Quitstar v Cooline

COUNSEL : Mr B.J. Burke for defendant SOLICITORS : Mr D. Knaggs for plaintiff Macpherson & Kelly for defendant CATCHWORDS : Corporations Law. Application to set aside statutory demand under s 459G of the Corporations Act. Summons dismissed. No matter of principle. DECISION : Paragraph 28

• 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

001886/02 - QUITSTAR PTY LIMITED v COOLINE PACIFIC PTY LIMITED

1 MASTER: This is an application under section 459G of the Corporations Act to set aside a statutory demand claiming $17,140 dated 19 February 2002. 2 The plaintiff was an installer of airconditioning equipment and the defendant was the supplier of such equipment to the plaintiff. 3 The plaintiff submits that there are two reasons why the statutory demand should be set aside and in the alternative that it has an offsetting claim in respect of two airconditioners supplied to it by the defendant. These airconditioners were supplied at a cost of $4,840 and $2,000 has been paid on account. The balance of the demand is $14,300 and the offsetting claim is relied upon to meet this part of the demand. 4 The first point taken is that the demand is not a demand under the Act as although it follows the prescribed form which was in force under the Corporations Law. Thus where in the demand there should appear the words "Corporations Act 2001" there is, in fact, the words "Corporations Law". 5 In order to allow the plaintiff to seek appropriate relief, I allowed an amendment of the originating process to seek a declaration that the demand served was not a demand under the Corporations Act. 6 Under section 9, a statutory demand is defined as follows: "Statutory demand means: (a) a document that is, or purports to be, a demand served under section 459E; or (b) such a document as varied by an order under subsection 459H(4)." 7 The question is whether the demand purports to be a demand under the Corporations Act 2001. 8 In Kalamunda v Russell (1994) 12 ACLC 391. Hill J had this to say at page 3 line 6: "The word "purport" is defined relevantly in the Macquarie Dictionary, (2nd Rev ed) as: 1. to profess or claim: `a document purporting to be official'. 2. to convey to the mind as the meaning or thing intended; express; imply. In some contexts the word may merely mean "has the effect of": cf Joseph v Joseph [1967] Ch 78. However, in the present context, in my view, it has its more usual meaning of "profess" or "claim". On its face, the document professes to be a statutory demand made under the Corporations Law. It does not seem to me that the fact that it omits the notes in question alters that. It continues to profess to be a statutory demand, albeit not in precisely the prescribed form. Accordingly I would answer the first question in the affirmative. I would not accept an argument that there is a distinction to be drawn between the notes to the form and the balance of it. I see no reason why the omission of the notes is not able to be classified as a "defect". If that which professed to be a statutory demand omitted one word, no question would have arisen. The mere fact that a number of words are omitted does not, in my view, make any difference. The omission of those words is a defect in the ordinary sense of the word and thus a defect for the purposes of s 9. To adapt the words used by Lockhart J, the omission of the notes is "a lack or absence of something necessary or essential for completeness". I accept that a question of degree is involved. There might come a time when there is an omission of so many words that, rather than seeing the matter as one involving a defect, the correct answer would be that the notice was not one which purported to be a statutory demand at all. That, however, is not the present case. I should say that, had I been of the view that the demand was not one which purported to be a statutory demand, I would have been unable to give the applicant the relief it sought. The Court's power to set aside demands is a power which relates only to statutory demands, that is to say, demands which purport to be statutory demands. The Court has no power to set aside a demand which does not purport to be a statutory demand. Such a document would have no legal force or effect under the Corporations Law."

9 These views were followed by Cohen J in Vicbar v Development Constructions (1995) 13 ACLC 1220. The question is whether using the words of Hill J, the document professes to be a demand under section 459E of the Corporations Act 2001. 10 The relevant requirements for the demand are set out in section 459E(1) to (3) which is as follows: " 459E(1) A person may serve on a company a demand relating to: (a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or (b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

459E(2) The demand: (a) if it relates to a single debt - must specify the debt and its amount; and (b) if it relates to 2 or more debts - must specify the total of the amounts of the debts; and (c) must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand id served on the company; and (d) must be in writing; and (e) must be in the prescribed form (if any); and (f) must be signed by or on behalf of the creditor

459E(3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that: (a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (b) complies with the rules." 11 A significant characteristic of the demand is the requirement of section 459E(2)(c) and that requirement (as indeed all these requirements) existed under the Corporations Law. The only noncompliance is under section 459(2)(e) in that the form references to Corporations Act 2001 was replaced by "Corporations Law" which was no longer in force. 12 Given the substantial compliance with the statutory requirements in section 459E, I am of the view that the document purports to be a demand under that section of the Corporations Act 2001. It could hardly be thought that a recipient would not think it a formal demand under the laws dealing with companies at the time he received it. The nuances and the differences between Corporations Act and Corporations Law for quite some months eluded many lawyers and would be something which would be of no interest to any lay person. 13 A defect in the demand is defined as: " Defect , in relation to a statutory demand, includes: (a) an irregularity; and (b) a misstatement of an amount or total; and (c) a misdescription of a debt or other matter; and (d) a misdescription of a person or entity." 14 The failure to refer to the present Act I consider to be an irregularity and thus a defect. As it is in the demand itself it can only lead to setting aside the demand under section 459J(1)(a). See Spencer Constructions v G & M Aldridge Pty Limited (1997) 15 ACLC 1001. As no substantial injustice has been shown the demand should not be set aside by reason of this defect. 15 The second matter concerned the address for service shown in the statutory demand. This was:- "Corporations Group Counsel GPO Box 2926 Sydney NSW 2043". The name should have been "AG Corporations Group Counsel" and no street address was provided. 16 It was submitted that there was no address for payment specified. This is not a defect as the prescribed form does not require such specification. See Vehicle Wash Systems Pty Limited v Mark VII Equipment Pty Limited (1998) 16 ACLC 223 at 227. In this case the course of dealing between the parties showed that the plaintiff well knew how and where to pay the debt. The provision of only a GPO box address does not necessarily preclude the use of other methods of service which are available under the Corporations Act (section 109X) or the Supreme Court rules. Clause 6 of the prescribed form is a prescription which endeavours to make the task of the applicant easier. 17 By arrangement in this case, appropriate service was effected within time and accordingly there has been no substantial injustice. It was submitted that the demand could be set aside under section 159J(1)(b) as the creditor would have to find the company's address. If the failure to specify a street address is a defect this, in my view, is a defect in the demand and not a defect "in relation to" the demand. Thus it is necessary to show substantial injustice which has not been demonstrated as no point was taken about service which was effected by agreement between the parties. 18 I turn to whether there is an offsetting claim or genuine dispute. The latter could only occur in respect of the sum of $2,840. There is no doubt that the two airconditioners in question, once installed, were too noisy. The plaintiff attempted to lead evidence that there was some defect in the supplied equipment. That was rejected as no expertise was shown and no attempt was made to properly qualify the witness. The facts as they have emerged seem to be as follows:

(1) The airconditioners were installed in April or May 2001.

(2) The defendant engaged a company Four Season Airconditioning to inspect the units in July once a complaint was made. They reported that the problem was due to inadequate installation and referred to the fact that the units were sitting on their shipping boxes straight on the roof of a building.

(3) On 5 July the plaintiffs stopped a cheque in favour of the defendant asking for the matter regarding the airconditioning units to be resolved. Precisely what was said to be resolved was not made clear but it is apparent that there have been some conversations in which the defendant clearly rejected any liability. This was made clear on 9 July by the letter from the defendant to the plaintiff. They demanded a replacement cheque which was not provided by the plaintiff. The defendant made it clear that there was no liability which would not be covered by an express warranty if there was a problem and it could be shown that the units were defective.

(4) In a letter of 17 July, the plaintiff said that the reason that they had stopped the cheque was to try and solve the problem and they had not seen an attempt to solve the problem. He refers to the fact that a next door neighbour had complained about a noisy unit and the whole letter is one that seems to be based upon simply the fact of noise without addressing the cause of the noise, in other words, whether it was due to the installation or the airconditioning unit.

(5) On 23 July it is apparent that the defendant was going to rectify the problem itself and had taken various steps to do it. They suggested that the costs would be submitted to the defendant. This was immediately rejected by the defendant. There is a fax or a report to the service manager from Mr Russell when he apparently called to see the problem with the owner. The owner said that there was nothing wrong with the equipment and the problem was simply noise transmission through the roof. Mr Russell went and listened and he thought the noise level was unacceptably high. He had suggestions for fixing the installation problem because apparently noise was being passed immediately through the roof and down to the room below. The owner indicated that he was a production engineer, he understood the problem and he had told the plaintiff to stop trying to blame the manufacturer as it was a problem with the installation. Mr Russell agreed with that statement.

(6) There is litigation between the plaintiff and the customer, no doubt that will be resolved in due course, but it does not help much in the resolution of this matter. 19 For there to be a genuine dispute in respect of the $2,840 there would need to be some evidence of what was said to be the fault in the unit. I think probably the most useful summation of what is a genuine dispute is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments in respect of the expression "Genuine dispute": "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s.459H. 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 'a 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. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.' In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Division 3...prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim".

It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

The essential task is relatively simply - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).' I respectfully agree with those statements."

20 Here there are some protestations by the plaintiff in correspondence that there is a noise problem with no detail. All the evidence as to the cause of the noise problem points to this problem being a result of the installation. I am not satisfied that there is a genuine dispute about the supply of the units to the plaintiff. 21 I turn to consider the offsetting claim. The plaintiff gave evidence that they incurred costs of $25,049.30 in rectifying the noise problem. The Court's task in assessing an offsetting claim has been dealt with in a number of cases. For instance, in Edge Technology Pty Ltd v Lite-On Technology Corp (2000) 18 ACLC 576, Santow J had the following to say at paragraphs 24 and 25: "It is here again true (as it was in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456) that it "is not my task in the present proceedings to seek to resolve the competing claims of the Plaintiff and the Defendant": per Austin J at 462. Rather, it is to "resolve whether, for the purposes of s 459(H)(1)(a), there is a genuine dispute between the Plaintiff and the Defendant about the existence or amount of the debt to which the Defendant's statutory demand relates": Austin J at 462. Or alternatively, whether there is a genuine counter-claim, set-off or cross-demand against the Defendant and if so, in what amount. In particular, how should it be quantified; at a nominal $1 or at a large figure and if the latter, how is the quantification to be arrived at? The latter question essentially asks whether the counter-claim or set-off is fictitious or merely colourable; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Limited (No 2) (1994) 12 ACLC 490; 13 ACSR 787. In that context, to come up with a plausible contention to (sic) requiring further investigation which, if later established, would preclude there being an offsetting claim. That would not establish that the counter-claim or set-off was fictitious, or merely colourable. In that sense, the counter-claim or set-off is not the reciprocal of the statutory demand debt. Rather it is a means of offsetting the statutory demand debt with a genuine counter-claim or set-off.

I adopt the approach of the Full Federal Court in Spencer Constructions Pty Limited v G&M Aldridge Pty Limited (1997) 15 ACLC 1,001 at 1,011, (1997) 76 FCR 452 at 464; that a genuine dispute requires that "the dispute be bona fide and truly exist in fact" and that the "grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived". The same applies to the counter-claim or set-off. One asks: Is it bona fide, is it real and not spurious?" 22 He later went on to say:- "For the demand to be set aside on the basis of the demand debt being genuinely disputed, it must be established by the Plaintiff that the dispute concerning its existence is bona fide and not spurious, hypothetical, illusory or misconceived: Spencer's Case (supra). In other words, there must be a plausible contention requiring further investigation which genuinely puts in dispute the debt which grounds the statutory demand. But the merits are not now to be determined beyond the preliminary testing as to whether there is a serious question to be tried. The alternative basis for the demand to be set aside or reduced by reason of an offsetting claim involves, as I have said, a different test. The question is not whether there is a genuine dispute in the above sense against the offsetting claim. The question is rather whether the "offsetting claim" can be shown to be "not frivolous or vexatious"; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. That places a heavier onus on the party seeking to maintain its statutory demand, than if it merely had to establish the reciprocal of a genuine dispute against the offsetting claim."

23 It can be seen that I have to be satisfied that the offsetting claim is not "frivolous or vexatious". As I have mentioned, there is no evidence that the particular airconditioner was faulty. No replacement was ever asked for. 24 Assuming for the moment that the airconditioner was inherently noisy, there is no suggestion in the evidence that the defendant made known the particular purpose for which he wanted the goods, such that it would be clear that the buyer was relying on the seller's skill and judgment. There would thus be no implied condition as to fitness. Frankly I can see, in the evidence before me, no basis for a claim against the defendant. Accordingly, I am not satisfied that there is an offsetting claim. 25 I dismiss the originating process. I order the plaintiff to pay the defendant's costs.

Last Modified: 05/01/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.