Montedeen Pty Ltd v Discount Acceptance Corp Pty Ltd

[1998] FCA 988

FEDERAL COURT OF AUSTRALIA

CORPORATIONS LAW - statutory demand – application to set aside statutory demand – whether statutory demand should be set aside – whether genuine dispute as to the existence and the amount of the debt where debts assigned to the respondent and, despite written notice of the assignment, the applicant paid part of the debt to the assignor – whether offsetting claim existed in respect to a set-off claimed by the applicant where there was no evidence that the respondent expressly or impliedly authorised the set-off against the assigned debt– whether evidence of the applicant’s solvency is a sufficient basis for establishing “some other reason why the demand should be set aside” – Abuse of process – whether in all the circumstances there was evidence of some improper purpose

Property Law Act 1958 (Vic), s 124
Corporations Law, Part 5.4, ss 459E(2)(e), 459H(1), 459H(1)(a), 459J(1), 459J(1)(a), 459Q

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) FCR 452
Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 14 ACLC 1,759
Dewina Trading SDN BHN v Ion International Pty Ltd (1996) 14 ACLC 1,603

MONTEDEEN PTY LTD (ACN 006 151 579) –v- DISCOUNT ACCEPTANCE CORPORATION PTY LTD

VG 3142 OF 1998

MILLANE JR
MELBOURNE
18 AUGUST 1998

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG  3142  of   1998

BETWEEN:	MONTEDEEN PTY LTD (ACN 006 151 579) APPLICANT
AND:	DISCOUNT ACCEPTANCE CORPORATION PTY LTD RESPONDENT
JUDGE(S):		JUDICIAL REGISTRAR MILLANE
DATE OF ORDER:		18 AUGUST 1998
WHERE MADE:		MELBOURNE

THE COURT ORDERS THAT:

1. The applicant’s setting aside application is dismissed.

1. The applicant pay the respondent’s costs of the setting aside application as taxed.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG  3142 of 1998

BETWEEN:	MONTEDEEN PTY LTD (ACN 006 151 579) APPLICANT
AND:	DISCOUNT ACCEPTANCE CORPORATION PTY LTD RESPONDENT

JUDGE(S):	JUDICIAL REGISTRAR MILLANE
DATE:	18 AUGUST 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

On 3 April 1998 the respondent served on the applicant a Statutory Demand under paragraph 459E(2)(e) of the Corporations Law. The Demand required the applicant within 21 days to pay the amount of $66,359.50 or secure or compound the amount of the alleged debt to the respondent’s reasonable satisfaction.

On 24 April 1998 an application to set aside the Demand was filed on behalf of the applicant supported by an affidavit sworn by a director of the applicant, Mario Paul Salvo (“Salvo”), on the same date.  Subsequently, on 4 August 1998 an affidavit sworn on 31 July 1998 by the applicant’s finance director, Woodrow Wunsch (“Wunsch”) was also filed on behalf of the applicant.

The respondent contested the application relying on the affidavit of its legal officer, Phillip John Pollack (“Pollack”) filed on 17 June 1998 and sworn on 12 June 1998.  Notably that affidavit exhibits two affidavits of another director of the applicant, Christina Michelle Salvo, sworn on 4 December 1997 and 3 February 1998 in support of an application to set aside an earlier, Statutory Demand dated 11 November 1997 for the payment of the same debt made by the respondent against what turned out to be the wrong company.  The Demand, the subject of the current proceeding, according to the material before the Court, is made against a related company, the applicant, who admits that it incurred the debts claimed.

Generally speaking, the facts are not contested by the parties.  It appears that in approximately June 1997 the applicant contracted with State of the Art Communications Pty Ltd (“State”) to provide it with certain media services and two invoices in respect to the services provided were raised by State; namely, invoice no. 10095 dated 21 July 1997 for $40,897.80 and invoice no. 10097 dated 12 August 1997 for $25,462.50.  On 21 July 1997 the respondent entered into a Debt Factoring Facility Deed (“the Factoring Deed”) with State and it is common ground that the debts represented in invoices no. 10095 and 10097 were purchased by the respondent from State in July and August respectively.

In so far as written notice to the debtor of the assignment was necessary (see, for example, s 124 of the Property Law Act 1958, (Vic)), in respect to invoice 10095, the respondent relies on a letter from State to the applicant dated 21 July 1997 informing the applicant of, amongst other things, the assignment of the debt and, further, instructing the applicant to pay the debt directly to the respondent in order to discharge it (see exhibit “H” to Pollack’s affidavit).

Apart from the abovementioned notice it is not disputed that a copy invoice bearing an assignment stamp was forwarded by the respondent to the applicant in July as well as a document bearing the title “Notice of Assignment of Debt (Section 12 Conveyancing Act 1919)”.  Had the lastmentioned document been the only method of giving formal notice of assignment it might be said that there was no proper notice because the document incorrectly identifies the assignee as State; not the respondent.  This error was drawn to the Court’s attention for the first time by the applicant’s counsel in his reply.  Notwithstanding the error it was conceded by the applicant that its case in relation to the debt represented by invoice no. 10095 was not that it had been misled by this document in any relevant way.

With regard to invoice no. 10097 the notification relied on by the respondent comprises a letter from State to the applicant dated 12 August 1997 to the same effect as the earlier letter sent in respect to invoice no. 10095 (see exhibit “K” to Pollack’s affidavit) and an invoice bearing an assignment stamp forwarded by the respondent to the applicant in August 1997.

It is not contested that after receiving the copy invoices bearing the assignment stamp accompanied by a written request that the applicant sign where the invoice documents stated “Accepted as good for payment” and return by facsimile to the respondent the signed copy invoice, an employee, Cathy Lando, complied with each request made on 29 July 1997 (see exhibit “D” to Pollack’s affidavit) and again on 18 August 1997 (see exhibit “G” to Pollack’s affidavit).  Significantly, in respect to invoice no. 10097 on 13 August 1997 the respondent’s correspondence also contained a query as to whether any deduction would be made from the payment of $25,462.50 (see exhibit “F” to Pollack’s affidavit); the only response by the applicant being to return by facsimile the signed invoice.  This response is not surprising because as at that date there is no evidence of any set-off existing between the applicant and State.  Subsequently, after the signed invoice document was returned by the applicant to the respondent, State incurred rental debts to the applicant in the sum of $8,181.92 between 26 October 1997 and 4 December 1997.  However, there is no evidence to indicate any express or implied authorisation given to the applicant by the respondent to set off any debts owed by the assignor to the applicant against any debts assigned by State to the respondent.

Notwithstanding the notification received by it and the return of the signed invoice to the respondent, on 1 September 1997 the applicant paid a director of State, Wayne Lewis (“Lewis”), the full amount of invoice no. 10095 when he attended its head office and asked for immediate payment.  According to Salvo’s affidavit the copy invoice produced by Lewis on 1 September 1997 for payment did not contain any notice of assignment and “... Mr Lewis made no mention at that time of any Factoring arrangement with the respondent ...”.

Despite the impression the abovementioned evidence gives that the applicant was not aware of the assignment, the material I have already referred to indicates to the contrary, as does Salvo’s statement in his letter to Lewis dated 26 November 1997 where he says (see exhibit “MPS2”):

“On 1 September 1997 you requested a cheque from our Accounts Department for invoice number 10095.  A cheque for the sum of $40,897.00 was made payable to State of the Art Communications on your request.  You stated to Cathy that you would forward the cheque to Discount Acceptance Corporation.  You in fact did not forward the cheque but banked it into your own account.  This is deceptive and illegal behaviour.”

Cathy Lando did not make any affidavit in this proceeding and no excuse was proffered to the Court to explain her silence on the circumstances relevant to the applicant’s alleged indebtedness.

Salvo’s letter to Lewis in November 1997 and Lewis’ reply dated 1 December 1997 (see exhibit “MPS7”) make it clear that what probably occurred in September 1997 was that the applicant was duped by Lewis into paying State the $40,897.80 debt it was on notice was owned by and was payable to the respondent. That debt vis-a-vis the respondent remains undischarged and the applicant must seek its remedies against State and Lewis directly if it is to recover the sum incorrectly paid. These facts notwithstanding, in respect to invoice no. 10095 it is contended by the applicant, first that there is a genuine dispute about the existence of the debt (paragraph 459H(1)(a) of the Corporations Law) and, secondly, that the Demand made is defective because it overstates the amount of a debt by the amount actually paid, presumably to State, (paragraph 459J(1)(a) of the Corporations Law).

It is said by the applicant that because of comments made to Salvo by Lewis it was “... in a dilemma as to the rightful recipient ...” of the payment on the second invoice, invoice no. 10097.  Whilst it is agreed that Pollack and Salvo conversed by telephone and this probably occurred on 29 November 1997 there is some divergence between the evidence of Salvo and Pollack on the content of the conversation and, as a result, the position the applicant perceived itself to be in.  On the one hand, Salvo claims that when he spoke to Lewis, Lewis referred to a dispute between State and the respondent regarding previous transactions.  Although, Pollack told him in his conversation with Pollack that there were no prior dealings with Lewis or State, the applicant still says it had a dilemma about to whom it should pay the money.  This is despite the receipt of a letter from Lewis to the applicant on 1 December 1997 (see exhibit “MPS7”) which does not in any way dispute the assignment of the debt to the respondent but it does contain an apology and a request for a 21 day period of grace to allow Lewis to “organise” his finances.  This letter, to my mind, can and should be read as indicating an acceptance by Lewis (and State) of responsibility for the debt and an attempt by Lewis to gain more time within which to meet this responsibility.

It is said by Pollack that in his conversation with Salvo, amongst other things, Salvo threatened not to pay invoice no. 10097 if the respondent  pursued payment of the sum referred to in invoice no. 10095 the applicant says it already paid to State.  Whether or not such a threat was made there is scant support in the material before the Court for a conclusion that the applicant was under any real misapprehension about its obligation to pay the debt on invoice no. 10097 to the respondent in accordance with the written notice of assignment already received by it.

What must also be kept in mind is that as early as 11 November 1997 the respondent served a Statutory Demand on a company related to the applicant, but not the true debtor.  On the material before the Court this circumstance was one which Salvo and another director of the applicant were aware of at the time the applicant acted as it did in conversing and corresponding with State and Lewis and Pollack in November and early December 1997.

After service of the Statutory Demand on the applicant it again corresponded with State on 20 April 1998, to notify State that it intended to set-off against invoice no. 10097 the sum of $8,181.92 owed to it by State on rental contracts for the period between October 1997 and December.  In that letter the applicant also asked State whether the $17,280.58 balance should be paid to it or the respondent.  This is a curious request given the written assignment of the debt and the correspondence received by it from Lewis on 1 December 1997, which in no way challenged the validity of that assignment.

On 20 April 1998 Lewis responded to the further correspondence from the applicant by unequivocally instructing the applicant that the amount of $25,462.50 was immediately due and payable to the respondent.  As to the applicant’s claimed set-off Lewis relied on a third State invoice, invoice no. 10119, for a sum of $9,712.50, against which invoice he asserted the rental contract sum should be set-off with the balance being paid by the applicant to State.  The applicant disputes any additional debts owed by it to State. 

Notwithstanding the confirmation by State that all of the debt was payable to the respondent, the applicant set-off the rental contract sum against invoice no. 10097 and paid the balance to the respondent.  It now claims that this payment, less the set-off, amounts to a full discharge of the debt owed to the respondent.  It makes this assertion without raising any factual basis for saying that it was authorised by the owner of the debt to set-off against its debt debts incurred by the assignor after notification of the assignment of the debt of $25,462.50 had been given to and acknowledged by the applicant.

In summary, the applicant seeks to set aside the Demand made in April this year by relying on:

(i) Both paragraphs (a) and (b) of subsection 459H(1) of the Corporations Law by asserting that there exists a genuine dispute between the applicant and the respondent about the existence and the amount of the two debts to which the Demand relates and, further, that in respect to at least part of the second debt the applicant has an offsetting claim in the nature of a set-off;

(ii)      Paragraphs (a) and (b) of subsection 459J(1) by the asserting first that there is a defect in the Demand by reason of the overstatement of the amount sought; namely, $40,487.00 and there would be substantial injustice caused unless the demand is set aside.  It goes without saying that if the debt is still owing to the respondent there is no overstatement and, therefore, no defect.  Secondly, the applicant says that there is “some other reason why the demand should be set aside”; namely, the evidence of Wunsch that the applicant is solvent and the full amount of the debt has been paid or set-off.  Of course, if the applicant establishes to my satisfaction that there is a genuine dispute and a genuine claim which combine to satisfy the Demand the question of the applicant’s solvency need never arise.

(iii)     Finally the applicant asserts that the Demand was made for an improper purpose and that was for the purpose of applying commercial pressure on a solvent company.

There is a well established line of authorities which consider the import of the phrases “genuine dispute” and “genuine claim” within Part 5.4 of the legislation.  On the question of whether there exists a genuine dispute, both parties referred me to the Full Court’s decision in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) FCR 452 where, after analysing the various authorities, the Court said at page 465:

“In our view a “genuine” dispute requires that:

·The dispute be bona fide and truly exist in fact;

·The grounds for alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived.

We consider that the various formulations referred to above can be helpful in determining whether there is a genuine dispute in a particular case, so long as the formulation used does not become a substitute for the words of the statute.”

The legislation itself seeks to define a genuine claim and such a claim includes a set-off.  Bearing in mind the factual matters deposed to in the various affidavits filed I am not satisfied that there is a sound basis for asserting that a genuine dispute exists or for that matter a genuine claim within the meanings ascribed to those phrases.  The sum payable pursuant to invoice no. 10095 remains unpaid and there are no real grounds put forward for alleging that the applicant was entitled to set-off State’s debt against invoice no. 10097 where that debt has no connection with the Factoring Deed.  The only amount paid by the applicant was paid after it received the Demand but before it brought this application to set aside.

Once it is accepted that no genuine dispute or offsetting claim has been established in respect to the balance of the total sum demanded, the applicant’s case is really confined to two arguments; namely, that its solvency constitutes some other reason for setting aside the Demand and there is some abuse of process in the making of the Statutory Demand. To substantiate these allegations the applicant relies on the material filed with the Court, which includes material it says shows that the company is a solvent company.  Further, if it is a solvent company the applicant alleges that the real purpose of the Demand was to coerce it into paying a disputed debt.

Apart from the applicant’s claim that it had already paid State for invoice no. 10095, nothing in the material before the Court allows an inference to be drawn that the respondent knew that the applicant company was solvent at the date the Statutory Demand and disputed all of the debt.  Indeed, the set-off claimed in relation to invoice no. 10097 does not appear to have been relied on by the applicant until after the Statutory Demand was served on 3 April 1998.

Whilst the solvency of the applicant is central to any application made under s 459Q of the Corporations Law to wind-up the applicant, the setting aside procedure is a summary procedure; not intended for, or directed to, a lengthy inquiry into the solvency of an applicant. Even if the material before the Court does constitute prima facie evidence of solvency as at the date of hearing the setting aside application, proof of solvency alone would not be sufficient to establish “some other reason” where there is no genuine dispute or offsetting claim.  Furthermore, if the applicant relies on some abuse of process it must also show that the Demand involved some improper purpose (see generally Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 14 ACLC 1,759 and Dewina Trading SDN BHN v Ion International Pty Ltd (1996) 14 ACLC 1,603).

The grounds relied upon by the applicant to support its allegation of an improper purpose are the same grounds it relies on to establish a genuine dispute and an offsetting claim and, as I have already indicated above, these grounds are insufficient to satisfy me that there is any serious question to be tried.  What is left is its reliance on its alleged solvency and, this alone, cannot stand as evidence of any abuse of process particularly where the applicant has had more than a reasonable opportunity to establish that the debts are properly payable.

Accordingly, for the reasons set out above I propose to order that the applicant’s setting aside application be dismissed and I will hear any application made on the question of costs.

THE COURT ORDERS THAT:

1. The applicant’s setting aside application is dismissed.

1. The applicant pay the respondent’s costs of the setting aside application as taxed.

I certify that this and the preceding
eight (8) pages are a true copy
of the Reasons for Judgment herein
of Judicial Registrar Millane

Associate:
Dated:  18 August 1998

Counsel for the Applicant:               MR P W LITHGOW

Solicitor for the Applicant:               KEMPSON & CO

Counsel for the Second Respondent:        MR PETER R SEARLE

Counsel for the Third Respondent: TANYA CIRKOVIC & ASSOCIATES

Date of Hearing:  10 August 1998

Date of Judgment:  18 August 1998