Drum Cafe Australia Pty Ltd v Lieberman [2010] NSWSC 642

New South Wales Supreme Court

CITATION : Drum Cafe Australia Pty Ltd v Lieberman [2010] NSWSC 642

HEARING DATE(S) : 15/06/10

JUDGMENT DATE : 15 June 2010

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

EX TEMPORE JUDGMENT DATE : 15 June 2010

DECISION : Statutory demand set aside.

CATCHWORDS : CORPORATIONS - winding up - statutory demand - application for order setting aside - whether genuine dispute - observations on need for the parties to progress such matters promptly to hearing

LEGISLATION CITED : Corporations Act 2001 (Cth), s 459G

CATEGORY : Principal judgment

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 CASES CITED : Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 National Australia Bank Ltd v Rusu [1999] NSWSC 539; (1999) 47 NSWLR 309

TEXTS CITED : Practice Note SCEq 4

PARTIES : Drum Cafe Australia Pty Limited - Plaintiff Warren Lieberman - Defendant

FILE NUMBER(S) : SC 2008/280638

COUNSEL : Ms J F Merkel - Plaintiff Mr S M Briggs - Defendant

SOLICITORS : Smith Lawyers - Plaintiff Kemp Strang - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

TUESDAY 15 JUNE 2010

2008/280638 DRUM CAFE AUSTRALIA PTY LIMITED v WARREN LIEBERMAN

JUDGMENT

1 The plaintiff applies under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendant. The statutory demand is dated 20 August 2008. The present application is by originating process filed on 17 September 2008, now almost two years ago, I shall return to that matter. 2 The debt or alleged debt to which the statutory demand relates is described as unpaid royalties pursuant to an agreement made on 20 December 2004. Several distinct amounts are said to be due for several distinct periods under the alleged agreement of that date. 3 The plaintiff maintains there is a genuine dispute as to the existence of the debt because there is a genuine dispute as to the existence of the agreement of 20 December 2004 from which the debt is said to arise. 4 It is common ground that Mr Radus and Mrs Radus developed a method of team building for businesses through African music known as "Drum Cafe" and, in or about 2001, were in contact with the defendant about the possibility of introducing their business to Australia. In September 2001 Mr Radus, Mrs Radus and the defendant all signed a document entitled "Contract For Drum Cafe Australia". The plaintiff company, however, did not exist at that time. It was incorporated on 8 October 2001, although by persons not associated with Mr Radus, Mrs Radus and the defendant. At some point thereafter the defendant arranged the acquisition of the company from those other persons. Mr Radus, Mrs Radus and the defendant became directors in January 2002 at the earliest. The search evidence suggests that one or more of them may have become directors in January 2003. Nothing turns on this. 5 The agreement of 20 December 2004 on which the defendant relies is apparently an oral agreement. The defendant sought to place reliance on an unsigned document bearing the date 20 December 2004 but, in the absence of proof of the document's providence and authenticity, it was not admitted into evidence: National Australia Bank Ltd v Rusu [1999] NSWSC 539; (1999) 47 NSWLR 309. But even if the document had been admitted, it would have been of limited use given that it was expressed to be a "Memorandum of Understanding between Warren Lieberman, Lance Radus and Maxine Radus" reached at a meeting at the office of an accountant, Mr Kargas. The plaintiff's company is not mentioned in the document. 6 Mr Radus gives affidavit evidence of a meeting in December 2004 and the accountant's office: "13. In about December 2004 the Defendant attended a meeting with Maxine and me and the Plaintiff's accountant, Evan Kargas. I was inexperienced in business and accounting matters and left most of the negotiating with the Defendant to Evan Kargas. At that meeting Evan kargas said words to the effect to the Defendant: 'It is impossible for Lance and Maxine to pay you 20% of income of the business. The business would simply fold." The Defendant said words to the effect: 'Yes, I see that. Forget about any money up until now. I'm not interests in sharing the income so much as earning a royalty for the use of my trade mark going forward.' They had some discussion then about proposed royalty payments how it should be recorded in the event that the Plaintiff did not have the funds to pay it. 14. A few days after that meeting, I met with the Defendant for dinner. I said to him words to the effect: 'Can we reach some agreement about how this business will operate?' He said words to the effect: 'I have changed my mind about some of the matters we discussed. I do not want to sell my share in the company.'" 7 Mr Kargas also gave an account as follows of a discussion between himself and the defendant at that meeting: "During that meeting I had a discussion with the Defendant including to the following effect: I said: 'I understand that there is an agreement that you will receive 20% of the turnover from the Drum Café business. That figure is unsustainable. If that is what you want from the business then the company will have to be wound up.' He said: 'I agree that the figure is unrealistic. I don't want the company to fold. It has a great future. I'm reluctant to agree on a return by way of a dividend from retained earning because retained earnings is a function of profit and loss of the business which can be very discretionary. I am only interested in royalty payments. Forget about anything claimed by me in the past. That's not worth much and I'm happy to forfeit that. Let's resolve how this will work going forward.' I said: 'I think a royalty payment of about 4-5% is realistic.' He said: 'I want more than that. This business will do really well in the future. I think I should be paid 10% royalties.' I said: 'How about a sliding scale starting at 7% for the financial year ending 2005, 8% for the following year, 9% for the year after that and then 10% for the year after that, remaining at 10% thereafter.' He said: 'I agree with that.' I said: 'My clients can't afford to pay you anything now. Payment must be deferred.' He said: 'That's fine. I am content to defer payment until such time as the company can afford to pay me. But I would like a record kept of this in the accounts of the company.' I said: 'I can put a provision in the company accounts to reflect the agreement. Lance and Maxine would also like the option to buy out your interest in the company once royalties reach 10%.' He said: 'I agree to that as long as I still have an agreement to get royalties.' I said: 'We should document this agreement.' He said: 'I agree.'"