Core Toughened Pty Ltd v LISEC Australia Pty Ltd
[2015] VSC 534
•1 October 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 03552
IN THE MATTER of CORE TOUGHENED PTY LTD (ACN 129 348 670)
| CORE TOUGHENED PTY LTD | Plaintiff |
| v | |
| LISEC AUSTRALIA PTY LTD | Defendant |
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JUDGE: | Randall AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 September 2014 |
DATE OF JUDGMENT: | 1 October 2015 |
CASE MAY BE CITED AS: | Core Toughened Pty Ltd v LISEC Australia Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2015] VSC 534 |
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CORPORATIONS — Section 459G of the Corporations Act 2001 (Cth) — Setting aside statutory demand — Graywinter affidavit —Defect in affidavit accompanying statutory demand — Genuine dispute.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T P Mitchell | Lander and Rogers |
| For the Defendant | Mr J Knackstredt | Jack Bock Lawyers |
HIS HONOUR:
This is an application to set aside a statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) (‘the Act’).
Background
The plaintiff carries on business in a loose relationship with Saremach Pty Ltd (‘Saremach’) and Fethers Glazing Systems Pty Ltd (‘Fethers’). The three companies work together to fabricate and sell custom made glass. David Perkins, a director of the plaintiff, deposed that:
Generally, Saremach buys the glassmaking equipment and then rents that equipment to [the plaintiff]. [The plaintiff] then fabricates glass and sells that glass exclusively to Fethers… to on-sell to commercial customers.
The defendant sells and services glass making machinery.
By agreement bearing date 26 February 2013, the defendant sold to Saremach the equipment described in Annexure A for the sum of $857,030 including GST. The sale agreement included a ‘Silver Package’ described in Annexure B to the contract which provided as follows:
SILVER PACKAGE:
· Period: 12 months
· Priority service
· Up to five hours per month phone support
· Five hours per month on-site visit
· Reduced travel time from $90 to $80 p/h
· One day every month for audit of equipment
The costs of the ‘Silver Package’ was included in the purchase price.
Saremach, in turn, rented the equipment purchased, described as a ‘REFURBISHED LISEC BAZ MACHINE’, to the plaintiff. The commencement date was 1 May 2013.
From in or about December 2013 to in or about April 2014, the defendant attended at 75-77 Ricketts Road, Mount Waverley where the plaintiff, Saremach and Fethers operated. The attendances at Ricketts Road were to deal with various issues (I have deliberately used a neutral term) arising with respect to the machinery so sold. No payment of the amounts set out in the relevant invoices was made. Subsequently, the defendants served a statutory demand.
The statutory demand dated 18 June 2014 set out that the plaintiff owed the defendant the total amount of $87,409.45 being the total of the amount of the debt described in the schedule. The schedule referred to each tax invoice and the amount thereof. The copy invoices were each addressed to the plaintiff at Ricketts Road with a delivery address of Fethers at Ricketts Road. Each invoice set out the date or dates of attendances, labour charges, travel and where applicable the cost of parts incorporated into the equipment. Each invoice also provided for, relevantly:
· Contact person
· Order number
· Order acknowledgment number
· Order type
The statutory demand was accompanied by an affidavit of Michael Kobras affirmed at Sydney. The affidavit accompanying the statutory demand for payment of debt did not follow the form of affidavit set out at Form 7. The affidavit did not state the source of the deponent’s knowledge of the matters stated in the affidavit. Further, Laura Bazouni, the person who took the affidavit, did not set out her details and qualification to take the same.
By way of further background, proceedings in the Supreme Court of New South Wales have been prosecuted between the defendant and Saremach. The proceeding relates to Saremach’s failure to pay the purchase price. The. plaintiff, together with Saremach and Fethers, have cross-claimed. At issue in the New South Wales proceeding is:
(a) whether the machinery was to the standard required under the sale agreement;
(b) whether the machinery was refurbished and commissioned as represented by the defendant under the sale agreement; and
(c) what loss was suffered by reason of the defendant’s alleged breach of the sale agreement and by virtue of alleged misleading or deceptive representation said to have been made by the defendant.
The plaintiff submits that there are three grounds for setting aside the statutory demand:
(a) the demand is not for a ‘debt’;
(b) in any event no amount is payable by the plaintiff;
(c) the affidavit supporting the demand was substantially defective.
The plaintiff also submits that it has an offsetting claim which exceeds the amount demanded.
The Graywinter affidavit was sworn by David Perkins. That affidavit refers to and raises issues about:
(a) promises made on behalf of the defendant prior to signing the purchase agreement;
(b) the non-commissioning of the equipment;
(c) the offsetting claim.
The issues in relation to whether the demand is for a ‘debt’ or that the plaintiff is not responsible for payment were not raised in the 21 day affidavit.
Consideration
The Graywinter principle
In LSI Australia Ltd v LSI Holdings Ltd[1] Austin J considered the Graywinter principle:
[1][2007] NSWSC 1406.
The Graywinter principle derives from s 459G(3), according to which an application for an order setting aside a statutory demand is made in accordance with s 459G only if, within 21 days after the demand is served, an affidavit supporting the application is filed with the court, and a copy of the application and a copy of the supporting affidavit are served on the person who served the demand on the company. In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, the High Court held that the prescriptive requirements of s 459G are mandatory and the time limit cannot be extended. There is now a long series of cases, beginning with Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, affirmed at the appellate level, which hold that "the corollary of the mandatory requirement that an affidavit supporting the application be filed and served within 21 days is that the grounds to be relied upon to set aside the statutory demand must be raised in that affidavit" (Infact Consulting Pty Ltd v Kyle House Pty Ltd [2007] NSWSC 56 (White J), at [23], and cases there cited).
…
As Debelle J (with whom Doyle CJ and Perry J agreed) said in Bentham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42, at [24]:
There is a substantial body of judicial opinion to the effect that, while a supplementary affidavit may adduce further evidence in support of grounds raised in the initial affidavit, the supplementary affidavit cannot introduce a new ground on which to set aside the demand for that would be to extend the 21 day period prescribed by s 459G.
It is plain that the grounds advanced in the initial affidavits in the present case do not include any ground relating to indemnity or, in the case of the LSIH statutory demand, offsetting claims. Therefore the affidavits made on 22 November 2007 seek to adduce evidence of new grounds impermissibly, outside the 21-day period.[2]
[2]At [46], [48].
The issue with respect to whether the demand was for a ‘debt’ was simply not raised and I will not allow the issue to be ventilated. However, I note as I have set out in the following paragraphs that issue may have led to a determination that a genuine dispute had been identified.
In Vimblue Pty Ltd v Toweel t/as Carpenters Core Building[3] Barrett J said:
[3][2009] NSWSC 494.
It may be noted that McPherson J referred to a “liquidated sum”, not a “liquidated demand”. The nature of a “liquidated sum” was explained by Knox CJ and Starke J in Spain v Union Steamship Co of New Zealand Ltd … (1923) 32 CLR 138 at 142 by quoting from the then current edition of Odgers on Pleading:
Whenever the amount to which the plaintiff is entitled … can be ascertained by calculation or fixed by any scale of charges or positive data it is … liquidated.
There was reference in Spain’s case to Stephenson v Weir (1879) 4 LR Ir 369. It was held in that case that a common count claim for work done was a “liquidated demand”. Palles CB said at 372:
[D]emands for work and labour on a quantum meruit, or for goods sold, although the price was not fixed by contract, are clearly “liquidated demands”; … when the value of the work or the goods as the case may be, is ascertained, that value determines and therefore liquidates the claim.
This statement identifies the distinction between “liquidated claim” or “liquidated demand” and “liquidated sum”. A process of valuation or assessment or the application of some standard of measurement is necessary to cause the latter to emerge from or be distilled from the former.
The process by which a claim is translated into a right to a liquidated sum was described by Cohen J in Re Ahearn; Ex parte Palmer (1906) 6 SR (NSW) 576, a case concerning an unliquidated claim. His Honour said at 577:
For failure to meet his contracts he was liable in damages, and, so long as it rested in damages, the liability was not a liquidated sum; before it could become so, it would have to be assessed either under the Stock Exchange rules, or by the ordinary tribunals, or by agreement between the parties, for the parties may meet and agree upon an amount which one shall be deemed to owe the other. There is no special virtue in having the amount assessed by a Court or a domestic tribunal, for an assessment between the parties is equally efficacious for the purpose of constituting the amount a liquidated sum.
The same reasoning applies to a liquidated claim upon a quantum meruit for work done. In the Irish case to which I have referred, Palles CB held that an action for debt is maintainable upon such a claim, adding at 373:
When it was said that an action of debt would lie only for a sum certain, it was sufficient that the sum should be capable of being ascertained by a jury by positive data, and not merely measured by opinion or conjecture. In the present case, for instance, when the value of the work was ascertained, the sum to be recovered became definite, and the case would not be like one of assault in which there were not any certain data to fix the amount of damages.
The words of particular importance in this passage are, “when the value of the work was ascertained, the sum to be recovered became definite”. “Definite”, in the context, is synonymous with “liquidated”.
If a mechanic spends half an hour repairing my car and there is no agreement between us as to the amount he will charge and I will pay, his subsequent claim for $1 million may be regarded as a liquidated claim. But no liquidated sum is thereby owing, due and payable by me to him. His entitlement is to be paid a reasonable sum upon a quantum meruit. Until the value of the work is ascertained and in the absence of some process that fixes what is reasonable according to what Palles CB called “positive data”, as distinct from “opinion or conjecture”, the liquidated claim does not mature into an entitlement to a liquidated sum.
Mr Finnane referred to Australian Securities and Investments Commission v Edwards [2005] NSWSC 831 … as a case in which a quantum meruit entitlement for building work arose in circumstances where the parties themselves showed a mutual intention as to a process of quantification and actually adopted that process to determine the quantum to be paid. It was held in that case that the amounts due on a quantum meruit, having been quantified according to the agreed process, were debts. As the passage from Re Ahearn; Ex parte Palmer at para [16] above indicates, the parties’ agreement or their acceptance of some external measure may cause a liquidated sum to emerge.
Mr Finnane submitted that the present case is different. I accept that submission. There is nothing before me to suggest that the claimed $34,500 is, or has been calculated or determined to be, a reasonable reward for the work done. It is no more than the defendant’s demand or claim, of the same nature as my hypothetical mechanic’s demand or claim for $1 million for half an hour’s work. There is no basis for any objective conclusion that $34,500 (or any other amount) must be paid by the plaintiff to satisfy its obligation to pay reasonable remuneration or compensation. Any conclusion that $34,500 was required to be paid would be based wholly on “opinion or conjecture”, as distinct from “positive data”, to adopt the language of Palles CB. In short, the liquidated demand or claim has not yet produced a liquidated sum.
The plaintiff’s contention that there is a genuine dispute as to the existence or amount of the alleged debt described in the statutory demand must therefore be accepted.[4]
[4]At [14]–[23].
In The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 2),[5] Santow J said:
However, this leads to the question whether … it can be said that such a common money count represents a “liquidated demand” …
It is clear enough that such a common money count is for a debt or liquidated demand.
…
Odgers on Pleading and Practice, 5th ed at 41 states that “whenever the amount to which the plaintiff is entitled … can be ascertained by calculation or fixed by any scale of charges or other positive data, it is … liquidated” …
[5](1996) 20 ACSR 170.
The original contract terms and conditions of sale and of service do not provide a mechanism for the calculation of any amount payable. Clause 3, which deals with prices, refers to quotations. Clause 4, which deals with the service charge, is based upon cost estimates. It should also be noted that the invoices themselves do not constitute a liquidated sum as each merely records the claim made rather than constituting the claim made.
Mr Ianni, in his affidavit sworn 14 August 2014, conceded that the defendant did not enter into any agreement, or communicate, with the plaintiff in relation to the sale of the equipment. The only relationship between the defendant and the plaintiff has been the provision of maintenance and repair services from time to time which fell outside the silver maintenance package.
The exceptions are invoices 13 ($129.14), 15 ($268.33), 22 and 24 which correspond to purchase orders from the plaintiff. Invoices 22 and 24, and their corresponding purchase orders, do not specify an amount. In addition to those invoices, the supply pursuant to invoice No 3 was requested in an email transmission dated 28 January 2014 emanating from Edward Pankevicius of Fethers.
The items provided in invoice No 4 were provided pursuant to a customer order No 52750 emailed by Edward Pankevicius on 15 January 2014.
The invoice No 5 in the sum of $2,564.38 was approved by the plaintiff on 30 January 2014.
Invoice No 7 was provided pursuant to an email transmission from Edward Pankevicius dated 4 February 2014. That transmission listed a request for the supply of parts in the sum of approximately $180. The invoice appears to have been for a greater number parts than requested.
Invoice No 9 recorded that the part supplied was pursuant to an email transmission from Edward Pankevicius dated 7 February 2014.
Invoice No 26, in the sum of $514.17, records that the parts were provided pursuant to an email transmission from Mark Campion of Fethers dated 14 April 2014.
The plaintiff submits that the request by Fethers did not constitute request by the plaintiff. I note that the plaintiff has regard to the separate entity concept when it suits. The plaintiff further submits that the plaintiff, not being the owner of the equipment, did not otherwise accept the benefit of the services and parts supplied. The contrary position is that there was a course of dealing with 26 invoices recording service attendances and parts supplied between 31 December 2013 and 14 April 2014. The invoices were provided in a timely manner and each invoice was endorsed with the words ‘please notify us of any queries within 10 working days from date of invoice’. No query was recorded within ten days of each invoice. The continuing relationship leads to the conclusion that the plaintiff accepted the quantification set out in the invoices or, by the order of fresh services and parts, represented to the defendant that the quantification set out in previous invoices was accepted. However, but for the failure to raise this issue in the 21 day affidavit, I might have concluded that there was a genuine dispute.
In addition to the ‘quantum meruit’ submission, during the course of submissions it was also contended that the plaintiff had not ordered the parts and services and if any entity was responsible it was Saremach which had entered into the contractual relationship. However, prior to the provision of the invoices, the defendant had received an email transmission dated 31 May 2013 which set out as follows:
Please invoice Core Toughened Pty Ltd in the future – address remaind (sic) unchanged.
Albeit that the email transmission emanates from Fethers, given the common administration I accept that the defendant was entitled to rely upon the same and issue invoices to the plaintiff.
The plaintiff relied upon the High Court decision in Lumbers v W Cook Builders Pty Ltd (in liq),[6] where it was held that the contract between the parties could not be ignored. The restitutionary claim for work and labour done or goods supplied depended upon analysis of the request and consideration of the benefit received.
[6](2008) 232 CLR 635.
The plaintiff submitted that there was no evidence of a request by the plaintiff for works charged for in invoices No 2, 8, 10, 11, 14, 17, 19, 21, 22, 23 and 25. Accordingly, the plaintiff submits that no quantum meruit claim can be made.
The plaintiff submitted that for invoices 1, 5, 6, 12, 16, 18 and 20, Mr Donaldson describes the works as being performed ‘at the request of the plaintiff’ without deposing to the actual fact of the request. It is submitted by the plaintiff that the allegation is conclusionary and objectionable. In any event, the plaintiff submits that Mr Perkins’ response is that most of the invoices related to parts ordered by the defendant’s technicians while trying to fix defects in the equipment.
The plaintiff submitted that invoices 3, 4, 7, 9 and 26 were ordered by representatives of Fethers, not the plaintiff, as the emails exhibited by Mr Donaldson demonstrate. Thus, the plaintiff submits that no liability can be visited upon the plaintiff. The only invoices conceded by the plaintiff are those in 13, 15 and 24. That leads to an amount under the statutory minimum. The plaintiff further submitted that the defendant is not entitled to charge the plaintiff for work that it is obliged to perform for Saremach in refurbishing and commissioning the machine. As the reply affidavit of Mr Perkins demonstrates, almost all of the charges related to defect rectification within the warranty period, which Saremach was entitled to require the defendant to perform.
The issue of the identity of the company requesting the parts and services was not raised in the 21 day affidavit. Given the email of 31 May 2013 and the matters referred to in paragraph 26, I would not have determined that the issue constituted a genuine dispute in any event.
Genuine dispute and offsetting claim
The plaintiff submits that the amount of that claim by far exceeds the amount of the demand and thus should be set aside under s 459H(3) of the Act.
The plaintiff submits that the plaintiff’s offsetting claim is set out in the statement of claim filed in the New South Wales Supreme Court which is in evidence, and it will not be repeated here. The pleaded facts constituting the claim are verified on oath in this proceeding.
The plaintiff submits that the claim demonstrates at least ‘a plausible contention requiring investigation’. The offsetting claim cannot be summarily rejected in this proceeding, and should be determined on contested factual evidence (including expert evidence as to the condition and functionality of the Equipment) in the trial of the New South Wales proceeding.
The defendant responds by submitting that it is well-established that mere allegations in pleadings, whether they are verified on oath or affirmation, are to be given no weight in and of themselves; and that what is relevant is whether there is actual evidence that a genuine dispute or offsetting claim exists.
The defendant submits that the plaintiff’s allegations are of doubtful credibility, having only arisen after the defendant issued the demand. The plaintiff has alleged that:
(a) In the course of negotiations that led to the sale agreement, the defendant’s representatives made a number of misrepresentations to Saremach and breached the sale agreement; and
(b) The work that was done by the defendant pursuant to the invoices was work that ought to have been covered by a six-month warranty issued by the defendant in favour of Saremach.
The defendant disputed the existence of a genuine offsetting claim on three grounds.
First ground: separate entity
The defendant submits that the plaintiff’s arguments ignore the separate entity doctrine, which was established by the end of the 19th century in Salomon v Salomon & Co Ltd.[7] The defendant submits that simply because Mr Perkins is a director of the plaintiff, Saremach and Fethers does not establish that those entities are to be treated as one; nor does it establish that any third party (including the defendant) was aware of their internal arrangements (and, even if third parties were aware of those arrangements, that would not prevent the application of the separate entity doctrine).
[7][1897] AC 22.
The defendant submits that the separate entity doctrine applies to following facts:
(a) Mr Perkins informed the defendant’s representatives during negotiations that led to the sale agreement that Saremach would purchase the entity. Accordingly, any representations made by the defendant during those negotiations were made to Saremach.
(b) Saremach in fact purchased the machinery pursuant to the sale agreement, of which the plaintiff was not a party.
(c) Even assuming that Saremach can establish that, in agreeing to enter into the sale agreement, it relied upon certain representations made by the defendant which turned out to be incorrect (a position which is inconsistent with, for example, clause 2.3 of the sale agreement), the plaintiff did not take any action in reliance upon those representations.
(d) The plaintiff directed the defendant to address the invoices to it and in its name.
The defendant submits that in those circumstances, there is no basis upon which loss suffered by the plaintiff (if any) is properly recoverable by it from the defendant. For that proposition the defendant relies on the following authorities: Milner v Delita Pty Ltd;[8] Accredited Aged Care Facilities Pty Ltd v Banyan Tree (Aust) Pty Ltd;[9] and Australian Rural Expo Pty Ltd v Fibrenova Ltd.[10]
[8](1985) 9 FCR 299, 301–2.
[9][2002] VSC 261, [95].
[10][2007] VSC 491, [371].
Second ground: rental agreement
The defendant submits that in light of the terms of the rental agreement, the plaintiff cannot be said to have relied upon any of the representations alleged to have been made by the defendant.
The defendant submits that the rental agreement between the plaintiff and defendant in respect of the machinery (which was not disclosed to the defendant during the negotiations that led to the sale agreement) provides that:
(a) The plaintiff inspected the machinery before accepting it and did not rely upon any representation or warranty made with respect to its condition or quality (clause 5);
(b) Saremach has responsibility for the repair of the machinery, subject to excessive wear and tear, repairs for which the plaintiff is responsible (clause 6); and’
(c) all previous representations, understandings and negotiations are ‘merged in and superseded by this document and are of no effect’ (clause 19).
Third ground: NSW proceedings
The defendant submits that the fact that the plaintiff, Saremach and Fethers have filed a proceeding in the Supreme Court of NSW is not, in and of itself, a basis for concluding that there exists a genuine dispute or offsetting claim. The defendant submits that in those circumstances, the plaintiff cannot establish that it has an offsetting claim against the defendant, nor can it establish that it (as distinct from Saremach) was entitled to the benefit of the warranty contained in the sale agreement (which, in any event, had expired by the time the first invoice was issued). While Saremach may be entitled to assert such claims (as it has done), to the extent that the plaintiff has suffered any loss, that loss is only recoverable (if at all) from Saremach (and not the defendant) and only in accordance with the terms of the rental agreement.
The defendant submits that based on the first two grounds, the Court should not be satisfied that a genuine dispute exists.
Applicable law with respect to a genuine dispute or offsetting claim
The various tests require me to identify whether there is a genuine dispute without resolving the same:
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.[11]
[11]Powerhouse Australasia Pty Ltd v Viarc Pty Ltd [2006] VSC 508, [48] (Dodds-Streeton JA).
Further, ‘[t]he dispute or off-setting claim should, as has been recognised, have some objective existence’.[12] That is, as the Full Federal Court has held, the dispute or off-setting claim must be ‘bona fide and truly exist in fact’, with ‘real and not spurious, hypothetical, illusory or misconceived’ grounds for claiming its existence.[13]
[12]Ibid [49].
[13]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 (‘Spencer Constructions’), 464.
Further applicable principles have been set out by this Court in Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd (‘Troutfarms Australia’).[14] In Rescom Asia Pacific Pty Ltd v Reapfield Property Consultants Pty Ltd,[15] Almond AJA identified the applicable principles with respect to setting aside statutory demands. Almond AJA referred to the judgment of Osborne JA in Troutfarms Australia, (with whom Ashley JA concurred), which emphasises that ‘[t]he phrase ‘a genuine dispute’ uses ordinary English words and its meaning in any particular set of circumstances must be a question of fact’.[16]
[14][2013] VSCA 176.
[15][2014] VSCA 92.
[16]At [5].
In Troutfarms Australia, Osborne JA [describe treatment of Robson J’s decision] Robson J in Rhagodia Pty Ltd v National Australia Bank[17] had referred to the authorities that demonstrate how that definition is applied. Those three authorities are TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[18] Eyota Pty Ltd v Hanave Pty Ltd,[19] and Re Morris Catering (Aust) Pty Ltd.[20]
[17][2008] NSWCA 73 (‘Rhagodia’), [91]-[94]; see also, Powerhouse Australasia Pty Ltd v Viarc Pty Ltd [2006] VSC 508; Spencer Constructions, 464.
[18][2008] VSCA 70 (‘TR Administration’).
[19](1994) 12 ACSR 785 (‘Eyota’).
[20](1993) 11 ACSR 601.
On the point of identifying, without resolving, a genuine dispute, in TR Administration Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) said:
No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised.[21]
Her Honour further outlined the evidentiary requirements with respect to making out a s 459H claim:
As the terms of s 459H (sic) of the Corporations Act 2001 and the authorities make clear, the company is required in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice…[22]
[21]At [57].
[22]At [71].
In the second authority, Eyota, on which the defendant relies,[23] McClelland CJ of the Supreme Court of New South Wales clarified the meaning of ‘genuine dispute’:
It is … necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking precision, inconsistent with undisputed contemporary documents or other statements by the same deponent …
But if it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments[24] Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 3:
These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.[25]
[23]At 787–8.
[24]Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 270; (1993) 11 ACSR 362, 366-7 (‘Mibor Investments’).
[25]At [3] (citations in original).
The third authority referred to in Rhagodia by Robson J — Re Morris Catering (Aust) Pty Ltd — Thomas J described the scope of the Court’s role in identifying a genuine dispute between the parties as an ‘essential task [that] is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it)’:
There is little doubt that Div 3 ... prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court’s examination are the ascertainment of whether there is a “genuine dispute” and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.[26]
[26]Re Morris Catering (Aust) Pty Ltd, 605.
In relation to the onus of proof, ‘[t]he plaintiff bears the onus of establishing the genuineness of the dispute or off-setting claim’.[27]
[27]Powerhouse Australasia Pty Ltd v Viarc Pty Ltd [2006] VSC 508, [49].
Whilst the defendant’s submissions in relation to the offsetting claim as formulated in the New South Wales proceeding have some force, the kernel of the plaintiff’s complaint in the 21 day affidavit is that by reason of the contended for failures, the equipment just has not been commissioned and thus the warranty period has not elapsed. In addition to verifying the statement of claim, Mr Perkins produces correspondence which he contends corroborates his position.
By letter dated 4 July 2014, the plaintiff’s solicitors wrote to the defendant’s solicitors and relevantly set out:
5.It is our client’s position that the machine delivered to Saremach by your client, and then subsequently leased to [the plaintiff] was defective and is not fit for purpose. This is not only a breach of contract between Saremach and [the defendant] but misleading and deceptive conduct on behalf of [the defendant] as well as negligence.
6.The dispute has been extensively documented in email correspondence between our respective clients including but without limitation emails from our client dated 24 May 2014, 13 June 2014 and 16 June 2014 and an extensive letter from your office to Saremach dated 17 June 2014.
Although that email chain may be taken to contradict the notion that the equipment has not been commissioned, it certainly sets out issues with respect to performance. The response to the email transmission of 22 May 2013 was conciliatory and included: ‘Willi will be on site today? And he will ensure that all is fixed and is there to offer more training’.
The email from Mr Perkins to the defendant dated 21 June 2013 again expresses dissatisfaction as did the email transmission of 22 May 2013. In the email of 21 June 2013 it is noted: ‘You know also that lost production is costing us $20,000 per day.’
By email transmission of 17 February 2014, further complaint is made which relevantly set out:
Our BAZ remains out of production as it has been pretty much since Christmas.
As you know it is costing us about $20,000 per day in lost production as well as serious damage to our hard won reputation for on-time performance.
By response of the same day, Mr Ianni, the general manager of the defendant, instructed Chris Donaldson of the defendant to ‘please do whatever is require (sic) to ensure we resolve this matter without any further delay’.
By email transmission dated 20 February 2014, further complaint was made by Mr Perkins and an attempt to quantify the loss was set out. That email transmission included the following:
As you know from my emails of May 22, 2013 and February 17, 2014 the BAZ has NEVER produced at those levels, and indeed during January and February only produced about 12 days out of 39 work days in those two months. A lost production day costs us about $20,000.
Worse still Sandro, since commissioning the machine in May 2013 we have incurred unexpected maintenance and spare parts and labour costs of $119,369. Just since January 6, 2014 our lost production is well over $500,000 (not including many many down days in 2013) and further serious impact on our business including:
(a)Damaged reputation in the market place, especially during Jan/Feb this year
(b) Additional excessive overtime, due wholly to the BAZ
(c) Cost of parts replacement
(d) Cost of Lisec support
(e) Damaged and broken glass
(f) Extra labor, training and spare parts
The unplanned cost to FGS well exceeds $600,000.
…
Furthermore Sandro, it is very clear to us from Dieter’s excellent and constructive email of 10/2/2014 that the machine was never fully refurbished by [the defendant], as it was sold to us, and the refurbishment is gradually being done at our cost and we lose production reliability and uptime.
Mr Ianni’s prompt response of the same day sets out as follows:
I have read and noted your comments. I am not aware that the current issues were coursed (sic) by [the defendant], that we did not completely refurbish the BAZ when it was delivered. But I will investigate and respond to that. if this is the case, then we will ensure that we cover all of those cost[s].
As I have told and am aware, all of the work to refurbish the line has bee[n] done, and some of the current issues were coursed (sic) by lack of maintenance of the BAZ.
…
I will instruct our technicians to fix, train and ensure all care is taken to deliver a product to the standard that we all would expect.
That exchange supports the defendant’s submissions with respect to the offsetting claim. The claim for losses exceeding $600,000 suffered by Fethers highlights the difficulties with ‘skirting around’ the separate entity doctrine. The representations were said to be made to Saremach. The loss is said to have been suffered by Fethers. For the plaintiff to prosecute a claim that it has suffered loss when it merely rents the equipment, is fraught with difficulty. However, the exchange clearly identifies the proposition that what was attended to by the defendant was part of the commissioning process rather than as contended for by the defendant as arising by virtue of lack of maintenance on the part of Saremach. It is not my role to resolve that dispute. Based on the authorities referred to, I am satisfied that a genuine dispute has been identified, namely that attendances and the supply of parts were to make good rather than servicing and so are for the defendant’s account. On that basis, I will set aside the statutory demand.
Compliance with Form 7
The defendant submits that Mr Kobras was not required to comply strictly with the requirements of Form 7 . It relies on the following authorities: r 1.7 of the Supreme Court (Corporations) Rules 2013 (Vic), r 43.08 of the Supreme Court (General Civil Procedure) Rules 2005; Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd;[28] and Equuscorp Pty Ltd v Perpetual Trustees WA Ltd.[29] The defendant submits that in any event, the extent that Mr Kobras was required to state the source of his knowledge (which is denied, in light of the above), that problem has since been cured.
[28][2009] NSWSC 180.
[29][1997] FCA 468.
The defendant submits that in those circumstances this is not a case where the alleged deficiency in the affidavit (if, indeed, there is a deficiency) ought to lead to the setting aside of the demand. The defendant submits that in this regard, it is noteworthy that a demand will only be set aside because of a defect where it gives rise to a substantial injustice which ‘must be an injustice caused to the company receiving the demand and is not to be treated as a punishment on the person giving the demand for being lax in not complying with the form of the demand’: Hornet Aviation Pty Ltd v Ansett International Air Freight A Division of Ansett Transport Industries (Operations) Pty Ltd.[30] The defendant submits that that reasoning is applicable by analogy in applications based upon s 459J(1)(b) of the Act: See generally Meehan v Glazier Holdings Pty Ltd.[31]
[30][1994] FCA 1533.
[31][2002] NSWCA 22.
The defendant submits that there is no evidence of any injustice, let alone substantial injustice, having been caused to the plaintiff because Mr Kobras did not refer to the source of his knowledge in the affidavit accompanying the demand.
However, in Portrait Express (Sales) P/L v Kodak (Australasia) P/L,[32] Barrett J set aside a statutory demand for failure to provide proper evidence of the five substantive matters referred to in Form 7. Barrett J said:
In my view the dominant consideration is the need to ensure the purity of the manner in which creditors follow statutory procedures which are preliminary to litigation and for which verification is required by law. I do not find it possible to see deficiencies of the kinds which exist in these affidavits as something which can be disregarded. It is not enough that a responsible officer should support a Statutory Demand by oath or affirmation; the exercise must be carried out in a responsible way, and regard must be paid, with a strictness appropriate for verification, to the need to review the available information and observe whether what is being verified conforms to the information in the creditor's own hands.[33]
[32](1996) 20 ACSR 746 (‘Portrait Express’).
[33]Portrait Express 752.
In Portrait Express, the director had sworn the affidavit accompanying the statutory demand. The director failed to state the source of his knowledge of the matters stated in the affidavit concerning the debt and, more significantly, had failed to depose that there was no genuine dispute and that the debt remained due and payable.
Bryson J said:
The requirements of sub-rule 15(1) which in the present case were not met have no less significance than the requirement which was not met in the B & M Quality Constructions case. The requirements that the deponents state the source of his knowledge and belief that the matters stated in the affidavit concerning the debts were true and his belief that there was no genuine dispute are in at least the same order of importance as the requirement that the verification be made by a member or officer. The selection of the right person achieves nothing unless the facts required to be verified are actually verified.[34]
Bryson J concluded that ‘the failure of the affidavit to comply with the Rules of Court is not a defect in the demand itself and is not protected by’ s 459J(2) of the Act.[35]
[34]At 752.
[35]At 752.
While I accept that knowledge will be inferred by reason of a deponent’s capacity or position with an organisation, for example, if the accompanying affidavit was sworn by a credit manager or the accounts manager, it does not follow that the same can be inferred by the swearing by the director. That was the very case that Barrett J dealt with in Portrait Express.
Accordingly, I am satisfied that if I had not found a genuine dispute there would have been other sufficient reason to set aside the statutory demand pursuant to s 459J(1)(b). The fact that the defendant has sought to rectify the position subsequently is irrelevant, as is the concept of causing prejudice as that concept is germane to defects in the actual demand itself.
Proper witnessing of the affidavit accompanying the demand
The defendant submits that the allegedly improper witnessing of the affidavit in support of the demand is wholly without merit. The defendant submits that the affidavit was affirmed by Mr Kobras before a solicitor admitted in NSW, who was duly authorised to witness affidavits in NSW. The defendant submits that the capacity of Ms Bazouni, and the circumstances in which she witnessed the supporting affidavit affirmed by Mr Kobras, are now the subject of evidence.
The defendant submits that in those circumstances, the fact that the supporting affidavit does not state Ms Bazouni’s capacity is a mere irregularity which does not give rise to any proper basis to set aside the demand. It relies on the following authorities: r 1.7 of the Supreme Court Corporations Rules, r 43.08 of the Supreme Court General Civil Procedure Rules, Toskas v Toskas,[36] Carb Royale Pty Ltd v Tonkin,[37] Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc.[38]
[36][2000] NSWSC 565, [1]–[5].
[37][2000] VSC 482, [36]–[43].
[38](1997) 80 FCR 571, 580–1.
In Carb Royale, McDonald J made the following observations about the failure to properly identify the person before whom the affidavit accompanying the statutory demand was taken. McDonald J noted:
The affidavit accompanying the statutory demand in this case bore an illegible signature beside the typed words “Before me”. Below that signature there was not legibly written, typed or stamped the name of the person before whom the affidavit was sworn or taken, and address of that person as is required by s 123(3) of the Evidence Act. Further, below the signature of the person for whom the affidavit was sworn and taken there was not legibly written, typed or stamped the “capacity” in which that person had authority to take the affidavit as is further provided by R43.01(7) of the Chapter 1 by way of addition to the other matters as required to be legibly written, typed or stamped pursuant to the Evidence Act.
Rather it was submitted on behalf of the defendant that the fact that the matters referred to were not legibly written, typed or stamped below the signature of the person for whom the defendant swore his affidavit, was a defect which did not cause a substantial injustice and which should not cause the court to set aside the statutory demand.
In the affidavit sworn by Mark Christopher Harrick on 15 May 2000 and filed in these proceedings he identifies that he was the person before whom the defendant swore his affidavit on 14 April 2000 which was the affidavit which accompanied the statutory demand. The business address of Harrick appeared from the body of that affidavit. In a further affidavit sworn by Harrick on 17 May 2000 and filed in these proceedings he states the fact that he is a solicitor and identifies again his business address. The statement by Harrick that he is a solicitor in my view is sufficient to identify him as being a practitioner within the meaning of the Legal Practice Act 1996. It was at that time and in these proceedings that the name, address and the capacity in which Harrick had authority to take the affidavit sworn by the defendant was identified.
Sections 459J(1) and 459J(2) of the Corporations Law provides:
(1)On an application under s459G, the court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
(2)Except as provided in subs(1), the court must not set aside a statutory demand merely because of a defect.
In s 9 of the Corporations Law a “defect in relation to a statutory demand” is defined to include:
(a) an irregularity; and
(b) a misstatement of an amount or total; and
(c) a misdescription of a debt or other matter; and
(d) a misdescription of a person or entity.
The failure of Harrick to comply with the requirements of R43.01(7) of Chapter 1 of the Rules of the Supreme Court, his failure to state his “designation” as is provided by Form 7 of the Corporations Law Rules 1999 (Chapter V) and his failure to comply with the provisions of s123(3) of the Evidence Act 1958 (Vic), which may expose him to a penalty under that provision, does not constitute “a defect in the demand”. Rather the omissions of Harrick, the person before whom the defendant swore the affidavit which accompanied the demand, served on the plaintiff caused there to exist a defect in relation to the demand.
As the defect is not “a defect in the demand” the provisions of s 59J(1)(a) and s 59J(2) are to be put to one side and not have regard to in determining whether the statutory demand in this case should be set aside: Spencer v Aldridge; Equuscorp v Perpetual Trustees (each of which decisions are decisions of the Full Court of the Federal Court of Australia). Accordingly, regard must be had to the provisions of s 459J(1)(b) and s459J(2) of the Corporations Law. In Equuscorp v Perpetual Trustees the court held that there was “no ironclad rule that a defective affidavit will mandate the setting aside of the demand”. In my view, of significance is the fact that there was no error in relation to the demand constituted by any act or omission of the defendant. Rather the defect in relation to the demand was a defect brought about by the omissions of the person before whom the affidavit was sworn.
At the commencement of these proceedings there was no material before the court to disclose the identity of the person before whom the affidavit was sworn, his address and the capacity which he had to take an affidavit. It was during the course of these proceedings and in consequence of the two affidavits of Harrick, as I have previously referred to, that there emerged the name of the person before whom the affidavit of the defendant was sworn, his address and the capacity which he had to take affidavits. On the emergence of those facts during the course of these proceedings although the defect in relation to the demand was not corrected as such nevertheless by the two affidavits sworn by Harrick there was provided to the plaintiff factual material which enabled it to be aware of who the person was before whom the defendant swore his affidavit, his address and the capacity which he had to take an affidavit. In such circumstances, and particularly having regard to the fact that there was no defect in relation to the demand which could be directly visited on the defendant, the conclusion that I have reached is there is no reason why the demand should be set aside. To set aside the demand in the circumstances of this case, there being a defect in relation to the demand of the nature that I have referred to, would be to set aside the demand “merely because of a defect”. However, insofar as it was not until 17 May 2000 in these proceedings that the defect in relation to the demand was in substance overcome, in my view it was appropriate for the Senior Master to order that the plaintiff have its costs until 17 May 2000 and thereafter the plaintiff should pay the defendant's cost of the proceedings. No argument was addressed to me on this appeal that the orders as to costs made by the Senior Master should be varied in some way in the event of the appeal being dismissed.[39]
[39][36]–[43] (emphasis added).
In this instance, a further affidavit has been affirmed by Ms Bazouni to rectify the position. If necessary, I would have held that it was not a reason to set aside a statutory demand.
Orders
1. The statutory demand dated 18 June 2014 is set aside.
2. The defendant pay the plaintiff’s costs, including reserved costs, on a standard basis.
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