Boson Pty Ltd v Lange Nominees Pty Ltd
[1998] FCA 734
•24 JUNE 1998
BONSON PTY LTD v. LANGE NOMINEES PTY LTD
No. WG 3008 of 1998
FED No. 734/98
Number of pages - 22
Corporations Law
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
R.D. FARRELL JR
Corporations Law - statutory demand - application to set aside - whether defect in demand will otherwise cause substantial injustice - whether off-setting claim - whether claims genuine - determining amount of claim.
Corporations Law 1994 ss. 9, 459E, 459G, 459H, 459J.
Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525.
Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 12 ACSR 381, (1994) 12 ACLC 15.
Scanhill Pty Ltd v Century 21 Australia Pty Ltd 12 ACSR 341, (1994) ACLC 111.
Rohalo Pharmaceutical Pty Ltd v Pharmagel SpA 15 ACSR 347.
Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd 13 ACSR 37.
Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACLC 1062.
Re Morris Catering (Aust) Pty Ltd (1993) 11 ACLC 919.
Classic Ceramica Importers Pty Ltd v Ceramica Antiga SA (1994) 12 ACLC 334.
Jesseron v Middle East Trading 13 ACSR 455.
Jesseron v Middle East Trading (No. 2) 13 ACSR 787.
PERTH, 19 June 1998 (hearing), 24 June 1998 (decision)
#DATE 24:6:1998
Counsel for the Applicant: Mr C. H. Edwards
Solicitor for the Applicant: AC Thorpe
Counsel for the Respondent: Mr C. L. Caine
Solicitor for the Respondent: Corrin Caine
THE COURT ORDERS THAT:
1. The demand for payment dated 15 April 1998 served by the respondent on the applicant be set aside; and
2. The respondent pay the applicant's costs of this application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
R.D. FARRELL JR
This is an application under Section 459G of the Corporations Law 1994 ("the Act") for an order setting aside a demand served on the applicant company ("Bonson") by the respondent company ("Lange Nominees").
Bonson contends that the demand should be set aside on the grounds that:
- for the purposes of Section 459J of the Act, substantial injustice will otherwise be caused because of a defect in the demand; and/or
- Bonson has an offsetting claim for the purposes of Section 459H of the Act.
The application is opposed by Lange Nominees.
WHETHER SUBSTANTIAL INJUSTICE WILL OTHERWISE BE CAUSED BECAUSE OF A DEFECT IN THE DEMAND
It was conceded by Lange Nominees that the demand was defective in its form, but Lange Nominees contends that those defects will cause no substantial injustice.
Paragraph 459E(2)(e) requires that a Section 459G demand "must be in the prescribed form (if any)". The prescribed form is form 509H.
While the demand served on Bonson complies with the other formal requirements listed in Subsection 459E(2), it is not in the prescribed form. Bonson suggests it was drafted in an old form, since superseded by amendments to the relevant provisions.
Despite the use of the word "must" in paragraph 459E(2)(e), it has been held, reading that paragraph together with the terms of paragraph 459J(1)(a), that a departure from the prescribed form would not require the demand to be set aside unless it is shown that substantial injustice would be caused if the demand were not set aside[1].
Bonson has identified the following defects in the demand which would not have been present had it been in the prescribed form:
1. The demand does not correctly specify the basis upon which it is made;
- the form number is not specified;
- the reference to s.460 of the Corporations Law should be a reference to s.459E(2e);
- the form is headed "demand for payment" whereas it should be headed "creditors statutory demand for payment for debt";
2. The demand does not correctly specify the legal consequences of failing to comply with the demand;
- there is no clear statement that the amount claimed is due and payable, but merely that Bonson is indebted to Lange Nominees;
- there is insufficient explanation of the consequences of failing to comply with the demand in that the demand fails to state that failure to comply with the demand is of itself grounds for an application to wind up. In this regard there is not the appropriate reference to the effect that the creditor may rely on a failure to comply with the demand as grounds for an application for winding up;
3. The demand does not correctly state the options open to the debtor in respect of seeking to set aside the demand;
- there is no notification that an application to set aside the demand must be lodged within 21 days;
- there is no stated address for service merely a reference to the address of Corrin Caine, who is identified as Lange Nominees' solicitor and agent.
Lange Nominees relies on the fact that Bonson has treated the demand as a statutory demand by taking the step of applying, within the time allowed, to set it aside. It follows, Lange Nominees contends, that the defects listed by Bonson will not cause substantial injustice, because:
- The matters listed under point 1 above are formal in nature. While they may raise questions, which are discussed below, as to the formal status of the demand for the purposes of winding up proceedings, they will not result in substantial injustice for the purposes of paragraph 459J(1)(a).
- The information listed under point 2 was not necessary on the facts of this case. Bonson knew and concedes that the amount demanded is due and payable, and it knew or has been promptly advised by its solicitors, of the potential effect of a statutory demand.
- The matters listed under point 3 have caused no injustice; Bonson applied and successfully served within time the application to set aside the demand.
Bonson contends that it was fortuitous that no injustice had been caused to date. There was, it submits, a real risk that substantial injustice would occur.
The fact remains, however, that substantial injustice had not occurred in this case as at the time of the hearing and, more importantly, Bonson was unable to say how substantial injustice would occur in future as a result of the defects in the demand.
Bonson suggested that often it will only be in cases where the risk of injustice is averted that applicants are able to make application under Section 459G; those companies which never learn of their rights will not usually make their applications within time. Bonson submitted that if the Court takes into account only prospective injustice as at the time the application is to be determined, then Section 159J could become a "dead letter".
However, demands are commonly set aside for defects under paragraph 459J(1)(a) where it has been found that prospective injustice will be caused. The defects most usually relate to the quantification of the amount due and owing. It cannot be said that the provision, so interpreted, has become a dead letter.
I find that the defects in this demand will not cause substantial injustice to Bonson. Therefore, I do not set it aside on that ground.
Whether the Demand is a Statutory Demand
Bonson also cited the decision of Justice Lockhart in Topfelt Pty Ltd v State Bank of NSW Ltd[2] where his Honour raised the possibility that deficiencies in the form of a demand may be so fundamental that the demand is incapable of assuming the description of a statutory demand within the meaning of the Corporations Law.
The term "statutory demand" is defined in Section 9 of the Corporations Law to mean:
"(a) a document that is, or purports to be, a demand served under section 459E; or(b) such a document as varied by an order under subsection 459H(4)".
Given that the demand served on Bonson in this case purported to be served under Section 460 of the Act, and that Subsection 459H(4) has no application for present purposes, it seems at least arguable that the document served is not within the definition of a statutory demand. It may be that the nature of the definition could provide a basis for such an argument based upon the form of the demand, rather than on substance.
As for issues of substance, Justice Lockhart contemplated, as a possible example of a demand so deficient as to not be a statutory demand, a demand which failed to inform the company upon which it was served that the consequence of failure to comply with the demand was that the creditor could rely upon that failure as a ground for an application to wind up the company. His Honour, without deciding the point, thought it possible that, in deciding whether to exercise its discretion to wind up the company, the Court might take into account evidence that the Company was not aware of those consequences[3]. I note, in passing, that it is unlikely that Bonson in this case could lead evidence of such a lack of awareness.
In any event, as Justice Hill pointed out in Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd[4],
"The Court's power to set aside demands is a power which relates only to statutory demands. The court has no power to set aside a demand which does not purport to be a statutory demand. Such a document would have no legal force or effect under the Corporations Law."
Whether the demand is in a form such that it could be relied upon by Lange Nominees in an application to wind up Bonson is therefore a matter to be decided at that time of any such application.
For the purposes of this application, I have accepted Lange Nominees' contention that it is a statutory demand.
WHETHER BONSON HAS AN OFFSETTING CLAIM
Bonson contends, for the purposes of Section 459H of the Act, that it has an offsetting claim against Lange Nominees of approximately $210,000.00. "Off-setting claim" is defined in Subsection 459H(5) to mean:
"a genuine claim that the company has against the respondent by way of a counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as the debt to which the demand relates)".
Under the scheme of Section 459H, where the Court is satisfied that an applicant has an offsetting claim, it must calculate the substantiated amount of the demand by subtracting the "Offsetting total" from the "Admitted total".[5] If the substantiated amount is less than the statutory minimum, the Court must set aside the demand.[6]
[5] Subsections 459H(1) and (2).
[6] Subsection 459(3).
FACTUAL BACKGROUND
In order to decide whether the demand in this case should be set aside pursuant to Section 459H, it is necessary to consider the factual background to the demand and the alleged offsetting claim, by reference to the affidavits filed by Margaret Dare, a director of Bonson, and by Edwin Lange, a director of Lange Nominees.
On 5 July 1995, Bonson agreed to purchase a second-hand tyre retailing business, known as Rennco Tyres, from Lange Nominees for $179,000.00.
Mrs Dare deposes that during the negotiations preceding the purchase of the business:
- Mr Lange, as agent for Lange Nominees, made representations as to the profitability of the business - Mrs Dare does not say what those representations were; and
- Mr Lange advised that he would not conduct a similar business himself.
It was a term of the purchase agreement that Lange Nominees was to be Bonson's agent for the purchase of second hand tyres. The tyres to be purchased, the price to be paid for them, the terms of payment and the commission to be received by Lange Nominees were to be determined from time to time.
Mrs Dare deposes that Mr Lange agreed to work for the business for an agreed remuneration of $350.00 per week, purchasing tyres and providing them to Bonson at cost price. Mrs Dare also annexed to her affidavit an earlier affidavit dated 16 October 1996 of Alan Dare, another director of Bonson. This affidavit, sworn in other proceedings, deposes that the terms of the agency agreement were that Lange Nominees would receive, after the costs and expenses of purchase, the greater of:
- a minimum of $350.00 per week for each week that it was engaged in buying tyres for Bonson; or
- a mark-up of 15% on the purchase price of the tyres.
Mr Dare also deposed that the agency agreement provided that Lange Nominees would credit Bonson with the value of any tyres found to be unserviceable and pay the costs of their retrieval and dumping.
Mrs Dare deposes that:
- The representations as to profitability were false, so that an action lies against Lange Nominees and Mr Lange for misrepresentation ("the profitability claim");
- Mr Lange was involved in the conduct of a similar business, "Perth Tyres", in competition with Rennco Tyres, so that an action lies against Lange Nominees and Mr Lange for breach of fiduciary obligations ("the competition claim"); and
- Mr Lange invoiced Bonson for the tyres purchased and provided at sums "far in excess of the cost price", so that an action lies against Lange Nominees and Mr Lange for, among other things, breaches of the agency agreement ("the excessive charges claim"). Mr Dare's affidavit cites three examples of such invoices demonstrating what he describes as "excessive mark-ups".
Mr Dare deposed that Lange Nominees supplied unserviceable tyres to the value of approximately $9,000.00 and claims a credit for that amount ("the unserviceable tyres claim").
I have deliberately labelled the claims by reference to the facts which give rise to them, rather than by reference to specific causes of action, because the various formulations of the claims are not always consistent as to the cause of action which is alleged to arise.
While the point was not raised in submissions, I note that Mrs Dare does not appear to have made a distinction at any point in her affidavit between the actions of Mr Lange and the actions of Lange Nominees. It appears from the materials annexed to Mr Lange's affidavit that it was Lange Nominees which was the subject of continuing obligations under the purchase agreement. Mrs Dare seems to have proceeded on the basis that Mr Lange acted at all times as Lange Nominees' agent, and that, as a result, the claims lie against both Mr Lange and Lange Nominees.
In August 1996, Lange Nominees began proceedings in the Local Court of Western Australia against Bonson ("the Local Court action") to recover $23,500.00 allegedly due and owing to it on recent invoices for second-hand tyres provided by Lange Nominees to Bonson.
In about October 1996, Lange Nominees sought interlocutory judgment in the Local Court action. It was unsuccessful. Mr Dare's affidavit in opposition to interlocutory judgment, which is the affidavit annexed to Mrs Dare's affidavit, raises both the "excessive charges" claim and the "unserviceable tyres" claim.
By April 1997, Bonson had filed an Amended Particulars of Defence and Counterclaim in the Local Court action. The counterclaim does not raise the profitability claim, the "competition" claim or the "unserviceable tyres" claim.
While the counterclaim raises the "excessive charges" claim, it does not plead or particularise the agency agreement as to the terms of payment deposed to earlier by Mr Dare. The counterclaim refers instead to an alleged fiduciary relationship and a general obligation on Lange Nominees to "fix a reasonable and fair price". Bonson again failed to refer to any such agency agreement in answer to Lange Nominees' later requests for further particulars.
The Local Court action remains on foot.
In June 1997, Bonson began proceedings in the Federal Court for misleading and deceptive conduct under the Trade Practices Act 1975 ("the Federal Court action"). I have not taken up the invitation of counsel for the respondent to peruse the relevant court file, but have restricted myself to such facts as appear on the affidavit material before me, which include reasons for decision given in the course of the proceedings.
Bonson's Statement of Claim referred to some of the facts which give rise to the "competition" claim, but failed to plead it adequately. An affidavit of Mr Dare in support of a motion for default judgment in the Federal Court also raised the "excessive charges" claim (by reference to the agency agreement, among other things) and the "unserviceable tyres" claim. There is no evidence that the profitability claim was raised in the course of the Federal Court action.
Bonson's Statement of Claim was struck out. While the Court expressed doubt on the material before it that Bonson had a viable cause of action of misleading and deceptive conduct, leave was granted to file a substituted statement of claim. When Bonson failed to file its substituted Statement of Claim within time, the Federal Court action was dismissed.
The costs of the Federal Court action were ordered against Bonson, and it is those costs, amounting to $8,746.00 which are the subject of the demand. Mrs Dare admits that Bonson owes the sum demanded, and it was conceded that it could be treated as an "admitted total" for the purposes of Section 459H.
Mrs Dare says that Bonson has instructed its solicitors to bring the "profitability" claim as a counterclaim in the Local Court action "with all expedition". Lange Nominees notes that the jurisdiction of the Local Court would be exceeded by a counter-claim quantified at a total of approximately $210,000.00, and so submits that Bonson would also have to apply to have the Local Court action transferred to the District Court.
WHETHER BONSON'S CLAIM IS GENUINE
The affidavit evidence filed by Bonson deposes to various facts which, if accepted, would provide a basis for its various claims.
It is not the Court's role, in applying Section 459H, to decide whether those allegations of fact will ultimately be made out.
The authorities cited by Lange Nominees support the propositions that the test to be applied for these purposes is not whether the applicant has a prima facie case but rather, whether there is a serious question to be tried that the applicant has an offsetting claim[7] or, put differently, that the claim is not plainly vexatious or frivolous, and may have some substance[8].
I note also the statement of Justice Lindgren in Rohalo Pharmaceutical Pty Ltd v Pharmagel SpA[9] which was cited by the respondent to the effect that the task confronting a company seeking to establish an offsetting claim was similar to that of a defendant seeking to obtain leave to defend on an application for summary judgment; it must show that there is a triable issue. I note that Bonson appears to have succeeded in defending an application for interlocutory judgment in the Local Court action, which might suggest that it could expect to be similarly successful in this application.
Lange Nominees contends, however, that Bonson's history in relation to its claims is such that I should conclude that those claims are not genuine.
I have set out above the history of the claims. It might be argued that I have examined the history in too much detail, given the well accepted view that the Court is not expected to embark on any extended enquiry in order to determine whether there is a genuine dispute between the parties and certainly would not attempt to weigh the merits of the dispute[10].
However, the Court must also be careful in its approach to determining whether there is a genuine claim. As Justice Lockhart observed in Chadwick v Condensing Vaporisers[11]:
"...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."
Among other things, the Court should seek to "discern the spurious and to identify mere bluster and assertion"[12].
On the material before me, I am not satisfied that the "profitability" claim is genuine. I have taken into account the fact that this appears, on the material before me, to be the first time the "profitability" claim has been raised by Bonson. This is so, despite Bonson's having been involved for some time in proceedings in two Courts. Further, in the Federal Court action, the action was effectively dismissed for want of a viable claim of misleading and deceptive conduct, when the "profitability" claim would appear to have been the obvious claim of that type to have pleaded. I have also taken into account that Mrs Dare's affidavit asserts the claim in the barest conceivable terms. The terms of the alleged false representation as to profitability are not deposed to. It is only implied that it was Mr Lange who made the alleged representation.
While the standard of satisfaction the Court is required to reach on the question of whether or not there is a genuine offsetting claim is not a high one, it seems to me that it has not been reached in relation to this claim, which on the material before me could more readily be categorised as mere bluster and assertion.
The fact that the existing counterclaim in the Local Court action raises the "excessive charges" claim is a factor supporting a finding that the "excessive charges" claim is genuine[13]. While it is certainly somewhat perplexing that Bonson has not referred to the terms of the alleged agency agreement in the counterclaim or particulars, the agreement has been deposed to by Mr Dare in early affidavits in the Local Court action and the Federal Court action, and more recently by Mrs Dare in the affidavit in support of this claim, albeit in slightly different terms. It is clearly not an allegation raised only recently. It must also be borne in mind that the Local Court is not a court of pleadings. I am satisfied on the materials before me that the "excessive charges" claim is genuine.
The "competition" claim seems first to have been raised in the Federal Court action, although it was inadequately pleaded. Bonson now contends that it will be added as a counterclaim in the Local Court. Lange Nominees contend that this would be an abuse of process, because it has already been dismissed by the Federal Court. I cannot say on the materials before me whether the ultimate decision by this Court to dismiss the claim involved a consideration of the merits such as would give rise to an estoppel on the record. It seems to me that the Local Court may well have jurisdiction to entertain the "competition" claim based on the facts as deposed to by Mrs Dare where the Federal Court would not. I am satisfied on the materials before me that the "competition" claim is a genuine claim, and gives rise to a triable issue.
Finally, I turn to a consideration of the "unserviceable tyres" claim. No great emphasis was placed on this part of the claim by the parties. It was raised in Mr Dare's affidavit in opposition to interlocutory judgment in the Local Court action and in an affidavit in the Federal Court action it does not appear to have been raised again since in the framing of the Local Court counterclaim, nor in the text of Mrs Dare's affidavit.
The impression that I am left with is that Bonson no longer intends to prosecute this claim. There may be any number of legitimate reasons for this which do not reflect on the genuineness of the claim at the time it was first raised. There may, for example, be evidentiary difficulties. I am conscious that it is not the Court's role in this application to reach a view as to the likely result of the claim. However, whatever the position at the time Mr Dare raised the claim, Bonson's subsequent failure to take any later steps to prosecute the claim coupled with its failure to directly raise the claim in this application have lead me to conclude that it is not now a genuine claim.
OFFSETTING TOTAL
The value of all of the claims was quantified by Mrs Dare as "approximately $210,000.00".
It has been held that if the Court finds that there is a genuine claim, it offsets the total amount of that claim.[14]
However, having found on the materials before me that only the "excessive charges" and "competition" claims are genuine, I must now consider how I am to determine the total amount of those claims, given that Mrs Dare has not specifically explained the extent to which those particular claims contributed to her global estimate, which also took into account claims I have found to not be genuine.
The quantum of the "excessive charges" claim would be the amount invoiced by Lange Nominees less the amount Lange Nominees was entitled to be paid under the alleged agency agreement. On Mr Dare's account of that agreement, the latter amount is made up of the costs and expenses of purchase (which would include, but not necessarily be limited to, the purchase price), plus the greater of either a 15% mark-up on the purchase price or $350.00 per week for each week that Lange Nominees was engaged in buying the tyres.
Mr Dare deposed in his Local Court affidavit that he had calculated that Lange Nominees had overcharged Bonson by more than $46,000.00. While the basis of this calculation was not set out, it appears to have been made by detailing three specific allegations of overcharging, where the purchase price of the tyres was known to Bonson, and proceeding on the assumption that Lange Nominees had overcharged Bonson to a similar extent on other invoices totalling $92,810.00, where the purchase price of the tyres was not yet known to Bonson.
The three examples cited allege a 325% mark-up on the purchase prices of the tyres. This would represent overcharging of $5,337.50 on invoices of $8270.00, assuming there were no costs and expenses of purchase other than the purchase price and assuming that a 15% mark-up was greater than $350.00 per week.
Mrs Dare annexed Mr Dare's affidavit in order to support Bonson's "excessive charges" claim. In the circumstances, it is appropriate for this Court to adopt Mr Dare's calculation of the quantum of the claim.
It is not the Court's role to value the claim; it offsets the amount of the claim as set by the claimant[15], in this case through its director, Mr Dare.
Nor does Bonson's failure to quantify the "excessive charges" claim with greater particularity give rise to any implication that the claim is not genuine or not bona fide, given the evidence that it has been prevented by Lange Nominees from inspecting documents which have been discovered by Lange Nominees in the Local Court action which would reveal the purchase prices of the other invoiced tyres.
The quantum of the "competition" claim does not appear from the evidence. There is reference in Bonson's Statement of Facts and Circumstances to the need for an accounting of profits derived by Lange Nominees from the operation of Perth Tyres in competition to Rennco Tyres. There is no attempt to quantify the extent of such profits, if any. It has been held in similar circumstances that the Court should proceed on the basis that the amount claimed is nominal[16], and specifically, $1.00.
CONCLUSION
Proceeding then on the basis that the Offsetting Total, for the purposes of Subsection 459H(2), is $46,001.00, that sum clearly exceeds the Admitted Total of $8,746.00.
I will therefore make orders setting aside the demand, pursuant to Subsection 459H(3).
COSTS
Lange Nominees submits that, given that Bonson is presently in default of the payment of orders for of costs made by this Court, and given that the Court should not encourage disobedience of its orders, the payment of any costs awarded in favour of Bonson should be stayed pending the disposal of the Local Court action.
The submission is not without merit, but I am not finally persuaded that the Court should depart from the usual orders as to costs, given the capacity of the parties to reach their own arrangements to set-off the various costs orders. I also note that it has been contemplated that the awarding of costs against respondents may be used as a deterrent to the serving of defective demands, even where those demands are not such as will cause substantial injustice.[17]
I will therefore order that the respondent pay the applicant's costs of these proceedings.
FOOTNOTES:
[1] Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525 at 529.
[2] (1993) 12 ACSR 381 at 393; (1994) 120 ALR 155 at 167
[3] Topfelt Pty Ltd v State Bank of NSW Ltd(1993) 12 ACSR 381 at 394; (1994) 120 ALR 155 at 168
[4] (1994) 13 ACSR 525 at 531
[7] Scanhill Pty Ltd v Century 21 Australasia Pty Ltd 12 ACSR 341 at 357 per Beazley J
[8] Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd 13 ACSR 37 at 39 per Lockhart J
[9] 15 ACSR 347
[10] Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACLC 1062 at 1066.
[11] 13 ACSR 37 at 39
[12] Re Morris Catering (Aust) Pty Ltd (1993) 11 ACLC 919 at 922
[13] Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1994) 12 ACLC 111 at 114
[14] Classic Ceramica Importers Pty Ltd v Ceramica Antiga SA (1994) 12 ACLC 334 at 340.
[15] Classic Ceramica Importers Pty Ltd v Ceramica Antiga SA (1994) 12 ACLC 334 at 340; Jesseron v Middle East Trading 13 ACSR 455 at 462.
[16] Jesseron v Middle East Trading (No 2) 13 ACSR 787.
[17] Topfelt Pty Ltd v State Bank of NSW Ltd (1994) 12 ACLC 15 at 27.
2
0