Genesis Management Services Pty Ltd v Soniclean Pty Ltd - [2005] SASC 224

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
GENESIS MANAGEMENT SERVICES P/L v SONICLEAN P/L
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Perry and The Honourable Justice Sulan)
24 June 2005
CORPORATIONS
STATUTORY DEMAND
The appellant appealed against the order of a Master setting aside a statutory demand which it had served on the respondent pursuant to s 459E(1) of the Corporations Act 2001, claiming that it was owed a substantial debt - discussion of relevant principles as to the question whether there was a genuine dispute or a genuine offsetting claim - held that the Master erred in finding that there was a genuine offsetting claim which equalled or exceeded the amount of the statutory demand - appeal allowed - statutory demand varied by substituting a lesser amount.
Corporations Act 2001, s 459E, s 459F, s 459G and s 459H, referred to.
Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 18 ACLC 576; Federico's Restaurant Pty Ltd v Warwick Entertainment Centre Pty Ltd (1995) 18 ACSR 702; Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179, applied.
D & S Group v O'Connor Investments and Ors (1997) 15 ACLC 1794, discussed.
Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37; John Shearer Ltd and Anor v Gehl Co (1994) 134 ALR 1; David Grant & Co Pty Ltd (Receiver Appointed) and Ors v Westpac Banking Corporation (1995) 184 CLR 265, considered.

GENESIS MANAGEMENT SERVICES P/L v SONICLEAN P/L
[2005] SASC 224
Full Court: Doyle CJ, Perry and Sulan JJ

DOYLE CJ: I would allow the appeal, set aside the Order made by the Master, and order that the Orders proposed by Perry J be substituted. I agree with his reasons for so deciding.
PERRY J. Soniclean Pty Ltd (“Soniclean”), the respondent to the appeal, carries on a business specialising in the design and manufacture of ultrasonic equipment for various cleaning and industrial applications.
The appellant, Genesis Management Services Pty Ltd (“Genesis”), contracted with Soniclean to supply to Soniclean certain consulting, management and information technology services.
By a statutory demand dated 4 March 2004 made pursuant to s 459E(1) of the Corporations Act 2001 (“the Act”), Genesis asserted that Soniclean owed to it $409,545.00, being the total of a number of invoices which it had issued for services which Genesis alleged that it had provided to Soniclean.
Pursuant to s 459G of the Act, on 25 March 2004 Soniclean filed an application in this Court seeking an order setting aside the statutory demand.
After several hearings before him, a Master made an order on 5 October 2004 disposing of the application. The Master held that he was satisfied that Soniclean had a genuine offsetting claim equal to or exceeding the claim the subject of the demand, which he set aside.
Genesis appeals to this Court, seeking an order quashing…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2005] SASC 224
Decision Date: 24 June 2005

CaseChat Overview and Summary

Genesis Management Services Pty Ltd brought an action against Soniclean Pty Ltd, seeking payment for consultancy services rendered under a written agreement. The dispute arose from the termination of the contract and an accompanying invoice for outstanding fees. Soniclean contested the claim, arguing that Genesis had breached the contract and that there were genuine offsetting claims that should reduce the amount owed. The matter was initially heard before a Master, who allowed Soniclean's application to set aside the statutory demand. Genesis appealed this decision to the Supreme Court, arguing that the Master had erred in assessing the offsetting claims.

The legal issues before the court included whether the Master correctly assessed the offsetting claims, whether there were genuine grounds for setting aside the statutory demand, and whether the appeal should be allowed to correct the assessment of the offsetting claims. The court had to determine if the offsetting claims were valid and properly quantified, and if so, whether they should have reduced the amount owed by Soniclean to Genesis.

The court found that the Master had erred in his assessment of the offsetting claims. The Master had considered that there might be an offsetting claim that could equal or exceed the primary claim, but had not quantified it precisely. The court determined that there was an offsetting claim of $250,476.75, which should have been deducted from the total amount claimed by Genesis. The court held that the difference between the total amount claimed and the offsetting claim was $159,068.25, which was the correct amount that Soniclean should pay.

Accordingly, the court allowed the appeal and varied the statutory demand to reflect the correct amount owed by Soniclean. The court declared the demand to have effect as varied from the date it was served on Soniclean and extended the period for compliance with the demand. This decision rectified the error in the Master's assessment and ensured that Soniclean was only required to pay the amount correctly determined by the court.

Orders

Orders of the court

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Background

Background to the litigation

On the hearing of the appeal, by leave, Genesis was represented by one of its directors, William Wright.Background Early in 2002, Soniclean engaged Genesis as a consultant to supply business management services. Mr Wright supplied the services on behalf of Genesis. Initially, the arrangements were relatively informal. However, the relationship between the two companies was formalised by a written agreement dated 4 March 2002, described as a “Consulting Services Contract” (“the contract”). The contract set out details of the management services and information technology services to be provided as part of the consulting services, the calculation of fees to be paid, and the procedures pursuant to which the contract might be terminated by either party. After it was entered into, Mr Wright continued to provide the consulting services pursuant to the contract. At some stage during 2002, he was accorded the status of General Manager of Soniclean. Soniclean maintains that his appointment as such dated from about July 2002. Mr Wright asserts that his appointment was later in that year. For present purposes, nothing turns on the point. As well as acting as General Manager of the business, Mr Wright provided administrative support, in part in person, and in part through the engagement of subcontractors to Genesis. As Mr Wright established himself as General Manager, a director of Soniclean, Peck Yok Lee, known as Susan Lee (“Mrs Lee”), gave up day-to-day management of the business. It is Soniclean’s case that over a period of time, Mr Wright gained complete control over the operation of the business, to the exclusion of Mrs Lee and the other directors. Towards the end of 2003, differences arose between Mr Wright, Mrs Lee and the other directors of Soniclean. Matters came to a head in January 2004. By a letter from Royle & Co, solicitors, dated 20 January 2004, written on behalf of Genesis, Genesis gave notice of its intention to terminate the contract “with effect from 3 March 2004”. With the letter was enclosed an invoice in the sum of $384,477.00, which was said to be payable to Genesis for fees and a termination payment by way of fees due on termination. The letter also enclosed a schedule which detailed other invoices said to be outstanding. It is the sum of all of the invoices, which amounts to the claim set out in the statutory demand. Although Royle & Co’s letter spoke of termination with effect from 3 March 2004, Mr Wright withdrew his services and the services of other personnel supplied by Genesis as from 30 January 2004. No further consultancy services were provided by Genesis after that date.The proceedings before the Master In accordance with the obligation imposed by s 459G(3) of the Act, an affidavit supporting Soniclean’s application, being an affidavit of Mrs Lee, was filed with the court at the time the application was taken out. When the matter first came on for hearing before the Master, which was on 5 May 2004, he directed that answering affidavits be filed within 21 days.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

PERRY J

The arguments advanced in support of the notice of alternative contention should be rejected.Conclusion In my view, the Master erred in holding that there was “a genuine offsetting claim for a sum that may well equal or exceed the primary claim”. He should have held that there was within the meaning of the relevant provisions, an offsetting claim of $250,476.75. The appeal should be allowed for the limited purpose of reducing the assessment of the offsetting claim accordingly. This means that the substantiated amount should be calculated in accordance with s 459H(2), being the difference between the admitted total (as defined), being the amount of the demand, and the offsetting claim. That difference is $159,068.25. In accordance with s 459H(4), and in the exercise of the power to extend the period for compliance as provided in s 459F(2)(a)(i), I would make the following order:1.Varying the statutory demand by substituting for the amount of $409,545 the amount of $159,068.25.2.Declaring the demand to have had effect as so varied from the date upon which it was served on Soniclean.3.Extending the period for compliance with the demand to 21 days after the date of the order. SULAN J: I would allow the appeal. I agree with the reasons of Perry J. I agree that the Order of the Master should be set aside. I would substitute the Orders proposed by Perry J.

Ratio Decidendi

Legal Principle Established

Established by: PERRY J

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