New South Wales Supreme Court CITATION : W & P Reedy Pty Ltd v Macadams Baking Systems (Pty) Ltd [2007] NSWSC 75 HEARING DATE(S) : 09/02/07 JUDGMENT DATE : 14 February 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Originating process dismissed with costs CATCHWORDS : CORPORATIONS - winding up - statutory demand - application to set aside - whether plaintiff has offsetting claims greater than amount of statutory demand LEGISLATION CITED : Corporations Act 2001 (Cth), ss.459G, 459H(1)(b), 459H(5) Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 CASES CITED : Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 PARTIES : W & P Reedy Pty Limited - Plaintiff Macadams Baking Systems (Pty) Limited - Defendant FILE NUMBER(S) : SC 3566/06 COUNSEL : Mr M.J. Ward - Plaintiff Mr J.E. Lazarus - Defendant SOLICITORS : Home Wilkinson Lowry - Plaintiff Arnold Bloch Leibler - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J WEDNESDAY, 14 FEBRUARY 2007 3566/06 W & P REEDY PTY LIMITED v MACADAMS BAKING SYSTEMS (PTY) LIMITED JUDGMENT 1 The plaintiff applies under s.459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 5 June 2006 served on it by the defendant. The statutory demand relates to an aggregate sum of $109,568.55 made up of five separate debts related to invoices the numbers and dates of which are set out in the demand. The dates and amounts are: 15 December 2000 $ 9,913.70 10 July 2002 $48,912.67 10 September 2002 $40,168.50 27 February 2003 $ 7,953.00 25 October 2004 $ 2,620.68 2 The plaintiff relies on s.459H(1)(b) of the Act and the proposition that it has "offsetting claims" as defined by s.459H(5). Three offsetting claims are alleged. The first is said to arise from an agreement to pay commissions. The second and third are claims for allegedly faulty workmanship. 3 What I have just said will be better understood in the context of a description of the parties' relationship. The defendant, a South African company, is a manufacturer of commercial baking ovens. It manufactures ovens in South Africa. For a period of at least fifteen years, the plaintiff imported the defendant's ovens into Australia for sale to Australian customers. The plaintiff also provided after-sales service in relation to the ovens. The debt the subject of the statutory demand relates to the supply of ovens by the defendant to the plaintiff. 4 Mr Bryndum is the sole shareholder and sole director of the plaintiff. He is also the managing director (and apparent controller) of another company, European Bakery Importers Pty Ltd. A letter of 16 March 2000 from that company to the defendant, signed by Mr Bryndum as managing director, refers to the plaintiff as the "Australian trading company" of European Bakery Importers Pty Ltd. 5 I consider first the evidence on the matter of commissions. The parties accept that an agreement for the payment of commissions by the defendant was made in or about 1994. The plaintiff says that the agreement was between the defendant and the plaintiff. The defendant says that the agreement was between the defendant and Mr Bryndum himself. The parties also take different views about the terms of the agreement. The plaintiff's contention is that the commission was to be a flat $1,000 for each oven sold by the defendant. The defendant says that the commission was to be 5% on sales of ovens by the defendant. It is common ground that the agreement regarding commissions extended to rack ovens only. 6 The agreement concerning commissions was oral. It was made between Mr Pouliart, who was managing director of the defendant from 1988 to 2000, and Mr Bryndum. Each has sworn an affidavit in which he gives his version of the relevant conversation, which occurred in 1994. The accounts differ as to the basis of calculation ($1,000 per oven versus 5% of sales). They also differ as to the capacity Mr Bryndum was exercising when he spoke. According to Mr Pouliart, he said to Mr Bryndum, "You will receive a discount or commission for every baking oven installed in Australia ….". Mr Bryndum's version has Mr Pouliart saying, "Lars, your company will receive a credit of $1,000 for every baking oven of ours that is installed in Australia". 7 Certain correspondence throws light on the agreement that both parties accept was made by means of the 1994 conversation. But the light leaves substantial areas of shadow. 8 On 13 February 2006, the defendant's Sydney solicitors sent a letter of demand to the plaintiff in respect of the sum of $109,568.55 which later became the subject of the statutory demand. Copies of the five relevant invoices were enclosed. The plaintiff, by letter dated 15 February 2006 and signed by its financial controller, acknowledged the letter of demand, observed that "the dispute in question took place over 6 years ago" and sought time "to clarify particulars in regards to your client's claim". On 27 February 2006, the plaintiff's financial controller wrote again to the defendant's solicitors saying: "After going through our archive, we did not find any records relating to the transaction dated 26/06/2002, being an adjustment made to the total sum of $51,807.30, as stated in the Statement attached to your letter dated 13th of February 2006." 9 On 27 March 2006, the defendant's solicitors wrote to the plaintiff's financial controller saying: "In relation to your query regarding the adjustment made on 26 June 2002, this adjustment was made to Invoice No. 13637, Transaction Reference B538-X887/00. The amount of $51,807.30 was set-off by Macadams as payment of commission due under the agency arrangement between Macadams and W & P Reedy. This set-off was indicated to W & P Reedy by an email from Macadams dated 25 June 2002. A copy of the email is attached for your reference." 10 The enclosed email was dated 25 June 2002. In that email, the export sales director of the defendant said to Mr Bryndum, among other things: "I have also instructed our account department to transfer your commission to your outstanding account and send you an update at the end of this month." 11 Upon receipt of the letter of 27 March 2006 enclosing a copy of the 2002 email, the plaintiff's financial controller wrote to the defendant's solicitors on 5 April 2006 referring to that letter and saying: "We again refer to the source of the $51,807.31 being transferred against our account with the transaction reference B538-X887/00. As previously requested please provide details as to the origin of the 'commission' and how it was calculated." 12 The defendant also relies on correspondence of the period 2000 to 2003. It is clear that the defendant had continuing problems in recovering moneys from the plaintiff. On 16 March 2000, Mr Bryndum, using the European Bakery Importers letterhead and signing as "managing director", wrote to the defendant regarding "our outstanding account" and saying: "… we would like to reassure Macadams of European Baker Importers and there [sic] Australian trading company, W & P Reedy Pty Ltd's long term trading viability." 13 The letter went on to refer to an arrangement for payment at the rate of $50,000 per month. The letter continued: "To address your question regarding how we intend to clear the debt, and increase Macadams security, we would say the following. 1) I authorise you to use my account that is held in South Africa, containing an amount of approximately AU$42,000.00 as security." 14 Mr Hodgson's affidavit includes an extract from the defendant's books of account in respect of the period December 1997 to October 2000. It is convenient to refer to it as "the commission schedule". Under the heading "Customer name and address" appears "LARS BRYNDUM – COMMISSION AUSTRALIA". There are then entries for fourteen dates ranging from 4 December 1997 to 17 October 2000. An amount is shown for each, together with a total of 215,845.76 Rand. There is then a handwritten notation "AUD51,807.30". This is obviously the figure for which credit was given as referred to in the correspondence at paragraphs [8], [9] and [11] above. 15 As at March 2000, when Mr Bryndum authorised use of "my account that is held in South Africa, containing an amount of approximately AU$42,000.00 as security", the items reflected in the commission schedule (that is, all but the last two, which carried dates later than March 2000) totalled 180,606.76 Rand. The exchange rate applied to the total of 215,845.76 Rand to produce the equivalent of $51,807.30 Australian currency was, clearly enough, 4.1663 Rand to the dollar. If that same exchange rate is applied to 180,606.76 Rand, the Australian currency equivalent is seen to be $43,349.25. 16 Also annexed to Mr Hodgson's affidavit are several handwritten credit notes for commission, together with machine generated versions. Each handwritten credit note (and corresponding machine generated version) refers to an amount and date corresponding with an item in the commission schedule. The handwritten documents all refer to "5% commission". They are addressed variously to "European Bakery Importers", "EBI – Lars Bryndum Commission", "EBI", "European Bakery Importers (Lars Bryndum Comm)" and "(European Bakery Importers) Lars Bryndum (LA1002) Comm A/c". The corresponding machine generated documents, however, refer uniformly to "Lars Bryndum – Commission". 17 Mr Hodgson has also put into evidence two like machine generated documents for commissions not reflected in the commission schedule but referable to dates within the period spanned by the commission schedule. One document refers to 12 October 2000, the other an indecipherable date also in 2000. Each of these documents is addressed to the plaintiff (described as W & P Reedy (Pty) Ltd – commis") and refers to "commission". Accompanying invoices showing corresponding amounts make it clear that the commission is a 5% commission. 18 On 11 September 2003, the defendant wrote to the plaintiff about the outstanding debt and requesting "a detailed and committed action plan of settling this debt". The plaintiff's response of 12 September 2003 proposed "a payment plan of AUD$5,000 per month for the moment". That proposal was accepted by the defendant which added: "… we require you to stick to a regular monthly payment and not like the past where a commitment were [sic] made to pay a certain amount and this was not followed through by yourselves." 19 In an email of 31 January 2006 – shortly before the start of the solicitors' correspondence already mentioned – Mr Bryndum said to an officer of the defendant: "… you are very well aware that we will pay our depth [sic; scil 'debt'] to you and that we have made attempts to do so … I feel very embarrassed and humble that I have not been able to comply with our promises." 20 I turn now to the evidence concerning other offsetting claims on which the plaintiff relies. 21 The plaintiff asserts an offsetting claim related to the installation of ovens at Waterwheel Industries. The claim is referred to in a letter of 30 May 2006 from the plaintiff's financial controller to the defendant's solicitors which formed part of the chain of correspondence in advance of the service of the statutory demand. The plaintiff said in that letter: "During an installation of 6 ovens at Waterwheel Industries W&P Reedy Pty Ltd incurred total expenses to the sum of $59,003.00 (cost prices). The total expense included $27,398.00 worth of acceptable installation costs. A further $31,602.00 was incurred due to faulty workmanship as well as incorrect engineering design. We have sold numerous Macadams ovens in Australia and due to threat of legal action we have had to rectify the ovens for our customers, costs incurred were not associated with the normal installation and maintenance outlay, it was purely to rectify faulty Macadams workmanship and engineering. After careful examination of expenses associated with Macadams Ovens, we would like to offer a total of $50,000 as final settlement to this matter." 22 Mr Hodgson acknowledges in his affidavit that the defendant had sent its production manager to Australia in 2004 to oversee and advise on rectification work required to be carried out on ovens installed at Waterwheel Industries. Mr Hodgson also says that, in August 2005, the defendant issued a credit to the plaintiff for $20,430.00. The credit note is annexed to his affidavit. It refers to "work done on Waterwheel". On his version of events, the complaint was thereby resolved. 23 Finally, as regards evidence, I consider the alleged offsetting claim related to defects in Macbake ovens. The plaintiff asserts a claim for $11,542.26 representing the costs of rectifying various oven faults. There is in evidence a series of emails between Mr Bryndum and Mr Hodgson in January 2006 about what Mr Bryndum described as "continuing problems with your deck ovens". Mr Hodgson replied that he did not accept the comments on continued problems, referring to a visit in late 2004 after which certain parts were supplied at no cost to effect repairs or improvements, since when nothing more had been heard from the plaintiff. Mr Bryndum responded that the parts supplied at that time were the wrong parts and that the plaintiff had had to replace them and effect rewiring at its own cost. 24 I shall return presently to the question of the conclusions that should be drawn from the evidence. 25 Section 459H(1)(b), read in conjunction with the definition of "offsetting claim" in s.459H(5), requires the court to consider whether the plaintiff has a "genuine" claim against the defendant in respect of each of the matters raised. It is also necessary to ascribe an "amount" to any "genuine" claim in order to determine, under s.459H(2), the "offsetting total" which plays a central part in determining whether the "substantiated amount" is less than the statutory minimum of $2,000. The court's task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried (Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith (Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious (Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37). 26 With these principles in mind, I proceed to a consideration of the evidence concerning the alleged offsetting claim in respect of commission. It is particularly noteworthy that the financial controller of the plaintiff, in correspondence with the defendant's solicitors culminating in service of the statutory demand, found it necessary to inquire about "the origin of the 'commission' and how it was calculated". The financial controller also said that the plaintiff's "archive" contained no record of the transaction of 26 June 2002 involving an "adjustment" of $51,807.30. It is thus clear that the plaintiff's records did not disclose any entitlement on its part to commissions and that the financial controller had no knowledge of any such entitlement. 27 The sum of $51,807.30 was, clearly enough, appropriated by the defendant in 2002 from the account to which the commission schedule relates. There can be no real doubt that this was done in conformity with Mr Bryndum's letter of 16 March 2000 in which he said to the defendant, concerning arrangements to clear the plaintiff's debt: "I authorise you to use my account that is held in South Africa, containing an amount of approximately AU$42,000.00 as security." 28 The relevant account ("my account that is held in South Africa") stood in credit to the extent of the equivalent of some $43,300 (which may be accepted as being "approximately AU$42,000.00") when Mr Bryndum wrote that letter in March 2000. The account referred to in the letter obviously did not relate to moneys to which the plaintiff was entitled. Had the moneys been moneys to which the plaintiff was entitled, the defendant could simply have appropriated them and, in the light of the ongoing difficulties in obtaining payment, would have done so. Mr Bryndum's letter referred to the credit balance in the account as being used "as security". There was thus obviously an intention that something not belonging to the plaintiff should be available to the defendant merely as security for the plaintiff's indebtedness. Mr Bryndum also made it clear who owned the credit balance made available as security. By referring to "my account that is held in South Africa" he acknowledged himself to be the owner. 29 The contemporary records generated within the defendant show that the credit balance in the commission schedule belonged to (or was due to) Mr Bryndum – or, at least, that it did not belong to (and was not due to) the plaintiff. None of the credit notes corresponding with the entries in the commission schedule is addressed to or refers to the plaintiff. All mention European Bakery Importers (or "EBI") and most contain additional words referring to "Lars Bryndum commission" or something similar. It is true that there are two similar documents, not reflecting entries in the commission schedule, which do refer to the plaintiff and to a 5% commission. But these, by comparison, are isolated instances. 30 It is also particularly noteworthy that when the defendant pressed the plaintiff for payment in September 2003 and again in January 2006, the plaintiff's responses, through Mr Bryndum, referred to payment by instalments, gave assurances that payment would be forthcoming and expressed embarrassment and the like. At no point – particularly on 31 January 2006, which was a little over five months before the commencement of these proceedings – did the plaintiff say to the defendant, "Instead of pressing us for payment of the debt, you should simply set off the debt against the greater sum you owe us for commission and in that way recover what we owe you". 31 Although the test for proof of the existence of an offsetting claim is not demanding, the plaintiff has not satisfied that test as regards the case it seeks to make regarding commissions. Particularly telling are the financial controller's ignorance in the first part of 2006 of any commission entitlement and the total failure of Mr Bryndum, when expressing in January 2006 embarrassment and humbleness about non-compliance with promises to pay, to assert the very substantial entitlement to commissions that the plaintiff advanced in these proceedings only a few months later. Contemporary documentary evidence points very strongly to the conclusion for which the defendant contends, namely, that Mr Bryndum himself was party to a commission arrangement and that the plaintiff was not. 32 The plaintiff fails in the part of its s.459H(1)(b) case related to commissions. The defendant's submission that that part of the case involves recent invention is established by the evidence. 33 I consider next the alleged offsetting claim related to Waterwheel Industries. It is clear that there were problems associated with ovens supplied to Waterwheel. It is also clear that the defendant took steps to rectify the problems in 2004 and that a sum of $20,430.00 was credited to the plaintiff in respect of those problems. The plaintiff did not, at that time, refuse the credit of $20,430.00 or complain that it was inadequate. Nor did the plaintiff at that time pursue the matter with the defendant in any way. It was only in the letter of 30 May 2006, in the course of the correspondence preceding the statutory demand and after the solicitors' letter of demand dated 13 February 2006, that the plaintiff saw fit to raise the question of compensation for the Waterwheel events – and it did so as part of an attempt to persuade the defendant to accept an offer of "$50,000 as final settlement to this matter", that is, the claim in the solicitors' letter of demand that eventually became the subject of the statutory demand. 34 The inference I find irresistible is that the plaintiff manufactured a claim in relation to a closed incident concerning Waterwheel as a direct response to the claim in the solicitors' letter and in an attempt to put pressure on the defendant to accept the offer of $50,000. Again, the defendant's contention that the supposed offsetting claim is a matter of recent invention must be accepted. 35 The final matter for consideration is the alleged offsetting claim for defects in Macbake ovens. The conclusion there is essentially the same as that in relation to the Waterwheel matter. The evidence suggests that there had been complaints from the plaintiff in 2004 and that the defendant had addressed the matter then, sending someone to Australia and supplying materials to rectify matters. There was no complaint thereafter, it seems, until January 2006 – at which time, it may be noted, the defendant was pressing the plaintiff again for payment. As in the case of Waterwheel, the plaintiff was apparently content to accept the remediation provided by the defendant and to let the matter drop for over a year before making an opportunistic claim when pressed for payment by the defendant. 36 The plaintiff has failed to make out any case of offsetting claim within s.459H(1)(b). 37 The originating process is therefore dismissed with costs. ********** 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.