AX Business Systems Pty Ltd (ACN 072 265 635) v Quality Image Pty Ltd

Is there a genuine dispute? 19 Under s 459H(1) of the Act, where the Court is satisfied that there is either a genuine dispute or an offsetting claim, the Court must calculate, according to the formula established in s 459H(2), the amount of the demand in question. Where the Court's calculation of the demand is less than the statutory minimum the Court must set aside the demand (s 459H(3)). Where it is the same as the statutory minimum or more, the Court is empowered to make an order varying the demand, effective as from the original date of service of the demand (s 459H(4)). 20 The construction of the phrase "genuine dispute" has been the subject of considerable judicial discussion. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ said at 787: "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 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 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." 21 In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464, after considerable discussion of the formulations used by courts to determine the existence of a genuine dispute, the Full Court formed the view that a genuine dispute requires that: "• the dispute be bona fide and truly exist in fact; • the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived." The Full Court also held that although the formulations in the cases are useful, they should not be used as a substitute for the words of the statute (at 365). 22 It is for the plaintiff to establish the existence of a genuine dispute: Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320 at 324. The claim must not be merely vexatious or frivolous and there must be some substance that is more than a mere assertion of a claim in order to satisfy the provision: Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39. 23 AX submitted that there was no genuine dispute as to the existence of the debt for agency fees, the subject of the statutory demand. Rather it stated that a genuine dispute existed as to whether those debts have been satisfied. It contended that because it had paid Quality Image $500,000 or thereabouts, which Quality Image asserted had been applied to debts in respect of which there may or may not have been a dispute, that it was arguable that had the monies had been applied to the debts for agency fees then such debts would have been satisfied. AX contended that Quality Image had failed to produce a running ledger to show how the monies received had been applied the debts and liabilities. AX noted that Quality Image had not addressed the issue of invoices for agency fees of AX not being for consecutive months or the manner in which Quality Image had applied the $500,000 paid to it by AX. The reconciliation produced by Quality Image was said to be insufficient to show the application of the $500,000. 24 Quality Image contended that there was no genuine dispute and that, with the exception of Exhibit, SJA‑4, exhibited to the affidavit of Mr Anderson, there was no material to substantiate any of the allegations made by AX. Exhibit SJA‑4 is a statement purporting to list the outstanding invoices rendered to Quality Image by AX. Quality Image submitted that SJA‑4 should not be accepted for a number of reasons: first, it was dated three days after service of the statutory demand; secondly, it was only a summary document which attached only self‑serving invoices; and thirdly, there was no evidence as to who produced it and the bulk of the off‑setting claim arose from an invoice rendered on the final day of occupation of the Xerox Shop. 25 It is clear from the evidence before the Court that there was no dispute between the parties as to the existence of the liability that is the subject of the statutory demand, that is the obligation to pay agency fees. Indeed the liability of AX to pay agency fees to Quality Image was conceded by Mr Anderson. The dispute that was said to exist related to the satisfaction of the debt, rather than the existence of the debt itself. The highest Mr Anderson could put the matter was to say that he was unsure why the invoices upon which the statutory demand was based were not for consecutive months and unsure whether the amounts claimed had been paid. He acknowledged that some amounts claimed in the invoices had not been paid. The fact that monies paid to Quality Image may have been applied to other debts of AX about which a genuine dispute may exist is not a relevant consideration for the Court in this instance where it is the agency fees which are outstanding. Even if AX had not conceded that the debt existed, I would not be satisfied, on the evidence before the Court, that the claim that there is a genuine dispute moved beyond mere assertion of a claim. If there be a dispute, the material before the Court shows that it relates to other debts or offsetting claims to which I turn.

Offsetting Claim 26 An "offsetting claim" is defined in s 459H(5) of the Act as: "a genuine claim that the company has against the respondent by way of counterclaim, set‑off or cross‑demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demandrelates) …" For the claim to be a "genuine claim" the Court must be satisfied that it is made in good faith, and is not fictitious, merely colourable, frivolous or vexatious: Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717 at 721, Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (supra). This places a more onerous burden on the party seeking to maintain the statutory demand than the test for the existence of a genuine dispute. 27 AX submitted that its offsetting claim consisted of the commission deducted by Quality Image over and above the sum of $20,000 (totalling approximately $100,000 according to Mr Anderson) and of unpaid commissions, totalling around $135,529.96, on sales made by AX for which Quality Image has received payment. However, at the hearing AX submitted that it had paid in excess of $500,000 to Quality Image over a period of time and that those payments were best characterised as offsetting payments, rather than payments going to the issue of the existence of a genuine dispute. AX submitted that Quality Image had not accounted for either the receipt or the application of moneys paid by AX. 28 AX submitted that there was a genuine claim in relation to the $135, 529.96 on unpaid commissions on sales, and in support of its claim it relied upon Exhibit SJA‑4, the statement of the outstanding invoices issued by AX to Quality Image. It further submitted that Quality Image had applied money owed to AX to offset debts alleged to be owing by AX to Quality Image, and that where those offsets took place subsequent to the issuing of the statutory demand they should be taken into account as valid offsetting claims. Quality Image submitted that there was no bona fide offsetting claim and pointed to the paucity of documentary evidence produced by AX in support of such a claim. 29 Quality Image relied upon the affidavit of its accountant, Ms Natasha Tighe, who addressed each invoice referred to in Exhibit SJA‑4, giving a detailed explanation of the history of each transaction with supporting documentation. Ms Tighe rebutted the liability of Quality Image to pay the invoices, largely on the grounds that transactions were cancelled or that monies were allocated towards other outstanding debts of AX. Ms Tighe's affidavit concluded that no money was owed to AX by Quality Image. 30 Quality Image submitted that the further affidavit of Mr Anderson, which purported to reply to the issues raised in Ms Tighe's affidavit, did not deal with those issues in any substantive way, save to deny the truth and substance of her analysis. 31 Although AX asserted that an offsetting claim existed in respect of unpaid commissions and has supported that assertion by reference to copy invoices sent by AX to Quality Image, a close examination of the affidavit material in rebuttal, in particular the affidavit of the accountant, Ms Tighe, answers the assertion that there is an offsetting claim. Ms Tighe's response to the invoices listed in Exhibit SJA‑4 is detailed and supported by a considerable body of documentation. Further, AX's other claim that Quality Image owed AX for commission deducted by way of offsets over and above the sum of $20,000, for which Quality Image has never accounted and which Mr Anderson estimated would be in excess of $100,000, was no more than unsubstantiated assertion. 32 The difficulty is that on the one hand AX submitted that it has paid an amount in excess of $500,000 to Quality Image over a period of time for which Quality Image failed to account. But at the same time, AX has conceded that this $500,000 was not by way of a cheque or one‑off payment and that it does not know the manner in which Quality Image accounted for the monies paid to it. The only evidence put in support of an off‑setting claim is Exhibit SJA‑4, a statement tendered to prove the existence of a debt of $135,529.96 owed to AX. However each of the outstanding amounts listed on that statement are explained and rebutted in substance by the evidence of Ms Tighe. I take but three examples. 33 The first relates to a claim by AX of an outstanding debt of $2,447.20 in respect of an invoice rendered for commission on the sale of a photocopier. AX invoiced Quality Image for $9,247.70, in respect of which AX acknowledged payment by Quality Image of $6,800.50 but maintained that the unpaid $2,447.20 remained outstanding. In reply Ms Tighe said AX had incorrectly calculated the buy price and commission in its invoice and that the correct amount owed to AX was $6,800.50, which had been paid. Ms Tighe said that AX's calculations were incorrect because they were based on prices that were inclusive of GST, being $31,496.00, when they should have calculated the commission on prices exclusive of GST, that is $28,632.72. Ms Tighe set out the correct calculations in her affidavit. Mr Anderson's response to her assertion is that he thought that the $31,496.00 was the price exclusive of GST. Ms Tighe, in her responding affidavit exhibited the invoice rendered by Quality Image to Fuji Xerox which makes it clear that $28,632.72 was the GST‑exclusive sale price and that the commission owing to AX was $6,800.50. 34 The second example relates to a $2,541.00 commission claim by AX on the sale of a photocopier to a company known as Smiths Transport. The usual practice was for AX to effect the sales, but for Quality Image, who paid Fuji Xerox for the machine, to be paid by the customer and for AX to invoice Quality Image for the commission owing to it on the sale. According to Ms Tighe, AX sold the photocopier to Smiths for $4,070.00 (including GST) and invoiced the customer directly for the sale price, in contrast to the usual practice of the customer paying Quality Image. Accordingly Quality Image did not receive payment for the sale, and no money was owed to AX. Ms Tighe exhibited the invoice from AX to Smiths, which showed that the invoice had been paid by cheque No 504573. In response, Mr Anderson agreed that AX received $4,070.00 from Smiths, but said that Quality Image subsequently invoiced AX for the entire amount of the transaction. Importantly, Mr Anderson did not say whether the invoice was ever paid by AX. Ms Tighe said that the commission owing to AX on the Smiths Transport sale would have been $1,441.00. Mr Anderson also denied that the correct amount of commission owing was $1,441.00, as asserted by Ms Tighe, and claimed that $2,541.00 was outstanding from Quality Image. Ms Tighe said the invoice for $2,541.00 was not paid because it was for an incorrect amount. 35 In the third example, AX invoiced Quality Image for $18,661.50, being the commission owed to AX on the sale of a photocopier to Evans Shire Council ("the Evans Shire commission"). According to AX, the Evans Shire commission remained outstanding on 11 April 2003. In response, Quality Image submitted that its practice was, at times, to withhold commission due to AX in respect of certain sales and to apply it to debts outstanding to Quality Image from AX. Quality Image exhibited a statement which showed that the Evans Shire commission was withheld and allocated against three different debts in the amounts of $5,657.30, $7,249.00 and $5,755.20 respectively. Quality Image then produced its records or statements, similar to an extract of a running account, which showed that the monies were in fact allocated towards certain other debts, such debts having arisen where AX had accepted payment directly from the customer. Mr Anderson stated that AX was not consulted as to the manner in which Quality Image applied, allocated or off‑set commission due to AX, and that he had not seen the documents that showed that these allocations had taken place. However, Quality Image produced a facsimile from Quality Image to AX, dated 7 February 2003, in which Ms Tighe notified AX of the manner in which the Evans Shire commission had been allocated. 36 Although AX asserted that there was an offsetting claim of around $100,000 owed to AX, that allegation was not supported by any documentation. AX also relied upon on Exhibit SJA‑4, which is a statement issued to Quality Image listing the series of invoices rendered and the sums that remain outstanding in respect of unpaid commission. The affidavits of Ms Tighe, however, comprehensively answer each and every allegation that money is owed to AX. 37 In such circumstances I am not satisfied that AX has a genuine offsetting claim in respect of the amount claimed in the statutory demand.

Failure to provide a running ledger 38 At the conclusion of the hearing the parties were invited to submit further contentions in relation to the implications of Quality Image's failure to provide a running ledger of the debts incurred by AX and the application of payments made by AX to Quality Image. 39 AX contended that the failure to account or to provide a running ledger, in circumstances where such an account would provide knowledge of matters relevant to the question of the continued existence of the liability in debt, should raise a "plausible contention as to doubt about liability" within the meaning of Eyota (supra) and Odyssey Re (Bermuda) v Reinsurance Australia (2001) 19 ACLC 987 at [20]. 40 Section 459J provides that: "(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect." AX contended that the failure to provide a running ledger should, at least, be considered a sufficient "other reason" to set aside the statutory demand pursuant to s 459J(1). AX also relied upon St George Wholesale Finance Pty Ltd v Spalla (2000) 181 ALR 682, where a failure by the party issuing the bankruptcy notice to provide an explanation for the disparity between the debt claimed and the receiver's accounts resulted in Heerey J using the principle in Jones v Dunkel (1959) 101 CLR 298 to infer that the party issuing the bankruptcy notice was not itself sure of what was really owing. AX submitted that the Court should set aside Quality Image's statutory demand on the same principle, or at least for 'some other reason' pursuant to s 459J(1)(b) of the Act. 41 Quality Image submitted that the decision in Odyssey (supra)was distinguishable on a number of grounds; the case turned on different facts and there was an express contractual right to provide access to documents. Quality Image contended that the decision in St George Wholesale Finance (supra) was irrelevant because it pertained to a different statutory regime; it related to a situation where the debtor did not have access to any of his own company records and the bankruptcy notice was admitted by the creditor, at the hearing of that case, to be overstated by half. I accept these submissions; I do not consider that the decision in St George Wholesale Finance is applicable in the present circumstance such as to warrant the conclusion of a genuine offsetting claim. 42 Having regard to the detail of the explanation given by Ms Tighe as to the matters raised by AX, I am not satisfied that the failure of Quality Image to provide a running account or ledger is a sufficient "other reason" under s 459J to set aside the demand.

Conclusion 43 For the reasons above, AX has not satisfied the Court that either a genuine dispute or an offsetting claim exist within the meaning of s 459H of the Act. The application will be dismissed with costs.

I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg.