SHARVINE PTY LTD v BRIDGE & MARINE ENGINERING PTY LTD [2001] NSWSC 833

New South Wales Supreme Court

CITATION : SHARVINE PTY LTD v BRIDGE & MARINE ENGINERING PTY LTD [2001] NSWSC 833 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 2969/00 HEARING DATE(S) : 19 September 2001 JUDGMENT DATE : 21 September 2001

PARTIES : Sharvine Pty Limited ACN 080 518 396 (Plaintiff) Bridge and Marine Engineering Pty Limited ACN 059 317 396 (Defendant) JUDGMENT OF : Acting Master Berecry at 1

COUNSEL : B. Coles QC (Plaintiff) W. Stark (Defendant) SOLICITORS : Cowley Hearne (Plaintiff) Clayton Utz (Defendant) CATCHWORDS : Application to set aside demand - test establishing genuine dispute - low threshold - nature of the evidence - must be more than mere assertion - failure to join joint creditors - whether a mere defect LEGISLATION CITED : Corporations Act ss 459E, 459H, 459J Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 CASES CITED : Edge Technology v Lite-On Technology Corporation (2000) 34 ACSR 30 Frederico's Restaurant v Warwick Entertainment (1995) 18 ACSR 702 Manzo v 555/225 Pitt Street Pty Ltd (1990) 2 ACSR 809 Re A & K Holdings Pty Ltd [1964] VR 257 DECISION : para 24

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

ACTING MASTER BERECRY

FRIDAY, 21 SEPTEMBER 2001

2969/00 – SHARVINE PTY LTD v

BRIDGE AND MARINE ENGINEERING PTY LTD

JUDGMENT

1 MASTER: On 6 June 2000 the defendant prepared a statutory demand for service on the plaintiff in respect of an alleged debt of $150,000. An affidavit in support of the demand was sworn by Joanne Elizabeth Thomas on 31 May 2000. The demand and supporting affidavit were served on the plaintiff on 9 June 2000. Thereafter on 29 June 2000 the plaintiff filed and served an originating process seeking to set aside the demand. The originating process was supported by an affidavit of Stephen Dale Merritt sworn on 28 June 2000. The application to set aside the demand therefore was brought within time.

BACKGROUND

2 The debt in the statutory demand relates to a project the parties were involved with for the development of a coal terminal in Newcastle. The project commenced in 1996 and the parties involved at the commencement of the project were Austrack Pty Limited (Austrack), the defendant in these proceedings and a related company, Rowe and Thomas (NSW) Pty Limited (Rowe and Thomas). Throughout 1997 Brambles conducted due diligence in respect to the project. In late 1997 the plaintiff was incorporated. The plaintiff is a company within the Brambles group. In 1996 the defendant prepared certain material and submitted it to a German company, Krupp Engineering (Krupp). On 9 December 1997 an agreement was reached that Sharvine would take over Austrack's interests in the project. 3 On 12 January 1996 a deed was entered into between Austrack, Rowe and Thomas and the defendant. That document was called 'Civil and Structural Design and Construct Development Deed'. In the deed the defendant and Rowe and Thomas were to act as engineering design consultants and provide specialised civil and structural engineering services. The deed made provision for a number of matters but in particular at clause 4.3 under the heading 'Completion of Conceptual Design of the Essential Elements' it provided as follows: The Consortium must complete its Conceptual Design of the Essential Elements and deliver that Conceptual Design to the Principal as soon as reasonably possible after the Operative Date, in consideration for which, the Principal must pay the Consortium $150,000.00 within 14 days of delivery.

The deed defined the following expressions found in that clause: Operative Date, Essential Elements and Conceptual Design. Schedule 1 to the deed described the Essential Elements as:

(1.1) precast prestressed conveyor stringer berm, and

(1.2) coal stockyard structural components.

The defendant's evidence is that it undertook work in relation to the deed during 1996. Some of the material prepared by the defendant was subsequently provided to Krupp in Essen, Germany. Krupp was to be the designated supplier of mechanical components for the project. 4 After the plaintiff had completed its due diligence it concluded negotiations with Austrack for the purposes of replacing Austrack in the project. On 9 December 1997 Austrack and the plaintiff executed an asset sale agreement. Also on that day a deed of novation was prepared in respect of the original deed between Austrack, Rowe and Thomas and the defendant. 5 The Civil and Structural Design and Construct Development Deed dated 9 December 1997 sets out the terms of the relationship between the parties. It is helpful to recite a number of relevant parts of that document. The first part of the deed is the interpretation provisions and the following expressions are defined:

Conceptual Design means a set of general arrangement drawings together with a set of reports discussing design brief, site conditions, structural solutions and construction methodology proposed of sufficient detail to enable detailed design.

Essential Elements means the items listed at paragraph one of Schedule 1.

Schedule 1 paragraph 1 sets out the following:

1. Essential Elements

The Essential Elements comprise the following: 1.1 Precast prestressed conveyor stringer berm

Describes a support structure for elevated conveyor magazines which limits environmental effects on surroundings as well as providing a structural capacity.

1.2 Coal stockyard Structural Components

Stockyard berms of precast concrete façade panels, either tied across sand filled berms, or acting in conjunction with a reinforced soil block berm. Berms are to carry a reinforced concrete grillage to support coal handling machines tracks, conveyors, and a drainage system. Berm foundations are to be enhanced by rock piles. The stockyard distribution bridge and connections are to be of precast concrete berm decks supported on piled piers.

Operative Date means the date of the assets sale agreement.

The deed contains four clauses dealing with payment by the plaintiff to the defendant. It is noted that under three of these four clauses there is a dispute between the parties and the amounts under those clauses are not the subject of the application to set aside the statutory demand. The amount under the statutory demand is to be found in clause 4.3. See paragraph 3 above. Under the deed the Consortium is Rowe and Thomas (NSW) Pty Limited and Bridge and Marine Engineering Pty Limited. The principal in the original deed was Austrack Pty Limited but by deed of novation and amendment the principal became Sharvine Pty Limited. 6 The plaintiff's evidence is that Mr Merritt on behalf of the plaintiff negotiated with Mr Thomas on behalf of the defendant prior to the execution of the development on 9 December 1997 in respect to the definitions of Conceptual Design and Essential Elements. The plaintiff's evidence is that Mr Thomas provided the wording included in the development deed for Essential Elements. In early 1998 the project team was created. It consisted of representatives of Krupp, the designated supplier of mechanical components, the defendants and Rowe and Thomas as the supplier of civil works, Gutteridge Haskins and Davey as design engineers, CEMTEC Pty Limited (CEMTEC) as technical advisor, Robert Taylor of Austrack as the original promoter and representatives of the Brambles group of companies as the potential operator of the facility. Thereafter meetings were held on a regular basis. The plaintiff asserts that the defendant never provided it with the conceptual design of the essential elements. Meetings were held throughout the first half of 1998 at which meetings there were representatives from all members of the project team. However, the plaintiff's evidence is that the representative from the defendant did not attend the meetings on a regular basis from about March 1998. This to some extent is denied by Mr Thomas, the representative of the defendant. 7 The plaintiff's evidence is that, despite repeated requests to the defendant for the delivery of the conceptual design, it was not delivered. Because of the failure of the defendant to provide the conceptual design the project was starting to lose its momentum. As a result of that by June 1998 arrangements were made with CEMTEC and Krupp for those two members of the project team to prepare the concept design for the essential elements. It is the plaintiff's evidence that ultimately the design was provided by those two members. The plaintiff's evidence is that at the various project meetings that were held Mr Thomas was asked when the conceptual design of the essential elements was going to be finished. On each occasion it is asserted he replied to the effect 'I will get to it fairly soon' or 'I will have the drawings by the end of the week'. By May 1998 the plaintiff was still waiting for the designs from the defendant. There is evidence from Robert Harborow who was the sole director of CEMTEC. Conversations he held with Mr Thomas in late May 1998 were to the effect that Mr Thomas was still endeavouring to produce the conceptual design for the essential elements. In late May 1998 it is alleged that Mr Thomas informed Mr Harborow that the drawings and sketches were going to be CAD drafted so that they would be ready by early June. The evidence is that that material was never supplied. 8 The defendant's evidence, however, differs markedly from that of the plaintiff. Mr Thomas is the manager of the defendant company and a director of Rowe and Thomas. His evidence is that the material required for the conceptual design of the essential elements was produced by the defendant prior to the deed of 9 December 1997. The material produced by the defendant was subsequently sent to Krupp in Germany and was used by Krupp and CEMTEC to prepare the relevant material which was subsequently made available to the project team in 1998. Therefore, the defendant asserts that it has complied with its obligations under the deed and therefore is entitled to the payment of $150,000.00. The evidence indicates that the material that was produced by the defendant was in sketch form. However, there is no evidence from the defendant that it was actually delivered in accordance with the deed, ie, to the principal, namely the plaintiff. There is evidence that Mr Merritt and Mr Harborow attended the defendant's offices and spoke to a Mr Anderson. This meeting took place well after Brambles had elected not to proceed with the project. The meeting took place on 7 March 2000. At that meeting Mr Anderson pointed to a table and informed Mr Harborow and Mr Merritt that the documents scattered over a table were the documents which constituted the conceptual design of the essential elements. 9 There was correspondence between the parties' solicitors after the issue of a statutory demand in March 2000. In that correspondence the plaintiff asserts that there is a genuine dispute between the parties in relation to the payment of $150,000.00. The defendant's solicitor denies any genuine dispute between the parties in respect to that amount.

LEGAL PRINCIPLE 10 It is clear from the authorities that an application under s 459H of the Corporations Act requires the Court to do no more than embark on a consideration of the factual contentions of the parties to determine whether or not there is a genuine dispute. It is not the role of the Court to embark on an extended inquiry or to attempt to weigh the merits of the dispute or resolve that dispute. In Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785 @ 787-788 McLelland CJ in EQ considered the meaning to be given to the expression 'genuine dispute': It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 495H. 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 as an assertion of facts unsupported by evidence': cf South Australia v. Wall (1980) 24 SSR 189 at 194. In Re Morris Catering (Australia) Pty Limited (1993) 11 ACSR 601 Thomas J stated at 605: There is little doubt that Div 3… prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court's examinations are the ascertainment of whether there is a 'genuine dispute' and whether there is a 'genuine claim'. It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simple – to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).

In Chadwick Industries (South Coast) Pty Limited v Condensing Vaporisers Pty Limited (1994) 13 ACSR 37 at 39 Lockart J said: Certainly the court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute. The notion of a 'genuine dispute' in this context 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.

Finally in Edge Technology v Lite-On Technology Corporation (2000) 34 ACSR 30 Santow J said: The threshold presented by the test to set aside a statutory demand does not however require of the plaintiff a rigorous and in-depth examination of the evidence relating to the plaintiff's offsetting claim… One still needs to look in that forensic context at the available evidence and the arguments which rely on it… This is to test if there be merely 'an assertion of facts unsupported by evidence', or something of more substance than that (at 309).

Therefore, the exercise the court is to embark on merely requires the plaintiff to establish to the court's satisfaction that its evidence is sufficient to establish the genuineness of a claim but need not be sufficient to establish the merit of that claim. The threshold that has to be established is quite low. See Frederico's Restaurant v Warwick Entertainment (1995) 18 ACSR 702.

WHETHER THERE IS A GENUINE DISPUTE 11 The development of the coal terminal at Newcastle involved a number of parties in the project. The project involved a number of phases. As I understand the evidence there were at least three phases. They were the concept, the design and the development of the project. The defendant and Rowe and Thomas were involved in the concept and design stage as is apparent from the deed. They were to develop the concept design of the essential elements. At the outset there seems to be some confusion about what constituted the work involved in the concept design and what work should have been attributable to other phases in the project. 12 In order to test the genuineness of the dispute it is necessary to look at the evidence each party relies on. Mere assertion in an affidavit that there is or there is not a dispute is not sufficient to establish one way or another whether or not there is a genuine dispute. It is necessary to look at the evidence in the affidavit any documents annexed to or exhibited as a part of the affidavit, and any other material of the surrounding facts and circumstances of the alleged dispute. Similarly it is not sufficient for a party to produce a letter flagging a dispute without any supporting material which would establish that the letter is no more than mere bluster or assertion. 13 The defendant's evidence is to be found in the affidavit of Mr Thomas and the bundle of documents that was exhibited to that affidavit. Both Mr Thomas' evidence and submissions made on behalf of the defendant seek to establish that there is no genuine dispute between the parties in respect of the $150,00.00. The evidence of Mr Thomas is that the documents contained in the bundle of documents exhibited to his affidavit establish that documents were prepared in accordance with the deed and at the very least were delivered to Krupp in 1996. 14 Counsel on behalf of the defendant submitted that the $150,000.00 payable pursuant to clause 4.3 of the deed should be characterised as a deposit of monies that may subsequently be payable by the plaintiff to the defendant. However, on reading clause 4.3 it appears to me that that clause stands alone and is not characterised a deposit but as a separate and complete payment upon conditions of that clause being met. 15 It was submitted on behalf of the defendant that not only the plaintiff but also Mr Harborow of CEMTEC Pty Limited did not understand the nature of the work to be performed by the defendant or understand the differences of the project and that there was confusion in their minds as to what constituted conceptual design and what tasks were a part of the design stage and development stages of the project. It was argued at length that much of the evidence of Mr Harborow goes to the design phase and not the conceptual stage. The defendant contended that the concept stage required little more than conceiving an idea and making no more than sketches of that concept. It was also contended that some of the evidence on behalf of the plaintiff was inconsistent. By way of illustration it was said that both Mr Harborow and Mr Merritt seemed to have a clear understanding of what constituted the concept phase and what constituted the design phase and yet their evidence is inconsistent because they confuse the requirements of the concept and design phases. However, in my view their evidence merely pointed out that the intention was that the concept stage required some detail, therefore, something more than merely sketching the concept. The definition in the deed to my view governed what was required of the parties. 16 The definition of conceptual design in the contract is a term of art. Therefore, one cannot rely solely on a dictionary definition of 'concept'. The definition in the deed required the following elements: (i) a set of general arrangement drawings (ii) a set of reports discussing the design brief, site conditions, structural solutions and construction methodology. 17 Those two components were necessary and were required to be of sufficient detail to enable detailed design. The evidence of both Mr Merritt and Mr Harborow was that at no time was the conceptual design material provided by the defendant and the material that they saw with Mr Anderson some years later did not satisfy the requirements of the definition. Enquiries that they made with Krupp were that some material was delivered. However, other project members did not have material delivered to them. True it is that Mr Harborow was not involved in the conceptual phase but his evidence is that the material that was necessary at the conceptual design stage was essential to budgeting forecasts that needed to be done to determine the viability of the project. That material then had to be placed before the Brambles board for the purposes of determining whether or to what level funding would be provided by Brambles for the project. In my view on the issue of what constituted 'conceptual design' under the contract it is clear that there is dispute between the parties about the meaning of that definition and the work that was required to be carried out. 18 The plaintiff's evidence is that the defendant produced nothing that complied with clause 4.3 between January and May 1998. There is evidence of a number of conversations between various project members and Mr Thomas in relation to the conceptual design. The plaintiff's evidence is that Mr Thomas informed the parties during these conversations that the design would be produced in the near future. That continued during the period January to May 1998. Towards the end of that period the plaintiff's evidence is that Mr Thomas told Mr Merritt that the conceptual design work had been done prior to November 1997. In fact it was done in 1996 and submitted to Krupp in Germany. The defendant submits therefore, that as there had been compliance with clause 4.3 it was entitled to the payment of $150,000.00. 19 However, in my view there appears to be a genuine dispute in relation to that contention. Firstly, there is no evidence from the defendant that any work done by it in relation to clause 4.3 was delivered to either Austrack prior to December 1997 or to the plaintiff post 1997 in accordance with the terms of that clause of the deed. It would seem to me that there was a fundamental breach concerning delivery. Perhaps it is arguable that this is too narrow an interpretation of the clause and it should be interpreted to mean that delivery could be to any member of the project team. Once again that seems to be a live issue between the parties. 20 The plaintiff's evidence is that Mr Merritt and Mr Thomas had discussed prior to 9 December 1997 the appropriate wording to describe the functions that the defendant and Rowe and Thomas were to perform in relation to the conceptual design aspects of the project. There is also evidence of conversations between Mr Merritt and Mr Thomas concerning the progress of that work. It would seem that if there was any substance to Mr Thomas' evidence concerning later conversations with Mr Merritt about the conceptual design having been prepared in 1996 and given to Krupp then that is a matter that I would have thought that he would have raised in earlier conversations. One would assume that when he was invited by Mr Merritt to chose suitable wording for the task to be performed in relation to the conceptual design of the essential elements he would have informed Mr Merritt of the work that was performed in 1996 under the original contract and perhaps provided Mr Merritt with copies of that work. That did not happen. In my view when the parties were discussing what would constitute the conceptual design for the essential elements it is arguable that in the minds of both parties, the concept design phase was to be performed after 9 December 1997. Therefore, in my view, there is a genuine dispute between the parties concerning when and what was the nature of the work performed or to be performed by the defendant in relation to the first phase of the project. 21 In was submitted that there were inconsistencies in the affidavit evidence of Mr Merritt concerning the meetings that were attended by Mr Thomas. On reading the relevant paragraphs of Mr Merritt's three affidavits it would appear that there are inconsistencies between the first two affidavits and the third affidavit. However, in my view, those inconsistencies are not so great as to cast doubt over the credibility of Mr Merritt's evidence generally and certainly do not go to the core of the dispute between the parties. Neither do those inconsistencies support any proposition that because of them one can only regard the plaintiff's evidence as mere assertion and bluster. For the above reasons, in my view, the plaintiff has established there is a genuine dispute with the defendant. Therefore, the plaintiff is entitled to the relief it seeks in the originating process.

SECTION 459E OF THE CORPORATIONS ACT 22 It was submitted on behalf of the plaintiff that not only was there a genuine dispute but that the statutory demand is invalid because it does not comply with the Corporations Act. Section 459E(2) makes provision for the contents of the demand and, inter alia, provides: 459E(2) [Contents of demand] The demand: (a) …… (f) must be signed by or on behalf of the creditor. 23 It was submitted on behalf of the plaintiff that where there are two or more creditors and they are owed a joint debt then they must by joined in the same notice and sign the demand. Counsel for the plaintiff relied on Manzo v 555/225 Pitt Street Pty Limited (1990) 2 ACSR 809 and Re A & K Holdings Pty Limited [1964] VR 257 for that proposition. I have already found that a genuine dispute in relation to the amount of $150,000.00 exists between the plaintiff and the defendant. Prima facie it would appear that the notice is defective and may not be saved by the provisions of s 459J(2). It would seem to me that it is arguable that failing to join a joint creditor and to have the demand signed by or on behalf of that joint creditor is a matter that could not be categorised as a mere defect and therefore the demand does not comply with the requirements of Part 5.4 of the Corporations Act. However, that may be arguable and in my view there is no need for me to make a determination in relation to those submissions.

ORDERS 24 Therefore, I make the following orders:

1. The creditor's statutory demand dated 6 June 2000 be set aside.

2. The defendant pay the plaintiff's costs.

oOo

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