New South Wales Supreme Court CITATION : FOX SYMES v LIPMAN [2002] NSWSC 67 revised - 20/02/2002 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 5829 of 2001 HEARING DATE(S) : 14/02/02 JUDGMENT DATE : 14 February 2002 PARTIES : FOX SYMES & ASSOCIATES PTY LIMITED v ALAN LIPMAN (HOLDINGS) PTY LIMITED TRADING AS WALKER PACIFIC ADVERTISING JUDGMENT OF : Master Macready at 1 COUNSEL : M. Pesman for plaintiff D.G. Charles for defendant SOLICITORS : Jones King Lawyers for plaintiff Lazarus Smith for defendant CATCHWORDS : Corporations Law. Application to set aside statutory demand. Need to quantify offsetting claim. Sufficient quantification and demand set aside. DECISION : Paragraph 16 - 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY THURSDAY 14 FEBRUARY 2002 5829/01 FOX SYMES & ASSOCIATES PTY LIMITED v ALAN LIPMAN (HOLDINGS) PTY LIMITED TRADING AS WALKER PACIFIC ADVERTISING JUDGMENT 1 MASTER: This is the hearing of an application to set aside a statutory demand served by the defendant upon the plaintiff. The statutory demand is dated 14 November 2001 and claims the sum of $68,942.00 in respect of media placement services provided by the defendant for the plaintiff. 2 There is agreement between the parties that because of some wrong inclusions in the invoices referred to the amount of the demand was $3,785.00 greater than the amount due and that, accordingly, it should in any event be reduced to $65,157. 3 The plaintiff is a company which advertises in numerous magazines, and the defendant is an advertising agency. The arrangement seems to be that the plaintiff has provided all its work up until the relationship finished at the beginning of November last year with the advertising agency. The advertising agency receives the accounts from the various newspapers and pays them and passes the cost on to the plaintiff. 4 There is said to be a genuine dispute in respect of the amount of the debt. That expression is one which is frequently dealt with in the cases. The most probable useful summation of it is given by McClelland CJ in Eq in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669 at 671 where his Honour made the following comments: "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 different 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 9022; (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." 5 Although I have referred to the way the matter is said to be a genuine dispute, that in fact really only goes to a small part of the claim, to set aside the demand. The area of disputation relates to the charges that have been made by the defendant to the plaintiff. There is in evidence without any restrictions, a series of e-mails in which the statements have been made regarding the basis upon which the defendant does the work for the plaintiff. There is also some evidence of conversations between relevant officers of the two companies when the account was initially set up. That was to the effect that the amount that the defendant is charged is simply passed on to the plaintiff without any rebates or commissions. 6 There are in the e-mails numerous statements that the defendant receives its benefit from the arrangement by receiving commissions on its overall placements with any particular media outlet, such as a newspaper, and that it does not charge any other fees. For instance, in an e-mail of 13 September 2001 the defendant said, under the heading number 3 "No charge to you on media services. WPA does not charge for its media service skills...the newspapers remunerate us. Therefore there is no cost to FSA for the media work we do unlike...by some other media agencies." 7 The alleged overcharging is evidenced in part by the enquiries that were made by an officer of the plaintiff towards the end of the relationship. They then started requiring copies of the invoices to be supplied in respect of the charges made to the agency. These were not supplied as apparently it was not practical to do so. 8 In an e-mail of 1 November 2001 he referred to a series of charges that he had ascertained had been made to the defendant and compared them with the charges which the plaintiff had been charged by the defendant. This showed a mark-up of approximately ten per cent. 9 There is no response to the allegations which have been made about overcharging but, it seems fairly clear to me, that having regard to the terms of the e-mails, that if there was this overcharging then there might be a claim which the plaintiff would have for breach of contract. In this respect effectively the plaintiff would have an offsetting claim for any damages which it might be able to recover as a result of the course of the dealings between the companies over the period in question. 10 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 paras 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?" 11 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. 12 As I have said, substantially the claim is one for an offsetting claim. Because the last two or three invoices that have been sent by the defendant to the plaintiff are the subject of demand, there would also be a genuine dispute in respect of a proportion of those invoices. I can look at the matter generally on the basis that there is an offsetting claim. As has been pointed out there has to be a quantification of what is the amount of the claim which is not fictitious or merely colourable. If the Court cannot make some approximation then, of course, it cannot perform the exercise required by the legislation to determine the appropriate figures which the legislation requires. 13 There seems to be evidence that the relationship between the plaintiff and the defendant was for a period of eight months. In evidence also are what are obviously typical weekly advertising schedules, one for 19 September 2001, and another for 10 October 2001. The first of those showed a cost of, not including GST, $23,511.57. The one in October was $24,027.77. 14 The question is whether I can infer that the business over the period of eight months was probably of that order. In this respect the evidence is that there was a relationship and it seems fairly clear from the evidence that all the advertising was placed through the defendant company at that time in that period. 15 The extent of the dispute about the overcharging is ten per cent: then, for eight months that is the gross fees based on $23,000 per week, and that would give a figure of $797,333.00. The extent of overcharging is in the order of $79,000. Even if one made some discount for the fact that there may be some lesser figure at the commencement of the relationship, one would still have a substantial offsetting claim which would be greater than the amount claimed in the demand. 16 Applying the arithmetic which I have, I am satisfied that there is an offsetting claim that exceeds the sum of $65,157.00. Accordingly, I propose to set aside the demand. I order that the statutory demand served by the defendant on the plaintiff dated 14 November 2001 be set aside. I order the defendant to pay the plaintiff's costs. The exhibits may be returned. ********** Last Modified: 02/20/2002 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.