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Supreme Court of Victoria - Court of Appeal |
![[AustLII]](70.1.gif)
Supreme Court of VictoriaLast Updated: 5 May 2008
COURT OF APPEAL
No 5429 of 2007
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WHERE HELD:
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DATE OF HEARING:
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DATE OF JUDGMENT:
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MEDIUM NEUTRAL CITATION:
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INSOLVENCY – Application to set aside creditor’s statutory demand claiming debts for labour hire services.
Whether genuine dispute over, or off-setting claim for, breach of agreement to achieve WorkCover premium reduction – Whether sufficiently evidenced or plausible – Corporations Act 2001 (Cth) ss 459G, 459H.
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APPEARANCES:
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Counsel
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Solicitors
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For the Appellant
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Michael Sifris SC with
Jonathan Evans |
DLA Phillips Fox
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For the Respondent
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Robin Brett QC with
Simon Gardiner |
MacPherson & Kelley
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1 For the reasons given by Dodds-Streeton JA, I agree that the appeal should be dismissed.
2 I have had the advantage of reading the draft judgment of Dodds–Streeton JA. For the reasons stated by her Honour, I agree that the learned trial judge was not in error in concluding that the respondent had a genuine dispute or off-setting claim in the context of an application to set aside a statutory demand pursuant to section 459G of the Corporations Act 2001 (Cth). The appeal should be dismissed.
3 In this appeal, the appellant, Frank Marchetti & Sons Pty Ltd
(‘Marchetti’), appeals from the judgment of a judge
of the trial
division made on 18 September 2007. His Honour allowed the appeal of the
respondent, TR Administration Pty Ltd (‘TRA’),
from a Master’s
decision made on 2 July 2007 to dismiss Marchetti’s application to set
aside TRA’s statutory demand
dated 2 March 2007 (‘the statutory
demand’). He also ordered that the statutory demand be set aside and that
TRA pay
Marchetti’s costs of the appeal and the application before the
Master.
4 The appellant appeals on the following principal grounds:
(1) The trial judge erred in holding that the evidence was sufficient to support a genuine claim that the appellant agreed to achieve savings of WorkCover premiums for the respondent.
(2) The trial judge erred in holding that the indemnity contained in the agreement between the appellant and the respondent dated 1 October 2002 ... was sufficient to establish any such prior oral agreement between the parties.
(3) Alternatively, the trial judge should have held that the evidence was not sufficient to establish that it was arguable that any such prior oral
agreement included a term that the appellant had agreed to achieve savings of WorkCover premiums for the respondent.
(4) The trial judge erred in holding that the respondent had a valid offsetting claim in relation to the fees properly charged by the appellant in the sum of $55,593.95.
(5) The judge should have held in particular, that the respondent did not have a valid offsetting claim –
(a) based on any scheme argument;
(b) based on a claim for “damages or restitution or howsoever for the fees of some $58,343” paid by the respondent to the appellant;
(c) based on any failure to achieve the primary objective of the scheme.
Background and Evidence
5 The background to the appeal is as follows.
6 Marchetti is a trucking
company which, in 2002, employed a number of employees for whom it paid
WorkCover premiums and payroll tax.
7 The amount of the WorkCover premiums
was determined by reference to Marchetti’s predominant activity, Long
Distance International
Road Freight Transport. The payroll tax was assessed on
its total payroll and did not apply until that reached a specified minimum
amount.
8 In late 2002, Ross Taylor, Marchetti’s longstanding external
accountant who is, inter alia, the sole director of TRA, proposed
to it a scheme
aimed at the lawful reduction of its WorkCover premiums and payroll
tax.
9 The scheme involved the use of five outsourcing labour hire companies,
including TRA, which would provide administrative services
staff to Marchetti.
It was envisaged that reductions could be achieved because the administrative
services classification attracted
a lower WorkCover premium than Long Distance
International Road Freight Transport and Marchetti’s total payroll would
be lower.
10 Mr Taylor was a director of TRA only. TRA and the other four
companies (collectively, ‘the employer companies’) entered
agreements with Marchetti to implement the scheme.
11 A letter on TRA’s
letterhead, signed by Mr Taylor as ‘director’, to Frank Marchetti of
Marchetti, dated 1 October
2002 stated:
Labour Outsourcing – Victoria
Thank you for appointing us with effect from 1 October 2002 to provide your Victorian business with administration personnel.
Services
We have already engaged staff in Victoria to meet your requirements, and we have made application for Workcover insurance in Victoria.
On a weekly basis employees will be provided with a Pay Slip setting out their gross, tax, other deductions [eg child support and voluntary super], and net pay.
On an annual basis, each employee will be given a Group Certificate which will be generated from our computer payroll system. The superannuation provider will provide them with their annual member’s statement.
Fee
As we discussed, we will invoice you on a weekly basis according to net wages paid, plus our outsourcing fee. At the end of each month, or when other payments such as PAYG, Superannuation, and Workcover premiums are required to be paid, these will be invoiced to you, again plus our outsourcing fee. Of course , all invoices will bear GST.
At this stage, as our Australian payroll is well below the threshold for Payroll Tax, this impost will not be relevant. However, if, at some future date, we are required to register for Payroll Tax, this cost will also be invoiced to, plus our outsourcing fee, and GST.
Indemnity
As is the case with all outsourcing and bureau arrangements, you will need to indemnify us for all costs, expenses, disbursements and liabilities incurred on your behalf. For example, this indemnity would include liability for income tax rate changes, changes in direct and indirect labour costs, both prospectively and retrospectively. This would also include re-rating by various authorities such as workcover, payroll tax, superannuation and any costs incurred as a result of re-rating or audit.
As you have acknowledged when agreeing to this indemnity, it doesn’t really impose any further obligations on you than you were previously exposed to when you were employing staff in Victoria.
Termination
Although we are confident you will enjoy economies which will flow from the administrative efficiencies in outsourcing, if you wish to vary or terminate this arrangement, we will require one month's notice in writing from you.
Of course, upon receipt of notice of termination, we will cooperate fully and promptly with you in the hand-over period until you engage staff to take over the roles our staff were previously fulfilling.
We would not seek any termination penalties, other than recoupment of costs incurred or arising from our provision of outsourcing services to you, regardless of whether such costs arise before during or after termination of this outsourcing arrangement.
Naturally, if there were any outstanding fees due to us we would expect them to be paid before we retreat from the relationship.
We trust that the above information accurately reflects the basis of our relationship. If you are satisfied that it does, we would be grateful if you would sign the enclosed copy of this letter and return it to us. We have provided you with a signed copy of this letter for your records.
We look forward to working with you.
Yours sincerely
R D Taylor
Director
12 Between October 2002 and October 2006, TRA supplied Marchetti with
administrative staff.
13 In 2005, WorkCover reviewed the operations of the
employer companies providing personnel to Marchetti pursuant to the scheme.
By
a letter to TRA dated 6 June 2006, it advised that the employer companies
were operating from workplaces that were incorrectly
recorded. It determined
that, as the companies were hiring staff solely to Marchetti, which was
exercising operational control and
direction, from 1 July 2004 the employer
companies and Marchetti would be treated as members of the same group within the
meaning
of the relevant WorkCover legislation. Marchetti’s premises would
be their deemed common workplace for the purpose of determining
the predominant
activity and relevant industry rating.
14 Due to WorkCover’s
determination, the administrative staff supplied to Marchetti by the employer
companies were reclassified
as working in Long Distance Interstate Road Freight
Transport and the applicable WorkCover premiums for the current and previous
years of the scheme were reassessed.
15 A review subsequently occurred, but
WorkCover maintained its initial determination.
16 By a letter to Marchetti
dated 1 May 2007, WorkCover advised that pursuant to s 66A of the Accident
Compensation (WorkCover Insurance) Act 1993, Marchetti was jointly liable to
WorkCover for any premiums (including adjusted premiums and penalties) payable
by any member of
the group of employer companies during its period of deemed
membership.
17 WorkCover therefore sought direct payment from Marchetti of
the sum of $359,396.77 in relation to the incorrectly calculated premiums
from
October 2002, made up as follows:
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for the 2004/2005 policy period;
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$136,462.83
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for the 2005/2006 policy period; and
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$96,724.40
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for the 2006/2007 policy period
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(‘the WorkCover debt)’).
18 Marchetti terminated the agreement with TRA by the letter of its lawyers, Macpherson & Kelly Lawyers Pty Ltd, dated 12 October 2006, which stated:
FRANK MARCHETTI & SONS PTY LTD
We refer to the arrangement for labour out-sourcing.
The arrangements with you for the supply of labour is [sic] terminated effective as at close of business 9 October 2006.
The reasons for the termination is that it is alleged by the Victorian Workcover Authority that the arrangements are not bona fide, and penalties are being sought to be imposed, and grouping provisions. This seems to the then resulting in a claim against our client.
Our client rejects completely that the scheme has not been bona fide [at least insofar as it is concerned and was led to believe] and now finds itself embroiled in that process, with a potential for exposure.
You will recall in the Agreement itself the representations made, and the reliance placed upon the representations made at the time about the efficacy of the relationship.
This conduct has placed the business in very serious jeopardy, and our clients look to you and the directors personally for full indemnity.
Our clients will no longer contribute to the costs incurred by you with Fisher Cartwright Berriman, and indeed view the involvement of Fisher Cartwright Berriman, again based on your advice and recommendation, to be a clear conflict of interest.
Our client also has a claim against you and the Directors personally and others for its damage, including the monies paid to you for fees charged for providing the services of the company.
All future correspondence in relation to these matters are to be directed through us and not the client direct.
Yours faithfully
Macpherson + Kelly
DAVID LUCAS
Principal
19 By the statutory demand served on Marchetti pursuant to 459E(1) of the
Corporations Act 2001 (Cth) (‘Corporations Act’), TRA claimed
payment of debts described in the schedule, totalling $242,398.92.
20 The
schedule listed 28 invoices dated from 31 January 2006 to 16 January 2007. The
invoices referred to labour hire, being net
wages and an outsourcing fee.
Almost 80 percent of the $242,398.92 related to a single invoice, Invoice 7130,
which was for $186,804.97.
The balance of $55,593.95 related to 27 invoices for
amounts ranging between $163.86 and $19,932.
21 The affidavit of Ross Taylor
sworn 2 March 2007 accompanying the statutory demand relevantly stated:
22 Mr Taylor deposed that the invoices for the supply of personnel services
pursuant to the Agreement between 31 January 2006 and
25 January 2007 remained
unpaid.
23 Marchetti, by an originating process dated 29 March 2007, applied
pursuant to s 459G of the Corporations Act to set aside the statutory
demand.
24 By an affidavit sworn 29 March 2007 in support of the application
to set aside the statutory demand, Stephen Campbell, the chief
executive officer
of Marchetti, deposed on information and belief that Mr Taylor had had a long
and detailed involvement in Marchetti’s
affairs, was its ‘external
accountant and trusted adviser in regards to all aspects of the Company’s
business’
and had ‘a thorough understanding of the Company’s
financial affairs...’. He deposed that:
[i]n or about September 2002, .... Mr Taylor implemented a scheme that was meant to be an economical alternative to [Marchetti] employing labour directly and as such, its workcover premiums would be significantly reduced. As part of the scheme, Mr Taylor was to arrange for various companies to be set up as labour hire companies and in return for this, each company would receive a percentage fee of wages and other expenses invoiced. In effect, the percentage to be charged was calculated by Mr Taylor to split the savings to be made by [Marchetti] on workcover premiums between [Marchetti] and the labour hire companies.
25 Mr Campbell further deposed:
[o]n or about 1 October 2002 [TRA] provided to [Marchetti] an agreement for the supply of labour to [Marchetti] by [TRA] (“the Agreement”) and labour hiring commenced.
...
Pursuant to the Agreement, [TRA] was entitled to render invoices for fees for its services in providing labour hire to [Marchetti].
26 Mr Campbell deposed that Mr Taylor was integral to the construction of the
scheme, the Agreement and alleged amended Agreement
(which increased the
percentage fee). Further, he was ‘informed by Mr Marchetti ... that they
relied on the advice of Mr Taylor.
As a result of the same, [TRA] has obtained
financial advantage, as has its director, Mr Taylor indirectly.’
27 Mr
Campbell stated that, as Mr Taylor was aware, ‘[s]ince possibly as early
as 2003’, the scheme came to WorkCover’s
attention. He deposed to
WorkCover’s subsequent determination, the unsuccessful review and
Marchetti’s consequent termination
of TRA’s services. He stated
that, as a result of WorkCover’s determination, ‘the labour hire
arrangement between
[Marchetti] and [TRA] was completely ineffective in its
purpose. That is, there has been no saving at all made by [Marchetti] on
workcover premiums.’ He therefore asserted a total failure of
consideration.
28 In relation to Invoice 7130, Mr Campbell asserted that,
because Marchetti was currently being pursued by WorkCover for the sum
comprising the WorkCover premium component of $178,932.27, it disputed its
liability to pay that sum.
29 Further, because WorkCover had assessed
Marchetti as liable for additional WorkCover premiums in relation to incorrectly
calculated
premiums, Marchetti counterclaimed for the repayment of all service
fees it had paid to TRA, on the ground of total failure of
consideration.
30 Mr Campbell also asserted that Marchetti had a counterclaim
for misleading and deceptive conduct against Mr Taylor and TRA, as
it had
suffered loss and damage as a result of the scheme, including the service fees
it had paid to TRA and the WorkCover debt.
Further, or alternatively, it had a
counterclaim against TRA based on the negligence of Mr Taylor and/or
TRA.
31 Mr Taylor, by an affidavit sworn 2 May 2007, disputed that
TRA’s service fees represented a split of savings. Rather, he
asserted
that from 2002 to date, TRA charged service fees calculated as a percentage of
the cost to TRA of paying the employees it
supplied to Marchetti, together with
all statutory charges. The percentage was originally 3 per cent and increased
to 4 per cent
from January 2006.
32 Mr Taylor acknowledged ‘that the
primary objective of the arrangement between [TRA] and [Marchetti] was to reduce
[Marchetti’s]
WorkCover premiums...’, but stated that the secondary
objective of reducing Marchetti’s payroll tax liability had been
substantially achieved.
33 Mr Taylor asserted that ‘[i]t was never a
term of any agreement between TRA and [Marchetti] that TRA would be required to
repay any Service Fees if there was no saving made by [Marchetti].’ He
also deposed that Marchetti had made significant savings
on its WorkCover
premiums for the years 2002 to 2004.
34 He deposed that all amounts referred
to in Invoice 7130 relating to WorkCover premiums related to personnel supplied
by TRA to
Marchetti.
35 Mr Taylor stated that he was unaware of any basis for
a misleading or deceptive conduct or negligence claim against TRA or himself.
36 Mr Campbell, by a second affidavit sworn 16 May 2007, again denied that
Invoice 7130 was due and payable and contended that TRA
had not satisfied the
liability for $186,804.97 which, in any event, should be paid directly to the
WorkCover Authority.
37 He referred to WorkCover’s review of the
premium liability from 1 October 2002 and its demand, served on Marchetti, for
$359,396.97
for unpaid WorkCover premiums and penalties, calculated from 1 July
2004 in respect of the employer companies, which amount exceeded
TRA’s
claimed debt.
38 He deposed that Marchetti:
denies that this liability would have arisen but for the failed labour hire arrangements proposed and set up by [TRA] and Mr Taylor. If [TRA] and/or Mr Taylor had provided proper advice and had set up labour hire companies with proper work place addresses then Marchetti would not have been exposed to liability for the WorkCover demand.
39 Mr Campbell reiterated that under the scheme suggested by Mr Taylor
Marchetti and the employer companies, including TRA, would
share
Marchetti’s savings resulting from the use of the scheme. He deposed that
the service fee was not reflective of actual
cost to the entities and that Mr
Taylor, TRA and the other employer companies did not incur any significant costs
in providing the
employees to Marchetti.
40 Mr Campbell deposed that Mr
Taylor invoiced Marchetti through his accounting firm, ‘Figured
Out’, for all his involvement
regarding WorkCover, even if arising in
relation to TRA or the other employer companies. He also instructed solicitors
on behalf
of his own accounting company, TRA, the other employer companies and
Marchetti.
41 By his second affidavit sworn 7 June 2007, Mr Taylor deposed to
a creditor’s statutory demand dated 19 December 2006 for
$164,859.98
served on TRA by WorkCover and a subsequent winding up application dated 3 April
2007, which was resolved by an agreement
between TRA and WorkCover.
42 By his
third affidavit sworn 7 June 2007, Mr Campbell deposed that Invoice 7130 for
$186,804.97 comprised WorkCover’s overdue
account statement for
$178,931.96 to TRA, together with TRA’s 4 per cent service fee. The
WorkCover overdue account was issued to TRA as a result of its adjusted premiums
for the period from 2002
onwards, together with penalties, as a result of the
audit. The only WorkCover premium amount TRA sought in the statutory demand
thus related to the increased premiums and penalties, which would not have
arisen, but ‘for the failed labour hire arrangements
proposed and set up
by [TRA] and its director Mr Taylor’. Mr Campbell asserted that TRA
‘is not entitled to seek an
indemnity from [Marchetti] for liabilities
that it has incurred solely as a result of its failure to set up a labour hire
arrangement
which compiled with the requirements of the Workcover legislation
and the [Victorian WorkCover Authority].’
43 Marchetti had, he deposed,
engaged a new labour hire company, Network Personnel Pty Ltd, which had its own
workplace. Marchetti
now paid a WorkCover premium below that applied to TRA
under the WorkCover audit. Therefore, Marchetti should not be liable to
indemnify
TRA for premiums attributable to its ineffective business set up, as
the WorkCover demand for $359,396.97 was attributable solely
due to TRA’s
failure to have its own complying workplace.
44 On 2 July 2007, the Master
dismissed Marchetti’s application to set aside the statutory demand on the
basis that the letter
of 1 October 2002 contained the entire agreement between
TRA and Marchetti which, by its indemnity clause, clearly covered the
liabilities
(expressly including re-rating) claimed in the statutory demand.
Further, he considered that Marchetti’s cause of action
against Mr Taylor
did not extend to TRA.
45 The Master stated:
An agreement was entered into by [Marchetti] for [TRA] to provide to [Marchetti] with administration personnel. [Marchetti] was to be invoiced on a weekly basis according to net wages paid plus an outstanding fee. The agreement contained an indemnity for all costs, expenses, disbursements and liabilities incurred on behalf of [Marchetti]. The indemnity related to re-rating by various authorities such as Workcover and payroll tax.
The scheme failed in relation to workers’ compensation payments but not payroll tax. The scheme in relation to Workcover did not comply with the requirements of Workcover legislation and Workcover payments have been re-assessed. [TRA] has done what it is required to do pursuant to the agreement and has provided the labour services.
The fact that Mr Taylor is a director of [TRA] does not enable [Marchetti] to claim a genuine dispute against [TRA]. There is clearly an arguable offsetting claim but not against [TRA]. On the evidence before the Court, any application against [TRA] would be summarily dismissed. There is no credible evidence before the Court, which could lead to the conclusion that there is an offsetting claim against [TRA].
...
A Counterclaim for loss and damage in the sum of $80,770 for service fees that have already been paid is claimed. Any claim in that regard should ... be made against Mr Taylor personally and not [TRA].
The Judgment below
46 The learned trial judge outlined the factual background and relevant legal
principles.
47 His Honour concluded that Marchetti had established a good
defence or, more probably, a good off-setting claim, to the debt claimed
in
Invoice 7130.
48 Invoice 7130 totalled $186,804.97, comprising additional
WorkCover premiums and penalties imposed through the reclassification
of
TRA’s employees ($162,665.40), service fees thereon ($7157.28) and GST on
those amounts ($16,982.27). His Honour found
that there was sufficient evidence
to support a genuine claim that TRA had breached an oral term of the agreement
which obliged it
to achieve savings by attracting a lower rate of premium than
applied to administration staff as employees of Marchetti. The breach
arguably
led to the incurring of the additional premiums and penalties in Invoice 7130.
49 His Honour referred to the letter of 1 October 2002 and stated:
I turn to the agreement itself, which is Exhibit SJC4, and in particular I refer to the indemnity which is set out at the top of page 2. I should indicate that the letter is under the letterhead of TR addressed to Mr F. Marchetti of Frank Marchetti & Sons Pty Ltd and signed by R.D. Taylor, Director. Under the heading "Indemnity", the letter provides:
"As is the case with all outsourcing and bureau arrangements, you will need to indemnify us for all costs, expenses, disbursements and liabilities incurred on your behalf. For example, this indemnity would include liability for income tax rate changes, changes in direct and indirect labour costs, both prospectively and retrospectively. This would also include re-rating by various authorities such as WorkCover, payroll tax, superannuation, any costs incurred as a result of re-rating or audit.
As you have acknowledged when agreeing to this indemnity, it doesn’t really impose any further obligation on you than you were previously exposed to when you were employing staff in Victoria."
The letter refers to Mr Marchetti agreeing to this indemnity thereby confirming, what is apparent, that there was a prior oral agreement between the parties. The letter has to be read in the light of the oral agreement there referred to. The evidence of the oral agreement we have is limited to the evidence given on the information and belief by Mr Campbell referred to above. Under the heading of "Termination", it is provided in the first paragraph of the letter of 1 October 2002:
"Although we are confident you will enjoy economies which will flow from the administrative efficiencies in outsourcing, if you wish to vary or terminate this arrangement, we will require one month's notice in writing from you."
In my view, the evidence that I have referred to and which includes the necessary inferences which must be drawn from the words in the letter is sufficient to support a genuine claim that TR had agreed to achieve savings in respect of administration staff through them being rated at a lower rate than they currently bore as employees of Marchetti. In my opinion there is sufficient evidence to raise a genuine claim, whether it be by way of defence or counter-claim, to argue that TR has failed to perform its agreement and its failure to do so has led to the incurring of the additional premiums and penalties that are the subject of Invoice 7130.[1]
50 He concluded that for the invoices other than Invoice 7130, which totalled
$58,343 for service fees and GST, Marchetti did not
have a defence of total
failure of consideration.
51 His Honour accepted, however, with some
reservations, Marchetti’s argument that it had an offsetting claim for
fees of $58,343
paid to TRA for services provided in the financial years
2004/2005, 2005/2006 and 2006/2007, based on the failure of TRA and the
other
employer companies to achieve the reduced WorkCover premiums, for which each
company was jointly and severally liable.
52 Alternatively, his Honour
accepted that Marchetti had an offsetting claim for damages or restitution in
relation to the claim for
$58,343.
53 He concluded that Marchetti had a
genuine claim for damages to the extent of the fees incurred, as the primary
objective of the
scheme was not achieved. It sufficed, his Honour said, that
the claim was open to be genuinely made and it was unnecessary for him
to
‘fine tune’ the quantum of any damages.
54 Section 459 G of the Corporations Act provides:
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
55 Section 459H of the Corporations Act provides:
(1) This section applies where, on an application under section 459G , the Court is satisfied of either or both of the following:
(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.
(2) The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total — Offsetting total
where:
admitted total means:
(a) the admitted amount of the debt; or
(b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates.
offsetting total means:
(a) if the Court is satisfied that the company has only one offsetting claim — the amount of that claim; or
(b) if the Court is satisfied that the company has 2 or more offsetting claims — the total of the amounts of those claims; or
(c) otherwise — a nil amount.
(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a) varying the demand as specified in the order; and
(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5) In this section:
admitted amount, in relation to a debt, means:
(a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt — a nil amount; or
(b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt — so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c) otherwise — the amount of the debt.
offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
respondent means the person who served the demand on the company.
(6) This section has effect subject to section 459J.
56 The Court, in the context of an application to set aside a statutory demand,
must determine whether there is a genuine dispute
about the existence or amount
of the debt or whether the company has a genuine off-setting claim.
57 No
in-depth examination or determination of the merits of the alleged dispute is
necessary, or indeed appropriate, as the application
is akin to one for an
interlocutory injunction. Moreover, the determination of the ‘ultimate
question’ of the existence
of the debt should not be
compromised.[2]
58 On appeal, the sole
question is usually whether the primary judge erred in determining that there
was, or was not, a genuine dispute
or off-setting claim. That is, of course, a
different question from whether the debt exists.
59 As Brooking and Charles
JJA observed in Spacorp Australia Pty Ltd v Myer Stores Ltd
(‘Spacorp’):[3]
The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. 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.
We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.[4]
60 In Spencer Constructions Pty Ltd v G A M Aldridge Pty Ltd
(‘Spencer’),[5] the Full Federal
Court cited a variety of different formulations of the principles applicable to
determining the existence of a genuine
dispute or off-setting claim. Their
Honours considered the different articulations helpful, but warned that they
should not become
a substitute for the words of the statute.
61 As
recognised by Heerey J in Gribbles Pathology (Vic) Pty Ltd v Shandford
Investments Pty Ltd,[6] any tendency to
‘trawl through a myriad of judgments’ and plethora of formulations
is equally to be avoided.
62 The Full Federal Court in Spencer concluded
that:
In our view a genuine dispute required that the dispute be bona fide and truly exist in fact.
The grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.[7]
63 That statement was endorsed by Ormiston JA (with whom Brooking and Charles
JJA agreed) in Spacorp.
64 One of the many formulations referred to by the
Full Federal Court in Spencer was that of McClelland CJ in Equity in Eyota Pty
Ltd v Hanare Pty Ltd,[8] where his Honour
stated:
It is, however, necessary to consider the meaning of the expression ``genuine dispute'’ where it occurs in s 450H. 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 inquiry 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.
...
These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry 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.
65 In Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said:
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 examination 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).
I respectfully agree with those statements.[9]
66 In the present case, the appellant stressed the formulation of ‘a
patently feeble legal argument or an assertion of facts
unsupported by
evidence’ set out in South Australia v
Wall.[10]
67 In South Australia v Wall, the
Full Court of the Supreme Court of South Australia construed the meaning of the
phrase ‘genuine
dispute’ in a different legislative context. The
Workers’ Compensation Act 1971-1979 (SA) required an employer to pay
compensation to a worker for personal injury, but by s 53(3)(b) of the Act
provided for the Court to order that payments not apply
in relation to so much
of the claimed compensation as was the subject of a genuine dispute.
68 Cox J
(with whom Mitchell and Walters JJ agreed), observed that under the relevant
provisions, absent establishing a genuine dispute,
an employer was liable to pay
compensation immediately on the basis of the employee’s assertions and
materials (which could
be limited or unpersuasive). The policy underlying the
establishment of a genuine dispute was to ensure that an employer did not
have
to pay compensation (which was ordinarily irrecoverable) on a claim that was
unmeritorious.[11] In such circumstances, his
Honour considered that a dispute that was not supported by ‘independently
obtained evidence’
would not inevitably fail to qualify as
genuine.
69 Cox J stated that, bearing in mind the policy, there was good
reason for giving the words ‘genuine dispute’ a plain
and
uncomplicated meaning as a safeguard against allowing a colourable and insincere
denial of liability to frustrate the goal of
the provisions.
70 He rejected
the view that any objective appraisal of the dispute was appropriate. His
Honour stated that while ‘a patently
feeble legal argument or an assertion
of facts unsupported by evidence would more readily disincline the Court to
consider the dispute
to be a genuine one, so far as the employer is
concerned’, [12] the merits were
otherwise not relevant. Only a dispute which was frivolous or ‘one made
without adequate inquiry and consideration’
would run the risk of not
being considered genuine.[13]
71 As the
terms of s 459H of the Corporations Act and the authorities make clear, the
company is required, in this context, only to establish a genuine dispute or
off-setting claim.
It is required to evidence the assertions relevant to the
alleged dispute or off-setting claim only to the extent necessary for
that
primary task. The dispute or off-setting claim should have a sufficient
objective existence and prima facie plausibility to
distinguish it from a merely
spurious claim, bluster or assertion, and sufficient factual particularity to
exclude the merely fanciful
or futile. As counsel for the appellant conceded
however, it is not necessary for the company to advance, at this stage, a fully
evidenced claim. Something ‘between mere assertion and the proof that
would be necessary in a court of law’ may suffice.
A selective focus on a
part of the formulation in South Australia v Wall, divorced from its overall
context, may obscure the flexibility
of judicial approach appropriate in the
present context if it suggests that the company must formally or comprehensively
evidence
the basis of its dispute or off-setting claim. The legislation
requires something less.
72 As Barrett J recognised in Solarite Air
Conditioning Pty Ltd v York International Australia Pty
Ltd:[14]
the task faced by a company seeking to set aside a statutory demand on the “genuine dispute” ground is by no means at all a difficult or demanding one.[15]
A rigorous curial approach is nevertheless essential to the effective operation
of the statutory scheme.
73 As in the present case, the relevant issues are
frequently presented and argued more extensively or with different emphases on
appeal and it may be difficult to draw the line between, on the one hand,
evidence which is of a quality and particularity sufficient
to support a genuine
dispute or off-setting claim, and, on the other hand, that which is not.
74 The appellant contended that there was insufficient evidence to support his
Honour’s finding of a genuine dispute or offsetting
claim based on an
arguable breach of contract.
75 Although the appellant conceded that there
was evidence of antecedent discussions and a prior oral agreement between
Marchetti
and TRA, it argued that there was no evidence of any terms additional
to those contained in the letter of 1 October 2002. In particular,
there
could be no implied or oral term, or representation, to the effect that TRA
would achieve reductions in premiums, as that was
inconsistent with the express
terms of the letter of 1 October 2002. The letter provided for the supply of
administration personnel,
and the indemnity clause required Marchetti to
indemnify TRA for the liabilities TRA thereby incurred on its behalf, expressly
including
liabilities for re-rating or audit by authorities such as WorkCover.
The appellant further emphasised that the letter contained
no contractual
warranty that TRA would achieve the relevant savings. The indemnity thus
precluded a finding of a guarantee or promise
that savings would be achieved.
It contemplated that the steps to be taken by TRA could be ineffective, but
provided that irrespective
of re-rating or audit, Marchetti would be
liable.
76 The appellant further argued that a term or representation to the
effect that TRA would achieve reductions, as found by his Honour,
was
unsupported by any credible evidence.
77 The evidence of Mr Campbell, on
which the trial judge relied, was, counsel submitted, vague and unsatisfactory.
Mr Campbell initially
deposed only that Mr Taylor proposed and implemented the
scheme for the purpose of achieving reductions. No discussions between
Messrs
Taylor and Marchetti were set out. In subsequent affidavits, Mr Campbell
asserted that the failed labour hire arrangements
‘were proposed and set
up by [TRA] and/or its director Mr Taylor’ who failed to ‘provide
proper advice’ and
failed to ‘set up labour hire companies with
proper work place addresses’, thus giving rise to a counterclaim against
them for misleading and deceptive conduct. There was, however, counsel
submitted, no factual basis for identifying TRA with its
sole director, Mr
Taylor, in relation to the proposal or implementation of the scheme. Rather,
the evidence established that the
agreement between TRA and Marchetti was a
narrow labour hire contract, fully documented by the letter dated 1 October
2002, albeit
concluded as an element of the wider scheme proposed by Mr Taylor
alone.
78 As such, the appellant submitted that his Honour’s inference
that TRA represented or agreed that it would achieve the WorkCover
premium
reductions was contrary to the express terms of the letter dated 1 October and
based on speculation, contrary to the principles
recognised in Nesterczuk v
Mortimore[16] and Lend Lease Development Pty
Ltd v Zemlicka.[17] The judge was not, it
argued, entitled to conclude that there was breach of an oral term to the effect
that TRA had agreed to achieve
savings, or that any liability of Ross Taylor for
negligent advice or breach of duty sounded against TRA. Further, the appellant
contended that reductions in payroll tax had been achieved, so the scheme had
succeeded in part.
79 In my opinion, in the present case, the trial judge did
not err in concluding that there was sufficient evidence and factual
particularity
to render it arguable that TRA agreed to achieve the WorkCover
savings, which it failed to do, thus incurring the additional premium
and
penalties included in Invoice 7130.
80 It is, in my view, arguable, as the
trial judge held, that the terms of the agreement or arrangement between
Marchetti and TRA
are not exhaustively set out in the letter dated 1 October
2002. The appellant ultimately did not press its contention that there
was no
oral agreement, or dispute that there were antecedent discussions between Mr
Taylor and Marchetti in relation to the scheme.
81 Mr Taylor’s role
in proposing and implementing the scheme does not preclude his making an
agreement or representation on
behalf of TRA (an entity he wholly controlled and
which derived revenue from the scheme), to the effect that reductions would be
achieved or, more probably, that TRA would take reasonable and competent
measures in order to achieve them. It is common ground
that TRA commenced its
labour hire operation in order to implement the scheme, the primary purpose of
which was to achieve a reduction
in premiums. The letter of 1 October 2002
speaks as ‘we’ and arguably blurs the separate legal identity of TRA
and Mr
Taylor. It also states ‘[w]e are confident that you will enjoy
economies which will flow from the administrative efficiencies
in
outsourcing’. That express assurance tends to undermine the
appellant’s contention that TRA was wholly divorced from
the wider scheme
and made no representations or promises as to the achievement of its primary
purpose. While the letter does not
state that TRA has any obligation necessary
for that purpose (such as classifying the employees appropriately), as the trial
judge
recognised, arguably the agreement does not make sense unless there was
some obligation on TRA to achieve the primary purpose of
the scheme.
82 Mr
Campbell’s evidence was that the scheme was already implemented in
September 2002, prior to the letter of 1 October 2002.
The letter makes clear
that an agreement or arrangement was already in place, as the appointment of
TRA, although only operative
from 1 October 2002, was taken to be already
achieved. The letter refers to ‘previous discussions’ and states
that ‘we
have already engaged staff in Victoria to meet your
requirements.’
83 The indemnity clause also refers expressly to a prior
agreement. It states ‘[a]s you have acknowledged when agreeing to
this
indemnity, it doesn’t really impose any further obligations on you than
you were previously exposed to when you were employing
staff in Victoria’
(emphasis added). It further states ‘you will need to indemnify us for
all costs, expenses, disbursements
and liabilities incurred on your
behalf’. It provides examples of the liabilities covered by the
indemnity, stating ‘this
would also include re-rating by various
authorities such as workcover’, but does not purport to set them out
exhaustively.
84 While the appellant contended that the indemnity is
exhaustive and unqualified, it is arguable that Marchetti’s liability
is
limited by reference to its existing exposure to obligations, so that
liabilities in the nature of penalties, or which exceeded
the then applicable
quantum, would not be covered.
85 The letter of 1 October 2002 is a
summary and relatively informal document, which assumes a prior oral agreement.
Arguably, it
does not exhaustively set out the terms of the agreement between
Marchetti and TRA, which may have included an implied or oral promise
that the
scheme would constitute an economical alternative to Marchetti’s current
direct labour hire or that reasonable and
competent steps would be taken to
reduce its WorkCover premiums.
86 The evidence of Mr Campbell, including of
the WorkCover demands, re-rating and penalties, WorkCover debt and the lower
premiums
currently paid pursuant to Marchetti’s arrangement with Network
Personnel Pty Ltd, renders it arguable that although it was
possible to achieve
lawful reductions, TRA failed to do so, and instead attracted penalties.
87 The appellant’s contentions that the letter of 1 October 2002
unarguably constitutes a discrete, narrow contract, divorced
from the wider
context of the scheme, and that the evidence establishes a strict separation of
the roles and legal obligations of
TRA and its sole director, are not, when
analysed in context, persuasive.
88 The appellant’s approach, in my
view, conflated a reasonable inference and assessment of plausibility which his
Honour was
entitled to make on the available evidence, with speculation.
89 His Honour distinguished between the claim under Invoice 7130 and the
remaining 27 invoices for a total of $55,593.95, which related
to fees properly
charged for labour hire. His Honour’s different and more reserved
approach to the off-setting claim in relation
to the remaining invoices, was, in
my opinion, unnecessary.
90 Having held it arguable that TRA agreed, but
failed to achieve the premium reductions (or to take competent and reasonable
steps
to do so), it followed, in my view, that the trial judge was also entitled
to conclude that, as Marchetti was arguably liable jointly
and severally with
the employer companies for WorkCover premiums and penalties totalling
$359,396.77 due to TRA’s breach, there
was an off-setting claim in
relation to the balance of the invoices.
91 In my opinion, the trial judge did not err in concluding that the respondent had a genuine dispute or off-setting claim. It follows that the appeal should be dismissed.
[1] Frank Marchetti & Sons Pty Ltd v TR Administration Pty Ltd [2007] VSC 352 (Unreported, Supreme Court of Victoria, Robson J, 18 September 2007) [22]-[24].
[2] Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270.
[3] [2001] VSCA 89; (2001) 19 ACLC 1270, [4]-[5].
[4] Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) VSCA 89, [3]-[4].
[5] [1997] FCA 681; (1997) 76 FCR 452.
[6] [2004] FCA 1466; (2004) 51 ACSR 578, [22].
[7] Spencer Constructions Pty Ltd v G A M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, 464.
[9] Eyota Pty Ltd v Hanare Pty Ltd (1994) 12 ACSR 785, 787.
[10] (1980) 24 SASR 189, referred to in Eyota Pty Ltd v Hanare Pty Ltd (1994) 12 ACSR 785.
[11] South Australia v Wall (1980) 24 SASR 189, 194.
[12] Ibid.
[13] Ibid.
[15] Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWCA 411, [23].
[16] [1965] HCA 60; (1965) 115 CLR 140.
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