Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq)

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2015 0112

MALEC HOLDINGS PTY LTD	Applicant
V
SCOTTS AGENCIES PTY LTD (IN LIQUIDATION)	Respondent

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JUDGES:	KYROU, FERGUSON and KAYE JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	25 November 2015
DATE OF JUDGMENT:	8 December 2015
MEDIUM NEUTRAL CITATION:	[2015] VSCA 330
JUDGMENT APPEALED FROM:	Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSC 530 (Gardiner AsJ)

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CORPORATIONS – Application to set aside statutory demand pursuant to s 459G of Corporations Act 2001 (Cth) by reason of alleged genuine dispute and offsetting claim – Respondent supplied fuel to applicant on a running account for over four years – Supporting affidavit alleged that respondent overcharged applicant on a specific ground and precisely quantified the alleged offsetting claim – After expiration of 21 day period prescribed by s 459G, applicant filed affidavit alleging overcharging on a different ground and for a larger amount – Trial judge found there was an offsetting claim in respect of charges for deliveries of fuel for two particular days – Whether judge should have found there was a genuine dispute and offsetting claim in respect of entire debt – Whether judge erred in refusing to have regard to the different ground in the later affidavit – Application for leave to appeal refused.

CORPORATIONS – Section 459H of Corporations Act 2001 (Cth) – Consideration of principles relating to setting aside of statutory demands, including ‘Graywinter’ principle (Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452).

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr M Black	Marshalls & Dent
For the Respondent	Mr S J Maiden	Maddocks (as agents for Finlaysons of South Australia)

KYROU JA
FERGUSON JA
KAYE JA:

Introduction and summary

The applicant (‘Malec’) operates a transport company and has a fleet of trucks. Between February 2010 and June 2014, the respondent (‘Scotts’) supplied Malec with fuel and other fluids (collectively ‘fuel’). Liquidators were appointed to Scotts on 28 October 2014 pursuant to a resolution of its members. On 1 April 2015, Scotts served on Malec a statutory demand dated 31 March 2015 in relation to a debt of $603,367.94 for fuel alleged to have been sold and delivered to Malec and interest (‘Demand’).

By originating process filed on 21 April 2015, Malec sought orders setting aside the Demand pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Corporations Act’). It relied on the grounds in s 459H(1)(a) and (b) namely, that there was a genuine dispute about the existence and the amount of the debt and that Malec had an offsetting claim against Scotts.[1] In support of its application, Malec filed three affidavits which were sworn by its sole director, Matthew Malec, on 21 April 2015 (‘First Affidavit’), 19 May 2015 (‘Second Affidavit’) and 10 June 2015 (‘Third Affidavit’). Only the First Affidavit was filed within 21 days of receipt of the Demand as required by s 459G(3) of the Corporations Act.[2]
[1]Malec also relied on the grounds set out in s 459J of the Corporations Act. As these grounds were not pressed before the primary judge, they are not relevant to this application.
[2]Sections 459G and 459H of the Corporations Act are set out at [46] below.

On 6 October 2015, an Associate Judge of the Trial Division held that:

(a)Malec had established that it had an offsetting claim totalling $128,997.23 in relation to Scotts’s alleged supply of fuel on two days in which Malec was not open for business;
(b)Malec had not otherwise discharged its onus of proving that it had an offsetting claim against Scotts or that there was a genuine dispute about the existence or the amount of the debt claimed by Scotts;
(c)three paragraphs of the Third Affidavit could not be relied upon because they alleged a different claim than that raised in the First Affidavit; and
(d)the records referred to in those paragraphs were inadmissible because they did not satisfy the business records exception to the hearsay rule in s 69 of the Evidence Act2008 (‘Evidence Act’).[3]

[3]Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSC 530 (‘Reasons’).

Accordingly the judge ordered that, pursuant to s 459H of the Corporations Act, the Demand be varied so that it was an effective demand for $474,370.71.[4]
[4]Reasons [94].

Malec seeks leave to appeal against the judge’s order. By consent, the time for compliance with the Demand has been extended until seven days after the determination of the application for leave to appeal or, if leave is granted, until seven days after the determination of the appeal.

For reasons that follow, we have concluded that leave to appeal should be refused.

Dealings between parties, service of Demand, affidavit material

Malec had an aboveground tankard at its depot in Geelong which its drivers used to refuel their trucks. The tankard had a nominal capacity of 31,400 litres and a designated safe fill capacity of 28,000 litres.

On 18 March 2009, Malec executed a credit application form, which it submitted to Scotts (‘Credit Application Form’). The form provided for the supply of fuel by Scotts to Malec on credit and the payment of interest on ‘overdue’ amounts. The parties did not sign any other formal written contract for the supply of fuel.

There was conflicting evidence at trial about the arrangements pursuant to which Scotts supplied fuel to Malec on credit and the operation of their running account. However, many of their transactions had the following features:

(a)a representative of Malec would call a representative of Scotts and order fuel to be delivered as required;
(b)a Scotts driver would complete a delivery docket for each delivery he or she made in triplicate, copies of which were to be retained by Malec, Scotts and the driver;
(c)sometime after the delivery, Scotts would provide Malec with a tax invoice (‘invoice’);
(d)Scotts provided a monthly statement to Malec which included, among other things, the date and number of the invoice issued to Malec by Scotts in respect of each delivery, a description of the fuel sold, the quantity of the fuel sold, the sale price per litre of the fuel and the total sale price for the delivery; and

(e) Malec would pay Scotts from time to time when it could afford to do so.
Correspondence between the parties

In his reasons, the judge made extensive reference to various correspondence between the parties. Those parts of the correspondence that are relevant to the application for leave to appeal are summarised at [11] to [22] below.

Correspondence between Joanna Malec — who was an employee of Malec and the wife of Mr Malec — and Wayne Martin — who was the general manager of Scotts at the time — demonstrates that, from as early as April 2013, Mr Martin had attempted to arrange payment by Malec of the outstanding balances on the running account. In correspondence in April and May 2013, Ms Malec sought indulgences from Scotts in respect of time to pay outstanding balances on the account.

On 23 September 2013, Mr Martin sent an email to Ms Malec enquiring about the size of Malec’s tankard and what sort of records were kept each day by Malec ‘in terms of dips’. Mr Martin stated that he had a delivery discrepancy on one of Scotts’s ‘loadsheets’ that the driver thought went to Malec and he was hoping to confirm how much fuel was received by Malec on 6 September 2013. By email on the same day, Ms Malec responded as follows:

Our bowser has a safe fill capacity of 28 [thousand] litres although [it] can be pushed up to 31 [thousand] litres. We don’t have any procedures in place for dipping the tank – we did for a couple of months although we found ourselves dipping tank 5 times + per day as we don’t know what time the fuel trucks come and trucks keep fuelling up … It really did not work. We found the regular drivers to be spot on with the quantities and decided just to do random checks upon filling.

On the same day, in response to Ms Malec’s email, Mr Martin sent an email inquiring whether Malec recorded what each of its trucks put in at ‘each fill’. Ms Malec responded as follows:

[W]e do a weekly report that displays each vehicles fuel usage — the bowser tracks this electronically.

On 1 May 2014, Ms Malec sent an email to Mr Martin attaching a document titled ‘Payment Plan between Scotts Petroleum and Malec Holdings PL’. The document described the ‘Beginning Balance at 27/4/2014 (Not including April fuel)’ as $399,845.93. It proposed a series of payments which would completely discharge that debt by 31 May 2014.

On 14 August 2014, Ms Malec sent an email to Peter Mitchell (who was then a commercial manager of the Scott Group of companies of which Scotts was a member) (‘August 2014 email’) in which she relevantly stated:

Thank you very much for speaking to me yesterday and giving us the opportunity to propose a payment plan for the outstanding debt. As our business is still in the recovery stages and we are unable to pay the debt in full right now, we propose to pay it within the next 12 months with a monthly payment starting September 2014. As our income is seasonal we would like to make the repayment amounts variable, where some months we pay less and some more depending on our cash flow. However we do guarantee to have the debt settled by September 2015.
I hope this is acceptable and look forward to finalising our debt with Scotts.

On 1 October 2014, Hamish Mould, a senior accountant for the Scott Group, sent an email to Ms Malec requesting that she confirm the debt owing to Scotts was $563,360.81. He noted that there had been a request by Malec to extend payment terms by paying rounded amounts each month during the period from November 2014 until August 2015. He stated that he was not authorised to agree to this request but, if the matters he had referred to (including the amount of the debt) were confirmed by Ms Malec, Scotts would not take any further action without first communicating with her.

Ms Malec did not respond to Mr Mould’s request that she confirm the debt. By email to Mr Mould on 9 October 2014, she enquired as to whether he had heard from the Scott Group board of directors in relation to the matters raised in his email.

On 22 October 2014, Mr Mould emailed Ms Malec and advised that the board of directors had not accepted the payment terms proposed by Malec and had instructed the Scott Group in-house legal advisor to issue a statutory demand for payment of the debt. On the same day, Ms Malec responded and stated that Malec wished to pay off the debt but its cash flow did not allow it to do so at that time. She requested ‘a little bit of time’ to enable Malec to pay the debt. She also stated that she wished ‘to avoid wasting the court’s time by [Scotts] pursuing money that [Malec was] willing to pay [Scotts]’. Also on the same day, Ms Malec sent an email to the Scott Group’s chief financial officer, David Schwab, in which she stated that she wished to reach an arrangement that would allow Malec to pay off the debt without Scotts resorting to legal action. Ms Malec stated that Malec did not wish to avoid payment and was only asking for time.

On 23 October 2014, Mr Schwab responded to Ms Malec’s email relevantly as follows:

As discussed I confirm that I am prepared to set aside any legal recovery action on the Malec … debt on the following basis:
- Acknowledge that the debt of $563,360.81 (the debt) is due and payable to Scotts … in full and without deduction
- Agree to pay the debt by equal monthly instalments on [the] 30^th day of each month with the final due on [the] 16^th [of] March 2015
- Should Malec fail to pay any one instalment in full and on time, the balance of the debt will be immediately due and payable at Scotts option

However, I note that a Statutory Demand was posted to your registered office yesterday that can be ignored if the above conditions are satisfied.
Could you please provide your acceptance to these terms by reply email.

By email dated 29 October 2014 (‘October 2014 email’), Ms Malec responded to Mr Schwab relevantly as follows:

We are happy to agree to all your stipulations but we do have an issue with the monthly payments.
Is it possible that we agree that a payment is made starting next month of whatever we can afford but we have the debt paid off by the 16th of March? What we plan on doing is hitting the debt with some large sums in Jan, Feb and March but this year making payments that are a little bit smaller… I hope this is acceptable to you and we can move forward to clear this debt up.

On 21 November 2014, Ms Malec sent an email to Mr Mould in which she confirmed that a payment of $3,000 had been made to Scotts. She relevantly stated that she ‘still ha[d] issue with the amount owing but thought [she] would start making payments towards the debt’.

In an email sent to Ms Malec on 22 November 2014, Mr Mould stated that the issue raised by Ms Malec needed to be resolved as a priority and requested that Ms Malec reconcile Scotts’s account. The email attached what was described as ‘the full statement of invoices, receipts and other transactions since 2010’. In an email sent to Mr Mould on 4 December 2014, Ms Malec stated that she had done what she could to reconcile the account but had now forwarded it to her accountant to see if he could make sense of it.

Service of Demand and commencement of proceeding

As set out at [1] above, on 1 April 2015, Scotts served the Demand on Malec. The debt specified in the Demand — $603,367.94 — was alleged to comprise moneys due and owing for fuel sold and delivered to Malec in the amount of $518,772.44 and interest (which was described as overdue account fees pursuant to the terms of the Credit Application Form) in the amount of $84,595.50. An annexure to the Demand listed 28 invoices dated between 19 March 2014 and 2 June 2014, 21 of which related to the delivery of diesel fuel and 7 of which related to various other fluids, such as diesel exhaust fluid, diesel engine oil, hydraulic fluid, axle oil and transmission fluid. The Demand was supported by an affidavit sworn by Martin Lewis, one of the liquidators of Scotts.

As stated at [2] above, by originating process filed on 21 April 2015, Malec applied to set aside the Demand on the grounds that there was a genuine dispute about the existence and the amount of the debt and that Malec had an offsetting claim against Scotts.

Evidence at trial was given solely by way of affidavit without any cross-examination.

The affidavit evidence relevant to the application for leave to appeal is summarised below. The summary does not include evidence relating to Malec’s liability to pay interest on any amounts found to be ‘overdue’ within the meaning of the Credit Application Form, as Malec has not sought to impugn the judge’s finding about the existence of such a liability.[5]
[5]Reasons [84].

Mr Malec’s First Affidavit

In para 5 of his First Affidavit, Mr Malec described the arrangements between the parties in relation to the sale and delivery of fuel by Scotts to Malec. In para 7, he stated:

7. On a number of occasions, [Malec] has been charged for fuel and there has been no evidence that the fuel was ever delivered, there has only been a tax invoice which arrived with no reference to any delivery docket, often much later than when the alleged fuel was said to have been provided.

In para 14 of his First Affidavit, Mr Malec stated that, in or around November 2014, he ‘suspected gross overcharging, duplication of invoices and incorrect debt calculations by [Scotts]’ and that his concerns were raised by Ms Malec with Mr Mould in the correspondence set out at [21] to [22] above. In para 15, Mr Malec stated that, in March 2015, he engaged an accountant, Matthew Iannelli of WMC Accounting (‘WMC’) ‘to investigate [his] suspicions of overcharging and incorrect debt calculations’ and that he instructed his lawyers to inform Scotts that Malec disputed the alleged debt.

Mr Malec exhibited to his First Affidavit a report dated 13 April 2015 that was prepared by Mr Iannelli (‘WMC Report’).

In paras 18 and 19 of his First Affidavit, Mr Malec said the following about the WMC Report and how the dispute between the parties should be resolved:

18.[WMC] conducted an audit of [Malec’s] account with [Scotts] and wrote [the WMC Report]. This report … further detailed that there was a genuine dispute as to the amount of the Debt.
19.My understanding of the conclusions drawn in [the WMC] Report, is that between 15 February 2010 and 2 August 2014, [Scotts] overcharged [Malec] an amount totalling $415,063.00. I believe this sum should be offset against the Debt, and an agreement reached between the parties that [Malec] will pay the difference amount. This was relayed to [Scotts’s] solicitors on 15 April 2015 …

The communication of 15 April 2015 which is referred to in para 19 of the First Affidavit is a letter of that date from Malec’s solicitor to Scotts’s solicitor. That letter relevantly stated:

Our client engaged an accountant to review the documents which your client provided together with the documentation already in our client's possession. The accountant has provided a reconciliation concerning the dealings between our respective clients. We enclose a copy of the report for your client's consideration. …
Pursuant to the findings of the auditor, there has been an overcharging by your client for the period 15 February 2010 — 2 June 2014 totalling $415,063. Our client is prepared to offset this sum against the alleged debt (less any alleged account fees which were applied in error) in the … Demand and make payment of the balance of the alleged debt in the sum of $108,709.44 within 7 days from the date of acceptance.
We maintain that the forensic analysis and report provided by the accountant renders the [D]emand invalid and/or gives rise to a genuine dispute, which our client ought to have the right to pursue. As you will be aware, a demand will be set aside where there is a genuine dispute to be tried. We again reiterate that there is a clear dispute here.

WMC examined invoices, delivery dockets and monthly statements held by Malec relating to delivery of fuel by Scotts to determine whether Scotts had overcharged Malec. WMC made its determination by reference to whether those documents showed that Scotts purported to deliver on any day more fuel than the tankard’s safe fill capacity of 28,000 litres. According to WMC’s methodology, if the tankard was ‘overfilled’ on any day (in the sense that the tankard was purportedly filled beyond 28,000 litres) then Scotts overcharged Malec for fuel allegedly delivered on that day.

The WMC Report determined that Scotts had overfilled the tankard on three occasions in the 2010 financial year, seven occasions in the 2011 financial year, eight occasions in the 2012 financial year (including 1 April 2012), five occasions in the 2013 financial year (including 1 September 2012) and one occasion in the 2014 financial year (on 18 October 2013). All these occasions preceded the dates of the 28 invoices listed in the Demand.[6] The WMC Report concluded:

We have found that the [tankard] was … overfilled [above] the safe fill limit a total of 24 times for the period 15/02/2010 — 02/06/2014. This totalled to 314,674 litres and $415,063 worth of fuel. There were countless times the invoice number, date and fill amount on the month end statement didn’t match the delivery docket. The majority of the time a dip was not taken before or after the fill therefore we could not reconcile the amounts back to a safe level of fill.

[6]See [23] above.

The above conclusions were supported by a spreadsheet (‘Spreadsheet’) contained in the WMC Report which was arranged by reference to the dates of invoices held by Malec. The Spreadsheet set out, among other things, the invoice number corresponding with a particular invoice date, the litres stated in that invoice as having been delivered and the total value of the delivery. On a number of occasions, multiple invoices had the same invoice date. The Spreadsheet labelled as ‘Overfill’ any invoice or series of invoices with the same invoice date in which the total amount of litres purported to be delivered as per those invoices exceeded 28,000 litres.

In para 20 of his First Affidavit, Mr Malec noted that the correspondence set out at [12] above demonstrated that, in September 2013, Ms Malec ‘notified [Scotts] that [Malec] did not know what time the fuel trucks were arriving and whether fuel was actually being delivered’.

Mr Malec’s Second Affidavit

In his Second Affidavit, Mr Malec deposed that, in response to a number of requests that Scotts provide relevant documentation to substantiate the debt claimed in the Demand, Scotts’s solicitor provided Malec with a ‘small number of delivery dockets to dispute the [WMC Report]’. In paras 6, 9 and 10 of his Second Affidavit, Mr Malec said the following about the adequacy and reliability of Scotts’s records:

6. … From the material received almost half of the delivery dockets do not have my signature, nor do they have the signatures of any other agent of [Malec]. I deny having received the fuel as set out in the unsigned delivery dockets and I am unable to confirm that any fuel was delivered on those dates. I also note that a number of the tax invoices have no detail about the amount of fuel delivered, the amount charged per litre and/or the overall figure to be charged.

…
9.The material provided by [Scotts] is unreliable and inconsistent with the records held by [Malec]. A number of delivery dockets and tax invoices do not correspond and cannot be relied upon. By way of example I refer to … the email where [Scotts’s] representative admits to discrepancies in load sheets and requests confirmation with [Malec] that fuel was received by [Malec][7] [which] is a clear example that [Scotts’s] records are inconsistent.
10.… [A]t the start of [Malec’s] agreement with [Scotts], a representative of [Malec] was always required to sign off on fuel received. This procedure ensures checks and balances for [Malec] to confirm that fuel charged in the invoices is actually delivered. After a period of time, [Scotts] did not deliver fuel in an appropriate manner and ensure that delivery dockets were provided. Further, by way of explanation, [Scotts] has alleged that fuel would be delivered when there was no representative of [Malec] on site. There is no way for me to confirm whether fuel was delivered at these times and I dispute that these deliveries took place.

[7]This email is set out at [13] above.

Mr Malec deposed that, on the basis of the limited material provided by Scotts, a further updated report was prepared by WMC on 19 May 2015 (‘WMC Updated Report’). That report — which Mr Malec stated did not contain a ‘full review of all the alleged fuel delivered and charged for’ by Scotts because Scotts ‘failed to provide the requisite material’ — was exhibited to the Second Affidavit.

The WMC Updated Report stated that, based on WMC’s review of the relevant material, between 15 February 2010 and 2 June 2014:

(a)there were 539 invoices relating to the delivery of a total of 7,761,425 litres of fuel valued at $10,143,440.95;
(b)there were 27 correct invoices relating to the delivery of a total of 148,447 litres of fuel valued at $232,928.32;
(c)there were 303 invoices which did not correspond with a delivery docket relating to the delivery of a total of 4,407,861 litres of fuel valued at $6,005,072.72;
(d)there were 58 delivery dockets which did not correspond with an invoice relating to the delivery of 929,839 litres of fuel valued at $1,155,692.02;
(e)there were 144 invoices which were different to delivery dockets relating to the delivery of 2,274,278 litres of fuel valued at $3,048,309.04;
(f)there were 196 instances described as ‘[i]ncorrect [d]ip [p]rocedure’ relating to the delivery of 3,180,955 litres of fuel;
(g)there were 156 signed delivery dockets relating to the delivery of 2,529,154 litres of fuel valued at $3,349,393; and
(h)there were 45 unsigned delivery dockets relating to the delivery of 780,180 litres of fuel valued at $1,109,016.

The WMC Updated Report further stated that, of the delivery dockets relating to the delivery of fuel in 2014, 11 were signed and 20 were unsigned. The 11 signed delivery dockets related to the delivery of fuel valued at $288,588 and the 20 unsigned delivery dockets related to the delivery of fuel valued at $522,879.

The WMC Updated Report concluded that Scotts’s system of recording and invoicing ‘lacks integrity’ and that ‘[r]eliance on the reporting of the invoices is difficult due to missing information and documentation’.

Affidavits filed by Scotts

Scotts filed the following affidavits: an affidavit sworn by Mr Mitchell on 2 June 2015; an affidavit sworn by Mr Mould on 2 June 2015; an affidavit sworn by Mr Lewis on 3 June 2015; and an affidavit sworn by Scotts’s solicitor on 3 June 2015. As Malec has not sought to impugn any specific findings of fact made by the judge in relation to these affidavits, we will not summarise each of them. For the purposes of this application for leave to appeal, it suffices for us to state the following in relation to Scotts’s affidavit evidence:

(a)Mr Mitchell exhibited to his affidavit bundles of monthly statements, petroleum loading and delivery reports (‘load reports’),[8] delivery dockets and invoices relating to the delivery of fuel by Scotts to Malec and explained their contents and the procedures for their generation and (where relevant) their provision to Malec. Mr Mitchell explained that although the delivery dockets contained provision for a customer’s signature, Scotts often made deliveries of fuel to customers outside of normal business hours or when the customer’s premises were otherwise unattended, and it was therefore not possible for the driver to obtain a signature on behalf of the customer. If the driver was able to access the customer’s fuel bowser or tank, the driver would still complete the delivery and leave the delivery docket at the customer’s premises, despite not obtaining a signature on the docket from the customer.
[8]As stated at [23] above, 21 out of the 28 invoices listed in the Demand related to diesel fuel. Mr Mitchell exhibited load reports and delivery dockets relating to each of those invoices. Mr Mitchell deposed that it was not Scotts’s practice to prepare a load report or a delivery docket in relation to other products. According to Mr Mitchell, such products were provided to Malec in the original containers in which Scotts had acquired them.
(b)In his affidavit, Mr Mould stated that he had reviewed the WMC Report and the delivery records — being the load reports, delivery dockets and invoices — relating to each of the entries labelled as ‘Overfill’ in the Spreadsheet. These delivery records were exhibited to Mr Mould’s affidavit.[9] Mr Mould stated that it was apparent that the WMC Report had incorrectly assumed that the date of each invoice specified in the Spreadsheet was also the date of delivery of the fuel to which the invoice related. He further stated that the WMC Report did not make any allowance for fuel that would have been used by Malec on any particular day. Mr Mould exhibited a document titled ‘Schedule of Disputed Fuel Deliveries’ (‘Schedule’). The Schedule relevantly contained the following information:
[9]Mr Mould was unable to review and did not exhibit delivery records relating to two invoices labeled as ‘Overfill’ in the Spreadsheet. He observed that the details of those invoices appeared in Scotts’s monthly statements.

(i) each invoice number labelled ‘Overfill’ in the Spreadsheet;

(ii) the value of each invoice;

(iii) the date shown next to the invoice number in the monthly statements;

(iv) the actual delivery date of the fuel referred to in the invoice, which corresponded with the delivery date shown in the delivery records relating to each invoice;

(v) the quantity of fuel delivered to Malec by Scotts on that date which corresponded with the delivery record relating to each invoice;

(vi) whether the delivery docket relating to each delivery of fuel had been apparently signed on behalf of Malec; and

(vii) the starting and finishing time of the Scotts driver’s trip to deliver the fuel to Malec and the other customers of Scotts listed in each load report.

(c)In his affidavit, Mr Mould stated that the delivery records showed that, out of 56 deliveries of fuel referred to in the Schedule — and, therefore, labelled as ‘Overfill’ in the Spreadsheet — 33 delivery dockets had been signed on behalf of Malec. The delivery records also showed that Scotts had made multiple deliveries of fuel to Malec on a single day on five occasions, namely:

(i) on 15 April 2010, when a total of 30,499 litres was purportedly delivered, which was within the overall capacity of the tankard (namely, 31,400 litres);

(ii) on 5 August 2010, when a total of 18,900 litres was purportedly delivered, which was within the safe fill capacity of Malec’s tankard (namely, 28,000 litres);

(iii) on 1 April 2012, when a total of 32,021 litres was purportedly delivered, which slightly exceeded the overall capacity of Malec’s tankard;

(iv) on 1 September 2012, when a total of 40,809 litres was purportedly delivered but the deliveries were recorded in the load reports as having occurred in the morning and afternoon; and

(v) on 18 October 2013, when a total of 34,314 litres was purportedly delivered but the deliveries were recorded in the load reports as having occurred in the morning and then in the afternoon.

Mr Malec’s Third Affidavit

In his Third Affidavit, Mr Malec challenged Mr Mould’s evidence about two of the days for which Malec received an invoice for deliveries in excess of the capacity of the tankard, 1 April 2012 (when Malec was invoiced for 32,021 litres) and 1 September 2012 (when Malec was invoiced for 40,809 litres). Mr Malec stated that those days fell over a weekend and that Malec did not use any fuel from the tankard on those days because it was not open for business. As Malec’s delivery records (which Mr Malec exhibited to his affidavit) showed that Malec had not made any deliveries on those days, Mr Malec could not see how the fuel could have been used, or how Scotts could have provided more than one delivery, on those days.

In paras 6, 8 and 9 of his Third Affidavit, Mr Malec deposed as follows:

6. [T]he tankard … provides automated reports as to the time a vehicle is fuelled; the driver; the date; which vehicle is receiving the fuel; the odometer of the vehicle; and importantly how much fuel is taken out of [the] tankard to fuel any vehicle. This system was installed at the recommendation of [Mr] Martin on behalf of [Scotts] who provided details to have the system set up for [Malec] to provide accountability and confirmation of fuel received and to be used for [Malec’s] internal records for billing purposes and expenditure and can be used to further identify fuel in dispute.

…
8. The tankard reports detail:
(a) for the period 1 January 2012 to 31 December 2012 that 2,518,908.23 litres were used by [Malec];
(b) for the period 1 January 2013 to 31 December 2013 that 1,610,130.93 litres [were] used by [Malec]. I note that the tankard recording system was offline for a period 2 months, however I have estimated the amount of fuel that would have been used in that time by averaging the amount of fuel used per day for the other 10 months of the year; and
(c) for the period 1 January 2014 to 3 June 2014 that 669,476.31 litres were used by [Malec].
The total amount of fuel not provided but charged by [Scotts] based on the tankard automated records is 2,559,573.53.

Now produced and shown to me and marked with the letters ‘MM-13’ is a document named Summary Table 1 which reflects the fuel litres charged for by [Scotts] which compares the litres amount used by [Malec] and ‘MM-14’ is a copy of the automated reports which the system produces with numbers and headings inserted for convenience and specific relevant dates extracted.
9. Since [Malec] has received fuel from an alternative supplier, the invoices provided to [Malec] and the fuel recorded by the tankard is almost an exact match save for a small amount which can be put down to accidental fuel wastage.
Now produced and shown to me and marked with the letters ‘MM-15’ is Summary Table 2 which reflects the fuel litres charged to date for the year 2015 which compared to the tankard report relating to deliveries from the current supplier.

Exhibit ‘MM-14’ to the Third Affidavit comprised three tables respectively titled ‘Malec Tankard Fuel Report — Period 01/01/2012 to 31/12/2012’, ‘Malec Tankard Fuel Report — Period 01/01/2013 – 31/12/2013’ and ‘Malec Tankard Fuel Report — Period 01/01/2014 to 03/06/2014’. Each of these tables contained data in 10 columns respectively titled ‘Key ID’, ‘Truck Number/Name’, ‘Registration’, ‘Load Type’, ‘Price Per Litre’,[10] ‘Litres Fuelled’, ‘Odometer’, ‘Time’, ‘Date’ and ‘Bowser Number’. In all three tables, the ‘Bowser Number’ was always specified as ‘1’ and the ‘Price Per Litre’ was specified as ‘nil’. We will refer to the three tables collectively as ‘the Tankard Report’.
[10]The fifth heading on the table for the 2012 calendar year was ‘Cost Per Litre’.

Exhibit ‘MM-13’ was a table which listed, for the three periods set out at [44] above, information which included the following: the litres of fuel which, according to the Tankard Report, were taken from the tankard (column 2); the litres of fuel which, according to the table, Scotts claimed to have delivered (column 3); and the difference between the amounts in columns 2 and 3 (column 6). According to the table, the cumulative total of the differential amounts in column 6 was 2,559,573.53 litres.

Statutory provisions and principles — setting aside statutory demands
Statutory provisions

Sections 459G and 459H of the Corporations Act provide as follows:

459G Company may apply
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

459H Determination of application where there is a dispute or offsetting claim
(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.

(2) The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total — Offsetting total
where:
admitted total means:
(a) the admitted amount of the debt; or
(b) the total of the respective admitted amounts of the debts;

as the case requires, to which the demand relates.
offsetting total means:
(a) if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or
(b) if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or
(c) otherwise—a nil amount.

(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a) varying the demand as specified in the order; and
(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company.

(5) In this section:
admitted amount, in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c) otherwise—the amount of the debt.

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).
respondent means the person who served the demand on the company.
(6) This section has effect subject to section 459J.[11]

What must an applicant establish pursuant to s 459H of the Corporations Act?

[11]Section 459J provides additional grounds for setting aside a statutory demand which are not presently relevant.

The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim.[12] Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.[13]
[12]TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67, 79 [71] (‘TR’).
[13]Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411, [23] (‘Solarite’), quoted in TR (2008) 66 ACSR 67, 80 [72].

In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute.[14] This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction[15] and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim.[16] It is therefore 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.[17] Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.[18]
[14]TR (2008) 66 ACSR 67, 77 [57]. See also Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 (‘Eyota’).
[15]TR (2008) 66 ACSR 67, 77 [57].
[16]Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601, 608 [31], 609 [36], 613 [54], [55], 615 [70] (‘Britten-Norman’).
[17]Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, 605, quoted in TR (2008) 66 ACSR 67, 78 [65].
[18]TR (2008) 66 ACSR 67, 77 [57], 78 [64].

The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived.[19] It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile.[20] A rigorous curial approach is essential to the effective operation of the statutory scheme.[21]
[19]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 464.
[20]TR (2008) 66 ACSR 67, 79 [71].
[21]TR (2008) 66 ACSR 67, 80 [72].

The court is not required to accept uncritically 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, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth.[22] The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence,[23] although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim.[24] Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.[25]
[22]Eyota (1994) 12 ACSR 785, 787, quoted in TR (2008) 66 ACSR 67, 78 [64]. See also Britten-Norman (2013) 85 NSWLR 601, 611 [46], 613 [53]. Although this statement of principle was made in the context of determining the existence of a ‘genuine’ dispute under s 459H(1)(a), it has since been applied in the context of an application to set aside a statutory demand on the basis of an offsetting claim under s 459H(1)(b): see, eg, Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 3] (2014) 46 WAR 483, 501 [69], 503–4 [74].
[23]South Australia v Wall (1980) 24 SASR 189, 194; Eyota (1994) 12 ACSR 785, 787; TR (2008) 66 ACSR 67, 78 [64], 79 [66], [71].
[24]TR (2008) 66 ACSR 67, 79 [71].
[25]Eyota (1994) 12 ACSR 785, 787; TR (2008) 66 ACSR 67, 78 [64]; Britten-Norman (2013) 85 NSWLR 601, 611 [46].

Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd[26] involved a demand for payment of a debt alleged to be due under a contract for the supply of goods. The applicant relied on four matters, each of which had the potential to affect the respondent’s entitlement to be paid the entire amount of the debt. Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute.[27] He relevantly stated:

The [applicant] will fail in [the] task [of establishing a genuine dispute] only if … the contentions upon which it seeks to rely … are so devoid of substance that no further investigation is warranted. Once the [applicant] shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.[28]
[26][2002] NSWSC 411.
[27]Solarite [2002] NSWSC 411, [24].
[28]Solarite [2002] NSWSC 411, [23].

Principles relating to reliance on supplementary affidavits after 21 day period

As set out at [46] above, s 459G(3) of the Corporations Act provides that an application to set aside a statutory demand will only be made in accordance with the section if, within 21 days after the demand is served, an affidavit supporting the application is filed with the Court. We will refer to this period as ‘the 21 day period’ and an affidavit filed within that period as ‘a supporting affidavit’.

In Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund,[29] Sundberg J held that, where a supporting affidavit does not satisfy the minimum requirements for such an affidavit for the purposes of s 459G(3) of the Corporations Act, the court will not have jurisdiction to set aside the demand. He described the minimum requirements of a supporting affidavit as follows:

(a)the affidavit must state material facts which show that there is a genuine dispute;
(b)the affidavit may read like a pleading and need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute; and
(c)neither a mere assertion that there is a genuine dispute nor a bare claim that the debt is disputed is sufficient.[30]

[29](1996) 70 FCR 452 (‘Graywinter’).

[30]Graywinter (1996) 70 FCR 452, 459.

Sundberg J held that, where the supporting affidavit did not meet the minimum requirements, the absence of jurisdiction could not be overcome by the filing of a supplementary affidavit after the expiration of the 21 day period. However, where the supporting affidavit met the minimum requirements, the material relied upon in that affidavit could be supplemented by affidavits filed after that period. This was because, while the supporting affidavit did not have to deploy the evidence, on the hearing, only admissible evidence could be relied upon.[31]
[31]Graywinter (1996) 70 FCR 452, 460.

Although Graywinter related to a supporting affidavit filed in a ‘genuine dispute’ case, Sundberg J’s observations are equally applicable to an ‘offsetting claim’ case.

Energy Equity Corporation Ltd v Sinedie Pty Ltd[32] relevantly concerned a demand for consultancy fees under a contract between the parties. The supporting affidavit filed by the appellant stated that it had offsetting claims against the respondent and went on to describe some of them, including a claim relating to office rental and a claim alleging negligent advice in relation to the obtaining of a loan. The claims that were specifically referred to in the supporting affidavit were ultimately not pursued. After the expiration of the 21 day period, the appellant filed a supplementary affidavit that referred to a claim alleging negligent advice relating to a contract for the purchase of a gas plant in India.
[32](2001) 166 FLR 179 (‘Energy’).

The Full Court of the Western Australian Supreme Court[33] quoted, with apparent approval, passages from Graywinter, including a statement in which Sundberg J agreed with a submission that the supporting affidavit must state material facts on which the applicant intends to rely to show that there is a genuine dispute.[34] The Court also quoted, with apparent approval, a statement from the judgment of Mandie J in Missay Pty Ltd v Seventh Cameo Nominees Pty Ltd (in liq)[35] that if a ground in support of an application to set aside a statutory demand was not identified within the 21 day period then it could not be relied upon out of time on appeal.[36] The Full Court went on to adopt the following principle:

[A]n affidavit filed outside the 21-day period which raises a new ground or grounds to set aside a statutory demand (as opposed to an affidavit which expands on grounds in an earlier affidavit which has satisfied the threshold test) cannot be used in an application of this nature.[37]

[33]Wallwork J with whom Steytler J and Olsson A-UJ agreed.

[34]Energy (2001) 166 FLR 179, 183 [18].

[35][2000] VSC 397 (‘Missay’).

[36]Missay [2000] VSC 397, [2], quoted in Energy (2001) 166 FLR 179, 184 [26].

[37]Energy (2001) 166 FLR 179, 185 [29].

On the facts of the case before it, the Full Court held that the appellant could not rely on the supplementary affidavit because the claim relating to the gas plant was not raised within the 21 day period.[38]
[38]Energy (2001) 166 FLR 179, 185 [30].

In Elm Financial Services Pty Ltd v MacDougal,[39] Barrett J stated that the Graywinter principle meant that the applicant’s supporting affidavit must fairly alert the respondent to the nature of the case the applicant will seek to make in seeking to have the statutory demand set aside. The content of the affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds in ss 459H and 459J of the Corporations Act. That process of delineation may not be extended after the 21 day period, although it is open to the applicant to supplement the supporting affidavit by way of additional evidence relevant to the area of controversy within the period.[40]
[39][2004] NSWSC 560 (‘Elm’).
[40]Elm [2004] NSWSC 560, [7].

Elm involved an application to set aside a statutory demand for an amount claimed by the respondent under a deed with the applicant. The respondent was the executrix of a deceased financial adviser who had been retained by the applicant and the amount claimed represented the balance of commission due by the applicant to the deceased. The application to set aside the demand relied on the genuine dispute ground, which was based on alleged misrepresentation and lack of disclosure by the respondent when the deed was made, and the offsetting claim ground, which was based on alleged failures by the deceased to account to the applicant for moneys he received from clients. The supporting affidavit annexed a letter from the applicant to the respondent’s solicitors which gave details of a failure by the deceased to disclose to the applicant fees that he had invoiced to a particular client. The letter stated that the applicant assumed that the client’s case was not an isolated example. The supporting affidavit contained a concluding statement that ‘[i]f any sum remains payable under the deed, the [applicant] will be seeking a reduction in that sum to reflect … moneys received by [the deceased] which were not passed on to the [applicant].’

Barrett J rejected the genuine dispute ground but upheld the offsetting claim ground. In relation to the former, he held that ‘nothing in the [supporting] affidavit and its annexures even hints at a claim to have the deed set aside for misrepresentation or the like.’[41] He acknowledged that the concluding statement in the supporting affidavit raised the possibility that the debt may no longer exist but he concluded that it did nothing to indicate the basis on which that possibility was advanced or the reasons behind the contention.[42] In relation to the offsetting claim ground, he held that the annexure dealing with the particular client and the concluding statement in the supporting affidavit ‘sufficiently indicate the basis of a case as to the offsetting claim that the [applicant] now seeks to advance.’[43]
[41]Elm [2004] NSWSC 560, [11].
[42]Elm [2004] NSWSC 560, [11].
[43]Elm [2004] NSWSC 560, [12].

In Tuta Healthcare v Nipro Asia,[44] Campbell J relied on the Graywinter principle to refuse to admit into evidence an affidavit filed after the 21 day period which was intended to found a submission that the unpaid goods which were the subject of the statutory demand had been supplied to a company other than the applicant. This was because that was ‘a submission, or a basis of argument, which could never have been gleaned from the [supporting] affidavit.’[45] Campbell J stated that the supporting affidavit must fairly notify the respondent of the evidentiary basis for a submission that the statutory demand should be set aside on the particular ground upon which the applicant seeks to rely.[46]
[44][2005] NSWSC 664 (‘Tuta’).
[45]Tuta [2005] NSWSC 664, [10].
[46]Tuta [2005] NSWSC 664, [13].

In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd,[47] Barrett J reviewed his judgment in Elm, the judgment of Austin J in POS Media Online Ltd v B Family Pty Ltd[48] and the judgment of White J in Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd.[49] He concluded that his observation in Elm to the effect that the ground of challenge to a statutory demand must be raised expressly in, or appear by necessary inference from, the supporting affidavit, was ‘too strict’ and that the correct approach was to treat a ground as having been raised within the 21 day period ‘if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed document the content of which “reveals” it.’[50]
[47](2007) 214 FLR 393 (‘Saferack’).
[48](2003) 21 ACLC 533 (‘POS’).
[49](2007) 61 ACSR 321 (‘Hansmar’).
[50]Saferack (2007) 214 FLR 393, 399–400 [25].

More recently, in Re UGL Process Solutions Pty Ltd,[51] Black J referred to POS, Hansmar and Saferack and concluded that ‘the strictness of the Graywinter principle has been qualified at least to the extent that the initial affidavit will sufficiently raise a dispute if that ground is raised by a necessary or reasonably available inference, including from documents exhibited to the initial affidavit’.[52]
[51][2012] NSWSC 1256 (‘UGL’).
[52]UGL [2012] NSWSC 1256, [30].

In Re Australia Zhongfu Oil Gas Resources Pty Ltd,[53] Brereton J reviewed the judgments of Barrett J in Elm and Saferack and the judgment of Campbell J in Tuta, and concluded:

[I]t will be sufficient if the material facts on which the applicant intends to rely to support the genuine dispute are discernible from the supporting affidavit and/or the annexures and exhibits to it. Nonetheless, while explicit reference to the ground or necessary implication may not be necessary, it remains important that the affidavit convey some fair notice to the [respondent] of the case that is to be made.[54]
[53][2012] NSWSC 1208 (‘Zhongfu’).
[54]Zhongfu [2012] NSWSC 1208, [31].

Decision of primary judge

The judge concluded that Malec had ‘established that it ha[d] an offsetting claim in respect of the fuel which was alleged to have been supplied by Scotts on 1 April 2012 and 1 September 2012’.[55] In relation to Malec’s alleged offsetting claim that was based on the ‘overfilling’ analysis, the judge relevantly stated:

Aside from the deliveries on 1 April 2012 and 1 September 2012, I consider that Malec, who bears the onus in this application, has not successfully rebutted the comprehensive evidence of Scotts in relation to the contention that Scotts had not evidenced the delivery of the fuel. Nor has it satisfactorily confronted, aside from the two dates mentioned, the material presented in answer to the matters raised in the [WMC Report]. In my view, Scotts has on the evidence that is filed … rebutted the position of Malec that it has an offsetting claim for $415,063, the ‘overfilling’ claim, subject to the two dates mentioned.[56]

[55]Reasons [92].

[56]Reasons [83].

The judge placed emphasis on particular correspondence sent by Ms Malec to representatives of Scotts. He described the August 2014 email[57] as ‘an acknowledgement of the debt, with no issue being raised in respect of it’. He noted that this email post-dated the last of the invoices the subject of the Demand.[58] Similarly, in relation to the October 2014 email,[59] he observed:

[I]n October 2014, Malec, rather than taking any issue with the debt or the accuracy of Scotts’ account, accepted the figure being put as being owing to Scotts. Indeed, at no point was any issue raised at all with the quantum of the debt until several months after the last supply of fuel. In Mr Schwab’s email of 23 October 2014 he sought acknowledgement that the debt as at that date was $563,360.81 and Ms Malec, who conducted all the negotiations with Scotts, expressly agreed to Mr Schwab’s stipulations, including that acknowledgement. Malec’s quest, as it had been over the previous several months, was to seek time for payment by extended terms. Scotts had last supplied and invoiced Malec on 2 June 2014, nearly five months before, and no issue at all had been raised about the debt. It was not until November 2014 that it was.[60]

[57]See [15] above.

[58]Reasons [50].

[59]See [20] above.

[60]Reasons [71].

The judge observed that, although it appeared that Ms Malec had the conduct of all dealings on behalf of Malec with Scotts, she had, without any explanation, failed to make any affidavit in support of Malec. He stated that this was ‘particularly significant given the fact that Ms Malec has expressly and implicitly acknowledged the existence of the debt’ in the October 2014 email.[61]
[61]Reasons [35].

The judge rejected the reception of paras 6, 8 and 9 of Mr Malec’s Third Affidavit on the basis that those paragraphs alleged a different claim than that ‘raised’ in Mr Malec’s First Affidavit, being the only affidavit filed and served within the 21 day period.[62] The judge stated that, in his First Affidavit,[63] Mr Malec had adopted the position that the Demand would not be extinguished but rather that a sum representing the difference between the value of the Demand and the value of the alleged offsetting claim would be payable to Scotts.[64] He stated that Mr Malec adopted a different position in the Third Affidavit for the following reasons:

The quantum in dollar terms of this claim, 2,559,573.53 litres of fuel was charged for but not delivered, is not stated but on the assumption that the approximate price of the diesel fuel is $1.20 per litre, it amounts to a claim of approximately $3 million. In my view this is quite a different claim than that raised in Mr Malec’s first affidavit, that relating to the overfill claim for $415,063. …
Affidavits filed within the 21 days need not go into all the evidence that supports the grounds relied upon to set aside the demand, and there is no doubt that the affidavits can be supplemented. In this instance, however, the magnitude of the claim itself is several times the offsetting claim mentioned in the first affidavit and I consider it to be of quite a different character.
If one examines the first affidavit of Mr Malec, I do not consider that the claim of 2,559,573.53 litres of fuel being charged for but never supplied is ‘raised’. There is no hint of a claim of that type or magnitude. The overfilling claim is for a very particular sum, is the subject of the [WMC Report] and is for a fraction of this claim. Certainly if the affidavit filed within the 21 days of service of the demand is designed to inform the creditor of the disputes and offsetting claims it is required to meet in resisting the application, there is no indication of the larger claim made in the third affidavit. I do not consider it to be contended that it can be brought under the aegis of the very generalistic assertion in the first affidavit that Scotts had not proved delivery of the fuel. It was said by [counsel for Malec] in submissions that that contention raised the subject of the trading relationship between the parties, but I consider that to be such a generalistic notion as to be meaningless in informing a creditor considering that statement as to what the basis of the dispute or offsetting claim was so that material could be martialled to meet it. As it is, Scotts have put forward very comprehensive material relating to the supply of the fuel over the period of the trading relationship and it has not been satisfactorily rebutted.[65]

[62]Reasons [88], [90]–[91].

[63]See [30] above.

[64]Reasons [31].

[65]Reasons [88]–[90].

The judge stated that, as he had rejected paras 6, 8 and 9 of Mr Malec’s Third Affidavit, it was not necessary for him to consider whether the evidence adduced under those paragraphs satisfied the business records exception to the hearsay rule contained in s 69 of the Evidence Act. However, for completeness, he went on to conclude that the evidence did not satisfy the requirements of s 69 of the Evidence Act.[66] In the light of our conclusion at [110] below, it is not necessary for us to set out the judge’s reasons for this conclusion.
[66]Reasons [91].

Proposed grounds of appeal

Malec‘s application for leave to appeal relies on three proposed grounds of appeal. The first proposed ground alleges that, having found that Malec had an offsetting claim in relation to the deliveries of fuel on 1 April 2012 and 1 September 2012, the judge erred in not finding that there was a genuine dispute in respect of all of the deliveries of fuel that were the subject of the Demand. The second proposed ground alleges that the judge erred in concluding that the Graywinter principle precluded Malec from relying on paras 6, 8 and 9 of the Third Affidavit. The third proposed ground alleges that the judge erred in finding that the exhibits to the Third Affidavit that related to those paragraphs (including, in particular, the Tankard Report) were inadmissible because they did not come within the exception to the hearsay rule in s 69 of the Evidence Act.

The three proposed grounds of appeal will be considered separately below. For convenience, we will refer to them as ‘grounds’.

Ground 1

Ground 1 was as follows:

The Associate Justice's finding that there was no genuine dispute or offsetting claim in relation to the sum of $474,370.71 was in error. [Malec’s] affidavit material demonstrated, as was accepted by his Honour, that there was an offsetting claim in relation to $128,997.23 of the amount claimed in the Demand. That sum related to fuel alleged to have been delivered on 1 April 2012 and 1 September 2012. The following factors apply:
(a) Despite correctly setting out the law in relation to the onus and burden of proof on the application, the Associate Justice misapplied the law by placing too high a burden on [Malec].
(b) In accepting that there was a genuine dispute as to the amount of $128,997.[2]3 the Associate Justice accepted that [Malec] had proved a negative — namely that there was sufficient material to suggest that multiple deliveries claimed by [Scotts] had not in fact occurred.
(c) [Malec] therefore successfully impeached a significant proportion (in excess of 20%) of the total amount originally claimed in the Demand in being able to call into question deliveries on two identified days. Those two days were, fortuitously, ones on which [Scotts] alleged multiple deliveries exceeding the total capacity of the tankard but on which [Malec] was fortuitously closed meaning it was not dispensing any fuel, which enabled it to argue that delivery had not occurred.
(d) His Honour failed to take into account that other deliveries alleged by [Scotts] which were less than the total capacity of the tankard may also have not been delivered.
(e) The significant proportion of the claimed amount called into question by [Malec’s] material, and the difficulty in otherwise proving that deliveries did not occur, supports the contention that [Malec] successfully raised a genuine dispute in respect of the entirety of the Demand.
(f) The Associate Justice failed to take into account the overall impact of [Malec] successfully raising a genuine dispute or offsetting claim in relation to a large portion of the sum claimed in the Demand and simply accepted that any delivery for which [Malec] was not able to produce contrary material must have happened.
(g) Further, in accepting that there was a genuine dispute in relation to the sum of $128,997.23 the Associate Justice accepted that there was a case to be made that deliveries claimed in the Demand were never actually made. His Honour failed to give any weight to the importance of that finding in relation to the balance of the sum claimed in the Demand.

At the hearing of the application for leave to appeal, Malec took the Court to Scotts’s invoices, load reports, delivery dockets and monthly statements that related to the charges for fuel allegedly delivered on 1 April 2012 and 1 September 2012. By comparing those documents with the documents that were used by Scotts to prove the alleged deliveries of fuel on other days, Malec demonstrated that the documents were of the same standard form and generally contained — or failed to include — the same type of information. The omission from the invoices for fuel allegedly delivered on 1 April 2012 and 1 September 2012 which recurred in a number of the invoices used by Scotts to prove the alleged deliveries on other days was said to be the quantity of fuel delivered. The omissions from the delivery dockets for fuel allegedly delivered on 1 April 2012 and 1 September 2012 which recurred in a number of the delivery dockets used by Scotts to prove the alleged deliveries on other days were said to be a price per litre of fuel, a signature by a representative of Malec, a before delivery ‘dip’ amount and/or an after delivery ‘dip’ amount.

Malec submitted that, as the judge concluded that there was doubt as to the alleged deliveries on 1 April 2012 and 1 September 2012, he erred in not reaching a similar conclusion in relation to all of Scotts’s deliveries, including those which were the subject of the Demand. A similar conclusion was said to be required due to the fact that there was no material difference between the contents of the documents relating to the alleged deliveries on 1 April 2012 and 1 September 2012 and the contents of the documents relating to all other deliveries.

Malec contended that, as it had accomplished the very difficult task of establishing a negative proposition by reference to Scotts’s records, namely that deliveries of fuel had not occurred on 1 April 2012 and 1 September 2012, the judge should have concluded that there were doubts about the veracity of all of Scotts’s records. Malec emphasised that the value of the deliveries allegedly made on 1 April 2012 and 1 September 2012, together with interest, totalled $128,997.23. It argued that, as this constituted in excess of 20% of the amount claimed in the Demand, the judge’s conclusion that Malec had established a genuine dispute in relation to those two deliveries was a sufficient basis for him to conclude that there was a genuine dispute in relation to all of the deliveries. According to Malec, the judge’s approach to determining whether there was an offsetting claim in the amount of $128,997.23 was inconsistent with the approach he adopted in relation to the balance of the amounts claimed by Scotts.

Malec relied on the statement in Solarite[67] set out at [51] above in support of its contention that the fact that it had cast doubt on whether deliveries of fuel had been made on two days was sufficient to establish an arguable case that there was a genuine dispute in relation to all of the deliveries, including those which were the subject of the Demand.
[67][2002] NSWSC 411.

Malec submitted that the judge placed too much emphasis on the admissions made by Ms Malec in correspondence with Scotts and erroneously concluded that Scotts’s records for deliveries other than those on 1 April 2012 and 1 September 2012 were accurate.

Scotts submitted that there was a logical flaw in Malec’s contention that the judge’s conclusions about the alleged deliveries on 1 April 2012 and 1 September 2012 were also applicable to all other deliveries because all deliveries relied on documents which suffered from the same deficiencies. According to Scotts, the logical flaw was that the judge did not find that its documents relating to those two days were deficient; all that the judge had found was that Malec’s evidence that no fuel was used by it on those two days raised a doubt about whether any fuel was delivered on those days and established an offsetting claim in the amount of $128,997.23. As Malec had not adduced similar evidence to cast doubt on any other deliveries, there was no logical basis for a genuine dispute or an offsetting claim in relation to the charges made for any other deliveries.

We agree with Scotts’s submission. The judge’s conclusion that there was an offsetting claim in relation to the alleged deliveries of fuel on 1 April 2012 and 1 September 2012 was based on specific evidence that was unique to those days, namely, that Malec was not open for business on those days and did not use any fuel from the tankard. This evidence cast doubt on the accuracy of the charges made by Scotts for fuel allegedly delivered on those days because, if the evidence were accepted, Scotts could not have supplied more fuel than the tankard’s overall capacity of 31,400 litres. The evidence upon which Malec relied was not capable of casting similar doubt on the accuracy of any other charges.

The judge did not find that Scotts’s documents were deficient in relation to any deliveries of fuel. On the contrary, he held that Scotts had adduced ‘very comprehensive material relating to the supply of the fuel over the period of the [parties’] trading relationship’ which Malec had not satisfactorily rebutted save in relation to 1 April 2012 and 1 September 2012.[68] Malec has not sought to impugn any specific factual finding by the judge in relation to Scotts’s documents beyond the complaint made in Ground 1.
[68]Reasons [83], [90].

There is no substance to Malec’s submission that the judge erred in his assessment of Scotts’s records on the basis of Ms Malec’s admissions. The judge’s reasons indicate that he carefully reviewed Scotts’s records and reached conclusions on them based on their contents and consistency with each other. Although the judge took into account Ms Malec’s admissions, they did not influence his assessment of Scotts’s documents. His conclusions were open to him independently of those admissions. We note that, notwithstanding the admissions, the judge found that there was an offsetting claim in respect of the deliveries allegedly made on 1 April 2012 and 1 September 2012.

The judge did not find that Malec had established the negative proposition that deliveries of fuel had not occurred on 1 April 2012 and 1 September 2012. All that he found was that Malec’s evidence sufficed to raise an offsetting claim in relation to the charges for the fuel allegedly delivered on those days.

Having regard to the principles summarised at [48] above, in substance, the judge found that Malec’s evidence had established that there was a plausible contention requiring investigation in relation to the alleged deliveries of fuel on 1 April 2012 and 1 September 2012 but not in relation to any other deliveries. He was justified in doing so.

The applicant’s reliance on Solarite[69] is misplaced. The observation of Barrett J that a finding of a genuine dispute must follow if an applicant shows that even one issue has a sufficient degree of cogency to be arguable was made in the context of the facts of that case. In that case, the applicant relied on four matters, each of which had the potential to affect the respondent’s entitlement to the entire debt claimed by it.
[69][2002] NSWSC 411.

Barrett J’s observation has limited application to a case such as the present where the claimed debt arises from the operation of a running account. The casting of doubt in relation to one item on a running account does not require that the statutory demand be set aside. Such an approach would mean that, in the case of a statutory demand based on the balance owing on a running account, the court could never vary the demand in accordance with s 459H(4) of the Corporations Act.

That is not to say that the casting of doubt in relation to one item on a running account is incapable of casting doubt on the other items on the account. This may occur, for example, where the evidence relating to one item indicates that there are systemic flaws which cast doubt on the integrity and reliability of the systems and processes used to maintain the account as a whole. However, Malec’s evidence in the present case was not of that nature.

We reject Malec’s submission that the judge should have applied his findings about the alleged deliveries on 1 April 2012 and 1 September 2012 to all of Scotts’s alleged deliveries which were the subject of the Demand because the amounts charged for those days represented in excess of 20% of the total amount claimed in the Demand. There are three reasons for this in addition to those we have already provided as to why the judge’s findings about the alleged deliveries on those days have no application to any other deliveries.

First, the mere fact that the amount of the offsetting claim constitutes a large proportion of the amount claimed in a statutory demand does not necessarily mean that the demand must be set aside. Section 459H(4) of the Corporations Act recognises that, as long as the amount in respect of which there is no genuine dispute and/or an offsetting claim is at least as great as the statutory minimum, the court may vary the statutory demand.

Secondly, a comparison of the amounts charged on 1 April 2012 and 1 September 2012 and the amounts claimed in the Demand is of questionable probative value. This is because the former charges fall outside the period covered by the Demand, namely from March until June 2014. If comparisons were capable of providing any assistance, it would be more logical to focus on the relationship between the charges for 1 April 2012 and 1 September 2012 on the one hand and the charges for the entire period of the running account, namely from February 2010 until June 2014, on the other hand. Although there was no evidence about the total of the latter charges, it can be inferred from the evidence[70] that they amounted to many millions of dollars and that the amount of $128,997.23 that relates to the two specific days in 2012 is a very small proportion of those total charges.
[70]See [38] above.

Thirdly, as Scotts submitted, Malec’s contention lacks force when one has regard to the fact that following careful scrutiny by Malec and WMC of all of the available documents relating to the entire period of the running account of nearly four and a half years, Malec was able to cast doubt on the deliveries of fuel for only two days. Those days preceded the period covered by the Demand by more than 18 months.

For the above reasons Ground 1 is devoid of merit.

Ground 2

Ground 2 was as follows:

The Associate Justice also misapplied the [Graywinter] principle in relation to paragraphs 6, 8 and 9 of [Mr Malec’s Third Affidavit] in finding that those paragraphs raised new matters not included in the original affidavit material filed and served within the 21 days limited by s 459G.
(a) The basis of his Honour's decision is in error in that it relies, primarily, on the size or magnitude of the matters raised. The quantum of a claim does not make it of a different character.
(b) His Honour's determination that a claim that 2,559,573.53 litres of fuel has been charged for but never supplied was not raised on the initial material again confuses the size of the claim with the type of the claim.
(c) The issues raised in paragraphs 6, 8 and 9 of [Mr Malec's Third Affidavit] are a continuation of [Malec's] assertions that a genuine dispute or offsetting claim exists in relation to the sum claimed in the Demand because [Scotts] is seeking to charge the [Malec] for fuel which has not been proven to have been delivered.

Malec submitted that paras 6, 8 and 9 of the Third Affidavit did not offend the Graywinter principle because they dealt with the same issues that were raised in the First Affidavit. Those issues were that:

(a)Scotts had charged Malec for fuel when there was no evidence that the fuel was delivered;[71]
(b)Scotts had engaged in gross overcharging, duplication of invoices and incorrect debt calculations;[72] and
(c)Malec did not know what time Scotts’s fuel trucks were arriving and whether fuel was actually being delivered.[73]

[71]See para 7 of the First Affidavit which is referred to at [27] above.

[72]See para 14 of the First Affidavit which is referred to at [28] above.

[73]See para 20 of the First Affidavit which is referred to at [35] above.

Malec contended that paras 6, 8 and 9 of the Third Affidavit provided further elaboration on the allegations made in the First Affidavit that Scotts’s documents were unreliable and that it had charged Malec for fuel that was not delivered. Accordingly, so it was said, those paragraphs did not seek to raise a new ground which did not appear in the First Affidavit.

Malec submitted that the judge misapplied the Graywinter principle because his conclusion that paras 6, 8 and 9 of the Third Affidavit raised a new ground relied on the fact that the quantum of the alleged overcharge based on the Tankard Report was much larger than the quantum of the alleged overcharge based on the WMC Report. According to Malec, the size of a claim is not relevant to its character.

Scotts submitted that paras 6, 8 and 9 of the Third Affidavit infringed the Graywinter principle because they sought to rely on an allegation that the quantity of fuel that Malec had used was vastly less than the quantity for which it had been charged by Scotts in circumstances where that allegation was not raised, expressly or by necessary inference, in the First Affidavit. According to Scotts, while the First Affidavit referred to overcharging and incorrect calculations, those concerns were specifically confined to the ‘overfilling’ allegations that were the subject of the WMC Report.

In our opinion, the judge was right to find that paras 6, 8 and 9 of the Third Affidavit infringed the Graywinter principle.

We accept that the First Affidavit read together with the WMC Report alleged: that Scotts had overcharged Malec; that Scotts’s documents were inadequate and contained inaccurate debt calculations; that there was an absence of evidence that the fuel for which Malec was charged had been delivered; and that Malec did not know what time Scotts’s trucks were arriving at Malec’s depot and whether fuel was actually being delivered. However, these general allegations were made in the context of, and in support of, a very specific ground for raising a genuine dispute or an offsetting claim, namely, the ‘overfilling’ ground that was the subject of the WMC Report.

The ‘overfilling’ ground was that Scotts’s documents demonstrated that it had charged Malec for fuel that it could not have delivered because the documents included charges for days where the total fuel allegedly delivered exceeded the safe fill capacity of the tankard.

The proposition that the general allegations in the First Affidavit were made in the context of, and in support of, the ‘overfilling’ ground is borne out by paras 18 and 19 of the First Affidavit, which are set out at [30] above, and the three paragraphs in the letter of 15 April 2015 from Malec’s solicitor to Scotts’s solicitor, which are set out at [31] above. A fair reading of that letter and the First Affidavit indicates that Malec’s general complaints ultimately came down to these propositions: that the WMC Report had established, through the ‘overfilling’ analysis, that Scotts had overcharged Malec in the amount of $415,063; that there was an offsetting claim in respect of this amount; that this amount also gave rise to a genuine dispute about the amount of the debt claimed in the Demand; and that Malec was prepared to pay the difference between this amount and the amount claimed in the Demand.

The First Affidavit and the letter from Malec’s solicitor did not state that Malec had not completed its investigations. Neither Mr Malec nor his solicitor sought to preserve, within the 21 day period, the possibility of finding more instances of alleged overcharging. Even if they had done this, for the reasons set out at [105] to [107] below, that would not have been sufficient if the enlarged claim was based other than on the overfilling ground. What was done in the present case stands in contrast to the supporting affidavit and annexed correspondence in Elm.[74] There, the applicant foreshadowed that its offsetting claim may increase and the basis for such an increase. Here, Malec confined the area of controversy to the overfilling ground in respect of specified instances and limited its offsetting claim to the amount of $415,063. This characterisation was reinforced by Malec’s offer to pay the difference between $415,063 and the amount claimed in the Demand. The statement in the solicitor’s letter that ‘the [WMC Report] … gives rise to a genuine dispute’ makes it clear that Malec was relying solely on the ‘overfilling’ ground to raise a genuine dispute and that the offsetting claim related to the amount of $415,063.
[74][2004] NSWSC 560. See [59]–[61] above.

At the hearing of the application for leave to appeal, Malec submitted that the First Affidavit and the solicitor’s letter focussed on the amount of $415,063 because at the time that those documents were prepared, it was Malec’s understanding that it was able to dispute the Demand only to the extent of that amount. It must follow from this that it would have been reasonable for Scotts to understand the First Affidavit and its exhibits as seeking to raise a genuine dispute and an offsetting claim by reference to the amount of $415,063, which had been calculated on the basis of the ‘overfilling’ analysis.

We agree with Malec’s submission that the mere fact that the offsetting claim that would arise from the Tankard Report and the calculations in para 8 of the Third Affidavit would greatly exceed the amount of $415,063 would not in itself result in the Graywinter principle being infringed. However, we reject Malec’s submission that the judge found that that principle was infringed solely on the basis of the difference in quantum. Paragraphs 89 and 90 of the judge’s reasons, which are set out at [69] above, make it clear that he found that the offsetting claim in paras 6, 8 and 9 of the Third Affidavit was of a different ‘character’ and ‘type’ from the offsetting claim in the First Affidavit.

We agree with the judge’s analysis that the ground upon which Malec relied in the First Affidavit to raise a genuine dispute or an offsetting claim was different in character and type from the ground in paras 6, 8 and 9 of the Third Affidavit. Although both grounds raised the broad issue of overcharging, the Graywinter principle is not satisfied simply because the ground relied upon in the supporting affidavit and the ground sought to be raised in an affidavit filed after the expiration of the 21 day period deal with the same broad issue. Thus, in Energy,[75] an allegation that the respondent had provided negligent advice relating to a contract for the purchase of a gas plant in India was held to raise a different ground from an allegation that the respondent had provided negligent advice in relation to the obtaining of a loan. The fact that both allegations raised the issue of negligence was insufficient to satisfy the Graywinter principle.
[75](2001) 166 FLR 179. See [56]–[58] above.

In the present case, the First Affidavit raised the issue of overcharging on the ground that Scotts charged for fuel which it could not have delivered on specific days where the total fuel allegedly delivered exceeded the safe fill capacity of the tankard. That ground was sufficient to raise an offsetting claim for charges that related to the alleged deliveries on 1 April 2012 and 1 September 2012. Paragraphs 6, 8 and 9 of the Third Affidavit, on the other hand, sought to raise an issue of overcharging not on the basis of fuel that was delivered to Malec on any particular days but on the basis of fuel that was used by Malec between 1 January 2012 and 3 June 2014. The latter basis constituted a different ground for the purposes of the Graywinter principle.

Furthermore, there was nothing in the First Affidavit that was capable of conveying to Scotts that Malec would seek to raise a genuine dispute or an offsetting claim based on the fuel decanted from the tankard by Malec’s drivers as distinct from a genuine dispute or an offsetting claim based on the impossibility of Scotts’s drivers having filled the tankard by more than its safe fill capacity on any particular day.

For the above reasons, there is no substance to Ground 2.

Ground 3

Ground 3 was as follows:

The material in paragraphs 6, 8 and 9 of [Mr Malec’s Third Affdiavit] was also rejected by his Honour as being hearsay. In so rejecting the material his Honour erred in:
(a) holding that the records were hearsay when they were a report produced from information stored in a device and admissible under s 48(1)(d) of the Evidence Act 2008 (Vic);
(b) alternatively, if they were hearsay, erred in finding they were not business records and therefore not subject to the exception under s 69(2) of the Evidence Act 2008 (Vic).

As we have concluded that Ground 2 lacks substance, it is not necessary for us to consider Ground 3. This is because, even if we were to conclude that the judge erred in finding that paras 6, 8 and 9 of the Third Affidavit and the exhibits relating to them were inadmissible, the Graywinter principle would have prevented any reliance being placed on them. Accordingly, such an error would not have affected the outcome of this application for leave to appeal.

Conclusion

Having had the benefit of full argument on the three grounds, we are in a position to conclude that the application for leave to appeal must be refused because the proposed appeal does not satisfy the requirement in s 14C of the Supreme Court Act 1986 that it have ‘a real prospect of success’. We have reached this conclusion by applying the ‘real prospect of success’ test that was adopted by this Court in Kennedy v Shire of Campaspe,[76] namely, that an appeal has a real prospect of success if it has more than a fanciful chance of success.[77] Our conclusion renders it unnecessary for us to consider the parties’ submissions on whether an application for leave to appeal in respect of an order of the court on an application made under s 459G of the Corporations Act to set aside a statutory demand raises policy considerations which require the test to be applied more stringently or which inform the exercise of the discretion to refuse leave notwithstanding that the test is satisfied.[78]
[76][2015] VSCA 47 (‘Kennedy’).
[77]Kennedy [2015] VSCA 47, [12]–[13].
[78]See Kennedy [2015] VSCA 47, [5], [14].

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[2015] VSCA 330

8 December 2015