In the matter of EPAQ International Pty Ltd

1. [1]

   By Originating Process filed on 10 July 2017, the Plaintiff, EPAQ International Pty Ltd (“EPAQ”) applies to set aside a creditor’s statutory demand dated 18 June 2017 (“Demand”) issued by the Defendant, Brandcraft Strategy and Design Pty Ltd (“Brandcraft”). The Demand was for the amount of $181,901, described in a schedule as “[o]utstanding invoices issued, inclusive of taxes, in respect of services rendered to [EPAQ] by [Brandcraft]”, and that schedule referred to three invoices dated 1 February 2016 in the amount of $10,793.20, 9 March 2016 in the amount of $22,451 and 22 December 2016 in the amount of $148,656.80, totalling the amount claimed.

2. [2]

   The Demand was verified by an affidavit of Mr Nicholas Beckhurst, a director of Brandcraft, dated 18 June 2017 which confirmed that amount was owed by EPAQ:

The affidavit evidence

1. [3]

   By way of background, it appears that EPAQ sells consumer products into China, largely or entirely through internet sites. Brandcraft provides advice as to branding and communication strategies and designs artwork and packaging for such products and provided such services to EPAQ.

2. [4]

   EPAQ relies on an affidavit dated 7 July 2017 of a director of EPAQ, Mr Andrew Brown, in support of the application to set aside the Demand. Brandcraft relies, in response to the application to set aside the Demand, on affidavits of its directors, Mr Beckhurst dated 21 July 2017 and Mr Sauerman dated 23 July 2017. Mr Beckhurst’s affidavit exhibits voluminous contemporaneous documentation dealing with the relationship between EPAQ and Brandcraft and the work undertaken by Brandcraft on EPAQ’s account and also takes issue with Mr Brown’s evidence. Although orders were made by the Court permitting reply evidence, Mr Brown did not respond to that evidence. It is not possible, in an application of this kind, to reach findings as to the credit of Mr Brown on the one hand and Messrs Beckhurst and Sauerman on the other, particularly where none of them was cross-examined. In this context, I recognise that Brandcraft unsuccessfully sought an adjournment, in the midst of the hearing, in order to give notice requiring Mr Brown for cross-examination, which it had not previously done. That adjournment was not permitted for reasons that I indicated in a separate judgment.

3. [5]

   Mr Brown’s evidence, by way of assertion (Brown [3]) is that:

4. [6]

   Brandcraft tenders documentary evidence which suggests that these conversations cannot have occurred in the terms set out in Mr Brown’s affidavit, at least at the commencement of the relationship between EPAQ and Brandcraft. The contemporaneous correspondence and meeting notes, including an email sent by Mr Brown to Messrs Beckhurst and Sauerman on 19 November 2015, suggest that EPAQ was not dealing with the “Seabirds” website or the “Seabirds’ platform” when it first sought Brandcraft’s services. It appears that EPAQ was dealing with another Chinese entity, Quanjian, in late 2015 (Beckhurst [11]; Ex D1, 3) and was then looking to place products on the “WeChat” platform (Beckhurst [14]–[15]; Sauerman [8]–[9]) rather than on the “Seabirds” platform. The contemporaneous evidence, including several of the reports prepared by Brandcraft in the course of its work for EPAQ (Ex D2), also indicates that the brand names “Natural Brand Company” and “Ce Soir” were only later developed by Brandcraft, probably in January 2016, as part of the services that it provided to EPAQ. Mr Brown’s evidence (Brown [10]) is also that:

5. [7]

   Mr Brown’s evidence (Brown [11]) is also that:

6. [8]

   Mr Brown’s evidence is that the several payments that were in fact made by EPAQ to Brandcraft were made towards expenses and the hiring of external staff by Brandcraft (Brown [12]–[14]). That evidence anticipates the possibility that it would be, and it was, put that the fact of those payments is inconsistent with the suggested agreement that EPAQ would not be required to pay Brandcraft’s fees until the relevant products were taken up. Mr Brown also refers (Brown [15]) to protests made by him, after the Demand was issued, that that “was never the arrangement” and to an offer then made by EPAQ for part payment of the amount claimed, on the basis that the balance would be released, and to Brandcraft’s counter-offer to accept a payment, with the balance to be dealt with by a payment plan, which was not accepted by EPAQ. Mr Brown also leads evidence (Brown [16]), not in admissible form and without any detail, that other contractors to EPAQ have also worked on the project on a speculative basis.

7. [9]

   Mr Brown also anticipates the evidence led by Brandcraft of invoices issued to EPAQ by responding that he would advise Mr Beckhurst, on receipt of such invoices, that that was “not agreement between our companies that you will be paid in accordance with these invoices” and that Mr Beckhurst responded that he was just recording the work that had been done by Brandcraft. Mr Brown’s evidence (Brown [20]) is also that EPAQ has never agreed or signed any costs estimates provided by Brandcraft and that (Brown [21]):

8. [10]

   Turning now to the affidavit evidence on which Brandcraft relies, Mr Beckhurst acknowledges that he had a conversation with Mr Brown in relation to an opportunity for EPAQ to put products on the “Seabirds” website, but dates that conversation in 2016, consistent with the contemporaneous correspondence relating to the development of that opportunity, rather than 2015. Mr Beckhurst refers to the fact that, in 2015, again consistent with the contemporaneous correspondence, EPAQ was dealing with the Quanjian Group as its potential Chinese client rather than with the “Seabirds” website. Mr Beckhurst gives a detailed account, supported by contemporaneous documentation, of the subsequent development of the relationship, and rejects Mr Brown’s evidence that there was no discussion about what Brandcraft would get paid or that there was an agreement that Brandcraft would be paid nothing until the products that it worked on “took off and started to make a profit”. Mr Beckhurst in turn refers to numerous price estimates given in the course of Brandcraft’s work for EPAQ, again reflected in the contemporaneous correspondence, and to negotiations for a volume discount and an instalment payment regime on the basis that EPAQ was a new company and would give Brandcraft a lot of work.

9. [11]

   Mr Beckhurst’s evidence (Beckhurst [26]) is that, on 24 December 2015, Mr Brown directed Brandcraft to go ahead with work on the proposed additional brands for the China market, on the basis of a new price estimate and payment proposal issued by Brandcraft on that day, Mr Beckhurst indicated that he would send the first invoice for an upfront amount due to Brandcraft and Mr Brown said that he would “look after the payment”. Mr Beckhurst also refers to a further conversation on 25 January 2016, which implicitly acknowledges an obligation to make payment, by Mr Brown apologising for not having done so (Beckhurst [28]). Mr Brown did not lead evidence to respond to those conversations in reply, although his evidence in chief would be inconsistent with that evidence.

10. [12]

    The first reference to dealings between EPAQ and “Seabirds” appears to occur in early March 2016, when Mr Brown refers to an expected “big deposit” from “Seabirds” as the means by which EPAQ will pay Brandcraft the amount that it is owed (Beckhurst [40]). Again, Mr Brown leads no evidence to challenge that conversation, in reply, although it is inconsistent with the evidence which he leads in chief. Mr Beckhurst refers to a further conversation with Mr Brown in September 2016 (Beckhurst [42]) in which Mr Brown again referred to an imminent payment from China and to his wish to pay Brandcraft, and requests that the “People for Plants” work be taken off the summary account invoice to facilitate that payment (Beckhurst [42]). Mr Beckhurst also refers to email correspondence following up on payment, including an email dated 17 March 2016 (Ex D1, 98) where Mr Beckhurst asked Mr Brown to “work out a plan B regarding paying us”, where Mr Brown had not heard from China, and Mr Brown responded on 17 March indicating that EPAQ was expecting a deposit payment from “Seabirds” to be transferred as soon as possible (Ex D1, 98). Mr Beckhurst also denies Mr Brown’s evidence that nothing was due to Brandcraft until products were taken up by Seabirds (Beckhurst [51]).

11. [13]

    Mr Sauerman also denies any agreement to the effect that Brandcraft would only get paid when the products that it worked on “took off and started to make a profit” (Sauerman [4]) and his evidence is that he had never entered into such an agreement in 30 years in advertising and brand creation and development and that:

12. [14]

    Mr Sauerman also refers to representations made by Mr Brown as to payment to Brandcraft, from monies to be sent by its “China partners” in January 2016 (Sauerman [10]) and to subsequent reasons given by Mr Brown for EPAQ’s inability to pay Brandcraft (Sauerman [11]). Mr Sauerman also refers to a conversation on 25 May 2016, recorded in contemporaneous handwritten notes (Ex D3, 4) which refer to a drawdown in funds by Quanjian at the end of June, for $20 million, of which 80% would be allocated to brands that Brandcraft had been working on so that EPAQ “will finally be able to pay all of your outstanding invoices”. That evidence, if accepted at a substantive hearing, would be inconsistent with Mr Brown’s evidence that no amounts were due.

13. [15]

    The first invoice that is the subject of the Demand, relating to work on the “People for Plants” products, was sent by Brandcraft to EPAQ on 2 February 2016 (Beckhurst [33]; Ex D1, 81–84). Several payments were made by EPAQ to Brandcraft after that invoice, in the first half of February 2016 (Ex D1, 86, 90). A second invoice that is the subject of the Demand, also relating to work on the “People for Plants” products, was issued on 9 March 2016 (Beckhurst [39]; Ex D1, 91). The third and largest invoice relates to the “Natural Brand Company” and “Ce Soir” branded products.

14. [16]

    Both parties also rely on an email dated 10 May 2016, by which Mr Beckhurst wrote to Mr Brown and others at EPAQ advising that:

The applicable legal principles

1. [17]

   I now turn to the applicable legal principles, which are well established although not always easy to apply to the facts of particular cases. Mr Johnson refers to my summary of the relevant case law in Re Creata (Aust) Pty Ltd (No 2) [2017] NSWSC 1090 at [13]–[22], and I have drawn on that summary below. Section 459H(1)(a) of the Corporations Act 2001 (Cth) provides that a creditor’s statutory demand may be set aside when the Court is satisfied that there is a genuine dispute about the existence or amount of a debt to which that demand relates. The test for a “genuine dispute” has been variously formulated as requiring that the dispute is not “plainly vexatious or frivolous” or “may have some substance” or involves “a plausible contention requiring investigation” and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (“Eyota”). McLelland CJ in Eq also there observed that the Court need not:

2. [18]

   In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a “genuine dispute” must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at [16], Barrett J summarised the principle as follows:

3. [19]

   In Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44], Young AJA (with whom Hoeben JA and Ward J agreed) similarly noted that the question for a primary judge, in determining an application to set aside a statutory demand under s 459H(1)(a), is:

4. [20]

   In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, the Court of Appeal at [30]–[31] and [39]–[55], the Court of Appeal in turn referred to the relatively low minimum requirements for demonstrating a genuine dispute or an offsetting claim, although the Court was there addressing the latter. The Court of Appeal there noted (at [30]) that:

5. [21]

   The Court of Appeal also observed (at [36]) that, although there must be evidence that satisfies the court that there is a serious question to be tried or an issue deserving of a hearing or a plausible contention requiring investigation as to the existence of an offsetting claim:

6. [22]

   In Re Diveva Pty Ltd [2015] NSWSC 509, I observed (at [26]) that:

7. [23]

   In Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 (“Malec Holdings”) at [47]–[50], the Court of Appeal of the Supreme Court of Victoria described the applicable principles as follows (omitting citations):

8. [24]

   In Ligon 158 Pty Ltd v Huber [2016] NSWCA 330; (2016) 117 ACSR 495 (“Ligon 158”) at [8], to which Mr Cornish referred, Barrett AJA (with whom McColl and Meagher JJA agreed) in turn referred to Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]–[22] and summarised the relevant principles as follows:

Whether a genuine dispute is established in respect of the invoice referable to the “Natural Brand Company” and “Ce Soir” branded products

1. [25]

   I did not understand Mr Johnson, who appears for EPAQ, to submit that the course of dealings between EPAQ and Brandcraft could not have created a contract, and given rise to a debt due and payable by EPAQ to Brandcraft, subject to Mr Brown’s evidence as to its terms. The case law indicates that strict requirements of offer and acceptance may not apply where an ongoing relationship between the parties develops over time: Ormwave Pty Ltd v Smith [2007] NSWCA 210 at [65]–[75]; Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313; (2015) 90 NSWLR 605 at [110]. Mr Johnson instead identified the essence of the “genuine dispute” on which EPAQ relies as that arising from paragraph 9 of Mr Brown’s affidavit, to which I have referred above, as amplified by paragraphs 10–14 and 18 of his affidavit. Mr Johnson relied, in substance, on the existence of an agreement that payment need not presently be made by EPAQ to Brandcraft in accordance with Mr Brown’s evidence. Mr Johnson submitted that nothing in the estimates relied on by Brandcraft detracts from that agreement as it was carried into effect. Mr Johnson also submitted that the email sent on 10 May 2016 from Mr Beckhurst to Mr Brown, to which I referred above, supports EPAQ’s position. As I noted above, it is not apparent to me that that email either advances or undermines the claim that a genuine dispute arises. Mr Johnson submitted that the evidence indicates that there is a plausible question to be tried and that a genuine dispute as to the debt claimed is established. In reply, Mr Johnson also submitted that, so far as the principles arising in an application of this kind are analogous to those which would arise in an interlocutory injunction or summary judgment, the matters relied on by Brandcraft would not have permitted summary judgment in its favour in a claim for debt or a contractual claim against EPAQ (T37).

2. [26]

   Mr Cornish, who appears for Brandcraft, identified two elements of the dispute raised by EPAQ. He referred, first, to a dispute as to the terms of the agreement as to remuneration to be paid by EPAQ to Brandcraft, arising from Mr Brown’s assertion that he never discussed with Brandcraft what it would be paid for its services. Mr Cornish also recognised that a second dispute arises as to whether payment was due “until the product is taken up”, at least by the operators of the “Seabirds” website in China. Mr Cornish submitted, with substantial force, that Mr Brown’s evidence as to those matters cannot be reconciled with the contemporaneous documentary record and submits that that evidence is “unsustainable”. Implicitly, Mr Cornish there recognises the low threshold which EPAQ must pass to establish a genuine dispute, in submitting that Mr Brown’s evidence does not reach that threshold. Mr Cornish submitted, and I accept, that Mr Brown’s evidence that there was no discussion as to the remuneration to be paid to Brandcraft is inconsistent with a substantial amount of contemporaneous documentation, including the several proposals issued by Brandcraft to EPAQ for the provision of the relevant services in December 2015.

3. [27]

   Mr Cornish also submitted that Brandcraft issued invoices for work done in respect of the “Natural Brand Company” and “Ce Soir” branded products, although I referred above to Mr Brown’s evidence that he responded and Mr Beckhurst accepted that those invoices did not record amounts then payable. Mr Cornish also submitted, with substantial force, that the correspondence between Mr Brown and Mr Beckhurst between March 2016 and June 2017, discussing payment arrangements, largely appears to be inconsistent with Mr Brown’s evidence that Brandcraft would not be paid until the “Natural Brand Company” and “Ce Soir” products were taken up. Mr Cornish also submitted that the asserted dispute in respect of the debt is “merely constructed” in response to the Demand, rather than evincing a plausible defence propounded in good faith.

4. [28]

   In oral submissions, Mr Cornish submitted (T22–23) that Mr Brown’s evidence was “unsatisfactory” in respect of each of the propositions on which EPAQ relied to establish a genuine dispute, namely that Mr Brown’s approach to Mr Beckhurst was initially directed to products to be placed on the Seabirds website; that Mr Beckhurst then accepted that payment would only be made by EPAQ to Brandcraft when products were shipped; that Mr Beckhurst and Mr Brown did not discuss the amount that Brandcraft was to be paid and agreed that nothing would be paid until after the products that Brandcraft worked on took off and started to make a profit; that those payments that were in fact made by EPAQ to Brandcraft were to offset costs of external consultants; and that Mr Brown responded to invoices issued by Brandcraft testing that there was no agreement or payment in accordance with those invoices. Mr Cornish also submitted (T23) that Mr Brown’s evidence was in largely conclusory form which, although admissible in an application of this kind, had little weight.

5. [29]

   Mr Cornish submitted (T34) that EPAQ’s case does not raise a serious question to be tried as to Brandcraft’s claim, absent reliance on any contemporaneous documents to support that claim, or any detail in Mr Brown’s evidence of the relevant conversations. While Mr Cornish accepted (T34) that the Court will generally not engage in an inquiry as to the credit of a deponent in an application of this kind, he nonetheless emphasised the observations of McLelland CJ in Eq in Eyota and submitted that EPAQ’s case does not have sufficient prima facie plausibility to merit further investigation and is no more than assertions of fact unsupported by evidence. Mr Cornish also emphasised (T35) the inconsistency between Mr Brown’s evidence that there was no discussion of what Brandcraft would be paid and the extent of contemporaneous documentation dealing with that question. Mr Cornish also pointed (T35) to the absence of any dispute of Brandcraft’s entitlement to payment before the Demand was issued, although the weight to be given to that matter may be limited by the fact that both EPAQ and Brandcraft appear to have approached the question of delays in payment, or non-payment, in commercial terms rather than by a discussion of their respective legal rights. In summary, Mr Cornish submits (T36) that EPAQ’s claim for a genuine dispute is implausible and fails to rise even to the limited threshold necessary to establish a genuine dispute.

6. [30]

   I am not satisfied that a genuine dispute is established as to the amount claimed in respect of the third invoice in respect of the “Natural Brand Company” and “Ce Soir” brands. I proceed on the basis that, as Mr Cornish fairly accepted in submissions (T8–9), if a serious question exists as to whether the conversations of which Mr Brown gave evidence occurred at the commencement of the relationship between EPAQ and Brandcraft, in or substantially in the terms set out in his evidence, then a serious question must arise that the debts claimed by Brandcraft in respect of the work done on the “Natural Brand Company” and “Ce Soir” brands are not due and payable until those products are taken up by Chinese distributors. I also recognise that Mr Brown was not cross-examined and that I cannot and should not reach a credit finding as to his evidence. However, it is not plausible that the conversations at the commencement of the relationship between EPAQ and Brandcraft took place in the form in which Mr Brown deposes to them, where the “Seabirds” proposal and “Natural Brand Company” and “Ce Soir” brand names did not exist at that time. It also seems to me that Mr Brown’s evidence as to discussions as to the invoices is directed to recognition of an earlier agreement that amounts were not then payable, not to the creation of a new agreement that did not previously exist. That evidence does not suggest that, if a term that the relevant amounts were not payable until the products were taken up in China was not agreed at the commencement of the relationship, when Mr Brown says it was agreed, then Brandcraft later accepted a condition depriving it of a right to payment that it had not previously agreed at the commencement of the relationship. These conclusions are reinforced by, although they do not depend on, the fact that the proposals and invoices issued by Brandcraft contemplated that payment would be made on the basis of the specified payment schedules and Mr Brown’s emails did not take issue with that position, although they pointed to various anticipated receipts from which payment was expected to be made at various times.

7. [31]

   I also recognise that, as Mr Johnson pointed out, the case is not one in which summary judgment would likely have been given in favour of Brandcraft in substantive proceedings, where the defence raised by EPAQ raises questions of contested fact. However, it seems to me that the analogy with summary judgment is helpful but not determinative in applications of this kind, and there can be cases in which a factual dispute is raised with so little basis that it would neither support injunctive relief, in another analogy that is sometimes adopted, nor establish a serious question to be tried or a genuine dispute as to a creditor’s statutory demand. One example of that situation, which has something in common with the present case, would be the situation where a debtor’s case to set aside a creditor’s statutory demand is no more than an assertion, inconsistent with or unsupported by any other evidence, that the creditor orally represented that the debtor need not pay until an indeterminate time in the future. If a creditor’s statutory demand could be set aside on no more than such an assertion, then few such demands would survive and the statutory regime would be substantially undermined.

8. [32]

   In these circumstances, Mr Brown’s evidence, taken at its highest, seems to me to be so inconsistent with the contemporaneous documents and the chronology of events that it cannot give rise, in the language of Eyota and Malec Holdings, to a dispute that has “some substance” or gives rise to a “plausible contention requiring investigation” or has a sufficient objective existence or prima facie plausibility to establish a genuine dispute. It also seems to me that, in a proper case, the Court can and should reach such a finding to preserve the effective operation of the scheme, as the Court of Appeal of the Supreme Court of Victoria recognised in Malec Holdings and the Court of Appeal of this Court also recognised in Ligon 158 in its observation that the Court must “guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section”. For these reasons, a genuine dispute is not established in respect of the third invoice relating to the work done on the “Natural Brand Company” and “Ce Soir” brand products.

Whether a genuine dispute is established in respect of the invoice referable to the “People for Plants” branded products

1. [33]

   The first two invoices claimed in the Demand relate to work undertaken by Brandcraft in respect of “People for Plants” branded products, which it appears that EPAQ intended to supply in China until the “Natural Brand Company” and “Ce Soir” brands were developed. Mr Beckhurst gives evidence of a conversation on 20 January 2016 in which Mr Brown requested a quote for design concepts, design development and artwork production for those products (Beckhurst [30]); that Brandcraft issued quotes for those products on 21 and 22 January 2015 (Ex D1, 65–66); and that Mr Brown acknowledged receipt of those prices on 22 January 2015 and instructed that the work on those products be completed as quickly as possible (Beckhurst [32]). Mr Brown does not reply to or seek to contradict that evidence. Mr Brown’s evidence otherwise contests an obligation to make payment specifically in respect of the “Natural Brand Company” and “Ce Soir” products and does not address that issue in respect of the “People for Plants” products.

2. [34]

   Mr Cornish submitted that Brandcraft issued invoices for the work done in respect of the “People for Plants” products; that it is unclear whether Mr Brown’s evidence of his comments that invoices did not record amounts then due for payment extended to those invoices; and that, even if they did so, that position would not be justified by the earlier conversations to which he had referred, which were limited to the “Natural Brand Company” and “Ce Soir” branded products. Mr Cornish submitted that, even if the Court did not accept that no genuine dispute arose in respect of the invoice relating to work done on the “Natural Brand Company” and “Ce Soir” branded products, then no genuine dispute arises in respect of the two invoices relating to the “People for Plants” branded products.

3. [35]

   The evidence to which I refer above seems to me to be sufficient to establish the contractual basis for the provision of Brandcraft’s services in respect of the “People for Plants” products and the terms on which they were to be provided. Mr Brown’s evidence concerning payment arrangements in respect of the “Natural Brand Company” and “Ce Soir” products did not address the terms on which Brandcraft was to provide services in respect of the “People for Plants” branded products or raise any serious question or genuine dispute as to Brandcraft’s entitlement to payment for services in respect of those products.

4. [36]

   Had I held that a genuine dispute was established in respect of the amount of Brandcraft’s invoice relating to work done on the “Natural Brand Company” and “Ce Soir” products, it would have been necessary to calculate the “substantiated amount” of the Demand under s 459H of the Corporations Act and to vary the Demand accordingly, where the substantiated amount was not less than the statutory minimum. Had I reached that result, I would have held that the substantiated amount of the Demand, referable to the two invoices referable to “People for Plants” branded products, was $33,244.20; the substantiated amount would have been substantially greater than the statutory minimum of $2,000; and I would therefore have made an order under s 459H(4) of the Corporations Act varying the Demand to that amount. An order of that kind is not necessary or appropriate where a genuine dispute was also not established in respect of Brandcraft’s claim in respect of the “Natural Brand Company” and “Ce Soir” products.

Orders and costs

1. [37]

   Accordingly, I order that the application to set aside the creditor’s statutory demand dated 18 June 2017 be dismissed with costs.