Delphic Wholesalers (Aust) Pty Ltd v Agrilex Co Ltd
[2010] VSC 641
•20 April 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
No. S CI 2009 10035
| DELPHIC WHOLESALERS (AUST) PTY LTD (ACN 007 384 509) | Plaintiff |
| v | |
| AGRILEX CO LTD | Defendant |
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JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9 February 2010 | |
DATE OF JUDGMENT: | 20 April 2010 | |
CASE MAY BE CITED AS: | Delphic Wholesalers (Aust) Pty Ltd v Agrilex Co Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 641 | |
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CORPORATIONS – EXTERNAL ADMINISTRATION - INSOLVENCY – Application to set aside statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) – Whether there is genuine dispute about existence of the debt to which demand relates – Whether plaintiff has offsetting claim based on liquidated claims it has against defendant – Consideration of contemporaneous communications taking place at and after the time the alleged dispute and offsetting claim are said to have arisen – Plaintiff’s evidence found to be lacking in precision, inconsistent with undisputed contemporaneous documents and regarded as implausible, inherently improbable and not meeting onus required to be discharged - Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S. Maiden | White Cleland Pty |
| For the Defendant | Mr A.T. Strahan | Cornwall Stoddart |
HIS HONOUR:
By an originating process filed on 11 November 2009, the plaintiff (“Delphic”) applies under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 14 October 2009 which was served on it by the defendant (“Agrilex”) on 22 October 2009. The demand is for EUR147,004.14.[1] The application was filed and served on 11 November 2009, within the time required by s 459G(3) of the Act.
[1]This is approximately $A230,000.
Delphic relies on the affidavits of Harry Gregory sworn 11 November 2009 (“Gregory 1”) and 18 January 2010 (“Gregory 2”). Agrilex relies on the affidavits of George Vladov affirmed on 22 December 2009 (“Vladov 1”)[2] and 4 February 2010 (“Vladov 2”).
[2]That affidavit exhibits (as exhibit GMV1) affidavits of Mr Vladov filed in an application made to set aside an earlier statutory demand served by Agrilex. Amongst those affidavits is an affidavit affirmed by Mr Vladov on 26 May 2009.
The parties filed a joint statement of facts and evidence on 8 February 2010.
The application involves a consideration of whether there is a genuine dispute about the existence of the debt to which the demand relates and whether Delphic has an offsetting claim based on unliquidated claims it has against Agrilex.
Agrilex is a Bulgarian company involved in exporting Bulgarian cheese. Delphic, an Australian company, imported cheese through Agrilex. The parties commenced trading in the early 1990s, but this ceased for a time from 2002 until 2005, at which time Delphic again ordered cheese from Agrilex. The debts the subject of the demand arise from cheese supplied in 2007. Mr Gregory conducted the dealings on behalf of Delphic and Agrilex dealt through its general manager, Mr Vladov.
Between 21 and 23 May 2007, Mr Gregory, Mr Vladov and one Assia Gorcheva (a representative of Agrilex) visited four factories in Bulgaria from which the cheese which Agrilex supplied to Delphic was sourced. Those four factories were located at Dimitar Madjarov, Matand, Yotovi and Bulgarsko Sirene.
Subsequently, on 4 June 2007, Mr Gregory emailed Mr Vladov and stated, inter alia:
“Over the next week, I shall forward you the programme for this year … Please arrange to ship ALL our Sheep’s Fetta and Goat’s Fetta from Madjarov. The quality of the cheese and the flavour of the cheese that I tasted while I was there last month is what our customers ask for.”
Later that month, on 25 June 2007, Delphic placed an order for cheese for the 2007/2008 season with Agrilex by an email from Mr Gregory to Mr Vladov which stated, inter alia:
“Attached please find our order and shipping schedule for the 2007 season. … As discussed, we would much prefer the Sheep’s Fetta and the Goat’s cheese to be supplied by Madjarov. The flavour and firmness that we saw during our visit is what our customers prefer and expect from us.”
The delivery of a total of 15 shipments of cheese commenced on 11 July 2007. The delivery of the cheese, to Melbourne, was purportedly made pursuant to the order placed in June 2007. Each shipment of cheese generated certain documentation, including an invoice, a Veterinary Sanitary Certificate, a bill of lading and a manufacturer’s declaration. These were sent direct from Bulgaria to Delphic and were received in Melbourne before the cheese, which was the subject of the documentation. Between 20 July 2007 and 28 August 2008, Delphic made payments to Agrilex. All of the cheese the subject of the orders has been sold by Delphic. Of the 15 shipments, Delphic has paid for 12, and the statutory demand claims the amount invoiced for the last three shipments.
In September 2007, Agrilex indicated that the price of the cheese would be increased by reason of turmoil in the world dairy market. Delphic agreed to those price increases.
In February 2009, an earlier statutory demand in respect of the same alleged debt was served on Delphic by Agrilex. However, on 22 July 2009, that demand was set aside because of a technical deficiency in the affidavit accompanying the demand. Agrilex was ordered to pay Delphic’s costs of that application. Those costs have not been paid.
Delphic’s submissions in support of the application
Delphic says that the cheese the subject of the last three shipments and nine previous shipments was wanting in quality and Agrilex agreed that payment for the three final shipments would be waived. Agrilex denies that such an agreement was never reached and, in succinct terms, the question of whether the amount demanded was forgiven is the basis of the genuine dispute alleged by Delphic. In addition, Delphic says that the poor quality of the cheese and the consequent alleged breach of contract resulted in damage to it of $A303,316. In addition, Delphic says it has unpaid costs orders arising out of the earlier statutory demand application in 2009. Agrilex does not dispute the existence of such an offsetting claim[3].
[3] Joint statement of fact and evidence, 8 February 2009, paragraph 18.
Mr Gregory, in Gregory 1, swears that he and Mr Vladov made an oral agreement that the cheese be of “premium quality – sufficient to assist Delphic to build market share in Australia”. He says that Mr Vladov and he agreed that the fetta would come from the Madjarov factory or at least have the same taste and characteristics of that cheese. He states that it was agreed that none of the fetta should come from the Matand factory because of its perceived lower quality. Mr Vladov says that it was not agreed that the cheese would come from Madjarov and none from Matand. I note that Exhibit HG5, which is an email dated 4 June 2001 from Delphic to Agrilex, states: “Please arrange to ship ALL our Sheep’s Fetta and Goat’s Fetta from Madjarov”, while Exhibit HG6, which is an email of 25 June 2007 from Delphic to Agrilex, states: “As discussed, we would much prefer the Sheep’s Fetta and Goat’s Cheese to be supplied by Madjarov” (emphasis added).
Delphic submits that the dispute concerning the quality and origin of the cheese is not capable of resolution in this application and is required to be determined by evidence at trial. Delphic submits that there is unchallenged documentary evidence of the specification of taste and quality characteristics and, by reason of that, it meets the requirements set out in case law as to what constitutes a genuine dispute.
Delphic also submits that even if such terms as to taste and quality characteristics could not be established or were not arguable, that by operation of the Sale of Goods (Vienna Convention Act (1987) (Vic)) there is implied into the contractual arrangements between Delphic and Agrilex terms that the cheese be fit for the purpose expressly or impliedly made known to Agrilex when the contract was made and that the cheese supplied has the qualities of samples provided to Delphic in the process leading up to the making of the contract.
Delphic submits that it has never been denied that it required cheese of a premium quality or of a quality which was such to enable Delphic to build its market share. In addition, so far as the aspect of a sample is concerned, it is said that the visit to the factory at Madjarov resulted in a requirement that the cheese supplied by Agrilex be of that standard, which it is contended it is not.
Delphic says that, contrary to such terms, the cheese did not meet the requisite standard, and this is supported by significant reductions in sales to existing large customers, a complaint from a customer and credit notes provided by Delphic to its customers. Further, Delphic says that most of the fetta did not come from Madjarov. Mr Gregory states that Mr Vladov conceded that there were the problems with the origin and quality of the cheese, which necessitated cheese being returned to Delphic by customers, and that cheese was only able to be sold after re-packaging and discounting.
Counsel for Delphic, Mr Maiden, submits that once Delphic establishes that the dispute is genuine, it is not part of the Court’s function to weigh or assess the merits of the dispute. He submitted that the evidence of Mr Gregory and Mr Vladov is at odds with each other, in particular as to the terms of the contract to supply the cheese and to the alleged subsequent admissions against interest which each side alleges against the other. Mr Maiden says that while there is a challenge to Mr Gregory’s evidence, it has not been demonstrated that Mr Gregory’s assertion of a dispute and/or offsetting claim is “hypothetical, illusory or misconceived”.
In paragraph 36 of Gregory 1, Mr Gregory swears that at a meeting in Melbourne on 30 May 2008, Mr Vladov agreed on behalf of Agrilex that the debt for the final three shipments would be forgiven by reason of the inferior quality of the cheese supplied and the amounts then outstanding could be paid over time.
It was submitted on behalf of Delphic that there is no challenge to the quantum or basis of calculation of the alleged offsetting claim for damages. That offsetting claim is based on the evidence that the poor quality of the cheese made it difficult to sell and the cheese could only be sold if it was re-packaged and discounted. Mr Gregory, in paragraph 47 of Gregory 1, details how the loss is calculated and it is said that no challenge is made to that claim in terms of the quantum.
As to the offsetting claim constituted by the earlier costs order made in favour of Delphic, Mr Maiden, counsel for the plaintiff, submitted that, as a rough rule of thumb, two thirds of the solicitor/client bill of $24,636 should be allowed, resulting in an offsetting claim of a further $16,424. Agrilex does not dispute the existence or, it seems, the amount of such claim and the amount demanded by Agrilex in its demand should be reduced in that sum.
Agrilex’s submissions in opposition to the application
Mr Strahan, counsel for Agrilex, submitted that Delphic’s evidence contained many inconsistencies and was not supported and, indeed, was contradicted by contemporaneously generated documents. He stated for this reason that the Court could not be satisfied to the requisite standard that Delphic has a genuine dispute or offsetting claims.
Mr Strahan’s criticisms of Delphic’s material began first with the issue of the alleged quality problems. He referred to the evidence of Mr Gregory who has alleged that in late August, early September 2007, he had concerns regarding the quality of the cheese and that on 11 September 2007, Delphic began withholding payments because of the issues regarding source and quality of the product. While Mr Gregory has alleged that he raised the quality issues with Mr Vladov “regularly” by telephone after September 2007, he stated that he did not “initially” mention the quality problems and expected Agrilex to realise that this was the reason for non-payment. Mr Strahan observes that Mr Gregory does not state that during those conversations he had with Mr Vladov, that he told him not to send any more shipments; as at 21 September 2007, only four of the 15 shipments had been received by Delphic. Mr Strahan says that it is Delphic’s case that Mr Gregory regularly told Mr Vladov from September 2007 of the problems with quality and that Delphic would not pay for the cheese for that reason, yet Agrilex sent another ten containers of cheese. Mr Strahan submits that this contention defies credibility. In addition, Mr Strahan says that the reason given for the withholding of payment, allegedly because of quality issues, is contradicted by statements by Mr Gregory at about that time that Delphic had stopped paying because it was in financial difficulty. In this regard, he pointed to an email of 9 January 2008[4], where Mr Gregory admits Delphic’s indebtedness to Agrilex, but says that Delphic is short of cash; he does not mention any issues of quality of the cheese at that point. The email concludes:
“I understand you may feel nervous about the amount that is owed. Please do not worry. We shall resolve this situation as soon as possible.”
By that date, several shipments had been received and the quality issues alleged to exist would have been apparent and one would reasonably expect mention would have been made of them.
[4] Exhibit GMV-3 to Vladov 2
As to the agreement alleged by Mr Gregory of 30 May 2008 when Mr Vladov came to Melbourne, Mr Strahan observes that, four days after the meeting at which it is alleged by Mr Gregory that the parties reached an agreement whereby Agrilex agreed to give the last three containers of cheese to Delphic for free, an email of 4 June 2008[5] from Mr Vladov confirmed the terms of the agreement actually struck between the parties. The email sets out an agreement whereby Agrilex was to receive all of the moneys outstanding without mention of any quality problem or discount. In addition, it confirms that further orders are anticipated for the following year. This, Mr Strahan submits, is at odds with any notion that the cheese was of defective quality or that it had other deficiencies, such as it not complying with the requirement as to its source. Mr Gregory deposes that, after reading the email of 4 June 2008, he was “shocked and disappointed”, that he considered Mr Vladov not to be an honest person and that he decided not to do further business with him. Mr Strahan says that Mr Gregory’s explanation for this email should not be given any credence. Mr Strahan heavily criticised the evidence of Mr Gregory in this regard, stating that if there had been an agreement between the parties in the terms alleged on 30 May 2008, when an email was sent by Mr Vladov setting out quite a different agreement, the reaction would have been to immediately raise the issue with Mr Vladov. He states that Mr Gregory’s explanation of his reaction to the June email is unconvincing and spurious.
[5] Exhibit HG-11
Mr Strahan also draws attention to further subsequent emails which he states provide a contemporary evidentiary record which is entirely at odds with the evidence of Mr Gregory. These emails are extracted at paragraphs 29 to 34 of Mr Vladov’s affidavit of 26 May 2009. That affidavit is exhibited to Vladov 1 as exhibit “GMV-1”. In these emails, Mr Gregory admits Delphic’s financial difficulties and raises no issues of quality, source, or agreement to reduce the amount owed. In addition, Mr Strahan observes that Mr Gregory provides no explanation in reply as to how his evidence in this application can be accommodated and reconciled with these emails. He submits that Mr Gregory’s explanation that he wished to avoid conflict and so did not mention the agreement he now alleges was made would perhaps be plausible if Mr Gregory had simply stayed silent, however he went into print and his responses made no mention of the complaints as to quality and the alleged agreement. For this reason, Mr Strahan says that Mr Gregory’s version of events is literally incredible.
Mr Strahan makes criticisms of the offsetting claim alleged by Delphic. He observes that Delphic, in the protracted email communications, made no mention of deficiency of quality of the goods until Agrilex had served formal letters of demand some seven months after the last delivery. Prior to this, Delphic had outlined its financial difficulties as a reason for slow payment and acknowledged the debt on a number of occasions. In addition, it is said that no relevant term of the type on which the offsetting claim is based has been established. It will be recalled that such terms were that the cheese be of “premium quality – sufficient to assist Delphic to build market share in Australia” (Gregory 1 at para [8]) and that Mr Gregory and Mr Vladov agreed that all sheep and goat fetta would come from the Madjarov factory and have the same taste and physical characteristics of that cheese. Mr Strahan said that those alleged terms, particularly the first one mentioned that it be of quality sufficient to Delphic to build market share, are so vague as to be meaningless.
Mr Strahan submitted that the claim for lost profits consisted of mere assertion which is not supported by cogent evidence and attacked the whole plausibility of such an offsetting claim. He stated that on its evidence, Delphic accepted delivery of the goods, sold them at a profit and never raised a concern about quality with Agrilex. It now says that it has a claim for over $300,000 against Agrilex because of lost profits, but Mr Strahan says that there is no cogent evidence to support the existence of such a claim only mere assertion.
Legal principles to be applied
The principles to be applied when considering applications under s 459G of the Act have been the subject of a considerable number of authorities. These have recently been collected and considered in the decision of TR Administration v Frank Marchetti & Sons Pty Ltd,[6] where Dodds-Streeton AJ referred to the well known formulation by McLelland CJ in Eyota v Hanare Pty Ltd[7] where his Honour stated:
“It is however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s 450H (sic). In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sorts of considerations as the ‘serious question to be tried’ criterion which arise 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 in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be’ not having ‘sufficient prima facie plausibility to merit further investigation as to [its] truth …’.”
[6](2008) 66 ACSR 67 (“Marchetti”).
[7](1994) 12 ACSR 785.
Dodds-Streeton AJ goes on to say at paragraph 71 of Marchetti:
“As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or offsetting claim. It is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. 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, 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 the court of law’ may suffice.”
Her Honour made similar observations when she was a member of the Trial Division of this Court in Powerhouse Australasia Pty Ltd v Viarc Pty Ltd.[8] Her Honour observed at paragraph [48]:
“While it is not a very exacting standard, on the other hand mere, assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which ‘bears on whether or not the asserted dispute or off-setting claim is genuine’. Indeed, that is its necessary function.” (Emphasis added.)
[8][2006] VSC 508.
Her Honour went on to say at paragraph [49]:
“The dispute or off-setting claim should, as has been recognised, have some objective existence, and the [plaintiff] bears the onus of establishing the genuineness of the dispute or off-setting claim.”
In Spencer Constructions Pty Ltd v G & M Aldridge,[9] the Full Court of the Federal Court observed that for a genuine dispute to exist, it must be “bona fide and truly exist in fact”, and the grounds for alleging its existence must “be real and not spurious, hypothetical or misconceived”. The dispute should have 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.
[9](1997) 76 FCR 452 at 464.
The case of Rhagodia Pty Ltd v National Australia Bank Ltd[10] provides an illustration of the application of the above principles. Robson J, in summarising his reasons for dismissing the plaintiff’s application to set aside a statutory demand, stated as follows:
“[2] In summary, for the following reasons, I have found as follows. Rhagodia bears the onus of establishing that it has a genuine defence to the bank’s claim. I find that Rhagodia’s defence to the bank’s claim as deposed to by Mr Abdou is equivocal, lacks precision, is inconsistent with undisputed contemporaneous documents and is inherently improbable.
[3] In circumstances where Rhagodia’s defence is contradicted by the contemporaneous undisputed documents, including the letter signed by Mr Abdou, the establishment of the defence requires an explanation of the contemporaneous and undisputed documents that is consistent with the defence. The applicant has not provided such an explanation.
[4] In my opinion, the defence does not have sufficient prima facie plausibility to merit further investigation as to its truth. In my opinion, Rhagodia’s defence as deposed to is devoid of substance and warrants no further investigation.”
[10](2008) 67 ACSR 367.
Conclusion
Delphic bears the onus of establishing that there is a genuine dispute and/or an offsetting claim such that the demand should be set aside in these circumstances. I consider Mr Gregory’s evidence, his contentions concerning the alleged agreement of May 2008, and his responses and explanations for the contemporaneously generated emails set out in Agrilex’s affidavit material to be implausible, inherently improbable and not such as to meet the even comparatively low threshold that Delphic is required to meet in applications of this kind.
The criticisms of Delphic’s position outlined by Mr Strahan in his submissions have, in my view, overwhelming force and result, in my view, in a conclusion that Delphic’s application should be dismissed. The position put by Delphic is, to adopt the expressions used in the case law, lacking in precision, inconsistent with undisputed contemporaneous documents in the form of the various emails which have been referred to and, as to Mr Gregory’s explanations in response to Agrilex’s evidence is inherently improbable and unconvincing. The explanation as to his failure to take issue with the email of 4 June 2008 defies credibility in my view, given that he contends that the parties had reached an agreement several days before that the balance of the debt had been waived.
The offsetting claim alleged by Delphic for damages is based on the same foundations as those upon which the alleged genuine dispute is based and for the same reasons I do not consider that Delphic has met the relevant threshold so as to warrant a conclusion that Delphic has a genuine offsetting claim.
Delphic’s offsetting claim in respect of the outstanding costs order is admitted. In such circumstances, the statutory demand should be varied to deduct the Euro equivalent of that claim, ($16,424 for current purposes), from the amount of the demand, EUR147,004.14, resulting in there being an effective demand for that sum. I will ask the parties to agree on that figure and submit a minute to my associate and I will then make the formal orders required under section 459H(4) of the Act disposing of the application.
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