Asia Pacific Glass v Sindea Trading Co [2003] NSWSC 334 | Case summary

6098/02 - ASIA PACIFIC GLASS PTY LTD v SINDEA TRADING CO PTY LTD JUDGMENT 1 The plaintiff claims under s.459G of the Corporations Act 2001 (Cth) an order setting aside a statutory demand dated 4 December 2002 served on it by the defendant. The demand asserts indebtedness in an aggregate amount of $242,095.49 in respect of goods supplied under some 30 purchase orders, less two credits. 2 The plaintiff's claim is based on both s.459H(1)(a) and s.459H(1)(b). The affidavit supporting the application is an affidavit affirmed on 19 December 2002 by Mr Mace, a director of the plaintiff, who deposes to matters said to amount to "genuine dispute" under the former provision as to two sums (one of about $70,000 and the other of about $26,000) and to other or additional matters said to ground an "offsetting claim" within the latter provision. 3 The plaintiff and the defendant commenced a trading relationship in 1994. The plaintiff acted as a distributor of the defendant's glassware products. The arrangement is outlined in the affidavit just mentioned as well and a further affidavit of the same deponent of 21 March 2003. No evidence has been adduced by the defendant, with the result that the application falls to be determined upon the plaintiff's evidence only. There are two parts to the genuine dispute aspect. The first relates to an amount of about $70,000, and is the subject of the following evidence of Mr Mace: "7. The trading relationship with the Defendant was based on the Defendant placing goods with the Plaintiff to on-sell in accordance with the distribution rights set out in the Distribution Agreements. 8. The practise that developed over the years that the Plaintiff and Defendant have been trading was that the Defendant would place product with the Plaintiff as and when the Defendant saw fit and in such quantities as the Defendant saw fit. This arrangement would occur for approximately half of the goods supplied by the Defendant. For the remaining goods, I would, on behalf of the Plaintiff, contact the Defendant and advise that there was a need for further stocks of particular products. 9. The stock that was placed with the Plaintiff by the Defendant comprised various sorts of commercial hospitality glassware. 10. The goods were provided to the Plaintiff on consignment. No negotiations were ever held with the Defendant in relation to the terms of the consignment. The practise that developed in relation to payment for the consignment stock was that invoices were issued for stock delivered to the Plaintiff's warehouse. At the end of each month, a purchase order would be raised by the Plaintiff for consignment stock sold during that month. The value of the stock referred to in a particular purchase order was not then due and payable to the Defendant until after the Plaintiff had received payment for those goods from its customers. 11. On some occasions, the Defendant would ship stock directly to a customer and either would supply a copy of our invoice to the customer at the time of shipment or the Plaintiff would then invoice the customer on confirmation of delivery. The Defendant would then monitor the Plaintiff's accounts receivables to determine when payment was received for that kind of shipment. The Defendant was able to monitor the Plaintiff's accounts receivable report as a condition of the trading terms was that the Plaintiff was required to supply that report to the Defendant at the end of each month. 12. The Plaintiff is currently owed in the vicinity of $70,000.00 by its customers for the Defendant's stock, and that sum is not yet due and payable to the Defendant in accordance with the terms of trade developed between the parties."

(I should mention that the last sentence of paragraph 10 and the whole of paragraph 12 were objected to and were admitted as evidence of the deponent's understanding only.) 4 In his second affidavit, Mr Mace deposes to a conversation with Mr Tan, the principal of the defendant, some time in 1999 in which Mr Tan said he wished to reduce the extent of the debt due from the plaintiff appearing in the books of the defendant and continued: "What we will do is switch our stocks from debt to consignment stocks." 5 Mr Mace further deposes: "Before that time, the Plaintiff owned the glassware supplied to the Defendant. After that time, the Defendant owned it and placed it with the Plaintiff on a consignment basis. A credit was raised for all stock then held in the warehouse and from that time, that stock and all further stock supplied was dealt with on a consignment basis." 6 This account, if it accurately reflects the agreed terms of trade, lends credence to the assertion that the plaintiff did not have to pay the defendant for stock until the plaintiff received payment from end customers to whom the plaintiff made sales. 7 The second aspect of the genuine dispute claim relates to a sum of about $26,000 being the aggregate of the prices of goods returned by the plaintiff for which it says that credit should be given. These items are detailed in invoices of October and December 2002 some of which coincide in date with the statutory demand. 8 The defendant says that the matters deposed to are insufficient to give rise to or substantiate the existence of a genuine dispute even according to the tests of "genuineness" emerging from the line of cases centred upon and following Re Morris Catering Pty Ltd (1993) 11 ACSR 601, Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 and Spencer Constructions Pty Ltd v G & A Aldridge Pty Ltd (1997) 76 FCR 452. I would repeat here what I said about those tests in Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411: "It is appropriate to dwell for a moment on the guidance provided by these cases. The tests of 'plausible contention requiring investigation', 'real and not spurious, hypothetical, illusory or misconceived' and 'perception of genuineness (or lack of it)', applied in the context of a summary procedure where 'it is not expected that the court will embark on any extended inquiry', mean that the task faced by a company challenging a statutory demand on the 'genuine dispute' ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s.459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger." 9 Ms Sofroniou, who appeared for the defendant, noted that, although correspondence embodying the alleged terms of trade between the plaintiff and the defendant are in evidence as annexures or exhibits to the affidavits of Mr Mace, it does not disclose any back-to-back payment arrangements of the kind the plaintiff alleges. Furthermore, as to the $26,000 item for returns, the defendant says that the evidence shows no connection between (and no means of making a connection between) the sums for alleged returns and the sums claimed in the statutory demand. Mr Johnson, who appeared for the plaintiff, points out that silence on the general question of payment in the correspondence said to embody the terms of trade is not inconsistent with the terms Mr Mace alleges in his affidavit. 10 It is true that, in order to make a finding of genuine dispute within s.459H(1)(a), the court needs more than an assertion in the plaintiff's affidavits that there is a dispute. It needs to see evidence properly adduced on the application showing facts about past events sufficient to indicate differences between the parties that can properly be characterised as a dispute as to a relevant matter; also that that dispute is of sufficient cogency to pass the "genuine" test to which I have referred. 11 As regards the $70,000 item, Mr Mace's affidavits do go beyond mere assertion. He gives evidence of words allegedly spoken by Mr Tan at some undefined time in 1999 (and presumably agreed to by the plaintiff, by words or subsequent conduct) putting the terms of trade on to a consignment basis which, if applicable, appears on the surface at least to lend support to his assertion about the $70,000. He also gives evidence about the course of trading between the parties of which the same comment may be made. It is true that the defendant, no doubt as a result of a calculated decision, has chosen not to adduce evidence. Everything Mr Mace says is therefore, in one sense, mere assertion as it is neither accepted nor contradicted by the defendant. But that is not the real test. What must be seen, to justify a finding of genuine dispute, is evidence, whether or not contradicted or even commented upon by the defendant, as to matters in the past which, at a prima facie level, may be seen to raise some inconsistency with the right to payment asserted through the statutory demand, whether as to existence of the right or the extent of the moneys to which it is said to relate. 12 The same comment applies to the defendant's submission that the supposed dispute as to the items totalling $26,000 is based on no more than mere assertion. The allegation of genuine dispute is based on invoices that passed between the parties in the course of an ongoing trading relationship in which it is reasonable to think that returns by the plaintiff (giving rise to contras in the running account) may well have occurred form time to time. Indeed, the statutory demand itself shows in its schedule credits for two invoices. Again, the allegation of genuine dispute is based sufficiently on factual material adduced by the plaintiff, despite lack of any contradiction by the defendant. 13 I find, therefore, that the plaintiff's claim based on s.459H(1)(a) in relation to the two separate aggregate items, one of approximately $70,000 and the other of approximately $26,000, has been made out. Discussion of the ramifications of that will be deferred until the s.459H(1)(b) claim has been considered. 14 The plaintiff's claim that it has an "offsetting claim" that must be taken into account under s.459H(1)(b) is based on alleged breach by the defendant of the distributorship agreement dating from 1994. The alleged terms of trade are said to be embodied in the correspondence contained in annexures or exhibits to Mr Mace's affidavits to which I have already referred plus, it seems, subsequent oral agreements. 15 It is the plaintiff's contention that, according to the parties' contract, the plaintiff was to be the defendant's only distributor in Western Australia and New South Wales. The correspondence, taken at face value, bears that out. I refer in particular to the statements about Western Australia and New South Wales on page 2 of a letter of 21 April 1994 from Mr Tan to Mr Mace and page 1 of a letter of 29 June 1994 between the same parties, supported by an inference to be drawn from statements in item 2 of a letter of 11 May 1994 from Mr Tan to another of the defendant's distributors. The plaintiff also says that, in breach of the contract, the defendant has bypassed the plaintiff in marketing to those areas. 16 In relation to the alleged breach, the plaintiff points first to a conversation between Mr Mace and Mr Tan in September 2001 related in Mr Mace's first affidavit as follows: "… Mr Tan said: 'I think I have done a stupid thing. I have sent stock to Perth.' I said: 'Stop the shipment, terminate any dealings and advise the customer to contact us as it is our territory.' He said: 'That is not going to happen. We will not stop the shipment.' I said: 'Tell the customer to deal directly with us.' He said: 'No, they won't deal with you.' The meeting then ended." 17 The plaintiff also relies, in relation to breach, on events concerning QCC, a customer of the plaintiff in Western Australia. The plaintiff alleges that the defendant supplied goods direct to a competitor of QCC in Western Australia and that, as a result, QCC ceased dealing with the plaintiff. The plaintiff wrote to the defendant on 25 July 2002 referring to this matter and demanding that the defendant cease shipments to Western Australia. The defendant replied on 29 July 2002 that "we cannot comply". 18 The task of a plaintiff seeking to show an "offsetting claim" for the purposes of s.459H(1)(b), was described by Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 as follows: "In my opinion, a genuine offsetting claim for the purposes of CA s459H(1) and s459H(2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s459H." 19 The need for such a claim to be sufficiently quantified in money terms is emphasised by the definition of "offsetting claim" in s.459H(2) where it is assumed that every such claim has an "amount". I said, in relation to this, in No 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146: "The first thing to be said about the way the plaintiff puts its case is that, while the definition of "offsetting claim" in s.459H(5) refers, in general terms, to a claim "by way of counterclaim, set-off or cross-demand", it is clearly contemplated by the section as a whole that the claim must be one capable of being quantified in money terms. It need not be a liquidated claim but it must be one to which a monetary liability can be attached. This is because of the directive in s.459H(2) that the court determine, among other things, "the amount of that claim" or, where there are several claims, "the total of the amounts of those claims". It follows that only claims sounding in debt or damages or other monetary consequences (such as may be available under the Trade Practices Act ) may be taken into account for the purposes of s.459H." 20 Mr Mace deposes that the plaintiff has relied on the distribution agreement with the defendant for at least 95% of its business and that it has now lost all of its business in both Western Australia and New South Wales. He also says that the profit of the plaintiff in each of the last financial years was between $143,000 and $151,000 (there is some confusion in his affidavit as he gives a figure for 2000, a figure for 2001 and another figure for 2000 - I think one of the 2000 figures is intended to refer to 2002). Mr Mace goes on: "The Plaintiff intends to file a claim for damages in early January 2003 in respect to the Defendant's actions in breaching the Distribution Agreement. The damages claimed will be for loss of profits, loss of opportunity and compensation for the loss of goodwill. The Plaintiff also intends to claim exemplary damages in respect to the Defendant's conduct along with a claim for damages under section 51AC of the Trade Practices Act. Whilst those damages cannot be fully formulated at this time without the services of a forensic accountant, I believe that they will exceed the amount of the Defendant's claim." 21 In his second affidavit, Mr Mace seeks to quantify the plaintiff's loss as follows: "Future loss of profits for 5 years at $150,000.00 per annum gross: $750,000.00 (est) Loss of goodwill: To be assessed Equipment value: $25,000.00

Asia Pacific Glass v Sindea Trading Co

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Judgment (10 paragraphs)

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