Hell Colour Australia Pty Ltd v Everbest Printing Company Limited
[2010] VSC 643
•1 October 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST E
No. S CI 2010 03506
IN THE MATTER OF HELL COLOUR AUSTRALIA PTY LTD (ACN 121 499 929)
| HELL COLOUR AUSTRALIA PTY LTD | Plaintiff |
| v | |
| EVERBEST PRINTING COMPANY LIMITED | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 September 2010 | |
DATE OF JUDGMENT: | 1 October 2010 | |
CASE MAY BE CITED AS: | Hell Colour Australia Pty Ltd v Everbest Printing Company Limited | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 643 | |
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CORPORATIONS - INSOLVENCY – statutory demand – whether genuine dispute and offsetting claims in relation to debt.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Fary | M W Law |
| For the Defendant | Mr J Richardson | Gadens Lawyers |
HIS HONOUR:
On 25 June 2010, the plaintiff (“Hell Colour”) filed an originating process making application to set aside a statutory demand dated 2 June 2010, which was served on it by the defendant (“Everbest”) on 4 June 2010 on the bases that it has genuine disputes and offsetting claims.
Hell Colour relies on six affidavits in support of its application:
(a)William Lauria sworn 24 June 2010;
(b)Filomena Lauria sworn 24 June 2010;
(c)Dirk Anthony Fielding sworn 3 August 2010;
(d)William Lauria sworn 9 September 2010; and
(e)Dirk Anthony Fielding sworn 9 September 2010
(f)Filomena Lauria sworn 16 September 2010
Everbest relies on an affidavit of Kenneth Chung Pui Kong sworn 27 August 2010.
Background
The demand claims the amount of HKD 1,667,441.12 and AUD 38,419.69 from Hell Colour for the printing of magazines and pamphlets. No issue was raised by Hell Colour as to whether it is possible to serve a statutory demand which combines demands for separate debts in both Australian and foreign currency.
For the purposes of performing the calculation in respect of the alleged offsetting claims required by section 459H(2), counsel for Hell Colour, Mr Fary provided the Court with a schedule published by the Reserve Bank of Australia which indicates that the exchange rate which prevailed on 16 September 2010 was HKD 7.2547 to 1 Australian dollar.
The invoices which are the subject of the demand are identified in the schedule and are dated from 23 September 2008 to 20 January 2009 make claims for printing costs (which total AUD 31,882.00 and HKD 1,462,290.69) and for interest on such printing invoices at the rate of 1% per month. The claims for interest total AUD 6,537.69 and HKD 152,631.03.
The alleged disputes concern the production by Everbest of a publication entitled Melbourne Wedding and Bride Magazine – Volume 8 (“Volume 8”), more particularly that the binding on that publication was defective to the degree that it was worthless. In addition, Hell Colour says that the demand does not give credit for commission that was due to Hell Colour from Everbest for “brokering” printing work to Everbest.
Further, Hell Colour says that it has offsetting claims against Everbest for damages arising from losses occasioned by Everbest’s defective binding of Volume 8.
Hell Colour is engaged in graphic design and provides such services to book publishers, advertising agencies, graphic designers, magazine publishers and printers. Hell Colour carries out the graphic design and artwork but contracts out the physical printing of the publication to printers in Australia and overseas.
For the past several years, Hell Colour has contracted with Everbest, a Hong Kong company, to provide printing services. In a typical transaction, Hell Colour’s client will approach Hell Colour and instruct it to arrange for the printing of a publication. Hell Colour, after carrying out any necessary preliminary graphic design work, approaches Everbest, obtains a quote and reverts to its client for approval. After some other details are agreed upon, Everbest is instructed to print the subject publication and deliver it in completed form to Australia. Everbest invoices Hell Colour for printing the publication. As such, Hell Colour assumes the contractual responsibility with Everbest for the printing. Aside from the fees charged for carrying out the graphic design work for a publication, Hell Colour also receives a 5% commission for referring or “broking” the printing services and that commission is included in Everbest’s quote and invoice.
The genuine disputes
Everbest accepts for the purpose of this application that there is a genuine dispute in respect to the amounts invoiced for Volume 8 (resulting in a deduction from the amount demanded of HKD 791,140.39). It also conceded that there should be an allowance for the 5% commission claim (requiring further deductions of HKD 43,815.04 and AUS 1920.98). Thus the application involves consideration of a disputed demand for the balance remaining, HKD 832,485.80 and AUD 36,498.71.[1]
[1]Mr Fary, counsel for Hell Colour prepared a table which sets out such deductions. Although latter entries on that table are contentious, the figures mentioned above are not.
The offsetting claims
There remains for consideration the alleged offsetting claims which Hell Colour bears the onus of establishing.
Before embarking on an assessment of the offsetting claims, it is appropriate to briefly survey the tests to be applied. In Statutory Demands, Law and Practice, at para 6.18 and following, the tests are summarized. At para 6.19 the author states:
It is not incumbent upon a company to prove its offsetting claim by adducing evidence such as might be advanced at a trial. It is, however, necessary to identify, with appropriate evidence, ‘the genuine level’ of an offsetting claim although much less than full and complete proof is required to establish genuineness. The standard of satisfaction which a court requires is not a particularly high one and where economic loss is alleged the Court will not require a great deal of evidence to quantify with precision the amount claimed by way of set-off. Having said that, the applicant must adduce evidence to establish the existence of the genuine claim that would warrant subsequent adjudication. In order to establish the existence of a genuine claim, the company must give some indication, and adduce some evidence, in support of the alleged quantum of the offsetting claim so that the Court may determine whether there is a genuine offsetting claim of a given amount. Simply annexing a statement of claim to an affidavit in support of an application to set aside a statutory demand will not provide sufficient evidence as to quantum.
In TR Administration v Frank Marchetti and Sons Pty Ltd[2] Dodds‑Streeton JA stated:
As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice.
[2](2008) 66 ACSR 67 at [71].
Of course such an offsetting claim must be genuine. In the decision of Eyota v Hanare Pty Ltd,[3] McLelland J stated in the context of consideration of the meaning of the expression “genuine dispute” the following:
It is, however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s 450H (sic). In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sorts of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit ‘however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be’ not having ‘sufficient prima facie plausibility to merit further investigation as to [its] truth …’
[3](1994) 12 ACSR 785.
Hell Colour’s offsetting claims fall into two categories. Hell Colour says that it has a claim which arises from the allegedly defective printing of Volume 8 which was carried out for Hell Colour’s client, United Media Group Pty Ltd (“UMG”). Hell Colour says that the defective production of Volume 8 has exposed it to what it describes as an “arguable claim” by UMG against it for breach of contract and damages. Hell Colour says that UMG’s claim may exceed AUD 400,000. Hell Colour contends that UMG is using such alleged claim as a pretext for not paying Hell Colour other monies that it has invoiced UMG for.
The threatened claim by UMG in respect of Volume 8 is given credence by the concession by Everbest that there is a genuine dispute in respect of the amounts claimed for the production of Volume 8. It could not be said that that claim, which involves the same subject matter as the Volume 8 claims in the demand, is “hypothetical, illusory or misconceived”. Further, there is credible evidence that the defective production of Volume 8 has exposed Hell Colour to a claim by UMG which Hell Colour could seek indemnity against Everbest for by way of third party proceedings. It is to be remembered that as UMG does not have a contractual relationship with Everbest, it has to pursue its rights against Hell Colour, which in turn would have to seek relief against Everbest by third party proceedings.
As I have said, Everbest concedes for the purposes of this application that the Volume 8 invoices are genuinely disputed and those invoices have been deducted. However, Hell Colour says that there is what amounts to a standoff between UMG and Hell Colour because of the defective production of Volume 8 which Hell Colour says has also adversely affected its ability to pursue UMG for the “non Volume 8” invoices (“the UMG claim”). Hell Colour contends that it is entitled to set-off the amount which UMG refuses to pay it for the “non Volume 8 “ invoices - Hell Colour saying that UMG has an “arguable” case which it can justify such refusal - against the amount of the debt claimed by Everbest in the statutory demand. It says that UMG has indicated to it that if Hell Colour were to pursue it for payment of invoices which do not relate to production of Volume 8, that UMG would seek to set-off its alleged damages incurred as a result of the defects in production of Volume 8 by way of counterclaim. This is confirmed in paragraph 7 of the second affidavit of Mr Fielding, a representative of UMG. The total value of the UMG invoices claimed in the demand which do not involve Volume 8 and for which Hell Colour contends it is impeded from recovering total HKD 876, 300.73 [4]
[4]See affidavit of Mr Kong at paragraph 15.
As to its claim for lost commission, Hell Colour says that by reason of the faulty binding on the Volume 8 publication it has lost the ability to generate the 5% commission that it would otherwise have made on future contracts with UMG as UMB has ceased using Hell Colour to broker printing services. UMG continues to retain it to supply graphic design services and Hell Colour says it would have continued to derive the 5% commission had Everbest not defectively printed Volume 8.
It says that subsequent to UMG terminating Hell Colour’s printing “brokerage” services, UMG has continued to contract it to perform graphic design services and those transactions are set out in a table to paragraph 40 of Mr Lauria’s first affidavit. It is said that such claim totals AUD 61,500. In Mr Lauria’s affidavit of 9 September he sets out in a table appended to paragraph 4 claims for further loss of commission of AUD 20,918.50 for the additional publications identified. Those claims total AUD 80,418.50, resulting in an extinguishment in the AUD amount of the demand if such claims are accepted and a “balance owing” to Hell Colour of AUD 45,919, i.e approximately HKD344,392.
In addition Hell Colour says that a further effect of the defective production of Volume 8 is the loss of commission on Volume 8, calculated as 5% of HKD$668,603.52 i.e. HKD 33,430.18.[5] Hell Colour says that the lost printing commission claim arose “naturally” from Everbest’s breach and on an application of principles in Hadley v Baxendale, was in the contemplation of the parties when Everbest was engaged by Hell Colour to print Volume 8.
[5]The written submissions and the table provided by Mr Fary contains a typographical error, stating this to be HKD 34,430.18.
If the claims for lost commission of HKD 33,430.18 and the UMG claim of HKD 876,300.73 are deducted from the Hong Kong Dollar part of the demand, Hell Colour’s offsetting claims exceed that part of Everbest’s claim by HKD 77,245.11.
In its submissions, Everbest attacks the alleged offsetting claims by contending they are implausible. Mr Richardson says that Hell Colour has provided no evidence of its ability to earn 5% commission outside of its contract with the defendant. In her affidavit of 16 September 2010, however, Filomena Lauria states that Hell Colour always includes some measure of profit for arranging printing services in its quote to its client. She says that if an overseas printer is engaged, a commission of no less than 5% is charged and if an Australian printer is engaged there will be a mark up of between 10% and 15%. However, it will no longer derive such commission on the work that it does for UMG.
Mr Richardson states that it is “illogical” that UMG would deprive Hell Colour of printing work whilst retaining it for graphic work. In my view, I cannot reject Hell Colour’s evidence in this regard as being inherently improbable or implausible. It is supported by Mr Fielding of UMG in paragraph 15 of his affidavit of 3 August 2010 who says that Hell Colour is no longer given the contract to engage printers by UMG.
Mr Richardson says that notwithstanding that the loss of the UMG contract is said to have arisen in January 2009 at the latest, no claim has been made by Hell Colour on Everbest and, significantly, UMG has not made claims against Hell Colour or Everbest for its alleged losses incurred in the Volume 8 production. Again, this amounts to a submission that the offsetting claims are not genuine and that the position being taken by Hell Colour is commercially implausible and ought not be accepted. I do not consider that this view is open to me on the evidence.
As the authorities indicate, Hell Colour is not required to provide evidence in detail and of the quality required in a conventional inter partes proceeding. I consider that Hell Colour meets the requisite tests applicable in this type of application. I cannot conclude that Hell Colour’s alleged offsetting claims are not genuine. The contentions as to implausibility and lack of genuineness may have some force if this was the ultimate trial of the issue when they would be tested by cross examination but it is not.
The offsetting claim raised in respect of the UMG claim is an unusual one. The position between UMG and Hell Colour is explicable in terms of there being something of a commercial stalemate. They continue to be in a trading relationship. Hell Colour says that it will not sue UMG for the production of Volume 8 and the other monies it is owed for non Volume 8 publications lest it incites UMG into suing Hell Colour for the damages it has suffered because of Volume 8. That is consistent with Hell Colour taking the view that the publication was so defective that it would face some difficulties in such litigation. Everbest concedes (for the purposes of this application only) that the production of Volume 8 has given rise to genuine disputes.
In commencing such proceedings Hell Colour says that it would be likely to be met, it says, by a counterclaim from UMG in respect of its damages for loss of profits which arise from lost advertising. I consider that for the purposes of this application this plausibly explains why Hell Colour has not pursued Everbest by way of a claim. The absence of such a claim being made is not such in my view such as to impeach the genuineness of the alleged offsetting claims for loss of commission and the commercial impediment created against Hell Colour pursuing UMG for its “non-Volume 8” invoices.
It is probable that at some juncture the state of détente between UMG and Hell may pass and that there will be litigation in respect of Volume 8 which will become tripartite proceedings involving UMG, Hell Colour and Everbest and that is the appropriate venue in my view where the claims should be agitated and the balance of account determined. It is to be remembered that the statutory demand regime is a mechanism to determine whether a ground should be created for the winding up of a debtor company in insolvency and where there are matters which warrant investigation, as there are in these circumstances, it is not appropriate that the demand should be allowed to stand.
I do not consider that Hell Colour’s alleged claim has been, to use the expression of McPherson JA in JJMMR Pty Ltd v LG International Corp,[6] manufactured or got up simply for the purpose of defeating the demand made against the company.
[6][2003] QCA 519
In the circumstances of Everbest conceding the 5% commission claim on the demands and the invoices in respect of the Volume 8 publication, together with my acceptance of the offsetting claims which exceed Everbest’s claims by the amounts mentioned in paragraphs 20 and 22 above, the demand should be set aside. There may be some minor arithmetical differences between the parties in calculating the exact amount of the offsetting claim but for the purposes of the exercise that I have to perform, the outcome will be the same.
Subject to anything counsel may wish to submit on the issue of costs, Everbest should pay the costs of Hell Colour including reserved costs.
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