In the matter of Express Direct Services Pty Limited

[2014] NSWSC 1494

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Express Direct Services Pty Limited [2014] NSWSC 1494
Hearing dates:	Tuesday, 25 February 2014
Decision date:	25 February 2014
Jurisdiction:	Equity Division - Corporations List
Before:	Brereton J
Decision:	Creditor's statutory demand set aside.
Catchwords:	CORPORATIONS - external administration - winding up - winding up in insolvency - application to set aside creditor's statutory demand - offsetting claim.
Legislation Cited:	(Cth) Corporations Act 2001, s 459G, 459H
Cases Cited:	Chadwick Industries (South Coast) Pty Limited v Condensing Vaporisers Pty Limited (1994) 13 ACSR 37 Classic Ceramic Importers Pty Limited v Ceramic Antigua SA (1994) 13 ACSR 263 Chase Manhattan Bank Australia Limited v Oscty Pty Limited (1995) 17 ACSR 125 Classic Ceramic Importers Pty Limited v Ceramic Antigua SA (1994) 13 ACSR 263 Edge Technology Pty Limited v Lite-On Technology Corporation (2000) 156 FLR 181 34; ACSR 301 Elm Financial Services Pty Limited v McDougall [2004] NSWSC 560 John Shearer Limited v GEHL Co (1995) 60 FCR 136 Macleay Nominees Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743 Ozone Manufacturing Pty Limited v Deputy Commissioner of Taxation (2006) SASC 91 Royal Premier Pty Limited v Teleski [2001] WASCA 48 Scanhill Pty Limited v Century 21 Australasia Pty Limited (1993) 12 ACSR 341
Category:	Interlocutory applications
Parties:	Express Direct Services Pty Limited ACN 069 778 847 (Plaintiff) Pallet Control Australia Pty Limited ACN 079 458 343 (Defendant)
Representation:	Counsel: C P O'Neill (Plaintiff) D P O'Connor (Defendant) Solicitors: B. Bilinsky & Co (Plaintiff) MCC Legal (Defendant)
File Number(s):	2013/322535

Judgment

1. HIS HONOUR: By originating process filed on 25 October 2013, the plaintiff Express Direct Services Pty Ltd applies for an order pursuant to (Cth) Corporations Act 2001, s 459G, setting aside a creditors statutory demand dated 1 October 2013 and served on it by the defendant Pallet Control Australia Pty Ltd.

1. The demand claimed a debt of $27,516.40, described in the schedule as follows:

Description of the debt	Amount of the debt
Tax Invoice 1538 dated 31 December 2012	$2,801.00
Tax Invoice 1562 dated 31 January 2013	$4,708.00
Tax Invoice 1588 dated 28 February 2013	$5,885.00
Tax Invoice 1613 dated 31 March 2013	$4,708.00
Tax Invoice 1638 dated 30 April 2013	$5,885.00
Debt collection costs, recoverable pursuant to the contract	$3,065.18
Interest calculated at the rate of 12% per annum pursuant to the contract from 1 June 2013 to 22 August 2013	$464.22
Total amount outstanding	$27,516.40

1. The plaintiff supplies logistics services, using pallets on which goods are transported. Those pallets are hired from two suppliers, Chep Australia Ltd and Loscam Australia Pty Ltd. The business practice appears to be that when the pallets are delivered into the custody of the plaintiff, they are hired to the plaintiff and then when they are delivered up by the plaintiff - either back to the person from whom they are hired or to the recipient of the goods - they ought to be "dehired" so that the plaintiff ceases to be charged a hiring fee.

1. In the course of late 2009 and early 2010, the plaintiff discovered that whereas until November 2009 it was paying on average $2,372 per month for pallet hire, this had increased by May 2010 to $17,000 per month. As a result, it engaged the defendant, which claims to provide a "pallet control solution", to ascertain why it was paying so much more than it had in the past and to manage its pallet hire. The defendant's letter of engagement included, amongst other things, the statement:

We guarantee that once Paltrak is in place and fully maintained, you will never have a pallet problem

1. On 20 May 2010, the plaintiff and the defendant entered into a contract to commence from 1 June 2010 and continue for 24 months with annual reviews thereafter, under which the plaintiff would pay the defendant $950 per week for maintenance charges until 15 January 2011 and thereafter $1,395 per week, subject to reviews, payable monthly in advance.

1. The services to be provided under the contract included that the defendant would:

(a) undertake a detailed operational assessment of your Prestons site;

(b) coordinate pallet counts to coincide with Chep and Loscam monthly cut-offs;

(c) liaise with a regular basis with your nominated site representatives;

(d) customise our pallet control system Paltrak to your specific requirements;

(e) train all necessary staff in the use of the control system;

(f) reconcile monthly pallet hire statements on your behalf;

(g) monitor all parties involved to ensure compliance;

(h) liaise with carriers and Chep on all relevant matters; and,

(i) prepare monthly management reports and special reports as and when required.

1. Under "Project Timing Proposal", the contract provided for the defendant to provide a "first report" by 15 July 2010. The terms and conditions included clause 9, in the following terms:

9/LIABILITY OF THE CONSULTANT: (a) Except as expressly provided to the contrary in this agreement or by law, all terms, conditions, warranties, undertakings, inducements or representations whether express, implied, statutory or otherwise relating in any way to the consultancy services or to this agreement are excluded. Without limiting the generality of the preceding sentence, the consultant shall not be under any liability to the customer in respect of any loss or damage (including consequential loss or damage) however caused, which may be suffered or incurred or which May arise directly or indirectly in respect of the failure or omission on the part of the consultant to comply with its obligations under this agreement. (b) Where any Act of Parliament implies into this agreement any term, condition of warranty, and such act avoids or prohibits provisions in a contract excluding or modifying the application of or exercise of, or liability under such term, condition or warranty then and in any such case such term, condition or warranty shall be deemed to be included in this agreement. However, the liability of the consultant for any more of the following: - (1) the supplying of the services again; or (b) the payment of the cost of having the services supplied again. (c) The customer warrants that it has not relied on any term, condition, warranty, undertaking, inducement or representation made by or on behalf of the consultant which has not been stated expressly in this agreement or upon any written recommendation or systems contained in any document including any catalogues or publicity material produced by the consultant.

1. The purpose for which the defendant was engaged by the plaintiff was referred to by an officer of the defendant, Donna Ann Williams, in a statement made by her for the purpose of other proceedings on 18 September 2012 in which she said that in July 2010, the defendant was engaged as a third party pallet control manager by the plaintiff "in order to reconcile the Chep and Loscam accounts maintained by Express Direct Services with those companies".

1. Over the period from July 2010 to August 2011, the average pallet hire per month paid by the plaintiff exceeded $27,741, although the manner in which the plaintiff hired and used the pallets during that period did not differ from that which operated in the period from November 2008 to May 2010. For the period 7 July 2010 to 7 December 2011 the plaintiff says - and for the purposes of these proceedings it was not disputed - that it paid a total of $438,332 pallet hire to CHEP and Loscam.

1. The plaintiff says that in August 2011 it ascertained, by its own officers, that one of the parties to whom pallets were delivered, namely Austrans, had not "dehired" the pallets when they were received from the plaintiff by Austrans, with the consequence that the plaintiff had continued to be charged for hire after the time when it had delivered up custody or possession of the pallets. This explained, so the plaintiff says, why the pallet hire charged to it increased in the manner in which it did.

1. According to evidence that was not challenged or contradicted in these proceedings, an officer of the plaintiff raised that issue with an officer of the defendant in about August 2011. Mr Wilmott of the plaintiff, said:

EDS has been paying for the hire of pallets after they have been delivered to Austrans. Austrans has not been dehiring them from the system.

Ms Williams of the defendant responded:

We will sort out the issue with Austrans and ensure that you will not have to pay for the hire problems with Austrans. We will make sure that either CHEP gives you a credit, or Austrans pays you back

1. The plaintiff says that it has not been given any such credit, nor received any such repayment.

1. The plaintiff fell into arrears in payment of the fees payable to the defendant. On 6 December 2012, the defendants sent the plaintiff an email pointing out that about $27,000 - comprising the fees for the months of June, July, August, September and October 2012 - was overdue, together with the November and December invoices, and requesting payment.

1. On 14 December 2012, the plaintiff paid $6,138 in respect of the June 2012 account. On 26 April 2013 the plaintiff wrote to the defendant setting out amounts overdue of $28,602 for October, November and December 2012 and January, February and March 2013, after giving credit for a payment of $2,000 at about that time which was subsequently dishonoured.

1. The defendant referred the matter to debt collectors, and the plaintiff apparently agreed to make 11 payments of $2,500 each week commencing 16 May 2013, to clear the debt in full. The plaintiff appears to have paid $2,500 on each of 16 May, 23 May, 30 May, 7 June and 27 June 2013. However, on 16 July 2013, the plaintiff sent an email to the defendant, which stated that the plaintiff was defending an action by pallet suppliers that had overcharged the plaintiff:

We believe that contributing to that overcharge Pallet Control Australia Pty Limited failed to attend to the timely and efficient recording of pallet movements on the EDS account and are therefore, in part, responsible for the failure to have pallets removed or transferred from the EDS accounts with CHEP and Loscam resulting in an overcharge.

I am in discussion with our legal representatives and believe that PCA should be joined in the legal action being undertaken. Therefore, given the position that EDS is confronted with, until the overcharge is resolved, I am reluctant to pay the supposedly outstanding account for PCA.

1. Although various other contentions were raised in the plaintiff's submission, the real question is whether, for the purposes of s 459H, the plaintiff has an offsetting demand. It is accepted that an offsetting demand can include an unliquidated demand [Classic Ceramic Importers Pty Limited v Ceramic Antigua SA (1994) 13 ACSR 263], although the claim must be one that is capable of being quantified as an amount of money, [Chase Manhattan Bank Australia Limited v Oscty Pty Limited (1995) 17 ACSR 125, 135; Ozone Manufacturing Pty Limited v Deputy Commissioner of Taxation (2006) SASC 91, [45]]. A cross demand is a wide term, and includes any claim for damages which exists at the time the application to set aside the statutory demand is made which is for a monetary amount capable of quantification, whether or not it arises out of the same transaction or circumstances as the debt to which the statutory demand relates, [John Shearer Limited v GEHL Co (1995) 60 FCR 136].

1. On an application such as the present, the test that the Court applies is whether there is a serious question to be tried that a party has an offsetting claim [Scanhill Pty Limited v Century 21 Australasia Pty Limited (1993) 12 ACSR 341], or that the claim is not frivolous or vexatious [Chadwick Industries (South Coast) Pty Limited v Condensing Vaporisers Pty Limited (1994) 13 ACSR 37; Edge Technology Pty Limited v Lite-On Technology Corporation (2000) 156 FLR 181 34; ACSR 301]. Essentially, this means that the test is the same as for a genuine dispute, in that the claim must be bona fide and truly exist in fact, and the grounds for alleging its existence must be real and not spurious, hypothetical, illusory or misconceived [Ozone Manufacturer Pty Limited v Deputy Commissioner of Taxation, [45]].

1. In Royal Premier Pty Limited v Teleski [2001] WASCA 48, Ipp J, when a judge of the Supreme Court of Western Australia, speaking for the Full Court, pointed to the circumstances that in that case there was no evidence of any damage that the appellant might have suffered in consequence of the alleged negligence or misleading or deceptive conduct on the part of the respondent. His Honour said:

Of course at this stage it is not necessary for evidence as to damages to be given in meticulous detail. But there must be at least some material upon which the Court can conclude that some damage has been sustained and which will enable the Court to make a reasonable assessment as to the amount thereof. In this case, however, there is simply no way of determining whether damage was suffered by the appellant in consequence of the alleged negligence or misleading or deceptive conduct and there is no evidentiary material from which damage suffered by the appellant can be calculated.

1. Similarly, in this Court, in Macleay Nominees Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743, Palmer J said:

In my opinion a genuine offsetting claim for the purposes of the Corporations Act s 459H(1) and s 459H(2) means a claim or a cause of action advanced in good faith or an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith, unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s 459H(1) and s 459H(2).

1. That said, it is not necessary that the party should particularise the claim to the last dollar and cent and it is sufficient that there be, on the evidence, a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty, can be seen to be in any event greater than the amount of the debt the subject of the statutory demand [Elm Financial Services Pty Limited v McDougall [2004] NSWSC 560].

1. The circumstance that an offsetting claim is raised very late, after there have been promises made to pay the debt, or entries into instalment arrangements, is relevant in assessing whether there is a bona fide claim, but it is not conclusive. If examination of the factual material shows that there is an arguable claim, the fact that it was not raised earlier, but is left till the last minute, does not disprove it of the character of a bona fide claim.

1. In this case, the substance of the offsetting claim sought to be raised by the plaintiff is that, in breach of its obligations arising under the contract, the defendant is said to have failed to discover why the plaintiff's hire fees were as high as they were. On the one hand, the plaintiff's evidence does not descend to any great detail in this respect. On the other, the defendant's evidence is even more minimalist in answering the allegation.

1. What the plaintiff's evidence appears to establish, in a manner that was not challenged or contradicted in the present case, is that the reason for the charges being as high as they were was not discovered until about August 2011, and was not discovered by the defendant but as a result of the plaintiff's own enquiries, and that as a result the plaintiff was paying something in the order of $25,000 per month more than the amount it had previously paid and ought to have continued to pay.

1. It may well be that ultimately it would be held that the defendant should not have been expected to detect this immediately, but at some later stage. It may well be that it would ultimately be held that there would have been some increase in the charges in any event. But on the limited material before the Court, imperfect as it is, I can be satisfied that the plaintiff's offsetting claim, if it otherwise be viable, would exceed the amount of the statutory demand.

1. The main other obstacle to its viability is clause 9 of the contract, referred to above. There are two potential applications of that clause in the present circumstances. The second sentence of subclause (a), read on its own, excludes all liability for any loss or damage, howsoever caused, arising out of a failure by the consultant to comply with its obligations under this agreement. However, it is arguable that, read in the light of the first sentence of that clause, which excludes from its operation the express provisions to the contrary "in this agreement or by law", and bearing in mind that such a clause would be construed narrowly, it is not certain that it would preclude the plaintiff from recovering damages for the loss.

1. The second potential application is subclause (b), which purports to limit the liability of the defendant to supplying the services again or payment of the cost of having the services supplied again. It is difficult to see how that applies in circumstances where there is no call for the services to be supplied again, since they have been terminated and are no longer required.

1. I do not downplay the potential obstacles that this clause might present the plaintiff, but the difficulties surrounding such exclusion clauses are well known, and I do not think it can be said, at this stage, that it provides reason for thinking the plaintiff's offsetting claim is completely unarguable.

1. I am, therefore, satisfied that the plaintiff has an offsetting claim that exceeds the amount of the statutory demand.

1. The court orders that:

(1)   Pursuant to Corporations Act, s 459H(3), the creditor's statutory demand, dated 1 October 2013 and served by the defendant on the plaintiff on 11 October 2013 be set aside.

(2)   The defendant pay the plaintiff's costs assessed in the sum of $12,500.

[COUNSEL ADDRESSED ON COSTS]

1. An unsuccessful defendant on a s 459G application may well avoid an adverse costs order if the dispute was not self-evident and, in particular, where the plaintiff has made promises of payment or entered into instalment arrangements. This could have been such a case, but for the email of 16 July 2013 which raised the issue that the reason for not paying the account was the defendant's alleged responsibility for the over-charge by reason of its failure to have pallets removed or transferred from the EDS accounts with CHEP and Loscam, that is to say "dehired".

1. Insofar as it is submitted that the basis upon which the plaintiff has succeeded was not apparent from the evidence, while as I have said it might not have been spelt out with clarity in pleaded form, when one refers to the original 459G affidavit of Mr Wilmott of 24 October 2013, he says in para 14:

In August 2011 it was ascertained that Austrans Container Services Pty Ltd had failed to dehire pallets for goods delivered by the plaintiff to it, resulting in the substantial increase in the monthly payments made to the owners of the pallets. The failure on the part of the defendant to identify the failure on the part of Austrans ... to dehire pallets and to explain the substantial increase in the hire charges payable to the owners of the pallets led to substantial losses to the plaintiff.

1. And in para 15:

The plaintiff claims that due to the negligence of the defendant ... and the breach of the contract between the plaintiff and the defendant, on the part of the defendant the plaintiff has a valid cross-claim of approximately $400,000 paid to the owners of the pallets in excess of what was paid to the owners of the pallets apart from the contract with Coles Group Ltd

1. While that may not articulate the cause of action in pleaded form, it reveals the substance of the offsetting demand that I have found to exist. True it is that the amount was subsequently reduced, and it took some time to work out how the amount was calculated, but there is no evidence that any attempt was made to elucidate by way of request for particulars or otherwise the calculation of the amount at any earlier stage.

1. While I am not unsympathetic to the defendant's position, I think that the proper exercise of the discretion must be that the defendant pay the plaintiff's costs.

1. In the absence of submissions to the contrary from either party, the assessment of $12,500 will stand.

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Decision last updated: 30 October 2014