Quill v Custom

[1999] NSWSC 1067

CITATION:	Quill v Custom [1999] NSWSC 1067
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	2719/99
HEARING DATE(S):	13/09/99; 21/10/99, 22/10/99
JUDGMENT DATE:	22 October 1999
PARTIES :	Quill Graphic Pty Ltd v Custom Press Pty Ltd
JUDGMENT OF:	Master Macready at 1

COUNSEL :	Mr S. Lloyd for the plaintiff Mr J. Johnston for the defendant
SOLICITORS:	Evangelos Patakas & Associates for the plaintiff Colin Biggers & Paisley for the defendant
CATCHWORDS:	Corporations Law. Application to set aside statutory demand. No matter of principle.
CASES CITED:	Eyota P/L v Havave P/L (1994) 12 ACLC 669;
DECISION:	Para

- 1 -

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

MASTER MACREADY

FRIDAY 22 OCTOBER 1999

2719/99 - QUILL GRAPHICS PTY LTD v CUSTOM PRESS PTY LTD

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JUDGMENT

1   MASTER: This is an application to set aside a statutory demand served by the defendant on the plaintiff dated 12 May 1999. Demand is for $343.607.01. The demand makes claims in respect of three separate areas. There are firstly trading debts of $298,607.01; there is a loan in the sum of $20,000; and there is said to be an advance as a rebate on sales of $25,000. 2   Both the companies who are parties to these proceedings are in the printing industry, and the disputes concern matters arising in that context. 3   The plaintiff raises what are said to be genuine disputes in respect of three areas and offsetting claims in respect of four areas. This requires a consideration of what is meant by a genuine dispute and what is necessary in respect of an offsetting claim. 4   I have had the benefit of having a number of submissions in respect of the principles to be applied and I think probably the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments respect of the expression "Genuine dispute":

"It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 459H. 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 in 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 (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).

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. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3:

'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 (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said:
'There is little doubt that Division 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 simply 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."

5   There are a number of different affidavits that have been filed in these proceedings BY Mr Canty on behalf of the plaintiff. They have variously been referred in submissions by a shorthand method, and for the purposes of identification the affidavit Canty 1 is one sworn by Mr Canty on 12 June 1999 in which he annexes a copy of a statutory demand. Canty 2 is a further affidavit of Mr Canty of 12 June 1999. Canty 3 is an affidavit sworn by him on 14 August 1999, and Canty 4 is one sworn on 4 September 1999. 6   I turn to the various genuine disputes which are said to exist. The first concerns the loan of $20,000. In about mid September 1998 negotiations commenced between the plaintiff for two separate matters. One was the acquisition of shares by the defendants in the plaintiffs. 7   The second was the establishment of a joint venture between the defendant, the plaintiff and Gerard Number 3 Pty Ltd and such other print manufacturers as the parties thought would be appropriate, and which was generally referred to in the evidence as the Consortium. As part of that process the defendant had to carry out some due diligence work in respect of the plaintiff's financial situation. This led to discussions about the costs that would be involved in that due diligence effort. 8   In para 4 of Canty 2 there is set out a conversation between Mr Machin and Mr Canty as to the arrangements for some payments to the plaintiff to enable that due diligence work to proceed. The original amount suggested was $50,000 however it was reduced to $20,000. 9   On the terms of the conversation which is alleged by Mr Canty the deposit will not be refundable. This is understandable given that the work would involve external costs for accountants which the plaintiff will have to pay. There certainly was a dispute raised by the defendant in correspondence about its repayment. There seems to be quite clearly a genuine dispute in respect of that amount. 10   The next area concerns a claim for $25,000 which in the demand was referred to as an advance to the company by the creditor for rebates of sales. This matter arises in two areas. First, in the claim for $25,000 in the statutory demand and secondly, in an offsetting claim which the plaintiff wishes to raise. The fees for the $25,000 in the demand are in respect of the month of May, and the offsetting claim is a claim by the defendant for June, July and August for a total of $75,000. Apparently by September 1998 the parties were negotiating for the consortium agreement which would replace the arrangements under which this claim was made. 11   The arrangement was described in the evidence as a Representation Management Agreement. The plaintiff apparently provided services representing the defendant and its holding company, Gerard in sales and print management. The proposal seemed to be based upon an arrangement that the plaintiff would provide sales of some $500,000 per month to the defendant and receive a 5 per cent rebate on such sales. 12   There has been given some detailed evidence in para 7 of Canty 4 about the nature of the particular arrangement. Those conversations are as follows:

"In my conversations with Mr Machin and/or other employees of the defendant between 22 April 1998 up to and including 4 May 1998 words to the following effect was spoken:
I said: 'We will need Custom and Gerard (referring to Gerard Industries Pty Ltd) to support the costs of operation of Quill in the print management side of things. You will see from our costs summary that there is a significant commitment by Quill to infrastructure. Quill will require that support by way of a $25,000 a month retainer from Custom.'

Mr Machin said: 'Yes but we will need some offset for that type of money from Quill's sale rebate of 5%.'
I said: 'OK the $25,000 print management retainer fee payable by Custom to Quill can be deducted from the first $25,000 of 5% rebate which Quill will receive for sales directed to Custom.'"

13   Subsequently payment was apparently made for both April and May. In May a letter from Mr Canty to Mr Machin of Custom Press referred to the matters in these terms:

"Custom will advance the rebate in item 4 in the form of a retainer, at $25,000 per calendar month, effective 4 May 1998, as a contribution to its cash flow and cost of operation."

14   Invoices were issued by the plaintiff referring to the item as a retainer. There was then after the May invoice a discussion between Mr Canty and Mr Machin in which Mr Canty was asked to amend that invoice to show it as a pre-payment for sales rebates which he did. The conversation set out in para 7 indicates the nature contended for by Mr Canty. 15   Clearly there is a dispute on the evidence between the parties about the nature of this amount. The discussions which I have quoted and the letter to which I have referred does not deal with the event that has happened in this case, namely, that $500,000 per month of business was not directed to the defendant. It is also notable that the claim in respect of the 75,000 surfaces in correspondence between the parties after May. Mr Machin himself, although not believing the dispute to be genuine acknowledged that there was this dispute between the parties. It is not for me to construe the terms of the conversation or the agreement, but it does seem to me that there might be a basis for the payments to be made as a rebate on sales. Accordingly, I would think there was genuine dispute in respect of the $25,000 and an appropriate offsetting claim in respect of the $75,000. 16   The next area of genuine dispute concerns trade debts. In one matter, namely a job for the Isle de Pines there emerged a dispute early in the parties relationship before the issue of the statutory demand. 17   The other disputes in respect of the trade debts raised in the claim were raised in Canty No 3. In para 7 of that affidavit Mr Canty identifies five separate areas where there is a dispute in respect of a large series of invoices. The particular areas are, art work, authors corrections, freight, film supplied, etc. Taking account of all these disputes there are said to be disputed items of $33,588.33. 18   The defendant contested whether the disputes were genuine and in particular relied upon the fact that the dispute was not particularised until after the demand was served. In particular, correspondence between the parties prior to the demand dealing with the disputes which had arisen between the parties, did not deal with any of these claims. 19   It is perfectly obvious to me that the disputes are raised late in the peace but given the description of the nature of the problems in the affidavit I am satisfied that the disputes are genuine. 20   I turn to the various offsetting claims. There is an offsetting claim for $8,450 for film supplied by the plaintiff to the defendant and not returned. There is also a claim for $6,100 for damages in respect of the Isle de Pines job which involved extra travel on the part of the plaintiff's officers in order to rectify the problem. I am satisfied that both of these are genuine offsetting claims. 21   I have already referred to the $75,000 offsetting claim which I will allow. The next one is a claim for $61,804. This relates to monies that were to be invested by the defendant between May and September under the Representation Agreement. 22   There is no doubt that it had an obligation under that agreement. There was however no evidence proffered by the plaintiff which quantified the cost of what it may have done in place of the defendant's obligation. Accordingly I am not satisfied that there is any damage suffered. 23   The last area of offsetting claims concerns the consortium agreement. Basically it was an idea for a syndicate of printers to bid for jobs in order to give them sufficient force or clout in the market place. The idea seems to have started in September 1998, and a number of tenders were put out to parties such as Boral, AMP and SOCOG. 24   Apart from the parties to the proceedings the other consortium members were to be Buscombe Vic Print, Southport Printing Co and the Bruckman Group. 25   The arrangements for the consortium were to include payments to the plaintiff of $10,000 per month from each consortium member for representation and marketing services. It was this which underpinned the large alleged offsetting claims for damages for breach of the consortium agreement. 26   Part way through the discussions to put it in place it became clear that any hope of winning a SOCOG contract depended upon there being someone of substance leading the consortium. Accordingly the defendant's holding company, Gerard Industries was to take this role. This appears to have occurred from about February 1999 onwards. 27   Part of the general arrangements included the loan from Gerard to Quill of some $235,000 which would be repaid over time from the fees earned. 28   The draft of the agreement between the parties to the proceedings and Gerard was prepared in November 1998. That agreement particularly anticipated the other consortium members joining in the agreement as members. That this was necessary it appears from some evidence given by Mr Canty (pps 7 and 8 of the transcript) when he had a discussion with Mr Machin about the terms of the draft agreement. Mr Machin it is said to have said that he was content with the agreement, that they were going to proceed. He went on to say he had instructed that the agreement to be issued to his lawyers and the other consortium members for formalisation. 29   There is no evidence that the other consortium members had agreed to the arrangements and the fact of the matter is that they ultimately did not. As a result the whole arrangement fell to the ground. 30   By 21 March 1999 one has a document which was a memorandum of understanding, annexure JM 4 to the affidavit of Mr Machin. It is signed by Mr Canty and dated 21 March 1999. Importantly in the recitals, recital C indicates that agreement was still needed to the consortium agreement, and in recital D that is provided that if the consortium agreement can be agreed then there will be an appropriate basis for Quill to repay the substantial loan which was to be paid. 31   Reference is made in recital E to the fact that Gerard assumed primary responsibility for the SOCOG arrangements which were proceeding at that stage with some temporary jobs. The memorandum also made provision for Gerard before the loan was put in place to be satisfied as to the solvency of Quill and under 1.4 it was obviously clear that the payments of $10,000 from each of the consortium members were a necessary part of the arrangement. 32   Cl 5 provided that the parties agreed that the memorandum of understanding was to be of no legal effect unless and until the consortium agreement had been signed by all the consortium members. That may be so and clearly it has not come into effect, but that clause does not mean that the clear understanding of Mr Canty at that stage was as was set out in the recitals to which I have referred. 33   On 15 April 1999 there was a meeting between the parties and the various representatives of the other companies who were to be members of the consortium. The outcome of that is recorded in a letter of 29 April 1999. Two things become immediately apparent. The first was that the plaintiff was not able to satisfy the defendant or Gerard of its solvency, and more importantly the plaintiff was not able to persuade any of the other members of the consortium to agree to provision for payment to the plaintiff of $10,000 per month for its services. As a result the negotiations for the consortium agreement were called off in that letter of 29 April. Clearly there never was an agreement for a consortium therefore the claim for damages has no basis. 34   In any event the proposed consortium was certainly also not successful in respect of obtaining business from SOCOG. Although while the arrangements were being negotiated with SOCOG it did some printing jobs for them Exhibit 2 makes it perfectly plain that all future business was going to the final approved printing sponsor for the games - not the consortium. 35   Therefore I am satisfied there is no offsetting claim arising out of the consortium agreement. In the result I find that there are genuine disputes in the sum of $20,000, $25,000, $33,588.33. I also find that there are offsetting claims of $75,000, $14,550. These items total $168,138.33. This leaves an admitted amount of $175,468.68. 36   Accordingly, I order that the demand served on the plaintiff by the defendant dated 1 May 1999 be varied by reducing the amount to $175,468.68. So far as costs are concerned there has been only partial success by the plaintiff. My view is that the appropriate order is that each party pay its own costs.

Last Modified: 10/28/1999