ESP Entertainment Pty Limited v Double Image Design and Print Management Pty Limited
[2006] NSWDC 80
•18 May 2006
CITATION: ESP Entertainment Pty Limited v Double Image Design and Print Management Pty Limited [2006] NSWDC 80 HEARING DATE(S): 23 February 2006
JUDGMENT DATE:
18 May 2006JUDGMENT OF: Rolfe DCJ DECISION: 1. Insofar as the defendant has sought to dismiss the plaintiff's claim pursuant to Part 13 Rule (4)(1) or to strike it out pursuant to Part 14 Rule 14.28, I dismiss such application.; 2. Order the Plaintiff/Cross Defendant to file and serve a defence to the cross-claim within 7 days.; 3. Direct the solicitors for the parties with carriage of the matter to confer in person within 14 days with a view to resolving all outstanding discovery issues which are in dispute between the parties.; 4. Reserve the question of costs; 5. Liberty to Apply on 48 hours notice.; 6. Stand matter over for directions before me on Thursday 8 June 2006 at 9.30am. CATCHWORDS: Corporations Act 2001 - Statutory Scheme for Winding Up - Section 459E Demand - Whether adverse determination against Debtor under s 459H operated as a Res Judicata preventing Debtor from pursuing proceedings in the District Court LEGISLATION CITED: Corporations Act 2001 (Cth) CASES CITED: Blair v Curran (1939) 62 CLR 464
David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265
Switz Pty Limited v Slowbind Pty Ltd (2000) 48 NSWLR 661
Elias v Pascoe (2006) NSW CA 110 at 58
Day v Victorian Railways Commissioners (1949) 78 CLR 62 at 91
Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 at 99PARTIES: ESP Entertainment Pty Limited (Plaintiff/Cross Defendant)
Double Image Design and Print Management Pty Limited (Defendant/Cross Claimant)FILE NUMBER(S): 1753/05 COUNSEL: R Parsons (Plaintiff/Cross Defendant)
D Elliott (Defendant/CrossClaimant)
JUDGMENT
1 Before the Court are two Notices of Motion. The first, filed on 28 October 2005, is an application by the defendant for an order that the plaintiff’s Statement of Claim, filed on 10 May 2005, be dismissed pursuant to Part 13 Rule 13.4 of the Uniform Civil Procedure Rules, or alternatively, that the Statement of Claim be struck out pursuant to Part 14 Rule 14.28 of the Rules. In addition, the defendant/cross claimant seeks an order for summary judgment on its cross-claim in the amount of $32,160.00 plus interest and costs.
2 The second application before the Court is the plaintiff’s Notice of Motion, filed on 31 January 2006, in which the plaintiff seeks orders that the defendant serve a verified list of documents within seven days of the Court’s order.
3 Mr Elliott appeared for the defendant/cross claimant. He relied on his written submissions dated 23 February 2006 and argued that the proceedings should either be dismissed or the Statement of Claim struck out based on the doctrine of res judicata. Mr Elliott provided further written submissions dated 9 March 2006.
4 Mr Parsons appeared for the plaintiff/cross defendant and resisted Mr Elliott’s submissions. Mr Parsons provided the Court with a written, undated outline, which I have initialled and placed with the papers in the Court file. Mr Parsons provided further supplementary written submissions which were received on 24 February 2006.
5 The background facts are as follows.
6 On 22 January 2005 the defendant served a statutory demand on the plaintiff pursuant to section 459E of the Corporations Act 2001 (Cth), which I will refer to in this judgment as “the Act”. The amount claimed was $51,640, which the defendant said it was owed for printing work performed by it for the plaintiff. The plaintiff specialises in providing promotional services to leagues clubs and in particular, the Central Coast Leagues Club (the “leagues Club”). The material which was printed by the defendant for the plaintiff, was promotional material which the plaintiff distributed to the Leagues Club.
7 On receipt of the statutory demand the plaintiff instructed solicitors, Sachs Gerace Lawyers, to act for it. On 10 February 2005 those solicitors wrote to the defendants’ solicitors, with regard to the statutory demand, in the following terms:
“ESP (that is the plaintiff) disputes some items in the Statement and agrees to pay for others. The agreed amount for payment is $19,480. The disputed amount is $32,160. The dispute concerns 5 items.”
8 Following receipt of this letter, on 25 February 2005 the defendant served on the plaintiff another demand pursuant to section 459E of the Act, demanding payment of the admitted amount of $19,480. The result was that on 18 March 2005 the plaintiff made application to the Supreme Court of New South Wales, pursuant to section 459G of the Act, for an order that the statutory demand dated 25 February 2005 be set aside.
9 The application was heard by Associate Justice McLaughlin. Much of the evidence before the learned Associate Judge was admitted into evidence as exhibit F on the defendant’s Notice of Motion in this Court. However, Exhibit F was admitted on the limited basis, namely that it was only evidence of what went into evidence before McLaughlin AsJ.
10 In the proceedings before McLaughlin AsJ, the plaintiff contended that the statutory demand ought be set aside because there was a genuine dispute between it and the defendant as to its indebtedness to the defendant in the amount of $19,480 and, further, that the plaintiff had an offsetting claim against the defendant in an amount considerably in excess of $19,480. The plaintiff relied on section 459H of the Act which provides as follows:
“459H Determination of application where there is a dispute or offsetting claim
(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(b) That the company has an offsetting claim.
(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;
(2) The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total – Offsetting total
Admitted total means:Where:
(b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates.(a) the admitted amount of the debt; or
(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
offsetting total means:
(a) if the Court is satisfied that the company has only one offsetting claim – the amount of that claim; or
(c) otherwise – a nil amount.(b) if the Court is satisfied that the company has 2 or more offsetting claims – the total of the amounts of those claims; or
(4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(b) Declaring the demand to have had effect, as so varied, as from when the demand was served on the company.(a) Varying the demand as specified in the order; and
(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
(c) otherwise – the amount of the debt.(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
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.”
11 McLaughlin AsJ dismissed the plaintiff’s application and ordered it to pay the defendant’s costs.
12 The judgment of McLaughlin AsJ is in evidence as exhibit B. As will be seen, it sets out the background to the relationship between the parties and the history of the defendant’s claim. It records the plaintiff’s assertion that the amount claimed in the statutory demand was not owing by it to the defendant because the defendant did not provide the totality of printed and promotional material for which payment was claimed in the demand. The learned Associate Judge further records the plaintiff’s assertion that it had overpaid the defendant in respect of promotional and printed material provided in the past. The nature of the overpayment asserted by the plaintiff related to material that the defendant did not provide to the plaintiff. In this regard, McLaughlin AsJ was assisted by the plaintiff’s outline of submissions which are exhibit C in these proceedings, and the defendant’s outline of submissions which are exhibit D.
13 In paragraph 7 of exhibit C, counsel for the plaintiff submitted that the amount claimed by his client by way of an “offsetting claim” against the defendant was the subject of the proceedings in this Court and was substantially more than both the amount claimed in the statutory demand and the balance of the defendant’s claim. Clearly the latter is the amount of $32,160, the subject of the cross-claim in the proceedings in this Court.
14 In exhibit C Counsel for the plaintiff then set out his summary of the evidence on which he relied in paragraphs 5-14. In paragraphs 15-18 he set out the principles which he submitted the Court should apply in determining that there was both a genuine dispute and that an offsetting claim existed.
15 Counsel for the defendant, in his written submissions in exhibit D, sought to demonstrate that there was neither a genuine dispute nor an offsetting claim as defined in section 459H of the Act.
16 In his Judgment, McLaughlin AsJ, with reference to the test to be applied, stated as follows (exhibit B p4.2):
“It is the function of the Court merely to ascertain whether or not there is such a genuine dispute. It is no part of the function of the Court to consider the respective strengths or weaknesses of the parties concerning such a dispute, let alone to attempt in any way to resolve the dispute. Once the Court has recognised that such a genuine dispute exists, then the Court must set aside the statutory demand.”
17 The Judge then referred to the evidence, including evidence of a former director of the plaintiff, that the totality of the printed material, for which the plaintiff had been charged by the defendant, had in fact been provided. As well, there was evidence from an officer of the Leagues Club that all printed material which it required had been provided and the Leagues Club had paid the plaintiff for it. The Judge also referred to the schedule, which was part of Mrs Shaloub’s affidavit evidence, in which she sought to set out the overpayments which the plaintiff alleged it had made to the defendant. With regard to that evidence, as well as the evidence of the former director of the plaintiff and Mr Keene, the General Manager of the Leagues Club, McLaughlin AsJ said as follows (exhibit B p 7.15):
“Were the evidence to consist only of the evidence by Mrs Shaloub and the calculations performed by her and the evidence of Mr Nassar, the former director of the plaintiff, and the evidence of Mr Keene, the general manager of the Club, I would certainly not be satisfied that there is a genuine dispute as to the existence of the amount of the debt.
But the matter is placed beyond any possibility of the existence of a dispute by the formal acknowledgement by the solicitor for the plaintiff in the letter of 10 February 2005, that the plaintiff agrees that there is outstanding at that date an amount for payment by it to the defendant of $19,480, that being the amount sought to be paid in the statutory demand which is the subject of the present proceedings.”
18 Accordingly, McLaughlin AsJ concluded that the plaintiff had not established the existence of a genuine dispute.
19 Next, McLaughlin AJ turned to the plaintiff’s assertion that it had an offsetting claim and referred to section 459H. In that context, his Honour referred to the proceedings which had been instituted in this Court and commented as follows (exhibit B p9.3):
“It will be appreciated, of course, that those proceedings were instituted more than two years after the matters which the plaintiff now asserts arose. There was never any suggestion by the plaintiff that it had an offsetting claim until after the present statutory demand was served upon it.”
20 After referring to the facts, his Honour then concluded as follows (exhibit B p 9.16):
“For the reasons to which I have already referred, including the evidence of the former director of the plaintiff, and the evidence of the general manager of the Club, that the totality of the material was, in fact provided and the costs thereof was paid to the plaintiff, I am not satisfied that the plaintiff has an offsetting claim.”
21 During the course of the hearing of the defendant’s motion in this Court, Mr Parsons of counsel, who appeared for the plaintiff, conceded that the factual issues which were before McLaughlin AsJ, in relation to the offsetting claim, did not differ substantially from the factual issues which support the plaintiff’s claim in this Court save that more evidence had been mustered and placed before this Court by the plaintiff, that being evidence from Mrs Shaloub to a certain extent in exhibit 1, and the evidence in exhibits 3, 4, 5 and 6. However, Mr Parsons, as I understood his submissions, did not seek to assert that if the evidence on the application in this Court had been before McLaughlin AsJ, that the result would have been any different; rather, his principal submission was that section 459G of the Act was part of a statutory scheme for the winding up of companies contained in part 5.4 of the Act and it was not the legislature’s intention that a determination under section 459G would operate as a res judicata, because this would subvert the very nature of the scheme contained in part 5.4 of the Act. Specifically, he referred to the provisions of section 459S as follows:
“459S Company may not oppose application on certain grounds
(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(b) That the company could have so relied on, but did not so rely on (whether it made such an application or not).(a) That the company relied on for the purposes of an application by it for the demand to be set aside; or
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.”
22 Mr Parsons submitted, in effect, that the legislature had not intended the doctrine of res judicata to apply to a s 459G determination because it left open the possibility, if leave was granted under s 459S, for issues of genuine disputes about the existence of debts and offsetting claims to be re-litigated.
23 In his authoritative judgment on res judicata and issue estoppel, Dixon, J, as he then was, stated in Blair v Curran (1939) 62 CLR 464:
“A judicial determination directly involving an issue of fact or of law disposes once and for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment so that it is merged and has no longer an independent existence while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.”
24 McLaughlin AsJ decided two things. First, he decided that there was no genuine dispute that the plaintiff owed the defendant $19,480 essentially because the plaintiff’s solicitors had admitted the debt was owed in their letter dated 10 February 2005. This Court is not concerned with this finding and there is no issue in these proceedings about the debt of $19,480 because it has been paid.
25 Secondly, McLaughlin AsJ decided that he “was not satisfied that the plaintiff has an offsetting claim.” As Mr Elliott of counsel for the defendant would have it, such a determination meant that the plaintiff’s cause of action in the proceedings in this court, having been “put in suit”, as it were, in the proceedings before McLaughlin AsJ, had effectively passed into judgment and therefore no longer had an independent existence. It follows, so the submission went, that the plaintiff’s proceedings must be dismissed. For the reasons set out below, I do not accept the submissions made on behalf of the defendant by its counsel.
26 Ss 459G, 459H and 459S must be seen in their context as part of the statutory scheme contained in Part 5.4 of the Act which deals with the winding up of companies. In that respect, the High Court said, per Gummow J at 270 in David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265:
“The provisions of the new Part 5.4 constitute a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly.”
27 Gummow J also referred to the Explanatory Memorandum for the Corporate Law Reform Bill 1992 which introduced the new scheme. The Memorandum made it clear that the provisions dealing with setting aside a statutory demand were intended to provide a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter rather than focus on technical deficiencies.
28 In Switz Pty Limited v Slowbind Pty Ltd (2000) 48 NSWLR 661 at 673.47 Spigelman CJ stated:
“The 1992 reforms which introduced the new Part 5.4 were designed to minimise the delay and attendant legal costs which were a common feature of the battle of tactics in involvency practice under the pre-existing scheme.”
29 Notwithstanding, S 459S recognises that, within the operation of the Part 5.4 scheme, there is room for a company to oppose an application to wind it up on a ground relied on in an unsuccessful S 459G application, such as that it had an offsetting claim as defined in S 459H (5) (c). But as Spigelman CJ made clear in Switz at 672.42, S 459 S(2) imposes a mandatory condition that the Court must be satisfied that the ground which the company wishes to use (such as that it has an offsetting claim) is “material to proving that the company is solvent.” This being so, his Honour dealt with the practical effect of the operation of Part 5.4 in the following terms at 673.49:
“There are many ways in which an obligation to pay an amount of money can be contested in legal proceedings. There are ways in which an amount paid notwithstanding a denial of an obligation to do so, can be recovered. The practical effect of the operation of Part 5.4 may very well be that companies will be obliged to actually make payments in circumstances in which they deny the obligation to do so. The fact that one part in a commercial context, rather than another, thereby receives the commercial and legal advantages of being in possession of a sum of money which is in dispute, raises no issue of principle and causes no injustice of a necessarily irremediable character to the party which is not in possession of the funds even if it once were.”
30 In my opinion, Spigelman CJ has made it clear that, outside the operation of the scheme in part 5.4, there is nothing to stop a company such as the plaintiff in this case, from taking steps to recover monies which it unsuccessfully argued were the subject of an offsetting claim in a S 459G application. To hold otherwise could result in an irremediable injustice which the Chief Justice made clear that Part 5.4 of the scheme was not intended to bring about.
31 Looked at in this light, there is no room for the doctrine of res judicata to operate in a way which would result in the dismissal of the plaintiff’s claim in this Court. The orders therefore sought by the defendant in this regard are refused.
32 I turn now to consider briefly the defendant’s application for summary judgment on its cross-claim against the plaintiff in the sum of $32,160.00 plus interest.
33 In order for the plaintiff to resist the defendant’s application it is sufficient for the plaintiff to demonstrate an arguable defence. As was stated recently in Elias v Pascoe (2006) NSW CA 110 at 58:
“The authorities are well known and the sufficiency has been expressed in different words, including in Day v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 at 99, that it must be clear that there is ‘no real question to be tried.’ ”
34 The way in which the summary judgment application was argued was that, in effect, the defendant was entitled to summary judgment on the cross-claim in the event that the Court dismissed the plaintiff’s Statement of Claim. This is reflected by the fact that neither counsel addressed the summary judgment matter in any detail in either his oral or written submissions. That both counsel were focusing on the defendant’s application to have the plaintiff’s claim dismissed, is reflected by the absence of a formal defence having been filed to the cross-claim. It seems to me this was an oversight because the cross-claim was not filed by the defendant until 8 November 2005, some 11 days after it filed the Notice of Motion seeking to have the plaintiff’s claim dismissed. Thereafter, directions were made regarding the evidence to be put on by the parties in relation to that motion and the plaintiff’s subsequent motion for discovery. No one appears to have turned their mind to the formality of the plaintiff filing a defence to the cross-claim because both sides, including their counsel, focussed on the defendant’s application to have the plaintiff’s claim dismissed.
35 Because of the absence on the Court file of a defence to the cross-claim, it is not appropriate at this point to formally determine the defendant’s application for summary judgment on that cross-claim. However, and without expressing a final opinion on the matter, my preliminary view is that the affidavit evidence filed by the plaintiff appears to demonstrate that the plaintiff has an arguable defence to the defendant’s cross-claim and there appear real questions to be tried. If the defendant does not wish to contest the Court’s preliminary view, then the defendant’s motion should be dismissed with costs. Alternatively, if the defendant wishes to put written submissions to me on the matter I would consider myself obliged to entertain them because of the absence of the defence to the cross-claim. Either way, a defence to the cross-claim ought be filed.
36 The Court has not yet dealt with the plaintiff’s motion for discovery and does not intend to do so until the solicitors for the parties have been given the opportunity to confer in person with a view to resolving all outstanding discovery disputes. Accordingly, the orders of the Court are as follows:
(1) Insofar as the defendant has sought to dismiss the plaintiff’s claim pursuant to Part 13 Rule (4) (1) or to strike it out pursuant to Part 14 Rule 14.28, I dismiss such application.
(2) Order the Plaintiff/Cross Defendant to file and serve a defence to the cross-claim within 7 days.
(3) Direct the solicitors for the parties with carriage of the matter to confer in person within 14 days with a view to resolving all outstanding discovery issues which are in dispute between the parties.
(4) Reserve the question of costs.
(6) Stand the matter over for directions before me on Thursday 8 June 2006 at 9.30am.(5) Liberty to Apply on 48 hours notice.
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