Local Country & Austwide Removals v Aust Petroleum No. Scgrg-97-486 Judgment No. S6439

[1997] SASC 6439

LOCAL COUNTRY AND AUSTRALIA WIDE REMOVALS PTY LTD (ACN 008 167 084)  V  AUSTRALIAN PETROLEUM PTY LTD

(ACN 000 032 128)

ACTION NO 486 OF 1997

Judge Burley

The plaintiff has applied to set aside a statutory demand served pursuant to the provisions of Section 459E of the Corporations Law ("the Law"). The notice claimed the sum of $46,502.50. At the hearing the defendant conceded that the indebtedness at the date of service of the notice (11 March 1997), the sum of $43,502.50, rather than the amount claimed in the notice, was due and owing. The plaintiff conceded that as at the date of the service of the notice, it owed to the defendant the sum of $43,362.50, but sought to offset against its indebtedness to the defendant a claim for damages or equitable compensation which exceeded not only the admitted amount of the debt but also the amount of the debt said by the defendant to be owing.

The plaintiff does not dispute that the statutory demand was served in compliance with the provisions of Section 459E of the Law. The defendant does not dispute that the plaintiff has made this application in accordance with Section 459G of the Law.

The plaintiff relies upon Section 459H(1) of the Law. The sub-section refers to a debt being genuinely disputed and also to an offsetting claim. There is only a difference of $140.00 between the admitted debt and the amount claimed by the defendant to be owing. Consequently the submissions of counsel were directed almost exclusively to the question of whether or not the plaintiff has an "offsetting claim" as defined in Section 459H(5) of the Law which exceeds the amount sought to be recovered by the creditor/defendant. The plaintiff maintains that its offsetting claim is in the vicinity of $70,000.00 and therefore clearly exceeds not only the admitted amount but also the claimed amount. That being the case, it was submitted, the statutory demand should be set aside pursuant to Section 459H(3) of the Law.

The plaintiff relied upon affidavit material to support its contention that the statutory demand should be set aside and the defendant relied upon affidavit material submitted in opposition to the application.  It is common ground that during 1996 the defendant supplied petrol and other products to the plaintiff.  The plaintiff was a furniture removalist operating in various parts of Australia.  The fuel and other products were supplied on credit.  The plaintiff's drivers were supplied with a credit card which enabled the driver to obtain petrol at designated fuel outlets.  An invoice was raised and sent to the plaintiff and monthly statements were also raised setting out the invoices and the total of the purchases made for that month.  The arrangement between the parties was such that the plaintiff obtained up to 30 day's credit in respect of purchases made from the defendant.  In about August 1996 the defendant changed its accounting system.  Prior to that time the plaintiff had been able by reference to the invoices and statements reconcile the monthly amounts payable to the defendant.  The defendant, in changing its accounting system, experienced some difficulties in achieving an efficient operation of the new system.  One of the defects of the new system was that, on the basis that the plaintiff authorised the defendant directly to debit the plaintiff's bank account in payment of amounts owing, there was a failure to debit the plaintiff's bank account in amounts sufficient to meet the monthly purchases.  In other words, through no fault of the plaintiff, the plaintiff became in arrears in respect of the credit arrangement that had existed between the plaintiff and the defendant.

Another defect was that the plaintiff was unable to reconcile the invoices received with the computer information generated by the new accounting system.

The new system was still creating difficulties in late November 1996.  By then, the defendant, by having resort to the direct debit facility, had underpaid itself by several thousand dollars.  In early December the defendant, without raising the matter with the plaintiff, attempted to rectify the question of arrears which had accrued (unbeknown to the plaintiff) and, instead of having recourse once in the month to the direct debit system, two debits were made within a few days of one another, neither of which was referable to any specific monthly amounts set out on invoices or statements previously received by the plaintiff.

In continuing the narrative (which constitutes my findings of fact on the affidavit material before me), I express the qualification that some of the following may not be said to be common ground between the parties.

The plaintiff through its director, Mr Miller, became concerned about the company's ability to control its cash flow given the arrangement that had persisted between August and December where it was difficult to reconcile the accounts so that the plaintiff could be confident that the defendant was deducting the correct amounts from the plaintiff's bank account.  It could not be said that the plaintiff was concerned that the defendant was doing, or intended to do, anything untoward, but Mr Miller did not have confidence in the accuracy of the accounting system used by the defendant.  When, in early December, there were two consecutive deductions from the plaintiff's bank account by the defendant under the direct debit system, he sought advice from his accountant and as a result determined to cancel the direct debit authority to the bank.  This was done and a few days later the defendant's officer, Mr Rohrsheim, was informed.

Mr Miller said, and I accept, that he wished to obtain a reconciliation from the defendant as to the amount owing so that it could be agreed and the appropriate payment in discharge of that indebtedness could be made.  In his affidavit of 5 September 1997 (Document 8) Mr Miller said at paragraph 12:-

"On Monday 16 December 1996, David Rohrsheim & I spoke by telephone.  David Rohrsheim said, 'LCA [the plaintiff] must pay its overdue accounts'.  I said, 'LCA has always wanted to pay its accounts, but we have not been able to understand what is due.  I will finalise all of our outstanding accounts if you will prepare a reconciliation and fax it to me by Wednesday 18 December 1996, when Trudy, my book keeper, is here.  If we cannot understand the reconciliation, we will sit down with you straight away and pay the full agreed upon amount within a month'.  David Rohrsheim agreed to that. ..."

Mr Rohrsheim in his affidavit sworn on 25 September 1997 (Document 10) referred at paragraph 9 to paragraph 12 of Mr Miller's affidavit but did not specifically refer to the allegations made in paragraph 12.  On any reading of the dispute between the parties, the allegations made in paragraph 12 were important and it is surprising that the contents of the paragraph were not specifically traversed by Mr Rohrsheim.  Be that as it may, in the absence of a specific denial of the allegations made in paragraph 12, I do not consider that I should do other than accept what Mr Miller said in paragraph 12.

It is common ground that there was no reconciliation provided on 18 December 1996 but a document was later forwarded by the defendant.  It is Exhibit 4 to the affidavit of Mr Miller sworn on 5 September 1997 (Document 8d).  It is a copy of a facsimile transmission and is as follows:

"Date     :     23-12-96  15.47
To        :     MR GREG MILLAR                Fax:  [phone]
                  LCA REMOVAL

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - -  - - - - - - - - - - - - - - - - - - - - - - - -

From     :     ROHRSHEIM, DAVID
Dept     :     COMM384
Phone    :     [phone]
Fax       :     08 242 8377

PLEASE CONTACT THE SENDER REGARDING ANY TRANSMISSION PROBLEMS.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

MESSAGE:  URGENT

I REFER TO OUR PHONE DISCUSSION LAST WEEK REGARDING PAYMENT OF YOUR OVERDUE ACCOUNT.  MY LETTER TO YOU DATED 29.8.96 CONFIRMED YOUR OFFER OF PAYMENT TO CLEAR JUNE & JULY HOWEVER I BELIEVE PART OF THESE PURCHASES REMAIN UNPAID.

IT IS NOTED THAT YOU HAVE CANCELLED YOUR DIRECT DEBIT.

THE FOLLOWING IS OUR RECONILLATION [SIC] OF YOUR ACCOUNT:
date  invoice   $  Amount paid
June & July purchases  17854.79
Aug  S634935             13891.73             13239.43
Sept  S644736             11346.80               6466.65
Oct  S651568             11780.89             13105.17
November           S660058             10024.11

FROM THE ABOVE RESULT OF RECENT PURCHASES AND PAYMENT AN AMOUNT OF $22062.96 IS OVERDUE AND NOVEMBER PURCHASES OF $10024.11 ARE ALSO DUE AT THE END OF THIS MONTH.

I GIVE NOTICE THAT YOUR STARCARDS WILL BE RESTRICTED EFFECTIVE IMMEDIATELY UNTILL [SIC] WE HAVE AN ACCEPTABLE PLAN TO RETURN YOUR ACCOUNT TO WITHIN TERMS.

DAVID ROHRSHEIM.

*****  END OF MESSAGE  ***** "

In the first paragraph reference is made to an offer by the plaintiff to pay arrears in respect of the months of June and July.  It follows a statement that indicates that Mr Rohrsheim was aware that the direct debit authority had been cancelled.  It then follows a purported reconciliation.  Most importantly Mr Rohrsheim informed the plaintiff as follows:

"I GIVE NOTICE THAT YOUR STARCARDS WILL BE RESTRICTED EFFECTIVE IMMEDIATELY UNTILL [SIC] WE HAVE AN ACCEPTABLE PLAN TO RETURN YOUR ACCOUNT TO WITHIN TERMS."

The plaintiff thereafter found that his drivers were unable to obtain fuel and other products on credit from the defendant.  This caused havoc to the running of his business.  It occurred at the busiest time of the year because one of his major contracts was to act as removalist for the Education Department.  That involved the movement of teachers at that time of the year to new appointments.  It is the cancellation of the credit agreement which the plaintiff says gives rise to the offsetting claim.  The plaintiff contends that the defendant was not justified in terminating the agreement and that in failing to provide petrol and other goods on credit the defendant was in breach of the agreement that had existed between the parties to that date.  The measure of damages, it was argued, was the value of the business lost by the plaintiff as a result of not having the ability to obtain fuel on credit from the defendant.

The plaintiff also argued that an estoppel arose as a result of the conversation between Mr Miller and Mr Rohrsheim on 16 December 1996 which precluded the defendant from taking any action under the contract for the supply of petrol on credit on account of the fact that the plaintiff was in arrears in respect of payments due under that supply contract. Reliance was placed upon a number of cases, including The Commonwealth Bank v Verwayen (1990) 170 CLR 394.

I turn to a consideration of the applicable legal principles. I have to decide whether the plaintiff "has" an "offsetting claim" as defined in Section 459H(5). As defined, an offsetting claim "means a genuine claim that the company has against the respondent by way of counterclaim, set-off, or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)". The defendant contended that the plaintiff did not have a genuine claim but did not otherwise dispute that the definition applied to the claim sought to be pursued by the plaintiff. I accept the submission of Mr Wells QC, counsel for the plaintiff, that if I am to find that the plaintiff has an offsetting claim, I must be satisfied that there is a serious question to be tried as contended for by the plaintiff: Scanhill Pty Ltd v Century 21 (Australasia) Pty Ltd (1993) 12 ACSR 341. I am not required to value the claim. In other words, if I find that the claim for a given amount is genuinely pursued, it is the amount claimed that should be off-set against the admitted total as set out in Section 459H(2) of the Law: Classic Ceramic Importers Pty Ltd v Ceramica Antiga (SA) (1994) 13 ACSR 263.

Reliance was placed by Mr Stevens, counsel for the defendant, upon Advance Ship Design Pty Ltd v DJ Ryan (1995) 16 ACSR 129, a decision of Master MacLaughlin. His Honour was of the view that the offsetting claim must be one "which the plaintiff presently has". It was not sufficient that there had been filed in Court a process asserting that claim. I respectfully agree with that conclusion but say that this is not a case where the only evidence of the existence of a genuine claim is the existence of proceedings for the prosecution of that claim. In fact, no such proceedings have been commenced. The existence or otherwise of the genuine claim is founded upon the facts as adduced in the affidavit evidence relied upon by the plaintiff combined with the submissions of Mr Wells which are to the effect that, on the facts, a claim for damages, for breach of contract or a claim for compensation arising out of an estoppel are arguable causes of action available to the plaintiff. I agree with Mr Wells that they are arguable causes of action and to that extent an offsetting claim has been established by the plaintiff, but it is necessary for me to examine the amount of the claim before deciding whether or not there is a genuine off-setting claim in the sum of $70,000 approximately which the plaintiff may pursue. In other words, in my view, part of the process of ascertaining whether or not there is a serious question to be tried, is whether or not the amount of the claim is a serious question. Theoretically it can be envisaged that there may be a genuine claim in the sum of $10,000 but the plaintiff alleges that the offsetting claim (as defined in Section 459H) amounts of $20,000. Whilst I accept the case law which says that the Court does not value the claim, I am of the view that there must be a factual substratum which supports the contention that the claim is worth a particular amount. The elements of an offsetting claim are, first, a cause of action which the law recognises as giving rise, if successfully pursued, to a monetary judgment and, second, the quantum of that claim. Thus, the "serious question to be tried" includes an examination of the quantum of the alleged offsetting claim, but only to the extent that the plaintiff is required to establish an arguable case that it will recover damages in the amount sought.

The plaintiff said that it lost $63,000 in December 1996 and $7,000 in January 1997.  The defendant argued two points in relation to the quantum of the off-setting claim:  first, that in relation to the alleged loss in December 1996 of $63,000, it could not be said on any basis that such a loss was attributable to any breach of contract on the part of the defendant, nor could it form proper compensation, even on an arguable basis, in respect of any estoppel that may have arisen;  and, second, that the sum of $70,000 must be taken as the gross amount of the loss and it could not therefore be said to be a maintainable loss because operating expenses would have to be taken into account in respect of which there was no evidence.

As to the first point, I think the principle that the Court must not value the loss precludes the defendant from being successful on this contention.  The plaintiff asserts, on the factual material before me about an alleged loss of some $63,000 in the last week of December 1996, that the loss was attributable only to the actions of the defendant in cancelling the credit arrangement.  The plaintiff says that there is no other explanation for the loss.  I accept the plaintiff's evidence that it failed to reach its budgeted estimate for the month of December by some $63,000 and I accept that this is a basis upon which it might be said that the plaintiff lost an opportunity to earn income amounting to approximately $63,000.  I make the same findings in respect of the alleged losses in January 1997 amounting to approximately $7,000.  The first point made by the defendant on the question of quantum must fail.

The second point raised by the defendant is not susceptible of a simple resolution. I think there is some substance in the assertion that the figures of $63,000 and $7,000 respectively advanced by the plaintiff as being lost sales for December and January respectively, must be taken as gross figures and, if they are, it must follow that there is no basis upon which it could be said that $70,000 is recoverable because the expenses involved in the earning of that income must be deducted from the gross amounts. There is no evidence as to what might be deducted on account of such expenses. The onus is upon the plaintiff to satisfy the Court of the existence of the offsetting claim and I therefore consider that there is an evidentiary onus to adduce evidence on the topic. That raises the question of where the line is to be drawn as to the amount of evidence to be adduced by the plaintiff on applications such as these. It is trite law to say that it is not the function of the Court to try the issues in dispute between the parties leading to a final determination. Indeed, it has long been held, both in relation to the current provisions of the Corporations Law and earlier provisions of the Law and the Companies Acts, that when the Court exercises this jurisdiction under the Corporations Law (or its equivalent) it is not a debt recovery Court.

I am troubled by the absence of evidence relating to the expenses of earning the income claimed to have been lost. Evidence of expenses is material to the determinations required of me on this application. How am I able otherwise to ascertain whether there is a factual substratum to the offsetting claim? In the absence of the appropriate evidence I am unable to say, one way or the other, that, if allowance is made for deduction of the appropriate expenses from the gross amount sought by way of offsetting claim, the net amount then due would exceed the $43,362.50 sought by the defendant. I am unable to say whether or not, even if there is an offsetting claim, it would necessarily reduce the demand to less than the statutory minimum. I am therefore unable to find that the plaintiff has an offsetting claim which exceeds the amount claimed by the defendant or which reduces the amount claimed to more or less than the statutory minimum: see John Shearer Ltd and Anor v Gehl Co (1995) 134 ALR 1 at 12. It follows that I must dismiss the application and I so order. I will hear counsel as to costs.