270,080.80, being the total of the invoices set out in the demand of $388,604.30, less the amount of $17,476.50 for Invoice No 14 issued on 4 January 2014, giving $370,604.30, less the $100,000 payment made 1 February 2013. There is obviously no evidence of correlation between the amount of the Conequip debt disclosed in the RATA and the debt claimed by M & J as at the date of the RATA. However, the issue is whether the court should find, on the evidence of the failure of the RATA to include the debt claimed by M & J, that Domicgra's claim that there is a dispute as to the existence of the debt, is not genuine. 14. I would not make that finding on the evidence as it stands. There is no explanation of Mr Winters' role, and it is a reasonable hypothesis that the officers of Transform could have considered the debt to be owed to Conequip, because the return dockets and delivery dockets had been issued in that company's name. The amount of the debt claimed by M & J as at the date of the RATA is less than the amount of the debt acknowledged as being owed to Conequip, and could be included within that amount. 15. All that can be said is that it is a matter for speculation as to whether or not the debt claimed by M & J was intended to be included in the creditors disclosed in the RATA, and the evidence does not justify a finding that the dispute is not genuine. 16. There was no issue between the parties as to the legal principles that should be applied. It is not necessary to discuss those principles in any detail. It is clear that the threshold for establishing a genuine dispute is a low one and by no means difficult or demanding: Blayney Wholesale Foods Pty Ltd v Bis Cleanaway Ltd [2008] NSWSC 1146 per Barrett J (as his Honour then was) at [28]. There will be a genuine dispute about the existence of a debt if there is a plausible contention requiring investigation that the company is not indebted as alleged: for example Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 at [31]; applying the decision of McClelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. There are a great many other authorities to similar effect. 17. I find that Domicgra has clearly established that there is a genuine dispute as to the existence of the debt the subject of the demand, and that the ground in s 459H(1)(a) of the Corporations Act has been made out. 18. In the light of the matters that have been examined above, my reasons can be shortly stated. M & J issued the original Invoices 10, 11 and 12 to Transform. As I have said, the supporting vouchers strongly tended to show that whoever produced those vouchers on a day-to-day basis understood that Transform was the purchaser of the formwork and associated materials. There is no suggestion in the original invoices that Domicgra was the contracting party. Even though Mr Banks says that the issue of the invoices to Transform was a mistake on his part, the fact that he made the mistake is probably sufficient in itself to justify the argument that there is a genuine dispute that Domicgra owes the debt. Invoice No 13 was addressed to Domicgra and, being issued on 31 January 2013, it pre-dated the winding up of Transform. This fact was not explained in the evidence. The vouchers that accompanied this invoice also referred to Transform. Invoice No 14 was issued after the winding up of Transform. 19. Mr Banks' evidence that Mr Giallombardo and Ms Amendolia requested him to reissue the invoices addressed to Domicgra for payment by that company was denied outright by those two witnesses. I am satisfied that there is a genuine issue of fact as to what was said. In any event, even accepting Mr Banks' version of the conversations, they do not sufficiently clearly establish the case sought to be made by M & J that the effect of the conversations was to finally identify Domicgra as being the party that had been intended by Mr Giallombardo from the beginning to be the purchaser of the formwork and other materials from M & J. 20. It is sufficient to say that all of the other evidence leaves the issue inconclusive and requires a finding in favour of Domicgra. 21. It is not therefore necessary to decide whether Domicgra's second ground is made out. It is probably the case that, if M & J had supported the demand on the basis that the original contract was with Transform, and the effect of the conversations that occurred with Mr Giallombardo and Ms Amendolia was that the contract had been novated, then the description of the debt in the demand would have been wrong. The question would then have arisen as to whether substantial injustice will be caused unless the demand is set aside. The case made by M & J was, however, that there was only ever one contract, but there was uncertainty as to the contracting party, and the effect of the conversations was to cause Mr Banks to understand that the correct party was Domicgra. 22. That being the case, the demand did not misdescribe the debt. The real significance of M & J's own case that from the outset there was uncertainty as to the company on whose behalf Mr Giallombardo was contracting was to doom M & J's resistance to the argument that there was a genuine dispute as to which company owed the debt. 23. It will therefore be appropriate for the court to make the following orders: 1. Order pursuant to section 459H(1)(a) of the Corporations Act 2001 (Cth) setting aside the statutory demand served by the defendant on the plaintiff on 21 August 2015 and dated 20 August 2015. 2. Order the defendant to pay the plaintiff'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: 18 December 2015