Alpine Valley Flour Mill Pty Ltd v Grainlink (NSW) Pty Ltd
[2020] VSC 85
•2 March 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 02729
| ALPINE VALLEY FLOUR MILL PTY LTD (ACN 151 521 774) | Plaintiff |
| v | |
| GRAINLINK (NSW) PTY LTD (ACN 094 464 516) | Defendant |
---
JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 October 2019 |
DATE OF JUDGMENT: | 2 March 2020 |
CASE MAY BE CITED AS: | Alpine Valley Flour Mill Pty Ltd v Grainlink (NSW) Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 85 |
---
CORPORATIONS – Application pursuant to s 459G of the Corporations Act 2001 (Cth) to set aside statutory demand on the basis of the existence of genuine offsetting claim – Plaintiff failed to establish that alleged offsetting claim was genuine – Application dismissed.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Wirth | RJ Legal |
| For the Defendant | Mr P Miller | Oakbridge Lawyers Pty Ltd |
TABLE OF CONTENTS
Legal principles.................................................................................................................................. 3
Alpine Valley’s evidence.................................................................................................................. 8
Basfoods Group........................................................................................................................... 11
Grand Foods................................................................................................................................ 13
Euro Foods................................................................................................................................... 14
Med Foods.................................................................................................................................... 14
Campania Olive Oil Company.................................................................................................. 15
Other customers.......................................................................................................................... 15
Evidence of Grainlink in opposition to the application.......................................................... 17
The affidavit of Yousef Awad.......................................................................................... 25
Further affidavit of Khadir Abu Awad sworn 10 October 2019................................. 28
Alpine Valley’s submissions......................................................................................................... 32
Grainlink’s submissions................................................................................................................. 36
Consideration.................................................................................................................................... 43
HIS HONOUR:
On 29 May 2019, the defendant, Grainlink (NSW) Pty Ltd (‘Grainlink’) served a statutory demand dated 17 May 2019 (‘demand’) on the plaintiff, Alpine Valley Flour Mill Pty Ltd (‘Alpine Valley’). The demand was accompanied by an affidavit of Paul Pearsall sworn 17 May 2019 in compliance with s 459E of the Corporations Act 2001 (Cth) (‘the Act’).
The debts the subject of Grainlink’s demand are described as ‘Amounts due and payable for goods sold and delivered in the amount of $159,910.97’ and are described in the schedule to the demand as follows:
Date
Invoice No.
Balance owing on invoice
Road Outlet Docket No.
Origin
27 July 2018
8495
$15,235.94
522230002275 & 522230002284
Tocumwal
31 July 2018
8496
$36,147.65
522230002306 & 522230002307
Tocumwal
7 September 2018
8713
$25,408.63
522230002508 & 522230002513
Tocumwal
21 September 2018
8794
$39,641.25
838530001761 & 838530001762
Deniliquin
28 September 2018
8830
$43,477.50
522230002526 & 522230002527
Tocumwal
Total
$159,910.97
On 19 June 2019, Alpine Valley made application pursuant to ss 459H and 459J of the Act for orders that the demand be set aside or, in the alternative, that the demand be varied. The application has been made within the time prescribed by s 459G of the Act.
Alpine Valley relies on four affidavits of its director, Khadir Awad (‘Khadir’)[1] sworn 19 June 2019 (‘First Khadir Affidavit’), 25 July 2019 (‘Second Khadir Affidavit’), 28 August 2019 (‘Third Khadir Affidavit’) and 10 October 2019 (‘Fourth Khadir Affidavit’). Grainlink opposes the application and relies on the following affidavits of:
[1]The use of Mr Awad’s first name in these reasons (together with that of his brother Yousef, see below) is adopted to aid narration and it is not intended to convey any disrespect or familiarity.
(a) Ericson Malvar sworn 13 August 2019, a debt collection agent engaged by Grainlink from NCI Commercial Collections (‘NCI’) to collect amounts said to be owed to Grainlink;
(b) Richard Gale affirmed 15 August 2019, a Grains Operation Manager at Grainlink;
(c) Craig Cochrane sworn 20 August 2019, a senior manager at Graincorp Operations Limited (‘Graincorp’); and
(d) Yousef Awad (‘Yousef’)[2] sworn 9 September 2019, the co-director of Alpine Valley and estranged brother of Khadir. Yousef and Khadir are opposed in an oppressive conduct proceeding in this Court. Yousef is referred to in some affidavit material and exhibits as ‘Joe’, however I shall refer to him as Yousef in these reasons.
[2]See n 1.
Grainlink supplies grain to flour millers who then process it. The grain supplied by Grainlink is sourced from Graincorp. Alpine Valley operates a flour milling business at Myrtleford in Victoria. Over the period 5 June 2013 to 28 September 2018, Grainlink supplied grain to Alpine Valley.
Alpine Valley does not contend that it has a genuine dispute in respect of the debts claimed in the demand. Rather, it states that it has an offsetting claim which arises by reason of the presence of weevils in grain previously supplied by Grainlink. It contends that this adulterated the grain, made it unfit for purpose and caused it loss and damage.
Alpine Valley says that Grainlink is liable to it for damages for the adulterated grain that Grainlink supplied it and has a genuine offsetting claim within the meaning of s 459H of the Act. Alpine Valley estimates the value of those claims as being $227,941.08.
Alpine Valley submits that the two key issues for resolution are:
(a) first, whether it is arguable that Grainlink delivered grain contaminated with weevils; and
(b) whether those contaminated deliveries caused Alpine Valley to suffer loss.
Grainlink contends that Alpine Valley’s alleged offsetting claim is unsupported by probative evidence, is not bona fide, is spurious, ought not to be accepted and that the application should be dismissed.
For the reasons which follow, I consider that Alpine Valley’s application should be dismissed.
Legal principles
In this application, Alpine Valley bears the onus of establishing that it has a genuine offsetting claim within the meaning of s 459H of the Act, which provides:
459H Determination of application where there is a dispute or offsetting claim
(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total – Offsetting total
where:
admitted total means:
(a)the admitted amount of the debt; or
(b)the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
Offsetting total means:
(a)if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or
(c)otherwise—a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a)varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5)In this section:
admitted amount, in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c)otherwise—the amount of the debt.
offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
respondent means the person who served the demand on the company.
(6) This section has effect subject to section 459J.[3]
[3]Section 459J provides additional grounds for setting aside a statutory demand which are not presently relevant.
The principles to be applied in applications to set aside statutory demands are now well settled and were collected in the decision of the Court of Appeal in Malec Holdings Ltd v Scotts Agencies Pty Ltd (in liquidation).[4] They were summarised by the Court as follows (citations omitted):[5]
[4][2015] VSCA 330.
[5]Ibid [47]-[51].
The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. It has been said that the task faced by an applicant is by no means a difficult or demanding one.
In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute; an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim. It is therefore 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. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.
The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of 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 be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.
The court is not required to accept uncritically 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, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.
Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd involved a demand for payment of a debt alleged to be due under a contract for the supply of goods. The applicant relied on four matters, each of which had the potential to affect the respondent’s entitlement to be paid the entire amount of the debt. Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute. He relevantly stated:
The [applicant] will fail in [the] task [of establishing a genuine dispute] only if … the contentions upon which it seeks to rely … are so devoid of substance that no further investigation is warranted. Once the [applicant] shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.
In Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[6] Dodds-Streeton J (as she then was) observed at paragraph [48]:
While it is not a very exacting standard, on the other hand mere, assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which “bears on whether or not the asserted dispute or off-setting claim is genuine”. Indeed, that is its necessary function.
[6] [2006] VSC 508.
Where an applicant to set aside a statutory demand contends for the existence of an offsetting claim it bears the onus of establishing that it is genuine in the sense of being authentic or bona fide, and real, not spurious, and not frivolous or vexatious. While the threshold for establishing a genuine offsetting claim has been said to be relatively low, an applicant must establish matters beyond mere assertion and that its claim is authentic.[7]
[7]See generally Farid Assaf, Statutory Demands and Winding Up In Insolvency (LexisNexis Butterworths Australia, 2nd ed, 2012), [6.13]-[6.15] (‘Winding up in Insolvency’).
In Beauty Health Group Ltd v Scholl,[8] Barrett J noted that s 459H(1)(b) read in conjunction with the definition of offsetting claim in s 459H(5) (citations omitted):
... requires the Court to consider whether the plaintiff has a “genuine” claim against the defendant in respect of the matter 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.
[8][2011] NSWSC 77, [23].
In Winding up in Insolvency, the author observes that courts hearing applications to set aside demands are alive to the tendency of applicants to make ‘ambit’ claims and accordingly evaluate any alleged offsetting claims with a critical eye.[9]
[9]Winding up in Insolvency (n 7) [6.13].
In this regard, in JJMMR Pty Ltd v LG International Corp McPherson JA observed:[10]
Anyone can make a claim to a right of set-off against a creditor. What the definition in s 459H(5) requires, however, is that it be “genuine”. The same word in s 459H(1) has already elicited so many synonyms and shades of meaning that it will not help to add more. Its antithesis is to be seen in the word “artificial”. The claim to set off against the debt demanded must not have been manufactured or got up simply for the purpose of defeating the demand made against the company. It must have an existence that is objectively demonstrable independently of the exigencies of the demand that evoked it.
[10][2003] QCA 519, [18].
In Edge Technology Pty Ltd v Lite-On Technology Corporation,[11] Santow J observed that if there is an offsetting claim then ‘the amount of the offsetting total is the amount claimed by the plaintiff in good faith so long as that claim as so quantified is not fictitious or merely colourable’.
[11](2000) 34 ACSR 301, 306-307 [29], referring to Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 122 ALR 717.
In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd,[12] Palmer J considered the standard required for demonstrating an offsetting claim in the context of a claim for unliquidated damages for economic loss, stating that:[13]
…‘Good faith’ means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine 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 had produced 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).
[12][2001] NSWSC 743.
[13]Ibid [18].
I now turn to the evidence filed in the proceeding.
Alpine Valley’s evidence
In the First Khadir Affidavit, the only ‘21 day’ affidavit, Khadir states that Alpine Valley operates a flour milling business at Myrtleford, and buys grain from Grainlink which, once delivered, is immediately placed into silos at Alpine Valley’s mill. The grain is processed into a variety of flour products.
The flour is packaged at the mill in a variety of sizes ranging from 5 kg to 1 tonne bags which are then placed on pallets, loaded on to trucks and taken to Alpine Valley’s distribution warehouse in Melbourne. The flour is sold to a variety of businesses including distributors, wholesalers, retailers and manufacturers of food products. The deliveries are undertaken by contractors.
Khadir states that on several occasions Grainlink delivered grain to Alpine Valley that was contaminated with weevils. Khadir states that wheat weevils, often known as grain weevils or grain bugs, are common within the milling and wheat industry. They lay several hundred eggs at a time. The eggs infiltrate grain kernels. The larvae and pupae develop within the grain during which time they are not visible. After pupation, they bore a hole out of the grain and emerge. This cycle can take up to five weeks in the summer and up to 20 weeks in the cooler months. At the time of delivery and manufacture of the batches of grain delivered by Grainlink, because the weevils were still in the larval stages within the grain and had not yet emerged, there was no contamination visible to the naked eye. He states, however, that following delivery of the flour products to customers, the weevils emerged from the grain and contaminated the flour. He exhibits several photographs which he contends illustrate the infestation within the flour.
He exhibits a screenshot of a text message dated 12 September, from a representative of Grainlink stating ‘GrainCorp has bugs. Still trying to sort’ in response to an enquiry about a late grain delivery. The year the text message was sent is not displayed in the screenshot but the year 2018 is specified in the description on the coversheet to the exhibit. Khadir asserts there have been occasions where Alpine Valley has been fortunate enough to detect the weevil infestation upon delivery of the grain consignment from Grainlink.
Khadir states that the contamination of weevils within the flour has resulted in a number of Alpine Valley’s customers making complaints about the flour products sold to them. He states that some of these customers have been long standing customers of Alpine Valley such as:
(a) Basfoods Australia;
(b) Grand Foods;
(c) Medfoods;
(d) Euro Foods;
(e) Tripodi Wholesalers; and
Surhaj Foods. Khadir states that the contamination issue has also resulted in significant losses to Alpine Valley in circumstances where:
(a) Alpine Valley was on some occasions required to provide and deliver replacement stock to customers from its Myrtleford mill at no additional cost to the customers;
(b) some of the customers have refused to pay for outstanding invoices claiming losses to their businesses; and
(c) some of the customers have ceased conducting business with Alpine Valley by reason that they no longer had confidence that the issue would not occur again.
He concludes by saying that the extent of the customers to whom contaminated grain was delivered and the losses suffered by Alpine Valley had not yet been determined and a further affidavit would follow providing evidence in that regard.
In the Second Khadir Affidavit, Khadir refers to the oppressive conduct proceeding in this Court involving him and his brother Yousef in which he makes allegations of oppressive conduct on the part of Yousef. He states that while there was an order directing access be given to him of Alpine Valley’s documents, as at the date of the affidavit he was yet to receive access to Yousef’s email account and text messages relating to the business.
Khadir states that the problem with weevils in the grain was a constant issue for Alpine Valley and started to occur not long after it commenced manufacturing flour at its Myrtleford facility in late 2013. He exhibits a copy of an email from an employee, Gerard McMahon, to Yousef and Peter Chugha, who were directors of Alpine Valley at the time, in relation to a complaint made to Alpine Valley about contaminated flour. The email, dated 31 October 2013, states:
Hi,
Please be advised that as requested by Yousef, I met with the bakery owner and his father in order to discuss the magnitude of their claim in respect of the losses caused to them as a result of the contaminated flour that was delivered to them on 25th of October this year.
Khadir states that the infestation was caused by weevils lying dormant in the grain in their larval stages and emerging within the flour product after delivery to the customers. He states that this issue has resulted in a number of Alpine Valley’s customers making complaints and has been an issue since the commencement of Alpine Valley’s business operations. He repeats the assertions made in this first affidavit that as a result of this, Alpine Valley has suffered significant losses in that:
(a) on some occasions it was required to provide credit to the customers for the contaminated flour;
(b) on some occasions it was required to deliver replacement stock to customers at no additional cost to those customers; and
(c) some of its customers have refused to pay for outstanding invoices claiming losses to their business and reputation by reason of the weevils.
The balance of Khadir’s Second Affidavit is concerned with the alleged losses it has suffered in its dealings with the customers identified in the first affidavit. I shall deal with each in turn.
Basfoods Group
Khadir states that Basfoods Group (‘Basfoods’), is one of Alpine Valley’s longstanding customers. Basfoods purchased flour from Alpine Valley and sold it using its own packaging to a number of businesses, wholesalers and supermarkets such as Woolworths and Coles.
He states that Alpine Valley’s accounting records show that since 2014, Basfoods had been ordering on average $103,455.88 worth of flour per annum from Alpine Valley. Basfoods ceased ordering flour products from Alpine Valley in about September 2017. Khadir asserts this was because of the presence of weevils in the flour on a regular basis. His evidence in support of this is a copy of a document obtained from Alpine Valley’s accounting records as at 25 July 2019, showing no further sales were made to Basfoods from January 2018 to the present time, with a balance of $18,605 still owing by Basfoods. He also exhibits a chain of emails from Basfoods to Khadir’s son, Chris, who worked as an administrative assistant at Alpine Valley, and David Liang, who was Alpine Valley’s bookkeeper from 21 March 2017 to 30 March 2017, with an attached invoice for four pallets at a total price of $3840. In the email, Basfoods requested a credit for one pallet of flour that they had returned because of grain weevils. The invoice bears a notation that of the four pallets delivered, one pallet ‘needs to be sent back’ because of bugs.
Khadir exhibits an email of 5 April 2017 to Alpine Valley with another invoice attached by Basfoods, with handwritten notations. In this email, Basfoods requested a credit for 71 bags of special white flour in 10 kilogram bags, one 12.5 kilogram bag of coarse semolina, and seven 25 kilogram bags of coarse semolina. The invoice has a handwritten notations granting a credit of $718 for those invoices.
Khadir states it was not uncommon for Alpine Valley and Basfoods to apply credits on future invoices rendered by Alpine Valley in respect of contaminated products previously delivered to Basfoods. He exhibits several invoices giving credits to Basfoods over the period March 2015 to February 2017 which totals approximately $9,200.
Khadir states that on a number of occasions Alpine Valley delivered a batch of product to Basfoods and later received a request from Basfoods to collect and replace the entire batch due to weevil contamination. In these cases, he contends there were no credits applied to the invoices rendered at the time of delivery of the contaminated products, but rather there was replacement by the delivery contractor of the new products with the contaminated products, with the original invoices remaining unchanged. He summarises the invoices, which were the subject of the replacement stock, which appear to total 19 invoices with a sum total of approximately $62,000, however he only exhibits 16 invoices. He also exhibits copies of a bundle of invoices from Alpine Valley’s delivery contractors, which he contends show that on numerous occasions the contractor, Mr Kos, collected product from Basfoods that Basfoods returned because of a contamination issue. He also exhibits invoices in respect of the cost of the return of pallets with contaminated products which total $2,520.
Khadir states that in about September 2017, Basfoods ceased to order flour stock and conduct business with Alpine Valley because of the issue relating to the weevils. As a result, he contends, Alpine Valley has lost the profits that it would have made had Basfoods remained a customer of Alpine Valley. Alpine Valley estimates this loss to be $65,177.20, which is calculated by reference to the average yearly historical sales made to Basfoods in the amount of $103,455.88 and multiplying this amount by 35 per cent (the estimated net profit percentage of Alpine Valley’s products) and then multiplying that amount by the number of years that Basfoods has not purchased product from Alpine Valley, approximately 1.8 years. Khadir states that because of the issue relating to the weevils, Basfoods has also refused to pay outstanding invoices, claiming it has suffered losses to its business because of its customers not paying them. Khadir says the total amount owing by Basfoods to Alpine Valley is $18,604.50, which has been outstanding since September 2017.
Grand Foods
Khadir deposes that another regular customer of Alpine Valley, Grand Foods, also experienced weevil infestation on several occasions during the course of Alpine Valley’s trade with them. He states that this issue has on some occasions caused credit notes to be applied and offset against future stock purchase by Grand Foods. He exhibits a copy of a credit note dated 8 July 2015 for $1,440 given to Grand Foods for contaminated stock. He also exhibits a copy of an email from Grand Foods to Alpine Valley of 12 May 2016 which states:
…Credit note 1868 Dated: 29.04.16 Amount: $1,512 – Pallet was returned reason being it full of insects. We created a credit note from our end but it seems that you don’t have it on your system. Please issue the credit note so we can finalise the discrepancy.
Khadir exhibits an email from Grand Foods to Yousef (referred to in the email as Joe) of 15 March 2018 which stated as follows:
Hi Joe,
…
I have received a complaint from the customer about the product quality. They showed us the insect on the flour. It is not a first time. Couple of weeks ago it happened.
I have stock in hand 90 bags. We replace more than 20 bags so far to our customer. Last you mention about the replace bag but not happen.
I am not sure to buy this product in the future. If we going to get complaint from customer, It’s not good [sic] our business.
Khadir states that on a number of occasions Alpine Valley delivered a batch of product to Grand Foods and later received a request from Grand Foods to collect and replace the entire batch due to contamination with weevils. In these cases there were no credits applied to the invoices rendered at the time of delivery of the contaminated product, but rather a replacement by the delivery contractor of new products in the place of contaminated products, with the original invoices remaining unchanged. He identifies six invoices totalling approximately $8700 where this is said to have occurred.[14]
[14]Only five invoices appear to be exhibited.
Khadir states that in addition to losses incurred in relation to the replacement of the product, Alpine Valley was also required to pay additional contractor fees for the subsequent delivery relating to the replacement of the contaminated flour products at a rate of $40 per pallet. He lists seven invoices in relation to this in respect of 11 pallets totalling $440.
Euro Foods
Khadir states that in October 2015, Alpine Valley delivered flour to a company in Queensland trading under the name Euro Foods. The consignment contained weevils and as a result the invoice in the amount of $2,400 relating to that supply was not paid by Euro Foods. The invoice remains outstanding to date.
On 15 October 2015, Euro Foods emailed Yousef stating:
the stock that we received on invoice #1589 was supposed to be replaced due to presence of weevils, however, due to us not receiving any stock in replacement as promised and since no one came to pick it up we dumped it.
With great disappointment, we never received any stock that we actually able to sell and will not be paying for this invoice.
Med Foods
Khadir states that from late 2015, Alpine Valley also had several issues with a company trading under the name Med Foods in respect to contaminated stock. He states by way of example, Med Foods sent an email to Chris on 3 February 2017 attaching a video that showed bug infestation in the flour product. On some occasions, Alpine Valley applied a credit note for future stock purchases and in other cases it replaced batches without making any credit notes or amendments to the original invoices. He exhibits two credit notes dated 13 November 2015 (in the amount of $96.00) and 26 April 2017 (in the amount of $1,008.00) which he says illustrate such claims. He listed eight invoices in which this is said to have occurred which total approximately $14,000.[15]
[15]Only seven invoices appear to be exhibited.
Khadir says that there were delivery contractor fees incurred totalling $640 relating to 16 pallets which entailed additional delivery fees being incurred.
Campania Olive Oil Company
In 2014 and 2015, Alpine Valley delivered flour products to Campania Olive Oil Company (‘Campania’). Alpine Valley’s financial records show that Campania had been ordering on average $26,878.00 worth of flour per annum from Alpine Valley from 2014. He arrives at that figure by averaging the 2014 trading figure, $21,822.00 and the 2015 figure, $31,934.00.
Khadir asserts Alpine Valley ceased selling flour products to Campania in about October 2015 because of the presence of grain weevils in the flour products. He exhibits internal accounting records of Alpine Valley which he asserts supports this position.
Khadir contends that Alpine Valley has also lost profits that it would have made had Campania remained a customer of Alpine Valley. These losses are estimated to be $35,277.38, calculated by reference to the average yearly historical sales made to Campania in the amount of $26,878, multiplying this amount by 35% being the estimated net profit percentage on Alpine Valley’s products, and then multiplying that amount by the number of years that Campania have no longer purchased product from Alpine Valley, in this case approximately 3.75 years.
Other customers
Khadir contends that on some occasions, Alpine Valley has also been required to replace contaminated stock relating to other customers, namely Alasya Bakery and House of Biskota. In these cases, Alpine Valley replaced batches of product without generating any credit notes or making any amendments to the original invoices. As to the replacement stock, he lists a number of invoices to Alasya Bakery and House of Biskota which were the subject of stock being replaced without any adjustment or credit notes. He lists those invoices which total $3216.00.
Khadir states that in addition to losses incurred in relation to the replacement of the product, Alpine Valley was also required to pay additional contractor fees for the subsequent delivery relating to the replacement of the contaminated flour products at a rate of $40.00 per pallet. He lists the freight invoices relating to this claim, totalling $160.
In the final paragraph of this affidavit, Khadir lists the various constituent parts of the alleged offsetting claim totalling $227,941.08.
In the Third Khadir Affidavit, Khadir explains that he is one of the plaintiffs in the oppression proceeding in this Court and exhibits a copy of the statement of claim filed in the proceeding. He confirms that Yousef had been operating Alpine Valley until late October 2018, when he unilaterally caused it to cease trading. Prior to this time, Khadir states he was only occasionally involved in the daily operations of the business.
Khadir states that he was unaware of the extent of the weevil infestation until he received access to the books and records of Alpine Valley and while preparing his own affidavit of documents for the purpose of the oppression proceeding, where he came across a number of documents which revealed that the weevil issue was larger than he had initially anticipated.
Khadir states that Yousef alone placed the orders for grain with Grainlink, through Richard Gale, usually via phone call or text message. He confirms that Alpine Valley did not order grain from any other supplier.
Khadir states that Yousef alone placed the orders for grain with Grainlink, through Richard Gale, usually via phone call or text message. He confirms that Alpine Valley did not order grain from any other supplier. Khadir explains that because Alpine Valley operated using only 3 silos into which the grain would be stored and manufactured thereafter, Alpine Valley was required to order grain on a regular basis in order to meet demands and Grainlink was reliable in its delivery. Khadir states that where he was aware of customer complaints relating to weevil infestation, and raised it with Yousef, Yousef would ‘play down’ the issue because Grainlink was an important and reliable supplier. Khadir states that had he known of the extent of the complaints and subsequent losses at the time, he would have raised the issue and possibly sought to have offset those losses.
Khadir refers to the payment of $5,000 made to Grainlink and states that the payment related to a negotiation for the resolution of, including an extension of time to meet Grainlink’s demands for payment. Khadir states in any event, Alpine Valley was unable to effect that payment because of the effect of orders made in the oppression proceeding, and because Yousef withheld his consent to make payment.
Evidence of Grainlink in opposition to the application
In his affidavit sworn 15 August 2019, Mr Gale states that he is Grains Operation Manager of Grainlink. He states that Grainlink is a privately owned agricultural business which supplies grain to flour millers and processors, including Alpine Valley. He states that he has been involved in the grain industry for 38 years and has been employed by Grainlink for six years in his current position. Prior to that, he was employed by Graincorp for ten years as the manager of its Tocumwal site in New South Wales which he says is one of the largest grain receivable sites in Australia. He states that both Grainlink and Graincorp are members of Grain Trade Australia, the relevant industry body, which involves abiding by requisite standards and guidelines. Mr Gale states that the unpaid invoices which are claimed in the statutory demand were for grain supplied from Graincorp stores to Alpine Valley.
Grainlink purchased the grain from Graincorp and Grainlink supplied the grain to Alpine Valley. The grain was supplied from the Tocumwal and Deniliquin Graincorp sites. Grainlink has paid Graincorp for the grain.
He sets out in a table the various invoices for which payment has not been made with those amounts being the same as the amounts set out in the schedule to the statutory demand.
Mr Gale states that Grainlink and Alpine Valley have been trading since July 2013. He states that orders would be placed by Alpine Valley and these would be supplied to Alpine Valley at its Myrtleford mill. He exhibits a copy of the payment transaction history evidencing the longstanding relationship between the parties.
In regard to Khadir’s affidavits of 19 June and 25 July 2019, he says:
(a) until Alpine Valley’s originating process was provided to him by Grainlink’s solicitors, Alpine Valley had not given any notification that it disputed the debt claimed in the statutory demand;
(b) far from being a ‘constant issue’, as alleged by Khadir in his affidavit, the first time that Alpine Valley raised any issues regarding weevils in relation to the grain supplied to it was when the application was filed in this proceeding. In this regard, Alpine Valley paid all invoices raised between 5 July 2013 and 20 July 2018 for grain supplied by Grainlink. The only invoices that have not been paid are those described in the schedule to the statutory demand;
(c) the previous reason given by Alpine Valley for not paying the debt before the matter was passed on to its collection agent, NCI, on 17 January 2019 was that it was waiting on its customers to pay them amounts that they were owed. He exhibits a bundle of emails for the period 12 December 2018 to 7 January 2019 passing between Kylie Brill, a director of Grainlink, Khadir and Alpine Valley’s accounts department. On 12 December 2018, Ms Brill emailed Chris (Khadir’s son) stating:
Hi Chris I have spoken to the directors and they are requesting payment of $25K per week. The current amount in 90+ days is $61,383.59 for loads delivered in July so we need this paid by the end of the year.
In response, on 20 December 2018, Alpine Valley responded:[16]
[16]The author is not identified.
We understand our amount is overdue, a payment plan will need to be implemented to repay the owing amount. Due to the Christmas period we are struggling to recover our own outstanding debts from our customers. Within the New Year we hope to regain our cash float and repay Grainlink as quick as possible. As discussed with Khadir we plan to repay the amount owing on a weekly or fortnightly basis with the occasional lump sum payment once we regain our cash flow.
On 28 December, Kylie Brill wrote to Chris at Alpine Valley, stating:
Hi, Chris,
Can you please advise your proposal of how much weekly you are able to pay and when this could commence.
On 2 January 2019, Ms Brill sent another email to Alpine Valley requesting a response to her email of 28 December 2018.
On 3 January 2019 Khadir wrote to Ms Brill of Grainlink stating ‘Hello Kylie, I will be back on 7 January. When back we will arrange a payment plan to pay of (sic) the debt owing.’
On 7 January, Ms Brill followed up on that communication requesting an update as to when payment would be made, to which Alpine Valley responded:
Hello Kylie, we are hoping to pay between 10K-20K by the end of the month and hopefully a larger amount next month. Currently we are waiting for our large customers to pay there (sic) overdue accounts. We hope to pay the owing amount as soon as possible things are a bit slow as people are on holidays as you can imagine.
Mr Gale says that the reasons given by Alpine Valley for not paying the debt after it was referred to NCI for collection are deposed to by Mr Malvar and do not include any allegations about weevil infestation.
As to the text messages that are exhibited to the First Khadir Affidavit wherein Grainlink is shown to state that it ‘has bugs’, Mr Gale says that first, these were text messages between himself and Yousef, the other director of Alpine Valley. He exhibits a more complete set of the text messages. Significantly, more context is provided in relation to the statement that ‘Grain Corp has bugs’.
On 12 September, Yousef sent a text message to Mr Gale as follows:
Wed, 12 Sep, 10:05 pm
Hi mate
What is happening
With the grain?
I thought we
Getting 80t on
Monday?
…
On 13 September, Mr Gale responded:
Mon, 17 Sept, 10:05am
Hi mate
What is happening
With grain?
…
Mr Gale responded:
2 loads should be about to drive in the gate
…
Mr Gale sent a further text message:
Thu, 20 Sep, 10:10am
Have delivered
135t and can I get
A few payments
Last payment was
The 31/8
Yousef responded:
Hi mate
I have made
Two payment after
That
And you will get
One
More today
Mr Gale states that Graincorp, like Grainlink, has rigorous treatment and testing procedures for eliminating weevil and weevil larvae from all grain. Such processes involve testing all truck supplies of grain coming into Graincorp and leaving Graincorp. This process involves samples being taken from each outgoing truck. The samples are taken by a vacuum probe and processed through a specially designed sieve. A weevil is smaller than a piece of grain and will fall through the sieve while the grain will continue to be retained in the sieve. If any weevil is detected through this process the truck is not permitted to leave the premises and the grain in the truck is fumigated. If grain contains weevil larvae, the grain will also contain the weevils that laid the larvae such that the testing will pick up whether there is any contaminated grain.
Mr Gale recalls the text message that he sent to Yousef in September 2018 which stated ‘Graincorp has bugs’. Mr Gale states that he was responding to an enquiry from Alpine Valley about a grain order. He was explaining to Yousef that there was a delay because Graincorp had detected insects. At that time, he had been informed by Graincorp that it had detected insects at one of its remote silo locations. Graincorp has about 50 silo locations across New South Wales and Victoria and this detection had prevented Grainlink’s trucks from loading from that site, so it had to source grain from an alternative site. At no stage was grain supplied to Alpine Valley from premises which had the contamination.
Grainlink’s trucks which shipped the grain the subject of the debts claimed in the demand were tested in accordance with the procedure described in his affidavit. If any weevils had been detected, they would not have been allowed to leave the site and the truckloads of grain would have been fumigated by Graincorp. Mr Gale also says that if grain has weevil larvae in them, the grain will also contain the weevils that laid the larvae such that the testing described earlier in his affidavit will pick up whether there is any contaminated grain.
Finally, he states that in the First Khadir Affidavit, Khadir has not provided any photographic evidence of weevils in grain supplied by Alpine Valley. Rather, he has provided ‘alleged pictures of weevils in flour from the customers of [Alpine Valley]’. If Alpine Valley had not properly treated, cleaned and maintained its storage facilities, any grain stored in its facilities would be at the risk of weevil infestation.
Mr Gale states he is not aware of any complaints being submitted to Grain Trade Australia by Alpine Valley and he believes for the reasons stated that the grain supplied by Grainlink to Alpine Valley was sold free of any weevils and that Grainlink is not responsible for any contamination of the grain.
In his affidavit sworn 14 August 2019, Mr Malvar states that he is a Credit Services Consultant employed at NCI, a collection agent engaged by Grainlink. He states that prior to the issuing of the statutory demand, NCI was engaged by Grainlink to collect amounts owing by Alpine Valley.
On 17 January 2019, NCI began its collection attempts. He states that from 17 January 2019 until 29 April 2019, when instructions were given to Grainlink’s solicitor to issue the statutory demand, NCI was in communication with Alpine Valley to obtain repayment of the amount outstanding.
Mr Malvar states that at no stage during those four and a half months did Alpine Valley raise any dispute in respect of the debt, by its solicitor or otherwise. He exhibits his log of the communications with Alpine Valley and its solicitor. The log records a communication from Alpine Valley of 5 February 2019 ‘promising to pay $10k-20k by the end of January’. A good part of the narrative in the log describes the internal turmoil within Alpine Valley between the Awad brothers.
Mr Malvar deposes that on 17 January 2019 and 25 January 2019, he sent letters of demand to Alpine Valley by post.
On 31 January in response to those demands, Mr Malvar received a letter from the solicitor for Alpine Valley seeking further particulars of the debt. On 13 February 2019, he received a telephone call from the solicitor for Alpine Valley advising that proceedings had been issued against the other director of Alpine Valley. He was informed that the issue between the two directors involved unauthorised orders being made by one of the directors. He exhibits a contemporaneously generated note in respect of that conversation.
On 19 February 2019, Mr Malvar received an email from the solicitor for Alpine Valley who advised that:
(a) the two directors of the Plaintiff were parties to an application in the Supreme Court regarding an internal company dispute. The internal dispute was effecting Alpine Valley’s ability to trade and make payments of debts owed to its creditors;
(b) the email from the solicitor stated that Alpine Valley, if successful in the application, would be likely to be in receipt of sufficient funds to pay the debt owed to Grainlink in full; and
(c) Alpine Valley would make a payment of $5,000.00 towards the debt owed to Grainlink in good faith. Mr Malvar states that while the email is marked without prejudice, it is simply providing an update into the status of Alpine Valley’s affairs and makes no offer of settlement or compromise and therefore does not attract without prejudice privilege, a contention with which I agree.
Mr Malvar states that on 8 March 2019 he received a telephone call from the solicitor for Alpine Valley who advised that the good faith payment of $5,000.00 had not been made as the other director of Alpine Valley (who he understood to be Yousef) had refused to allow for the funds to come out of Alpine Valley’s account. He exhibits a contemporaneous note made in respect of that telephone conversation.
On 11 March 2019, Mr Malvar received an email from the solicitor for Alpine Valley attaching the application[17] and advising that they were obtaining instructions to make a payment of $5,000.00 towards the debt owed to Grainlink. Again, while the email is marked without prejudice, it merely informs as to the status of Alpine Valley’s affairs, it makes no offer of settlement or compromise and he contends it therefore does not attract without prejudice privilege. Again, I agree with that contention.
[17]From the context this would appear to be a reference to the oppression proceeding.
On 16 May 2019, Grainlink received a payment from Alpine Valley of $10,000.00 leaving a balance outstanding of $159,910.97, the amount claimed in the statutory demand.
In his affidavit affirmed 20 August 2019, Craig Cochrane states that he is the Senior Manager of the Southern Supply Chain of Graincorp. As part of his duties, he is responsible for the Tocumwal and Deniliquin Graincorp sites. He states that he has read Mr Gale’s affidavit and inspected the exhibits to it. He states that he held the position of Senior Manager of the Southern Supply Chain throughout 2018 and was responsible for the Tocumwal and Deniliquin Graincorp sites during that time. He says that the grain the subject of the Road Outlet Dockets (associated with the invoices the subject of the demand) mentioned in Mr Gale’s affidavit was tested in a manner described in Mr Gale’s affidavit (i.e. the running of the grain through a sieve). The testing of the truckloads of grain showed no indication of weevils at all. If there was even the slightest indication of weevils, the truck in question would not have been permitted to leave the Graincorp site and the grain load would have been fumigated. He states that in addition, it is a requirement that all trucks are thoroughly cleaned before any grain is loaded into them, and that before any trucks are allowed to leave the Tocumwal and Deniliquin sites the grain must be fully secured covered under a tarpaulin.
In addition to the above processes, Graincorp undertakes vigorous treatment of all stored grains to eliminate weevil infestation including treatment of all grain with aluminium phosphide every three months to kill weevils and any larvae if present and bi-monthly checks of all storage facilities for any weevils. He states that the grain that was delivered to Alpine Valley by Grainlink from Graincorp sites at Tocumwal and Deniliquin was the subject of such processing. He states that as a consequence of this, he believes that the grain the subject of the Road Outlet Dockets which was delivered to Alpine Valley was delivered free of any weevil or weevil larvae.
The affidavit of Yousef Awad
The proceeding took an unusual turn when, on 9 September 2019, Khadir’s brother and co–director of Alpine Valley, Yousef, filed an affidavit on behalf of Grainlink in this proceeding. The late service of this affidavit and the significance of its contents caused an adjournment of this application on 10 September 2019.
In his affidavit, Yousef states that at the time that Alpine Valley commenced ordering grain from Grainlink approximately seven years ago and until 26 October 2018:
(a) he was the executive director of Alpine Valley and was responsible for the day to day management of Alpine Valley’s business;
(b) he had access to and control of the books and records of Alpine Valley;
(c) he was the sole contact that dealt directly with Grainlink for the purpose of ordering grain from it.
Yousef states that it is common knowledge within the flour milling industry, particularly during the summer months, that a flour mill would experience issues with weevil contamination and there is little that can be done to prevent this. Alpine Valley’s mill does not have cooling rooms to store the flour products in the summer time and this increases the likelihood of weevil contamination. He says that any weevil contamination of Alpine Valley’s flour products was caused by the storage of the flour products after the grain went through the manufacturing process at Alpine Valley’s mill.
Yousef has read Khadir’s affidavits of 19 June 2019, 25 July 2019 and 26 August 2019 and inspected the exhibits to them. He states that Grainlink regularly supplied grain to Alpine Valley without there being issues. As to the debts claimed in the statutory demand, he says:
(a) the grain supplied by Grainlink was not contaminated with weevils or any other parasite;
(b) Alpine Valley did not raise an issue with Grainlink about contaminated grain because there were no issues with the grain supplied;
(c) the flour milled from the grain supplied by Grainlink to which Grainlink’s invoices related was supplied to customers and paid for by those customers;
(d) Alpine Valley was paid for the flour products milled from the grain supplied by Grainlink and the subject of Grainlink’s outstanding tax invoices;
(e) on or about 15 November 2019[18] (sic), Alpine Valley ceased trading and it has not traded since; and
(f) Alpine Valley owes the defendant $159,901.97 which is claimed in the demand and has not paid the amount claimed in the demand because of insufficient cash flow.
[18]This is obviously a typographical error and should be a reference to 2018.
As to the matters raised in respect for the Basfoods issues referred to in his brother’s affidavit, he states that the cause of Alpine Valley no longer supplying flour products to Basfoods was a direct result of Basfoods failing to pay Alpine Valley’s outstanding tax invoices. He states that Alpine Valley provided credits to Basfoods for contaminated flour products that were contaminated while stored at Alpine Valley’s mill during the summer months. He says the contamination was not caused by the grain supplied by Grainlink. He says the business relationship between Alpine Valley and Basfoods ceased approximately two years ago and Basfoods was not supplied any flour products from Alpine Valley that were produced from the grain supplied by Grainlink which is the subject of the invoices claimed in the statutory demand.
As for the Grand Foods amount, Alpine Valley provided credits to Grand Foods for contaminated flour products that were contaminated while stored at Alpine Valley’s mill during the summer months. He states that the contamination was not caused by grain supplied by Grainlink. There were no complaints received by Alpine Valley from Grand Foods with respect to the flour products supplied by Grainlink that were produced from the grain supplied by Grainlink that is the grain the subject of Grainlink’s outstanding tax invoices.
In regard to Euro Foods, he states that in 2015 Alpine Valley supplied flour products to Euro Foods and Euro Foods alleged that Alpine Valley had supplied contaminated flour products. Alpine Valley was aware that Euro Foods had received flour products from another supplier and despite Alpine Valley’s numerous requests to Euro Foods for evidence that Alpine Valley’s flour products were contaminated, Euro Foods did not provide such evidence and as a result Alpine Valley did not provide Euro Foods with any credits.
In regard to the Med Foods issues, Alpine Valley provided credits to Med Foods for contaminated products that were contaminated while stored at Alpine Valley’s mill during the summer months. The contamination, he says, he was not caused by the grain supplied by Grainlink. Further, he says, there were no complaints received by Alpine Valley from Med Foods with respect to the flour products supplied by Alpine Valley that were produced from the grain supplied by Grainlink that is the subject of Grainlink’s outstanding tax invoices.
As to Campania Olive Oil Company, he says that the cause of Alpine Valley no longer supplying flour products to Campania was that Campania requested that Alpine Valley manufacture and supply 10 kilogram bags of flour products instead of 12.5 kilogram bags. Yousef says that Alpine Valley was unable to accommodate Campania’s request to change the weight of the bag supplied that were manufactured at Alpine Valley’s mill at that time. Accordingly, Alpine Valley did not have the stock that Campania wanted to purchase and Campania ceasing ordering flour products from Alpine Valley. He says that the loss of Alpine Valley’s business relationship with Campania was not because of weevil contamination.
Yousef says that he did not raise any issues with Grainlink with respect to any weevil contamination complaints made by the above mentioned customers or any other customers because he knew that the contamination was not caused by the grain supplied by Grainlink.
Despite being a director of Alpine Valley, he did not agree to the application being brought to set aside the statutory demand. He said that these proceedings have been brought by his brother in his capacity as a director of Alpine Valley pursuant to orders made 31 May 2019 by Sifris J. He concludes by saying that Alpine Valley has no basis to bring this proceeding against Grainlink because there is no dispute in relation to the debt that is the subject of the creditor’s statutory demand.
Further affidavit of Khadir Abu Awad sworn 10 October 2019
The protracted exchange of affidavit evidence continued with the Fourth Khadir Affidavit, which was said to be in response to Yousef’s affidavit of 9 September 2019, and Mr Gale’s affidavit of 15 August 2019.
He deposes that whilst Yousef was predominantly in control of the day to day management of Alpine Valley’s business which he conducted at its distribution facility in Melbourne, he was not involved in the milling process undertaken at Alpine Valley’s manufacturing facility in Myrtleford.
He deposes that from the commencement of Alpine Valley’s operations, Peter Chugha, who was previously a director of Alpine Valley and whose interest Yousef and Khadir acquired in 2017 as part of a resolution of a dispute with him, together with two flour millers, Bassam Haddad and Mohammad Kahn, were the persons primarily responsible at the Myrtleford mill. Mohammad Kahn lives at the manufacturing facility in Myrtleford and has done so since 2013, whilst Mr Haddad resided at the facility four to five days a week, returning to Melbourne to be with his family on the weekends.
Khadir exhibits two email chains which enquire of Mr Chugha and Mr Kahn as to various matters, including their respective roles at Alpine Valley and what Yousef’s involvement was at Myrtleford. Mr Chugha responded to such an enquiry as follows:
Hi Khadir,
I was looking after production and Joe look (sic) after sale in Melbourne.
Thanks Peter
On 9 October 2019, Khadir emailed Mr Kahn asking:
Can you please tell me about your time and role within the business along with the manufacturing plants cleanliness, hygiene and quality control measures. What processes are undertaken to ensure there is no contamination of any sorts both in the manufacturing facility and outside.
Mr Kahn responded:
I Mohammad Kahn am a flour miller and manufacturer at the Myrtleford manufacturing plant. I have worked for the company from November 2013 to January 2019; I live on site seven days a week. During my employment at Alpine Valley, my boss was Peter Chugha and Joe Abu Awad. Peter was in charge of the production plant whilst Joe was in charge of the head office in Melbourne. Joe was not involved in the manufacturing side of the business but would visit the plant two to four times a year. My communication with Joe was through phone calls regarding grain deliveries, grain quantities, bag quantities, and current stock on hand …
Khadir states that although he had little to do with the daily management of Alpine Valley’s business, his son, Chris, was an employee of the company.
He exhibits several extracts obtained from the internet in relation to grain weevils and fumigation which I shall not detail here. He seeks to draw the conclusion that while warmer weather and a moist environment may provide optimum conditions for weevils to emerge from grain, if the weevils are not in the grain in the first place then it is not possible for the infestation to arise.
Khadir states that Alpine Valley adopts a number of practices within its manufacturing facility to ensure all manufactured products are safe and free from any kind of contamination. He describes practices such as storing the milled product in a clean cool environment within the factory that has high ceilings and sufficient ventilation with no direct sunlight, properly packaging, securely palletising and tightly wrapping the pallets with a plastic film to prevent other insects from entering the product once milled, following certain guidelines to ensure that manufactured products are safe and uncontaminated and undergoing strict cleaning practices on a weekly basis. He refers to the email from Mohammad Kahn which is mentioned earlier. In that email, Mr Kahn describes various measures which are taken in respect of cleanliness and quality control, including cleaning the relevant area, and storing the finished flour products in a clean well‑ventilated area with high ceilings, and tightly wrapping the finished product with shrink wrap to ensure no insects are able to have any contact with the product. All finished product has a dust cap to ensure that no dust or insects are able to infiltrate it. He also states that once a month grain silos and transfer lines are cleaned, sanitised and fumigated, and all areas under and around the grain silos are kept clean at all times.
Khadir states that Alpine Valley adopts a number of practices within its manufacturing facility to ensure all manufactured products are safe and free from any kind of contamination. He describes practices such as storing the milled product in a clean cool environment within the factory that has high ceilings and sufficient ventilation with no direct sunlight, properly packaging, securely palletising and tightly wrapping the pallets with a plastic film to prevent other insects from entering the product once milled, following certain guidelines to ensure that manufactured products are safe and uncontaminated and undergoing strict cleaning practices on a weekly basis. He refers to the email from Mohammad Kahn which is mentioned earlier. In that email, Mr Kahn describes various measures which are taken in respect of cleanliness and quality control, including cleaning the relevant area, and storing the finished flour products in a clean well‑ventilated area with high ceilings, and tightly wrapping the finished product with shrink wrap to ensure no insects are able to have any contact with the product. All finished product has a dust cap to ensure that no dust or insects are able to infiltrate it. He also states that once a month grain silos and transfer lines are cleaned, sanitised and fumigated, and all areas under and around the grain silos are kept clean at all times.
In response to Yousef’s affidavit, he states that the main reason why Basfoods ceased ordering flour from Alpine Valley was because of the issue relating to weevil infestation. He exhibits an email from Mr Tracas of Basfoods of 25 September 2019. I infer that Mr Tracas was approached and the email was generated for the purpose of Khadir’s affidavit. The email states, among other things:
We had numerous deliveries of both semolina and special white flour that was infested with weevils that caused a lot of issue with Coles and our customer base.
We had to seek an alternative supplier to maintain supply with Coles and also eliminate all extra costs associated with pick‑ups, returns and credits with our route customer base.
Our customers lost faith in the product we were supplying so we had no other alternative but to change supplier.
He asserts that Yousef was fully aware that the credits supplied to Basfoods were for contaminated flour caused within the grain and not because of Alpine Valley’s storage practices at the manufacturing facility. He states that Yousef expressed this on numerous occasions when customers complained about weevil infestation. He exhibits an email from Emanuela Porca from Basfoods to him of 9 October 2019 which states as follows:
Hello Khadir,
Basfoods have had many disputes regarding weevil contamination in the supplied stock from Alpine Valley Flour Mill.
On many occasions Joe has explained to us that the issue is with the grain as the weevils are naturally within the grain itself.
As a result of this Joe agreed to provide us with credits or replacement stock.
Again, I infer that that communication from Ms Porca was generated for the purpose of this application.
As to Campania, he states that his son Chris advised him that Campania ceased trading with Alpine Valley because of the weevil contamination within the flour.
As to Yousef’s statement that he did not authorise the making of this application, he states that Yousef had agreed through his solicitors at the hearing on 31 May 2019 before Sifris J in the oppressive conduct proceeding that Khadir could bring the application on behalf of Alpine Valley. He says that at no time did Yousef state to the Court or to his solicitors that he was of the view that there was no dispute relating to the alleged debt giving rise to the statutory demand. He states that Yousef has made it clear on several occasions in the oppressive conduct proceeding, including in his defence, that he desires that Alpine Valley be wound up.
Alpine Valley’s submissions
Alpine Valley’s Counsel, Mr Wirth, submitted that the evidence discloses a genuine offsetting claim whereby Grainlink is liable to Alpine Valley for damages for delivery of grain that was infested with weevils. In this regard it says the key issues are whether it is arguable that Grainlink delivered grain contaminated with weevils and whether those contaminated deliveries caused Alpine Valley to suffer loss. This submission is met by Grainlink contending that its grain was not contaminated, a position supported by Yousef, and that, secondly, Alpine Valley’s losses were caused by other issues. Alpine Valley says this second position is based only on Yousef’s evidence.
Alpine Valley says that Yousef’s affidavit should be given little if any weight by reason of the acrimonious proceedings presently being conducted between them in respect of the conduct and control of Alpine Valley’s business. In the oppression proceeding, Khadir seeks a transfer of Yousef’s interest in the business and Yousef defends the application, seeking orders for Alpine Valley to be wound up. Mr Wirth contends that Yousef’s position in the oppressive conduct proceeding and his support for Grainlink in this proceeding demonstrate that he wishes to cause harm to his brother’s interests.
Mr Wirth also criticises Yousef’s affidavit as containing conclusionary assertions without any or with only minimal reasoning and that Yousef has made assertions about matters that could not be within his knowledge. Alpine Valley contends that Yousef was based at Alpine Valley’s office in Melbourne and all grain deliveries were made to the Myrtleford mill.
As to the issue of contamination, Mr Wirth submitted that Mr Gale, Grainlink’s grain operations manager, deposes as to the general procedures with respect to treatment and testing procedures for eliminating weevil and weevil larvae from all grain. Mr Gale states that samples of grain deliveries are taken and put through a sieve and that fumigation of the delivery only occurs if a weevil falls through the grain. Alpine Valley contends that these processes leave open the very real possibility that Grainlink did, as Alpine Valley alleges, deliver contaminated grain. The bases for this submission are, first, that the sampling process implicitly leaves the risk that contamination is not detected, that is to say, not all grain is tested and secondly the sifting process only results in a detection if a weevil not implanted in grain falls through the sieve. Mr Gale implicitly accepts that larvae can be contained within the grain that remains on top of the sieve, and he asserts that if there are any larvae in the grain the parent weevil will be detected in the grain. Mr Wirth submits that, as a matter of logic and in light of the evidence contained in the Fourth Khadir Affidavit, that does not follow.
Thirdly, Mr Wirth contends that the evidence of Craig Cochrane, the senior manager of the southern supply chain of Graincorp, that the grain the subject of the invoices on which the statutory demand is based was subject to the testing described by Mr Gale, is irrelevant to the offsetting claim for the following reasons:
(a) the testing for the reasons mentioned is not definitive proof of an absence of contamination; and
(b) the contaminated grain may have been in other deliveries.
In this regard, Mr Cochrane deposes that ‘Graincorp undertakes rigorous treatment of all stored grain to eliminate weevil infestation’, but Alpine Valley contends that this cannot be taken as conclusive evidence precluding the genuineness of Alpine Valley’s offsetting claim for the following reasons:
(a) the efficacy of the treatment of Graincorp’s stored grain cannot be tested in this proceeding:
(i) it may or may not be adequate to eliminate all risk of weevil contamination;
(ii) it may or may not have been done during the relevant period;
(iii) it may or may not have been done correctly or adequately during the relevant period;
(b) Grainlink’s evidence only connects Graincorp’s grain to the grain supplied and the subject of the tax invoices forming the basis of the statutory demand, but says nothing about other suppliers of grain to Alpine Valley.
In response to Yousef’s assertion relating to the source of contamination, Alpine Valley points to the articles on weevils from a West Australian Government website and from a Bayer website, and an article on phosphine, the chemical used for fumigation, which were exhibited to the Fourth Khadir Affidavit. While not conclusive evidence if the dispute were tested at trial, it was submitted that it supports the genuineness of Alpine Valley’s offsetting claim in this proceeding.
Alpine Valley contends that the evidence discloses that fumigation can only be partially successful if done incorrectly, and given the life cycle of weevils, it may well be the case that some grain contains eggs or larvae but the weevils that laid them are not detected in the sampling process.
In the Fourth Khadir Affidavit, Khadir draws attention to the passage in Yousef’s affidavit where he asserts that any weevil contamination of Alpine Valley’s flour products was caused by the storage of the flour products after the grain went through the manufacturing process at Alpine Valley’s mill. In this regard, Alpine Valley submits that the life cycle for a weevil commences with the adult weevil drilling into the grain and laying eggs which then hatch larvae that then evolve into pupae and which eventually eat the grain until they emerge from the grain. It is said that it follows that weevils do not contaminate flour unless they are already in the grain.
While Yousef also asserts that the risk of weevil contamination increases in summer and that Alpine Valley does not have cooling rooms to store flour products, Alpine Valley submits that storage of flour is irrelevant to weevil contamination and, further, even if the storage of grain in summer were an issue, Khadir deposes that the majority of complaints relating to weevil infestation relate to the detection of weevils in Alpine Valley’s flour products between the months of March and August. Khadir also deposes to the measures Alpine Valley takes to ensure all manufactured products are safe and free from any kind of contamination.
As to the subject of causation of loss, in respect of the Basfoods account, Yousef has asserted that the Basfoods business was lost because Basfoods did not pay Alpine Valley’s tax invoices. Mr Tracas of Basfoods, contradicted Yousef’s assertion in an email, stating that Basfoods had issues with weevil infestations in Alpine Valley’s product. Further, it is said Emanuela Porca of Basfoods wrote to Yousef and explained that the issue of weevils was to do with the grain supplied.
As to Campania, Chris, who worked in Alpine Valley’s business, advised at the time that Campania ceased trading with Alpine Valley that the cessation of trade was as a result of weevil contamination.
It is submitted by Alpine Valley that to the extent that Yousef’s evidence remains uncontradicted, it ought not to be accepted in any event by reason of the acrimony between the two directors and shareholders of Alpine Valley.
Alpine Valley submits that for these reasons the evidence discloses a ‘sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion and [has] sufficient particularity to exclude the merely fanciful or futile’. Alpine Valley contends that Grainlink’s submission that Alpine Valley has not previously asserted its claim and tells against the genuineness of the claim, is misconceived as the claim is supported by objective evidence. It submits that the absence of an earlier assertion of the claim by Alpine Valley is explicable by the circumstances giving rise to the oppressive conduct proceeding between the two brothers. Regardless, it is said the objective evidence lead in support of the claim renders Grainlink’s criticism irrelevant.
Mr Wirth submitted that the fact that in more recent times payment arrangements were sought rather than contesting the debt may also be explicable by various commercial considerations which are ultimately not relevant in the light of the evidence lead in support of the offsetting claim. It is said that the damages estimated to flow from the loss of the business of Basfoods alone is worth approximately $158,996, sufficient for the purpose of this application to extinguish Grainlink’s claim of $159,919.97. In addition, the loss of trade with the other customers identified, which is said to arise from the same issues, mean that the offsetting claim well exceeds the amount in the statutory demand and for that reason the statutory demand, on the application or the appropriate statutory formula, should be set aside.
Grainlink’s submissions
In his submissions, Mr Miller, counsel for Grainlink, contended that the evidence demonstrates that Grainlink and Graincorp have a rigorous treatment and testing procedure for eliminating weevil and weevil larvae from all grain. In this regard he refers to the evidence of Mr Gale and Mr Cochrane. Once the grain is supplied to a flour mill, however, the grain and the flour once it has been milled, will be subject to the conditions at the flour mill, and if the mill does not have appropriate treatment cleaning and storage facilities, the grain and flour is at risk of contamination. In this regard he refers to Mr Gale’s affidavit.
Grainlink and Alpine Valley traded during the period June 2013 to late September 2018 and in that period, Alpine Valley ordered grain from Grainlink and made payments to Grainlink at frequent and regular intervals during that five year period. Mr Miller pointed to the evidence that Alpine Valley never once asserted during that period that any of the grain supplied was contaminated by weevils. It was only when this application was filed that the alleged oppressive claim was raised.
Mr Miller then addressed the steps taken by Alpine Valley to recover the debt. While this involves repetition of the evidence described above, it is appropriate to refer in detail to these communications as they go to the question of the genuineness of Alpine Valley’s offsetting claim.
On 12 December 2018, Grainlink emailed Alpine Valley requesting payment of $25,000 per week towards the outstanding debt. On 20 December 2018, Alpine Valley replied stating:
We understand that our account is overdue, a payment plan will need to be implemented to repay the owing amount. Due to the Christmas period we are struggling to recover our outstanding debts from our customers. Within the new year we hope to regain our cash float and repay Grainlink as quickly as possible. As discussed with Richard we plan to repay the owing amount on a weekly or fortnightly basis with the occasional lump sum payments once we regain our cashflow.
On 28 December 2018 and 9 January 2019, Grainlink sent further emails to Alpine Valley requesting confirmation of the proposed payment plan. That was met by a response from Khadir by an email of 3 January 2019 which stated:
I will be back on 7th January. When back we will arrange a payment plan to pay the debt owing.
This was followed by a further email on 7 January 2019 when Alpine Valley stated:
We are hoping to pay between $10K-$20K by the end of this month and hopefully a larger amount next month. Currently we are awaiting for our large customers to pay their overdue accounts. We hope to pay the owing amount as soon as possible. Things are a bit slow as people are still on holidays as you can imagine.
Shortly afterwards, Grainlink engaged NCI to collect the debt. On that day, NCI sent a letter of demand to Alpine Valley seeking payment of $169,910.87. This letter was sent directly to Khadir. This was followed up by a further letter of demand on 25 January 2019, a copy of which was also sent directly to Khadir. On 31 January 2019, solicitors acting on instructions from Khadir sent a letter to NCI requesting copies of trade agreements, statements of account, and invoices in respect of the debt.
On 19 February 2019, the solicitor for Alpine Valley emailed NCI stating, among other things:
… I confirm that the directors of Alpine Valley are currently involved in a dispute in the Supreme Court of Victoria. This is effecting the management of the company, and most importantly, the ability to trade and make payments of any debts owed to creditors.
I note that my client is currently in the process of making an urgent application to the Court seeking to recover from the co‑director a debt owed to [Alpine Valley] in the amount of approximately $190,000. In summary, my client will allege that the co‑director owes money to [Alpine Valley] for outstanding invoices relating to the supply of flour to his other business (in respect of which my client has no interest).
If successful (which my client believes he will given the overwhelming evidence) then [Alpine Valley] is likely to be in receipt of sufficient funds to pay in full the debt owed to Grainlinks. Once those funds are received my client undertakes to pay the Grainlink debt so that [Alpine Valley] can resume trading.
On 11 March 2019, the solicitors again emailed NCI, stating:
I am waiting for a response from the other directors’ lawyer to pay the $5,000 to Grainlink (we need the two directors’ authority for monies to be paid from its bank account). I will also get instructions to pay an additional $5,000 this week.
On 16 May 2019, Alpine Valley paid $10,000 to Grainlink, leaving a balance owing of $159,910.97. Shortly afterwards, on 28 May 2019, Grainlink’s solicitors issued the statutory demand.
Mr Miller submitted that despite the long trading history and debt recovery process, Alpine Valley never once asserted that the grain supplied by Grainlink was contaminated. The first time Alpine Valley made the assertion was on 19 June 2019 when the application to set aside the statutory demand was issued. In this regard, Mr Miller referred to the decision of the Court of Appeal in New South Wales in Ligon 158 Pty Ltd v Huber.[19] In that case, Barrett J confirmed the position made out in the earlier authorities that the Court is ‘not required to accept uncritically every statement in [an] affidavit that is inconsistent with undisputed contemporary documents, is inherently improbable, does not have sufficient prima facie plausibility to merit further investigation or is an assertion of facts unsupported by evidence’.
[19][2016] NSWCA 330, [9] per Barrett AJA with whom McColl and Meagher JJA agreed.
Mr Miller contended that in these circumstances Alpine Valley’s assertion that Grainlink’s grain was contaminated by insects is disingenuous and is otherwise unsupported by probative evidence. In this regard, Mr Miller pointed to the evidence regarding the absence of any complaints during the five year trading period between the parties. He contended that this is significant given the evidence that:
(a) Eurofoods complained about weevils in Alpine Valley’s flour on 15 October 2015;
(b) Campania Olive Oil Company ceased purchasing Alpine Valley’s products in October 2015 because of weevils in Alpine Valley’s flour;
(c) Medfood complained about Alpine Valley’s contaminated flour in late 2015 and then again on 3 February 2017;
(d) Basfoods ceased ordering flour products from Alpine Valley in September 2017 because of weevils in Alpine Valley’s flour; and
(e) Grand Foods complained about insects in Alpine Valley’s flour on 15 March 2018.
Mr Miller contended that if Alpine Valley genuinely believed that Grainlink’s grain was contaminated, it would have made this known and complained about this at or about the same time as the complaints made to Alpine Valley about its flour and the fact that Alpine Valley failed to do so indicates that it did not hold that belief genuinely. In addition, when considering the transaction ledger between the parties, it is clear that following the making of a complaint to Alpine Valley about its flour, Alpine Valley continued to order grain from Grainlink at regular and frequent intervals and this, Mr Miller said, is inconsistent with a genuinely held belief that there was an endemic weevil problem in the grain supplied by Grainlink.
Mr Miller submitted that the evidence is that during the period 2011 until 28 October 2018, Yousef was the executive director of Alpine Valley and was responsible for the day to day management of Alpine Valley’s business. In his affidavit, Yousef confirmed that Alpine Valley’s mill does not have cooling rooms to store the flour products in the summer period and this increases the likelihood of weevil contamination. Yousef stated in his affidavit that:
Any weevil contamination of the [Alpine Valley’s] flour products was caused by the storage of the flour products after the grain went through the manufacturing process at [Alpine Valley’s] mill.
Mr Miller contended that this is a powerful admission given that Yousef was the controlling mind of Alpine Valley during the relevant period, and explains why Alpine Valley never raised any allegation of contaminated grain with Grainlink during the trading period. Yousef stated in his affidavit that Alpine Valley did not raise any issue with Grainlink about contaminated grain because there were no issues with the grain supplied.
Mr Miller also pointed to the evidence that, during the period 12 December 2018 to 16 May 2019, while Grainlink was actively pursuing the debt, Alpine Valley never once asserted that the grain supplied by Grainlink was contaminated by weevils. He contended that this is significant because, if Alpine Valley had genuinely believed that Grainlink’s grain was contaminated, it would have asserted this at the time that Grainlink was pursuing the debt, and it is to be remembered that during this period Khadir, and not Yousef, was in control of Alpine Valley.[20] I note that in the Fourth Khadir Affidavit, he states that from commencement of Alpine Valley’s operations, Yousef was predominantly in control of the day-to-day management of Alpine Valley’s business, while he, Chugha, Haddad and Kahn were primarily responsible for the production of flour at the mill.
[20]See paragraph 3 of the Affidavit of Yousef Abu Awad sworn 9 September 2019.
Mr Miller then moved to the evidence in regard to Alpine Valley’s attempts to enter into payment arrangements. During that process Alpine Valley did not make any assertion of contaminated grain. The evidence is that on 20 December 2018 to 3 January 2019, and on or about 7 January 2019 and 19 February 2019, Alpine Valley made admissions that the debt was owing and sought to enter into payment arrangements for the payment of the debt. In the email from RJ Legal, who were acting on instructions from Khadir, Alpine Valley stated that once funds were received it ‘undertakes to pay the Grainlink debt so that [Alpine Valley] can resume trading.’ Subsequently, on 16 May 2019, Alpine Valley made a payment of $10,000 against the debt. This has occurred in the context of Khadir knowing historically about the complaints made about Alpine Valley’s flour at about the time that they were made; he was therefore aware of the complaints at the time Alpine Valley admitted the debt in December 2018 and then January, February, March and May 2019. Mr Miller said that it is clear by Khadir’s own admission that he knew about these matters by May 2019 and in that context made a payment of $10,000 on 16 May 2019. Mr Miller says that this indicates that at the time of the payment, Alpine Valley did not have a genuinely held belief that Grainlink’s grain was contaminated (or that it therefore had an offsetting claim of the type now contended for which would extinguish the amount of the debt demanded).
Mr Miller contended that Alpine Valley’s offsetting claim relies to a large extent on Khadir’s assertions of contamination in the context of Khadir admitting that he was only occasionally involved in the daily operations of Alpine Valley’s business.[21] Despite Khadir’s apparent lack of firsthand knowledge he deposed:
On several occasions, [Grainlink] delivered to [Alpine Valley] product that was contaminated with weevils. At the time of delivery and manufacture of those batches of grain, there was no visible contamination with the naked eye as the bugs were still in the larval stages with the grain and had not yet emerged. However, following delivery of the flour products to customers, the bugs emerged from the grain at some time thereafter, contaminating the flour products.
[21]See paragraph 4 of the Third Khadir Affidavit.
Khadir then deposed:
As deposed in my June affidavit during the course of trade with [Grainlink], [Grainlink] delivered to [Alpine Valley] grain that was contaminated with wheat weevils (often referred to as grain weevils or grain ‘bugs’).
…
This infestation was caused as a result of the grain weevils lying dormant in the grain in the larval stages and emerging within the flour product after delivery to the customers.
Mr Miller submitted that Khadir’s statements do not rise above mere assertion; they are not supported by any direct evidence and are made by Khadir, despite his own admission that he lacked firsthand knowledge. The only direct evidence of insect infestation comes from the photographs of Alpine Valley’s flour and the complaints made by Alpine Valley’s customers about its flour. There is no direct evidence of any insect infestation in the grain supplied by Grainlink. Khadir’s final affidavit of 9 October 2019 contains a series of further assertions unsupported by any probative evidence in support of the claim. That last affidavit does not, Mr Miller says, provide any direct evidence of contaminated grain coming from Grainlink, he says, presumably because there is no such evidence.
Mr Miller contended that there is an inherent improbability or lack of prima facie basis for the advancement of Alpine Valley’s offsetting claim; the only basis on which such a claim could be advanced is a process of inference but, Mr Miller says, there is insufficient evidence to support even prima facie evidence that the weevils in Alpine Valley’s flour were caused by the grain supplied by Grainlink. In this regard he refers to Grainlink’s evidence relating to the detailed treatment and testing procedures of both Grainlink and Graincorp as described in Mr Gale and Mr Cochrane’s affidavits. The evidence they give as to the treatment and testing procedures, it is said by Mr Miller, establishes that Grainlink and Graincorp had a sophisticated and tightly controlled process to prevent weevil infestation. Alpine Valley has, however, not adduced any evidence of any treatment, testing or storage procedures it undertakes at its mill, save what is contained in the email from Mohammed Kahn. Mr Kahn’s email does not contain any detail about any testing procedures for weevils, or treatment for weevils that is undertaken by Alpine Valley. In addition, Alpine Valley has not adduced any evidence of any storage methods used by customers that complained about its contaminated flour.
Mr Miller contended that on the state of the evidence as described, Alpine Valley has failed to produce sufficient evidence to form a basis for a prima facie inference that the insects in Alpine Valley’s flour were caused by Grainlink. Yousef’s submission is that the weevils in the grain were caused by Alpine Valley’s inability to prevent weevils during the warmer months. The inference sought to be drawn, Mr Miller says, by Alpine Valley is inherently improbable given the evidence of the treatment and testing procedures that both Grainlink and Graincorp undertake, together with the absence of any evidence about Alpine Valley’s testing and treatment of weevils, and Alpine Valley’s customers’ procedures. Mr Miller contended that without direct evidence of infestation of Grainlink’s grain, and without a basis for an inferential case in circumstances where Yousef’s evidence is that the weevil infestations were caused by Alpine Valley, Alpine Valley’s claim against Grainlink is hopeless and should fail.
Consideration
In my view, Alpine Valley has not discharged the onus which it bears to establish the existence of a genuine offsetting claim. I consider on an analysis of the conduct of Alpine Valley and contemporaneously generated communications, the alleged offsetting claim is not bona fide or real and indeed to adopt the phraseology of McPherson JA in JJMMR Pty Ltd v LG International Corp,[22] the evidence is such that it has been manufactured or ‘got up’ simply for the purpose of defeating the demand made against it.
[22][2003] QCA 519, [18].
The evidence indicates that the parties had an unremarkable trading relationship from 2013 until late September 2018 when Alpine Valley began to be delinquent in its payment obligations to Grainlink. Khadir’s evidence was that Yousef was in control of the day to day management of Alpine Valley’s business conducted at its distribution facility in Melbourne, until late October 2018 when he unilaterally caused it to cease trading, and that he was not involved in the milling process. I note that this turmoil within the internal affairs of Alpine Valley occurred almost exactly at the same time as it ceased meeting its payment obligations to Grainlink.
The chronology of what occurred afterwards in Alpine Valley’s communications with Grainlink and its debt collection agent is, to my mind, telling. Those communications are detailed above but at the risk of labouring the point, the following features of the dealings between the parties are particularly powerful in convincing me that Alpine Valley’s alleged offsetting claim is not genuine:
(a) There was no notification of any kind by Alpine Valley of its alleged offsetting claim to Grainlink until Khadir’s affidavit in support of the originating process was served on Grainlink’s solicitors.
(b) The evidence which is presented by Alpine Valley to demonstrate its offsetting claim consists of complaints from its customers about the product which was received from Alpine Valley. While there are some contemporaneous documents including photographs and text messages demonstrating the customers had received contaminated product, there are no contemporaneous documents generated by Alpine Valley which connect any of those complaints with Grainlink.
(c) Even if I were to accept that Alpine Valley had demonstrated that it has a genuine and arguable claim that Grainlink was responsible for the contaminated product, which I am not, there is insufficient evidence to support the quantification of the loss which Alpine Valley claims to have suffered as a result of the contaminated product. In the Second Khadir Affidavit, there are two main sources of evidence in support of the loss which Alpine Valley claims to have sustained. First, there is the reference to the credits which are said to have been provided to customers when complaints were made in respect of the products supplied. These credits are for relatively small amounts, in many instances for less than $2,000 per invoice. The second source of evidence is Alpine Valley’s assertion that on a number of occasions, once a complaint was received from a customer about an infestation, it would replace the entire batch of the product, with the original invoices remaining unchanged. For example, Alpine Valley asserts that it replaced stock for Basfoods, without applying any adjustment or credit note to the original invoices for invoices which totalled approximately $62,000. I regard it as implausible that an enterprise would regularly re-supply valuable stock, without documenting the position in regard to the first supply of stock on any invoice, communication, or any internal books and records of the company, and perhaps more significantly in the present context, without pursuing what Alpine Valley would say is a serial problem with the entity that supplied the defective product.
(d) Instead, Alpine Valley paid all of Grainlink’s invoices between July 2013 and July 2018 without complaint. From the commencement of that period, Khadir would have it that there was an endemic problem with weevil infestation in the grain supplied by Grainlink, yet all Grainlink’s invoices were paid and no claims were made against Grainlink. As Grainlink is said to be the sole provider of grain to Alpine Valley, it seems inherently implausible that Alpine Valley would sustain losses of the magnitude it now claims, without complaint, merely because Yousef as co-director deemed Grainlink to be a reliable provider.
(e) In December 2018, at a time when any alleged claim would have clearly been known to Alpine Valley and Khadir, Alpine Valley, in response to requests for payment, emailed Grainlink on 20 December 2018 conceding that the amounts were overdue and that a payment plan would need to be implemented, but because of the Christmas/New Year period there were difficulties in doing this and that Alpine Valley planned to repay the amount owing on a weekly or fortnightly basis, with an occasional lump sum payment.
(f) When Grainlink’s representative, Ms Brill, followed up Alpine Valley on 7 January 2019, Alpine Valley responded by stating that they were hoping to pay between $10,000 or $20,000 by the end of the month and hopefully a larger amount the following month.
(g) Grainlink then passed the matter on to its collection agency, NCI, who then pursued the matter from 17 January to 29 April 2019, when instructions were given by Grainlink to issue the statutory demand. Mr Malvar, of NCI, kept a contemporaneous log of communications. On 5 February 2019, Alpine Valley promised to pay $10,000-$20,000 by the end of January. The log describes the internal turmoil within Alpine Valley but there is no mention whatsoever of any offsetting claim arising from weevil infestation. In my view, if Alpine Valley genuinely considered that it had an offsetting claim of the type and quantum it now maintains it has, it would have been voluble about it and would certainly not be making any promises to pay the debt in full to Grainlink. It is also to be noted that the affidavits filed by Alpine Valley reveal that Khadir was aware, at least in a general sense, of the various complaints which are said to be tied to the contaminated grain, and it seems inherently implausible to me that Alpine Valley would not have at least preserved its position while investigating the matter further, rather than promising to pay the alleged debt.
(h) On 19 February 2019, Mr Malvar was informed by Alpine Valley’s solicitors of the oppression proceeding between the two directors of the company and its effect upon Alpine Valley’s ability to trade and make payments. It was indicated that Alpine Valley would make a payment of $5,000 towards the debt to show good faith. On 8 March 2019, Alpine Valley’s solicitors advised that the payment of $5,000 had not been made as the other director of Alpine Valley had refused to allow the funds to be released. Again there was no reference to any offsetting claim as a reason for Alpine Valley not paying the amount demanded.
(i) On 16 May 2019, shortly before the issue of the statutory demand on 29 May 2019, Alpine Valley made a payment of $10,000. Khadir does not explain why Alpine Valley would be making promises to pay, and make a small payment in reduction of the debt, when it had a belief that it had a genuine offsetting claim for more than any amount it owed to Alpine Valley. Khadir effectively ran the company at that point after his brother’s departure in October 2018, and I find his reasons for the late emergence of the claim as being most unconvincing and I do not consider them to be genuine or bona fide. As stated above, I consider it unlikely that if Khadir had reason to believe there may be an offsetting claim, that he would have made promises to pay the debt. I also consider that the submission that the discussions as to payment plans ‘may be explicable by various commercial considerations which are ultimately not relevant in the light of the evidence lead in support of the offsetting claim’ to be most unconvincing. In the Fourth Khadir Affidavit, Khadir states that he was one of the persons intimately involved with the milling processes undertaken by Alpine Valley. In my view, if Alpine Valley did have a genuine offsetting claim, Khadir would have been aware of such a claim and there would be evidence of complaints about or to Grainlink; Khadir would have been aware of the amount of stock which was allegedly being manufactured for the purpose of replacing contaminated stock supplied to customers and would have been capable of voicing his complaints about the situation.
(j) Another feature of the chronology is the age of the alleged offsetting claims. It is to be remembered that no allegations at all were made in respect of the goods supplied under the invoices which are the subject of the statutory demands. Khadir would have it that the problem with weevil infestation existed throughout the period that the parties traded, extending back several years to 2013, yet Alpine Valley issued no complaint whatsoever.
In coming to the conclusion that the offsetting claim is not genuine, I place limited reliance on the affidavit of Yousef who is clearly in an acrimonious dispute with his brother in the oppression proceeding. The decision by him to swear an affidavit on behalf of Grainlink is curious because in a sense, his affidavit is against his own interest as a shareholder and director of Alpine Valley. If there is failure to comply with the demand within seven days after I make orders dismissing this application, a presumption of insolvency will arise, requiring Alpine Valley to defend an application for its winding up in insolvency which, if it is unsuccessful in defending, will probably reduce any value of his shareholdings to nil.
In summary, my view that the offsetting claim is not genuine is based on the fact that the claim was only made after service of the demand and was preceded by numerous promises to pay and reasons being proffered for non‑payment such as cashflow problems and the internal turmoil within the company. Grainlink is a creditor and is not involved in the dispute between the two directors. Looking at the evidence objectively, I do not consider the alleged offsetting claim to be genuine, rather, it is spurious and has been ‘got up’ as an attempted means to defeat Grainlink’s demand. I consider that the application should be dismissed.
I will order that the proceeding is dismissed and that Alpine Valley is to pay Grainlink’s costs of the proceeding including any reserved costs. I will ask the parties to submit a proposed form of order to my associate within 7 days of receipt of my reasons for decision.
0
6
0