Cromwell (Australia) Pty Ltd Carlo Interiors Pty Ltd

[1997] FCA 825

IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA DISTRICT REGISTRY	)  VG 3073 of 1997
)
GENERAL DIVISION	)

BETWEEN:	CROMWELL (AUSTRALIA) PTY LTD (ACN 005 686 895) Applicant
AND:	CARLO INTERIORS PTY LTD (ACN 002 795 486) Respondent

JUDGE:	RYAN J
PLACE:	MELBOURNE
DATE:	22 AUGUST 1997

MINUTES OF ORDER

THE COURT ORDERS:

1. That the application be allowed and the statutory demand dated 3 March 1997 be set aside.

1. That the costs of each party of, and incidental to, this proceeding, including any reserved costs, be taxed in default of agreement and that such costs be costs in the cause in any future proceeding instituted between the applicant and the respondent.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA DISTRICT REGISTRY	)   VG 3073 of 1997
)
GENERAL DIVISION	)

BETWEEN:	CROMWELL (AUSTRALIA) PTY LTD (ACN 005 686 895) Applicant
AND:	CARLO INTERIORS PTY LTD (ACN 002 795 486) Respondent

JUDGE:	RYAN J
PLACE:	MELBOURNE
DATE:	22 AUGUST 1997

REASONS FOR JUDGMENT

This is an application under s 459G of the Corporations Law seeking an order setting aside a statutory demand dated 3 March 1997 and served on the applicant by the respondent.  The applicant is an importer and wholesaler of furniture, light fittings and other interior decorator’s items and sells to various retail outlets including interior designers, major hotels and national department stores.  The applicant has a showroom in Sydney at which it has carried on business since 1982.  On 14 February 1996, the applicant engaged the respondent, through its director Mr Carlo Brugnoni, to manage its Sydney showroom.  The respondent was paid on a monthly basis upon the presentation of an invoice to the applicant.  On or about 15 December 1996, the applicant, upon being invoiced, refused to pay the monthly fee of $3416.13 for the period 14 December 1996 to 14 January 1997.  A later invoice by the respondent, a further monthly fee of $3416.13 for the period 14 January 1997 to 14 February 1997 was also unpaid.  On 20 February 1997, the services of the respondent were terminated without notice, and the applicant changed the locks of the Sydney showroom thus preventing Mr Brugnoni from gaining access.  On 5 March 1997 the respondent served on the applicant a statutory demand (“the demand”) requiring payment of $6832.26 in respect of the two monthly payments previously invoiced.  The demand was accompanied by an affidavit sworn by Mr Brugnoni.  The applicant has made no payment in response to service of the demand and has now sought an order setting aside the demand.

The applicant contends that an order should be granted under s 459G on the grounds that, pursuant to s 459H(1), there is a genuine dispute between the applicant and the respondent about the existence or amount of the debt to which the demand relates, and that the applicant has an offsetting claim.
Counsel for the applicant, has referred to two affidavits sworn by Mr Paul Snowsill a director of the applicant, as establishing that, at the time of the respondent’s appointment as manager of the Sydney showroom, Mr Brugnoni had been informed by the applicant that in order for the Sydney showroom to break even, a minimum annual sales turnover of $150,000 was required.  The applicant alleges that Mr Brugnoni had said that he could easily achieve that figure in sales turnover.  This conversation was said to give rise to an oral agreement between the parties a term of which was that the stipulated sales target would be achieved by the respondent.  The applicant asserts that, following the decline in the sales turnover at the Sydney showroom, which was in sharp contrast to the figures achieved at the applicant’s Melbourne showroom, it attempted to contact Mr Brugnoni to discuss the matter but that the respondent was uncooperative.  The non-fulfilment of the alleged contractual term, the lack of adequate sales, and the respondent’s uncooperative behaviour, are said to have amounted to breaches of contract which entitled the applicant to refuse monthly payments and maintain a claim for damages against the respondent.

It is also submitted on behalf of the applicant that it has a further offsetting claim against the demand by the respondent.  The applicant contends that the respondent removed certain items to the value of $7436 from the Sydney showroom on consignment without the requisite consent of the applicant.  As well, it is alleged that during the period when the respondent managed the Sydney showroom, breakages occurred to stock to the value of $957.80 and certain stock to the value of $1946 was not accounted for.  Stock allegedly lost in this way has a combined value in excess of $10,000, which, it is submitted, total can be off-set against the respondent’s claim.

The respondent denies that there was any discussion between it and the applicant indicating a minimum sales figure necessary before the Sydney showroom could break even.  It points to the written agreement between the applicant and itself which contains no term requiring achievement of a minimum level of sales.  Counsel for the respondent further submitted, in the alternative, that if the applicant had informed the respondent that a minimum sales turnover of $150,000 was required for the Sydney showroom to break even, that did not amount to a term of the contract but was a mere indication of the commercial realities of trading conditions.  On this analysis the applicant was not entitled to withhold payment to the respondent because of a falling off in sales at the Sydney showroom.  It follows therefore, so the respondent submits, that the applicant has not established a genuine dispute about the existence of the debt claimed in the demand.

The respondent further asserts that it has at all times been willing to return to the applicant items taken on consignment but has been unable to do so after being denied access to the Sydney showroom.  It further asserts, by its Counsel, that the applicant was unwilling to take delivery of the items at its Melbourne showroom.  It also points to a lack of evidence supporting the claim that breakages or losses of stock have occurred as a result of any negligence or breach of contract on its part.

“Offsetting claim” is defined in s 459H(5) as follows:

“Offsetting claim” means a genuine claim that the company has against the respondent by way of counter-claim, 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);

The references in s 459H to the Court’s being “satisfied” that there is a “genuine” dispute, and “satisfied” that the company has a genuine claim against the person who served the demand on it, have been the subject of much judicial consideration: see, for example, Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362; Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601; Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 120 ALR 173; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37; Eyota Pty Ltd v Hanave Pty Ltd 12 ACSR 785; Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd 17 ACSR 128. Their meanings have been illuminated by the drawing of analogies with applications for injunctions and extensions of caveats in that the test is often phrased as “whether there is a serious issue to be tried”.  The test is not a particularly high one though the court must be satisfied that there is a claim that may have some substance.  Lockhart J has observed in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd 13 ACSR 37 at 39:

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

The affidavits relied on by the applicant testify to a conversation about sales turnover which, in the commercial context of the arrangements into which the parties were entering, was an entirely reasonable point for the applicant to have made.  The respondent, by its submissions, accepts in the alternative that a remark about minimum sales figures may have been made but denies that it was intended to have any contractual significance.  The applicant also instances to the large disparity in sales turnover between the Melbourne and Sydney showrooms.  While I accept that this does not necessarily establish a breach by the respondent of its contract with the applicant, it does lend weight to the applicant’s assertion that it approached the respondent for an explanation of the poor performance of the Sydney showroom.  The respondent does not seek to deny that it removed goods from the applicant’s Sydney showroom on consignment but is content to say that it has been precluded by the applicant from returning those goods to it.  As already noted, the respondent puts in issue its liability to account to the applicant for the stock claimed to have been damaged or not accounted for.  The respondent also derives support for its contention that the achievement of a minimum annual turnover of $150,000 was not a term of the contract from the apparent failure of the applicant to threaten to terminate the contract notwithstanding that it must have been obvious long before the end of October 1996 that the minimum would not be achieved. 

On balance, I have been led to accept that, in the words of Lockhart J, this is not a “frivolous or vexatious claim by the applicant”. It is one which may or may not ultimately have substance, but in the light of the affidavit material and the submissions of Counsel, I am satisfied that there is a genuine claim in the sense in which that expression is used in ss 459G and H of the Corporations Law.

Accordingly, I shall grant the application and set aside the statutory demand.  The costs of each party of and incidental to the application, including any reserved costs, should be taxed in default of agreement and be costs in the cause in any proceedings which may subsequently be instituted between the applicant and the respondent.

I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment of the Honourable Justice Ryan.

Associate:

Dated:            22 August 1997

Counsel for the Applicant:	Mr G Fraser
Solicitors for the Applicant:	franzese&associates
Counsel for the Respondent:	Mr C Caleo
Solicitor for the Respondent:	Fisher Grogan
Date of Hearing:	16 June 1997
Date of Judgment:	22 August 1997