Brandon Industries (Vic) Pty Ltd v Locker Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S CI 2015 06506

IN THE MATTER of BRANDON INDUSTRIES (VIC) PTY LTD (ACN 074 414 074)

BRANDON INDUSTRIES (VIC) PTY LTD (ACN 074 414 074)	Plaintiff
v
V LOCKER PTY LTD (ACN 159 347 912)	Defendant

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JUDGE:	GARDINER AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	23 March 2016
DATE OF JUDGMENT:	01 July 2016
CASE MAY BE CITED AS:	Brandon Industries (Vic) Pty Ltd v Locker Pty Ltd
MEDIUM NEUTRAL CITATION:	[2016] VSC 373

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CORPORATIONS – Corporations Act 2001 (Cth) – Application to set aside statutory demand pursuant to s 459G of Corporations Act2001 (Cth) by reason of alleged dispute and offsetting claims – alleged dispute and offsetting claims found not to be genuine – proceeding dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P Booth	Behan Legal
For the Defendant	Mr L Copley	Kemp Strang Lawyers

TABLE OF CONTENTS

Background......................................................................................................................................... 1

Legal Principles Applicable to Applications to Set Aside Statutory Demands...................... 3

Brandon’s Evidence........................................................................................................................... 7

The Affidavit of Hayden Peter Warszewski of 22 December 2015........................................ 7

V Locker’s Evidence......................................................................................................................... 10

Affidavit of Derek Stoneman of 24 February 2016................................................................. 10
Affidavit of Alan Danson of 23 February 2016....................................................................... 15
Affidavit of Andrew Lazarus sworn 15 March 2016.............................................................. 20

Brandon’s Affidavits in Reply....................................................................................................... 21

Affidavit of Hayden Peter Warszewski of 21 March 2016.................................................... 21
Mr Maggs’ Affidavit of 21 March 2016..................................................................................... 33

Consideration.................................................................................................................................... 42

HIS HONOUR:

Background

On 14 December 2015, the defendant, V Locker Pty Ltd (‘V Locker’) served a statutory demand dated 10 December 2015 on the plaintiff, Brandon (Vic) Pty Ltd (‘Brandon’). The demand was accompanied by an affidavit of Allan Maurice Danson sworn 10 December 2015 which verified the demand in compliance with s 459E(3) of the Corporations Act 2001 (Cth) (‘the Act’). The demand claims that Brandon owes V Locker $225,486.31.

The Schedule to the demand describes the debt as follows:

SCHEDULE
Description of Debts Amount of Debts
Moneys due and payable pursuant to the following tax invoices attached as Annexure A:

Invoice No. 00000592 dated 1 January 2015

$159,881.32

Invoice No. 00000747 dated 27 May 2015

$37,582.32

Invoice No. 00000983 dated 9 October 2015

$438.79

Invoice No. 00000997 dated 22 October 2015

$374.00

Invoice No. 00000998 dated 23 October 2015

$452.38

Invoice No. 00001000 dated 26 October 2015

$269.50

Invoice No. 00001019 dated 4 November 2015

$583.00

Invoice No. 00001035 dated 12 November 2015

$25,905.00

Total:

$225,486.31

The demand annexes the eight invoices which are mentioned in the demand. The invoices relate to the supply by V Locker of components for refrigerated locker systems to the Coles Group (‘Coles’) called ‘Coles Click n Collect Lockers’ (‘lockers’) by which customers of Coles could order their groceries online through the Coles website and collect the groceries from refrigerated lockers located at a number of Coles’ stores around Australia. Brandon supplied the refrigeration componentry and subcontracted V Locker to supply the software and electronic locking system for the lockers.

At the hearing of this matter on 22 March 2016, Mr Copley, counsel for V Locker, accepted for the purposes of this application that there was a genuine dispute in respect of the last six invoices, reducing the amount demanded to $197,463.64.

On 23 December 2015, Brandon made application by originating process pursuant to ss 459G and 459J of the Act for orders setting aside the demand. Brandon did not press at the hearing of the proceeding that the demand be set aside pursuant to s 459J.

The application was initially returnable on 3 February 2016 and orders were made setting the matter down for hearing on 22 March 2016. I ordered that V Locker file and serve any affidavit material before 12 February 2016 and that Brandon file and serve any affidavit material in reply by 19 February 2016.

Brandon relies on affidavits of Hayden Peter Warszewski, sworn 22 December 2015 and 21 March 2016, and an affidavit of Peter Maggs, also sworn 21 March 2016. V Locker opposes the application and relies on affidavits of Alan Danson sworn 23 February 2016, Derek Stoneman sworn 24 February 2016 and Andrew Lazarus sworn 15 March 2016.

There has been failure to comply with the 3 February 2016 orders on the part of both parties. V Locker’s affidavit material was filed out of time. The day before the hearing of this proceeding, Brandon filed the affidavit of Mr Warszewski sworn 21 March 2016 and the affidavit of Peter Maggs. Despite such late filing and service, V Locker did not seek an adjournment and elected to proceed with the hearing.

The affidavit evidence filed in this proceeding was voluminous. It mostly consisted of the numerous emails passing between the parties, some of them relevant, a good many of them not. Because of the nature of the court’s function in this type of application[1], it has been necessary to refer at length and to analyse the more significant of those communications in these reasons as they form the foundation of Brandon’s claims that it has a genuine dispute in respect of the claim the subject of the demand and offsetting claims.
[1]See extract of judgment of Dodds-Streeton J in Powerhouse Australasia v Viarc Pty Ltd extracted in paragraph 12 below

Legal Principles Applicable to Applications to Set Aside Statutory Demands

Sections 459G and 459H of the Act relevantly provide as follows:

459G Company may apply
(1)A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2)An application may only be made within 21 days after the demand is so served.
(3)An application is made in accordance with this section only if, within those 21 days:
(a)an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

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.[2]

[2]Section 459J provides additional grounds for setting aside a statutory demand which are not presently relevant.

In the recent decision of the Court of Appeal in this State of Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq),[3] the principles applicable in applications to set aside statutory demands were succinctly summarised as follows (citations omitted):
[3][2015] VSCA 330, [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. Therefore, the task faced by an applicant is by no means at all 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. This is because 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,[4] Dodds‑Streeton J considered the approach and standard to be applied when dealing with applications of this type:

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.[5]
[emphasis added]

[4][2006] VSC 508.

[5]Ibid [48].

One issue which is of considerable significance in this application is the principle that a dispute or offsetting claim within the meaning of s 459H must exist at the date of the application, that is, the date of the hearing of the application. In Statutory Demands and Winding Up in Insolvency,[6] the author summarises the position as follows:

A ‘claim’ for the purposes of s 459H(1) and (2) means not just a cause of action and the court is not compelled to accept at face value the damages claimed by the plaintiff as the amount of the offsetting claim for the purpose of the calculation required by s 459H(2). An ‘offsetting claim’ in the meaning of s 459H refers to that combination of facts which entitles an action to be brought. A ‘cause of action’ is the fact or combination of facts which gives rise to a right to sue. The offsetting claim must be in respect of a cause of action which has already accrued and presently exists at the time the s 459G application is made, that is, at the time the application is heard by the court and not some earlier time when the application was filed. It cannot relate to a cause of action which is not presently in existence. If a claim of a company appears to be that the company will be entitled to damages arising from an event in the future, then that claim is not one which falls within the definition of a genuine claim that the company has against a creditor.[7]

[6]Farid Assaf, Statutory Demands and Winding Up in Insolvency (LexisNexis Butterworths, 2^nd ed, 2012)6.19. (citations omitted)

[7]Ibid.

In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd,[8] the Full Court of the Federal Court stated:

In reality the appellant’s case is that, if further evidence is able to be adduced, it expects to be able to establish that there is a genuine dispute. Put another way, in our view the appellant is really contending that there might be a genuine dispute but it cannot establish that there is a genuine dispute at this stage. But a genuine dispute is required to exist at this, and not some later, stage.[9]

[8](1997) 76 FCR 452.

[9]Ibid 465-466.

In Advance Ship Design Pty Ltd v D J Ryan[10] the Court stated:

It seems to me that the true situation, and indeed the explanation of the problem which confronted Young J in Classic Ceramic Importers, is that the offsetting claim must be one which the plaintiff presently has. The mere fact that the plaintiff has filed process does not mean that the plaintiff has a claim in that amount. The claim must be one which exists at the present time, and must be one which, if the plaintiff is able to prove the factual matters alleged in the pleading in the statement of claim filed in the Equity Division, would result in the plaintiff being presently entitled to the damages claimed.[11]
[10](1995) 16 ACSR 129.
[11]Ibid [135].

Brandon’s Evidence
The affidavit of Hayden Peter Warszewski of 22 December 2015

In his affidavit of 22 December 2015, Mr Warszewski, a director of Brandon, states that in early 2013 Brandon was requested by an affiliate of Coles, City Holdings Pty Ltd, (‘City Holdings’) to provide a design for a refrigerated locker network. In late 2013, after conducting negotiations with V Locker, Brandon subcontracted V Locker to provide two prototypes of the lockers and install locks and cables for doors and screens in the lockers onsite at Brandon’s premises. Mr Warszewski says that V Locker was to ensure that the integrity of the lockers and mounted components were not compromised during the installation and fitout process.

Mr Warszewski states that there was some delay on V Locker’s part in arranging for the software and electronic locking system components to be available and ultimately the components were installed after the lockers had been delivered onsite to Coles’ stores at Blackburn, Victoria and Surfers Paradise, Queensland respectively. He states that immediately after the installation, Brandon became aware that the components supplied by V Locker were functioning poorly with many failures.

Mr Warszewski states that he met with representatives of V Locker including Mr Derek Stoneman to discuss a number of issues including V Locker’s failure to perform its obligations.

In mid-2014, Coles issued purchase orders for 18 lockers with Brandon and Brandon then contracted with V Locker to supply the software and electronic system componentry. According to Mr Warszewski, the largest invoice for which demand has been made, invoice 00000592, describes what items were originally agreed to be provided by V Locker.

He states that there were failures on V Locker’s part to install the components as it had promised. In early 2015, V Locker agreed to undertake rectification work, replace screens on the units and take other steps to properly deliver the lockers. He contends that there were failures to complete all of the rectification works and, without consulting Brandon, V Locker proceeded to retrofit componentry to the lockers which caused critical damage to them.

Mr Warszewski deposes that a part payment of invoice 00000592 was made by Brandon to V Locker prior to learning of V Locker’s improper performance of its obligations. As to invoice 00001035, Mr Warszewski says that the nature of work included in the description is remedial work performed to rectify V Locker’s own defects and was not commissioned by Brandon. He states that the works the subject of invoice 00000747 were not commissioned by Brandon. Mr Warszewski disputes the quantum of the invoices but provides no particularisation or basis for that dispute in his first affidavit.

On 19 November 2015, V Locker’s solicitors wrote to Brandon with a letter of demand for payment. On 27 November 2015, Mr Warszewski instructed his solicitors to respond. That letter stated that the demand was disputed andcontended that V Locker was aware of its obligations to Brandon and was concerned about the quality of the work and defective lockers, that the lockers were not fit for purpose and that V Locker would be held liable for the losses of Brandon arising from the failure by V Locker to manufacture and deliver lockers fit for their purpose. Brandon suggested mediation to resolve the claims. Mr Warszewski states there has been no further correspondence from V Locker or its solicitors in response to the proposal to mediate.

On 4 December 2015, Mr Warszewski sent an email to the directors of V Locker, Mr Danson and Mr Stoneman, outlining what he describes as the specific areas of dispute that had arisen.

Shortly afterwards, on 14 December 2015, V Locker served the statutory demand on Brandon which is the subject of this application. Mr Warszewski contends there is a genuine dispute about the amount of the debt claimed by V Locker and that V Locker’s conduct in the circumstances may amount to an abuse of process.

Mr Warszewski says the lockers remain dysfunctional and require substantial rectification. He states that the extent and expense of the rectification work is detailed in several invoices issued by Brandon and directed to V Locker which total $674,993.

It seems clear the invoices issued by Brandon to V Locker were issued in reaction to V Locker’s statutory demand. The invoices are all dated 14 December 2015 and 15 December 2015. The first invoice, 33379, contains the narrative ‘Replacement Screens to Click n Collect Refrigerated Lockers not replaced as agreed’ and is for $54,384. The second, also dated 15 December 2015, numbered 33378, claims $198,792 for ‘Replacement Click n Collect refrigerated lockers, damaged by V Locker during refit of faulty components’. The third, number 33380, dated 15 December 2015 claims $353,067 for the ‘Refit of all Click n Collect refrigerated lockers with reliable components’.

An invoice dated 14 December 2015, numbered 33369, contains the narrative ‘Supply Refrigerated Lockers Click n Collect for V Locker trade show in New York’ and ‘Supply refrigerated lockers Click n Collect for V Locker Scandinavia, Norway customer’. That invoice is for $68,750.

He contends that Brandon is entitled to counterclaim from V Locker $674,993, as claimed in its invoices directed to V Locker, and that such amount should be set off against any amount successfully claimed by V Locker in its demand. He states that if such an offset occurs, even accepting V Locker’s demand in full, there is still an amount owing by V Locker to Brandon of $449,506.69.

V Locker’s Evidence
Affidavit of Derek Stoneman of 24 February 2016

In his affidavit, Mr Stoneman deposes that he is an executive director of V Locker and is the person who has had the substantial dealings with Brandon in relation to this matter. He states that in October 2013, V Locker and Brandon developed a prototype of the lockers for Coles that would enable customers to purchase groceries online and collect their groceries from Coles refrigerated lockers, located at various sites around Australia.

Brandon supplied the refrigeration componentry for the lockers. Two prototypes were manufactured at the factory operated by Brandon in Australia with the subsequent 18 locker units being manufactured by Brandon’s partner factory in China. Each locker unit consisted of 28 individual lockers. He states that V Locker is a leading supplier of electronic lockers and was responsible for the electronic locking system and software components for the lockers.

Mr Stoneman states that the arrangement was that Coles issued a purchase order for the lockers to City Holdings, which provides facilities management services to Coles nationally. City Holdings then issued a purchase order to Brandon and Brandon would ‘pass the order’ on to V Locker. By this, I would understand him to mean that Brandon subcontracted V Locker to provide the locking system and software for the lockers.

Mr Stoneman states that on 4 June 2014 testing was conducted on the prototype lockers, the results of which were that the lockers functioned well. Coles was content with the testing. He received an email from Mr Burrows, a sales consultant for V Locker, regarding the testing results. The email was also circulated to Mr Warszewski. Mr Burrows reported that:

All orders tested worked beautifully. All doors opened as they should, all alerts arrives (sic) as they should. All PIN numbers behave as they should have.[12]

[12]Exhibit DS-2.

On 26 June 2014, Mr Stoneman sent an email to his colleagues at V Locker with an update that he had received from Mr Warszewski confirming that Coles had placed a purchase order for the lockers. He states that the email confirms his recollection of a conversation he had with Mr Warszewski on 26 June 2014. A meeting was arranged with Coles, City Holdings, Brandon and himself for the following Wednesday. V Locker was not provided with a copy of the purchase order issued by Coles and he believes that Brandon gave V Locker verbal confirmation that the order was proceeding.

The installation of the lockers commenced on 20 November 2014 and was completed in Sydney on 20 November 2014, in Brisbane on 15 January 2015, in Canberra on 19 January 2015 and in Melbourne on 2 February 2015.

Some two months after completion of the installation, on 9 April 2015, Mr Stoneman received an email[13] from Mr Warszewski which stated among other things:
[13]Exhibit DS-5

(i)“I would like to touch base in regards to final payment and shed some light on why our cash flow is up the river”;
(ii)“Brandon has gone to China and now has a facility that it owns with partners that are dedicated to delivering our product”;
(iii)“I need V Locker to place a substantial 50 + order so I can unlock equity I have invested”;
(iv)“This $250,000 belongs to V Locker and was set aside to settle our account as I had invested it on our behalf to facilitate what we have now”;
(v)“The factory will unlock my equity when a significant order is placed with the factory”;
(vi)“I am looking to V Locker to assist with this next phase so we can get the outstanding monies paid quickly, within 6-8 weeks.”[14]

[14]Mr Stoneman’s affidavit sworn 24 February 2016.

Mr Stoneman says that on 15 April 2015 he had a telephone discussion with Mr Warszewski in which Mr Warszewski said the following, among other things:

(i)“we are cash strapped because of delayed payment of $300,000 owing to us for a job completed”;
(ii)“we expect to pay $50,000 quite soon”;
(iii)“we can commit to pay $50 -100,000 from a payment expected in 1-2 weeks”; and
(iv)“we already injected all the cash we have available and unfortunately you [V Locker] are the ones paying the price”.[15]

[15]Ibid.

Mr Stoneman states that he understood the conversation with Mr Warszewski to mean that the reason Brandon had not paid V Locker was because Brandon had a cash shortage and was waiting for payment from its debtors. On the same day as that conversation, Mr Stoneman sent an email to his colleagues at V Locker confirming the discussion with Mr Warszewski. He also sent an email to Mr Warszewski which stated as follows:

Following on from our phone discussion can I please ask that you send an email to: [email protected] and [email protected] providing your best estimate of when we might receive payments.
I understand your current cash flow situation and that you have V Locker at the top of the repayment list but it would still be beneficial to have something in writing.[16]

[16]Exhibit DS-7.

On 22 April 2015, he sent another email[17] to Mr Warszewski confirming what was said in their telephone conversation on 15 April 2015 and following up on his written payment proposal, as no response had been received. He stated:
[17]The full text of this email and the one in response from Mr Warszewski is exhibit DS-8 to Mr Warszewski’s second affidavit.

I need to urgently follow up on our discussions last week regarding the outstanding amount owing. You did indicate that you would send an email to Alan and Geoff advising your best estimate on payment plans. To date nothing has been received – either payment plan or payment.
We need accurate information about this urgently.
We are trying to do the right thing at our end – I spent considerable time on the trade show brochure last week; Dean and I are attending the trade show soon, etc. We need something from you.
Our need is critical enough that we are likely to factor this amount next week so that we immediately receive the majority of the funds. Unfortunately, if we do this you will be then dealing with a debt collector. We want to avoid this situation if we can so please communicate with us.
I have summarised below my recollection of our conversation last week following the demand email sent by Alan and your response threatening to partner with another control system supplier.
[The following text is italicised in the email.]
You have no intention and don’t want to break the partnership.
You understands (sic) we are hurting and we are top of your list to pay as soon as you have funds.
I stated our position:
·The reason you are getting a threatening email is that we have not had a response to many previous requests
·There is no link between issues with Coles lockers and payment for Coles order
·There is no link between your 250K investment being returned from China when 50 unit order received and payment for Coles order
·We are investing huge time and money in developing CnC market that includes markets like Scandinavia and USA plus many more and that these are not irrelevant and insignificant
·Your statements to me:
oBrandon is cash strapped because of delayed payment of $300K from BUPA for job you have completed but has minor issues to rectify
oColes did you out of $120K tooling fee which you thought was a grant but they deducted from final payment
oYou expect to pay $50 (sic) quite soon
oYou can commit $50-$100K from the BUPA payment expected in 1-2 weeks
oYou are very positive about large orders from the China market coming very soon which will bring huge benefits for V Locker. You have scheduled meetings with prospective clients when I am in China starting May 2^nd
oYou have already injected all the cash you have available and that unfortunately we are the ones paying the price

Can you please respond with your proposed plan?

In an email sent that day, the full text of which appears in paragraph 76 below, Mr Warszewski replied to this email stating that ‘Brandon would be transferring funds tomorrow in regard to the account’.

On 10 June 2015 Mr Stoneman spoke to Mr Warszewski, again pursuing payment of V Locker’s account. He states that Mr Warszewski said ‘[Brandon] will be receiving two payments of $250,000 any time now and V Locker will receive a significant chunk as soon as we get it’. This conversation was confirmed in an email Mr Stoneman forwarded to Mr Davison, the Chief Financial Officer of V Locker the following day:

Subject: RE: Scheduled Payment from Brandon Industries
No specific amounts or dates quoted.
Only that he is expecting 2 x $250K “any time now” and we could have significant chunk as soon as he gets it.[18]

[18]Exhibit DS-9.

Mr Stoneman states that on 18 December 2015, after V Locker had served the statutory demand on Brandon, he received an email from Brandon enclosing the invoices of 14 December 2015 and 15 December 2015, to which I have referred above.[19] He states that V Locker disputes the invoices in their entirety. Prior to V Locker issuing the creditors’ statutory demand, Brandon had not given V Locker any indication that it was seeking payment from V Locker, or that it had an offsetting claim and rather, as described, Brandon had been promising payment to V Locker for some months. As to Brandon’s invoices, he says as follows:

(i)Invoice 33369: V Locker believes that this product was supplied by Brandon for a trade show. V Locker did not order this product and Brandon have no basis to seek this cost from V Locker. Furthermore, it is not in V Locker’s possession;
(ii)Invoice 33378. The locker units are fully operational and so if there is any damage to the lockers, it could only be minor and is not affecting the day to day operation of the lockers. V Locker has not received any request to repair the alleged damaged lockers. Further, the amount of the invoice issued by Brandon is double the cost of what it would cost V Locker to replace the four lockers allegedly damaged and is not an accurate cost of replacement even if there is damage;
(iii)Invoice 33379: In respect of the broken screens, V Locker has already replaced screens that encountered issues withstanding the heat at certain locations. That issue arose out of no fault on the part of V Locker or Brandon but V Locker agreed to replace the screens with a different model screen with greater heat tolerance;
(iv)Invoice 33380: V Locker denies that any upgrade to the locker units is required. The invoice alleges 26 units are required to be refitted however only 20 locker units were ever installed with V Locker and Brandon. The cost of this invoice is more than the original installation cost charged by V Locker and the lockers are already fully operational.
(v)Invoice 28895: Mr Stoneman deposes that V Locker does not know what this invoice is for or on what basis Brandon is seeking payment.

[19]See paragraphs 25-28 above.

Mr Stoneman states that the lockers are fully operational at every site. The locker units in each location are on a network connected to a centralised computer server that sits inside a Coles controlled data warehouse. All locker transactions and data are synchronised to this central server so that at any time the central server has real time data on the entire locker system. V Locker have access to this central server as part of its software support role.

On 24 February 2016, V Locker ran a query against the V Locker Click n Collect database server to request the current live status of all the lockers that were supplied in conjunction with Brandon. That enquiry shows that out of all 560 individual lockers, only five individual lockers were disabled. Mr Stoneman deposes that the five disabled lockers are likely to be unavailable due to matters such as vandalism or other operational faults and that it would be expected that at any given time there would be a small number of individual lockers out of order. He considers there is no genuine dispute or offsetting claim by Brandon.

Affidavit of Alan Danson of 23 February 2016

In his affidavit, Mr Danson states he is a director of V Locker. He exhibits an email of 27 February 2015 to Mr Warszewski from Dean Burrows of V Locker with the subject heading ‘Coles final payment’ which was circulated to him. It stated:

Hi Hayden,
As per our meeting today, Coles units are ready for install now therefore we need the final invoice attended to immediately.
I understand that there are cash flow issues getting in the way of this final payment. As a result can you confirm what time next week V Locker can receive 150K of this 234K owing?
Also can you confirm when the remaining 84K will be paid?[20]

[20]Exhibit AD-1.

He states that on 1 March 2015 he was copied into an email addressed to Mr Burrows from Mr Warszewski in response which said as follows:

Thanks for the update, great the job is finally complete.
Hopefully the delivery process has been streamlined; and necessary resources fine-tuned.
Brandon certainly has been on the learning curve and is committed to ensuring future orders are manufactured to the highest level.
…
I am meeting with Gina tomorrow and will let you know the payment schedule we have for V Locker.
Looking forward to the next round of orders; factory is ready to go with volume orders.[21]

[21]Exhibit AD-1.

He states that on 11 March 2015, he received an email from Dean Burrows, an employee of V Locker, stating:

Spoke to Hayden, [Mr Warszewski] he confirmed between 75K-100K will go through either tonight or tomorrow night. Will send email to him confirming.[22]

[22]Exhibit AD-2.

On 13 March 2015, he received confirmation from Brandon that the amount of $50,000 had been transferred to V Locker.

On 23 March 2015, Mr Danson wrote to the financial controller of Brandon stating:

Thank you for the payment we received last Monday, can you please send through a copy of the payment details for the second payment made on Friday the 20^th of March, as nothing has been received?[23]

[23]Exhibit AD-4.

On the following day, the financial controller replied by stating she would have to refer to Mr Warszewski and get back to him.

On the same day, Mr Danson sent an email to the financial controller of Brandon stating:

Thank you for your reply, however we need an answer ASAP, the funds have not appeared in our account & we cannot manage our business efficiently without accurate information, particularly involving significant debtors such as Brandon Engineering, as I’m sure you would understand being a financial controller yourself.
Please send through a copy of the payment transfer made on Friday the 20^th of March without further delay.[24]

[24]Exhibit AD-4.

On 13 April 2015, Mr Kneale of V Locker wrote to Mr Warszewski stating, among other things:

We cannot enter any other investments with Brandon this point in time due to the Coles payment issue.
Our overarching issue remains payment for Coles – as mentioned in my email last week, payment is a serious issue for us to pay our people salaries. When am I receiving your committed payment schedule?[25]

[25]Exhibit AD-5.

On 13 April 2015 Mr Danson received an email from Mr Kneale which forwarded an email that Mr Kneale had received from Mr Warszewski in which Mr Warszewski stated:

I am working on a payment Geoff, I appreciate your patience and this will be rewarded in the short term. This is providing V Locker want to be part of this. Life would be much easier with an order.[26]

[26]Ibid.

Mr Danson states that on 7 July 2015, Mr Warszewski flew to Brisbane to have a meeting to discuss the invoices owing to V Locker and other business opportunities. After the meeting he received an email from Mr Warszewski confirming discussions at the meeting. In regard to the payment issue he stated:

Brandon as stated has $250k coming back via Beiyang as promised funds will be directed to V Locker to clear debt, and was always set aside for V Locker. Once V Locker places orders with the factory in China I believe Brandon will be in a position to request the money be returned.[27]

[27]Exhibit AD-6.

Most of the remainder of the email outlines business development opportunities and the prospect of joint enterprises between Brandon and V Locker.

On 27 November 2015, Mr Danson received an email from Mr Andrew Lazarus, an employee of Coles, regarding the replacement of 23 original routers. He said to Mr Danson:

I would rather get this work done directly with you guys if possible.
Can you give us an indicative quote for supply and install across the fleet please (no rush).
By my calculations we only need 17 or 18 of these.[28]

[28]Exhibit AD-7.

On 4 December 2015, Mr Danson wrote to Mr Warszewski stating:

Hayden,
It’s unfortunate, but you must be well aware that V Locker will no longer do any further work for Brandon Industries, based on your lack of payment for the components supplied for the Coles Refrigerated Lockers 12 x months ago, as well as more recent service work.

We have informed Coles that if they require support from V Locker, we are happy to assist in resolving any maintenance or support issues, however we will need to invoice Coles direct.[29]

[29]Exhibit AD-9.

On 4 December 2015, Mr Danson forwarded that communication to Mr Lazarus of Coles who replied:

Thanks Alan,
We are more than willing to keep the V Locker/Coles relationship going;
We are in the process of getting refrigeration maintenance and repairs done via alternative providers, so there’s just one grey area you might be able to give us a steer with.
In the event we need some part of a locker replaced (for example a truck smashes a door) are you able to source one?
I imagine the relationship with China has soured as well.
It might be something we can work on together?[30]

[30]Ibid.

On 10 December 2015, Mr Danson instructed V Locker’s solicitors, Kemp Strang, to issue a statutory demand in respect of the outstanding debt.

In about mid-December 2015, Mr Danson had a telephone conversation with Mr Lazarus in which Mr Lazarus advised ‘the warranty period with Brandon has expired. Coles will not allow Brandon access to the lockers and will be engaging an alternative refrigeration service provider.’

On 29 January 2016, Mr Danson sent an email to Mr Lazarus of Coles stating:

Now that the warranty has expired, wondered if you are in a position to discuss an SLA between V Locker and Coles for the software & electronics, if fact (sic) it may be worth discussing our SLA to cover repairs to the Brandon manufacture as well, possibly including the refrigeration?[31]

[31]Exhibit AD-10.

On 1 February 2016, Mr Lazarus stated as follows:

As you know we are working on a new telematics solution tender (Hence the recent NDA you guys signed for us) and there may be a need for and (sic) “end to end” Smart Locker solution, I’ve flagged that should we end up going down that road we should look at an SLA that covers all aspects of support, repair and maintenance – We’ll see how it plays out and let you know once we get a little further down the track.[32]

[32]Ibid.

On 2 February 2016, Mr Danson emailed Mr Lazarus stating:

Can I pencil in a time to follow up, as I don’t want to hassle you until required?
Did you finish up sending Brandon any correspondence last year around the expiry of warranty & instruction that they weren’t required to attend to any of the sites as we discussed prior to your break? I just want to know where we stand when attending service requests such as the one in South Australia where both V Locker & Brandon both attended??
Also are you able to confirm around which month Coles made the final payment to City/Brandon?[33]

[33]Ibid.

On 2 February 2016, he received an email from Mr Lazarus in which he states ‘there should be no reason for them [Brandon] to be touching the lockers now as we have set up a maintenance and repair process with the Coles Express guys.’

On 4 February 2016 he received a further email from Mr Lazarus advising that Coles had paid Brandon for the installation of the lockers in full and providing the dates of each payment. The payments were made in three instalments on 28 August 2014, 11 December 2014 and 25 March 2015.

To date, Brandon has paid V Locker the following amounts:

(a) $110,000.00 on 9 September 2014;

(b) $50,000.00 on 16 March 2015; and

(c) $20,000.00 on 23 April 2015.

Affidavit of Andrew Lazarus sworn 15 March 2016

Mr Lazarus states he was the process development manager for Coles and the person at Coles who managed the roll out of the lockers with Brandon and V Locker. On 4 March 2016, he was made redundant at Coles but prior to his redundancy he was authorised to swear his affidavit by in-house legal officers at Coles.

Mr Lazarus confirms that Coles issued a purchase order for the lockers to City Holdings. City Holdings then issued a purchase order to Brandon. Mr Lazarus states that the roll out of the lockers commenced on or about 20 November 2014 and finished in about November 2015. This conflicts with the evidence of Mr Stoneman who deposed that the roll out was completed in February 2015.

Mr Lazarus confirms that Coles has paid City Holdings in full for the supply and installation of the lockers. He states to the best of his knowledge, obtained while in his position at Coles, that:

(a) Coles are happy with the functionality of the lockers and they are currently being used for customers to collect their groceries through the online Click n Collect ordering system with Coles; and

(b) Coles does not require Brandon to replace any screens or retrofit any of the lockers or undertake any repairs to the lockers.

Brandon’s Affidavits in Reply
Affidavit of Hayden Peter Warszewski of 21 March 2016

In his further affidavit, Mr Warszewski elaborates on matters raised in his first affidavit. Mr Warszewski summarises the problems which he alleges have arisen with the installation of the lockers. The affidavit exhibits a large number of emails generated during the period of fabrication of the lockers. He deposes that two prototype lockers were reviewed and tested by City Holdings. The units were essentially developed from scratch. During the development of the prototypes a number of issues arose, including problems with cabling, faulty locks, switches and the lack of protection for sensitive electrical components. Ultimately, Coles was satisfied with the prototypes and a larger order was received for 18 lockers. Mr Warszewski deposes that it was agreed with Mr Stoneman that the payment terms of the order would be that Brandon would pay a deposit of 50 per cent, with the balance payable upon the satisfactory completion of installation and testing of the lockers.

Mr Warszewski says that production of the lockers was undertaken by Brandon’s associates in China. He retained Mr Peter Maggs as project manager to oversee the production locally. It was contemplated that V Locker’s components were to be directly supplied by V Locker to the Chinese factory and assembled as part of the production process.

He states that from the outset there were problems with V Locker’s performance including problems with V Locker’s components entering China because of lack of proper compliance documents. In order for the production schedule for manufacture of the units in China to be completed in the second half of 2014, V Locker’s components were required to be at the factory in China no later than the beginning of September 2014. This would enable delivery of complete units to occur directly from the docks to the various sites where they were to be installed. He states that the parts and components were only partially installed and would clearly require further attention before being delivered to Coles. Because they were not, he states that Brandon were required to hire warehouses in each city where the locker units could be temporarily stored for several weeks so V Locker could complete its parts and components installation prior to delivery.

Mr Warszewski says that problems continued. These included failures of the electronic screens and lack of protection for electrical components in the centre console in the locker units. In March 2015 and April 2015 emails were exchanged relating to problems with water ingress and condensation. In relation to these issues, Mr Warszewski states that he is ‘not aware that the problems concerned have been addressed’.

Mr Warszewski deposes that he received an email from Alan Danson on 15 April 2015 seeking payment, to which he replied that V Locker’s works were not completed to his satisfaction. Mr Danson’s email stated as follows:

On behalf of the directors of V Locker Pty Ltd, we find ourselves in an extremely concerning position regarding your overdue account of $184,916.00, up to this point we have been relying on a number of proposed part payments that have all led to nothing but false promise, I have an obligation to my fellow shareholders to retrieve the outstanding amount owing & will do whatever is necessary within the law to do so.
Before I proceed down that track, I would like to extend you one final chance to commit to a payment plan that includes interest at 12% from the due date of our invoice, this payment plan will need to be agreed to & signed off by all directors of Brandon Industries & actioned via an auto payment transfer schedule, failure to respond to this email by 3.00pm today will negate our offer & leave us no alternate options, other than litigation.
I hope you take this email seriously & respond accordingly.[34]

[34]Exhibit HPW-22.

In his affidavit, Mr Warszewski states that he responded by email shortly afterwards to Mr Danson. He says that that the issues were not detailed in his email because they had already been raised with V Locker verbally on numerous occasions. He states that those issues included:

(a) Faulty read switches on the door sensors which affected the locker doors’ capacity to open;

(b) Exposed sensitive electrical components liable to corruption and damage from the elements;

(c) Faulty screens on central consoles that would not function, thereby rendering the entire lock unit dysfunctional as there was no capacity for a user to control doors and locks and integrate this with online ordering; and

(d) General level of workmanship was poor and incorporated low-quality parts and components were poor, unprofessional installation and fit off.

Mr Warszewski’s response to Mr Danson, did make some observations about problems with the lockers. Mr Warszewski went on to say:

V Locker can start proceedings against Brandon, but I believe that this action would only force a wedge between the 2 companies. I would be forced to find an alternative supplier and Sales Team.
Brandon is about to bring a large volume deal to V Locker, and I might remind you that I personally brought the Coles deal to Dean on a platter.
Also can I remind you that as part of the working together relationship V Locker have had over a year to bring in an order, this still has not happened. Dean and Geoff have leads but nothing that seems more than trials. I still hold fast that Scandinavia is not where we need to be, with Asia on our door step and America on the rebound. Why the hell are we in Northern Europe a Sales strategy that has basically derailed our momentum and cost a fortune.
Alan the account isn’t that errand (sic) as you only finished the works around 6 weeks ago, these aren’t completed to satisfaction.
Lets (sic) get through this Coles deal, so we can hang our hat on a system that has been developed to last.[35]

[35]Exhibit HPW-23.

On 22 April 2015, Mr Stoneman sent Mr Warszewski the email set out in paragraph 38 above. Later that day, Mr Warszewski responded to Mr Stoneman stating:

Brandon will be transferring funds tomorrow in regards to the account.
Please note that I have still yet to receive the action plan we both spoke about in regards to IP65 rating of the V Locker components.
Also as discussed V Locker need to provide a solution to protection of the assets contained within the Coles Click and Collect unit. Full payment will not be made until a solution is produced and agreed to. As you can imagine our client is looking to us to provide a solution that has the rating we have promised.[36]

[36]Exhibit HPW-24.

On 21 May 2015, Mr Burrows wrote to Mr Lazarus at Coles and Mr Warszewski, reporting on the various locations of the lockers which had been checked remotely that day.[37]
[37]Exhibit HPW-25.

On 7 July 2015, Mr Warszewski sent an email to Mr Danson, which he said reflected on a ‘crisis meeting’ held that day.[38]
[38]Exhibit HPW-28.

When closely examined, the email of 7 July 2015 from Mr Warszewski to Mr Danson, is not one which catalogues complaints with V Locker’s performance of its obligations. The first two paragraphs of the email deal with the ongoing relationship between Brandon and V Locker and whether there was a prospect of Brandon taking up equity in V Locker. Mr Warszewski then says:

Brandon recognises that V Locker have gone to market with what was a BETA product and V Locker now have solutions to the bugs within the first version of the product, V Locker have agreed to retro fit and make good on issues experienced with BETA version of the product.
I believe it is also worth noting that Brandon and City have been left out of the Coles project by way of V Locker (in best interest of the project) this has created blurred lines, and now V Locker is paying the price with ongoing unpaid support. V Locker have created an issue with Coles and the SLA; as City and Brandon are V Locker customers not Coles. Brandon and City will intervene and assist V Locker with the SLA as a priority. I propose that we draw a line in the sand stating that the support other than warranty support will end and that the SLA will take over. Coles have had long enough to get their act together and I believe that with the retro fit V Locker.
Brandon as stated has $250k coming back via Beiyang as promised the funds will be directed to V Locker to clear debt, and was always set aside for V Locker. Once V Locker place orders with the factory in China I believe Brandon will be in a position to request the money be returned.[39]

[39]Ibid.

The remainder of the email outlines the prospect of future sales to other parties. It is not clear from the evidence whether at that point V Locker knew that Brandon had been paid in full by Coles for the contract, some four months before. I do not consider the email[40] is a record of a ‘recent crisis meeting held that day’ as Mr Warszewski contends.
[40]Ibid.

As to the promise of payment made by him in the email, Mr Warszewski deposed in his affidavit that his reason for this was:

To maintain goodwill and offer a money based incentive to progress the project, I kept the cash on V Locker’s horizon by telling them that I would make payment, the latest payment being several months before.[41]

[41]Mr Warszewski’s affidavit sworn 21 March 2016.

In July 2015 and August 2015, the exchange of emails continued regarding what Mr Warszewski contended were issues with the project. On 19 August 2015, Mr Warszewski emailed Mr Burrows and Mr Danson attaching the photograph of what is said to be ‘finger marks left by V Locker’. It states:

This is exactly what we are talking about with a lack of care, Coles have complained and pointed the finger at Brandon.
I am having constant complaints regarding how VLOCKER are handing situations, these are simple things detracting from our overall success.[42]

[42]Exhibit HPW-30.

On the same day Mr Warszewski emailed Mr Danson. He stated:

Hi Mate,
Coles is going well, meeting with GM this week to complete hopefully the numbers add up. They are extremely satisfied with the END to END solution.
The main issue I have is the level of product satisfaction and perception of VLOCKER from Coles, the retro fit has been a disaster. The reports I have had from my PM is that the read switches aren’t working, this seems to indicate little research and testing to find a solution to the original problem. Door channels have been damaged, screen not functioning.[43]

[43]Exhibit HPW-31.

The tone of these communications continued through October 2015 and November 2015. V Locker’s response could be summarised as being cooperative and requests information of Mr Warszewski as to where the problems are located.

In an email of 24 August 2015, Mr Danson informed Mr Warszewski of the work being carried out to complete the installation of the lockers satisfactorily.

On 2 October 2015 Mr Danson wrote to Mr Warszewski. In that email he forwarded an email from the Chinese factory owners who were apparently pursuing payment. Mr Danson stated:

As you can see we are getting emails from LiFeng chasing payments for deposits & final payments on various grocery locker orders, I need you to advise where we are with getting credits applied to our account, so we can continue.
I don’t want to mislead our Chinese partner, I need everything to be transparent, can you advise LiFeng of our arrangement, so he can release these orders & we in turn can apply these credits to your outstanding account.
Also as it’s been a week since we met last week, have you had any feedback from Coles with the potential order for another 50 units?
Finally you were going to send an email confirming that Vlocker was free to deal with Woolworths regarding Grocery, can you send this please.[44]

[44]Exhibit HPW-37.

In response Mr Warszewski stated:

The factory does need to be paid for orders made by V Locker.
Just to keep you up to speed with where we are:
*Coles refit has just been completed we understand time was need [sic] to re engineer components, we need to be sure the product is reliable and fit for purpose. As you know the product has been tarnished by the last year of failure. As Derek stated the product was basically BETA, so the R & D was done on the fly. The net result is that we were delivered a product that has created a lack of faith in the longevity of the system.
*Coles units have been compromised by screw fixings to front panel, at this stage one unit has inoperable heater wire, we need to know that the others aren’t on the edge of failure. A major problem and I have no idea how we are going to repair, factory has indicated that the unit need to be replaced. The new tooling does match the Australian delivered units.
*Coles screens have a heat related failure, I understand some have been replaced. The understanding was that all would be replaced. Brandon was expecting this.[45]

[45]Ibid.

In early December 2015, Mr Warszewski deposes that he sent further emails[46] to Mr Stoneman and Mr Danson, seeking clarification about failures with the Lockers.
[46]Exhibits HPW-41 and HPW-42.

Mr Warszewski then considers the several invoices generated by Brandon to V Locker which constitute its alleged offsetting claim. He states that invoice number 33378 is for the full replacement cost of the four refrigerator locker units damaged by V Locker drilling into the casing and compromising the protection of the wires from the weather. He states this compromised the integrity of the locker unit system. He states because of Brandon’s ‘sourcing of a new manufacturing factory in China with a different set of tooling, it is not possible to work on the existing locker units. The different tooling will only be able to produce new locker units’[47], hence the pricing at full replacement cost. I note this is at odds with Mr Warszewski’s email of 4 October 2015 where he states that ‘the new tooling does match the Australian delivered units.’[48]
[47]Affidavit of Mr Warszewski sworn 21 March 2016.
[48]Exhibit HPW-37.

As to invoice 33379, he states that this details the full replacement cost of 12 computer screens to be installed in refrigerated locker units. He states that, to date, he has received no notification or confirmation from V Locker that the computer screens have been replaced, as acknowledged by V Locker in Mr Burrows’ email dated 26 June 2015.[49]
[49]Exhibit HPW-27.

Invoice 33380 details the cost of delivering a functional system based on the original pricing. The invoice sets out what Mr Warszewski considers to be a fair estimate of the cost involved to achieve a full re-fit of the locker units with compliant and reliable components, including parts and labour, but this is not further particularised. He does not say why the invoices were issued when they were.

On 8 March 2016, Mr Dodson, of Equipment Safety Consulting Services Pty Ltd, provided an inspection report[50] based on findings from a preliminary electrical safety inspection conducted on a locker at Coles Express at Ashwood in Victoria. The inspection report stated:
[50]Exhibit HPW-43.

(a) there was access to live parts;

(b) there was exposure of live parts to dust which can lead to ‘creepage,’ which results in electricity creeping over dirty surfaces and leading to a short circuit of the unit, electrical shock situations or fire;

(c) there is a significant amount of dirt visible and that the author of the electrical report has no doubt that this will lead to a failure at some time in the future; and

(d) what is described as poor workmanship with the unit. In the unit tested, one cable was too short and there was poor workmanship in the cabling to door control components and door opener. There are 18 units at 18 locations in six States and Territories but Mr Warszewski said that it had not been possible to inspect all units for electrical safety issues, but there is an intention to do so.

On 8 March 2016, Mr Warszewski received an email from Mr Visser of City Holdings which summarised aspects of failures in the locker units. He stated ‘as you have nominated the V Locker units are incurring multiple and frequent failures with their electronics, namely PLC cards and IT equipment…I would request to review the works done to date as a matter of urgency.’[51] He does not state however that Coles has a claim against Brandon for the lockers. Mr Warszewski says that Brandon are about to commence that review but it will take some time because of the various locations of the lockers, that is, 18 locations in six States and Territories.
[51]Exhibit HPW-44.

Mr Warszewski also exhibits an email from the manufacturer of the locker units in China, Captain Cold Chain, which states:

Brandon has requested that we provide replacement pricing for 4 locker locations, these lockers need to be replaced as the front face of the lockers has been screwed into. Whilst in China we deal with Mr Tim and instructed him not to screw into the face of the cabinet without permission as the heater wire runs continuously around the face of the cabinet.
If the heater wire was screwed into this is a critical error and will render the cabinet not function as specified. Over time if the cabinet has been drilled and screwed the heater wire could also fail, but this does not happen directly at time but later as moisture can enter the wire. This is why we believe that 4 units must be replaced, as they will fail in time.[52]

[52]Exhibit HPW-45.

I infer from the text of the emails from Mr Visser and Captain Cold Chain that Mr Warszewski solicited these emails for the purpose of using them in this proceeding.

Mr Warszewski states at some point discussions were held as to the possibility of a joint venture for future projects, but no joint venture deal was ever struck. He states that at V Locker’s request, Brandon provided a separate prototype refrigerator locker unit for V Locker’s use at a Hong Kong trade show. V Locker used the same refrigerated unit at a trade show in New York. Brandon also provided a separate refrigerated unit for a locker to use in Stockholm at a trade show. Those two units were ‘branded’ with V Locker’s name and trademarks and used by V Locker at a stand at the trade show. In due course, Brandon sent invoice 33369 to V Locker for the prototypes (at the same time as the other invoices were sent by Brandon in December 2015) and it has not been paid. It will be recalled that Mr Stoneman states in his affidavit that V Locker did not order these items from Brandon, that Brandon has no basis to seek the cost from V Locker and that the items in question are not in V Locker’s possession.

Mr Warszewski says that Brandon has made payments of $110,000 on 9 September 2014, $50,000 on 16 March 2015, and $20,000 on 23 April 2015 in relation to invoice number 592. He states that Brandon has paid V Locker in full for its work involving the prototype locker units. He states that by reason of an agreement struck between the parties, $180,000 was paid as a deposit of 50 per cent of the agreed price for the refrigerated locker project. The second payment would be payable upon completion of the project, subject to successful time, completion and delivery of the locker units and testing of V Locker’s work to a satisfactory standard. He states that V Locker has not upheld its end of the bargain and failed to deliver on its promises. Accordingly, Brandon has withheld payment pending the resolution of these matters.

Mr Warszewski states that Brandon have no confidence the units are completed and operating properly and that while the issues and defects remain unresolved and Brandon has an ongoing liability to Coles for the lockers, it is not appropriate for Brandon to make final payment in circumstances where V Locker has not yet triggered that payment.

Mr Warszewski deposes he has continued to try to deal with V Locker and give them the opportunity to fulfil their obligations and resolve the defects and shortcomings in its quality of work and product delivery. He states that if he had given up on V Locker completely, Brandon would have taken back full control of the project and issued proceedings against V Locker to either enforce performance of its obligations or otherwise make a claim against V Locker for damages to compensate Brandon for the costs of performing rectification work and replacement of units and components.

Mr Warszewski states that as to the various representations by him which are referred to in V Locker’s material that Brandon would pay V Locker. His reasons why payment was not subsequently made are as follows:

(a) if payment was made before completion of the job, there was nothing keeping V Locker from abandoning the project and leaving Brandon to remedy V Locker’s defects;

(b) V Locker had not completed the job, as required and agreed, and was not entitled to payment;

(c) Peter Maggs told him that there were a number of issues with V Locker’s work and that V Locker was planning a retrofit

(d) representations about payment were made prior to knowledge that V Locker had damaged the lockers by drilling into the cabinet; and

(e) the V Locker work had not been completed to Mr Warszewski’s satisfaction.[53]

[53]Mr Warszewski’s affidavit sworn 21 March 2016, 106.

Mr Warszewski states there are many defects with the V Locker componentry, some of which became obvious very quickly, others which were discovered over time. These involved complete component failures largely due to components being unable to sustain the refrigerated or damp environment as well as failures of time either due to poor workmanship or inappropriate selection of components. By way of summary he states the following defects were present in the lockers:

(a) there were 18 touch computer screens that failed (one on each of the locker units). [Mr Warszewski] have not received any notification or confirmation that these have been replaced;

(b) a number of door sensors on different locker units were defective. This appears to have been due to an issue with the computer connectivity (Hall switch sensor) and is an unresolved issue;

(c) the remote door-locking mechanism on a number of doors needed to be replaced because the mechanism did not function (thelock would not function to secure the door when instructed by the operator/computer;

(d) the PCB (printer circuit board) was faulty. V Locker had selected and installed a substandard product that had been manufactured with low-quality parts. As a result, the open/close mechanism of the doors was failing; and

(e) drill-holes in the front of the locker units made by V Locker during component installation. The holes have compromised the internal electronics and wiring.[54]

[54]Mr Warszewski’s affidavit sworn 21 March 2016, 107.

Mr Warszewski says that he ‘does not know if all the problems have been rectified by V Locker’. He states that even if they have been repaired, he is still concerned the lockers are substandard and they may fail over time due to V Locker’s poor workmanship. It is Brandon’s intention to check each locker and all of V Locker’s work. The first report ordered by Mr Dodson confirms that the V Locker components and workmanship are substandard. Coles is also aware of the potential problems as confirmed by Mr Visser’s email to Mr Warszewski of 8 March 2016.

In May 2015, Mr Warszewski telephoned Dean Burrows to discuss the issues and defects that were identified in the lockers. He told Mr Burrows he was not happy with the final product and V Locker’s service, noting specifically as follows:

(f) Timeline of refit;

(g) Product testing;

(h) Guarantees;

(i) Completion and ultimate delivery date;

(j) V Locker’s costs to refit.[55]

[55]Mr Warszewski’s affidavit sworn 21 March 2016, 109.

Mr Warszewski deposes that Mr Burrows again admitted the faults with the product and the exposed nature of the electronics, and assured that all would be rectified.

Mr Warszewski states that V Locker has failed to comply with its performance obligations to provide quality parts and components to be properly and safely installed in the lockers. He states that V Locker has failed to ensure a reliable and ongoing functionality for locker connectivity, interfacing, intelligent locks and user interface. The lockers are now distributed across various national sites and it is not a simple task to attend and fix each locker.

Mr Warszewski asserts that V Locker has sought to gloss over its inexperience and poor workmanship in a covert manner by understating the nature of its component and installation failures in attempting a refit without Brandon’s intervention.

Since V Locker has ceased corresponding with Mr Warszewski in relation to the above issues he states that it is clear that V Locker has no intention of rectifying the problems it has caused. He states that notwithstanding this, Brandon will remain liable to Coles for the performance of any rectification works or associated compensation. He states that Brandon has withheld final payment to compel V Locker’s performance of its obligations on the one hand and to insure itself against any claims from Coles and City Holdings which may arise due to Brandon’s ongoing legal obligations to Coles. According to Mr Warszewski, had V Locker adequately completed its installation without any defects in parts or labour, this situation would not have arisen.

Mr Warszewski states that Brandon was expecting an order from Coles for 200 lockers. The issues and delays involved in the project, which he states are due to V Locker’s unprofessional delays, poor workmanship and low quality components, have meant that the 18 unit order is still incomplete. In these circumstances Coles has not provided any further purchase orders to Brandon. He believes that V Locker’s conduct in this project has tarnished Brandon’s relationship with Coles and detrimentally effected the prospects of future orders. He states that Brandon has ‘ensured’ that it maintains the capacity to furnish full payment to V Locker at such time as V Locker completes its rectification of outstanding defects and provides an appropriate warranty. He does not however say what has been put in place to provide such assurance.

I note that Mr Warszewski makes no comment in regard to the evidence of Mr Lazarus of Coles that Brandon has been paid in full for the project, that Coles are happy with the functionality of the lockers and that no repairs are required to be carried out to the lockers.

Mr Maggs’ Affidavit of 21 March 2016

In his affidavit, Peter Maggs states that he was retained by Brandon in late 2013 for the Coles Click n Collect project as a project manager to deliver the first two prototypes of the lockers. V Locker provided the componentry. Mr Maggs states that he has been involved in manufacturing in China for approximately 15 years and his role was to initially obtain a full understanding of the equipment and its expectations from the client. In the event the prototypes were accepted, his role would be to source a suitable factory in China and supervise the project.

The lockers were fabricated at the Brandon factory in Moorabbin and then shipped to sites in Blackburn in Victoria and Surfers Paradise in Queensland, as preliminary prototypes for evaluation and assessment. On completion, the locker unit design would be critiqued and further locker units would be manufactured in China and then installed in selected locations around Australia.

Mr Warszewski introduced him to Dean Burrows, the principal project manager with V Locker. Mr Maggs’ technical knowledge of the product at its inception was limited and the overall project went satisfactorily. At that stage of the project his job was to oversee the manufacture, fit out and delivery of the prototype. This included engaging the correct personnel to ensure the project was completed. On acceptance of the first two prototypes lockers, Coles gave Brandon an assurance that it would be engaged to build approximately 60 lockers.

The first two lockers were delivered to Blackburn on 18 June 2014 and to Surfers Paradise approximately five days later. He states that certain componentry in these lockers were not adequately protected and the electrical componentry was exposed. He told Mr Burrows about these issues who assured him that V Locker would source and provide boxes for the future lockers and that prototypes would be refitted accordingly. On the installation of the Blackburn and Surfers Paradise lockers, Coles raised a purchase order for a further 18 lockers. The factory in China to produce the lockers was sourced by Mr Maggs and the same factory was used for the prototype doors. The initial tooling cost for Brandon was $120,000 with the factory contributing to the tooling costs as well. Suitable premises were sourced and paid for by Brandon and the refrigerated bodies and componentry were built for the first six out of 18 units.

Brandon’s role was to manufacture the lockers and refrigeration systems and deliver them to Coles’ designated sites. Mr Maggs was provided with all drawings and specifications so the units could be manufactured by the Chinese factory. V Locker were to supply and install the information technology componentry such as door locks, all associated circuit boards, indicator lights, cabinet wiring looms and electronics, computer screens, internal interfaces and the CCTV system. V Locker were to arrange for the shipping of their componentry to China and supervise installation into the lockers. In addition, V Locker was to train the Chinese technicians at the factory to properly fit their parts in a professional and competent manner. This would also aid in a timely delivery. To this end, Mr Maggs had 15 Chinese staff allocated and waited for V Locker to arrive as their urgency was not the same as Brandon’s.

Mr Maggs says that he soon became alarmed at the untimely and unprofessional manner of V Locker’s planning, and concerned about how their parts arrived from around the globe in complete disarray. He stated that proper sourcing of componentry required a chain of supply so that it was possible to track the source of components and parts procured with build dates and model numbers for any irregularity or defect. V Locker had not followed this process and Mr Maggs witnessed components arriving in random broken cardboard boxes with no part or model numbers. V Locker requested him to arrange for the manufacturer of parts to account for the late or missing componentry, which gave him the impression the project was becoming affected by V Locker’s lack of project coordination and quality control.

In his affidavit, Mr Maggs states that on 8 September 2014, he received an email from Mr Stoneman that detailed how V Locker was unprepared to complete the build.[56] However, when examined, I do not consider that this is conveyed by the email. Mr Stoneman sets out the set up and training schedule for the installation in China and states that V Locker had organised sufficient components to complete at least one unit. He then sets out a proposal as to how that is to be achieved and seeks confirmation as soon as possible as to what is proposed.
[56]Exhibit PM-1.

Mr Stoneman’s son, Timothy Stoneman, arrived in China as V Locker’s technician. Mr Maggs states that the arrival of Mr Stoneman was two weeks late and hee had no support from V Locker. Timothy Stoneman was not what he expected from a qualified technician and Mr Maggs states he felt sorry for him as he had no support from the V Locker principal. He assisted Timothy Stoneman by communicating with the Chinese factory workers and worked closely with him to understand what V Locker required to complete their part of the build.

Mr Maggs states it was soon evident to him that the parts supply was lacking and totally inappropriate as there was a lack of specific componentry required to complete the build and many of the parts that were supplied were unsuitable. For example, the ribbon cables that controlled the opening and closing of all the locker doors were too short. In his affidavit, he describes Timothy Stoneman’s frustration and the lack of assistance provided to him by his father to solve difficulties. Because of the overall delays and lack of professional support for Timothy Stoneman, the job continued to run behind schedule. On one occasion, when Coles’ livery was to be applied, this work could not be carried out as most of the locker unit covers were off, requiring the two livery workers to have extended stays in another city to await an opportunity to complete the job.

Timothy Stoneman had a lack of knowledge which was exemplified in relation to door magnets. When Mr Maggs’ team inspected the lockers, they found the door magnets were fitted incorrectly for the vast majority of doors. This mistake caused a lot of extra work because the factory staff had to spend time removing the reversed polarity magnets and then refitting them. A polarity test should have been conducted before fitting them to ensure suitability but Mr Stoneman neglected to supervise or train the factory staff to conduct this test. This occurred at a time when Brandon was trying to ensure the lockers were ready to ship, requiring Mr Maggs to supervise the factory staff until midnight on some days.

Mr Maggs states that, as a result of manufacturing the initial prototypes, it was discovered that exposure to internal moisture, dust and other pollutants was creating problems with many electrical components within the lockers. V Locker was to have protected these components by using rated housings. When Timothy Stoneman arrived and commenced the fit out, there were no rated housings for the electrical componentry. At the last minute, Derrick Stoneman requested that Brandon source appropriately rated boxes in substitution for the boxes that had not been delivered. Timothy Stoneman told him that his father was still trying to source those boxes from Taiwan. So as not to ship the lockers with exposed electrical components, Mr Maggs sourced an interim plastic box to house the electrical componentry and PCB boards.

After Timothy Stoneman obtained approval from his father, he confirmed that the interim boxes should be obtained and applied, and that V Locker would obtain and retrofit appropriate IP rated boxes for all electrical components housing. V Locker paid for the interim boxes. While these were IP rated, they needed to be modified at V Locker’s request to accommodate V Locker’s components, compromising the boxes.

Mr Maggs concedes that he is not an expert in electronics but he became aware of V Locker’s inability to obtain suitable components from reliable sources, as their components were arriving from ‘Tao Bao’, vendors in China equivalent to eBay. The problem in sourcing products from these vendors is that the products are untraceable and there is no accountability in the event of a product irregularity or defect. That is, there is no guarantee of quality. As far as Mr Maggs is aware, Brandon does not, and has never, sourced components from such vendors. Because of the sourcing of those components, Mr Maggs became concerned about the lack of warranty, accountability, continuity and quality control which may compromise the quality build for corporate clients.

Timothy Stoneman left the project a week earlier than originally planned stating that he had a Frisbee competition in Tasmania to attend which Mr Maggs considered extremely unprofessional and disappointing, as it exposed Brandon to a sub-standard build. His late arrivaland the lack of V Locker coordination and support initially delayed the project by two weeks, and his early departure led to further frustrations on Mr Maggs’ behalf.

The lockers were shipped to Australia in late October 2014. The V Locker installation was incomplete. Mr Maggs could not determine what V Locker items still required full attention but was well aware there was much to be done and that Brandon had already committed to shipping dates and to show good will to Coles by meeting delivery dates, masking the fact that V Locker had compromised the project.

As a result the first six units were sent, with V Locker’s part of the build incomplete, to Australia. The full extent of V Locker’s incomplete works was unknown to Brandon at the time of shipping and was unknown until the lockers arrived in Sydney. At this point it was evident that the lockers required extensive work that could not be carried out at the Shell petrol sites or other points of delivery, and the decision was made to secure a warehouse for the fit out and V Locker works to be completed.

Mr Maggs states that it is indicative of V Locker’s inability to perform that even though the shipping container holding the locker units waited one week in customs and two weeks in transit from China to Australia, by the time the lockers landed, V Locker was still waiting on parts required to complete their fit out. While the first six lockers were in transit, Mr Maggs completed the other 12 locker units and assisted V Locker to install the components while lacking certain parts to successfully complete the job. Timothy Stoneman returned to oversee this part of the project.

For these 12 units, each container was delivered to a different port; Brisbane, Sydney and Melbourne. The idea was that every unit would be able to be successfully rolled out to every site with minimal work required at the point of delivery from either Brandon or V Locker. V Locker’s remaining work however was extensive, and due to the fact that the locker doors were regularly not operational, testing the units was difficult for Brandon without manually opening doors, which was time consuming and an inappropriate way to operate.

After Mr Maggs completed the consignment of the last 12 units, he returned to Australia to ensure the completion of the lockers. At every site he says he had an issue with the completion tasks that were assigned to V Locker. As a means of streamlining delivery, Brandon had purchased shipping containers which could hold six lockers. However, Brandon were expecting a complete unit that would require very little effort to roll out and install at each site. What was received was a product that had to be taken out of the containers and needed weeks of work to successfully complete V Locker’s end of the build.

On arrival in Sydney, Mr Maggs had to remove six lockers out of the containers to prepare for V Locker to complete the units. Fortunately, delays in Coles’ site preparation allowed V Locker extended time to complete major works that were supposed to be completed in China.

The lockers were deployed to Coles’ sites with varying degrees of incomplete works. This included door locks not functioning, inoperable computer screens due to temperature issues and general poor workmanship. The doors were regularly not functioning and this affected Brandon’s ability to perform testing and cleaning. The project then moved to Brisbane, Melbourne, South Australia and Western Australia in succession over the next 12 months. Each had multiple locations at which lockers had to be installed and commissioned. In these places, Mr Maggs saw the same issues repeating from V Locker, who showed no urgency to fix these works.

On 2 February 2015, Mr Maggs sent Mr Warszewski two short videos showing the incomplete V Locker works onsite at Brisbane. He states that he was constantly on the telephone speaking to Mr Stoneman, Dean Burrows and Geoff Kneale attempting to motivate V Locker to complete the tasks required to make the lockers operational. Mr Maggs said he was harsh in his remarks concerning the build and Mr Burrows conceded that V Locker had caused issues but he was hopeful of rectifying the issues through a possible retrofit.

At this stage it was expected by Brandon that there would be an order for a further 40 units from Coles and he believed that a further order of this magnitude could be compromised through V Locker’s involvement, based on what V Locker had delivered thus far.

After much discussion, Geoff Kneale, V Locker’s sales manager, sent an email stating he was appointing a project manager for all Click n Collect projects. However, there was no project manager that made contact with Mr Maggs and this was the last email he received from Mr Kneale in regard to the locker project.

In early March 2015, Mr Maggs reported back to Mr Warszewski that the V Locker fitout ‘had been a complete disaster’ and he stated that he felt future orders would be compromised by the same attitude and process. He states that in March 2015, Mr Burrows told him that V Locker was trading insolvent and all staff had their pays reduced by half. He also discussed with Dean Burrows outstanding accounts that were owed to a components company in China for the procurement of parts as these had not been paid for.

Mr Warszewski asked Mr Maggs about the progress of the Click n Collect project to ascertain whether it was appropriate for Brandon to make full payment to V Locker. As Mr Maggs was the project manager and had firsthand knowledge and experience of the current and future potential issues attributable to V Locker and the project, he told Mr Warszewski that Brandon should not pay V Locker until this was remedied; as V Locker failed to complete the fitout and was also planning to refit the entire locking system. Mr Warszewski was unaware of the extent of the severity of the incomplete works and potential issues and did not know of V Locker’s refit plans.

Mr Maggs also had several conversations with Gina Phua (apparently a financial officer at Brandon) and told her to hold off on any payment to V Locker until such time as V Locker rectified the issues in the locker units and resolved its debt for two locker units that V Locker had ordered from Brandon for V Locker’s use at various trade shows.

Mr Maggs told Mr Warszewski that Dean Burrows had informed him that such a fitout would include replacing computer screens, wiring, read switches and locks; the main areas that were failing components falling within V Locker’s responsibility. Mr Burrows assured Mr Maggs that V Locker was a reliable company and would improve its components and be more aware of what their requirements were to ensure project delivery. He states V Locker were failing to attend to highlighted issues of component exposure to dust and moisture that had been brought to their attention, and he saw these failures as a major problem that could cause long term failures and result in liability to Coles and City Holdings. He stated that it was apparent to him that V Locker had also been quite covert in hiding their failures from Brandon by dealing with Coles directly on the IT failures and he believes that the problems only escalated when V Locker was forced to refit the lockers. He states that it was ‘about this time’ (which time is not identified) that he highlighted to Mr Warszewski that V Locker was apparently refitting the lockers. He told Mr Warszewski that Brandon should not pay V Locker until they provided full details of the proposed refit and indicated how it would come about. Further, Mr Maggs noted it was important to know what testing had been completed to ensure the replacement components were fit for purpose.

The refit of the lockers began and Mr Maggs became aware that during the refit, V Locker drilled and screwed into the face of four of the lockers which is not permitted except in prescribed areas.

Mr Maggs states that V Locker were well aware of this as Brandon had worked with them extensively. Mr Maggs states that he was disappointed that it was Timothy Stoneman who performed this critical error and failed to tell anyone that he had done it. On start-up, the lockers shorted out and would not operate. He states that after much investigation, it was discovered that the units were earthing because the heater wire that travels in the face of the locker had been damaged in the drilling process. The heater wires were an integral part of the refrigeration system and cannot be repaired easily.

Mr Maggs’ advice to Mr Warszewski was that Brandon needed to replace the units which had been compromised by the drilling into the heater wires. The only way that this could be done, he says, was to order completely new lockers. He states that the units remain unfixed and he believes that if Coles were made aware of this, they would hold Brandon responsible for replacing four complete units.

Over the course of the project, Mr Maggs states that he has witnessed and reported to Mr Warszewski, that V Locker has put Brandon at long term risk with the installation of suspect components within the lockers. He states that he also believes that V Locker’s lack of performance has damaged the entire relationship with Coles. He states that a further problem over time will be that Coles has nowhere to go to maintain the lockers as the V Locker system is a ‘mishmash of bespoke components’. V Locker also connect the lockers via their own server and without this connectivity, the Click n Collect units will not function. Mr Maggs states that Brandon deployed all of its resources to ensure that the project from the outside looks streamlined and coordinated. Brandon assisted V Locker in every way to complete the task but Mr Maggs believes that V Locker has still yet to complete its task as agreed and has left Brandon with a potential long term liability and damaged its reputation with Coles.

He states that given the parameters of the initial scope of works, V Locker failed to meet these standards. Mr Maggs states that he was given assurances by V Locker that the failings would be rectified with the further 18 units and the two prototypes would be retrofitted to be made compliant per contract. He states that to his knowledge the prototype has not been retrofitted to a compliant standard as promised. He is not aware that V Locker has taken any step to rectify the defects and issues which he witnessed during the project.

Mr Maggs makes no comment on the evidence of Mr Lazarus that Coles has been paid in full for the project and that on 7 March 2016 (one year after the roll out of the lockers) Coles is happy with the functionality of the lockers and that no repairs are required to be made to them.

Consideration

Brandon contend that in these circumstances there is a genuine dispute in respect of the debts the subject of the demand and that it has offsetting claims. In my view, Brandon has not discharged the onus which it bears to establish the existence of a genuine dispute or offsetting claims, rather I consider, that on an analysis of the contemporaneously generated communications and undisputed factual matters, the alleged dispute and offsetting claims are not bona fide or real. Rather, I consider them to be spurious and, in addition, in regards to the alleged offsetting claims, hypothetical.

While the evidence indicates there were some initial problems with the fabrication of the prototypes, the lockers were installed at various locations around the country during November 2014 to February 2015. Brandon made three payments totalling $180,000 in September 2014, March 2015 and April 2015. After the installation of the lockers, Brandon made several promises for payment as follows:

(k) on 11 March 2015 it promised that between $75,000 and $100,000 would be paid to V Locker ‘either tonight or tomorrow night’. On 13 March 2015 confirmation was received that an amount of only $50,000 had been transferred to V Locker;

(l) on 23 March 2015, V Locker pursued Brandon’s financial controller for details of further payments but this approach was rebuffed by the financial controller who said that the matter would need to be referred to Mr Warszewski;

(m) on 9 April 2015 Brandon wrote to V Locker stating that its ‘cash flow was up the river’. They needed V Locker to place a substantial order to unlock equity invested in the facility in China; $250,000 belonged to V Locker and was set aside to settle the account with it;

(n) on 13 April 2015 Brandon emailed V Locker advising that ‘they were working on a payment plan and appreciated V Locker’s patience’;

(o) on 15 April 2015 Mr Warszewski spoke with Derek Stoneman and stated inter alia that Brandon was cash strapped because of a delayed payment of $300,000 owing from a job they had completed, that they expected to pay $50,000 ‘quite soon’, that they could commit to pay $50,000-$100,000 from a payment expected in one to two weeks and that they had ‘already injected all the cash we have available and unfortunately you [V Locker] are the ones paying the price’. This conversation was confirmed by Mr Stoneman in an email to Mr Warszewski of 22 April 2016 and no issue has been taken by Brandon that the text of the email did not reflect the substance of their exchange;

(p) on 10 June 2015 Mr Stoneman spoke to Mr Warszewski who told him that Brandon would be receiving two payments ‘of $250,000 any time now and that V Locker would receive a significant chunk as soon as they got it’. This conversation was confirmed in an email Mr Stoneman forwarded to Mr Davison, the Chief Financial Officer of V Locker, the following day. In my view there is no reason that Mr Stoneman would have sent such an email if it did not reflect the substance of the conversation he had had with Mr Warszewski;

(q) on 7 July 2015 the parties met to discuss the outstanding invoices and, following that meeting, Mr Warszewski emailed Mr Danson stating that payment of $250,000 would be paid to V Locker once it was received from another party. These promises to pay were not denied by Brandon, but Mr Warszewski sought to explain them away;

(r) I consider Mr Warszewski’s explanations as to why he made so many promises to pay V Locker over such an extended period of time to be spurious and unconvincing and ought not be accepted. These explanations are set out in paragraph 100 above. If the installation had gone as badly as Mr Warszewski suggests, I consider that one would have expected a far more aggressive reaction to demands for payment from V Locker.;

(s) I place considerable significance on the external evidence of the representative of Coles, Mr Lazarus. He states that Coles has paid Brandon in full for the installation of the lockers and has no issues about them as of March 2016, one year after the completion of the installation and payment by Coles of the last instalment to Brandon for the lockers. Further, no repairs are required by Coles to be carried out to the lockers. In addition, he states that Coles are happy with V Locker’s performance of its obligations under the sub-contract but want nothing more to do with Brandon in regard to the maintenance of the lockers. Indeed, they would not allow Brandon access to the lockers. In addition, Mr Lazarus stated that Coles are happy with the functionality of the lockers and no repairs are required. It seems there were some problems subsequent to the installation of the lockers which required attention and this is referred to in Mr Warszewski’s second affidavit and Mr Danson’s affidavit. Much of Mr Maggs’ affidavit covers matters involving the period leading up to the installation of the lockers and is ‘water under the bridge’. At the end of the day, Coles has paid Brandon in full and one year after the completion of the installation Coles has made no claim against Brandon which could be the subject of a dispute on Brandon’s part with V Locker. As such, Brandon has retained the funds which were to be paid to V Locker for its contribution to the locker project and which were the subject of the sub-contract between them. V Locker has electronic access to the functionality of the lockers and very few lockers were unserviceable at the date the last inquiry was made of the system; and

(t) in addition, throughout the time promises were made for payment, Brandon admitted it was suffering cash flow problems by reason of not being paid on other contracts unrelated to the installation of the lockers.

For these reasons, I do not accept the dispute described by Mr Warszewski and Mr Maggs in their affidavits is genuine; rather I consider it to be spurious and ought not be accepted. As such, Brandon, which bears the onus of establishing a genuine dispute, has not, on an application of the relevant tests set out above, satisfied that onus.

As to the alleged offsetting claims, I consider them to be hypothetical, not real and not warranting further investigation. I note that as at the date of the trial of the proceeding Coles has not made a claim against Brandon in respect of any of the matters which are the subject of Brandon’s invoices relating to the alleged deficiencies in V Locker’s performance of its obligations, and which form the major part of the basis of Brandon’s alleged offsetting claim. Aside from the invoices themselves, which have scant particulars, there has been no evidence to particularise the offsetting claims, only assertion. The invoices were generated immediately after the service of the statutory demand and, I infer, in reaction to it. When analysed, the claim set out in Brandon’s December 2015 invoices, are really overtaken by the evidence of Mr Lazarus from Coles who indicates that Coles are happy with the functionality of the lockers, that the lockers are being used by Coles on the Click n Collect ordering system, and no replacement of screens or any repairs are required to be undertaken.

As to invoice 33369, the trade show lockers claim, Brandon’s evidence in regard to this matter is vague and lacking in particulars as to the circumstances of how the lockers came to be ordered by V Locker. One would have expected there to be at least particulars as to the contractual position, such as when the orders were placed, who was specifically involved on either side and how the amount of the invoice was agreed, but such evidence is absent. Brandon bears the onus of establishing such a claim which I do not consider it has satisfied.

There is presently no dispute or claim which Brandon could seek to pass on to V Locker. Tested this way, as Brandon has been paid in full by Coles and has suffered no loss by reason of the alleged deficiencies in V Locker’s performance of its obligations, Brandon could not, at least at this time, issue a proceeding for damages against V Locker for the claims made in the various invoices. As outlined above, in order for there to be a genuine dispute or genuine off-setting claim, it must exist at the date of the hearing of the application. To my mind neither has been established by Brandon in this proceeding.

I agree with the submissions of V Locker when it adopts the observations of McPherson JA in JJMMR v LG International Corp,[57] in its outline of response to Brandon’s alleged offsetting claims:

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.[58]

[57][2003] QCA 519.

[58]Ibid [18].

In my view, Brandon’s application should be dismissed with costs.

Invoice No. 00000592 dated 1 January 2015	$159,881.32
Invoice No. 00000747 dated 27 May 2015	$37,582.32
Invoice No. 00000983 dated 9 October 2015	$438.79
Invoice No. 00000997 dated 22 October 2015	$374.00
Invoice No. 00000998 dated 23 October 2015	$452.38
Invoice No. 00001000 dated 26 October 2015	$269.50
Invoice No. 00001019 dated 4 November 2015	$583.00
Invoice No. 00001035 dated 12 November 2015	$25,905.00
Total:	$225,486.31

[2016] VSC 373

01 July 2016