Parque Pty Ltd v Chungs Oriental Trading Pty Ltd
[2015] VSC 30
•17 February 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 05657
| PARQUE PTY LTD (ACN 163 621 231) | Plaintiff |
| v | |
| CHUNGS ORIENTAL TRADING PTY LTD (ACN 007 078 202) | Defendant |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 February 2015 |
DATE OF JUDGMENT: | 17 February 2015 |
CASE MAY BE CITED AS: | Parque Pty Ltd v Chungs Oriental Trading Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2015] VSC 30 |
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CORPORATIONS – Application to set aside statutory demand under s 459G of the Corporations Act 2001 (Cth) on basis of alleged genuine dispute – Plaintiff’s case not supported by contemporaneous documentation – Defendant’s case inherently plausible – Plaintiff fails to discharge onus that it has genuine dispute in respect of debt subject of demand – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Manly | Colin Adno & Associates |
| For the Defendant | Ms C M Pierce | Kahns Lawyers |
HIS HONOUR:
On 22 October 2014, the plaintiff (‘Parque’) made application by originating process pursuant to s 459G of the Corporations Act 2001 (Cth) (‘the Act’) to set aside a statutory demand dated 2 October 2014 which had been served on it by the defendant (‘Chungs’) on 3 October 2014. Parque contends that it has a genuine dispute in respect of the debts the subject of the claim. It also sought an order that the demand be varied but that part of the application is no longer pursued.
The demand claims the sum of $111,763.74. The schedule to the demand describes the debt as being the balance of the purchase price owing for goods sold and delivered. The demand was accompanied by an affidavit of Winnie Yin Chung, sworn 2 October 2014.
In her affidavit accompanying the demand, Ms Chung, who is the credit manager of Chungs, states that on or about 1 June 2014, Chungs sold and delivered goods to Parque in the sum of $113,681.89 under invoice Nos. 59216, 59240 and 59340. She states that on or about 30 June 2014 and 19 September 2014, Chungs issued credit notes to Parque which reduced the debt owing to the sum now demanded.
Parque relies on affidavits of its sole director, Daryl Chait, sworn 22 October 2014 and 22 December 2014 in support of the application. Chungs relies on the affidavit of Ms Chung sworn 5 December 2014 in opposition to the application.
In his affidavit of 22 October 2014, Mr Chait describes the debt as being comprised of two tranches:
(a) May 2014 invoices which total $26,242.91 of which $15,000.00 has been paid, leaving a balance of $11,242.91. Parque says that the $15,000.00 payments were made by way of instalments of $5,000 on 3 October 2014, 10 October 2014 and 17 October 2014.
(b) Parque says that the other tranche consists of the June 2014 invoices which total $87,606.33. This amount has since been reduced by credits of $2,085.48 for faulty stock, leaving a balance of $85,520.85 (‘June invoice balance’).
In fact, since the service of the demand, there have been three further payments totalling $15,000.00, the effect of which is to extinguish the liability under the May 2014 invoices giving rise to the abandonment of the application to vary the demand. Parque’s application is now concerned only with the June 2014 invoices.
Mr Chait says that Parque did not place any order for the June stock with Chungs. The acquisition of the June stock was being negotiated in June 2014 almost at the end of the winter 2014 season. He asserts that the acquisition of this quantum of stock so late in the winter 2014 season would not have been contemplated nor considered viable unless there were other factors surrounding such an acquisition. He deposes that the retail value of June stock received represented approximately six times the retail value of stock that might typically be ordered from Asuza Pty Ltd (‘Asuza’).
Mr Chait says that at all times Parque dealt with Asuza’s directors, Jonathan Redfern and Dan Preston in relation to the June stock. He contends that the June stock acquisition by Parque was contemplated as part of a broader transaction involving:
(i) the acquisition of bulk quantities of Asuza branded stock at a discount to normal wholesale prices;
(ii) the acquisition by Parque of the Asuza brand and related intellectual property;
(iii) the engagement by Parque of the services of Mr Redfern and Mr Preston, the directors of Asuza, to assist with the marketing and promotion and sale of the Asuza brand stock acquired by Parque and the re‑establishment of the Asuza business under the aegis of Parque;
(iv)the provision of warehousing, logistics, production coordination, information technology, administration, finance and retail support services by Parque and its related entities to the Asuza business; and
(v) the payment by Parque of debts owed by Asuza to financial service providers and other creditors as consideration for the acquisition of the Asuza intellectual property.
Mr Chait asserts that in the course of negotiating the acquisition of the June stock, Mr Redfern and Mr Preston acted as agents of Chungs and represented that they would be engaged by Chungs to assist with the marketing, promotion and sale of Asuza branded stock acquired by Chungs. Mr Chait exhibits four drafts of heads of agreement prepared but not concluded between Parque and Asuza, Mr Redfern and Mr Preston. I observe that Chungs is not a party to any of the drafts of the heads of agreement. There is no evidence that Chungs or its employees were involved in or were aware of the negotiation of the transaction underlying the heads of agreement. Each of the drafts stipulates that the heads of agreement are confidential between the parties. Indeed, if the transaction had proceeded, it would seem to have had the effect of removing Chungs as the intermediary and distributor of Asuza garments. No mention is made of the existence of any agency of Asuza, Mr Redfern or Mr Preston, in the draft heads of agreement. The only mention of Chungs is in paragraphs 1.1-1.3 of the final draft.[1] Under those provisions, Asuza would acquire all the Asuza stock currently owned by Chungs (referred to as CO2 in the document). It would negotiate the release of this stock with Chungs. Messrs Preston and Redfern would ‘continue to manage the relationship between [Chungs] and Asuza to its natural conclusion.’ [emphasis added].[2]
[1]Exhibit DC-4.
[2]Ibid.
The balance of the stock that remains unsold is $58,945.00 valued at its cost. Mr Chait says that this stock is available for collection by Chungs, or Redfern and Preston on Chungs’ behalf. Mr Chait says that Parque is left with the June delivered stock that it does not want as the acquisition was not concluded. He says that Mr Preston and Mr Redfern on behalf of Chungs, having facilitated the delivery of the June stock as part of the acquisition transaction, have not concluded the acquisition for Parque. He states that he would not have accepted the appropriation of any of the June stock from the warehouse on the basis that he would have a liability to Chungs if the acquisition did not go ahead. He deposes that:
As a result, the Company [Parque] currently holds the June stock… but now does so without the benefit of the sale, marketing and promotional expertise of Redfern and Preston to assist in selling the stock.
It would seem the alleged dispute which Parque raises is that Parque agreed to acquire the garments on condition that Parque and Asuza would execute heads of agreement substantially in the form of the fourth draft version. It is contended that because Parque and Asuza did not execute the heads of agreement that Parque’s agreement with Chungs to acquire the garments, as reflected in the June invoices, was not concluded.
Chungs’ evidence
In her affidavit, Ms Chung deposes that Chungs is a wholesale importer and supplier of a number of brands of garments, one of which is ‘Asuza’. The Australian distributor of Asuza garments is Asuza. In a typical case, Asuza’s sales and marketing director, Mr Redfern, identifies retailers to sell the Asuza garments and refers such retailers to Chungs to place orders for the supply of Asuza garments to their retail stores.
Parque is a retailer of fashion clothing, trading as ‘FAT’ and is a customer of Chungs. Mr Chait signed Chungs’ customer credit application form which incorporated Chungs standard terms and conditions of sale on behalf of Parque on 29 April 2014.[3] That document identifies Mr Chait as the director of the company and he signs the document on the second page in that capacity. The conditions provide that the purchase price in relation to goods shall be payable net within 30 days of the date of the supplier’s invoice. Provision is made for return of goods in circumstances which have no application here.
[3]Exhibit WC-1.
Ms Chung deposes that Chungs supplies the Asuza garments to Parque and has always invoiced Parque for such supplies directly, as it has done in this instance. The three unpaid June invoices relate to Asuza garments supplied by Chungs to Parque.[4] The invoices are all directed to ‘FAT Stores Parque Pty Ltd, 112 Buckhurst Street, South Melbourne’, which is also nominated as the delivery address. There is no dispute that the goods the subject of the invoices have been delivered.
[4]Exhibit WC-2.
Ms Chung deposes that in June 2014 Messrs Redfern and Preston of Asuza told her and Raymond Chan, the production manager of Chungs, that Parque wished to place a large order with Chungs because of a promotion of the Asuza brand in Parque’s stores. She described that order as ‘the bulk stock’. Mr Redfern and Mr Preston told her that because the bulk stock order was much larger in volume than the orders that they usually received from Parque, that Parque sought a discount on the price of the bulk stock. She indicated by telephone to Mr Redfern that in view of the size of the order, Chungs would agree to give the discount. Ms Chung states that Chungs has always invoiced Parque directly, delivered stock to Parque directly, and been paid directly by Parque for such stock. She states that she was not made aware of any acquisition proposal between Asuza and Parque until she read Mr Chait’s affidavit, and that Parque’s order of stock from Chungs was not made subject to or conditional upon any transaction proceeding. There was to be a second delivery of stock but this was cancelled by Parque.
Ms Chung deposes that on 10 June 2014 Chungs delivered $113,849.25 worth of stock to Parque. The June invoices, which are the subject of the demand, related to that first delivery of part of the bulk stock.
Ms Chung and her staff at Chungs requested payment from Parque of the outstanding invoices between August and September 2014.[5] This series of communication commenced on 18 August 2014, when Chen Zhang of Chungs wrote to Belinda Redmond at Parque in respect of the outstanding accounts. Emails were exchanged throughout late August and into September. In an email of 24 September 2014, Rocco Hu, the operations manager of Chungs wrote to Richard Owen, requesting him to call back as soon as possible regarding the overdue account for the Asuza stock. ‘… if I don’t hear back from you soon, there might be further actions regarding this matter.’[6]
[5]Exhibit WC-4.
[6]Exhibit WC-5.
In response in the 24 September email, Mr Owen emailed Mr Hu, stating, inter alia, ‘I’m trying to work out a plan for the payment of the account, but it will take a couple of days with key people being out of the office. Can we speak Monday?’[7] There was apparently no communication from Parque and Mr Hu emailed Mr Owen again on 29 September, pursuing him for a ‘proper payment plan’.
[7]Ibid.
On that day, Mr Owen wrote to Ms Chung and Mr Hu, stating:
As requested, responding to you with a payment plan regarding the outstanding monies owed by Parque to Chungs.
I apologise that the debt has become so old. We have not enjoyed good trading since late July and cash flow is extremely tight.
Minnie, as I flagged in our phone conversation last week, we had already committed our forward cash flow for several weeks, and today involved trying to find a solution that involved revising those commitments somewhat in order to squeeze payments to Chungs.
Our records indicate that we owe you approximately $113,000, though this number may be slightly reduced by credits for faulty products, etc.
All that being said, we are hoping you can work with the following payment plan:
Week ending $ 3-Oct-14 $5,000 10-Oct-14 $5,000 17-Oct-14 $5,000 24-Oct-14 $5,000 31-Oct-14 $5,000 7-Nov-14 $5,000 14-Nov-14 $5,000 21-Nov-14 $5,000 28-Nov-14 $5,000 5-Dec-14 $10,000 12-Dec-14 $10,000 19-Dec-14 $10,000 26-Dec-14 $10,000 2-Jan-15 $10,000 9-Jan-15 $10,000 16-Jan-15 Balance, approx. $8,000 but may be reduced by credits
I appreciate that this is a long payment plan. This is a factor of previous commitments to other suppliers, as well operating a business that does not have significant weekly cash flow.
I hope this is amendable to you, and look forward to your response.
Please note that I will be on leave from Thursday 2 October onwards, returning Monday 13 October, and will not be contactable during that period. I hope we can have this locked down before I leave on Wednesday night.
Regards
Richard
I note at this juncture that the email of Mr Owen, who is the general manager of Parque, makes no mention whatsoever of the matters raised in the affidavit of Mr Chait, accepts that Parque is liable for approximately $113,000.00, and makes a proposal for payment of the invoices directed to Parque.
Ms Chung deposes that since the service of the demand, Parque has paid $30,000.00 in reduction of its debt to Chungs by six weekly payments of $5,000.00 each, the last of which was received on 10 November 2014, well after the commencement of this proceeding. Chungs never agreed to accept payment by instalments of the debt. The debt outstanding was at the date of Ms Chung’s affidavit $81,763.74. As observed, the May invoice’s liability has been discharged and part of the June liability was discharged by payment of the last instalment payment.
Parque’s evidence in reply
In his affidavit in reply of 22 December 2014, Mr Chait says that prior to April 2014, Parque never dealt with Chungs directly or at all and dealt exclusively with Asuza when ordering goods. The only contact from Chungs from April 2014 was the receipt of a customer credit application. He states that the delivery of the goods for which Chungs claims to be a creditor occurred without any orders being conveyed by Parque to Chungs for such goods and that the only communication other than the provision of the credit application between Parque and Chungs was after the goods had been delivered.
Mr Chait asserts that Chungs held out to Parque that Asuza and its directors, Mr Redfern and Mr Preston, were Chungs’ agents and authorised to act on its behalf and, among other things, to obtain orders for goods to be sold and delivered upon such terms and conditions as would be agreed between Parque as the customer and Chungs as agent for Asuza. That assertion is not supported by evidence. Mr Chait’s affidavit makes no mention of Mr Owen’s email of 29 September 2014.
Legal principles
In this application Parque bears the onus of establishing that it has a genuine dispute within the meaning of s 459G, which provides:
Company may apply
(1) [Order setting aside demand] A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2)[Time limit] An application may only be made within 21 days after the demand is so served.
(3) [Affidavit and copy of application] An application is made in accordance with this section only if, within those 21 days:
(a)an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
Section 459H of the Act provides:
Determination of application where there is a dispute or offsetting claim
(1)[Court satisfied of dispute or offsetting claim] 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.
The principles to be applied in applications of this type were collected and discussed by Robson J in Rhagodia Pty Ltd v National Australia Bank.[8] Robson J stated:
[8](2008) 67 ACSR 367 at [91]-[94].
[91]In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd[9] Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) said:
[9](2008) 66 ACSR 67 (‘TR Administration’).
[56]The court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
[57]No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised.
[92] Dodds-Streeton JA further said:
[71]As the terms of s 459H (sic) of the Corporations Act 2001 and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice. A selective focus on a part of the formulation in South Australia v Wall,[10] divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.
[10](1980) 24 SASR 189.
[93]In Eyota,[11] McClelland CJ of the Supreme Court of New South Wales said:
[11]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ASCR 785, 787-8 (‘Eyota’).
It is, however, necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 450H. In my opinion that expression 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 precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth” (cf Eng Mee Yong v Letchumanan),[12] or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall.[13]
[12][1980] AC 331 at 341 (PC).
[13](1980) 24 SASR 189, 194.
But if it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments[14] Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 3:
[14]Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362, 366–7 (‘Mibor Investments’).
“These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry 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.”
In Re Morris Catering (Aust) Pty Ltd[15] Thomas J said:
[15](1993) 11 ACSR 601, 605.
There is little doubt that Div 3 … prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court’s examination are the ascertainment of whether there is a “genuine dispute” and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a 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).
I respectfully agree with those statements.
[94]In TR Administration,[16] Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) cited this passage with apparent approval[17] and noted it was also cited by the Full Federal Court in Spencer Constructions Pty Ltd v GAM Aldridge Pty Ltd.[18]
[16](2008) 66 ACSR 67.
[17]Ibid at [64].
[18](1997) 76 FCR 452.
In Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[19] Dodds-Streeton JA observed at paragraph [48]:
While it is not a very exacting standard, on the other hand mere, assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which “bears on whether or not the asserted dispute or off-setting claim is genuine”. Indeed, that is its necessary function.
[19][2006] VSC 508.
Her Honour went on to say at paragraph [49]:
The dispute or off-setting claim should, as has been recognised, have some objective existence, and the plaintiff bears the onus of establishing the genuineness of the dispute or off-setting claim.
In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd,[20] the Full Court of the Federal Court observed that for a genuine dispute to exist, it must be ‘bona fide and truly exist in fact’, and the grounds for alleging its existence must be ‘real and not spurious, hypothetical, illusory or misconceived’.
[20](1997) 76 FCR 452, 464.
Consideration
In my view, it is of considerable significance that there is no reference at all in Mr Chait’s affidavit in reply to the communications of Mr Owen in late September 2014 whereby liability for the debt was accepted. Further, there is no mention at all by Mr Owen in his email of the existence of the acquisition arrangement which Parque now contends results in there being no liability to Chungs. It would be expected that if the order was conditional as is now asserted that such condition would have been raised at that juncture when Parque was being pursued for payment. The instalment plan proposed by Mr Owen, Parque’s general manager, had instalments as recent as 10 November 2014 which not only discharged the May invoices, but partially discharged liability for the June invoices. Further, there was no affidavit by Mr Owen or explanation as to why, as the general manager of Parque and one at the centre of this controversy, he did not swear one.
I agree with the submissions of counsel for Chungs that the evidence is inconsistent with Parque’s assertion that the acquisition of garments from Chungs was in some way not concluded or was conditional on the entry into the agreement the subject of the heads of agreement. In this regard, there is no evidence to support Parque’s assertion that Asuza staff were acting as agents of Chungs in negotiating the acquisition agreement and in and about that negotiation had the agency to vary Chungs’ standard terms and conditions of sale by which Parque had agreed to be bound. There is no evidence at all which points to Chungs knowledge of the negotiation of the acquisition transaction.
On the other hand, Chungs’ evidence is that Parque ordered the garments and Chungs supplied them and delivered them to the address nominated in the invoice. Ms Chung’s evidence is that she knew nothing of the transaction underlying the heads of agreement until she read Mr Chait’s affidavit. Furthermore, the email of Mr Owen of 29 September 2014, which set out a weekly instalment plan for payment, acknowledged that the debt which was originally the subject of the demand was owed. The email does not refer to the alleged arrangement that the order was conditional on the transaction, the subject of the heads of agreement proceeding as one would expect.
Ms Pierce, counsel for Chungs, also observed that the terms of the alleged heads of agreement appear to be inconsistent with the agency which is alleged by Mr Chait.[21] Clause 1.1 of the final draft of the heads of agreement reflects Parque’s intention to acquire stock owned by Chungs. To that end, clause 1.2 provides that Asuza will negotiate the terms of the release of the stock by Chungs (referred to as CO2) to FAT, ie, Parque. Clause 1.3 provides for Asuza to manage the relationship between Asuza and Chungs. It is said, and I agree, that these provisions suggest that the proposal was one in which Asuza would be acting as an agent for Parque.
[21]Exhibit DC-4.
In my opinion, Parque has not discharged the onus which it bears that it has a genuine dispute in respect of the debt remaining on the statutory demand. The position it puts is not supported by the contemporaneously generated documentation including the draft heads of agreement, the email communication between Asuza’s representatives and Parque and by Mr Owen’s email of 29 September 2014. On the other hand, Chung’s evidence is inherently plausible.
I will hear the parties on the form of order to be made. Because of the payments which have been made since the commencement of this proceeding, the demand will need to be varied so that it is an effective demand for the sum now owing.
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