New South Wales Supreme Court CITATION : Crystal v ACN [2004] NSWSC 1170 HEARING DATE(S) : 1/12/04 JUDGMENT DATE : 6 December 2004 JURISDICTION: Equity Division JUDGMENT OF : Master Macready at 1 DECISION : Paragraph 31 CATCHWORDS : Corporations Law. Application to set aside demand under s 459G of the Corporations Act. Demand varied. No matter of principle. PARTIES : Crystal Pools Pty Limited v ACN 065 706 952 Pty Ltd FILE NUMBER(S) : SC 4659 of 2004 COUNSEL : Mr R.K. Weaver for plaintiff Mr C.F Grinter for defendant SOLICITORS : Kevin E. Worthington John Brent & Co - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Master Macready Monday 6 December 2004 4659 of 2004 Crystal Pools Pty Limited v ACN 065 706 952 Pty Ltd JUDGMENT 1 MASTER: This is an application under the Corporations Act 2001 (Cth) pursuant to s 459G of that Act to set aside a statutory demand for payment served by the debtor on the plaintiff. The demand was dated 5 August 2004 and claimed monies and commissions owed by the plaintiff to the defendant who was a sale agent for the plaintiff company. The total amount claimed in the demand was $70,472.00 and the affidavit in support attached a schedule of the various contracts showing the amount of commission claimed in respect of each contract obtained by the defendant company. 2 As the name of the plaintiff would suggest, the defendant company was appointed as agent for the plaintiff to sell swimming pool installations to various residential customers. The agent was responsible for signing up the customer with the plaintiff on its standard form contracts and negotiating the amount of the price to be paid by the customer. 3 The defendant's initial appointment was pursuant to a letter of 16 March 2000. There was a break in the period that the defendant was acting as agent in June 2000 until November 2003. There was then a letter of 10 November 2003 which made certain changes to the original contract. The terms of that contract do not impact on what has to be decided in this matter. 4 The following clauses from the original letter of 16 March 2003 are relevant to the determination of the issues before me. 2. Your Company has accepted the present remuneration scheme (which may be changed from time to time by Crystal Pools on one week's notice) described here: * Commissions and Bonuses will apply as per that described in the Crystal Pools Price List as updated from time to time, according to the following formula: * Each sale made by your company will be costed at full list price (excluding any agreed "at-cost items" such as Electrical Connections and Geographic Loadings) to establish the "nett full list price". * A flat 6% Sales Commission of the "nett full list price" will be paid on the following weeks Friday, weekly (ie with the exception of the "At Cost" items). * "Overs and Unders" calculated on a 50/50 basis will be paid monthly, with your first $2,500 of accumulated overs being held by Crystal as discussed. * A minimum $500 commission for any domestic pool sale accepted by Crystal will be paid. * Commission will also be paid at the same rate on Contract Variations sold by the Agent to those clients whose applicable contract was sold by the Agent, providing the Building Application has not yet been approved by Council. No minimum commission applies in this case. 3. Commissions and Bonuses will be paid each Friday for those claims that have been lodged with our accounts office by Friday of the prior week, to the extent of the deposit and progress payments received by Crystal in respect of that sale. NB: * Debits from these payments will be made to recover moneys due to errors, cancelled contracts oversights or miscalculations on the part of your company and for the loss, damage or non-return of sales aids or other property of Crystal by your company. * Commission will be payable only when all necessary documentation as listed on the "Requirements for a Completed Sale - Swimming Pool" (see attached) has been completed. Payments will be made by our cheque to your Company. * Unless otherwise directed by statutory authorities (such. as the Taxation Department or Dept of Consumer Affairs.) no deductions will be made from selling commission apart from those debits described above. 5 The plaintiff says that there is a genuine dispute in respect of the amount of commission due to the defendant company. It also alleges in respect of one particular job, namely, that for the customer, Italiano, that it has an offsetting claim. 6 I had the benefit of having a number of submissions in respect of the principles to be applied and I think 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." 7 As there are offsetting claims it is worth noting the difference that has to be applied in respect of an offsetting claim. 8 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?" 9 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. 10 In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Palmer J usefully described a genuine offsetting claim in these terms: " 18 In my opinion, a genuine offsetting claim for the purposes of CA s 459H(1) and s 459H(2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. "Good faith" means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s 459H (1) and s 459H(2)." Claims for commissions 11 It can be seen from clause 2 that there are two different types of sales commissions paid pursuant to the agreement. The first is a flat fee of 6% payable on the week following the signing up of the customer and the receipt of the deposit from the customer which was sometimes paid in two stages. 12 The second form of commission is what is described as "overs and unders". These were to be paid monthly on certain terms referred to as being "as discussed". The evidence showed as a term of the contract that such payments were not to be paid until the pool was under construction and it had reached the stage of the steel being in place or some time later, the time not being carefully defined in the evidence, the concrete for the pool having been poured. Sometimes the extra overs were paid prior to this, although this does not seem to have been contractual arrangement made at the time of the letter in question. What the "overs and unders" commission was, was an additional amount if the selling agent, namely, the defendant, managed to sell a pool for a price greater than the normal net list price so that it an additional profit was provided. This additional profit was then split fifty-fifty between the parties. 13 The notes to clause 3 of the agreement allowed debiting of various errors and other matters. Of importance in this case is the fact that where a contract is cancelled then the commission obviously is not payable and is recoverable. There also seems to be an ability to recover for errors and also for oversights or miscalculations on the part of the agent. These later claims were referred to in the evidence by the somewhat traditional building industry expression as 'back charges'. 14 At various stages in the evidence the plaintiff produced a spreadsheet which replicated all the contracts which were referred to in the statutory demand and added evidence which was sworn to by Mr Rona of the plaintiff company. The latest spreadsheet in this process was exhibit "C" before me. On the front of that spreadsheet there is a summary of what is concluded in the spreadsheet with four headings. The first heading identified the relevant contract and the second the amount of commission claimed by the defendant in the statutory demand. The third column identified what was due to the defendant or alternatively if there was an amount due back to the plaintiff. The final column identified a series of contracts where the plaintiff submitted that the amount of commission was not yet due. In all cases this was a result of the work not having yet reached the stage of either steel being placed or the concrete being poured and thus it affected those claims which were for "overs and unders". The amount was not presently payable at the time of hearing. 15 It will be noticed from the exhibit that in the third column there is a subtraction of the amounts due to the plaintiff for amounts which the plaintiff conceded were due to the defendant and the resulting figure being an amount due to the defendant was shown as $828.00. That was an arithmetical error and the correct amount that should have been shown was $1,928.00. In addition to this, during the hearing the plaintiff conceded that in respect of the contract for Yordanoff that amount had already been paid by the defendant and in respect of the contract for Cappelletto an amount of $270.50 had also been paid by the defendant. Taking these into account without dealing with the differences between the parties there is clearly an amount of $4,067.50 which is due by the plaintiff to the defendant. An amount of $20,493.01 is claimed as being not yet due and the remaining balance of the sum claimed in the demand is claimed to be the subject to a genuine dispute. 16 In general, where there are claims for oversights or miscalculation, described in the schedule as back charges, the schedule gives an estimate of the amount and a description of the problem. Prima facie these seem in most cases to be evidence of such an item of dispute. Mr Vanderkwast of the defendant company, who is the principal concerned with the matter, gave evidence in respect of a number of the matters including the circumstances surrounding such matters. He sought to give evidence of conversations with various people including customers but that evidence was rejected. Accordingly, in respect of those matters, the evidence of the defendant did not persuade me that there was not a genuine dispute for the purpose of this application. No doubt in due course there might be a more detailed resolution of the problems if proceedings are taken elsewhere. 17 In the upshot there were a number of areas in the schedule where the parties were seriously at issue and I turn to those particular matters. Contract for Lake 18 There appears to be a dispute as to whether the contract commission, namely $593.21 was payable now or still suspended as part of an over. That was the amount of a contract variation and given the way that is dealt with separately in the contract, at this stage, I could not see that there is anything other than a dispute in respect of it given the terms of the contract. Contract for Geddes 19 In respect of this contract, the comment in evidence in the matter is that "the client transferred to Melbourne. Job on 'never'." It will be recalled that the basis for this recovery is if the contract is cancelled. This is not what is said in the schedule. It is important to point out that the schedule uses the words 'contract cancelled' very carefully in respect of a number of the jobs. The use of some other expression seems to me to indicate that this is different and prima facie it would not be within the entitlement to recover the commission. In these circumstances there should be an adjustment of $1,861.00 in favour of the defendant less $200.00 already paid for a spotter's fee. Contract for Warner 20 The comment in respect of this contract is that it is awaiting a concrete account payment which I would infer was a reference to the suspension. Although it is not very precise I would be prepared to agree that this amount should remain in the 'not yet due' column. Contract for Jiloa Holdings 21 The note in respect of this contract is "Job on indefinite hold. Client lost money in business deal." This is far from a cancelled contract and in my view there should be an allowance to the defendant of $2,079.00 less back charges of $766.00 namely $1,313.00. Contract for Whitley 22 The comment in this one is "Job not proceeding". There is no temporal indication to that note and accordingly I do not think it arguably falls within the cancelled contract clause. There should be a credit for the defendant of $1,400.00 less back charges of $501.00 and $110.00 leaving a net amount due of $784.00 Contract for Graham 23 The comment is "Job never built". It also does not refer to a cancellation of the contract and accordingly there should be a credit of $1,042.00 less overpaid commission of $246.50. The defendant's credit should be $795.50. Contract for Drake 24 This is the same as the previous contract. The defendant should be credited with $700.00 and the plaintiff with $928.50 leaving a net amount in the plaintiff's favour of $228.50. Contract for Zumudio 25 This is in the same category as the previous two contracts. There should be a credit to the defendant on the demand of $2,472.00 less overpaid commission of $231.50 leaving an amount of $2,240.50. 26 These are the only matters where the parties were seriously in issue on the question of whether or not there was a genuine dispute. Accordingly there is an admitted amount due to the defendant of an additional $6,570.50 which when added to the $4,067.50 comes to a total of $10,638.00. This amount is, of course, subject to an offsetting claim in respect of the Italiano job. Offsetting claim 27 This customer was signed up by the defendant through Mr Vanderkwast. After construction of the pool it was found that the pool was constructed too close to an electricity high tension wire. As a result on 31 August 2004 Energy Australia required the pool to be removed by 3 December 2004 and it has been removed. The evidence before me shows that the overall loss to the plaintiff on this project was $38,000.00. 28 A substantial amount of evidence was given as to the circumstances of this job by Mr Vanderkwast including warnings that he put on the plan which is attached to the contract about the location near the power lines. He also gave evidence of having warned Mr Rona that the pool may change due to the problems with the electricity easement. Normally it was the plaintiff's job to get any appropriate approval from the electricity authority. It was normally done before any concrete was poured. This occasion happened in December 2003. The survey was not obtained until February 2004. 29 There are letters from Energy Australia before the contract indicating to the Italiano's predecessors that it would not be possible to have a pool in the back yard. There was no evidence that these letters came to the attention of Mr Vanderkwast and he denies ever having seen them. 30 It is also notable that there has not even been a demand by the plaintiff on the defendant seeking to make a claim let alone any proceedings commenced in respect of this matter. No proceedings have been commenced against the plaintiff company by the Italianos. Indeed the basis of a claim was not fully articulated before me. In the circumstances I am not satisfied that there is a genuine offsetting claim. 31 As a result of the determinations which I have made it is clear that the amount of the demand should be reduced. Accordingly, the orders that I make are as follows: 1. The demand be varied by reducing the amount to the sum of $10,638.00. 2. The demand so varied shall take effect from twenty one days after service of the demand. 32 I will hear the parties on costs. ********** Last Modified: 12/14/2004 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.