In the matter of Force Draft Pty Limited

[2019] NSWSC 1102

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Force Draft Pty Limited [2019] NSWSC 1102

Hearing dates:

11 March 2019, last affidavits/submissions received 7 June 2019

Date of orders:

28 August 2019

Decision date:

28 August 2019

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

(1) Pursuant to section 459H(3) of the Corporations Act 2001 (Cth), set aside the creditor’s statutory demand dated 25 January 2019 and served by the defendant upon the plaintiff on 30 January 2019.
(2)   The defendant to pay the plaintiff’s costs.

Catchwords:

CORPORATIONS — Winding up — Statutory demand — Application to set aside — Whether genuine dispute — Series of invoices issued by contractor to manufacturer for warranty repairs — Dispute as to terms of contract between parties — manufacturer rejects certain invoices — Whether correspondence received — Where an invoice paid by credit notes — Where an invoice not due and payable at date of demand — Substantiated amount less than statutory minimum — Demand set aside.

Legislation Cited:

Corporations Act 2001 (Cth), ss 459E, 459H

Cases Cited:

Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
In the matter of Erma Properties Pty Ltd [2017] NSWSC 1748
In the matter of Longking Pty Ltd (2017) 123 ACSR 456; (2017) NSWSC 1534
In the matter of MK Group Phoenix Pty Ltd [2014] NSWSC 1467
Leisure Kart City Pty Ltd v Professional Auction & Valuation Services Pty Ltd [2013] QCA 298
Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 at 750; [1996] NSWSC 199
Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601
Spencer Constructions Pty ltd v G&M Aldridge Pty Ltd (1997) 24 ACSR 353
TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70

Category:

Principal judgment

Parties:

Daikin Australia Pty Ltd ACN 000 172 967 (Plaintiff)
Force Draft Pty Limited ACN 109 725 671 (Defendant)

Representation:

Counsel: A. Grifoni, solicitor (Plaintiff)

 

Solicitors: Grifoni Legal (Plaintiff)

  Mr G. Pocock, director of the Defendant, appeared for the Company with leave of the Court.

File Number(s):

2019/50347

Judgment

1. HER HONOUR:   This is an application by Daikin Australia Pty Ltd to set aside a statutory demand served on it by Force Draft Pty Limited on the basis that there is a genuine dispute as to the existence of the debt. The statutory demand seeks payment of $23,119.60 arising from 23 invoices issued by Force Draft from February 2016 to January 2019.

2. Force Draft carries on business in the Northern Territory as “Blizzard Air & Refrigeration”. Gavin Pocock is the sole shareholder and officeholder of Force Draft. From time to time, Force Draft has repaired Daikin’s air-conditioning units under warranty and invoiced Daikin for its labour in doing so. Force Draft also has a line of credit with Daikin, under which Daikin provides spare parts to do repairs and refunds the costs of parts used for warranty repairs.

3. Although the amount sought in the statutory demand was relatively small, the parties relied on eleven affidavits describing Daikin’s warranty procedures, conversations which Mr Pocock says he had with Daikin’s warranty manager, the details of each invoice (which range from $182.05 to $2,679.72), credit notes, emails and other correspondence in relation to particular invoices, and parallel proceedings in which Daikin is suing Force Draft for monies owing under the line of credit. One might think from the mere description of this application that there exists a genuine dispute within the meaning of section 459H of the Corporations Act 2001 (Cth). It is timely to set out the relevant law.

Genuine Dispute

4. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [31], the Court of Appeal approved McLelland CJ in Eq’s consideration of a “genuine dispute” in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 as involving a plausible contention requiring investigation, raising much the same sort of considerations as the “serious question to be tried” criterion that applies in the case of an interlocutory injunction. As McLelland CJ in Eq stated at 787:

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”, or “a patently feeble legal argument or an assertion of facts unsupported by evidence”.

5. The Court, at [48], also approved the following statement of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605:

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.

The essential task 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).

6. The characteristics of a “genuine dispute” were described in similar terms by the Victorian Court of Appeal in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, by Dodds-Streeton JA (with whom Neave and Kellam JJA agreed), at [71]:

The dispute … 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. … Something “between mere assertion and the proof that would be necessary in a court of law” may suffice.

7. Mr Pocock referred me to two other authorities which consider a genuine dispute. In a much-cited passage of Spencer Constructions Pty ltd v G&M Aldridge Pty Ltd (1997) 24 ACSR 353, the Full Court of the Federal Court (Northrop, Merkel & Goldberg JJ) reviewed the many authorities and concluded at 365:

In our view a “genuine” dispute requires that:

the dispute be bona fide and truly exist in fact;

the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.

Similarly, in Leisure Kart City Pty Ltd v Professional Auction & Valuation Services Pty Ltd [2013] QCA 298 the test applied at first instance and on appeal was that set out in Spencer Constructions: per Philippides J, with whom McMurdo P and Holmes JA agreed, at [26].

Facts

8. In September 2015, Daikin issued a document entitled “How to claim a part and/or labour under warranty from Daikin Australia”, which Daikin says formed the basis for the parties’ dealings. The document stated: (emphasis original)

Make sure all the claims are sent within 14 days of repair. Any claims over this period may be rejected. …

Annexed to the document was a schedule entitled “Current Allowable charges for Dealers/Repairers”, which set out types of repairs and the maximum number of hours which might be billed for such repairs. Mr Pocock denies having agreed to these terms, and denies that they had contractual force.

9. At some time prior to November 2015, Mr Pocock says he spoke to Mr Narasimhachar, Warranty Manager at Daikin, outlining his concerns about the hourly rates and time allowed to do repairs. Mr Pocock explained the characteristics of his business, including its location in Darwin, and says Mr Narasimhachar agreed that some dispensation needed to be made to allow additional labour charges. As Mr Pocock put it in submissions:

… in Darwin we cannot survive on their very tight labour rates, and because we’re actually not a dealer we actually haven’t been privy to all the Daikin's training and it makes it take our guys a little bit longer to do the service work, I’ve asked him for special consideration with that and I left it with his capable hands to have that adjusted …

Mr Narasimhachar denies the substance of this conversation.

First invoice

10. On 17 February 2016, Force Draft issued the first of the invoices referred to in the statutory demand in the amount of $1,747.25 including GST. The invoice was for a number of spare parts and seven hours’ labour, plus a service fee. Layla Lazar, an employee of Daikin, faxed a letter in response as follows:

The labour charges are excessive for the work done. Hence please forward a revised invoice with:

Call Fee $20.00

Labour 3.5hrs x $90.0=$315.00

Total $335.00 only

11. Mr Pocock denies having received this letter. He also denies that, in light of his conversation with Mr Narasimhachar, it was legitimate to restrict Force Draft to the time and rate restrictions contained in the schedule to the September 2015 document. Either way, Daikin received no revised invoice and so rejected the warranty claim.

Second invoice

12. On 18 January 2016, Daikin issued an invoice to Force Draft for spare parts supplied on 15 January 2016, in the amount of $24.51 including GST. On 4 April 2016, Force Draft issued an invoice for $378.42 including GST for “Parts, Labour, Service Fee”, comprising labour charges of $297, $27.02 for parts and a service fee of $20.00, plus GST on the total. The particulars of the work undertaken suggest that the parts charged for on 4 April 2016 were those supplied by Daikin on 15 January 2016; there is a discrepancy of $2.51 between these invoices in respect of parts.

13. On 24 May 2016, Daikin issued two credit notes to Force Draft. The first was for $24.51, being the parts supplied, and the second for $348.70, being the labour charges, service fee, and GST. The total of the credit notes was $373.21, being $5.21 less than Force Draft’s invoice. Daikin attributes this difference to:

1. the discrepancy of $2.51 between the price of the parts charged by Daikin and the price invoiced by Force Draft; and

2. an element of double-counting of GST on the parts supplied.

14. On 31 May 2016, Daikin issued a Statement to Force Draft, where the two credits were noted. On 14 December 2016, Daikin allocated the credits against overdue debts owing by Force Draft and wrote off a further $422.12. On 31 December 2016, Daikin issued a further Statement which confirmed that the credits had been used to pay part of the debt then owing by Force Draft. Mr Pocock complains that there was no explanation of why the credits were issued for an amount different to Force Draft’s invoice, or the process by which credit notes were allocated against debts owing, such that, as far as he was aware, they had simply disappeared after having been on the books for several months. Daikin’s Statements do not explicitly refer to the use of the credit notes to write off other amounts owing, and could have been clearer, but it is reasonably clear that the 4 April 2016 invoice has been paid except, perhaps, as to $5.21.

Four more invoices

15. On 19 December 2016, Force Draft issued Invoice no. 4046666 in the amount of $182.05 for an hour and a half’s labour plus a service fee. On 23 February 2017, Force Draft issued:

1. Invoice no. 404688 in the amount of $1,878.49 for nearly eleven hours’ labour, parts and a service fee;

2. Invoice no. 4046801 in the amount of $544.75 for three hours’ labour, parts and a service fee; and

3. Invoice no. 4046802 in the amount of $1,189.75 for five and a half hours’ labour, parts and a service fee.

16. On 22 March 2017, Ms Lazar emailed a letter to Force Draft at [email protected] in respect of these invoices:

Unfortunately to process this claim, more information is required.

Could you please provide the information ticked below for further investigation?

X Please fill out a Repairers Warranty Claim Form completely.

X Please provide the name & full address of the customer, where the unit is installed.

X Please provide the unit details. (Model/Serial ##s).

X Please provide the date of installation & failed or date of repairs.

X Please provide the Delivery Docket: _______ relating to any part supplied by Daikin Australia, so this can be credited along with this invoice. …

17. Force Draft did not reply. Mr Pocock considered the request to be merely a delaying tactic: the invoices already contained “all relevant details”. Overall that is a fair description of the invoices but some of the invoices were missing some of the information requested. Either way, the further information was not supplied and so Daikin rejected the warranty claims.

New terms

18. On 3 February 2017, Daikin issued a document entitled “Warranty Procedures”, which superseded the September 2015 document. It provides: (emphasis original)

ALL CLAIMS TO BE SUBMITTED WITHIN 28 DAYS OF REPAIRS BEING CARRIED OUT.

ANY CLAIMS OUTSIDE OF THIS PERIOD WILL BE REJECTED UNLESS EVIDENCE SATISFACTORY TO DAIKIN CAN BE PROVIDED TO SUPPORT EXTENSION TO THIS TIME FRAME.

… Any missing information on the claim form will be provided a notice outlining the respective missing information and responses should be submitted within 5 working days for further processing of the claim.

Again, the document annexed a schedule of allowable time for particular repairs.

19. Daikin also issued a new “Repairer’s Warranty Claim Form”, which contained a notice at the top of the page: (emphasis original)

Please complete this form and return with your service report and invoice

All claims must be submitted within 28 days of completion of job.

20. Ms Lazar of Daikin deposed:

To ensure efficient processing of any warranty claim, it is mandatory for all customers carrying out warranty works to complete and submit to [Daikin] a ‘Repairer’s Warranty Claim form’…

Mr Pocock said he did not recall receiving the updated procedure.

March 2017 invoices

21. On 9 March 2017, Force Draft issued:

1. Invoice no. 4046937 in the amount of $404.98, for an hour’s labour, parts and a service charge; and

2. Invoice no. 4046940 in the amount of $374.73, for forty-five minutes’ work, parts and a service charge.

22. On 10 March 2017, Force Draft issued a further invoice, no. 4046952, for $203.50, for an hour and half’s labour and a service charge.

23. On 10 May 2017, Ms Lazar sent two more letters in response to the 9 March 2017 invoices. In relation to Invoice no. 4046937, a letter was sent to [email protected] requesting the Delivery Docket number for parts supplied. Mr Pocock says this email address was a “system generated email for sending only” and he never received the letter relating to Invoice no. 4046937. In relation to Invoice no. 4046940, a letter was sent to [email protected] requesting further details similar to Daikin’s 22 March 2017 letter. Mr Pocock repeats that his invoices were detailed, and that the request for provision of further particulars was a “stalling tactic not to pay”. Force Draft did not provide the information sought and Daikin rejected the warranty claims.

24. On 12 May 2017, Ms Lazar responded to the 10 March 2017 invoice:

… unfortunately this warranty claim has been rejected for the reasons mentioned below.

The claim can’t be processed further as no warranty repair has been made.

Daikin warranty only covers manufacturing faults…

Ms Lazar explains, by reference to Daikin’s warranty documentation, that the invoice “refers to site attendance and contact with [Daikin’s] technical support team but does not reference any design, materials, workmanship or manufacturing defects. The repair certainly did not require ordering of any spare parts…” Mr Pocock contends that Daikin’s own documentation anticipates a warranty claim for labour only, and that the particulars he provided were more than adequate to satisfy Daikin that the repair was one made within the terms of its warranty. Either way, Force Draft did not contact Daikin about its rejection of the warranty claim.

More invoices

25. On 9 August 2017, Force Draft issued an invoice for $1,701.72 for labour, parts and a service fee. On 31 August 2017, Ms Lazar wrote to Force Draft requesting further information about the claim, in similar terms to the 22 March 2017 letter. Force Draft did not respond and Daikin thus rejected the warranty claim.

26. On 7 September 2018, Force Draft issued:

1. Invoice no. 4048047 in the amount of $932,01, for about five hours’ labour, parts and a service fee; and

2. Invoice no. 40487049 in the amount of $908.70, for four and a half hours’ labour, parts and a service fee. The work invoiced had been done on 21 and 30 April 2018.

27. Ms Lazar requested further information in respect of both invoices and, for the second invoice, a revised invoice as the labour charges were deemed excessive. Mr Pocock says the letters were sent to the wrong email address and didn’t come to his attention. Having heard nothing further, Daikin rejected the warranty claims.

Debts owed to Daikin

28. On 5 December 2018, Daikin sent Force Draft a letter of demand for $16,638.58 owing on the line of credit, advising “As your trading terms of 30 days have now been exceeded, credit facilities have been withdrawn.” On 11 December 2018, Daikin advised Mr Pocock that it was commencing recovery proceedings. On 17 January 2019, Daikin directed Becker Commercial Services to send further letters of demand on its behalf.

29. On 21 January 2019, Force Draft began issuing a number of invoices: three invoices were issued on 21 January 2019 for work done between June and September 2017 for a total of $2,790.09; an invoice was issued on 23 January 2019 for work done in September 2017 in the amount of $626.51; and six invoices were issued on 24 January 2019, for work done between February 2017 and September 2018, for a total of $7,901.43. On 25 January 2019, Ms Lazar wrote to Force Draft rejecting these invoices as the claims were made outside the 28 day period prescribed by Daikin. Mr Pocock does not accept that this rejection is valid, since he does not accept that he is contractually bound by Daikin’s terms. He says he issued the invoices late and all together as “I just got tired of the runaround”.

30. A final invoice, no. 4048386, was issued on 25 January 2019 for $1,355.20. This invoice has a due date of 8 February 2019. This invoice brought the total of the January 2019 invoices to $12,673.23, about half of the total amount in dispute.

31. On 25 January 2019, Daikin commenced proceedings in the Local Court at Sutherland against Force Draft and Mr Pocock personally for recovery of monies owing under the line of credit. A defence has been filed, and the proceedings are ongoing.

32. On 25 January 2019, Force Draft issued a statutory demand to Daikin in respect of the 23 invoices. On 30 January 2019, Daikin was served with the statutory demand.

These proceedings

33. On 14 February 2019, these proceedings were commenced. At the first return of these proceedings on 27 February 2019, there was no appearance for Force Draft. The Registrar adjourned the proceedings to the Corporations List on 11 March 2019 for further directions. On 11 March 2019, Mr Pocock appeared in person. In considering the distance he had come, his Honour Justice Black referred the application to me for final hearing that day. I gave leave for Mr Pocock to represent the company and, after the hearing, made directions for further evidence to be served before reserving judgment. Three further affidavits were served by Force Draft and three affidavits were served by Daikin.

33. Because of this unusual procedural history, an issue arose as to an affidavit filed by Mr Pocock outside the terms of the leave I granted. Daikin objects to this affidavit being read. I apprehend that the mistake on Mr Pocock’s part was innocent: perhaps understandably for a self-represented litigant. I do not propose to take note of the affidavit to the extent that it contains evidence although I do not consider that the findings I have made would have differed materially. To the extent that that affidavit contains submissions, it falls within the leave granted and I have considered the submissions. Mr Pocock took objection to the affidavit of Mr Narasimhachar which was filed and served in time but was then unsigned. I consider that, despite the formal issue, which has since been cured, Mr Pocock has had an opportunity to respond to its contents. I have read this affidavit.

Consideration

35. It is apparent to me from reviewing the evidence that there is a dispute between Daikin and Force Draft which includes both legal and factual issues. As to legal issues, there is a dispute as to whether the contract between them included the following terms:

1. whether Force Draft could only submit invoices for repair work done under warranty within specific time frames, failing which, Daikin was entitled to reject the invoice;

2. whether such a term as described in (a) was varied in 2017 to increase the time within which a warranty claim could be made from 14 days to 28 days;

3. whether Force Draft was only entitled to charge for labour up to a maximum number of hours depending on the repair work done;

4. whether such a term as described in (c) was varied to entitle Force Draft to charge for more hours or at a higher hourly rate than provided for in Daikin’s written documentation; and

5. whether Daikin was entitled to require Force Draft to provide further information in respect of an invoice, either within a specified time period or at all, failing which Daikin was entitled to reject the invoice.

36. As to disputes as to factual matters, the following appear to me to arise:

1. whether Force Draft received Daikin’s letters and emails requesting revised invoices or further information in support of an invoice;

2. whether the second invoice has been paid, or at least all but $5.21 has been paid, by the application of two credit notes; and

3. whether the labour invoiced in one of the invoices (Invoice 4046952 dated 10 March 2017) was in respect of a repair covered by the Daikin warranty.

37. Mr Pocock submitted orally:

There is no genuine dispute but Daikin’s trivial and petty, tiresome ways of actually allowing a contractor to make a claim…

38. Force Draft submitted that Daikin’s constant request for further details on invoices was punitive; its requirement to submit warranty claims within specified time frames was “tyrannical”; and Daikin:

have managed to make a fantasy story by spurious claims with smoke and mirrors and using bluster and assertion to believe it themselves … they can make a story out of nothing.

39. But it seems to me from the correspondence between the parties and the affidavits of Mr Pocock and Daikin’s employees that the legal and factual disputes I have listed at [35]–[36] are “genuine” in the sense that they involve a plausible contention requiring investigation and cannot be dismissed as mere assertions unsupported by evidence, or as patently feeble legal arguments. Each dispute has a sufficient objective existence and prima facie plausibility, evidenced by contemporaneous documentation, and cannot be said to be spurious, bluster or assertion.

40. Two invoices fall into a slightly different category. Although the first invoice remains in dispute, Ms Lazar’s letter indicates that Daikin did not cavil with Force Draft charging $335 for its work. There is no genuine dispute as to this amount.

41. Second, the final invoice was due to be paid on 8 February 2019, a fortnight after Force Draft’s statutory demand was issued. Force Draft was not entitled to include the debt in the statutory demand when it was not due and payable: section 459E(1) of the Corporations Act. The inclusion of debts not due is a defect such that the whole of the demand may be set aside under section 459J: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 at 750; [1996] NSWSC 199; In the matter of MK Group Phoenix Pty Ltd [2014] NSWSC 1467 at [40]; In the matter of Longking Pty Ltd (2017) 123 ACSR 456; (2017) NSWSC 1534 at [44]; In the matter of Erma Properties Pty Ltd [2017] NSWSC 1748 at [32].

42. As such, there is an undisputed amount of $335. This is the “substantiated amount” for the purposes of section 459H. Since this amount is less that the statutory minimum of $2,000, the Court must set aside the demand: section 459H(3).

43. Finally, I note Mr Pocock’s oral submission in respect of the use of statutory demands:

In the past I have used this format and it has been a very effective in receiving payment when there is a genuine non-dispute or no genuine dispute …

To correct any misapprehension going forward, Part 5.4 of the Corporations Act is not a convenient and easy way of recovering moneys: indeed, it is not really a way of recovering moneys at all. It is a process used to raise a presumption of insolvency in a debtor company.

Orders

44. For these reasons, Daikin’s application must be granted. I make the following orders:

1. Pursuant to section 459H(3) of the Corporations Act 2001 (Cth), set aside the creditor’s statutory demand dated 25 January 2019 and served by the defendant upon the plaintiff on 30 January 2019.

2. The defendant to pay the plaintiff’s costs.

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Amendments

02 September 2019 - Decision on coversheet and [44] should read "the defendant upon the plaintiff".

Decision last updated: 02 September 2019