Re Kidzstuff Manufacturing P/L

IN THE SUPREME COURT
OF QUEENSLAND

No. 478 of 1999

Before Justice Wilson
[Re Kidzstuff Manufacturing P/L]
BETWEEN:

IN THE MATTER of the Corporations Law
- and -

IN THE MATTER of KIDZSTUFF
MANUFACTURING PTY LTD
(ACN 063 926 992)

REASONS FOR JUDGMENT - WILSON J.
Delivered the 12th day of February 1999

This is an application by Kidzstuff Manufacturing Pty Ltd to set aside a statutory demand served by Kidzstuff (Qld) Pty Ltd and Kidzstuff (NSW) Pty Ltd. The applicant was formerly called OMC Australia Pty Ltd. It changed its name on 24 January 1997.
There are two grounds on which the application was argued before me - that there was an agreement to withdraw the demand and that there is a genuine dispute about which entity owes the debt in question. As to the first, there was a factual dispute whether there had been an agreement to withdraw the demand. There was cross-examination on this issue. Counsel for the respondents conceded that if such an agreement had been made, that would be sufficient reason to set aside the demand under s 459J(1)(b) of the Corporations Law.
The applicant is the proprietor of a franchise system known as “Kidzstuff Franchise System.” On 11 April 1995 it entered into franchise agreements with the respondents. In early 1996 there was a corporate re-structure of the applicant and associated companies, with the result that Kidzstuff Licensed Products (Australia) Pty Ltd (“KLPA”) was given an exclusive licence to deal in franchises. The franchise agreements between the applicant and the respondents were terminated, and on 8 February 1996 new agreements were entered into between KLPA and the respondents. Pursuant to these, each of the respondents paid a franchising fee of $100,000. In April/May 1996 the respondents wished to sell their franchises, and KLPA agreed to buy them back. On 1 May 1996 a deed was entered into between the respondents and the applicant. The applicant was described as “the agent”. That agreement recited as follows:-
“A.The companies have paid certain monies to Kidz Stuff Licensed Products (Australia) Pty Ltd ACN 069 012 193 (hereinafter called “the franchisor”) for the rights to a system for the installation and commercial operation of machines which incorporate popular children’s characters (hereinafter called “the machines”).
B.The agent is a subsidiary of the franchisor and has been authorised by the franchisor to enter into this Agreement.
C.The agent has been authorised by the franchisor to refund certain monies and grant certain rights as described in this Agreement to the companies.
D.The companies have agreed to the proposals put forward by the agent on the undermentioned terms and conditions.”
The applicant asserts that it executed that deed under a misapprehension as to who was liable under it - the applicant or KLPA.
The amount of the statutory demand, $164,010, is the balance of moneys owing pursuant to that deed.
The statutory demand was served on 30 December 1998. The application to set it aside was filed on 18 January 1999, and made returnable on 29 January 1999. As I shall explain, it came before another chamber judge, who adjourned it to 10 February 1999, giving directions for the filing of further material and cross-examination and ordering the applicant to pay the respondents’ costs of the adjournment.
Whether there was an agreement to withdraw the statutory demand turns on two telephone conversations between Mr Crossley on behalf of the applicant and Mr Forsyth on behalf of the respondents on 23 January 1999. At that time there was a then long standing dispute as to which company owed the money. The applicant was in financial difficulties, a fact which was known to the respondents. When Mr Crossley telephoned Mr Forsyth, he (Crossley) was scheduled to go overseas within a matter of hours to try to sell some products and get some money in. It was anticipated that he would be overseas on 29 January. Mr Crossley said that he wanted the demand withdrawn, and that if Mr Forsyth would not agree, he would cancel his trip and fight the application on 29 January. Eventually an agreement was reached (the contents of which are in dispute), and it was agreed that he could proceed overseas.
On Mr Crossley’s version, Mr Forsyth agreed to withdraw the demand on his undertaking to attend a meeting on 10 February to discuss the matter. Although the question of his bringing some payment to that meeting was discussed, he did not undertake to do so and it was not a condition of the agreement.
On Mr Forsyth’s version, he did not agree to withdraw the demand, but to postpone it until after 10 February. Mr Crossley promised to bring a cheque with him to the meeting (although the amount was not quantified).
Mr Crossley and Mr and Mrs Forsyth were cross-examined. Mrs Forsyth did not take part in the conversations, but she was in the same room as her husband during the second conversation and she heard what her husband said.
On 27 January the applicant’s solicitors sent a fax to the respondents’ solicitors in the following terms:-
“We hold instructions that your client has agreed to withdraw the Creditors Statutory Demand on the basis that each party pay it’s [sic] own costs. Our respective clients have agreed to meet on the 10th February, 1999 to hold further discussions in relation to the debt forming the basis of your client’s statutory demand.
Could you please confirm the withdrawal of the demand on these terms so that we can prepare consent orders for our application return date on Friday.
Your reply by 5 pm Wednesday would be appreciated.”
The next day, the respondents’ solicitors replied as follows:-
“Further to the writer’s telephone attendance on your Ms Burton of 27 January 1999, and your facsimile of 27 January 1999, we are instructed that our client did not agree to withdraw the Creditor’s Statutory Demand.
We advise that we shall be filing a supplementary Affidavit exhibiting your letter of 27 January 1999 and this response.”
There was no mention of the agreement for which Mr Forsyth now contends, namely an agreement to postpone the enforcement of the demand until after 10 February.
At 8.59 am on 29 January 1999 the applicant’s solicitors faxed to the respondents’ solicitors a draft copy of an affidavit subsequently sworn by Gavin Barnes (the solicitor acting for the applicant), setting out his instructions that an agreement had been reached whereby the respondents would withdraw the statutory demand on Mr Crossley’s undertaking to attend a meeting on 10 February 1999 to discuss the financial position of the companies and the means by which KPLA would be able to repay the amount owed. An affidavit in those terms was subsequently sworn and filed by leave that day.
Mr Forsyth swore a very short affidavit in response. He deposed as follows:-
“On 23 January 1999 I had two telephone conversations with Dennis Crossley, a Director of Kidzstuff Manufacturing Pty Ltd ACN 063 926 992. I deny that I agreed with Dennis Crossley to withdraw the Statutory Demand, and to consent to the dismissal of the application of Kidzstuff Manufacturing Pty Ltd on the basis that each party bear their own costs.”
While there was probably insufficient time for the preparation of an affidavit such as that subsequently sworn on 10 February 1999 setting out in some detail his version of the conversations, it would have been a simple matter to have included reference to the agreement for postponement which he now says was made.
When the matter came before the chamber judge, an order for costs was made against the applicant on the grounds that Mr Crossley ought not to have gone overseas in the circumstances. It seems that Mr Forsyth had not told his solicitor that he had agreed that Mr Crossley could go overseas.
Mr Forsyth was taken through Mr Crossley’s affidavit in cross-examination. He agreed with almost of all of it until the crucial conclusion to the conversation. Mr Crossley’s version was as follows:-
“Bryan Forsyth then said he supposed he had not much too [sic] lose by waiting provided I gave him something on the 10th. I then said ‘so on my undertaking to turn up in Brisbane on the 10th that you will withdraw the notice?’ Bryan Forsyth said yes and I said ‘so I can go overseas then?’. Bryan Forsyth said yes. I said, ‘Thank you Bryan, I appreciate it, we will work something out.’ Bryan Forsyth said that he hoped so and the telephone conversation ended. This telephone conversation lasted about ten (10) minutes.”
Mr Forsyth’s version under cross-examination was as follows:-
“You then said that you supposed you had not too much to lose by waiting provided he gave you something on the 10th?-- Yeah, I could have said that.
I don’t want to be picky but did you say that?-- Yes, okay. I probably did say that.
I don’t want it to be thought I’ve browbeat you into this?-- Well, it was a conversation that happened weeks ago and, you know, you - you’re hanging on every word I’ve said here. Okay, I did say it. If I - no.
And he then said to you, ‘So on my undertaking to turn up in Brisbane on the 10th
you will withdraw the notice’?-- No.
Well, what was his response when you said you supposed you didn’t have too much to lose by waiting provided he gave you something on the 10th?-- What was his response?
Yes?-- He said, ‘Well, that means you’re going to withdraw the demands?’ and I said to him, ‘I will postpone the demands till after the 10th.’
Now, up to this stage everything that he had put to you was in terms of withdrawing the notice, wasn’t it?-- Withdrawing, yes.
He didn’t ever use the word ‘postpone’?-- No, but I did.
Up to this stage had you used the word ‘postpone’?-- No.
So was the first time that you produced the notion of postponing was, as it were,
right towards the end of the second conversation; is that right?-- I wouldn’t say at
the end of the conversation. I’d say about mid-conversation because it wasn’t a
long conversation the second time.
All right. Well, in response to what you said, whether it was that you withdraw the
notice or that you’d agree to postpone it, he said, “So I can go overseas then’?-- He
did.
And you said, ‘Yes’?-- I said, ‘You can’, yes.”
I have considered whether some misunderstanding may have arisen from Mr Crossley’s use of the word “withdraw”. On his evidence that word was used throughout. (On Mr Forsyth’s evidence it was used until about the middle of the second conversation when he started using the word “postpone”.) If Mr Crossley’s evidence is accepted, it was clear what he meant by the word, because he told Mr Forsyth that if agreement could not be reached on 10 February, he (Forsyth) would be free to lodge another demand. (Mr Forsyth could not remember this being said.)
There was some inconsistency between Mrs Forsyth’s affidavit and her oral evidence under cross-examination. In the affidavit she made no mention of having heard her husband say anything to the effect that the bringing of a cheque to the meeting on 10 February was a condition of the agreement. However, under cross-examination she insisted that words to this effect had been said.
There is no plausible explanation for Mr Forsyth’s not having referred to the agreement to postpone enforcement of the demand at the time he denied an agreement to withdraw it. There is no explanation for his not having told his solicitors that he had agreed that Mr Crossley could go overseas. There is a significant inconsistency between Mrs Forsyth’s affidavit and her evidence on cross-examination.
In these circumstances I prefer the evidence of Mr Crossley. I find that there was an agreement to set aside the statutory demand on his undertaking to attend a meeting on 10 February to discuss the matters in issue between the applicant and the respondents. I find that it was not a condition of that agreement that some part payment be brought to the meeting on 10 February.
In the circumstances a ground for setting aside the statutory demand has been made out, and it is not necessary for me to consider whether there is a genuine dispute as to the debt.
I order that the Creditor’s Statutory Demand for payment of debt issued by Kidzstuff (Qld) Pty Ltd and Kidzstuff (NSW) Pty Ltd dated 23 December 1998 and served on 30 December 1998 be set aside.
Subject to hearing counsel on the question, I propose ordering that the respondents pay the applicant’s costs of and incidental to the application to be taxed.
IN THE SUPREME COURT
OF QUEENSLAND
No. 478 of 1999
Before Justice Wilson
[Kidzstuff Manufacturing P/L]
BETWEEN:
IN THE MATTER of the Corporations Law
- and -
IN THE MATTER of KIDZSTUFF
MANUFACTURING PTY LTD
(ACN 063 926 992)
REASONS FOR JUDGMENT - WILSON J.
Delivered the 12th day of February 1999
CATCHWORDS: CORPORATIONS LAW - application to set aside a statutory demand - whether there was an agreement to withdraw or postpone demand.
Corporations Law s 459J(1)(b)
Counsel:  Mr P Hack for the applicant
Ms K Downes for the respondent
Solicitors:  Redchip Lawyers for the applicant
Sciacca’s Lawyers & Consultants for the respondent
Hearing Date:              10 February 1999

[1999] QSC 20

12 February 1999