Van Motman Pty Ltd v Creative Fitness Marketing Pty Ltd [2010] QSC 105 (12 April 2010)

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CITATION:	Van Motman Pty Ltd v Creative Fitness Marketing Pty Ltd [2010] QSC 105
PARTIES:	VAN MOTMAN PTY LTD ACN 116 530 100 (applicant) AND CREATIVE FITNESS MARKETING PTY LTD ACN 108 560 292 (respondent)
FILE NO/S:	11378/09
DIVISION:	Trial Division
PROCEEDING:	Application
ORIGINATING COURT:	Supreme Court at Brisbane
DELIVERED ON:	Order delivered ex tempore 6 November 2009 Further Order and reasons delivered 12 April 2010
DELIVERED AT:	Brisbane
HEARING DATE:	6 November 2009
JUDGE:	Atkinson J
ORDER:	The respondent pay the applicant its costs on a standard basis.
CATCHWORDS:	CORPORATIONS LAW – STATUTORY DEMAND – SETTING ASIDE – COSTS – where respondent’s statutory demand was set aside – where there was a genuine dispute about the existence of the debt – where there was some other reason why the demand should be set aside – where respondent incorrectly identified itself as creditor – where respondent served statutory demand on the applicant – where applicant mistakenly asserted in affidavit that it had entered into a contract with the respondent – where inference could be drawn from material exhibited to affidavit that respondent was not contracting party – where applicant later clarified that it had not contracted with the respondent - whether costs should be awarded against the respondent – whether costs should be awarded on a standard or indemnity basis Corporations Act 2001 (Cth), s 459P(1)(b), s 459C(2)(a), s 459E, s 459G, s 459H(1)(a), s 459H(1)(b) s 459J(1)(a), s 459J(1)(b) C & E Pty Ltd v Corrigan [2006] 2 Qd R 399; [2006] QCA 47, considered David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; [1995] HCA 43, cited Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 21 ACSR. 581, applied Hansmar Investments Pty Ltd v Perpetual Co Ltd (2007) ACSR 321; [2007] NSWSC 103, applied Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; (1993) 11 ACLC 1062, cited Neutral Bay Pty Ltd v Deputy Commissioner of Taxation (2007) 25 ACLC 1341; [2007] QCA 312, considered Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919, cited Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143, considered Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 15 ACLC 1001; [1997] FCA 681, considered
COUNSEL:	PD Hay for the applicant N Ferrett for the respondent
SOLICITORS:	James Conomos Lawyers for the applicant Hall Lawyers for the respondent

[1] On 6 November 2009 I ordered that the respondent’s statutory demand dated 16 September 2009 be set aside. On that occasion I indicated that I would provide reasons for making that decision. These are those reasons.

[2] The statutory demand was served on 18 September 2009 claiming the sum of $83,453.73. The debt was described in the statutory demand as follows:

“The total of the debts comprised of Good/Services supplied to the Company by the Creditor at the Company’s request and of future earnings lost by the Company because of Creditor in accordance with Clause 5 of the Contract between the company and the Creditor set out below

[3] A creditor may apply to wind up an insolvent company under s 459P(1)(b) of the Corporations Act 2001 (the “Act”). The court must presume that the company is insolvent if, during or after the three months ending on the day when the application was made, the company fails to comply with a statutory demand (s 459C(2)(a)). A statutory demand is served under s 459E. Such demand must relate to a single debt that the company owes to the person that is due and payable and whose amount is at least the statutory minimum or two or more debts that the company owes to the person that are due and payable and whose amounts total at least the statutory minimum. The demand must, inter alia, specify the debt and its amount or total amount.

[4] A company such as the applicant may apply to the court, pursuant to s 459G(1) of the Act, for an order setting aside a statutory demand served on it. Such application may only be made within 21 days after the demand is served.[1] There is no dispute that the application in this case was made within time. Section 459G(3) sets out requirements for such an application, which must be strictly complied with.[2] The application must be accompanied by an affidavit in support and a copy of the application and a copy of the supporting affidavit must be served on the person who served the demand on the company.

[5] An application to set aside a statutory demand must be supported by an affidavit. Any such affidavit must comply with what is usually referred to as the Graywinter principle.[3] The Graywinter principle is that an affidavit in support must be filed within 21 days after the demand is served and must say something that promotes the company’s case. A supporting affidavit need not detail in admissible form all the evidence that supports the contention of a genuine dispute but must disclose facts which show that there is a genuine dispute between the parties. An applicant whose initial affidavit has satisfied the threshold test is able to supplement the material in subsequent affidavits.

(1) there is a genuine dispute about the existence or amount of a debt to which the demand relates (s 459H(1)(a));

(2) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside (s 459J(1)(a)); or

(3) there is some other reason why the demand should be set aside (s 459J(1)(b).

[7] At the hearing of the application to set aside the statutory demand the respondent conceded that the amount of $29,960 claimed for “future direct debit proceeds” was properly to be characterised as a claim for damages and could not be claimed in a statutory demand. It also conceded that the amount of $21,662.11 claimed in respect of the 2007 debt for the cost of advertising had been paid. Accordingly, it was no longer necessary to deal with the applicant’s arguments relating to those alleged debts. That left only the debt of $31,831.62 said to be owing “in accordance with Clause 5 of the Contract between the Company and the Creditor” in respect of the 2008 agreement for the cost of advertising.

[8] With reference to the requirement to show that there was a genuine dispute between the company and the respondent about the existence or amount of a debt, Keane JA, with whom Williams JA and Muir J agreed, observed in C & E Pty Ltd v Corrigan:[4]

“While the bar set by s 459G of the Corporations Act is not set very high,[5] it is necessary to be able to show that there is a ‘genuine’ claim as opposed to a claim which is ‘spurious’ or ‘misconceived’.”

[9] This formulation is consistent with that set out by the Full Court of the Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd.[6] The court referred to many different formulations of the test of genuine dispute set out in s 459H(1)(a) of the Act including the often quoted formulation of Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia[7] and that of Thomas J in Re Morris Catering (Australia) Pty Ltd[8] where his Honour said:

“There is little doubt that the Division 3 is intended to be a complete code which 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).”

[10] After reviewing the many authorities therein referred to, the court held at 1,011:

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.”

[11] It follows that the first question before the court is whether or not I am satisfied that there is a genuine dispute on grounds that are real rather than spurious or misconceived between the applicant, Van Motman Pty Ltd ACN 116 530 100, and the respondent, Creative Fitness Marketing Pty Ltd ACN 108 560 292, about the existence or amount of the debt to which the demand relates.

[12] The only debt remaining in contention is the debt alleged in the statutory demand of $31,831.62 being “debt recovery for ‘cost of advertising’” in 2008 said to be owed by the applicant to Creative Fitness Marketing Pty Ltd ACN 108 560 292 pursuant to clause 5 of the contract between the applicant and the respondent.

[13] The applicant submitted that there was a genuine dispute as to the existence of the debt demanded. This submission was made on two bases. Firstly the applicant submitted that it did not have any agreement with the respondent. Rather the agreements were made between the applicant and “Creative Fitness Marketing Ltd ACN 060 723 677” and that accordingly there was no debt owing to the respondent company which has a different name and a different Australian Company Number (ACN). Secondly the applicant submitted that any amounts that were payable by the applicant for the provision of marketing services had been paid.

[14] The affidavit of Chris Van Motman, a director of the applicant, filed in support of the application disputed that the applicant company was indebted to the respondent whether in the amount claimed in the statutory demand or at all. The affidavit then dealt with each of the three claims in the statutory demand. The respondent has conceded that it cannot make a claim for the 2007 agreement under which no monies are owing or in respect of future direct debit proceeds which is not properly a claim for debt but for damages. The only claim on which it continued to rely from the statutory demand was the claim in respect of the 2008 agreement.

[15] The principal difficulty faced by the applicant is that Mr Van Motman, a director of the applicant, swore that the applicant and the respondent entered into the 2008 agreement.[9] The affidavit exhibits that agreement. It is therefore necessary to look at what the 2008 agreement was said to be. The 2008 agreement, like the 2007 agreement, was between Studio 54, the name of the business conducted by Van Motman Pty Ltd, and a company called Creative Fitness Marketing Ltd ACN 060 723 877. That company is not the respondent to this application. The respondent, Creative Fitness Marketing Pty Ltd ACN 108 560 292, is a registered Australian company. Another company with the same ACN as the party to the contract, Creative Fitness Marketing of Australia Pty Ltd ACN 060 723 677, became a registered company on 29 June 1993 and has been deregistered since 14 October 2009. The 2008 agreement does not therefore appear to be a contract entered into between the applicant and the respondent. There is no evidence of any novation or assignment of the benefit of this contract so on the face of the contract which is exhibited to the supporting affidavit, the company which served the statutory demand is not a creditor of the applicant at all.

[16] That point is not made explicitly in the affidavit by Mr Van Motman in support of the application to set aside the statutory demand; indeed he asserts that the applicant and the respondent entered into the 2008 agreement. On the face of the contract, he appears to have been mistaken. That the respondent was not in fact the contracting party is an inference that is available from the contracts exhibited to the supporting affidavit. That ground of challenge was not precisely delineated in the affidavit itself nor was it a necessary inference from the affidavit. However it was an available inference from the exhibited material and so, as White J of the Supreme Court of New South Wales held in Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd,[10] it could be said that the ground was raised in the supporting affidavit. At [33] his Honour said:

“[the grounds of challenge] arise from the terms of the supporting affidavit and documents annexed to it. In my respectful opinion, it is not necessary for the applicant to expressly articulate the grounds in the affidavit, or to do so by necessary inference, as distinct from available inference.”

[17] This ground of challenge was fully articulated in a subsequent affidavit filed by Nicole Van Motman, another director of the applicant, filed on 3 November 2009. While the ground of challenge is difficult to discern from the supporting affidavits filed within time, it can be inferred from the material exhibited to the affidavit. A challenge to a debt said to be based on a contract which is not in fact between the applicant and the respondent cannot be said to be spurious or misconceived. It demonstrates that there is a genuine dispute about the existence of the debt to which the demand relates.

[18] Further and alternatively the applicant submitted that the fact that the relevant contract was not between it and the respondent satisfies the test set out in s 459J(1)(b) of the Act, that is that the court may set aside the demand if it is satisfied that there is some other reason why the demand should be set aside.

[19] In Neutral Bay Pty Ltd v Deputy Commissioner of Taxation[11], Keane JA, with whom Holmes and Muir JJA agreed, said of s 459J(1)(b) of the Act:

“The relevant statutory basis for setting aside a demand is ‘some other reason’. It is difficult to argue that one is dealing here with a code, but much less to say that the scope of what may be comprehended by ‘some other reason’ is impliedly narrowed by the terms of the three other bases. The broad comprehensive scope of the expression ‘some other reason’ cannot be narrowed by reading it as referring only to ‘other reasons’ which are eiusdem generis with the reasons expressly prescribed, if for no other reason than the impossibility of identifying a ‘genus’ common to s 459H(1) and (2) and s 459J(1)(a) and, as has been seen, s 459H is expressed to be subject to s 459J.

The discretion conferred by s 459J(1)(b) is a ‘discretion of broad compass’. It was described in these terms by the Full Court of the Federal Court in Arcade Badge Embroidery Co Pty Ltd v DCT.[12] That the Full Court in that case went on to say that the discretion ‘extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice’ does not suggest that the Court was seeking to give an exhaustive statement of the cases comprehended by the discretion which would exclude ‘unfairness’ the kind identified by the learned primary judge in this case.

Further his Honour said at [84] ‘it may, indeed, be preferable ... to avoid attempts to categorise a ‘reason’ for setting aside a statutory demand under s 459J(1)(b) of the Act in terms of ‘unconscionability’ or ‘abuse of process’ because reference to these legal categories tends to distract attention from the real question which is whether there is a good reason to deny effect to a statutory demand as creating a ground for the winding up of a debt or company. Similarly, broad notions such as ‘substantial injustice’ or ‘unfairness’ may describe a judge’s reaction to circumstances which may constitute a reason to set aside a demand without affording an explanation of the analysis which has led to that conclusion.”

[20] This elucidation of the compass of s 459J(1)(b), with which I respectfully agree, has been followed in many subsequent cases. In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd,[13] Barrett J held that the operation of the subsection was not confined to cases coming within established categories such as unconscionability and abuse of process but that the section applied wherever there was a need to counter some attempted subversion of the statutory scheme.

[21] There is in my opinion an attempted subversion of the statutory scheme if a company which is not a creditor serves a statutory demand upon a company which is not indebted to it as a precursor to using the court process to wind up the company served with the statutory demand in insolvency because of its failure to pay the amount demanded in the statutory demand. The demand should therefore also be set aside pursuant to s 459J(1)(b) of the Act.

[22] Another reason advanced by the applicant for setting aside the statutory demand was a belief sworn to by the applicant that the amounts said to be owing under the 2008 agreement had already been paid. It should first be noted that as well as abandoning the claim for the 2007 debt and the future direct debit proceeds the respondent abandoned its demand for some of the $31,831.62 said to be debt recovery for cost of advertising in 2008. During the hearing the respondent claimed that it was only entitled to 55 per cent of the amount claimed and that figure was $17,695.92.

[23] The affidavits filed in support of the application to set aside the statutory demand, as I have previously mentioned, dealt explicitly with the belief by the applicant company that the respondent had been paid in full for that amount. This submission will be considered as if the applicant were in fact in a contractual relationship with the respondent which I will hereinafter refer to as CFM.

[24] The agreement between CFM and Studio 54 set out that Studio 54 agreed to retain CFM, referred to in the contract as “the marketer”, to engage in marketing promotion in order to generate club membership sales. An independent third party billing company (Regalcroft Pty Ltd) (“Regalcroft”) would collect monies, in particular membership subscriptions of persons in relation to the club and payments for services provided by the club. Regalcroft would charge a five per cent collection fee and the remaining receivables would be paid 55 per cent to the club and 45 per cent to the marketer. If the club was sold it covenanted and agreed to obtain an agreement in favour of the marketer from the purchaser to protect the marketer’s rights to receive the monies it would have received had the club not been sold. Clause 10 provided that membership downpayments collected as a result of the marketer’s activities would be deposited into the promotional chequing account and the money would be used to pay the promotional expenses. After promotional expenses were paid, the excess would be divided as aforesaid, that is 45 per cent to the marketer and 55 per cent to the club.

[25] Attached to the agreement were directions as to how the promotional costs were to be paid. The promotional costs were said to be $32,174.40. Regalcroft was directed to allocate 50 per cent of the collection to the marketer as debt recovery, 22.5 per cent to the marketer as profit and 27.5 per cent to the club as profit until the debt had been fully recovered. Once the debt had been recovered then Regalcroft should revert to splitting the revenue 55 per cent to the club and 45 per cent to the marketer.

[26] The applicant asserts that in the period covered by the 2008 agreement, it owned Studio 54 for 30 weeks and thereafter it was owned by new owners to whom it had been sold. During that period $26,692.29 was distributed by Regalcroft with $14,869.36 being paid to CFM and $11,822.93 to the applicant. If, as may be considered doubtful, CFM sent the directions to Regalcroft and Regalcroft paid the entities in accordance with those directions then 50 per cent of the receivables were paid in respect of CFM’s expenditure being the sum of $13,346.15. However, the amounts paid are not consistent with the directions so it appears that Regalcroft was either not sent a copy of the directions or did not pay in accordance with them; nor did Regalcroft pay in accordance with the contract between the applicant and CFM.

[27] Accordingly, the best one can deduce on the material available was that the $14,869.36 paid to CFM was on account of its expenses. That left $16,962.26 unpaid of CFM’s expenses. The distributions between Studio 54 and CFM continued under the new ownership of the business of Studio 54, with monies being paid to CFM and the new owners of Studio 54 by Regalcroft. There is nothing in the material filed to show how much of the $16,962.26 has not been paid by the new owners of Studio 54. How much money was paid of course is known to the respondent but not to the applicant. There was a claim by the respondent in its statutory demand in respect of that year for $31,831.62. The applicant can demonstrate that that amount of money was not owing to CFM. Only the respondent can attest to the amount, if any, outstanding once the amounts paid to it by Regalcroft are deducted from the marketing expenses said to be $32,174.40.

[28] In submissions counsel for the respondent submitted that the respondent was entitled to only 55 per cent of the amount claimed for expenses being $17,695.92. That does not appear to be necessarily consistent with the contract or the directions as to payment. The contract appears to be internally contradictory and the directions as to payment which may or may not have been given by CFM to Regalcroft set out yet another way of paying the monies. In these circumstances where only CFM can know whether or not it has been paid and if so how much monies by the new owners of Studio 54, there is certainly ground for the applicant to dispute the existence and amount of the debt and that dispute is a genuine one which cannot be determined in proceedings such as the present.

[29] The applicant has grounds both under s 459H(1)(a) and s 459J(1)(b) to have the statutory demand set aside which was the order which was made on 6 November 2009.

[30] In the ordinary course costs follow the event. That is the appropriate outcome in this case. On the hearing the applicant sought its costs on a standard basis but subsequently made submissions that it should receive them on an indemnity basis. Given the unsatisfactory nature of the affidavits filed with the application to set aside the statutory demand I am not prepared to award costs on an indemnity basis. Nevertheless, the applicant has been successful and there is no reason why it should not have its costs on a standard basis.

[31] The respondent pay the applicant its costs on a standard basis. The full costs are set out in an affidavit by Stephen O’Grady sworn 6 November 2009 however I am not in a position to judge what the costs would be on a standard basis. I therefore award costs to the applicant on a standard basis to be assessed.

Supreme Court of Queensland