Hyundai Multicav Pty Ltd v PC Club Australia Pty Limited - [2005] SASC 128

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
HYUNDAI MULTICAV PTY LTD v PC CLUB AUSTRALIA PTY LIMITED
Reasons of Judge Lunn a Master of the Supreme Court
12 April 2005
CORPORATIONS
Statutory demand - application to set aside - proceedings interlocutory and so affidavit evidence on information and belief admissible under r 83.04, but some rejected for failure to state grounds and/or to swear to belief in its truth - held no genuine disputes or offsetting claims put forward by plaintiff - application dismissed.

HYUNDAI MULTICAV PTY LTD v PC CLUB AUSTRALIA PTY LIMITED
[2005] SASC 128
JUDGE LUNN
Reasons on plaintiff’s application to set aside the statutory demand

On 30 June 2004 the defendant served a statutory demand under s 459E of the Commonwealth Corporations Act 2001 (“the Act”) on the plaintiff claiming $951,667. The plaintiff instituted this action under s 459G of the Act seeking to set aside that demand. The application was supported by an affidavit of Aron Jackson, the sole director of the plaintiff, sworn on 14 July 2004 (“the Jackson affidavit”).
Many inadmissible affidavits have been filed by the defendant, and have been responded to by the plaintiff. Issues relating to the plaintiff’s other business dealings and veracity are irrelevant on an application such as this which is to be determined solely on affidavit evidence. In resolving this matter it has not been necessary to rely on any affidavits filed by the defendant other than where is mentioned below. The Taxing Master can sort out whether the defendant should be allowed the costs of many of the affidavits which it has filed.
Since September 2001 the plaintiff has carried on business in wholesaling desktop personal computers and notebook computers. It has marketed them under the “Hyundai” brand name which it has claimed to have the exclusive right to use under a licence from some overseas entity. From about January 2003 until April 2004 the plaintiff had an oral arrangement with the defendant for it to assemble computers using components supplied partly by the plaintiff and partly by the defendant. The terms of the arrangement were not put into a written contract. In early 2004 various disputes occurred between the plaintiff and the defendant which led to the plaintiff having its computers assembled by another contractor. The Jackson affidavit disputes about $245,000 of the claim of $951,667 and asserts that the plaintiff has 10 offsetting claims against the defendant totalling at least $1,299,500.
The issue in this action is whether the plaintiff has discharged the onus on it to show that there are genuine disputes and/or offsetting claims to the extent of $949,667 (ie the demand less the statutory minimum of $2,000). The test is whether the disputes, and offsetting claims, are bona fide and truly exist in fact and that the grounds for alleging their existence are real and not spurious, hypothetical or misconceived: Southern Titanium NL v Bell Potter (2004) 233 LSJS 266 at 271-2; Jian Xing Knitting Factory v Scasa Pty Ltd Doyle CJ, 28 May 2004, [2004] SASC 152, unreported. It is not for me to resolve the claims but to assess whether there are disputes or claims which have some substance and that are not plainly vexatious or frivolous.
I reject the defendant’s contention that the proceedings are not interlocutory so that the plaintiff cannot adduce evidence on information and belief under Rule 83.04. Proceedings of this type are interlocutory, at least for this purpose: Mibor Investments Pty Ltd v Commonwealth Bank [1994] 2 VR 290, 11 ACSR 362. (In Keylink Physical Care Pty Ltd v Ergoline (Australia) Pty Ltd Doyle CJ, 12 November 1999, Judgment No [1999] SASC 483, unreported, held they were not interlocutory for the purposes of appeals, but Mibor’s case was cited with apparent approval on whether they could be interlocutory for the purposes of affidavit evidence but not for the purposes of appeal.)
The defendant also challenged the admissibility of various parts of the Jackson affidavit on the grounds that a proper basis for the admission of information and belief evidence had not been provided. It was agreed that I would deal with such objections in these reasons rather than ruling on them in the course of the argument. While I will deal with them individually below, it is convenient first to make some general comments on them.
Rule 2.7 of the Corporations Rules 2003 (South Australia) provides:
“An affidavit must be in a form that complies with:
(a)     The Rules of the Court; or
…
(c)     The Rules of Federal Court of Australia”.
(It was not suggested that the challenged material was admissible under the Federal Court Rules). To be admissible under the Supreme Court Rules 1987 the material in question must comply with R 83.04(1) and (2) which provide:
“(1)An affidavit used in interlocutory proceedings may contain statements based on information received by the deponent which he believes to be true with the sources and grounds thereof
(2)Unless the Court otherwise orders, an affidavit shall contain only such facts as the deponent is able of his own knowledge to prove”.
No dispensation under the preamble to (2), or under R 3.04(a), was sought by the plaintiff. In addition Practice Direction 7 provides:
“… where an affidavit is sworn for the purpose of an interlocutory application, it may be received where it contains statements on information and belief but the source and grounds of the information and belief must be clearly deposed to. A final paragraph that “I know the facts deposed to in this my affidavit from my own knowledge, except where otherwise appears”, or similar, standing alone, may lead to the rejection of the affidavit”.
Rule 83.04(1) requires deponents to swear to their belief in the information stated. Information evidence cannot be admissible under R 83.04 unless the deponent has sworn to his or her belief in its truth. (In the context of this matter it is not necessary to go into whether the Rule also requires the deponent to swear to the grounds of the belief and the extent to which that is necessary).
In addition R 83.04 also requires deponents to depose to their source for each piece of evidence which they cannot swear to of their own knowledge. If the source is not stated, that information is inadmissible: re J L Young Manufacturing Co [1900] 2 Ch 753; McRae McGrath (1973) 60 LSJS 160. Insofar as the Jackson affidavit contains material which is not of his own knowledge it is inadmissible and is to be struck out unless both its source is stated and Jackson has deposed to his belief in its truth. (For present purposes it is not necessary to strike out the offending material, and I merely disregard it).
The only paragraph from the Jackson affidavit which deals with the basis of the admissibility of its contents is paragraph 83, which states:
“I know the facts deposed to herein of my own knowledge. Where I speak from information and belief I verily believe the same to be true.”
The two sentences in this paragraph are inconsistent. However, as appears below, it is clear that he has deposed to some material which he cannot swear to of his own knowledge. Under R 83.04 and Practice Direction 7 he should have clearly identified this material. Insofar as there is any ambiguity about whether he is speaking of his own knowledge or not such ambiguity should generally be resolved in favour of the defendant. What paragraph 83 does not say is that where he has deposed to information he believes it to be true. The second sentence is nonsensical as having deposed to his belief in the information, it is not adding to that to say that he believes it to be true. However the addition of “and belief” after “information” seems to qualify the information to which he is referring. (See paragraph 62 of his affidavit, set out below, for one instance of where he does expressly depose to his belief). It is for the plaintiff to show that R 83.04(1) has been complied with in clear and unambiguous terms, and it has not done so.
The plaintiff’s failure to state the sources of its information is also relevant to whether the disputes and offsetting claims are bona fide and not spurious, hypothetical or misconceived. The more reputable and reliable is the source, the more credible is the information. Conversely, if no source is disclosed, the less credible must be the information. Where it is not stated, when there was an obligation to do so, there is an inference that it is no more than guesswork, speculation or vain hope which has no proper or credible source.
It is convenient to deal with the 10 offsetting claims and two grounds of dispute, in the order in which they appeared, and were distilled, in the plaintiff’s outline of argument:
1 A claim of $283,500 for the loss of profit from the sale of 1500 notebooks by Global Trading Industries Pty Ltd (“GTI”).
This was based on paragraphs 10-23 of the Jackson affidavit, which read:
“10.In February 2004 Global Trading Industries Pty Ltd (“GTI”) produced an advertising flyer that it distributed nationally advertising Hyundai computer systems for sale.
11.GTI has no licence agreement with Hyundai permitting it to sell computers bearing that name.
12.The defendant has supplied GTI with the computers included in the systems for sale.
13.We believe that the defendant has used parts including monitors, cases, keyboards, pointing devices and speakers (that the plaintiff initially supplied to the defendant to be assembled with the plaintiff’s computer systems) to meet orders placed with the defendant by GTI.
14.The computers provided by the defendant for sale by GTI were branded as “Hyundai”.
15.There is no licence agreement between the plaintiff and the defendant permitting the defendant to assemble and sell on its own account Hyundai branded computers.
16.In early April 2004 we first became aware that this was occurring because we began receiving calls from disgruntled customers who were waiting for their computer systems.
17.The customers thought they had purchased the computer system from us when this was not the case.
18.The purchasers of the systems had paid by credit card via a call centre conducted by GTI. At the time of payment GTI were advising those customers that the payment would not be processed until the computer system was ready for despatch to the customer.
19.As it transpired the customers’ credit cards were debited with the purchase but no delivery of the computer system occurred.
20.I was advised by Elizabeth Payne of St Francis Xavier College that the college had purchased systems to a value of $47,000.00 that have never been delivered.
21.I was advised by Steven Jones of Office of Fair Trading, New south Wales that they are investigating this matter and that approximately 1,500 sales had been made by GTI.
22.We do not know how many or if any systems were actually delivered to GTI customers.
23.We estimate that if the defendant has assembled and sold 1,500 notebooks on behalf of GTI bearing the Hyundai brand name the plaintiff has potentially lost profit of about $189.00 per unit or a total of $283,500.00.”
Reference was also made to exhibits ARJ2, ARJ7 and ARJ8 to the Jackson affidavit, but they add nothing of significance. The document referred to in paragraph 10 was not exhibited. Paragraphs 10, 11, 12, 13, 14, 15, 18 and 19 are rejected as inadmissible on the grounds that they are based on hearsay for which the sources have not been stated and Jackson has not deposed to his belief in their truth. Paragraphs 20 and 21 are rejected because there is no statement about the deponent’s belief in their truth. Furthermore paragraph 20 does not identify the “systems”, from whom they were purchased or what profit might have been involved in the transaction. Paragraph 21 does not identify “this matter” and the subject matter of the 1,500 sales. Paragraph 23 is rejected as being merely speculative. Counsel for the plaintiff relied on paragraph 9(x) of the affidavit of David Lee, the Sales Manager of the defendant, where he agreed the defendant had supplied 720 notebooks and approximately 70 desktop systems to GTI with the Hyundai brand on them, but he said it was in accordance with the plaintiff’s instructions. However, this does not overcome the problem that the plaintiff has not put forward any admissible evidence that GTI did not have the right to sell computers with the brand name of “Hyundai”. Even if the plaintiff made out at a trial all of its allegations which are available on the admissible evidence, it could not succeed on the offsetting claim in this paragraph.
2 An offsetting claim of $159,000 for sales of 1,000 desktop computer systems sold by the defendant “on behalf of GTI” bearing the Hyundai brand.
This claim was also based on paragraphs 10 to 22 of the Jackson affidavit which have been referred to in the preceding paragraph. It was also based on paragraph 24 which merely provides an estimate of the loss of the profit to the plaintiff. That paragraph is also inadmissible as being merely speculative. For similar reasons to those given in the preceding paragraph, even if all the allegations of the plaintiff available on the admissible evidence on this claim were made out at trial, it could not succeed on this head of claim.
3 An offsetting claim for $162,000 for loss of profits when Innovations ceased purchasing computers from the plaintiff.
This claim was based on paragraphs 25 to 28 of the Jackson affidavit, which read:
“25In April 2004 the plaintiff lost a customer known as Innovations. Innovations is a direct selling retailer that operates through a catalogue system.
26Innovations stopped purchasing the plaintiff’s computer systems because of:
26.1the lack of assembly quality;
26.2long delivery times;
26.3numerous problems with missing software and hardware.
27The problems with computer systems supplied to Innovations were caused directly by the defendant.
28The plaintiff was selling Innovations 225 computers per month at an average profit of $120.00 per unit. The plaintiff estimates it lost $162,00.00 in profits when Innovations ceased purchasing computers from the plaintiff.”
I reject paragraph 26 because it is hearsay evidence whose source has not been stated and there is no statement of the deponent’s belief about it. I reject paragraph 27 for similar reasons and because it is a statement of a conclusion without identifying the facts on which it was based. The second sentence in paragraph 28 is also rejected because it has not been disclosed how the profit calculation is arrived at. Again, even if all of the plaintiff’s allegations on this claim which are available on the admissible evidence were upheld at a trial, this claim could not succeed.
4An offsetting claim for about $500,000 in estimated loss of profits.
This claim is based on paragraphs 29 and 31 of the Jackson affidavit which read:
“29. The actions of the defendant detailed herein have damaged the Hyundai brand name in the Australian market place.
30. Average sales have fallen from 850 units per month during the period from October 2003 to April 2004 to 150 units per month in June 2004.
31. As a result the plaintiff estimates it loss of profits of approximately $500,000.00.”
I reject paragraph 29 as apparently hearsay without the disclosure of its source and as the statement of a conclusion based on facts which have not been disclosed. Also it is not stated how the figure $500,000 is arrived at. Again, on the admissible evidence even if all of the plaintiff’s allegations were made out, it could not give rise to a successful offsetting claim.
5 An offsetting claim for approximately $70,000 due to the defendant’s failure to provide parts for warranty service.
This claim is based on paragraphs 32 to34 of the Jackson affidavit, which read:
“32   The agreement with the defendant was that the defendant would also supply spare parts to the contracted provider of the warranty services, which at that time was United Electrical Engineering Pty Ltd.
33     The defendant failed to provide the parts as agreed. The defendant therefore had to meet the cost of providing those parts itself.
34     The plaintiff estimates its loss for having to supply the parts for warranty work at approximately $70,000.00.”
As to paragraph 32 there is no evidence about how such an agreement was reached. It is not covered in paragraph 6 of the Jackson affidavit. It is an inadmissible statement of a conclusion of law. The first sentence in paragraph 33 is apparently hearsay as relates to what the defendant supplied to United Electrical Engineering Pty Ltd. It is inadmissible in the absence of the source of the information and the deponent swearing to his belief in its truth. The allegations in paragraph 33 and 34 are too bald and generalised, and are no more than mere assertions of a possible claim. No sufficient basis of any offsetting claim has been shown for this paragraph.
6 An offsetting claim for about $75,000 for the value of 807 printers retained by the defendant (The figure of about $75,000 comes from the oral submissions of the plaintiff’s counsel.)
This claim is based on paragraph 39.1 of Jackson’s affidavit, but to put it in its context, I set out paragraphs 38 and 39.1 of the Jackson affidavit:
“38.Now produced and shown to me and marked with the letters “ARJ 2” is a copy of a letter from the plaintiff to the defendant dated 3 June 2004.
39.1807 printers that were supplied by the plaintiff to the defendant to be packaged with computer systems were missing or not accounted for”.
The letter of 3 June 2004 contained many similar allegations to those made in the Jackson affidavit, but generally with no greater particularity. The only reference to the printers occurs in the following passage of the letter on page 2:
“Stock variations, based on Hyundai records, are significant. Our data indicates that up to 582 X1150 Lexmark Printers and 225P 3150 Lexmark Printers are not accounted for. Clearly stock belonging to Hyundai has been used by PC Club for its own purposes and while a settlement was worked out as at 31 December 2004 (sic), we hereby demand a full reconciliation of all printers and any other items that have been taken from Hyundai’s stock”.
The reference to 31 December 2004 is clearly wrong but no explanation is given about it in any of the plaintiff’s affidavits. The data referred to in the letter upon which the assertion is based is not exhibited. The alleged claim is raised in an unsatisfactory manner. The Jackson affidavit does not depose to the plaintiff having such a claim. Paragraph 39 merely says that the letter has drawn such a claim to the defendant’s attention. Although the letter of 3 June 2004 is written under the name of Jackson, it appears to be signed by someone else as the signature is pre-fixed by “per”. Jackson has not pledged his oath to such a claim. There is no other admissible evidence put forward to corroborate it. Thus it is not supported by an affidavit as required by s 459G(3)(a) of the Act. No sufficient basis of any such offsetting claim has been made out.
7An offsetting claim for appropriately $30,000.
This is based on paragraph 46 of the Jackson affidavit, which reads:
“In addition I estimate the plaintiff has incurred costs of approximately $30,000.00 in attempting to reconcile and rectify the poor or inaccurate account of the defendant.”

There is no assertion that there was any contractual, or other, obligation on the defendant to supply accounting records to the plaintiff of any particular nature or quality. The claim is clearly fatuous and spurious.
8 An offsetting claim of approximately $50,000 for items damaged or lost during despatch.
This claim was based on paragraphs 47 to 53 of the Jackson affidavit, which read:
“47    The plaintiff also sustained losses because of freight charges.
48     The agreement with the defendant included a requirement that the defendant would meet the cost of freight for the computer system to be despatched to the customer. This cost was built into the price charged by the defendant.
49     Where computer systems were damaged or parts were missing having been despatched from the defendant’s premises there would be a dispute between the plaintiff and the defendant concerning who was responsible.
50     The plaintiff would then have to order another computer system to be despatched to the customer so as to preserve good customer relations.
51     On each occasion the defendant required the plaintiff to issue to the defendant another purchase order so the defendant could charge the plaintiff for the replacement computer system
52     On such occasions the plaintiff issued a zero purchase orders but were still billed by the defendant in relation to the purchase order.
53     The plaintiff estimates that the defendant owes it approximately $50,000.00 for items damaged or lost during despatch that are the subject of disputed purchase orders.”
The alleged term of the agreement referred to in paragraph 48 is not part of the agreement set out in paragraph 6 of the Jackson affidavit. It is rejected as admissible evidence of an agreement for the same reasons as set out in paragraph 24 above. It is extremely vague and generalised, and is no more than an assertion. None of the plaintiff’s business records referred to have been exhibited. No proper basis for the estimate in paragraph 53 has been put forward and it is no more than speculation. As it is mere assertion and speculation it cannot provide the basis for any offsetting claim.
9 An offsetting claim of approximately $10,000 for the cost of Sunstar and Encyclopaedia Britannica software packages used on systems supplied by the defendant to GTI.
This claim is based on paragraphs 54 to 58 of the Jackson affidavit, which read:
“54The plaintiff has licence arrangements with Sun Star and Encyclopaedia Britannica to supply software to be bundled with the computer system it sells.
55The Sun Star software is the equivalent of Microsoft Office. The Encyclopaedia Britannica software is an electronic encyclopaedia for personal computer use.
56The plaintiff supplied master discs to the defendant to enable the defendant to install the software in each computer system it assembled for the plaintiff.
57The systems Sold by the defendant through GTI include the Sun Star and Encyclopaedia Britannia software packages. Therefore the defendant has made use of the master software discs for its own purposes.
58The plaintiff estimates the cost to the plaintiff of such use is $10,000.00.”
Paragraph 57 is hearsay without stating the source of the information or the deponent swearing to his belief in the information. Paragraph 58 is merely speculative. Even if the plaintiff’s allegations of its claim available on the admissible evidence were made out at trial, it could not succeed on this claim.
10     An offsetting claim of approximately $35,000 for the cost of warranty cards supplied by the plaintiff to the defendant.
This claim is based on paragraphs 60 to 64 of the Jackson affidavit which read:
“60   The computer systems assembled by the defendant include a warranty card that is supplied by a contracted warranty provider.
61     The warranty cards are purchased by the plaintiff and delivered to the defendant to be used in the computer system assembly process.
62     The plaintiff believes the defendant has used warranty card supplied by the plaintiff in computer systems sold by the defendant via GTI.
63     The plaintiff estimates there is a discrepancy of approximately 700 warranty cards at a cost to the plaintiff of approximately $35,000.00.
64     The precise amount of this cost to the plaintiff cannot be ascertained until there has been a full reconciliation.”
Paragraph 62 is inadmissible as it is hearsay for which the source has not been disclosed. The allegations are vague and generally amount to no more than assertion and speculation. It is not sufficient for the plaintiff to say that the cost cannot be ascertained until there has been a full reconciliation. The onus is upon it to show there is some proper basis for its offsetting claim and its quantum: Mayall Investment Services Pty ltd v White (1993) 12 ACSR 320 at 324. From its own records the plaintiff should be able to say how many warranty cards it had purchased. If it cannot say how many such cards were used in computer systems assembled by the defendant, there is presumably an element of inadmissible hearsay in what is asserted. These paragraphs do not provide a sufficient basis for an offsetting claim.
11 A dispute of overcharging of $70,039.
This dispute is based on paragraphs 38 to 45 of the Jackson affidavit which read:
“38Now produced and shown to me and marked with the letters “ARJ 2” is a copy of a letter from the plaintiff to the defendant dated 3 June 2004.
39The effect of this letter is to draw to the defendant’s attention that:
39.1 807 printers that were supplied by the plaintiff to the defendant to be packaged with computer systems were missing or not accounted for”
39.2 some of those printers had been used by the defendant for its own purposes (the GTI deal);
39.3 a full reconciliation of all printers or other items of Hyundai stock was requested.
40Now produced and shown to me and marked with the letters “ARJ 3” is a copy of the reply from the defendant dated 28 June 2004.
41In relation to exhibit ARJ 3:
41.1 the plaintiff denies the notebook computers were sold to GTI at the request of the plaintiff. This would be contrary to the financial interests of the plaintiff;
41.2 the plaintiff denies its agency rights with Hyundai have been terminated.
42The pricing schedules were negotiated between myself on behalf of the plaintiff and Mr David Lee on behalf of the defendant.
43Following those negotiations pricing schedules were prepared and signed by the parties.
44The defendant consistently charged the plaintiff prices in excess of those referred to in the agreed schedules.
45I estimate that the plaintiff has been overcharged by approximately $70,000.00.”
The plaintiff also relied on the exhibits ARJ2 and ARJ6 of the Jackson affidavit, but while they give some detail of the allegations they confirm that the plaintiff cannot discharge the onus upon it to show there is at least a genuine dispute about the charges. Paragraphs 42 and 43 do not say when these price schedules came into effect or exhibit them. The exhibit ARJ2, which is a letter of 3 June 2004, states the pricing difference to be an exact amount of “$70,039.72”, but there is no evidence of how this exact amount was arrived at or why the Jackson affidavit only estimates the overcharging at approximately $70,000. Paragraphs 44 and 45 are vague and generalised and no more than assertions. They do not show that there is a genuine dispute for about $70,000 for overcharging or for any amount which can be quantified.
12 A dispute over approximately $175,000.00 relating to missing invoices.
This dispute is based on paragraph 69 of the Jackson affidavit, which reads:
“69 The plaintiff has requested the defendant provide to it missing invoices totalling approximately $175,000.00. They have not yet been provided and therefore the plaintiff cannot carry out a full reconciliation of the account.”
The plaintiff does not say that the defendant had never supplied it with these invoices, but merely that they are now missing. As stated in paragraph 37 the onus is on the plaintiff to show there is a genuine dispute. This paragraph says no more than the plaintiff does not have the necessary documentation now available to it to be able to ascertain what part of the approximate $175,000 it owes to the defendant. It may be all of it, it may be none of it or it may be part of it, but it is not in a position to be able to dispute its liability for any of it. It has not been shown that this is the fault of the defendant. The plaintiff has to take the consequences of not keeping its records properly. The plaintiff has not shown that there is a sufficient genuine dispute on this $175,000 or any part of it.
The plaintiff has not shown any sufficient basis for the proper allegation of any offsetting claim or ground of dispute of the statutory demand for $951,667. This application will be dismissed.