Salmon v Asphalt [2009] NSWSC 689 (23 July 2009)

Last Updated: 24 July 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Salmon v Asphalt [2009] NSWSC 689


JURISDICTION:
Equity Division

FILE NUMBER(S):
4697/2008

HEARING DATE(S):
20/05/09

JUDGMENT DATE:
23 July 2009

PARTIES:
Salmon & Speck Pty Ltd v Asphalt Haulage Pty Ltd & Anor

JUDGMENT OF:
Macready AsJ

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr R Alkandamani for plaintiff
Mr JT Johnson for defendant

SOLICITORS:
Patterson Houen & Commins for plaintiff
Proctor Phair Lawyers for defendant


CATCHWORDS:
Corporations Law. Application to set aside statutory demand under s 459G of Corporations Act. Held there was a genuine dispute in respect of the claims. No matter of principle.

LEGISLATION CITED:



CASES CITED:


TEXTS CITED:


DECISION:
Paragraph 32



JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION



Associate Justice Macready

Thursday 23 July 2009


4697/2008 SALMON & SPECK PTY LIMITED v ASPHALT HAULAGE PTY LIMITED AND ANOR

JUDGMENT

1 HIS HONOUR: This is an application under 459G of the Corporations Act 2001 to set aside a statutory demand served by the defendant on the plaintiff dated 26 August 2008 for $187,000. The plaintiff raised what it says is a genuine dispute and alleges that it has offsetting claims against this amount.

Background

2 The defendants were the vendors under a Deed of Agreement dated 20 June 2007 for the sale of a business to the plaintiff. The sale of the business included the manufacture and wholesale of potato chips, vegetables and other foods.

3 The consideration was the sum of $2,400,000 together with stock at valuation. The relevant clause for the payment of the purchase price was clause 3.1 which was in the following terms:

"3.1 Apportionment and payment of purchase price.

(a) The parties agree that the Purchase Price shall be apportioned to between the Assets and the Vendor on the basis set out in Schedule 5.

(b) The Purchase Price shall be paid:

(i) As to the sum of $1,350,000.00 plus or minus any adjustments on Completion;

(ii) As to the sum of $250.000.00 within 10

Business Days after the Vendor delivering to the

Purchaser;

A. A letter from Integra Water (The Contractor) for the Water Treatment Works confirming that the Water Treatment Works have been satisfactorily completed; and

B. A written report from Labpoint confirming that the water sample analysed meets the guidelines of the Trade Waste Agreement (such water sample being supplied after completion of the Water Treatment Works); and

(iii) As the balance of $800,000.00 (plus interest) after the first, second and third anniversaries of Completion subject to adjustment as provided in Clause 3.2 (Deferred Consideration)."

4 The initial sum of $1,350,000 was paid. The dispute arose between the parties as to the payment of the next installment of $250,000. It can be seen from clause 3.1(b)(ii) that there were two requirements before the sum was payable.

5 According to the defendants the appropriate conditions were satisfied.

6 It can be seen that they allege this in the way they have described the debt in the statutory demand, which was as follows:

“By Deed of Agreement for Sale of Business dated the 29 June 2007 (the "Deed") the debtor company agreed to pay the creditor the sum of $250,000 within 10 working days of receiving a completion letter from Integra Water and a confirmation report from Labpoint. The creditor subsequently received a letter from Integra Water that was delivered to the debtor company confirming that the waste water treatment plant had been successfully completed and commissioned and on the 17 October 2007 the second of two written reports from Labpoint was delivered to the debtor company confirming that the water samples analysed met the guidelines of Sydney Water's Trade Waste Agreement. In accordance with the Deed, the sum of $250,000 was to be paid by the debtor company to the creditor on 27 October 2007. The debtor company paid the sum of $63,000 to the creditor on the 8 April 2008 in reduction of the amount owing leaving the sum of $187,000 due and owing by the debtor company to the creditor. On the 11 August 2008 the Creditor again served on the Debtor Company a further letter from Integra Water and the confirmation report from Labpoint that was served on the debtor company on 17 October 2007. In accordance with the Deed, the sum of $187,000.00 was to be paid by the Debtor to the Creditor on 25 August 2008. The sum of $187,000 is still due and owing by the debtor company to the creditor.”

Genuine dispute

7 It was the plaintiff’s contention that there was a genuine dispute in respect of both arms of the relevant clause. Dealing with the requirement in 3.1(b)(ii)(A), the evidence of the defendants was that on two occasions such a letter was delivered.

8 The first occasion when the defendants allege that the letter was delivered in accordance with the contract was early September 2007. Mr Peter James Ross who at that stage was a director of the defendants and was employed by the plaintiff in the operation of the plant, gave evidence that he received a letter from Integra Water, the contractors for the waste water treatment plant, which said words to the effect, “water treatment works have been satisfactorily completed.” He says he delivered the letter to Mr Geoffrey Salmon the purchaser and said, “Here is confirmation from Integra that the plant is complete.” He did not retain a copy of the letter. For his part Mr Salmon responded in these terms:

“I refer to paragraph 11 of the Ross Affidavit to which inadvertently I did not respond to in my earlier affidavits.

I do recall Mr Ross showing me a letter from Mr Louskas of Integra Water but I do not recall him giving it to me and I do not have that letter or a copy of it now. When Mr Ross said, “Here is confirmation from Integra that the plant is complete” I immediately responded in words to the following effect:

“I dispute that, the works have not been satisfactorily completed and continue to cause problems.””

9 The effect of this evidence is that there is a dispute about delivery of the letter and there may be a dispute about it contents. See s 48(4) of the Evidence Act.

10 There was further complaint about the failure to pay $250,000 and a letter dated 8 August 2008 was sent by Integra Water Treatment Solutions to the plaintiff which was as follows:

“Dear Sir

We provide herewith response to your query presented undercover of Proctor Phair Lawyers letter head dated 24th July, 2008, with specific request for confirmation that Integra have either:

a) Satisfactorily completed the Water Treatment, works or

b) Not satisfactorily completed the Water Treatment, works.

Drawing on the historical events at the reference site and at the time Integra [formally cwts] were commissioned, it was our finding that the plant was incapable of producing a water quality satisfactory to Sydney Water Trade waste agreement. Integra's efforts over time were directed to the resolution of those inherent faults that fundamentally limited performance. The most recently completed augmentation of the Wastewater Treatment Plant completed in September 2007, included continuous flow profile yielding optimised chemical usage, simplified adjustment of the treatment program and consistent performance. In line with our scope, it is our belief that the works were Completed Satisfactorily,

We trust this meets with your immediate needs.”

11 The plaintiff argued that this did not comply with the clause because the scope of what was being done by Integra Water which was referred to in their letter was not self-evident. The relevant works required to be done in accordance with the Deed of Agreement for Sale, Schedule 8, were as follows:

“(a) Installation of a new 10,300 litre (approx) water treatment tank to replace Tank A.

(b) Modify existing water treatment plant to accommodate smaller pre-treatment batch sizes prior to sewer line discharge.

(c) Installation of a new gear drive in Tank C (already completed).”

12 On the evidence before me there is nothing that enables a clear identification of whether the specific works in schedule 8 have been satisfactorily completed. The request from Proctor Phair of 24 July does not assist as it made no reference to the nature of the works.

13 I suspect that given the nature of the response from Integra it might ultimately be proved that the specific works were satisfactorily completed but on the evidence before me in respect of this letter it would appear to be inconclusive.

14 Clause 3.1 (b)(ii)B of the Deed of Agreement is in these terms.

B. A written report from Labpoint confirming that the water sample analysed meets the guidelines of the Trade Waste Agreement (such water sample being supplied after completion of the Water Treatment Works); and

15 It will also be noted that it has no application until after clause 3.1(b)(ii)A has been satisfied.

16 It will be noted that in clause 3.1 (b)(ii)(B) there is a reference to the guidelines of the Trade Waste Agreement. The relevant agreement at the time was dated 30 October 2005 and Schedule 1 provided a schedule for the maximum amount of various items: biochemical oxygen demand; suspended solids’ total dissolved solids; grease; ammonia; sulphite. There were two requirements for each item. One was the long term average daily mass and the other was the maximum daily mass. The long term daily mass was described as a twelve month arithmetic average of all daily mass discharges as calculated for each composite sample. It will be appreciated that the process for the Trade Waste Agreement required numerous samples to be taken on a daily basis, tested and reported to the Sydney Water Corporation to enable checks on what was being discharged into the trade waste system.

17 The evidence was that there were a number of data sheets issued after the work was said to have been carried out. However, the plaintiff’s contention was that the sampling range was insufficient to determine the efficiency of the system and that the analytical numbers submitted by Labpoint are not a “report pertaining to compliance with the Trade Waste Agreement Guidelines”. (Speck Affidavit 15 September 2008 [14]). The Trade Waste Agreement required that there must be samples that cover a “twelve month arithmetic average of all daily mass discharges as calculated for each composite sample”. As an alternative proposition it was put that on the true construction of the clause the written report must be based on a reasonable sampling analysed after completion of the water treatment works. This problem of interpretation shows that the matter is not straightforward.

18 The plaintiff also raised the question as to whether the actual reports in evidence did show compliance with the requirements. A few reports did comply but there were many that did not and the plaintiff received many fines for exceeding the requirements.

19 I had the benefit of hearing a number of submissions in respect of the principles to be applied in respect of the expression “genuine dispute”. I think the most useful summation of what is a genuine dispute is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments in respect of the expression “genuine dispute.”

“It is, however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in section 459H. In my opinion that expression connotes 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. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to (its) truth” (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or “a patently feeble legal argument, or an assertion of facts unsupported by evidence” (cf South Australia v Wall (1980) 24 SASR 189 at 194).

But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an enquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Milbor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations law, and to the terms of Division 3:

‘These matters, taken in combination, suggests that at least in most cases, it is not expected that the Court will embark upon any extended enquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.’

20 One of the submissions in this matter is that prior to the issue of the statutory demand on 26 August 2008 there was no dispute raised by the plaintiff as to:

(a) non-compliance with the requirements of clause 3.1(b)(ii) of the Deed of Agreement for Sale;

(b) any asserted claim for damages under the covenants for breach of a warranty;

(c) any claim for loss arising from the removal by Mr Ross of some equipment.

21 There is evidence from Mr Ross of the defendant which indicates that the sole prior express reason why the monies were not paid was because the plaintiff was unable to refinance through its bank and have appropriate funding to enable it to do so. That evidence went to attempts to obtain valuations of the plant so that the funding could be obtained. On 13 September 2007 Mr Ross says he received a valuation confirming the replacement value of the wastewater treatment facility at $285,764. However, this appears to be a quotation for proposed works rather than a valuation. The quotation was evidenced in the form of a letter from Integra for the engineering design, manufacture, delivery, installation and commissioning of a water treatment facility by Integra. In March 2008 Salmon & Speck received a valuation from Dominion O’Maras of $63,000 for the “market value in existing use.” There is evidence that the bank only approved $63,000 which was of course the amount paid reducing the amount of the demand to $187,000. The plaintiffs assert that this sum was paid to the defendants “as a token of good faith.” At [28] of the affidavit of Peter Ross 6 February 2009, Mr Ross recalls a conversation on 1 April 2008 in which Mr Salmon said words to the effect,

“the bank has approved the payment of $63,000. Peter (Speck) and I are going to the bank tomorrow to organize funding for the remaining $187,000.”

22 However, Mr Speck in his affidavit of 27 February 2009 gave further evidence which painted a different picture to that portrayed by Mr Ross. His evidence was one of continuing failure of the plant to meet the Water Board’s requirements and complaints by Mr Speck to Mr Ross each time he requested the payment of the $250,000. The complaints may have been couched in language that talked about the need for valuation to release the finance which was already approved but the non-performance of the plant was clearly raised and was of great concern to the purchaser.

23 In these circumstances when there is this conflict in this evidence as to whether the dispute on the evidence as to whether the dispute was genuine it would need more to satisfy me that the clear dispute on the terms of the clause was not a genuine dispute. In my view there is a genuine dispute.

24 This disposes of the matter but I will briefly deal with the offsetting claim.

Offsetting claim

25 The plaintiff sought to raise the following offsetting claims:

(a) Money expended on bringing the water treatment plant up to an acceptable standard $121,000.

(b) Sydney Water fines $4,231.96

(c) Repairs to electrical systems and pumps $8,000.

(d) Removal of a centrifuge by Mr Ross $40,000.

(e) Damages flowing from breach of the warranties set out in clause 14.5 of the Sale Agreement, particularly the warranties:

“(i) to the best of the Vendor's knowledge and belief there are no substantial defects in the design, materials or workmanship of the plant and equipment included in the sale;

...

(j) the entire plant and equipment included in the sale has been maintained and, repaired by the Vendor as required and is at the date of this deed in reasonable working condition

...

(o) the Vendor is not aware of the breach of the conditions of any licence, permit or authority relating to the Business or to the use of the Premises, or of any prosecution or action taken or threatened to cancel, suspend, revoke or to impose restrictions or conditions on any such licence, permit or authority;

...

(p) the Vendor has not received, and is unaware of there being at the date of this deed, any unsatisfied notices, orders or requirements of the local Government or other statutory authorities affecting the Premises regarding the conduct of the Business, including related to:

(i) the existence and adequacy of facilities and amenities at the Premises;

(ii) compliance with local Government, factories and shops legislation and regulations;

(iii) public health or fire safety;

(iv) pollution or environmental protection;”

26 The only evidence of the amount of damages is arguably the amounts set out in paragraphs (a), (b) and (c) above. The claim in (d) is a stand-alone claim which does not seem to be disputed.

27 The defendants argue there is no material provided which would indicate whether or not the works were necessary as a result of rectification of defective works or part of a general maintenance program and in those circumstances the amount of the claim is a mere assertion unsubstantiated by any tangible facts. Further, the defendants have asserted there is no causal connection between the offsetting claim and any breach of warranty or may have arisen in respect of the performance of functions after the sale of the business.

28 The Court’s task in assessing an offsetting claim has been dealt with in a number of cases. For instance, in Edge Technology Pty Ltd v Lite-On Technology Corp [2000] NSWSC 471; (2000) 18 ACLC 576, Santow J had the following to say at paras 24 and 25:

“It is here again true (as it was in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456) that it “is not my task in the present proceedings to seek to resolve the competing claims of the Plaintiff and the Defendant”: per Austin J at 462. Rather, it is to “resolve whether, for the purposes of s 459(H)(1)(a), there is a genuine dispute between the Plaintiff and the Defendant about the existence or amount of the debt to which the Defendant’s statutory demand relates”: Austin J at 462. Or alternatively, whether there is a genuine counter-claim, set-off or cross-demand against the Defendant and if so, in what amount. In particular, how should it be quantified; at a nominal $1 or at a large figure and if the latter, how is the quantification to be arrived at? The latter question essentially asks whether the counter-claim or set-off is fictitious or merely colourable; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Limited (No 2) (1994) 12 ACLC 490; 13 ACSR 787. In that context, to come up with a plausible contention to (sic) requiring further investigation which, if later established, would preclude there being an offsetting claim. That would not establish that the counter-claim or set-off was fictitious, or merely colourable. In that sense, the counter-claim or set-off is not the reciprocal of the statutory demand debt. Rather it is a means of offsetting the statutory demand debt with a genuine counter-claim or set-off.

I adopt the approach of the Full Federal Court in Spencer Constructions Pty Limited v G&M Aldridge Pty Limited [1998] HCA 53; (1997) 15 ACLC 1,001 at 1,011[1997] FCA 681; , (1997) 76 FCR 452 at 464; that a genuine dispute requires that “the dispute be bona fide and truly exist in fact” and that the “grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived”. The same applies to the counter-claim or set-off. One asks: Is it bona fide, is it real and not spurious?”

29 He later went on to say:-

“For the demand to be set aside on the basis of the demand debt being genuinely disputed, it must be established by the Plaintiff that the dispute concerning its existence is bona fide and not spurious, hypothetical, illusory or misconceived: Spencer's Case (supra). In other words, there must be a plausible contention requiring further investigation which genuinely puts in dispute the debt which grounds the statutory demand. But the merits are not now to be determined beyond the preliminary testing as to whether there is a serious question to be tried. The alternative basis for the demand to be set aside or reduced by reason of an offsetting claim involves, as I have said, a different test. The question is not whether there is a genuine dispute in the above sense against the offsetting claim. The question is rather whether the "offsetting claim" can be shown to be "not frivolous or vexatious"; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. That places a heavier onus on the party seeking to maintain its statutory demand, than if it merely had to establish the reciprocal of a genuine dispute against the offsetting claim.

30 There is evidence which has been admitted which contains assertions that the works quantified in (a) and (c) are for works necessary to bring the plant up to a standard to allow it to function as required by Sydney Water. There is a quantification and an apportionment of time in respect of employees engaged on this task.

31 The evidence is not detailed but there is a basis put forward for arriving at these amounts. I appreciate that fine points may be put forward as to causation but it seems to me that there is an offsetting claim which is not frivolous or vexatious. The amount would be $173,231.96.

32 The orders I make are as follows:

1. The statutory demand served on the plaintiff by the defendants dated 26 August 2008 to be set aside.

2. The defendants to pay the plaintiff’s costs of the proceedings.

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LAST UPDATED:
23 July 2009