Remuneration Planning Corporation Pty Ltd v Paidion Foundation Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2509/01 REMUNERATION PLANNING CORPORATION PTY LIMITED v PAIDION FOUNDATION PTY LIMITED as Trustee of The Kenneths Trust t/as The Kenneths Group

1 HIS HONOUR: This is an application to set aside a statutory demand under s 459H of the Corporations Law ("the CL"). The plaintiff is Remuneration Planning Corporation Pty Limited which had the demand served on it by the defendant, Paidion Foundation Pty Limited, on 12 April 2001. The demand claims that the plaintiff was indebted to the defendant in the sum of $298,375.40 made up of various fees arising from the sale of employee share trusts ("ESTs") and similar products. These were particular forms of investment devised by the plaintiff and in which the plaintiff claims intellectual property. There is difference between the parties as to whether the defendant was engaged in selling ESTs and associated products on behalf of the plaintiff on a commission basis or whether there was a joint venture between them for the sale of the products. In either case, the proceeds of the sales were to be divided 60/40 between the plaintiff and the defendant. There is in evidence a document passing between the parties to show that that was to be the division of proceeds from the commencement of the new financial year beginning in on 1 July 1999. It should be noted that the defendant, as appears from the heading of this judgment, is trustee for a number of entities ("the group members") engaged in the same business. These proceedings have been conducted on the basis that those various entities (including the defendant) are to be treated as one entity in assessing and offsetting the claims between the plaintiff and the defendant for the purposes of these proceedings. 2 The plaintiff denies indebtedness in the sum of $298,375.40 but admits indebtedness in the sum of $101,080, leaving a balance of $197,295.40. As to this sum, it says that there is a genuine dispute as to its indebtedness. Without my going into great detail in these reasons, Mr Chikarovski, a director of the plaintiff, deposes that the calculation that leads to the claimed indebtedness of $298,375.40 takes into account ESTs and other products sold in only one way through a third party known as Ruskins. Ruskins also provided administrative services in relation to the ESTs which were charged against the moneys that would become due as a result of the sales to the plaintiff and the defendant. He says that there were sales of ESTs effected in ways other than through Ruskins and that, when these additional transactions are brought into account, the $298,375 is not owing but only the admitted $101,080. 3 Prior to the service of the statutory demand, the plaintiff had in fact commenced action against the defendant and various other of the group members in this Division of this Court in proceedings 1835/01, in which the summons was issued on 16 March 2001. That summons is in evidence. Trinity Management Group Pty Limited ("TMG") is one of the defendants named in the summons. The summons claims in prayer 1 a declaration that no partnership venture existed between the plaintiff and the defendants. I take it that "partnership venture" is a compendious phrase by which the plaintiff seeks a declaration denying the existence of either a partnership or a joint venture between the parties in relation to the enterprise that undoubtedly was being carried on. The summons by prayer 2 seeks a declaration that any partnership venture which did exist was dissolved on 19 October 2000. Significantly, in prayers 3 and 4 it seeks the following orders: "3 An order that an account be taken of the dealings of the Defendants or any of them in respect of the Employee Share Trusts sold on behalf of the Plaintiff, and to determine the respective interests of the Plaintiff and Defendants or any of them, in the proceeds of the sales of the said Employee Share Trusts on behalf of the Plaintiff. 4 An order that an account be taken of the dealings of the Defendants or any of them in respect of monies payable to the Plaintiff, had and received by the Defendants or any of them." 4 The principles relating to the existence of a genuine dispute for the purposes of s 459H, and of an offsetting claim, are reasonably well established. They are set out as follows in the judgment in this Court of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 - 788 as follows: "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s450H [sic]. 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 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 366 and 367) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Pt5.4 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 (Aust) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Div 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 simple - 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).

There was a discussion of the concept at appellate level in the decision of the Full Court of the Federal Court in Spencer Constructions Pty Ltd v G & A Aldridge Pty Ltd (1997) 76 FCR 452 at 462 - 465, commencing with an express approval of part of what had been said by McLelland CJ in Eq in Eyota , and concluding at 464 as follows: "In our view 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. We consider that the various formulations referred to above can be helpful in determining whether there is a genuine dispute in a particular case, so long as the formulation used does not become a substitute for the words of the statute."

The situation as to what was necessary to make a finding of the existence of a genuine dispute of the debt on the one hand or, on the other, of an offsetting claim which could be inserted in the equation contained in s 459H to determine the substantiated amount, was stated as follows in this Court by Santow J in Edge Technology Pty Ltd v Lite-on Technology Corporation (2000) 34 ACSR 301 at [31], where his Honour said: "31 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." 5 As to the requisite onus of proof, I said in Sterling Estates (SA) Pty Ltd v Bradley (2000) 34 ACSR 177 at [16]: "There is no doubt that the respondent as plaintiff in the proceedings before the Master generally bore the onus of establishing its case. If it failed to establish it, on the balance of probabilities, then it could not succeed. However, it seems to me that it bore the onus not of establishing in some positive way each and every element necessary to the proposition that there was no due and immediately payable debt, which appears to be what this submission amounts to, but the onus of establishing the proposition by which s 459G(1)(a) [sic] proceeds, ie, that there is a genuine dispute between the parties. And, of course, as with other questions of onus, the party bearing the onus on an issue may discharge it not simply by pieces of evidence which it itself puts forward, but by contending that the onus is discharged upon an examination by the tribunal of fact of the whole of the evidence before it relating to the relevant subject matter."

See also Re Mega Engineering Australia Pty Ltd (1997) 24 ACSR 683 per Shepherdson J at 684; and Europecars Pty Ltd v Century International Ltd (1999) 30 ACSR 774 per Lehane J at [6], [7]. The same might accurately be said, in my view, of the onus of proof borne by the plaintiff in respect of the establishment of an offsetting claim. 6 The establishment of an offsetting claim becomes material because the plaintiff says that, in addition to establishing a genuine dispute in respect of the $197,295.40 portion of the debt which is not admitted, in respect of the $101,080, which is admitted, it has an offsetting claim that arises as follows. It says that late in 2000 there were negotiations between the ongoing directors of the plaintiff and Mr Gary Fitton, then a director of the plaintiff, concerning his exit from the company. He was already a director of TMG, which was involved with the plaintiff in selling ESTs in New Zealand and other places. As I have already said (see [1] above), no objection is taken before me that the transactions discussed in October 2000 between the ongoing directors of the plaintiff on the one side and Mr Fitton on the other side were not fit to be brought into account as an offsetting claim against the amount contained in the statutory demand. Various other submissions have been made to me to which I shall turn as to why the offsetting claim should not be taken to be established. 7 The case made on behalf of the plaintiff is that correspondence that took place at the time of these negotiations contained admissions that 20 plans had been sold by TMG in Australia (not in New Zealand) prior to the time of the discussions. TMG had been incorporated in August 1999, so it appears that it was over the period from August 1999 to October 2000 that the plans had been sold. The defendant admitted that the payments made in relation to those plans had been received by TMG and paid into what was referred to as a joint venture bank account. It was said that a reconciliation of what was due to the plaintiff in respect of those sales as at 30 June 2000 had been sent to the plaintiff; and that $20,000 had been paid to the plaintiff on account of its share of these 20 Australian sales. 8 The plaintiff's response was that there was no joint venture; that it had not received the reconciliation document; and that it had indeed received the sum of $20,000, but that that payment was not in respect of the 20 Australian sales, but in respect of business done in New Zealand. Despite the fact that the plaintiff denied having received the reconciliation document and despite the fact that it asked for information as to the proceeds that had been received arising out of the 20 Australian plan sales, no such information has ever been provided. It was in the context of the whole of the business dealings between the various parties, part of which context is the matters which I have just set out, that the plaintiff issued summons 1835/01 and the defendant responded with the statutory demand. 9 So far as the dispute concerning the $197,295.40 is concerned, I do not find the matter difficult to decide. The dealings out of which the claim arises were multifarious and complex on the evidence on both sides. Mr Chikarovski has put his oath to the various considerations by reference to which he states that the $197,000-odd is disputed. Particularly in the case of multifarious and complex dealings (where it would seem that the remedy of account sought by the plaintiff before the service of the statutory demand was indeed the appropriate remedy) it is not for the Court, on an application such as the present, to enter into the material to see where the truth of the matter lies. In my view a genuine dispute has been established. 10 There remains the question of the admitted $101,080. The only thing that the plaintiff has to countervail this is the offsetting claim. That it has a claim to moneys which ought come to it from the 20 Australian plans to which I have already adverted is supported by what could certainly be taken to be admissions in the correspondence which took place. The situation is less clear in relation to the quantification of the offsetting claim. Mr Chikarovski, in seeking to give evidence of this, faced the difficulty that, despite asking to be informed of the amounts of money in the Kenneths camp arising from these sales, that information was not forthcoming. He therefore set out to make on oath the best estimate he could. That was set out by him as follows: "RPC LOSS ESTIMATE

Calculations are based on 20 EST plans with an average client contribution per plan of $200,000.00.

1 Establishment Fees 20 x $4,500.00 = $ 90,000.00

2 Participation Fees 20 x $200,000.00 x 5% = $ 200,000.00

• Administration fees of up to 1.5% per annum have not been included in this estimate."

Sixty percent of $290,000 is $174,000. Mr Chikarovski in an affidavit deposed that $200,000 was the average amount of ESTs sold. The remuneration to the vendors was the payment up front of establishment fees, which on a plan of that size would be $4,500 per plan. Then, as moneys were paid into the investment, the vendors were entitled to a participation fee of 5 percent which it is common ground would be paid progressively as the moneys were paid. The $200,000 that I have referred to is the average amount which Mr Chikarovski said would be paid into such a plan over a year. By the time the statutory demand was served in April 2001 all the 20 plans had been in existence for at least six months. Their sale was admitted in correspondence going back to October 2000. Some certainly went back beyond June 2000, as there was an accounting at that date from the Day group to the plaintiff. It is not unreasonable to assume that some of the plans were sold early in the selling process which commenced after the incorporation of the company in August 2000. On this basis it seems to me that the estimation that Mr Chikarovski has made is a reasonable estimation and the best he could do in the circumstances. 11 Mr J D Wilson, of counsel for the defendant, frankly faced up to the fact that admissions were made in correspondence that demonstrated the sale of 20 plans prior to October 2000. However, he says that the quantification that is made is not firm enough to permit any figure to be put on the claim, much less the figure of $174,000 that the plaintiff puts on it, providing thereby an offsetting claim which will extinguish the admitted amount of $101,080. In addition to the general statements of principle to which I have already referred, he referred me to various dicta relating to what is required in the process of establishment and quantification of offsetting claims as follows:

(1) Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 per Beazley J at 357: "The test to be applied for the purposes of s 459H is whether the court is satisfied that there is a serious question to be tried that the applicant has an offsetting claim."

(2) Advance Ship Design Pty Ltd v D J Ryan t/as Davies Collison Cave (1995) 16 ACSR 129 per Master McLaughlin at 136: "… the definition of an offsetting claim in subs (5) of s 459H requires not only that the claim be a genuine claim, but that it be in respect of a cause of action which has accrued, and that it cannot relate to a cause of action which is not presently in existence."

(3) Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd (1995) 17 ACSR 128 per Lindgren J at 135: "... only a claim which is capable of being quantified as an amount of money can qualify as an 'offsetting claim'."

(4) Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347 per Lindgren J at 353 "… the offsetting claim [must] have an objective existence …"

(5) John Shearer Ltd v Gehl Co (1995) 18 ACSR 780 per Von Doussa, Hill and Tamberlin JJ at 787: "In order to show that an offsetting claim is genuine it must be put forward in good faith. There must be something more than a mere assertion."

(6) Sewmail (Australia) Pty Ltd v Booby Traps Pty Ltd (1997) 23 ACSR 339 per Burley J at 342 - 343: "Whether the court must deal with a genuine dispute or an offsetting claim or a combination of both, it is necessary for the court to determine whether the dispute or offset is pursued genuinely. … There needs to be evidence supporting the quantum of the offsetting claim so that the court may determine whether or not there is a genuine offsetting claim of a given amount. ... In the absence of such evidence it is impossible for the court to determine whether or not the statutory demand must be altered or set aside in accordance with the provisions of s 459H of the Law. For these reasons the ground relied upon by the plaintiff in relation to the offsetting claim must fail." 12 Ms McDonald, of counsel for the plaintiff, draws my attention to the fact that there is now appellate authority that touches upon these questions in the decision of the Full Court of the Supreme Court of Western Australia in Royal Premier Pty Ltd v Taleski [2001] WASCA 48 at [57] where Ipp J said: "There is another supervening and fundamental problem with the appellant contentions, namely, there is no evidence of any damages that the appellant might have suffered in consequence of the alleged negligence or misleading or deceptive conduct on the part of the respondent. Of course, at this stage, it is not necessary for evidence as to damages to be given in meticulous detail. But there must be at least some material upon which the court can conclude that some damage has been sustained and which will enable the court to make a reasonable assessment as to the amount thereof. In this case, however, there is simply no way of determining whether damage was suffered by the appellant in consequence of the alleged negligence or misleading or deceptive conduct, and there is no evidentiary material from which damage suffered by the appellant can be calculated. This absence of evidence as to damage is itself fatal to the appellant's arguments."

The Court was there dealing with a case of unliquidated damages, whereas the present case deals with a liquidated claim. As to the approach to the question of the quantification of unliquidated damages for the purposes of s 459H, compare what was said by Ipp J with the approach of Young J (as his Honour then was) in Jesseron Holdings Pty Ltd v Middle East Training Consultants Pty Ltd (1994) 13 ACSR 455, and Jesseron Holdings Pty Ltd v Middle East Training Consultants Pty Ltd (No 2) (1994) 13 ACSR 787. 13 The various dicta to which Mr Wilson has referred me are illustrative of the way in which a claim and its quantum must in some way be rendered concrete for the establishment of an offsetting claim which may be relied on under s 459H. However, in my view, that establishment has occurred in the present case. While Mr Wilson points out, which is correct, that a liquidated claim for $174,000 is not heard of in the correspondence that is in evidence, nor made as such in the summons in 1835/01, it must be noted that it is a claim which would be comprehended in the accounting that the plaintiff, before the demand was made, sought by that summons. It is suggested by Mr Wilson that it was plucked out of the air only after the demand was delivered. But its appearance in terms at that stage arises from the very necessity for the plaintiff to demonstrate a single simple offsetting claim among the plethora of claims and cross claims that there appear to be between the various parties, to which some concrete form can be given. Mr Chikarovski concedes that he cannot be certain of the amount of the offsetting claim and it is only by way of estimate that the figure of $174,000 is brought forward. But the basis of the estimate is clearly stated on oath. In my view, it lies ill in the mouth of a defendant which has declined to reveal the amount received under the 20 plans, although that information has been sought, to say that the plaintiff cannot exactly specify the amount of its claim. Furthermore, the defendant's own version of the facts is that it was party to a joint venture for the sale of the plans. It has thereby in effect conceded that it regarded itself as under a fiduciary obligation to the plaintiff in respect of the receipt of these moneys, which, one would have thought, imported a liability to account to it for part of them and an obligation to reveal the quantum of the moneys received. Yet it refuses, right up to the present, to reveal the precise amounts received. This information being withheld, Mr Chikarovski has done the best he can, and on a basis which he has sworn to and which seems to me entirely reasonable. 14 In my view, therefore, there is a genuine dispute as to $197,295.40 of the $298,375.40 stipulated in the statutory demand. When the admitted amount of $101,080 and the offsetting claim, which I find to be established in the requisite way in the sum of $174,000, are entered into the equation specified in s 459H, there is no amount which survives. Under those circumstances, the appropriate course is for the statutory demand to be set aside and I so order. In light of this conclusion, I order that the defendant pay the plaintiff's costs of these proceedings.

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