Beauty Health Group Limited v Wendy Sholl [2011] NSWSC 77 (25 February 2011)

Last Updated: 15 April 2011

Supreme Court New South Wales

Case Title:	Beauty Health Group Limited v Wendy Sholl
Medium Neutral Citation:	[2011] NSWSC 77
Hearing Date(s):	23 February 2011
Decision Date:	25 February 2011
Jurisdiction:
Before:	Barrett J
Decision:	Originating process dismissed with costs
Catchwords:	CORPORATIONS - winding up - statutory demand - application for order setting aside - whether genuine dispute - whether offsetting claim - no matter of principle
Legislation Cited:	Corporations Act 2001 (Cth), ss 459G, 459H(1)(a). (b). 459H(2), 459H(5)
Cases Cited:	Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Scanhill Pty Ltd v Century 21 Australasia Pty Ltd [1993] FCA 618; (1993) 12 ACSR 341
Texts Cited:
Category:	Principal judgment
Parties:	Beauty Health Group Limited (Plaintiff) Wendy Sholl (Defendant)
Representation
- Counsel:	Counsel: Mr R D Marshall (Plaintiff) Mr K C Gourlie (Defendant)
- Solicitors:	Solicitors: Argyle Lawyers (Plaintiff) Watson & Watson (Defendant)
File number(s):	2010/309793
Publication Restriction:

Judgment

1. The plaintiff applies under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand date 25 August 2010 served on it by the defendant, a former employee.
   
2. The debt or alleged debt the subject of the demand is in the sum of $19,571.00 and is said by the defendant to be due under a deed of release made by the parties on or about 10 May 2010 in connection with cessation of the defendant's employment by the plaintiff.
   
3. In contending that the statutory demand should be set aside, the plaintiff relies on both the genuine dispute ground (s 459H(1)(a)) and the offsetting claim ground (s 459H(1)(b)).
   
4. I begin with the genuine dispute aspect, reminding myself of the approach to be taken by the court in a s 459H(1)(a) case as recently stated by the Court of Appeal of Western Australia (Murphy JA, Buss JA concurring) in Central City Pty Ltd v Montevento Holdings Pty Ltd [ 2011] WASCA 5 at [9] to [15]:
   

"[9] The expression 'genuine dispute', within the meaning of s 459H(1)(a) of the Act, connotes a plausible contention requiring investigation: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [44]. The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds: Createc v Design SignsAsian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 at [35]. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie: Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 at [30]. The court will not attempt to weigh or examine the merits of any dispute: Createc v Design SignsMibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290 at 295.

[10] Any claim by the company in dispute of the debt must be one which is 'genuinely believed [by the company] to exist': John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 25 0 at 25 3 .

[11] 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: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 78 7 ; Createc v Design Signs at [4]. Nor does it require the acceptance of a 'patently feeble legal argument' or 'matters of fact unsupported by evidence': Eyota v Hanave ; Jarpab Pty Ltd v Winter t/as Boldon Haulage (1994) 14 ACSR 255 at 261.

[12] In that context, Lockhart J said, in Chadwick Industries ( South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 3 7 at 39:

The notion of a 'genuine dispute' ... suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the Court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime.

[13] Similarly, in Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347 at 353, Lindgren J said:

Paragraph (a) of subs459H (1) and the definition of 'admitted amount' in subs459H (5) both refer to the existence of a 'genuine dispute', and the definition of 'offsetting claim' in subs459H (5) refers to the existence of a 'genuine claim'. Plainly, the intention is to refer to something more than the mere 'raising' of a dispute and the mere 'making' of a claim. The provisions assume that the dispute and offsetting claim have an 'objective' existence the genuineness of which is capable of being assessed. The word 'genuine' is included to sound a note of warning that the propounding of spurious disputes and claims is to be expected but must be excluded from consideration.'

[14] The dispute must exist at the time of the hearing of the application to set aside a statutory demand, and not at some other time: Mibor Investments Pty Ltd v Commonwealth Bank of Australia at (293). Likewise, the amount of any offsetting claim is to be considered as at the time the court is determining an application under s 459G, not as at the date of demand: Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675 at 69 7 .

[15] The onus is on the recipient of the demand to establish a genuine dispute: Moyall Investments Services Pty Ltd v White ( 1993) 12 ACSR 320 at 324; AX Business Systems Pty Ltd v Quality Image Pty Ltd [2004] FCA 724 at [22]; Azed Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54 at 5 7 ; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [ 2007] VSCA 121 ; (2007) 63 ACSR 30 0 at [140]."

5. The plaintiff's position on the genuine dispute aspect is that there is such a dispute as to, first, whether it ever became bound by the terms of the supposed deed of release and, second, even if it did, whether it was obliged to pay if the defendant did not satisfy a particular condition (which she did not do). There is no suggestion that the sum claimed in the demand does not accord, as to quantum, with the provisions of the deed, if there is a deed.
   
6. As to the making of the deed, one starts from the position that the form of document was prepared by Mr Phillips, a director of the plaintiff, who had carriage of discussions with the defendant regarding cessation of her employment. The document was discussed at a meeting in early May 2010 attended by him, the defendant and another employee of the plaintiff. The defendant took the document away with her.
   
7. On 11 May 2010, the defendant emailed to Mr Phillips what must have been a scanned copy of the execution page of the document that had been signed by her and a witness. She said in the email:
   

"Can you execute the attachment and return to me please. If it is an original let me know and I can call in to see you this week."

8. The defendant gave evidence that, after she had thus emailed a facsimile of the signed execution page, she sent to the plaintiff by courier the original document carrying the original signatures of herself and her witness.
   
9. On 14 May 2010, the defendant emailed again asking about "the status of the deed of release documentation". Later on the same day she asked by email for confirmation that amounts "due to be paid on 15 May 2010 as outlined in my deed of release" were "being paid today". She inquired about the payments again by email on 19 May 2010 and, two days later, said in an email:
   

"I am yet to receive a signed copy of the deed of release."

10. Mr Phillips' evidence is that, at several points after the defendant's first inquiry about the deed, he pointed out to her the need for her to come to the office to complete a "handover" - by which some other staff member would be made familiar with her work and enabled to carry on in her place. Mr Phillips says that he told the defendant that he would not give her the deed executed by the plaintiff until she had attended for the handover. Efforts to get the defendant to do this were ongoing and ultimately unsuccessful.
    
11. On 26 May 2010, the plaintiff paid the defendant $5,995.00. The form of deed contemplated the payment of this sum on 15 May 2010. It was this payment about which the defendant had been inquiring. There is no apparent reason why the plaintiff would have made this payment, except the provision appearing in the form of deed.
    
12. The defendant owns and controls a company called Pumpkinhead to which it will be necessary to refer in connection with the alleged offsetting claim. On or about 10 August 2010, Pumpkinhead served a statutory demand on the plaintiff. In a letter of 20 August 2010 to solicitors acting for Pumpkinhead, the plaintiff's solicitors said:
    

"Wendy Sholl and our client HLI Limited entered into a deed of release dated 10 May 2010 under which employment was terminated on certain terms."

13. The letter also said:
    

"Consequently our client and Wendy Sholl entered into a deed of release made on 10 May 2010 . . . "

14. And later:
    

"A copy of the deed is enclosed."

15. Enclosed with the letter was a document appearing to be a deed of release made between the plaintiff and the defendant on 10 May 2010, expressed and appearing to be signed, sealed and delivered by the defendant (whose signature appeared) in the presence of a witness (whose signature also appeared) and expressed and appearing to be "executed" by the defendant by Mr Phillips, a director (whose signature appeared without any attestation).
    
16. The statutory demand served by Pumpkinhead was withdrawn. Later, the statutory demand the subject of these proceedings was served. Service of that demand prompted a letter dated 3 September 2010 from the plaintiff's solicitors to the defendant's solicitors (the solicitors who had acted for Pumpkinhead in relation to the earlier statutory demand). That letter repeated that the parties had entered into a deed of release dated 10 May 2010 and alleged certain obligations of the defendant under that deed. Again, a copy of the deed was enclosed.
    
17. It is against this background that the plaintiff now seeks to say that there is a dispute as to the existence of the payment obligation that the defendant regards as created by the deed of release. The plaintiff purports now to question whether a part of the deed was duly executed by it, to question the efficacy of the execution by one director only and to say that the absence of signatures or initials from the foot of each page calls into question the effectiveness of the document as a deed. Reference is also made to the defendant's apparently fruitless attempts, after the meeting at which she was given the form of deed, to extract an executed original or counterpart from the plaintiff.
    
18. The plaintiff accepted and relied upon the existence of a valid and effectual deed when it suited it to do so. Its subsequent stance that there is a dispute as to the existence of the deed or its or effectiveness as a source of payment obligation can thus only be in the nature of recent invention. In addition, if the document actively propounded by the plaintiff as a deed of release when it was convenient for it to say that there was a deed of release does not reflect some of the formalities for the creation of a deed, the document's content - including mutual promises satisfying the need for consideration, signing by the defendant and signing by the director of the plaintiff with whom she negotiated - indicates its effectiveness as an agreement under hand.
    
19. The plaintiff says that it was a condition of its obligation to pay as contemplated by the document that the defendant participate in a handover and that she never did so. That position is stated explicitly in the plaintiff's solicitors' letter of 3 September 2010:
    

"It was a condition of the deed of release that Ms Sholl would undertake a hand over to appropriate members of HLI Limited's staff. Ms Sholl failed to attend our client's office to conduct the hand over."

20. It is plain on the face of the document propounded by the plaintiff as a deed of release on both 20 August 2010 and 3 September 2010 that it contains no such condition. There is no basis at all on which a contrary construction could be placed on it. It is also plain that the document contains an "entire agreement" clause of the familiar kind that would preclude the assertion of any collateral parol agreement imposing such a condition. Any dispute the plaintiff says there is as to its liability to pay in the absence of the defendant's participation in a handover is a dispute entirely without substance and therefore lacking genuineness.
    
21. The plaintiff has not shown to be genuine the dispute it asserts regarding the parties being bound in terms of the 10 May 2010 document and as to a collateral condition concerning participation in a handover is a genuine dispute. It is a dispute that the plaintiff set about piecing together once it no longer suited it to abide by its own stated position that the deed was binding on the parties - indeed, after it had, on 26 May 2010, made a payment to the defendant that was explicable only by reference to the deed. The plaintiff's attempt to establish a genuine dispute does not rise to the level of a plausible contention requiring further investigation.
    
22. The plaintiff's reliance on the s 459H(1)(a) ground is therefore unsuccessful.
    
23. I turn now to the plaintiff's contention that it has an offsetting claim in terms of s 459H(1)(b). That section, read in conjunction with the definition of "offsetting claim" in s 459H(5), requires the court to consider whether the plaintiff has a "genuine" claim against the defendant in respect of the matter raised. It is also necessary to ascribe an "amount" to any "genuine" claim in order to determine, under s 459H(2), the "offsetting total" which plays a central part in determining whether the "substantiated amount" is less than the statutory minimum of $2,000. The court's task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried ( Scanhill Pty Ltd v Century 21 Australasia Pty Ltd [1993] FCA 618; (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith ( Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious ( Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37).
    
24. The alleged offsetting claim has regard to processes by which the defendant was remunerated. She was, it is accepted, an employee of the plaintiff. A written employment contract dated 30 September 2009 is in evidence. The defendant's responsibilities related to bookkeeping, payroll and other similar functions.
    
25. Shortly beforehand, in August 2009, Pumpkinhead (the defendant's company) had entered into a consultancy contract with TBSC, a company that subsequently became a wholly-owned subsidiary of the plaintiff. Performance of that contract by Pumpkinhead entailed its making the defendant's services available to TBSC.
    
26. It became the practice of the defendant, during her employment by the plaintiff, to have Pumpkinhead submit to the plaintiff invoices for amounts that were in substance her remuneration. Technically, salary or wages should have been paid by the plaintiff to the defendant but the plaintiff routinely paid Pumpkinhead in accordance with the invoices submitted to it by Pumpkinhead and, at the same time, did not pay any salary or wages to the defendant. A course of conduct was followed under which, in effect, Pumpkinhead was paid instead of the defendant.
    
27. A consequence of this, however, was that the payments to Pumpkinhead were gross payments from which no PAYG deductions were made and remitted to the Australian Taxation Office, whereas, the plaintiff says, the correct procedure would have been for the plaintiff to make payments to the defendant net of PAYG deductions, with those deductions being remitted to the ATO.
    
28. Given the contractual position and the fact that there was a service agreement between the plaintiff and the defendant and no agreement at all between the plaintiff and Pumpkinhead, the position the plaintiff takes, as just outlined, must be accepted as correct.
    
29. This leads to the alleged offsetting claim that the plaintiff regards itself as having against the defendant. As a result of what happened over a period of some months with regard to payments, the plaintiff says, it paid $92,754.75 to Pumpkinhead when it should have paid $75,000 to the defendant plus $22,410 to the ATO on account of PAYG withholdings. The allegation is that the monthly amounts paid to Pumpkinhead in response to invoices rendered by it were, in every relevant month, greater than the amount payable to the defendant under the employment contract and that a liability for remittances to the ATO also arose on the part of the plaintiff.
    
30. On the bare facts stated to this point, one can conceive that the plaintiff might have a claim against Pumpkinhead to recover the amounts paid to that company and that the defendant might have a claim against the plaintiff for the unpaid remuneration under the employment contract, net of PAYG deduction. But what needs to be seen to support the plaintiff's s 459H(1)(b) case is a claim of the plaintiff against the defendant for the aggregate of:
    

(a) the amount by which sums actually paid to the plaintiff to Pumpkinhead exceeded sums that were payable by the plaintiff to the defendant under the employment contract (less PAYG deductions); and

(b) the PAYG deductions that the plaintiff would have remitted to the ATO in respect of salary payments to the defendant.

31. The plaintiff maintains that this aggregate represents the damages that it would be entitled to recover in an action for deceit against the defendant.
    
32. Two questions therefore arise: first, whether, on the facts as known at this point, the plaintiff has an arguable cause of action in deceit against the defendant; and if so, second, whether the damages would arguably be as the plaintiff postulates.
    
33. An action in tort for deceit is maintainable where one person, by a knowingly false statement, has intentionally induced another to act upon the statement to his or her detriment. Fraudulent intent is an element of the tort; and fraudulent intent must be proved by the party seeking damages.
    
34. The contention of the plaintiff seems to be that the defendant represented to the plaintiff that Pumpkinhead was legally entitled to payments, that those representations were false, that the defendant knew them to be false and that the representations induced the plaintiff to make to Pumpkinhead payments that it was not legally bound to make.
    
35. The only facts that could be put forward in support of an allegation of false representation are that the defendant, from time to time, submitted Pumpkinhead invoices to the plaintiff (or, more precisely, particular employees of the plaintiff) and asked that arrangements be made for the invoices to be paid - as they in due course were.
    
36. It is by no means at all clear how the plaintiff would show that the defendant knew to be false the representations of indebtedness made by her when she submitted the Pumpkinhead invoices. There was, after all, a consultancy agreement in force between the Pumpkinhead and TBSC - which, admittedly, was not the plaintiff but was a wholly owned subsidiary of the plaintiff such that the defendant might have had a well based belief that it was not dishonest to seek from the parent payments that the subsidiary was bound to make - particularly if, as in fact happened, the defendant did not seek to draw salary from the plaintiff.
    
37. The facts are consistent with a finding that the defendant honestly (but mistakenly) believed that it was proper for Pumpkinhead to be paid agreed consultancy fees and that these were, in a broad sense, her reward for the work she did within the plaintiff's group. It is, of course, significant that that defendant did not seek at the same time to be paid salary.
    
38. There is then a major question as to whether whatever the defendant said to other employees of the plaintiff actually induced the plaintiff to pay the Pumpkinhead invoices. By asking the other employees to arrange payment to Pumpkinhead, the defendant committed to the independent judgment of the plaintiff's officers the question whether Pumpkinhead should be paid.
    
39. Finally, there is the question of damage. An action for deceit does not lie unless the person acting on the representation thereby suffers loss.
    
40. Mr Phillips' evidence is that Pumpkinhead's twice monthly invoices were, for the period February to May 2010, each in the sum of $5,995. In earlier periods, the amounts were often less than this and on three occasions more. Mr Phillips further says that the amount of salary that the defendant should have been paid twice monthly was $5,000 less PAYG deduction.
    
41. But the deed of release proceeds on the clear footing that the defendant's entitlement was $5,995 twice monthly. Clause 1(a)(ii) of the deed provides for the payment of:
    

"$23,980.00 for two months in lieu notice of termination inclusive of GST payable in four instalments of $5,995.00 on 15 th May, 31 st May, 15 th June and 30 th June 2010 . . ."

42. The plaintiff can thus be seen to have embraced not only the proposition that the sum payable twice every month was $5,995 but also the applicability of GST, something that would be quite foreign to a payment by an employer to an employee. The plaintiff itself thus proceeded on the very footing inherent in the process by which the defendant submitted invoices to the plaintiff - except that the plaintiff did not recognise Pumpkinhead, as distinct from the defendant, as the appropriate payee. Furthermore and as has been seen, the plaintiff made a payment of $5,995 to the defendant on 26 May 2010 being apparently the payment due on 15 May 2010 under the deed.
    
43. To the extent that the plaintiff's foreshadowed deceit action will proceed on the footing that the plaintiff paid out $5,995 on occasions on which it was required to pay only $5,000, there is compelling evidence that, whatever the employment contract as originally adopted might have said, the defendant's remuneration was in truth in line with the Pumpkinhead invoices.
    
44. The damages calculation put forward by the plaintiff also has regard to the PAYG liability of the plaintiff. But the reality, from an employer's viewpoint, is that the outgoing and expense are the same whether remuneration takes the form of salary or wages part of which is deducted and remitted to the ATO or consulting fee not subject to such deduction.
    
45. The plaintiff's postulateded cause of action in deceit against the defendant is flimsy in the extreme. The necessary elements of dishonesty and reliance will almost certainly not be proved by the plaintiff (with which the onus will rest) and the prospects of the plaintiff showing damage are very weak indeed. In short, I am comfortably satisfied that the plaintiff has not shown that there is a serious question to be tried or any appreciable prospect whatsoever that damages for deceit would be recovered by it as against the defendant.
    
46. The s 459H(1)(b) ground is therefore not established.
    
47. In the result, the plaintiff's originating process is dismissed with costs.
    

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