Living Imaging Ltd v Qantm Australia CMC Pty Ltd

[2001] TASSC 151

[2001] TASSC 151

CITATION:                 Living Imaging Ltd v Qantm Australia CMC Pty Ltd [2001] TASSC 151

PARTIES:  LIVING IMAGING LTD (ACN 086 454 999)
  v
  QANTM AUSTRALIA CMC PTY LTD

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  M173/2001
DELIVERED ON:  21 December 2001
DELIVERED AT:  Hobart
HEARING DATES:  18 December 2001
JUDGMENT OF:  Blow J

CATCHWORDS:

Corporations - Winding up - Winding up by court - Grounds for winding up - Insolvency - Application to set aside demand - Genuine dispute as to indebtedness - Substance of dispute - Claim to right to rescission of contract.

Corporations Act 2001 (Cth), s459H.
Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 12 ACLC 490; Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 34 ACSR 301, referred to.
Aust Dig Corporations [213]

REPRESENTATION:

Counsel:
             Plaintiff:  K B Procter SC
             Defendant:  P W Tree
Solicitors:
             Plaintiff:  Murdoch Clarke
             Defendant:  Page Seager

Judgment Number:  [2001] TASSC 151
Number of Paragraphs:  11

Serial No 151/2001
File No M173/2001

LIVING IMAGING LTD (ACN 086 454 999)
v QANTUM AUSTRALIA CMC PTY LTD

REASONS FOR JUDGMENT  Blow J

21 December 2001

1. The plaintiff has applied pursuant to the Corporations Act 2001 (Cth), s459G(1), for the setting aside of a statutory demand that was served on it in July of this year. The plaintiff contends that there is a genuine dispute between it and the defendant about the existence or amount of the debt or debts to which the demand relates and, alternatively, that it has an offsetting claim. The determination of an application made on such bases is governed the Corporations Act, s459H, which includes the following provisions:

"459H(1)  This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:

(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;

(b)that the company has an offsetting claim.

(2)  The Court must calculate the substantiated amount of the demand in accordance with the formula:

Admitted total ¾ Offsetting total

where:

'Admitted total' means:

(a)the admitted amount of the debt; or

(b)the total of the respective admitted amounts of the debts;

as the case requires, to which the demand relates.

'Offsetting total' means:

(a)if the Court is satisfied that the company has only one offsetting claim — the amount of that claim; or

(b)if the Court is satisfied that the company has 2 or more offsetting claims — the total of the amounts of those claims; or

(c)otherwise — a nil amount.

(3)  If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.

(4)  If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:

(a)varying the demand as specified in the order; and

(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.

(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

(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

(c)   otherwise — the amount of the debt.

'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."

1. The evidence before me establishes that the parties entered into a contract in September 2000 for the provision of training services by the defendant to the plaintiff.  The defendant had apparently previously installed a training centre in premises in Hobart for the plaintiff for the purpose of training groups of up to 23 trainees who, if successful, would be awarded "Certificate IV in IT (Multimedia)".  The contract required the plaintiff to make monthly instalment payments to the defendant for the provision of training services.  The statutory demand claimed $223,999.82 which comprised $103,840.88 in respect of monthly instalment payments (being seven monthly payments of $19,680.84 each, less $33,925 said to have been received by the defendant), together with $120,158.94 which was described as "Balance owed in relation to the design, implementation and commissioning of the traineeship training centre at ABC Stone Building, Liverpool St, Hobart".  The latter sum was not claimed pursuant to the contract, which related only to the provision of training services, and not to the design, implementation or commissioning of a training centre.

1. The only evidence before the Court is contained in an affidavit of the plaintiff's managing director, Mr Hope.  In that affidavit he asserted that, before the contract with the defendant was made, the defendant's officers or agents made representations to him as to their "skills and abilities to discharge the obligations created by the contract", and representations that "as part of the scope of the contract … the training services to be provided must also involve work skills training and not just be limited to competency based training".  He said he entered into the contract in reliance upon "assurances" made by the defendant's officers or agents.  I infer that he was referring to the pre-contractual representations that he had described.  His affidavit goes on to list a number of respects in which he contends that the "objectives and conditions of the contract" were not being met or adhered to by the defendant.  He sent an e-mail to an officer of the defendant on 12 June 2001 complaining that 13 trainees out of a group of 23 were effectively useless.

1. Mr Tree submitted on behalf of the defendant that the evidence fell short of establishing the existence of a genuine dispute.  It is true that Mr Hope's affidavit contains no express assertion that the defendant's officers or agents, contrary to the representations he says were made to him, lacked the skills and abilities to discharge the obligations created by the contract, either in relation to the provision of "work skills training" or otherwise.  However, reading the affidavit as a whole, I am satisfied that Mr Hope was thereby implying that the quality of services provided by the defendant was such that the representations that its officers or agents had skills and abilities sufficient to discharge the obligations created by the contract must have been false.  If that is correct, the plaintiff would be entitled to apply for rescission of the contract.  Alternatively, as the contract was made by two corporations in trade or commerce, the plaintiff would be entitled to damages pursuant to the Trade Practices Act 1974 on the basis that it was entered into as a result of misleading or deceptive statements made to Mr Hope. Further, if the contract was breached as alleged in Mr Hope's affidavit, the plaintiff would be entitled to damages in respect of such breaches. Mr Hope was not cross-examined. His assertions were not contradicted. Subject to the issue of genuineness, his affidavit is sufficient to establish the existence of a dispute between the parties as to the alleged debt or debts, and to establish offsetting claims.

1. This application was made in July 2001, nearly five months ago, but the plaintiff has not instituted proceedings for rescission.  Mr Tree submitted that its failure to do so should lead to a finding that any claimed dispute with the defendant was not a genuine one.  I accept that the failure to institute proceedings is a relevant factor weighing in favour of a finding of a lack of genuineness.  However Mr Hope complained to a representative of the defendant in his e-mail of 12 June 2001 about the quality of the defendant's services, and his assertions in his affidavit relating to the existence of a genuine dispute have neither been challenged nor contradicted.  I therefore accept that his claims as to representations and breaches of contract are bona fide, and that there exists a dispute between the parties that is not spurious, hypothetical, illusory or misconceived.  I accept that the plaintiff's offsetting claims are not frivolous or vexatious.  See Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 34 ACSR 301 at 307.

1. As Mr Tree pointed out, the assertions of the plaintiff are connected only with the contract for the provision of training services by the defendant, and are not of such a nature as to impeach its claim for the sum of $120,158.94 in relation to the design, implementation and commissioning of a training centre.

1. The only evidence that I have as to the quantum of the plaintiff's offsetting claims is contained in Mr Hope's e-mail of 12 June 2001.  In that communication he proposed that the contractual arrangements between the parties be revised so that the monthly instalments payable under the training contract would be reduced to $12,500 per month.  It appears from the statutory demand that the amount payable by the defendant pursuant to the contract was $19,680.84 per month.  It may be that Mr Hope's proposed figure of $12,500 per month involved something of a compromise, but I have no evidence to suggest that the plaintiff contends that the services rendered were worth any less than $12,500 per month.  As far as I can tell, its claim for damages in contract would be for $50,265.88, representing seven months at $7,180.84 per month (that being the difference between $19,680.84 and $12,500).  There is no evidence to suggest that the quantum of any claim in respect of misrepresentations, either pursuant to the Trade Practices Act or on some other basis, would be any greater.  The quantum of the offsetting claims is not such as to impeach upon the claim for $120,158.94 in relation to the training centre that was included in the statutory demand.

1. If the plaintiff were totally successful in an action for rescission of the contract, it would not be liable to pay the defendant any part of the claimed sum of $103,840.88 relating to training services that was included in the statutory demand.  The statutory demand annexes a statement which shows that the defendant received $33,925 in respect of the payments required for training services, but it seems that that sum did not come from the plaintiff.  It is referred to in the statement as "Ovet Traineeship funds received".  The contract refers to "OVET" as a separate entity that would be making payments to the defendant under a separate contract.  Thus, even if a rescission action were successful and restitution were ordered, it appears that the sum of $33,925 would not be recovered by the plaintiff.

1. Mr Tree submitted that Mr Hope's e-mail offering to vary the contractual arrangements so that the amount payable by way of monthly instalments would be $12,500 amounted to a waiver by the plaintiff of any right that it may have had to rescind the contract.  A party entitled to rescission of a contract waives that right of rescission if he or she does something inconsistent with the exercise of that right.  See, for example, Sargent v ASL Developments Ltd (1974) 131 CLR 634. Mr Procter SC submitted that attempting to negotiate a fresh contract in substitution for the original one was not inconsistent with the retention, and later exercise, of a right of rescission of the original contract. I need only determine whether such a contention is bona fide, and not so far-fetched that any dispute as to the existence of a right of rescission is spurious, hypothetical, illusory or misconceived.  If a plaintiff's advisers are carried away by the merits of their cause and put in an ambit claim, that need not mean that the claim is made otherwise than in good faith: Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 12 ACLC 490 at 493. I accept that the plaintiff genuinely contends that it is entitled to the rescission of the contract for the provision of training services. However no aspect of the plaintiff's disputes with the defendant impinges upon the component of $120,158.94 included in the statutory demand in relation to the design, implementation and commissioning of a training centre.

1. I think it must follow that statutory demand must not be set aside, but must be varied. The sum of $120,158.94 is not the subject of any dispute between the parties. It follows that par(b) of the definition of "admitted amount" in s459H(5) applies, and that that sum is the "admitted amount" for the purposes of that section, and the "Admitted total" for the purposes of s459H(2). The plaintiff's offsetting claims, which I have quantified at $50,265.88, could only succeed if the claim for rescission failed. I think it must follow that the "offsetting total" within the meaning of s459H(2) is a nil amount. It follows that the substantiated amount of the demand is $120,158.94. That amount exceeds the "statutory minimum". I am therefore empowered by s459H(4) to vary the statutory demand, and to declare it to have had effect, as so varied, as from when it was served on the plaintiff. It has not been submitted that I should take any other course in the event of my determining that there is a genuine dispute within the scope of s459H(1)(a) and that the substantiated amount exceeds the statutory minimum.

1. For these reasons I order as follows:

1    That the defendant's statutory demand dated 3 July 2001 addressed to the plaintiff be varied by reducing the amount demanded to $120,158.94.

2    That that demand be declared to have had effect, as so varied, as from when it was served on the plaintiff.