Montage Group Pty Ltd v Wong (No 2)

Case •

[2011] NSWSC 774

•

25 July 2011

Supreme Court


New South Wales

Medium Neutral Citation: Montage Group Pty Ltd v Wong (No 2) [2011] NSWSC 774
Hearing dates:5 and 6 July 2011
Decision date: 25 July 2011
Jurisdiction:Equity Division
Before: Black J
Decision:

Statutory demand set aside

Catchwords: Statutory demand - genuine dispute - offsetting claims
Legislation Cited: Corporations Act 2001 (Cth) - s 459G, s 459H
Trade Practices Act 1975 (Cth) - s 52
Cases Cited: - Beauty Health Group Ltd v Sholl [2011] NSWSC 77
- Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
- Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560
- Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
- Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95
- Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452
- Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd [2008] FCA 1591
- Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284
- Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743
- Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362
- Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290
- Morris Catering (Aust) Pty Ltd, Re (1993) 11 ACSR 601
- Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896
- Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341
Category:Principal judgment
Parties: Montage Group Pty Ltd - Plaintiff
Ferdinand Wong t/as Creative Blinds Company - Defendant
Representation: Counsel:
M.S. White, Ms N.M. Shaw - Plaintiff
Ms T.L. Wong - Defendant
Solicitors:
Bruce MacDonald Lawyers - Plaintiff
Phan Lawyers - Defendant
File Number(s):10/417017

Judgment

  1. The plaintiff, Montage Group Pty Ltd ("Montage"), applies under s 459G and s 459H of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 30 November 2010 ("Demand") served on it by the defendant, Ferdinand Wong trading as Creative Blinds Company ("Creative Blinds") which manufactured products in China and supplied them to Montage in Australia. The Demand is based on a debt of US $714,513.99 that is claimed as due and payable by Montage to Creative Blinds ("Debt"). (I should note that amounts in this judgment are stated in US dollars, which was the currency adopted in the Demand. I have adopted the AUD-USD conversions set out in Montage's submissions, which were not contested in submissions for Creative Blinds.)

  1. These proceedings were commenced by Originating Process filed and served by Montage on 16 December 2010. The application to set aside the Demand was filed and served within the twenty-one day period required by s 459G of the Corporations Act and Creative Blinds has not contended to the contrary. The affidavit of Mr Michael Jolly dated 15 December 2010 identifies the bases upon which Montage disputes the Debt and nature of the claims asserted against Creative Blinds. Subject to one matter to which I refer in paragraph 63 below, Creative Blinds does not contend that this affidavit is insufficient to satisfy the requirements set out in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452.

  1. Montage seeks orders under s 459G and s 459H(3) of the Corporations Act that the Demand be set aside on grounds that there is a "genuine dispute" as to the amount of the Debt; Montage has "offsetting" claims against Creative Blinds; and any "admitted total" is less than the "offsetting" total so that the "substantiated amount" is less than the statutory minimum under s 459H(2) of the Corporations Act .

  1. Each party has filed substantial evidence in support of their respective positions. Montage relies on affidavits of Mr Michael Peter Jolly dated 15 December 2010 (Jolly 1) (to which I referred above), 13 April 2011 (Jolly 2) and 4 July 2011 (Jolly 3). Creative Blinds relies primarily on an affidavit of Mr Ferdinand Wong dated 3 June 2011 (Wong) and also on affidavits sworn by persons associated with various customers of Montage.

Whether the Debt is genuinely disputed

  1. If the Court is satisfied that (1) there is a genuine dispute as to the existence or amount of a debt to which a statutory demand relates (s 459H(1)(a)) or (2) the company has an offsetting claim (s 459H(1)(b)), then the Court is required to calculate the "substantiated amount" of the demand by deducting any disputed amounts and any offsetting claim from the admitted amount of the debt: s 459H(2). The onus is on Montage, as the recipient of the statutory demand, to establish a genuine dispute: Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2007] VSCA 121; (2007) 63 ACSR 300 at [140]; Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [15].

  1. The test for a "genuine dispute" used in s 459H of the Corporations Act has been variously formulated as that the dispute is not "plainly vexatious or frivolous" or "may have some substance" or involves "a plausible contention requiring investigation" and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787.

  1. In Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362, Hayne J observed that:

"... at least in most cases, it is not expected that the Court will embark upon any extended enquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute."

  1. The case law indicates that the Court will not generally decide contested issues of fact or law in order to decide whether a genuine dispute exists. In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, Thomas J observed that

"It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond the perception of genuineness (or the lack of it) the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it)."

  1. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq observed that the expression "genuine dispute" used in s 459H of the Corporations Act :

"... connotes a plausible contention requiring investigation, and raises much the same sort 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 uncontested contemporaneous 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' (cf Ng Mee Yong v Letchumanan [1980] AC 331 at 341) or 'a patently feeble legal argument or an assertion of facts unsupported by evidence': cf South Australia v Wall (1980) 24 SASR 189 at 194

In that case, his Honour set aside a statutory demand notwithstanding his initial impression that the creditor's demand seemed more solidly based than the cross claim and that a final analysis of the position between the parties would probably lead to some balance in favour of the creditor. His Honour observed that that perception was "not to the point".

  1. In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39, Lockhart J observed that:

"The notion of a 'genuine dispute' ... 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."

  1. In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [17], Barrett J noted that the test for a genuine dispute involved a "plausible contention requiring investigation", "real and not spurious, hypothetical, illusory or misconceived" and "perception of genuineness (or lack of it)". His Honour also noted that the tests for a genuine dispute, applied in the context of a summary procedure where it is not expected that the Court will embark on any extended enquiry, mean that the task faced by a company challenging a statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one, and that the company will fail in that test only if it is found, upon the hearing of its s 459G application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. His Honour noted that, once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow; and the Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.

  1. In Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [9], Murphy JA (with whom Buss JA agreed) observed that:

"The expression 'genuine dispute' within the meaning of s 459H(1)(a) of the [Corporations] Act, connotes a plausible contention requiring investigation: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [44]. The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds: Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 at [35]. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie: Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 at [30]. The court will not attempt to weigh or examine the merits of any dispute: Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295."

The decision of the Court of Appeal of Western Australia in Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 was in turn followed by Barrett J in Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [4].

Revision of invoices

  1. The first matter on which Montage relies to establish a genuine dispute in respect of the amount claimed in the Demand is its contention that invoices on which Creative Blinds relies have been revised up in amount after issue, in some cases through several revisions (Jolly 1 [7(j)]). There is an associated dispute as to which of the invoices issued by Creative Blinds in different terms was operative. The Demand is based on the amount set out in "actual" or "final" invoices issued by Creative Blinds rather than "pro forma" invoices also issued by Creative Blinds when the relevant products were supplied. It appears that (on Mr Jolly's calculation) US $528,677.54 of the amount referred to in the Demand could not be supported if the "pro forma" invoices rather than the "actual" or "final" invoices provided the true basis of the dealings between the parties (Jolly 2 [22]; Ex MPJ3).

  1. Mr Jolly and Mr Wong give evidence in different terms of the conversations alleged to have given rise to the arrangements between the parties and the way in which invoices would be issued. On the one hand, Mr Jolly's evidence is that Creative Blinds revised its invoices upwards between the "pro forma" invoices and the "final" invoices and the amounts claimed by Creative Blinds in the "final" invoices did not reflect charges agreed by Montage (Jolly 2 [20]-[22]). On the other hand, Mr Wong's evidence is that, from about 2005, Mr Jolly requested that Creative Blinds prepare "pro forma" invoices for amounts lower than the actual prices to be invoiced and send such invoices to him with shipping documents and then send "final" invoices to him by email; that Mr Wong prepared "pro forma invoices" which were labelled as such and also described as "for customs usage"; and the amount of the "final" invoice was determined after goods were shipped (Wong [17]). Mr Jolly in turn denies the suggestion that he asked Mr Wong to understate the amount of invoices and gives evidence that, inter alia, import duty from China was set at a low rate, he did not wish to understate the amount of invoices and the risk of doing so would not be justified (Jolly 3 [17]).

  1. There is evidence that is consistent with Mr Jolly's contention that invoices were revised upwards by Creative Blinds after issue. For example, an email dated 12 January 2009 from Mr Wong to Mr Jolly appears to indicate that Mr Wong amended invoices after issue for changes in exchange rates since

"[i]f I were to use the exchange rate on that time [of issue] then I really cannot pay what we owe the suppliers. So I will be adjusting some invoices as per the current exchange rate" (Ex FW1 2).

  1. Mr Wong also gives evidence that he sent documents titled "Montage Update Outstanding Memorandum" or "MUOM" to Montage which listed all invoices issued to Montage and all payments received from Montage, the balance owing and a total balance owing on all outstanding invoices from time to time (Wong [7], [20]). There are in evidence copies of several of those documents, the first of them having been emailed to Mr Jolly on 12 January 2009, although it appears that earlier documents also existed which have not been placed in evidence (Wong [8]).

  1. By email dated 12 January 2009, Mr Wong sent Montage MUOM 140 which referred to a debt of US$137,255.40 (Wong [9]). Between January 2009 and March 2009, Mr and Mrs Jolly sent various emails to Mr Wong which, on one view, amounted to an acknowledgement of the claims made by Creative Blinds (Ex FW1 5-9, 113). By email dated 13 April 2009, Mr Wong sent Montage MUOM 147 which referred to a debt of US$349,379.63. Mr Wong requested confirmation from Mr Jolly as to MUOM 147 and by email dated 13 April 2009, Mr Jolly advised "I have no problems confirming the UOM 147" [sic] (Wong [12]; Ex FW1 12). However, it is not clear that that email (which seems, at least in part, to be directed to reassuring suppliers to Creative Blinds) should be read as an unqualified confirmation of the specific amount claimed, particularly where Mr Wong had indicated that MUOM 147 was not complete as he had not finished several invoices (Ex FW1 13).

  1. On 20 August 2009, Creative Blinds issued MUOM 150 alleging a debt of US$465,844.53. Mr Wong gives evidence that Mr Jolly signed MUOM 150 to acknowledge the amount of the debt (Wong [13]; Ex FW1 16). Mr Jolly responds that he signed that document only to confirm the value of the payments made by Montage to Creative Blinds (Jolly 3 21, 13) and that evidence is strongly criticised by Creative Blinds.

  1. On 25 July 2010, Creative Blinds issued MUOM 161 alleging a debt of US$701,751.68 (Wong [14]-[16]; Ex FW1 18-19) on which the Demand is based, and there is no suggestion that Montage or Mr Jolly had acknowledged the amount of that debt.

  1. The dispute between Mr Jolly and Mr Wong as to the terms of the invoicing arrangements, the evidence of revisions to invoices by Creative Blinds after they were issued and the difference between the "pro forma" invoices of lesser amounts and "final" invoices of larger amounts suggest that, prima facie, further investigation would be required to determine which of those invoices was intended to be operative and a genuine dispute as to this component of the Debt would therefore be established.

  1. Several matters are put by Creative Blinds in support of its contention that the "final" invoices are the operative invoices and that Montage's contention to the contrary does not establish a genuine dispute. As noted above, Creative Blinds draws attention to various occasions on which, it contends, Mr Jolly gave assurances to Creative Blinds that payment would be made in accordance with the "final" invoices issued by Creative Blinds to Montage. I have referred to those "assurances" above and note that they do not extend to MUOM 161 on which the Demand relies. Creative Blinds also points to the absence of protest by Mr Jolly documented in contemporaneous communications as to the significant difference between the amounts stated in the "pro forma" invoices and the "final" invoices. However, the inference that Mr Jolly or Montage accepted the amount claimed does not necessarily follow from the absence of written protest within a continuing business relationship.

  1. It appears to be common ground between the parties that substantially more was paid by Montage to Creative Blinds than the amount due and payable in respect of the "pro forma" invoices, although there is a difference in the respective parties' quantification of the additional amount paid. Mr Wong attributes the higher payments to the fact that the "final" and not the "pro forma" invoices were the operative invoices and that is plainly an available inference. However, that excess may also be explained by payments made by Montage against revised invoices or for other purposes and it appears that, at least in 2009, Montage was in any event making payments in lump sums rather than against specific invoice sums (Ex FW1 10).

  1. Creative Blinds also contends that it is inherently improbable that Montage would continue to trade for several years with Creative Blinds if the latter regularly issued invoices for amounts substantially greater than the amount actually payable. That contention also has force, but Montage contends that it is also inherently unlikely that it would order goods on the basis that the price at which they were supplied would not be determined until well after their supply.

  1. Creative Blinds contends that the Court should not accept Mr Jolly's evidence contesting the validity of the "final" invoices issued at the higher amount, in circumstances that Mr Jolly has on occasion relied on higher amounts charged in "final" invoices and not lower amounts charged in "pro forma" invoices in calculating Montage's gross margin on the costs of sale for the purposes of its offsetting claims asserted in these proceedings (Jolly 2 [18]-[19]). In my view, this matter also has considerable weight.

  1. I have given careful consideration to these matters which I have not found by any means straightforward. The authorities to which I refer above make clear that I should not embark upon an extended inquiry to determine whether a genuine dispute exists in respect of this aspect of the Debt and I should also not find that no genuine dispute exists if Montage's contentions may have some substance or amount to a plausible contention requiring further investigation. These are not exacting standards. However, the authorities also indicate that I should not accept uncritically, as giving rise to a genuine dispute, assertions (even where made in affidavit evidence) which are inconsistent with uncontested contemporaneous documents or inherently improbable.

  1. I have concluded that the differences between the amounts invoiced by Creative Blinds in the "pro forma" and "final" invoices and the evidence of revision of invoices after they were issued are such that Montage has established a genuine dispute as to the difference between the amount of the "pro forma" and the "final" invoices, notwithstanding the matters to which Creative Blinds has referred. It may be that these matters are such that Creative Blinds would, or might, ultimately prevail in a contested hearing to establish this component of the Debt. However, in my view, these matters do not rise to the level that it could be said that there are not significant factual issues requiring investigation to determine the true state of the account between the parties or that summary judgment could have been given in favour of Creative Blinds in an action for debt brought against Montage, had a defence been filed relying on the upward revision of invoices after issue and the competing versions of the invoices.

  1. I should interpolate that Counsel for Creative Blinds sought leave to cross-examine Mr Jolly, which was resisted by Montage. I declined to grant such leave for reasons which are the subject of a separate judgment and Mr Jolly was not cross-examined in these proceedings. Counsel for Montage, consistently with his position in opposing leave to cross-examine Mr Jolly, did not seek to cross-examine Mr Wong, but one would expect that such cross-examination would be undertaken in substantive proceedings brought by Montage to recover the Debt claimed in the Demand. No doubt, cross-examination would have assisted in resolving the conflicts between Mr Jolly's and Mr Wong's evidence, the uncertainties arising from the issue of "pro forma" and "final" invoices in different terms and could have clarified the basis of and extent of upward revision of invoices by Creative Blinds after they were issued. However, the fact that such issues exist and that cross-examination may assist in resolving them is itself a factor which suggests that a genuine dispute exists as to this component of the Debt, and the case law to which I have referred above makes clear that an application to set aside a statutory demand is not the appropriate forum to resolve that dispute.

  1. In closing submissions, an issue arose as to whether uncertainty as to the proper law of the contract between Montage and Creative Blinds also gave rise to a genuine dispute in respect of the Debt. Counsel for Creative Blinds contended there was no such uncertainty because the contract between the parties was governed by the Sale of Goods (Vienna Convention) Act 1986 (NSW). Counsel for Montage argued that, first, that Act does not apply to the contract because it was not simply for sale of goods but one where Creative Blinds predominantly supplied labour or other services and therefore outside the scope of the Act and, second, because Creative Blinds' place of business was in Hong Kong before and at the time the contract was formed and Hong Kong was not a contracting state for the purposes of the United Nations Convention on Contracts for the International Sale of Goods : Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd [2008] FCA 1591 at [5]. I do not consider it necessary for me to resolve this issue, since it was not suggested before me that Chinese law (even if it were applicable) does not recognise the existence of debts arising from the supply of goods or services which would be capable of founding the Demand, if it were not genuinely disputed on other grounds.

Other disputed components of the Debt

  1. Montage also identifies several other disputes as to components of the Debt which was the subject of the Demand. Montage contends that Mr Jolly's evidence as to these matters has sufficient prima facie plausibility to merit further investigation as to its truth, adopting the formulation in Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5.

  1. Montage argues that there is a genuine dispute as to whether Creative Blinds was entitled to "rents and management fees" in the amount of US$43,650 from 2007 onwards (Jolly 1 [7(m)]; Jolly 2 [91]). It is common ground that in mid-2007 Creative Blinds moved into a larger factory and Mr Wong started invoicing Montage for rent at that larger factory, although the circumstances in which that occurred are disputed. Mr Jolly's evidence is that Montage agreed with Creative Blinds that Creative Blinds would pay all rent and outgoings in respect of the relevant factory, although Montage assisted with some payments which were to be set off against future stock purchases (Jolly 2 [22]-[23], [90]-[91]). Mr Wong's evidence is that Mr Jolly agreed with him that Montage would pay the rent and management fees for the factory and that amounts referable to the rent and fees were included as separate line items in statements of account issued by Creative Blinds to Montage between July 2007 and July 2009 (Wong [142]) and were referred to in MUOM 147 and 150 which, Creative Blinds contends, were acknowledged by Mr Jolly (Wong [137]-[145]; Ex FW1 384 ff). I have referred to the circumstances of those documents in paragraphs [17]-[18] above.

  1. Creative Blinds contends that Mr Jolly's explanation for the payments which it had made in this regard is unsupported, does not accord with contemporaneous documents and is "mere assertion". However, there is a contest of evidence between Mr Jolly and Mr Wong as to these matters and the evidence before me does not establish that Mr Wong's evidence is to be preferred to Mr Jolly's or that Montage's contention does not warrant investigation or is spurious or misconceived. It does not seem to me that the requirements for summary judgment in favour of Creative Blinds would be satisfied had it brought proceedings against Montage in respect of this component of the Debt, and I find that this component of the Debt is genuinely disputed at least to the undemanding threshold required.

  1. Montage also contends that there is a genuine dispute as to whether Creative Blinds has failed to credit Montage for amounts paid on 17 February, 3 March and 16 March 2010 totalling US$27,000 (Jolly 2 [24]). Mr Wong accepts that the additional payments in that amount were not credited to Montage in MUOM 161 which was annexed to the Demand and supported the amount claimed by the Demand (Wong [16]). A genuine dispute as to this amount is therefore established.

  1. Montage contends that there is a further genuine dispute as to whether Creative Blinds is entitled to an amount of US$12,000 which, on Mr Jolly's evidence, is referable to a duplicated order for V1000 flat bar screens for Colt Tollfab (Jolly 1 [7(n)]; Jolly 2 [84]-[87]). Creative Blinds contends that this claim is inconsistent with contemporaneous documentation which, it contends, establishes that Montage ordered three lots of products from Creative Blinds in respect of this order. It may be that Creative Blinds would ultimately succeed in establishing these matters in a contested hearing of a claim for the Debt, but it again seems to me that Montage's contention is sufficient to warrant further investigation and is not spurious or misconceived. It does not appear that the amount referable to the duplicated order is disputed, if a genuine dispute is otherwise established, and I find that a genuine dispute as to this component of the Debt is established.

  1. Montage contends that there is also a genuine dispute as to whether Creative Blinds is entitled to payment for an amount of US$15,384.63 for freight costs between China and Hong Kong in September 2009 which, on Mr Jolly's evidence, have already been paid by Montage (Jolly 1 [7(l)]; Jolly 2 [88]-[89]). Mr Jolly's affidavit exhibits various documents which support, at least at a prima facie level, a conclusion that this amount was previously paid by Montage. Creative Blinds points to entries in a spreadsheet prepared by Mr Wong which it contends record a credit for that amount, although they total US$15,800 rather than US$15,384.63. Creative Blinds' response may provide a sufficient answer to this claim in a contested hearing but I do not consider that it is sufficient to prevent Montage establishing a genuine dispute as to this component of the Debt at least to the undemanding threshold required.

  1. Montage contends that there is a genuine dispute whether Creative Blinds is entitled to an amount of US$1,000 for costs referable to a transformer which Mr Jolly claims was the responsibility of Creative Blinds (Jolly 1 [7(h)], Jolly 2 [93]-[94]; Wong [147]). On the limited evidence before me, I find that there is a genuine dispute as to this component of the Debt relied on in the Demand.

  1. Since I have held that a "genuine dispute" exists in respect of the amounts referred to in paragraphs [13]-[35] above, which total US$627,712.17, it follows that US$86,801.82 should be treated as the "admitted total" for the purposes of s 459H of the Corporations Act . I now turn to address the offsetting claims on which Montage relies. If the amount of the Demand, after deducting the offsetting claims established by Montage, is less than the statutory amount, the Demand must be set aside.

Offsetting claims

  1. An "offsetting claim" for the purposes of s 459H(1)(b) of the Corporations Act is the amount of a claim, or claims, that the company has against the person who served the statutory demand by way of counter claim, set-off or cross demand, whether or not that amount arises out of the same transaction or circumstances as the debt to which the demand relates: s 459H(5). A company can establish an "offsetting claim" if there is a "serious question to be tried" or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor and that claim is made in good faith and is arguable and not frivolous or vexatious: Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 356-7.

  1. In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743, Palmer J observed at [18]:

"In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s.459H(1) and (2)."

  1. In Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95 at [19], Palmer J observed that:

"As has been said on many occasions, an application to set aside a Statutory Demand is not the process whereby the Court ultimately determines the validity or otherwise of a plaintiff's claim said to offset a debt founding a Statutory Demand. What has to be determined, as is well known, is whether a genuine dispute as to the debt exists. ... In claims made by a plaintiff for economic loss, the Court will not require a great deal of evidence to quantify with precision the amount claimed by way of set off. Economic loss claims are necessarily complex and often require expert evidence. It is not appropriate in proceedings under s.459G to engage in a close analysis of each head of damage and to examine whether the quantification is correctly calculated. All that the Court can do is to determine whether the heads of damage claimed are reasonably arguable and whether the amounts of loss estimated by the plaintiff seem extravagant to the point of being unrealistic."

  1. In Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [19], Barrett J observed that:

"Despite this clear need, according to the terms of the legislation, to quantify an offsetting claim in money terms, it is not necessary that the party seeking to have the statutory demand set aside should particularise the amount of the claim to the last dollar and cent. There may be various ways of approaching the issue of assessment at this early stage. It is sufficient that there be, on the evidence a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty, can be seen to be, in any event, greater than the amount of the debt the subject of the statutory demand. Of course, the narrower the margin between the alleged debt and the plaintiff's estimate or initial quantification, the greater will be the need for particularity in assessing the amount of the offsetting claim."

  1. In Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [23], Barrett J observed that s 459H(1)(b), read in conjunction with the definition of "offsetting claim" in s 459H(5):

"... requires the court to consider whether the plaintiff has a 'genuine' claim against the defendant in respect of the matter raised. It is also necessary to ascribe an 'amount' to any 'genuine' claim in order to determine, under s 459H(2), the 'offsetting total' which plays a central part in determining whether the 'substantiated amount' is less than the statutory minimum of $2,000. The court's task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried ( Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith ( Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious ( Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37).

  1. Montage has identified numerous offsetting claims against Creative Blinds which are said to be accrued claims for breach of contract or misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1975 (Cth). Generally, Montage claims either loss of profit or, in the alternative, the difference in the value of the goods received and the price paid for them and/or other costs and expenses incurred as a consequence of the alleged breaches. Montage claims that, by reference to those various claims, its "offsetting total" for the purposes of s 459H of the Corporations Act is either US$1,467,679.60 (on a loss of profits basis) or US$1,502,877.10 (on an out of pocket basis) or, alternatively, US$1,260,111.30 (on a lost profits basis) or US$1,326,045.90 (on an out of pocket basis).

  1. Creative Blinds contends that, even if it is accepted that some of the matters identified by Montage give rise to an offsetting claim, the amounts claimed as damages by Montage are implausible and not supported by sufficient evidence to enable the Court to be satisfied that the amounts have been genuinely claimed. In particular, Creative Blinds contends that the "loss of profits" claims made by Montage, frequently for substantial amounts, are often not supported by evidence that the relevant customers had ordered substantial quantities from Montage or had ceased doing so around the time that defective goods were allegedly supplied.

  1. Creative Blinds also contends that the fact that several of Montage's customers have sworn or affirmed affidavits stating that they never ordered the relevant goods or, if the goods were supplied, they were not defective calls into question the genuineness of all claims made by Montage. I do not consider that it would be appropriate for me to form a conclusion of that generality, first, because there is a factually intensive contest as to these matters and it appears that there is at least a possibility that some of the customer evidence is based on errors of identification of the orders on which Montage relies; and, second, because I do not consider that any of the errors in respect of particular offsetting claims for which Creative Blinds contends are such that I should reach an adverse finding as to the genuineness of the offsetting claims generally, particularly where the various claims arise from different factual circumstances.

Basswood shutters

  1. First, Montage relies on an offsetting claim in respect of basswood shutters which it quantifies on a lost profits basis as US$484,400 and on an out of pockets basis as US$495,045.81. It appears that Montage commenced ordering basswood shutters from Creative Blinds in early 2008 (Jolly 2 [70]; Wong [115]) and received customer complaints about defects in the product (Jolly 2 [72]-[73]; Wong [117]-[118]; Jolly 3 [3(f)]). There is in evidence an email from Montage to Creative Blinds reporting cancelled orders and credits issued to customers and Mr Wong's evidence is that he credited these amounts to Montage (Wong [119]; Ex FW1 350).

  1. Creative Blinds concedes that Montage has a genuine offsetting claim in relation to basswood shutters but argues that there are "very substantial difficulties, however, in accepting that Montage has demonstrated any significant loss" having regard to the total value of all orders made for basswood shutters; the total amount paid in respect of those orders by Montage; and the fact that Montage asked Creative Blinds to provide credit in respect of certain orders totalling US$6,045.51, which was provided (Wong [118]-[121]). Creative Blinds also contends that Montage's claim to have provided credits to various customers is refuted by evidence from several customers referred to in Mr Jolly's evidence that they did not receive any orders for such shutters. Montage in turn leads evidence of purchase orders placed by at least one of those customers and Creative Blinds responds that, although these orders appear to relate to the same product, they predated the first shipment of goods by Creative Blinds.

  1. This claim involves a contest as to the facts and conflicting evidence of Mr Jolly and Mr Wong. I am satisfied that Montage has established a claim which warrants further investigation and is not spurious and misconceived as to the cost of the relevant products of US$83,845.81 and US$11,200 in other freight costs, at least to the undemanding threshold required in an application of this kind.

  1. Montage also claims loss of profit attributable to loss of repeat custom in respect of several customers. Creative Blinds points to significant difficulties with this claim, including the fact that representatives of three of those customers have contested Mr Jolly's evidence as to dealings with them and that Mr Jolly's evidence is not sufficient to establish that sales ceased because of problems with basswood shutters. In my opinion, Montage has not established an offsetting claim by reference to any loss of profits in respect of this claim or by reference to its alternative claim for the "lost custom" component of its "out of pocket" quantification of this claim.

  1. I note that the amount of the offsetting claim which I have found established as to this claim (US$95,045.81) is greater than the amount of the admitted debt to which I have referred in paragraph 36 above. I will, however, also deal with the other offsetting claims advanced by Montage.

Die cast cord tilters

  1. Second, Montage asserts an offsetting claim in respect of die cast cord tilters (Jolly 1 [7(b)]) which it quantifies in the amount of US$105,584 on a lost profits basis and US$106,664 on an out of pocket basis. Mr Jolly gives evidence of making a complaint to Mr Wong and Mr Wong acknowledges that a complaint was made as to this product (Jolly 2 [50]; Wong [82]) and there is also evidence of an oral complaint by a customer (Jolly 3 [7 3(b)]).

  1. Mr Jolly's evidence was that four affected customers returned faulty stock and Montage issued credits to them of $5,200 (Jolly 2 [51]). Mr Jolly also identified losses attributable to dumping stock consisting of 9,000 cord tilters for which Montage had paid AUD$1 each for which it did not receive a credit from Creative Blinds (Jolly 2 [52]). In my opinion, Montage has established an offsetting claim in the amount of the wasted costs of the products and lost freight charges of US$8,864 at least to the undemanding threshold required in an application of this kind. (I have corrected what appears to be a currency conversion error in Montage's submissions in respect of this claim.)

  1. Mr Jolly also identified loss of profit which would have been made had the products been sold (Jolly 2 [54]) and gave evidence that four customers had ceased ordering substantial products from Montage and identified a claim for lost profits in respect of sales to those customers (Jolly 2 [55]). Creative Blinds concedes the existence of an offsetting claim but contends that Montage has failed to provide sufficient evidence to establish the amount of its damages. Creative Blinds points to evidence that suggests that the price paid for these products was less than that claimed by Montage (Ex FW1 191-192) and Creative Blinds submits that Montage leads no documentary evidence to demonstrate the price at which goods were sold to customers and has not shown that there was an available market for the goods; has not established that several of the customers as to which loss of profit is claimed were customers of Montage or that sales in the claimed amounts were made to those customers; and has not shown that any loss in sales was a result of the supply of defective cord tilters. In my opinion, the evidence before me is not sufficient for Montage to establish an offsetting claim by reference to any loss of profits or lost custom in respect of this claim.

Other offsetting claims

  1. The existence of various other offsetting claims on which Montage relies is not conceded by Creative Blinds, which points to a lack of evidence for such claims - for example, documentation of customer complaints or complaints by Montage to Creative Blinds, evidence of credits given by Montage to customers, or evidence demonstrating dumping of the products - and contends that Montage has not discharged its burden of demonstrating that these are genuine offsetting claims. Montage claims losses in respect of matters such as credit provided to customers; losses from dumping of stock; loss of profit from sale of goods; and loss of repeat custom. Creative Blinds points out that the damages claimed under some of these heads exceed the value of the goods supplied by a large margin. I deal with these other offsetting claims more briefly since they are not necessary to the decision which I have reached.

  1. Montage advances a claim in respect of 50mm end brackets (Jolly 1 [7(a)]) which is quantified on a lost profits basis as US$70,800 and on an out of pocket basis as US$69,200. Mr Jolly gives evidence of an initial oral complaint by a customer, his identification of defects, an explanation of those defects given by Mr Wong and complaints by other unidentified customers (Jolly 2 [42][44]). Mr Wong's evidence is that, although an initial batch of the brackets was defective, they were not supplied to Montage, the brackets which were supplied were not defective, and Montage continued to order brackets between 2007 and 2008 (Wong [72][80]).

  1. Mr Jolly's evidence as to the defective brackets was that:

"Montage was unable to sell the defective brackets and, accordingly, Montage dumped that stock which was about 15,000 pairs of brackets. Montage had paid for that stock at a cost per bracket of AUD$1.10 per pair, totalling AUD$16,500 excluding GST. That stock at a sale value of approximately AUD$35,000 of which AUD$18,500 represented net profit to Montage. Creative Blinds did not issue a credit to Montage for this defective stock. Montage has also re-ordered new stock from Creative Blinds, which has been received and paid for." (Jolly 2 [45])

Montage also sought to establish an offsetting claim in respect of lost sales to Dial a Blind which, Mr Jolly gave evidence, had not continued ordering blinds from Montage (Jolly 2 [46]).

  1. There is a dispute as to the price payable in respect of the brackets and Creative Blinds points to evidence suggesting that the price paid for the product was a lesser amount than that adopted by Montage in its quantification (Ex FW1 176178). Creative Blinds also points out that Montage has led no evidence as to the price at which goods were sold to customers; or that there was an available market for the goods; or that the supply of defective end brackets in fact led to a loss of repeat custom with respect to all goods supplied by Montage. Creative Blinds points out, with considerable force, that it is inherently unlikely that one shipment of defective goods worth $585 would lead a customer to cease to order any products from Montage resulting in lost profits of $70,000, although I again do not consider this point would support summary judgment in favour of Creative Blinds in a contested claim as to this issue.

  1. Creative Blinds also submits that any cause of action in respect of the defective supply of end brackets would have accrued at the time of delivery of the goods in 2004 (Wong [73]) and is therefore statute-barred. The evidence before me does not establish when loss was suffered by Montage arising from credit provided to customers, dumping of stocks or loss of subsequent customer orders and it may be that Creative Blinds could establish that the claim is statute-barred in a contested hearing. However, I do not accept that the limitation issue is such that Montage's claim does not warrant further investigation or is spurious or misconceived. In my view, the position in this regard does not have the clarity of the facts considered in Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284 on which Creative Blinds relies.

  1. In my opinion, Montage has established an offsetting claim for US$13,200 for the wasted costs of this product and lost custom of US$56,000 in respect of an identified customer on the relatively undemanding threshold required by this application.

  1. Montage relies on a claim in respect of cord locks (Jolly 1 [7(c)]) but ultimately did not seek to establish its quantum. Accordingly, no offsetting claim is established under this head.

  1. Montage relies on a claim in respect of string ladder tape products (Jolly 1 [7(e)]) which it quantifies as US$109,600 on a lost profits basis and US$102,400 on an out of pocket basis. Mr Jolly gives evidence of defects in the products, customer complaints and the return of the product by customers (Jolly 2 [65]-[66]). Mr Jolly's evidence was that Montage scrapped 400 cartons of ladder tape which had a cost to Montage of US$12,000 and had not been provided with a credit for that defective stock; that it lost profit on sales of that stock; that duty and freight paid for the stock was US$1,100 excluding GST. In my opinion, Creative Blinds has established an offsetting claim of US$13,100 referable to the cost of ladder tape which, on Mr Jolly's evidence, was scrapped and associated duty and freight.

  1. Montage also relies on claims for loss of profits in respect of string ladder tape and gives evidence that three identified customers had ceased making substantial orders of product from Montage after this matter (Jolly 2 [69]). Creative Blinds points to the absence of documentary evidence to demonstrate the price at which goods were sold to customers and the absence of evidence that there was an available market for those goods; challenges Montage's quantification of the amount of lost profit; and points to several difficulties with the claim for loss of profit from the particular customers to which Mr Wong refers. In my opinion, Montage has not established that the issue as to the string ladder tape led to the loss of profits claimed or caused the customers referred to by Mr Jolly to cease to make substantial orders of product to Montage even to the relatively undemanding threshold required on this application.

  1. Montage relies on a claim in respect of aluminium fabrication (Jolly 1 [7[g)]) which is quantified as US$189,721.94 on either a loss of profits or out of pocket basis. Mr Jolly gives evidence of an end user's claim dated 28 November 2007 on Montage's customers and of a credit given by Montage for re-powdercoating costs of $9,790 (Jolly 2 [80]) and a representative of the customer gives similar evidence. Mr Wong accepts that he was advised of the complaint (Wong [126]). In my opinion, Montage has established an offsetting claim in the amount of US$7,120 being the amount of the credit provided to the customer.

  1. Montage also contends that it suffered loss in respect of this matter by being required to continue to use its Adelaide factory and incur associated wages for a welder to fabricate aluminium brackets because of Creative Blinds' inability to manufacture those products after having offered to do so. Creative Blinds contends that, so far as this claim relates to an inability by Creative Blinds to supply a welder who could fabricate brackets, it was not identified in Mr Jolly's affidavit dated 15 December 2010 and Montage is not permitted to advance it having regard to the principles in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. In my opinion, Mr Jolly's first affidavit sufficiently identified a claim arising from issues as to the fabrication of the relevant brackets to allow reliance on this matter.

  1. However, I accept Creative Blinds' submission that Mr Jolly's evidence as to this matter does not establish an arguable basis for a cause of action against Creative Blinds which could give rise to substantive damages arising from Creative Blinds' inability to supply such brackets, as distinct from a claim arising from the defective brackets which were supplied. In my opinion, Montage has not established an offsetting claim in respect of its additional claims as to machinery provided to Creative Blinds in the absence of any evidence of Creative Blinds having refused to return that machinery or an offer by Montage to pay the costs of doing so. In my opinion, Montage has also not established an offsetting claim for rental of its Adelaide factory or associated wage costs.

  1. Montage relies on a claim in respect of Vollay V5000 shutters supplied to Maxim Louvres (Jolly 1 [7(i)]) which is quantified on a lost profits basis as US$24,028.80 or an out of pocket basis as US$33,746.24. Montage relies on defects in V5000 shutter panels supplied to Maxim Louvres in late 2008, and Mr Jolly's evidence is that Montage provided a credit to Maxim Louvres, arranged for the local manufacture of replacement shutters and incurred other costs for a total loss of US$34,911 (Jolly 2 [28]). Although a representative of the customer denied that one order was affected by the defects to which Mr Jolly refers, Mr Jolly gives evidence of another order and the customer's complaint about the defects in that order (Jolly 3 Annexure "C"). (I note that there is a difficulty with quantification of this claim, since the elements of it in Jolly 2 [28] do not seem to add to the total provided in the paragraph which in turn does not seem to correspond to the amounts relied on in Counsel's submissions. I adopt the total figure given in Jolly 2 [28] for present purposes and will hear the parties further if it is necessary to do so.)

  1. Creative Blinds contends that, if there were defects in the Montage V5000 shutters, then the third party responsible for manufacturing and powdercoating the relevant aluminium extrusion products would have been responsible for it and relies on the absence of documentation recording any contemporaneous notification of the defects to Creative Blinds or that third party. Creative Blinds argues that I also should find that no genuine offsetting claim is established in this respect. In my opinion, Montage has established that this claim requires further investigation, is advanced in good faith, and is not frivolous or vexatious, at least to the undemanding standard required on an application of this kind.

  1. Montage also relies on a claim in respect of Vollay V5000 shutters supplied to Colt Tollfab (Jolly 1 [7(i)]) which it quantifies on a lost profits basis as US$160,336.69 and on an out of pocket basis as US$173,075.03. In August 2009, Montage placed an order with Creative Blinds for delivery of V5000 shutters reflecting an order placed by Colt Tollfab for a project at Newcastle, New South Wales (Jolly 2 [29]; Wong [53]; Ex FW1 145-151). Mr Jolly gives evidence that he was advised of defects with this product by Mr Wong and was advised by Colt Tollfab that a sample made by Creative Blinds was not acceptable (Jolly 2 [30]-[31], [36]). Evidence of a representative of the customer also refers to delays and associated costs (affidavit of G. McGowan dated 27 May 2011, [3(d)]). An email dated 18 February 2010 refers to "drama" with the order placed by Colt Tollfab and to ensuring that further orders are powdercoated in Australia (Jolly 3 Annexure "F"). Mr Wong accepts there were defects with the product (Wong [54]).

  1. There are several complexities in respect of this claim, since (as noted above) components for the relevant products were supplied by a third party, it appears that those components were defective and there would be issues as to whether such a claim is against that third party or Creative Blinds or both. Creative Blinds also contests the merits of the claim, on the basis of an apparent acknowledgment by Mr Jolly that the matter was the third party's fault (Ex FW1 161) and on the basis of instructions given by Montage to Creative Blinds as to how to address the matter. Creative Blinds also argues that there is no evidence to support Montage's assertion that it was unable to seek credit for defective materials supplied by the third party as a result of any conduct by Creative Blinds. Again, these matters do not, in my view, demonstrate that the claim does not require further investigation, is not advanced in good faith or is frivolous or vexatious.

  1. Mr Jolly's evidence in respect of the loss claimed in respect of the V5000 shutters (Colt Tollfab) (Jolly 2 [34]) was as follows:

"Montage incurred:
(a) AUD$63,876.36 in lost profit due to having to pay Creative Blinds US$25,685.81 (AUD$32,107.26) for the remade order, which Colt Tollfab did not pay for, and being shortpaid AUD$31,769.10 from Colt Tollfab in payment for the order;
(b) [AUD] $21,800 including GST ... in extra freight costs;
(c) US$22,237.20 in extra labour charges levied by Creative Blinds ..."

  1. In my opinion, Montage has established an offsetting claim in respect of the first stage of this project, adopting its quantification of the costs of reordering the products, extra freight costs and labour costs as US$63,867.55. Montage also sought to advance an offsetting claim for loss of profits of the second and third stages of the project. However, there is evidence that Colt Tollfab in fact did not do further work in respect of that project (McGowan [3(b)-(d)]) and, in my opinion, Montage cannot establish an offsetting claim for loss of profits in that regard.

  1. Montage also contends that it cancelled an order for V5000 shutters placed for work to be done for Aviance Blinds in March 2010 as a result of difficulties with the Colt Tollfab order (Jolly 2 [38]-[39]). On the other hand, Creative Blinds contends that Mr Wong notified Mr Jolly that the order for the Aviance Blinds job would be ready by 23 March 2010 and the order was completed but not released because Creative Blinds would no longer provide goods to Montage on credit (Wong [65]; Ex FW1 173-174). I am satisfied that Mr Jolly's evidence is sufficient to establish an offsetting claim in wasted costs and liquidated damages payable to Aviance Blinds of US$23,887 to the undemanding threshold required for the purposes of this application, although the evidence advanced by Creative Blinds might well prevail on a contested hearing of the matter. I am not satisfied that Mr Jolly's evidence is sufficient to establish an offsetting claim in respect of lost profits, since that evidence is no more than an assertion of the amount of profits lost.

  1. Montage also claims the cost of replacing extrusion dies used by a third party to manufacture goods for Montage which it contends resulted from this matter. Mr Jolly's evidence in this regard was not in admissible form and was rejected. I am not satisfied that this matter gives rise to an offsetting claim.

  1. Montage also relies on a claim in respect of Vollay V1000 flat bar screens which is quantified as US$5,922.17 on either a loss of profits or out of pocket basis. I have dealt with an aspect of this claim, so far as the duplicate supply of such products is alleged to give rise to a genuine dispute as to the Debt, in paragraph 33 above. In my opinion, Montage has established its offsetting claim in respect of this matter for the same reasons.

  1. Montage relies on a claim in respect of 50mm head rails which is quantified on a lost profits basis as US$33,672 and on an out of pocket basis as US$34,488. Montage relies on a complaint by Cedar Blinds Tasmania about these products and the discovery of defects in those products in late 2004 or early 2005 (Jolly 2 [57]). Mr Jolly gives evidence that Montage scrapped 90 cartons of head rail supplied by Creative Blinds for which it had paid US$10,800 and had not been given a credit for that stock; that Montage also identified a claim for loss of profit in respect of that stock; and that Montage claimed lost sales to Cedar Blinds Tasmania, on the basis that the latter ceased sending Montage orders after this matter and commenced placing orders with one of Montage's competitors (Jolly 2 [58], [63]).

  1. In my opinion, subject to the limitation issue noted below, Montage has established an offsetting claim for the amount paid to Creative Blinds in respect of this product in the amount of US$10,800. As noted above, Montage alternatively claims loss of profit in respect of the 50mm head rails. Creative Blinds points out that Montage has not led evidence to demonstrate the price at which goods were sold to customers or that there was an available market for the goods and, so far as a loss of profit is claimed as to repeat custom from Cedar Blinds Tasmania, has not led evidence (other than by assertion in Mr Jolly's affidavit) to establish that sales in the claimed amounts were made to it or that any loss of sales resulted from the supply of defective head rails. In my opinion, evidence led by Montage is not sufficient to establish an offsetting claim for lost sales to Creative Blinds Tasmania. I note that there may be a limitation issue in respect of this claim which was not explored in evidence or argument, and which I do not need to address given the findings which I have reached as to the other offsetting claims available to Montage.

Claim for other costs

  1. Montage also asserts an offsetting claim for other costs in the amount of US$282,898.80 (Jolly 1 [7(o)]). I deal with the elements of this claim below.

  1. The first and second components of this amount are claims for costs of US$42,384 and US$33,000 respectively in replacing press tools and other machinery owned by Montage in order to make products in Australia, after those tools and machinery were not returned by Creative Blinds (Jolly 1 [7(o)]; Jolly 2 [95]-[100]). Creative Blinds points to emails dated 2 April 2010 and 30 June 2010 from Mr Wong to Mr Jolly offering the opportunity to remove tools and equipment from the Chinese factory (Ex FW1 355-359) and points out that there was a dispute as to who should bear the costs of returning such machinery and equipment to Australia and that, absent any evidence of a contractual term as to that matter, responsibility for collecting the goods would rest on Montage rather than Creative Blinds. On the other hand, Montage points to correspondence between Creative Blinds and an Australian customer which, on one view, amounted to an assertion by Creative Blinds that it owned those tools and equipment (Jolly 3, Annexure "EE"). In the absence of any identified obligation on Creative Blinds to pay the costs of returning the equipment to Australia, I am not satisfied that Creative Blinds has established an offsetting claim in this regard. Even if it had done so, there would have been a real issue as to its quantification of that claim in the absence of any proof of purchase and payment for the replacement tools and other equipment which Montage claims were purchased.

  1. Montage also asserts offsetting claims for US$6,150 in additional powdercoating costs said to have been incurred by Montage over the twelve months since Creative Blinds ceased supplying Montage. Montage has not sought to identify any breach of legal obligation by Creative Blinds to support this claim and I am not satisfied that an offsetting claim is established in this regard.

  1. Montage claims US$81,912.80 for costs in replacing mould injection dies and other associated costs. This claim is also founded on Creative Blinds' failure to return such products from China and, absent any identified obligation on Creative Blinds to do so at its cost, I am not satisfied that an offsetting claim is established in this regard.

  1. Montage also identifies a claim against Creative Blinds in respect of an alleged failure by it to manufacture parts required for a glass louvre system known as "Zephyr" louvres. Creative Blinds points to documents which suggest that it had successfully manufactured such louvres. Irrespective of this factual dispute, I would not have found that this claim established a genuine offsetting claim in the absence of evidence of any obligation on the part of Creative Blinds to manufacture this product.

  1. Montage also claims the amount of US$91,300 for lost costs incurred in relation to the acquisition of and failure to develop land in China as, it is alleged, had been agreed between Montage and Creative Blinds. It appears to be common ground that in early 2007, Mr Jolly for Montage and Mr Wong discussed purchasing land in China to build a factory (Jolly 2 [105]-[107]). Creative Blinds contends that land was purchased in the name of Mr Jolly, his wife, Mr Wong and Ms Chen (Wong [156]). Mr Jolly's evidence is that, in early 2009, Mr Wong advised Mr Jolly that a factory could not be built on the land which had been acquired in China (Jolly 2 [109]), and, in early 2010, Mr Jolly advised Mr Wong that Montage did not wish to proceed with construction of a factory in China and asked for the land to be sold (Jolly 2 [110]).

  1. Montage has not identified any contractual or other obligation on the part of Creative Blinds to attend to the sale of the land. I am not satisfied that Montage has established an offsetting claim on this ground.

Summary

  1. In summary, I find that Montage has established offsetting claims in respect of:

  • basswood shutters in the amount of US$95,045.81 (see paragraphs 4549 above),
  • die cast cord tilters of US$8,864 (see paragraphs 50-52 above);
  • end brackets of US$69,200 (see paragraphs 53-58 above);
  • string ladder tape of US$13,100 (see paragraphs 60-61 above);
  • aluminium fabrication of US$7,120 (see paragraphs 62-64 above);
  • V5000 shutters (Maxim Louvres) of US$34,911 (see paragraphs 6566 above);
  • V5000 shutters (Colt Tollfab) of US$63,867.55 (see paragraphs 6770 above);
  • Aviance Blinds of US$23,887 (see paragraph 71 above);
  • V1000 flat bar screens of US$5,922.17 (see paragraph 73 above); and
  • 50mm head rails of US$10,800 (see paragraphs 74-75 above).

Whether Demand should be set aside on conditions

  1. The Court may make an order setting aside or varying a demand under s 459H of the Corporations Act subject to conditions: s 459M Corporations Act . On occasion, the Court has imposed a condition that the company commence proceedings to establish the matters asserted as an offsetting claim: for example, Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 734. I raised with Counsel, in the course of argument, whether such a condition should be imposed should Montage succeed in setting aside the statutory demand by reliance on offsetting demands. Counsel for Montage drew my attention to the practical difficulties that might be involved in such a condition where Mr Wong is not resident in the jurisdiction and may have no assets in the jurisdiction against which a judgment could be enforced. Counsel for Creative Blinds pointed out that, if proceedings were brought in respect of the range of matters giving rise to the offsetting claims for which Montage contends, then the costs of defending them would potentially be substantial.

  1. I advised Counsel that I would give the parties a further opportunity to be heard if I were disposed to impose such a condition. I do not consider that it is necessary or appropriate to impose such a condition, having regard to the matters to which Counsel for the parties referred and to the fact that the result of this judgment will leave it open to each party to pursue such claims as they may be advised against the other by commencement of proceedings in the usual way.

Result

  1. It follows from the findings which I have made above that the amount of the offsetting claims established by Montage exceeds the admitted total (as determined in paragraph 36 above) and, accordingly, the substantiated amount of Demand (for the purposes of s 459H(2)) is less than the statutory minimum. I am therefore required to set aside the Demand in accordance with s 459(3) of the Corporations Act and I order that the Demand be set aside.

  1. I will hear the parties as to costs.

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Decision last updated: 25 July 2011

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