CGI Information Systems and Management Consultants Pty Limited v APRA Consulting Pty Limited

Judgment (Ex tempore) 1HIS HONOUR: The present proceedings were purportedly initiated by originating process filed on 10 May 2013 and signed on behalf of the plaintiff Towncars Franchises Sydney Pty Limited by a director, Daniel Breen. The originating process purported to nominate as the plaintiff's address for service one David Windsor, lawyer and commercial counsel, at a post office box in Victoria, which, it seems, is in fact the address of the solicitors acting for the defendant, not the plaintiff; accordingly, the originating process is defective in failing to specify an address for service for the plaintiff in the state. 2More significantly, the originating process is defective because of UCPR r 7.1, which provides, by sub-rule (2), that a company may commence and carry on proceedings in any Court by a solicitor or by a director of the company, but then, by sub-rule (3), provides that in the case of proceedings in the Supreme Court, a company may commence proceedings by a director "only if the director is also a plaintiff in the proceedings". As I have previously explained (see In the matter of DB Mahaffy & Associates Pty Limited [2012] NSWSC 776 and In the Matter of DB Mahaffy & Co Pty Limited [2012] NSWSC 1286), the effect of the rule is that in this court a company cannot commence proceedings to set aside a statutory demand by a director, nor is it open to join a director as plaintiff as a director is not a proper or necessary party in proceedings to set aside a statutory demand served on a company, only the company is the appropriate plaintiff (see also the recent judgment of Hallen J Tanamerah Estates Pty Ltd v Tibra Capital Pty Ltd [2013] NSWSC 36). 3Moreover, r 7.2 provides that where a person commences or carries on proceedings as a director of a company, that person must file with the originating process an affidavit as to his authority to act in that capacity together with a copy of the instrument evidencing that authority, and the affidavit must contain a statement to the effect that the director is a director of the company, has been authorised by a resolution of the directors to commence and carry on the proceedings, that the authority has not been revoked, and that the director is aware that he or she may be liable to pay some or all of the costs of the proceedings. None of those requirements has been satisfied in this case. 4(NSW) Civil Procedure Act 2005, s 14, provides that in relation to particular civil proceedings the Court may, by order, dispense with any requirement of the rules of Court if satisfied that it is appropriate to do so in the circumstances of the case. The question is whether, in the circumstances of this particular case, I should dispense with the requirements of rules 7.1 and 7.2, or any of them, and, if so, upon what terms 5The relevant circumstances are, first, that the application is a relatively straightforward one under s 459G of the (Cth) Corporations Act 2001; secondly, that it is said that the corporation - although there is no evidence of it - is not in a position to afford to retain solicitors or counsel; thirdly, that the documentation filed to this point indicates that those acting for the company appear to have a sufficient grasp of the issues and ability to present them such that the Court will not be unduly inconvenienced by the absence of an admitted practitioner as advocate; and fourthly, that the matter has proceeded to this point without the point having hitherto been taken. 6In those circumstances I am inclined to dispense with the rules to the extent of permitting the plaintiff to continue the proceedings by a direction, but subject to the requirement that the director in question, who I take to be Mr Breen who signed the originating process, acknowledge that he may be personally liable for the costs of the proceedings. Mr Breen having acknowledged that he may be made personally liable for the costs of the proceedings, I order pursuant to Civil Procedure Act s 14 that the requirements of UCPR r 7.1 and 7.2, in so far as they would otherwise require the proceedings to be commenced and continued only by a solicitor, be dispensed with, and be deemed to have been dispensed with from 10 May 2013 when the originating process was filed. 7I should also impose an additional requirement on the leave to the plaintiff which is that a proper notice of address for service be notified. It will be noted that in lieu of the address for service specified in the originating process, the plaintiff's address for service is 32 Delhi Road North Ryde in the State of New South Wales. 8The rules also require that prior to appearing before the Court the defendant file a notice of appearance specifying an address for service. There is no indication on the file that that has been done. I will grant leave to Mr Hourigan to appear for the defendant upon his undertaking as counsel that a notice of appearance will be filed in the Registry within twenty-four hours. 9By originating process filed on 10 May 2012, the plaintiff Towncars Franchises Sydney Pty Limited applies, pursuant to (Cth) Corporations Act s 459G, for an order setting aside a statutory demand issued and served on it by the defendant Town Car Hire Pty Limited on 19 April 2013 on the grounds that there is a genuine dispute as to the existence of the indebtedness claimed in the demand. 10The approach of the Court in applications of this kind and to the characterisation of a "genuine dispute" for the purposes of s 459H has been well-established in cases such as Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785; Mibor Investments Pty Limited v The Commonwealth Bank of Australia (1993) 11 ACSR 362; Re Morris Catering (Aust) Pty Limited (1993) 11 ACSR 601 and Spencer Constructions Pty Limited v G & M Aldrigde Pty Ltd [1997] FCA 681. For present purposes, it suffices to summarise what was said by Barrett J in CGI Information Systems v Management Consultants Pty Limited v APRA Consulting Pty Limited (2003) 47 ACSR 100, at 103, to the effect 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, and 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 relies 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 strength of competing contentions, and 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. As has been said in many cases, therefore, the threshold that a plaintiff on an application such as the present must surmount is a relatively low one. 11The plaintiff operates a franchise-based hire car business in Sydney and in Melbourne. The defendant operates a town car hire business in Melbourne, with two cars. On or about 19 January 2012, the plaintiff granted to the defendant a franchise to operate a Towncars franchise in Victoria. The franchise was for an initial term of six months with options to renew for two further five-year terms and also provided that, insofar as the defendant continued to operate the franchise following the conclusion of the term of the agreement, it would continue on a month to month basis. 12Of central importance to the present matter is a "dispatch guarantee" which was included in the franchise agreement as a special condition pursuant to item 18(c) in the schedule, and which provided as follows: Towncars [the plaintiff] guarantee that the franchisee [the defendant] will receive bookings that will result in Gross Revenue of at least $12,000 per month per car for the first 12 months of this agreement. 13In the franchise agreement, 'booking' was defined to mean 'a request for hire car services made by a customer to Towncars [the plaintiff] and accepted by Towncars'. "Gross Revenue" was defined to mean: All income whatsoever derived by the franchisee in relation to the franchise business, whether cash or credit, arising from the provision of approved services by the franchisee (excluding GST, tolls, park entry fees, gratuities, tips, airport fees and parking fees). 14By clause 7, the franchise agreement provided that Towncars would allocate bookings, first to the franchisee who owns the franchise for the territory in which the journey commenced and, if that franchisee declines or fails to accept the booking within the time specified in the dispatch rules, then, secondly, to the franchisee who was the owner of the territory in which the journey terminates and, if that franchisee declines or fails to accept the booking within the time specified in the dispatch rules, then, thirdly, to the network, in which case the booking will be allocated to the first member of the network to accept the booking. 15By clause 10, the franchisee agreed to pay Towncars a royalty which, by reference to item 16 in the schedule, represented 7.5 percent of gross revenue. 16By clause 11, the franchisee agreed to pay a network fee in consideration for use of the dispatch terminal and dispatch system and participation in the network which, by reference to item 11 of the schedule, was defined as $399 per month per vehicle indexed on 1 July each year. 17By clause 12, in consideration of the allocation of bookings and management of the dispatch rules and the development and maintenance of customer relations, the franchisee agreed to pay Towncars a dispatch fee which, by reference to item 15 of the schedule, was 12.5 percent of gross revenue in Band 1 and then 7.5 percent of gross revenue in Band 2. Band 1 comprised gross revenue per calendar month up to $10,000, and Band 2 gross revenue over that amount. 18Under clause 15, the franchisee was responsible for acquiring or securing, by way of lease or hire purchase or otherwise, the use for the term of a vehicle that complied with Towncars' specifications, to ensure that such vehicle complied with the Towncars' image and system and was clean and undamaged and in full working order, and to acquire computer hardware and software suitable for use in the franchise business that complied with Towncars' specification. 19The creditor's statutory demand claimed a sum of $84,133.87 said to be inclusive of GST, described as "balance of gross revenue guaranteed by the debtor company to the creditor pursuant to a signed franchise agreement between the creditor and debtor company in relation to the period 1 February 2012 to 31 January 2013." The basis of the calculation that produces the sum claimed in the demand appears from the affidavit of the defendant's director Gary James Rowe of 19 June 2013. He says that between February 2012 and January 2013, the defendant received bookings that resulted in total gross revenue of $207,960.25 including GST and, in addition, was paid, pursuant to the guarantee, sums totalling $24,705.88; whereas the guarantee on the basis of two vehicles at $12,000 per month each, entitled the franchisee to a minimum gross revenue of $316,800; thus, the amount claimed in the demand is the difference between the revenue actually received and the gross revenue said to be guaranteed. 20The fundamental dispute is whether the guarantee founds a claim for a liquidated sum, such as to amount to a debt within s 459E, or does no more than found a claim for unliquidated damages. It is, at the outset, to be observed that the guarantee in terms guaranteed the receipt of "bookings", as defined, and not of gross revenue. The question is whether the franchisee was offered or allocated or referred bookings that, if accepted, would generate gross revenue of at least the amount in question. What the guarantee does not do is to guarantee payment, or receipt, of $12,000 per month. It guarantees the referral of a certain quantity of bookings. If the guarantee is not satisfied, then the franchisee is entitled to be compensated for the loss it suffers by reason of the guarantee not being satisfied; but that loss by no means equates to the difference between actual receipts and $12,000 per month per car. This is so for several reasons. 21The first is that, as was ultimately conceded, the dispatch fee and the royalty must be deducted; but, moreover, it seems to me that if the cars are not on the road they are not consuming fuel, which must be one of the greatest costs of a business of this kind and, had the franchisee received bookings to the extent guaranteed, then its fuel costs resulting from those bookings would have been greater than in fact they were. All this demonstrates that the amount referred to in the guarantee cannot be said to be a sum certain. 22In Rothwells Limited v Nommack (No. 100) Pty Limited (1988) 13 ACLR 421, McPherson J said (at 422), in the context of the statutory demand procedure under former Companies (Qld) Code 1981, s 364(2)(a): A debt is a liquidated sum in money presently due, owing and payable by one person, called 'the debtor' to another person called 'the creditor'. It is in that sense that the word 'indebted' is used in the statutory provision. 23In Reinsurance Corporation Limited v Odyssey Re (Bermuda) Limited (2000) 36 ACSR 348 Master Macready, as he then was, held in the context of a contract of reinsurance, that a right to damages for a breach of a contract of indemnity, as the policy of reinsurance was, did not constitute a debt within the meaning of Corporations Law s 459E. 24After referring to Rothwells Limited v Nomac and also to the judgment of Cohen J in First Line Distribution Pty Limited v Whiley (1995) 18 ACSR 185, his Honour said that although the contract was one of indemnity, which indemnified against the 'ultimate net loss', it was clear that there were many different items which had to be taken into account when determining the ultimate net loss and therefore that the defendant's right was to damages for breach of the contract of an indemnity but, in the absence of quantification by arbitration or judgment, the claim was not one for debt. 25His Honour concluded that there was therefore a genuine dispute in respect of the amount of the debt, or some other reason why the demand should be set aside. The Master's judgment was upheld on appeal by Windeyer J in Odyssey Re (Bermuda) v Reinsurance Australia (2001) 19 ACLC 987. His Honour quoted the Master of the Rolls, Sir John Donaldson in Edmunds v Lloyd Italico & L'Ancora Compagnia Di Assicurazione e Riassicurazione S.p.A [1986] 2 All ER 249 (at 250): One might well think that a sum due under an insurance policy constituted a debt. On this assumption, the plaintiff's solicitors were entitled to appropriate the drafts to the principal sums due, since otherwise they would have been deemed to have been appropriated to the payment of interest, the balance only being appropriated to payment of the principal amounts. However, as a matter of law, a claim under a contract of insurance is a claim for damages for breach of contract. 26Windeyer J followed that and other decisions, and said: While it is true that the indemnity is for the insured's part of the ultimate net loss determined in accordance with article 5, it must be borne in mind that under the definition of 'ultimate net loss' there is incorporated the words 'the sum actually paid by the reinsured in settlement of losses or liability after making deductions or recovery'. 27As his Honour said, the position is that in all of the decided cases, it was either held or conceded that a claim under a policy of insurance granting certain indemnity in consideration of payment of premiums was a claim of unliquidated damages for breach of contract in the event of non-payment, subject to the one exception in the case of a total loss under a valued policy. The position in respect of a policy of insurance or reinsurance is, in my mind, closely analogous to that under a guarantee. Indeed, in many respects, the position here is a fortiori those cases. 28As Barrett J said in CGI v APRA Consulting, supra, at 15: The statutory demand procedure made available by s 459E may be availed of by a person in respect of a 'debt' that the company owes to the person. A debt is a sum certain owing, as distinct from a right to recover damages for breach of contract. 29In the present case there is no sum certain. The defendant's right is to recover damages for breach of contract. That is an unliquidated claim for damages, not a claim for a liquidated sum. The fact that the plaintiff has, in correspondence, indicated that at least on a provisional basis a reasonable way of calculating it - or a way which it uses in other franchise agreements - is to use a discount of 50 percent, does not mean or does not transpose this claim into a claim which can be characterised as a liquidated claim simply by application of a 50 percent discount. 30I am satisfied that the debt alleged does not exist, and that the defendant's claim is properly one for damages for an unliquidated sum. On that basis, it is unnecessary to refer to the other grounds advanced by the plaintiff. 31I order that the creditor's statutory demand made by the defendant on the plaintiff dated 19 April 2013 be set aside. 32In circumstances where the plaintiff has not been legally represented in the proceedings, I think it inappropriate to make an order for costs on the basis of advice sought from a lawyer who did not go on the record. I order that the defendant pay the plaintiff's costs fixed in the sum of $2,800 (representing the filing fee).