Court of Appeal (WA)|2009-05-12|Before: Martin CJ

CREATEC PTY LTD -v- DESIGN SIGNS PTY LTD [2009] WASCA 85 (12 May 2009)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CREATEC PTY LTD -v- DESIGN SIGNS PTY LTD [2009] WASCA 85

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : DESIGN SIGNS PTY LTD -v- CREATEC PTY LTD [2008] WASC 94

Corporations law - Statutory demand - Application to set aside statutory demand - Genuine dispute - Test to be applied to determine if there is a genuine dispute - Function of the court in respect of determining whether there is a genuine dispute - Abuse of process - Court's residual jurisdiction to restrain reliance on statutory demand procedure on the ground of abuse of process - Criteria for determining if there has been an abuse of process - Turns on its own facts

David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265

Drewniak v Air Rubber Pty Ltd [2002] SASC 319; (2002) 84 SASR 302

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527

Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290

Old Kiama Wharf Co Pty Ltd v Deputy Commissioner of Taxation [2005] NSWSC 929; (2005) 55 ACSR 223

Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529

Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734; (2004) 50 ACSR 204

SMEC International Pty Ltd v CEMS Engineering Inc [2001] NSWSC 459; (2001) 38 ACSR 595

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452; (1997) 15 ACLC 1001

State Bank of New South Wales v Tela Pty Ltd (No 2) [2002] NSWSC 20

Turner Corp (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294

1 The appellant, Createc Pty Ltd (Createc) appeals from the decision of the master setting aside a statutory demand served by Createc on Design Signs Pty Ltd (Design Signs) pursuant to the provisions of the Corporations Act 2001 (Cth). The appeal is hopeless and should never have been brought. The evidence before the master amply demonstrated the existence of a genuine dispute with respect to the existence of the debt claimed by Createc and/or an offsetting claim by Design Signs equal to or greater than the amount of the debt claimed by Createc. The evidence also establishes that the facts giving rise to the existence of the genuine dispute with respect to the debt and/or the offsetting claim were known to Createc prior to the issue of the statutory demand.

2 The issue of the statutory demand, and the appeal from the decision of the master setting it aside, reflect a fundamental misconception as to the purpose of the statutory demand process created by Pt 5.4 of the Corporations Act. That purpose is to provide a means whereby the insolvency of a company may be established for the purposes of an application to wind up that company. Its purpose is not to provide a means whereby those claiming a genuinely disputed debt can avoid the obligation of establishing their entitlement to that debt in a court of appropriate jurisdiction by placing commercial pressure on the party resisting payment. There is a clear inference from the evidence that Createc's purpose in issuing the statutory demand was the improper purpose of using the statutory demand process to enforce payment of a debt which it knew to be genuinely disputed. That is an abuse of process.

3 In support of its application to set aside the statutory demand issued by Createc, Design Signs relied upon an affidavit of Mr John Woolf, the sole director and secretary of Design Signs. Some of the assertions made in that affidavit are disputed in an affidavit sworn by Mr Leonard Page, the Western Australian branch manager of Createc. Createc relied upon the affidavit of Mr Page in opposition to the application to set aside its statutory demand. However, Createc properly accept that for the purposes of the application to set aside the statutory demand, and this appeal, the court should take that view of the evidence which is most favourable to Design Signs, even where that evidence is disputed. That concession was properly made.

4 The authorities establish that the function of a court considering an application to set aside a statutory demand is to ascertain whether or not there is a genuine dispute as to the existence of the debt. It is not part of the court's function to resolve that dispute. It follows that it is not part of the court's function to endeavour to resolve contested issues of fact. While:

... [t]his does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in a 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, 341) [per McLelland CJ in Eq, Eyota v Havane (1994) 12 ACSR 785, 787] ...

the affidavit of Mr Woolf has none of these characteristics.

5 On the contrary, the evidence given by Mr Woolf in that affidavit is consistent with the contemporary documents and other evidence and is inherently plausible.

6 That evidence was to the following effect. Design Signs is a company which carries on business producing commercial signs. Mr Woolf has worked in the signwriting business since 1975. Design Signs uses printing machines for the purposes of its business. For about two years prior to the latter part of 2007, Design Signs had obtained materials and supplies for its printers from Createc (trading as Anitech).

7 In about October 2007, one of the printers used by Design Signs was damaged when it was moved. Mr Woolf contacted Createc's WA branch office for the purposes of obtaining a report on the extent of the damage to the printer. The report was to be provided to insurers. Mr Page, and a technician employed by Createc, Mr Paul Salmon, inspected the damaged printer and advised that it was not worth repairing.

8 In the course of their visit, Mr Page asked Mr Woolf whether he had considered replacing the damaged printer. Mr Woolf replied to the effect that he was considering purchasing a Colorspan UVX 98 printer (UVX printer) which was for sale in Queensland. The number '98' refers to the width of signage which can be printed by the UVX printer - namely, 98 inches or 2.5 m. The attraction of the UVX printer to Mr Woolf was that it was designed to print directly onto a rigid substrate product up to 2.5 m in width. The other printers used by Design Signs at the time were not capable of printing directly onto large substrate product. In order to produce large signs using those printers, it was necessary to print onto large rolls of self-adhesive vinyls and then laminate those vinyls onto the substrate product.

9 During the course of their meeting, Mr Page told Mr Woolf that he knew about the UVX printer and that Createc had just become distributors of those printers.

10 Following his conversation with Mr Page, Mr Woolf was contacted by a representative of the company in Queensland who had a UVX printer for sale. That representative provided him with some samples of the signage printed from such a printer. Mr Woolf was impressed with the samples, which he considered to be of extremely high quality.

11 Shortly thereafter, Mr Page again attended the premises of Design Signs. Mr Woolf had not been expecting him. In the course of his visit, Mr Page asked Mr Woolf why he was considering acquiring the UVX printer. Mr Page replied that he was interested in the UVX printer because it could print directly onto almost any type of large solid substrate, with the result that Design Signs could produce large signs, up to 2.5 m wide, more efficiently.

12 A few days later (22 October 2007), Mr Page telephoned Mr Woolf and advised him that Createc had a UVX printer for sale which had been used only for demonstration purposes in the company's Melbourne office. He said that the UVX printer would be 'exactly the same as the one you were looking at in Queensland', but it was a better deal because it was really a brand new UVX printer which had only produced samples. He offered a 12-month warranty and full technical support for the UVX printer.

13 Mr Page confirmed the terms of the offer to supply the UVX printer in an email sent to Mr Woolf the following day (23 October 2007). Later that same day, Mr Page sent Mr Woolf another email, attaching an invoice for the supply of the UVX printer addressed to the bank from which Design Signs was proposing to obtain finance to acquire the UVX printer. After Mr Woolf discovered (amongst other issues) that the invoice did not cover the cost of ink, Mr Page sent a new invoice to Mr Woolf, again addressed to the bank which was to provide finance, for the price including ink. Each of the invoices contained a clear notation in the following terms:

14 About this time, Mr Woolf asked Mr Page if there were any UVX printers in Perth which he could view in operation. Mr Page replied that there were none in Western Australia, and that Mr Woolf would have to travel to New South Wales to see a UVX printer operating. However, Mr Page told Mr Woolf 'not to worry about it, his company would do the right thing, they had been in business for many years and pride themselves on great customer satisfaction'. A few days later, Mr Page attended the premises of Design Signs in company with Mr Andrew Larsen, an employee of Createc based in Sydney, who was a specialist in wide format printing. There were discussions about the most appropriate place to site the UVX printer, and the advantages which the UVX printer would provide for the business of Design Signs.

15 A few days later (31 October 2007), Mr Larsen sent Mr Woolf an email attaching a brochure for the UVX printer. Mr Woolf read the brochure, and asserts that he relied upon it in his decision to proceed with the acquisition of the UVX printer.

16 The brochure contains numerous representations as to the capabilities of the UVX printer. It represents that the UVX printer 'prints a full 2.5 m wide, enough for edge-to-edge, full bleed prints on a 8 - foot wide sign board up to 1/2 - inch thick'. According to the brochure, the UVX printer has three printing modes - 'high quality', 'production' and 'billboard'. The features of the UVX printer are said by the brochure to eliminate 'banding'.

17 The quality of printed product produced by the UVX printer is described in various terms in the brochure. They include:

Sellable quality output
High quality, high speed output directly onto inexpensive uncoated rigid and rolled media
Great looking 600 - dpi output
Superior output quality at lower production costs than competitors' printers costing two or even three times more
Vibrant, high resolution output
Accurate and consistent image quality
Maximum print quality
Accurate and consistent colour

18 In anticipation of delivery of the UVX printer, Mr Woolf acquired a computer to 'drive' the UVX printer and a new bench upon which it was to be placed.

19 The UVX printer was delivered unassembled to the premises of Design Signs on 6 November 2007. Mr Woolf was present at the time of delivery. Nobody asked Mr Woolf for payment for the UVX printer at the time of delivery.

20 Two technicians from Createc attended the premises on 12 November 2007 for the purposes of assembling the UVX printer. That task took two and a half days. The UVX printer was not in working order until Friday, 16 November 2007. One of the technicians involved in the assembly of the UVX printer was Mr Paul Salmon. He produced some test prints from the UVX printer which were very disappointing to Mr Woolf. Mr Woolf considered the quality to be substandard and that the finish created an uneven gloss. Mr Salmon advised that the UVX printer just needed some fine tuning, and that he would return on Monday to undertake that task.

21 Before Mr Salmon returned, Mr Woolf and some of his employees tried to use the UVX printer to produce a sign. They found the tracking system to be inadequate, and the print quality to be poor with banding and 'head strike' (which is where the heads of the inkjets hit the material and cause smudging, stripping and marking).

22 On Monday, 19 November 2007, Mr Salmon returned and did more testing of the UVX printer. Mr Woolf considered the test results to be substandard. His affidavit annexes a photograph of one of the test prints which substantiates that proposition.

23 Over the next few weeks, Mr Woolf and his employees persevered with the UVX printer but considered the results to be inadequate. He complained regularly to Mr Page. During this period, Mr Page arranged for a technician from Sydney (who happened to be in Perth at the time), Mr David West, to attend the premises and inspect the UVX printer. He did so in company with Mr Salmon. However, Mr Woolf noticed no improvement in the product from the UVX printer thereafter.

24 Between 19 November 2007 and the end of November 2007, Mr Woolf noticed that the inks which had been supplied were out of date (being past their use by date), and that the print heads in the UVX printer had a lot of blocked jets. He complained to Mr Page about both matters. Mr Page arranged for new ink to be supplied, but told Mr Woolf that replacement of the print heads would cost more than $40,000, and Createc was not prepared to undertake that work. Following supply of the new ink, the print quality was no better according to Mr Woolf.

25 By the end of November 2007 (about two weeks after the UVX printer had commenced operations), Mr Page asked Mr Woolf about payment for the UVX printer. Mr Woolf told Mr Page that he was not prepared to pay until the UVX printer was up and running. On a separate occasion (28 November 2007), Mr Woolf told Mr Page that the quality of the print output from the UVX printer was not acceptable. Annexed to Mr Woolf's affidavit are photographs of signs said to have been produced at this time which substantiate that view. The photographs also support Mr Woolf's contention that he formed the view that his customers would not pay for a product of such poor quality.

26 On 5 December 2007, Mr Woolf again attempted to use the UVX printer to produce a sign that had been ordered by a client. He was unable to use the UVX printer to produce a sign which he considered to be of acceptable quality. A photograph of the sign which he produced is annexed to his affidavit, and provides support for his view. That day he contacted Mr Page, and advised that he had had enough, that the UVX printer was unacceptable, and should be taken away.

27 The following day, Mr Page and Mr Salmon attended the premises. They spent three to four hours endeavouring to produce the sign which Mr Woolf had attempted to produce the preceding day. They were not successful in producing a finished product. Annexed to Mr Woolf's affidavit are photographs of the signs produced by Mr Page and Mr Salmon which support Mr Woolf's assertion that the signs were inadequate.

28 The UVX printer has not been used since Mr Page and Mr Salmon endeavoured to produce the sign on 6 December 2007.

29 Mr Woolf deposes that after their unsuccessful attempt to produce the sign on that day, Mr Page said to him that the UVX printer 'was not going to achieve our printing requirements and maybe we needed to look at other options'. Mr Woolf told Mr Page to remove the UVX printer from the premises.

30 On 14 January 2008, Mr Page contacted Mr Woolf and asked him if he wanted to look at another printer in the Perth office of Createc which could be exchanged for the UVX printer. After inspecting that alternative printer, and considering the matter, Mr Woolf advised Mr Page that he did not want the alternative printer.

31 Shortly thereafter, on 21 January 2008, Mr Page sent to Mr Woolf a demand for payment for the UVX printer. Following receipt of that demand, Mr Woolf contacted Mr Page and confirmed his earlier advice to the effect that because the UVX printer was not working, and could not produce printed product which Design Signs could sell, he was not prepared to pay for the UVX printer.

32 On 31 January 2008, solicitors acting on behalf of Createc sent a letter of demand to Design Signs. Upon receipt of that letter, Mr Woolf sought legal advice. By letter dated 7 February 2008, solicitors acting on behalf of Design Signs wrote to the solicitors then acting on behalf of Createc advising, inter alia, that:

Our instructions are that before our client agreed to purchase the printing machine from your client, our client was shown samples of the quality of the printing which the machine was allegedly able to produce.

Our client agreed to purchase the machine on the express condition that the machine would produce the quality print of the samples provided by your client.

Shortly after the machine was supplied and installed by your client it became apparent that it was incapable of producing quality printing. You [sic] client's representatives have tried to repair or adjust the machine with no success and as much as conceded that the machine was not able to do what it was supposed to do.

The machine is not fit for the purpose for which it was sold and our client has asked your client on several occasions to remove the machine from our client's premises.

In preparing for the installation of the machine our client incurred significant expenses which are being quantified and which our client will claim from your client in due course.

Any proceedings which your client may see fit to institute will be vigorously defended and will involve a counterclaim against your client.

33 To the extent that this letter asserts that print samples were provided to Design Signs by Createc prior to the placement of the order for the UVX printer, it is in error. However, the clear thrust of the letter is to the effect that the reason Design Signs would not pay the purchase price of the UVX printer was because it was not fit for the purpose for which it was acquired, and was incapable of producing saleable signs.

34 On 26 February 2008, having received no response to their previous letter, the solicitors acting for Design Signs again wrote to the solicitors who had been acting for Createc, advising that the UVX printer had to be connected to power at all times and drew electricity 24 hours a day, and was therefore causing expense to Design Signs. The letter repeated earlier requests to 'decommission, disconnect and remove' the UVX printer from the premises of Design Signs. It seems that despite this demand, Createc have never retrieved the UVX printer.

35 On 28 February 2008, the statutory demand the subject of these proceedings was served.

36 By letter dated 4 March 2008, solicitors acting on behalf of Design Signs wrote to the solicitors now engaged to act on behalf of Createc confirming that the claimed debt was 'strongly disputed' and asserting that it was inappropriate to issue the statutory demand, which should be immediately withdrawn. The solicitors acting for Createc advised that the demand would not be withdrawn, and that application would be made to wind up Design Signs if the demand was not satisfied.

37 As I have mentioned, Createc relied upon an affidavit of Mr Page in opposition to the application to set aside the statutory demand. In that affidavit, he asserts that the UVX printer is working properly and that there is nothing wrong with it. However, he does not respond to the particular complaints advanced by Mr Woolf, or to the photographs annexed to the affidavit of Mr Woolf which appear to support those complaints.

38 Annexed to Mr Page's affidavit is an email which he sent to the chief executive officer of Createc on 15 January 2008, in response to a request for an explanation as to how the UVX printer came to be installed without payment having been extracted. In the course of his reply, Mr Page advised:

Current situation, customer has not paid us for the colorspan as it does not do what he wants it to do, his expectations are too high. Instead of getting into a legal fight or taking it back and losing a sale I gave him the option of swapping for a HP 10000s. If it was not for the Xmas period this would have been all sorted, customer is coming in today to view our HP 9000 for a Demo.

39 It is clear from this email that Mr Page was well aware of Mr Woolf's position in January 2008. In particular, he was aware that Design Signs were refusing to pay for the UVX printer because they considered it to be unfit for the purpose for which they had acquired it, being the purpose they had made known to Createc prior to acquisition. That knowledge was confirmed and reinforced by the unequivocal terms of the letter of 7 February 2008 from the solicitors acting on behalf of Design Signs. He was also aware of the prospect of 'a legal fight'.

40 In that context, it is difficult to see how Mr Page could have sworn the affidavit accompanying the statutory demand served on 28 February 2008, in which he deposed that 'I believe there is no genuine dispute about the existence or amount of the debt', or the affidavit in opposition to Createc's application to set aside the statutory demand, in which he deposes '[t]here is no genuine dispute that Design Signs owes Createc the debt specified in the subject statutory demand'.

41 Any reasonable person would appreciate, quite irrespective of any legal training or experience, that where a prospective acquirer of goods makes known to the supplier of those goods the purpose for which they are required, and the goods supplied are not fit for that purpose, there will be grounds for a dispute as to payment of the purchase price. Put in even simpler language, any reasonable person would think that if a printer is supplied which does not do the job it is supposed to do, there is likely to be a dispute as to the obligation to pay for that printer. It might be inferred from the terms of Mr Page's affidavits that he was only induced to think otherwise as a result of legal advice. If so, that legal advice was misconceived for the reasons which I will give.

42 The enthusiasm of creditors for using the statutory demand process as a means for collecting debts has produced many cases dealing with the relevant legal principles when application is made to set aside a statutory demand. In the circumstances of this case, it is only necessary to refer briefly to the established principles relating to the test to be applied for the purpose of ascertaining whether there is a genuine dispute, and the residual jurisdiction to restrain proceedings based on a statutory demand as an abuse of process.

43 As Santow J observed in Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529:

[T]he cases have provided various formulations of the test for genuineness with the suggestion of subtle gradations of stringency. They have ranged from a test closely allied with that for an interlocutory injunction, namely, whether there is a serious question to be tried, to the least stringent test, namely, that applicable to a party seeking to resist an application for summary judgment (533).

44 The verbal formulation of the test to be applied which appears to enjoy greatest judicial support is that of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, where he described the expression 'genuine dispute' as connoting 'a plausible contention requiring investigation' and equated it to the criterion of 'serious question to be tried' which arises on an application for an interlocutory injunction: see Polaroid Australia Pty Ltd (533); Turner Corp (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 [27] - [28] (Owen J); SMEC International Pty Ltd v CEMS Engineering Inc [2001] NSWSC 459; (2001) 38 ACSR 595 [22] (Austin J); and Drewniak v Air Rubber Pty Ltd [2002] SASC 319; (2002) 84 SASR 302 [12] (Debelle J).

45 It is equally well established that the applicant for an order setting aside a statutory demand must establish that the dispute is bona fide and truly exists in fact, and that the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived: see Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, 464; [1997] FCA 681; (1997) 15 ACLC 1001, 1011; and Turner Corp (WA) Pty Ltd [27].

46 It is also well established that the only function of the court is to determine whether there is a genuine dispute - the court is not expected to undertake an extended inquiry nor attempt to weigh the merits of the dispute: see Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290, 295. The written and oral argument advanced on behalf of Createc in support of its appeal ignored this basic proposition. The thrust of that argument was directed to establishing a number of legal propositions which were said to lead to the conclusion that the debt was due and owing. The approach taken by Createc was not directed to the question of whether there was a dispute, but invited the court to resolve that dispute in its favour. Many authorities establish that such an approach is fundamentally misconceived.

47 As Barrett J observed in Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734; (2004) 50 ACSR 204:

[I]t was, before the advent of Pt 5.4, an abuse of process to initiate winding up proceedings as a means of attempting to enforce payment of a disputed debt. An early decision to that effect was Cercle Restaurant Castiglione Co v Lavery (1881) 18 ChD 555 the report of which contains, as a footnote, the judgment of Jessel MR in Niger Merchants Co v Capper (1877) 18 ChD 557n where reference was made to an earlier decision of Malins V-C in Cadiz Waterworks Co v Barnett (1874) LR 19 Eq 182 in which the pursuit of winding up proceedings was enjoined 'on the ground that it is the object of the Court to restrain the assertion of doubtful rights in a manner productive of irreparable damage'. The principle was stated in these terms by Vaughan Williams J in In re a Company [1894] 2 Ch 349:

'In my judgment, if I am satisfied that a petition is not presented in good faith and for the legitimate purposes of obtaining a winding up order, but for other purposes, such as putting pressure on the company, I ought to stop it if its continuance is likely to cause damage to the company' [57].

48 Following the introduction of pt 5.4, doubts were expressed as to whether the statutory procedures provided an exclusive code for the resolution of proceedings brought as a result of the issue of a statutory demand. However, in David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265, Gummow J, with whom the other members of the High Court agreed, expressed the following view:

It also may transpire that a winding-up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz. However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction (279). (footnotes omitted)

49 Since that decision, it has generally been accepted that the court retains a residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of an abuse of process: see House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527, 528; SMEC International Pty Ltd [35]; Roberts [54] - [58]; and State Bank of New South Wales v Tela Pty Ltd (No 2) [2002] NSWSC 20 [5]. In Roberts, the jurisdiction was exercised on the grounds of impropriety of purpose, and a winding-up application was dismissed with costs. Similarly, in Old Kiama Wharf Co Pty Ltd v Deputy Commissioner of Taxation [2005] NSWSC 929; (2005) 55 ACSR 223, an application to set aside a statutory demand was upheld because the court concluded that the process was being used to 'attempt to apply pressure to a taxpayer to force payment of a debt' [42].

50 Adopting the criterion from Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, suggested by Gummow J in David Grant & Co Pty Ltd, there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt.

51 For the purposes of determining whether there is a genuine dispute in the present case, in the sense described above, it is unnecessary and inappropriate to resort to complicated legal principles or reasoning. Taking the evidence of Mr Woolf at its highest, it would establish that Design Signs made quite clear to Createc the purpose for which the UVX printer was required. With knowledge of that purpose, Createc offered to supply the UVX printer. Further, various representations were made by Createc to Design Signs, including the representations expressly made in the brochure provided to Design Signs by Createc. Design Signs assert that the UVX printer has never been fit for the purpose made known to Createc prior to its acquisition, nor has the UVX printer performed as represented by Createc prior to its supply. Design Signs assert the UVX printer has never produced a sign of acceptable quality and after some weeks of unsuccessful attempts to get the UVX printer to operate satisfactorily, advised Createc that the UVX printer was unacceptable, ceased using it, and required Createc to take the UVX printer away.

52 In an attempt to resist the obvious conclusion that these matters give rise to a genuine dispute as to the existence of the debt claimed, Createc resorts to submissions which, as I have observed, are not so much directed to the existence of a dispute, but to its suggested resolution. Createc submits that because the invoices submitted to the bank required payment on delivery of the UVX printer, consistently with s 28 of the Sale of Goods Act 1985 (WA), delivery of the UVX printer on 6 November 2007 gave rise to a debt which could be the subject of a valid statutory demand, notwithstanding the assertions that the UVX printer was not fit for its purpose, nor capable of performing as represented. In response to the obvious proposition that the circumstances gave rise to an implied warranty of fitness for purpose, Createc relies upon s 11(3) of the Sale of Goods Act which provides that where a buyer has accepted goods, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated. However, this submission begs the question as to whether the UVX printer was ever accepted by Design Signs. Section 34(1) of the Sale of Goods Act provides that a buyer who has not previously examined goods 'is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract'. In the present case, it is obviously arguable that the installation and testing processes undertaken in November and early December 2007 were necessary to give Design Signs a reasonable opportunity of examining the UVX printer supplied, after which it rejected the supply of the UVX printer and called upon Createc to recover it.

53 Further and in any event, the highest the legal contentions of Createc could be put is to support the conclusion that the contractual remedies of Design Signs are limited to a claim for damages for breach of warranty. Even if that proposition is accepted, it would leave open the distinct prospect that Design Signs could claim damages equal to or exceeding the purchase price of the UVX printer, given its assertion that the UVX printer was incapable of producing signs of saleable quality and therefore of no value to it, and having regard to the various costs it incurred associated with the installation and operation of the UVX printer. It follows that on evidence before the master, there was every prospect that Design Signs would have an offsetting claim equal to or exceeding the amount of the claimed debt.

54 In addition to the warranty of fitness for purpose, the master drew attention to the possible remedies of Design Signs under the Trade Practices Act 1974 (Cth). Createc's response to this obvious proposition is to assert that it 'has no factual foundation in the evidence'. This submission apparently ignores the evidence to the effect that Mr Woolf made known to Mr Page the purpose for which he required the UVX printer, after which Mr Page represented that the UVX printer would be suitable for those purposes. It also ignores the various representations made by Createc through the brochure provided to Mr Woolf by Mr Larsen. There is no apparent reason why those representations could not found an action for contravention of either s 52 or s 53 of the Trade Practices Act. The latter section prohibits a corporation from falsely representing, in trade or commerce, in connection with the supply or possible supply of goods, that goods are of a particular standard or quality. If Design Signs were to make out a claim for contravention of the Trade Practices Act, remedies would be available in damages pursuant to s 82 of that Act, or by way of an order setting aside the contract for the sale of the goods pursuant to s 87 of that Act. Damages could be awarded in an amount which would extinguish the debt claimed (an offsetting claim within the meaning of s 459H of the Corporations Act) and an order rescinding the contract under s 87 of the Act would of course extinguish any debt said to arise from the obligation to pay the purchase price.

55 It follows that whether the issues in this case are approached at the general level appropriate to the ascertainment of whether there is a genuine dispute, or the more arcane level suggested by Createc in its submissions, it is clear beyond argument that there is a genuine dispute as to both the existence of the debt, and the existence of an offsetting claim which could exceed the amount of the debt claimed. It follows that the master was correct to allow the application to set aside the statutory demand and this appeal must be dismissed.

56 There is a further reason why this appeal should be dismissed. That is because the issue of the statutory demand is, and any winding-up application proposed to be brought pursuant to the demand would be, an abuse of process.

57 There is no suggestion in the evidence that Design Signs is insolvent, or lacked the financial capacity to pay the debt if the debt had not been disputed. To the contrary, the evidence established that finance was available from a bank, which would have provided Design Signs with the capacity to pay the debt had it not disputed its obligation to do so.

58 The evidence to which I have referred, including in particular the terms of the email from Mr Page to the CEO of Createc on 15 January 2008, compel the conclusion that Createc was at all times aware that there were legal issues which required resolution. The email specifically refers to 'a legal fight'. That knowledge was reinforced by the terms of the letter dated 7 February 2008 from the solicitors for Design Signs. There is a clear and compelling inference that notwithstanding that knowledge, instead of bringing proceedings in a court of competent jurisdiction for recovery of the debt it claimed, Createc issued a statutory demand for the purpose of attempting to avoid that legal dispute, by putting pressure upon Design Signs to pay the debt. It is of course possible that Createc was induced to take this course as a result of flawed legal advice, but even if that were so, it would not be to the point, as Createc must take responsibility for its actions. Createc issued the statutory demand for an improper and collateral purpose of the kind described in Williams v Spautz, giving rise to an abuse of process.

59 The irony of this conclusion is that, as this case demonstrates, the use of the statutory demand process can be a singularly ineffective way of recovering a disputed debt. The statutory demand was issued by Createc

more than a year ago. No doubt Createc has incurred significant legal costs issuing the demand, opposing the application to set aside the demand, and pursuing an appeal from the decision to set aside the demand. It has been ordered to pay Design Sign's costs of the application to set aside the statutory demand, and is likely to be ordered to pay Design Sign's costs of this appeal. It has made no progress whatever in recovery of its debt, and the UVX printer, for which it has not been paid, has remained at Design Sign's premises. If, instead of issuing a statutory demand, it had commenced proceedings against Design Signs in a court of competent jurisdiction, it is likely that those proceedings would either have been resolved, or at least well advanced to resolution by now. This case provides a stark example of the folly involved in attempting to subvert the purpose of the statutory demand process in order to recover a disputed debt.

60 In a number of cases in which courts have set aside a statutory demand, the award of indemnity costs has been foreshadowed: see Polaroid Australia Pty Ltd (536); and Drewniak [16]. Consistently with those authorities, Design Signs has foreshadowed an application for indemnity costs against Createc. At the conclusion of argument on the appeal, we indicated that any argument in that respect should await publication of our reasons for determining the appeal. Upon publication of these reasons, Design Signs should be provided with the opportunity to make that application, and arrangements made for the exchange of submissions in relation to it.

61 OWEN JA: I agree with the Chief Justice that the appeal should be dismissed.

CREATEC PTY LTD -v- DESIGN SIGNS PTY LTD [2009] WASCA 85 (12 May 2009)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (93 paragraphs)

CREATEC PTY LTD -v- DESIGN SIGNS PTY LTD [2009] WASCA 85 (12 May 2009)

Legislation Cited (3)

Cases Cited (4)