PCH Access Pty Ltd v RECO Scaffolding Pty Ltd

[2003] WASC 257

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   PCH ACCESS PTY LTD -v- RECO SCAFFOLDING PTY LTD [2003] WASC 257

CORAM:   MASTER NEWNES

HEARD:   4 DECEMBER 2003

DELIVERED          :   18 DECEMBER 2003

FILE NO/S:   COR 109 of 2003

BETWEEN:   PCH ACCESS PTY LTD (ACN 008 802 480)

Plaintiff

AND

RECO SCAFFOLDING PTY LTD (ACN 097 582 379)
Defendant

Catchwords:

Corporations Act - Application to be substituted as applicant in winding-up application - Whether alleged debt disputed - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 456B(3), s 459P

Result:

Application dismissed

Category:    B

Representation:

Counsel:

Plaintiff:     Mr C C Ko

Defendant:     Mr P K Walton

Solicitors:

Plaintiff:     Brickhills

Defendant:     Jackson McDonald

Case(s) referred to in judgment(s):

Chadwick Industries (South Coast) Pty Ltd v Condensing Vapourisers Pty Ltd (1994) 13 ACSR 37

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669

Jarena Pty Ltd v Sholl Nicholson Pty Ltd (1996) 14 ACLC 531

Re Calsil (1982) 1 ACLC 329

Re Furniture Mart, Ex parte Bank of Queensland Ltd, unreported; SCt of Qld; 14 March 2000

Case(s) also cited:

ACP Syme Magazines Pty Ltd v Tri Automotive Components Pty Ltd (1997) 23 ACSR 530

Braams Group v Miric (2002) ACSR 124

Daewoo Australia v SunCorp Metway [2000] NSWCA 35

De Montford v Southern Cross Exploration NL (1987) 5 ACLC 709

Deputy Commissioner of Taxation v Sun Heating Pty Ltd (1983) 8 ACLR 314

DMK Building Materials Pty Ltd v C B Baker Timbers Pty Ltd (1985) 2 NSWLR 711

Re Beverage Holdings Pty Ltd; Re Greater Pacific Investments Pty Ltd (In Liq) (1991) ACLC 1197

Scandon v Dome Supplies (1995) 13 ACLC 1256

South East Water Ltd v Kitoria Pty Ltd (1996) 14 ACLC 1328

Ultimate Manufacturing v Lyell Morris Pty Ltd (1995) 13 ACLC 1268

Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196

1. MASTER NEWNES:  The plaintiff has applied to wind up the defendant on the ground of insolvency, following the defendant's failure to comply with a statutory demand.  The debt which was the subject of the statutory demand has since been paid and the plaintiff now seeks an order that it be substituted in respect of a further debt which it says is owing to it by the defendant.

2. The plaintiff carries on the business of letting on hire scaffolding equipment. The defendant is a customer of the plaintiff. On 20 February 2003 the plaintiff served on the defendant a statutory demand requiring the payment within 21 days of the sum of $66,218.73, being the balance of unpaid hire charges. The defendant did not pay that amount or apply to set aside the demand within the 21 days. On 15 April 2003 the plaintiff applied under s 459P of the Corporations Act 2001 (Cth) to wind up the defendant on the ground of insolvency. The application was opposed by the defendant. At the time of the application the plaintiff filed, among others, an affidavit of James Donald De Barran Curren, sworn 11 April 2003. In that affidavit Mr Cullen said that the defendant was indebted to the plaintiff in the total sum of $116,509.40. I take it that, to the extent the debt exceeded the sum of $66,218.73, it was not due and payable at the time of the statutory demand.

3. In an affidavit dated 5 June 2003, Mr Cullen deposed to the total indebtedness of the defendant to the plaintiff as at 30 May 2003 being an amount of $151,074.98.  A copy of a statement of accounts for the period 30 November 2002 to 30 April 2003, and various invoices for the period to 30 May 2003, were annexed to Mr Cullen's affidavit.

4. In an affidavit sworn 10 June 2003, Rees Ginns, on behalf of the defendant, denied that an amount of $151,074.98 was owing to the plaintiff and said that the invoices attached to Mr Cullen's affidavit did not take proper account of the scaffolding equipment that had been returned by the defendant.  Mr Ginns annexed various dockets showing returns of equipment which he said had been made by the defendant.  Mr Ginns said that on occasions he had identified errors in return dockets and on each occasion the errors were clarified in the defendant's favour after discussion the plaintiff's state manager in New South Wales.  In a further affidavit sworn 24 June 2003, Mr Ginns deposed to additional equipment which he said had been, or was in the course of, being returned to the plaintiff. 

5. Mr Cullen responded by an affidavit of 6 August 2003 in which he said that, despite various assertions on behalf of the defendant that equipment would be returned, there remained outstanding approximately 58 tonnes of equipment.  Mr Cullen said that on 1 July 2003 the defendant had paid $100,000 in reduction of the sum of $151,074.98 owing to the plaintiff.  According to Mr Cullen, as at 31 July 2003 the defendant was indebted to the plaintiff in the sum of $79,436.61.  Mr Cullen said that hire charges on the outstanding equipment would continue to accrue at the rate of approximately $2,698 per week.  Mr Cullen annexed a statement of account for the period 30 June 2002 to 31 July 2003, showing an outstanding balance of $79,436.61.

6. In an affidavit sworn on 27 August 2003, Mr Ginns acknowledged that not all of the plaintiff's equipment had been returned to it but denied that approximately 58 tonnes remained on hire.  Mr Ginns said that the plaintiff did not appear to have taken into account a considerable amount of equipment that had been returned by the defendant.  Mr Ginns said that the amount of $100,000 paid to the plaintiff on 1 July 2003 was his best estimate of what was owing to the plaintiff, the precise amount being impossible to determine because, he alleged, the plaintiff had overcharged the defendant and had not given appropriate credits for equipment returned.  Mr Ginns annexed to his affidavit various documents which he said showed discrepancies between the plaintiff's records and equipment that had been returned by the defendant.  He also referred to documents of the plaintiff which recorded the defendant hiring equipment that Mr Ginns said it had not hired.  Mr Ginns also said that he had observed when returning equipment to the plaintiff that the equipment was not counted immediately but was placed in a "holding area" and mixed with equipment returned by other clients, and that return dockets were not received from the plaintiff for several days and at one stage were not received for approximately five months.  Mr Ginns said he believes that as a result the plaintiff's return dockets were often grossly inaccurate.  According to Mr Ginns, the weekly hire amount of the outstanding equipment was nothing like $2,698 per week.

7. Mr Ginns also said that the plaintiff has failed to credit the defendant's account with payments of $15,700 on 5 March 2003 and $10,000 on 14 March 2003.  

8. In an affidavit in response sworn on 12 September 2003, Mr Cullen says that the plaintiff uses an internationally certified method of accounting for stock control and from his own experience of more than eight years in the scaffolding industry the method is extremely accurate.  Mr Cullen says that from his perusal of the records of the defendant "there has rarely been a legitimate dispute as to the plaintiff's count or control of stock or the method used to count or control stock".  Mr Cullen also says that he was informed by the plaintiff's NSW state manager that return dockets were sent by facsimile within days of the equipment concerned being returned and the defendant has never disputed the accuracy of any of those dockets or informed the plaintiff of any discrepancies in the quantities of equipment credited as returned.  Later in his affidavit, Mr Cullen says that, in his own experience and from his perusal of the plaintiff's records, the only customer which has raised any dispute about the method used by the plaintiff to count stock is the defendant and then only in these proceedings.  I might observe that that latter statement is not easy to reconcile that his earlier statement that there has "rarely" been a legitimate dispute as to the plaintiff's count and control of stock or the method it uses to count stock.  I should also note that the statements attributed to the plaintiff's NSW state manager, to the effect that the defendant has never queried the accuracy of return dockets or the quantities of stock credited as returned, is in conflict with Mr Ginn's evidence.

9. In relation to the payments referred to in Mr Ginns' affidavit, Mr Cullen simply says that from his perusal of the books and records of the plaintiff "the payments referred to have been accounted for in the plaintiff's statement of account and have been applied to payment of the plaintiff's oldest invoices and thus do not appear on the statement of account".  Mr Cullen goes on to say that from the plaintiff's records there remains 56.32 tonnes of its equipment on hire to the defendant.  Mr Cullen does not produce the records that satisfied him that the payments made by the defendant had been credited to the defendant's account.

10. In an affidavit in response sworn 17 September 2003, Mr Ginns says that whatever stock control method may be used by the plaintiff, it is not applied in the way suggested and he reiterates that he has personally observed, when returning equipment, that the equipment has been mixed with other customer's equipment and that return dockets have not been provided until as much as six months after the return of the equipment concerned.  Mr Rees estimated that a total of approximately 6.5 to 8.5 tonnes of the plaintiff's equipment was still on hire by the defendant.

11. In an affidavit sworn 3 October 2003, Mr Cullen says that, even accepting the defendant's own estimate of the amount of equipment still on hire (which the plaintiff disputes), there are outstanding hire charges for that equipment from 1 July 2003 to 29 September 2003, and hire charges for equipment returned over that period, in a total amount of $10,714.29.  That is based on the average hire charges per tonne of scaffolding equipment of the type hired by the defendant.

12. In a further affidavit sworn 7 November 2003, Mr Cullen takes issue with the alleged delay in forwarding return dockets and says return dockets were sent by facsimile to the defendant within days of the equipment concerned being returned.  He reiterates that the defendant has never previously informed the plaintiff of any discrepancies in the quantities of stock on hire and returned, or any dispute about the plaintiff's invoices or the plaintiff's method of invoicing.  Mr Cullen says that from his experience and perusal of the plaintiff's records "there has never been any issue or dispute by any of the plaintiff's customer base of over 300 customers of the integrity or application of … the plaintiff's method of invoicing".

13. The plaintiff accepted that the amount claimed in the statutory demand has been met in full by the payment of $100,000 made by the defendant on 1 July 2003.  The issues raised on this application, therefore, were, first, whether the plaintiff should be substituted as a creditor for the debt that it claims is now owing and, secondly, whether there was a genuine dispute as to that debt.

14. It was not in issue that under s 456B(3) of the Corporations Act the plaintiff could be substituted as the applicant in respect of the debt owed by the defendant, if that debt were made out.  Counsel for the defendant submitted that courts had been reluctant to allow substitution in circumstances such as the present, where the applicant had served a statutory demand which had since been satisfied and then sought to be substituted in respect of a debt that had become payable since service of the statutory demand, and as a matter of discretion it should be refused in this case. 

15. The principal argument, however, was whether the current debt was the subject of a genuine dispute.  It was not in issue that if it was, the plaintiff could not be substituted.  The plaintiff's counsel accepted that the onus was on the plaintiff to show that there was no genuine dispute. 

16. The general principle was stated in Re Furniture Mart, Ex parte Bank of Queensland Ltd, unreported; SCt of Qld; 14 March 2000, by Ambrose J at [23] as follows:

    "In my view the applicant can succeed on its application to be substituted as an applicant creditor with a sufficient debt to permit it to seek to wind up the respondent only if it can establish that its alleged debt is not subject to a bona fide dispute on the part of the respondent on substantial grounds."

17. In Re Calsil (1982) 1 ACLC 329, Master Lee QC (as he then was) having referred to various authorities, said:

    "However, these authorities do not, in my opinion, support the proposition for the applicant that where a debt is disputed on bona fide and substantial grounds (ie as to the existence of the debt itself and as to whether or not the 'creditor' has in fact proven its debt) the Court should on an application for substitution under r 27, conclude that such a 'creditor' whose debt is so disputed has 'a right to present the petition', thus leaving the question of whether that debt is established to be determined on the ultimate hearing of the petition.  Neither do I think the applicant's case is advanced by the proposition that the applicant might simply have presented the petition in the first place without leave of the Court, even if its debt was disputed, leaving it to the company to apply to the Court for an injunction restraining either the presentation of the petition if it learnt of the threat or any further proceedings on the petition … In my opinion the rule itself and the above authorities show that where a debt of a creditor is disputed on substantial grounds, the creditor has no 'right' to present the petition, notwithstanding that the company might be insolvent.  In addition, the rule confers a discretion on the Court whether to order its substitution or not."

18. All that it is necessary to determine at this stage is whether there is a genuine dispute.  On an application of this nature a court is not required to embark upon a determination of the substantive merits of the dispute.  On the other hand, it is clear that if a debt is proved, it is not sufficient for the debtor simply to say that the debt is disputed; there must be evidence that the debt is bona fide disputed on substantial grounds:  Re Calsil Ltd (supra).  In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669, McLelland CJ in Equity said at 671 ‑ 672:

    "This does not mean the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently and probably in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to [its] truth' … or a 'patently feeble legal argument, or assertion of facts unsupported by evidence' …

    But 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 enquiry 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."

19. The threshold for a finding that there is a genuine dispute is not a particularly high one.  The Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous and that may have some substance:  Chadwick Industries (South Coast) Pty Ltd v Condensing Vapourisers Pty Ltd (1994) 13 ACSR 37.

20. In the present case, a large number of affidavits have been filed on both sides, rather on a tit‑for‑tat basis.  I should say at the outset that that practice is wholly undesirable and is to be discouraged.  In this case the stream of affidavits gained such momentum that a total of some 10 affidavits were filed on the application for substitution alone, in addition to a number of affidavits filed in relation to the plaintiff's original application to wind up the defendant.  The defendant sought to rely on yet another responsive affidavit, filed on 24 November 2003.  I refused to accept that affidavit on the basis that it was well out of time and simply far too late, even by the rather liberal standards that have prevailed in this matter.

21. In the light of the affidavit evidence, I am satisfied that there is a genuine dispute as to the defendant's indebtedness for the amount of the debt for which the plaintiff now seeks to be substituted.  The defendant contends that much more equipment than the plaintiff has taken into account has been returned by the defendant and, accordingly, the hire charges which the plaintiff says have continued to run are far less than the plaintiff contends.  The defendant alleges that the plaintiff's record keeping method, whatever its technical merits, is flawed in practice and that proper credit has not been given for a good deal of equipment that has been returned by the defendant.  The defendant says, as indicative of the fact that the plaintiff's records are not as reliable as the plaintiff contends, that it has raised discrepancies in the past and they have always been resolved in its favour. 

22. In the end, the defendant's position was that, at most, it owes an amount of some $10,700 by way of hire charges but contends that, in truth, when proper credit is given for the equipment it has returned it will be found to be a creditor, rather than a debtor, of the plaintiff.  The defendant says, in addition, that payments of some $25,700 made in March 2003 in reduction of its indebtedness have not been taken into account.  It says that, even accepting that hire charges for the outstanding equipment total some $10,700, once those payments are taken into account the defendant would have a credit balance on its account of some $15,000.

23. The plaintiff, on the other hand, says that a very substantial amount of equipment remains on hire to the defendant and denies that the defendant has returned anything like the amount of equipment claimed.  The plaintiff asserts that its method of stock control is highly accurate and says that prior to these proceedings there had never been any complaint by the defendant about the failure of the plaintiff to take into account returned equipment. 

24. The plaintiff also says that there has been no other complaint by a customer about returned equipment not being properly accounted for.  On the latter point, however, I must say that the affidavit evidence of Mr Cullen does not appear entirely consistent.  At one point he says that legitimate disputes are "rare" and in other places he says that prior to these proceedings there had never been any disputes. 

25. In relation to the payment of $25,700 in March 2003, the plaintiff says that those payments have been taken into account in reduction of the balance owing by the defendant.  However, the statements of account the plaintiff has produced in evidence for the period from November 2002 to July 2003 do not show those payments.  They do show other amounts credited to the defendant's account.  The explanation that was offered by Mr Cullen, and reiterated by the plaintiff's counsel, was that the money had been allocated to the oldest debts of the defendant and, as those debts predated November 2002, the payments did not appear on the statements of accounts in evidence. 

26. I do not understand why the allocation of the payments to the oldest debts should have the result that the statements of account produced in evidence do not show those payments.  In any event, no accounting documents of any sort were produced in evidence to demonstrate that the plaintiff had taken those payments into account.   All that was proffered was Mr Cullen's bare assurance that the payments had been credited to the defendant's account.

1. Despite the welter of affidavits, I do not consider that it is possible to make any proper findings as to the amount of equipment returned by the defendant, and therefore the amount of outstanding hire charges for equipment still on hire to the defendant, or whether the payments in March 2003 have been taken into account in reduction of the defendant's indebtedness.  The latter issue should have been capable of being determined, one way or the other, by the production of the appropriate accounting records of the plaintiff but, for whatever reason, those records were not put in evidence. 

2. The former issue is not capable of being, nor is it appropriately to be, determined on an application of this sort.  Extensive evidence was adduced on each side, with allegation and counter allegation.  In the end, it was clear that what, if any amount, is owing by the defendant to the plaintiff can only be determined by an assessment of the reliability of the plaintiff's stock control records, as compared to the defendant's records, and the credibility of Mr Ginns in relation to disputed statements said to have been made by him.  Those are matters that can only be determined at the trial of an action.

3. In my view, on the evidence there is a genuine dispute as to the debt which is said to found the plaintiff's claim for substitution as a creditor and accordingly, on that basis I would dismiss the application.