Supreme Court New South Wales Medium Neutral Citation: In the matter of GLFB Pty Ltd trading as Harvest Homes [2018] NSWSC 598 Hearing dates: 4 May 2018 Decision date: 04 May 2018 Jurisdiction: Equity Before: Leeming JA Decision: 1. The statutory demand dated 24 October 2017 be set aside 2. The defendant pay the plaintiff's costs of this proceeding. Catchwords: CORPORATIONS – statutory demand – whether genuine dispute – related company entered into written contract with plaintiff debtor – invoices for services rendered by defendant – seven invoices rendered and paid – dispute as to eighth and ninth invoices – whether implied contract by conduct between plaintiff and defendant on same terms as written contract – difficulty in drawing inference that parties have disregarded written contract – inconsistencies in evidence adduced by defendant – statutory demand set aside Legislation Cited: Corporations Act 2001 (Cth), ss 459H, 459J Cases Cited: Brambles Holdings Pty Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300 In the matter of Integrated Growth Solutions Pty Ltd [2017] NSWSC 368 Ligon 158 Pty Ltd v Huber [2016] NSWCA 330; 117 ACSR 495 Re Wollongong Coal Ltd [2015] NSWSC 1680; 110 ACSR 134 Category: Principal judgment Parties: GLFB Pty Ltd trading as Harvest Homes (Plaintiff) Zero to Infinity Property Investments Pty Ltd (Defendant) Representation: Counsel: J Raine (Plaintiff) B Katekar (Defendant) Solicitors: UX Law (Plaintiff) Omniwealth Law (Defendant) File Number(s): 2017/346808 EX TEMPORE Judgment 1. HIS HONOUR: The plaintiff, GLFB Pty Ltd, trades under the name "Harvest Homes" and is in the business of constructing residential dwellings. It entered into a written agreement with Zero to Infinity Solutions Pty Ltd ("ZTI Solutions"), apparently in around May 2015, by which the latter company, which is known as the Referrer, would introduce it to potential purchasers with a view to their entering into a construction contract with the plaintiff. Clause 5.1 of the agreement provided for the plaintiff to pay the Referrer a "Referral Fee" subject to eight conditions, the last of which was that: "GLFB Pty Ltd t/a Harvest Homes is in receipt of a tax invoice from the Referrer for the amount of the Referral Fee". 1. There is perhaps some obscurity in the agreement as to how the Referral Fee is calculated, which it depends upon prices not disclosed on the face of the written agreement, but as Mr Katekar, who appears for the defendant, has rightly emphasised, the quantum of each of the fees is not one of the matters raised by the plaintiff as giving rise to a genuine dispute. 2. It appears that precisely nine tax invoices have been issued to the plaintiff. The invoices are dated between September 2015 and September 2017. The first seven invoices have all been paid. They were all in the amount of $33,000 inclusive of GST except for the second which was in the amount of $27,500 inclusive of GST. The most recent of the first seven invoices (invoice 7) was dated 16 January 2017. The two invoices which have given rise to the statutory demand dated 24 October 2017 were invoices 8 and 9 dated 24 August 2017 and 12 September 2017, respectively. Those invoices are in the amounts of $33,000 and $29,500, inclusive of GST. 3. It is accepted that the statutory demand was served on 27 October 2017 and that the plaintiff commenced proceedings to set it aside pursuant to ss 459H and 459J of the Corporations Act 2001 (Cth) by originating process filed on 16 November 2017. Prominent in the affidavit accompanying that originating process, although it is a point upon which reliance does not appear to have been placed in the correspondence between the parties prior to the commencement of the proceedings, is the discrepancy between the contracting party named in the written contract and the party named on the tax invoice. 4. All nine of the invoices have been issued under the letterhead of "Zero to Infinity Property Investment Pty Ltd" [sic; "Investment" is singular]. 5. In fact, there is no such company called "Zero to Infinity Property Investment Pty Ltd". According to an ASIC search, the company with the ABN which is recorded on all nine of the tax invoices is actually called Zero to Infinity Property Investments Pty Ltd. No point has been sought to be made of that discrepancy. That is a sensible approach. I would not regard the minor divergence between the company named on the tax invoice and the company's real name (a matter of an "s"), in circumstances where the correct ABN number has been provided, as capable without more of giving rise to a genuine dispute. 6. However, it is accepted the deponent Zero to Infinity Property Investments Pty Ltd ("ZTI Property Investments") is a different company from the contracting party, and, as a result, the condition in the agreement to which the obligation to pay the referral fee is subject, namely, the plaintiff is in receipt of a tax invoice from the Referrer, has not been satisfied. 7. Mr Sharad Ved Prakash is the sole director, secretary and shareholder of each of ZTI Property Investments and ZTI Solutions. His evidence is that the former "is in the business of providing services relating to the marketing and sale of residential dwellings, but not the land upon which the dwellings are to be built". He says that the latter is also in that business, but that ZTI Property Investments has become "the main vehicle in the group through which these services are provided". 8. Mr Prakash has also established other companies of which he is the sole director and shareholder, which need not be mentioned for present purposes. He holds a licence to practise as a real estate agent, and is an authorised representative of an AFSL licence holder and can provide advice on certain classes of financial products. 9. In around July 2017, a new company, AXL Financial Pty Ltd, acquired a majority of the shares of the plaintiff and conducted a review of its existing contracts. Prior to the issue of the statutory demand on 24 October 2017, the parties had exchanged correspondence in which a large number of issues said to give rise to a dispute were advanced. It was said that it was necessary for the agreement between the plaintiff and ZTI Solutions to have been dated, and stamped; it was said that there was a requirement under law to disclose the existence of a Referral Fee to clients, and it was said that the practice under the agreement "may well be a breach at least the following legislative restraints from NSW and Commonwealth, in particular the Corporations Act and the Civil Liability Act (NSW)" [sic]. There were threats to refer the former directors of the plaintiff and the defendant to each of the Master Builders Association, the Department of Fair Trading and the ACCC. 10. All of those issues have gone away for the limited purposes of the hearing today before me. What remains as the sole source of what is claimed to be a genuine dispute warranting the setting aside of the statutory demand is the discrepancy in identity between the Referrer named in the written contract and the company which has issued the tax invoices. Both companies are creatures of Mr Prakash and have somewhat similar names. Applicable principles 1. The applicable principles are uncontroversial. In Ligon 158 Pty Ltd v Huber [2016] NSWCA 330; 117 ACSR 495 at [8], Barrett AJA said with the agreement of McColl and Meagher JJA and by reference to what Black J had said in Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134: "(1) A dispute is 'genuine' if it is not 'plainly vexatious or frivolous' or 'may have some substance' or 'involves a plausible contention requiring investigation'. A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are 'real and not spurious, hypothetical, illusory or misconceived' and which demonstrate the dispute's 'objective existence' and 'prima facie plausibility'. (2) The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section. (3) The task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted. (4) The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute. the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine." 1. By reference to the Court of Appeal's decision in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, Barrett AJA added the following in relation to the appropriate forensic approach at [9]: "(1) While there must be evidence showing a serious question to be tried or an issue deserving of a hearing, that evidence cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable. (2) The short time allowed by s 459G(2) for the preparation of the affidavit supporting the claim for an order setting aside the demand militates against the presentation of the fullest and best evidence in some cases. (3) In determining whether there is evidence of a genuine dispute regarding the debt, the court is generally not concerned to engage in an enquiry as to the credit of the deponent of the supporting affidavit. At the same time, it is not required to accept uncritically every statement in the affidavit that is inconsistent with undisputed contemporary documents, is inherently improbable, does not have sufficient prima facie plausibility to merit further investigation or is an assertion of facts unsupported by evidence. (4) Inconsistent contemporaneous documents are not necessarily sufficient to defeat the company's challenge even though they might pose difficulties for the ultimate proof of the case that it would advance if the dispute were litigated." 1. Gleeson JA drew attention to two aspects of the approach to be taken as to the ultimate question in a case such as this in In the matter of Integrated Growth Solutions Pty Ltd [2017] NSWSC 368 at [22]-[23], again by reference to Ligon 158 Pty Ltd: "One is the restraint that a court should exercise in considering the ultimate question of the indebtedness of a company served with a statutory demand, referring at [9] to the remarks of Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 at [3] - [4]. Importantly, in Spacorp at [3], it was observed: A great range of states of mind on what we might call the ultimate question – the existence of the debt – may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared. The other matter is the summary nature of the issue before the Court on a s 459G application, which the Court explained in Ligon 158 Pty Ltd v Huber at [10] as follows: … The issue for the court is not whether the company would succeed on those grounds in defending a debt recovery action brought against it by the person who served the statutory demand. Rather, the court must decide whether the grounds of dispute delineated by the affidavit are grounds which, when viewed in the whole of the circumstances emerging from the evidence, indicate a plausible defence propounded in good faith and not one merely constructed in response to the pressure represented by the statutory demand. Issues of credibility will generally be confined to the question whether the asserted grounds are of that quality, as distinct from questions going to the ultimate merits of the postulated defence itself. It is for this reason that cross-examination of deponents is rare in such proceedings." 1. There seems to be no material difference between those statements of principle and what more recently was said by Barrett AJA, with the agreement of Gleeson and White JJA, in Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300 at [17], to which I was referred. Defendant's submissions 1. Somewhat unusually, this is a case where at all times the creditor has accepted that the written agreement does not contractually entitle it to sue on the debt which founds the statutory demand. That said, there has been a significant change of stance between the written submissions filed by those who had previously been retained in this matter and the oral submissions advanced by Mr Katekar for the defendant and Mr Raine for the plaintiff. In the written submissions, reliance was placed upon either an estoppel by representation or an estoppel by convention, both of which founded upon the undisputed supply of services and making of payments pursuant to tax invoices 1 to 7 by the plaintiff. Candidly, and in my view correctly, Mr Katekar has abandoned reliance upon either equitable or common law estoppel to sustain his client's entitlement to the debts reflected in the tax invoices. In particular, there would have been difficulties establishing, to the requisite level of confidence, detriment - which is an element of both forms of estoppel - on the part of the defendant if, as is the evidence of Mr Prakash in para 17 of his affidavit, the defendant was a volunteer which had done nothing by way of supplying the services upon the basis of which it sought to enforce an entitlement for the referral fee. There would also have been a difficulty arising from the requirement that either the representation giving rise to the estoppel or the assumption be sufficiently clear and unequivocal. But there is no occasion now to elaborate those submissions: as I have said, they are not relied upon. 2. Further, no attempt is made to rely upon either (a) payment by direction, (b) variation or novation, (c) agency, (d) trust of a chose in action or (e) a legal assignment. 3. To the contrary, a simple contractual argument is now the only submissions which is put. It is said that the Court should find that the parties to this litigation have entered into an implied contract whose terms are identical to those contained in the written contract of May 2015 save that the referrer is Zero to Infinity Property Investments. The basis for the implication is not some offer and acceptance supported by consideration and animus contrahendi, but rather an implication derived from the conduct of the parties in the manner described in cases such as Brambles Holdings Pty Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [71]-[81] and Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [369]. The conduct relied upon is of course the supply of referral services whereby customers entered into construction contracts with the plaintiff and the fact that over a period of some 16 months and on no fewer than seven occasions, the plaintiff paid the defendant amounts reflecting what had been agreed in the May 2015 written contract. 4. There has been on one view more as to the conduct between these two parties than the two matters I have referred to above. In particular - and I mention it because it is relevant to the ultimate issue on the new case raised by the defendant - Mr Prakash has deposed to a conversation which he says he had with Mr Taylor, one of the plaintiff's directors, sometime between May and early September 2015, to the following effect: "Ved Prakash: ZTIPI will be doing all the work so that's why the invoices will be issued by ZTIPI. Taylor: No worries, mate. That's okay, just send the invoice." 1. Mr Taylor has affirmed an affidavit in which he denies any such conversation. He denies not only that there was no conversation along those lines prior to any of the referrals, but adds that there was no such conversation at any time, nor any similar conversation. He says, "I was not even aware of different or multiple ZTI entities." 2. Plainly enough, for the purposes of today, it is not for me to adjudicate whether or not that conversation took place. Hence the reliance by the defendant upon the undisputed facts of the making of referrals and the payment of seven referral fees over the period I have mentioned above. 3. It is, however, no small thing for this Court, faced with parties who have relatively solemnly committed themselves to a written form of contract for the supply of services now valued in excess of $200,000, to conclude that, as a matter of proper legal analysis, no services at all were provided pursuant to the written contract, but rather, the conduct of the parties when properly understood supports an inference that a different contract - albeit one on the same terms - was entered into by different parties and is enforceable by one of those parties against the other. The difficulty is highlighted if one asks when did the implied contract come into existence. Was it before or after the first referral, which resulted in the first invoice? However, as Mr Katekar pointed out, for present purposes it is sufficient if it is established, to the requisite degree of confidence, that the implied contract was in place no later than the rendering of the 8th invoice. 4. That is not the only difficulty faced by the defendant on this application today. Mr Prakash's affidavit also states the following: "To date, ZTIS has referred fourteen (14) prospective purchasers to GLFB that has subsequently decided to enter into a construction contract with GLFB." 1. The preceding paragraphs of Mr Prakash's affidavit, paras 13, 14 and 15, each refer in terms to ZTI Solutions, the company named on the written contract. Paragraph 18, the paragraph immediately following the one reproduced above, distinguishes in terms between ZTI Solutions and ZTI Property Investments (the defendant to these proceedings) as follows: "As I am the sole director and shareholder in both ZTIS and ZTIPI, which are related companies having similar names, but ZTIPI is the main operating company, I have issued invoices from ZTIPI in relation to monies that are payable under the agreement." 1. One inference that those paragraphs in their context are capable of sustaining is that when the affidavit was sworn, Mr Prakash was quite conscious of the distinction between ZTI Solutions and ZTI Property Investments, and in that light was saying what he said about para 17 as to which company had provided the referral services. Against this, Mr Katekar fairly points out that the literal meaning of para 17 is inconsistent with the disputed conversation to which Mr Prakash deposes between himself and Mr Taylor as to "ZTIPI will be doing all the work". But, in my view, that is one matter going directly to the factual background against which the implication which is now advanced by the defendant to sustain its statutory demand needs to be evaluated. 2. First, because it is no small thing in the case of this commercial contract for an amount of money which is in a six-digit sum, to infer that the parties have departed from their written agreement, secondly, because the material supplied by the defendant is, at least in part, consistent with performance by ZTI Solutions as opposed to ZTI Property Investments of the written contract entered into by the plaintiff and ZTI Solutions, and thirdly, because the terms of an implied contract in circumstances such as here where there is a written contract and a deal of conduct between the parties over some years and conflicting evidence about it are unquestionably contestable, I do not consider that this is a case where the relatively high threshold of an absence of a genuine dispute between the plaintiff and ZTI Property Investments has been made out. 3. Two things should be added to what I have just said. Both turn on what might on one view be regarded as the "technical" - meant pejoratively - of the "point" which is dispositive of the litigation in this Court. The first is that it is of real importance to the debtor in a case such as this to know that the payment of the amount demanded will entitle it to a discharge of the underlying indebtedness. The debtor should have confidence that it not be liable to be sued by the counterparty to the written contract if it pays ZTI Property Investments in accordance with the latter's demand. Secondly, as was indicated during argument, there is the potential for error when a person chooses to operate through more than one similarly named corporate vehicles, all of which are wholly controlled by him. As it happens, all nine of the tax invoices (seven of which were paid, two of which give rise to the statutory demand) fail to name accurately any of the companies Mr Prakash has caused to be incorporated. As noted above, the very minor discrepancy in the letterhead is not something on which much turns, but also, the bank deposit details on each of the tax invoices employ yet another corporate name: "Zero to Infinity Property Pty Ltd". A curiosity of the dispute is that notwithstanding that heavy reliance is placed by the defendant on the fact that payment has been made pursuant to seven tax invoices over a period of some 16 months, none of those tax invoices correctly identifies the defendant, either in its letterhead, or in the bank account to which payment is directed. 4. For those reasons, I order that the statutory demand dated 24 October 2017 be set aside, and that the defendant pay the plaintiff's costs of this proceeding. ********** 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: 07 May 2018