Nuttvia Australia Pty Ltd v Ixom Operations Pty Ltd
[2018] VSC 632
•24 October 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2018 02261
IN THE MATTER of NUTTVIA AUSTRALIA PTY LTD (ACN 610 901 543)
| NUTTVIA AUSTRALIA PTY LTD (ACN 610 901 543) | Plaintiff |
| v | |
| IXOM OPERATIONS PTY LTD (ACN 600 546 512) | Defendant |
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JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 September 2018 |
DATE OF JUDGMENT: | 24 October 2018 |
CASE MAY BE CITED AS: | Nuttvia Australia Pty Ltd v Ixom Operations Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2018] VSC 632 |
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CORPORATIONS – Corporations Act 2001 (Cth), s 459 – Application to set aside statutory demand by reason of alleged genuine dispute in respect of the debt or for some other reason – Plaintiff failed to establish the existence of a genuine dispute and there was no other reason why the demand should be set aside – Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms V Plain | Parkston Lawyers |
| For the Defendant | Mr S Waldren | McMahon Fearnley Lawyers |
JUDICIAL REGISTRAR:
Introduction
The plaintiff, Nuttvia Australia Pty Ltd (‘Nuttvia’), makes an application pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Act’) by originating process dated 15 June 2018 to set aside a statutory demand dated 24 May 2018 (‘Statutory Demand’) served on Nuttvia by the defendant, Ixom Operations Pty Ltd (‘Ixom’).[1]
[1]This application has been referred to me for hearing and determination, by orders made on the Court’s own motion, pursuant to r 84.04 of the Supreme Court Rules (General Civil Procedure) Rules 2015.
The application is made on the grounds set out in s 459H, further or alternatively s 459J, of the Act. That is, Nuttvia submits that the Statutory Demand should be set aside on the basis that there is a genuine dispute as to the existence of the debt, further or alternatively, that it ought to be set aside due to some other reason.
In support of its application, Nuttvia relied on the following affidavits:
(a) Mark Hanna sworn 15 June 2018 (‘First Hanna Affidavit’). Mr Hanna is a director of Nuttvia;
(b) Samuel Beng Kee Tew sworn 30 July 2018 (‘Tew Affidavit’). Mr Tew is also a director of Nuttvia; and
(c) Mr Hanna sworn 4 September 2018 (‘Second Hanna Affidavit’).
In opposition to the application, Ixom relied on the following affidavits:
(a) Raymond Wilson sworn 10 August 2018 (‘First Wilson Affidavit’). Mr Wilson is a key account manager for Ixom;
(b) Toby Morris sworn 8 August 2018 (‘Morris Affidavit’). Mr Morris is the sales manager life science for Ixom and is also Mr Wilson’s manager;
(c) Lauren Siobhan Mosbey sworn 3 September 2018 (‘Mosbey Affidavit’). Ms Mosbey is a solicitor with McMahon Fearnley Lawyers, who act for Ixom in relation to this proceeding; and
(d) Mr Wilson sworn 7 September 2018 (‘Second Wilson Affidavit’).
Both parties filed written outlines of submissions, as well as making oral submissions at the hearing.
For the reasons which follow, I do not consider that Nuttvia has established that it has a genuine dispute in relation to the debt which is the subject of the Statutory Demand or that there is some other reason why it should be set aside. It follows that the proceeding should be dismissed.
Legal Principles
Section 459G of the Act provides 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.
Section 459H of the Act relevantly provides as follows:
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.
Section 459J of the Act provides as follows:
459J Setting aside demand on other grounds
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
The Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq)[2] has summarised the principles applicable in applications to set aside statutory demands as follows (citations omitted):
[2][2015] VSCA 330, [47]–[51] (‘Malec’).
[47]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. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.
[48]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. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction 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. 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. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.
[49]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. 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. A rigorous curial approach is essential to the effective operation of the statutory scheme.
[50]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. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, 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. 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.
[51]Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd 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. 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.
The parties were not in dispute as to the applicable principles, and both counsel referred to and relied on Malec.
I further note that in Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[3] Dodds-Streeton J considered the approach and standard to be applied when dealing with applications to set aside statutory demands:
While it is not a very exacting standard, on the other hand mere, assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which ‘bears on whether or not the asserted dispute or off-setting claim is genuine’. Indeed, that is its necessary function.
[3][2006] VSC 508 [48].
The parties’ evidence
Nuttvia’s evidence in support of the application
Mr Hanna deposes that he is a director of Nuttvia, which he says was incorporated on 22 February 2016, after which it commenced operating a business selling a chocolate hazelnut spread for sale in supermarkets.[4] As I understand it, the chocolate hazelnut spread is called ‘Nuttvia’ (which I shall refer to as ‘Nuttvia Spread’).
[4]Firs Hanna Affidavit, [1], [3].
Mr Hanna says that between about March to May 2017, Nuttvia and a related company, Natvia Pty Ltd (‘Natvia’), retained Ixom to assist them in purchasing products and an ingredient known as ‘erythritol’, which is used in the manufacture of Nuttvia’s products, from a supplier based in the People’s Republic of China named Baolingbao Biology Co Ltd (‘BLB’) and a Germany based supplier.[5]
[5]First Hanna Affidavit, [4].
He says that between 23 October 2017 and 25 January 2018, Ixom issued Nuttvia with three invoices totalling $107,987.25 (‘Nuttvia Debt’) in respect of products ordered by Nuttvia from Ixom.[6] These invoices, being the Nuttvia Debt, are the subject of the Statutory Demand and are exhibited to the affidavit in support of the Statutory Demand.[7]
[6]First Hanna Affidavit, [5].
[7]First Hanna Affidavit, [5]. The affidavit in support of the Statutory Demand was sworn by Michelle Thompson, Credit Risk Manager for Ixom, on 24 May 2018: Exhibit ‘MH-1’ to the First Hanna Affidavit.
Mr Hanna says that in about March/April 2017, Natvia placed orders with Ixom for the supply of erythritol to be sourced by Ixom from BLB.[8] He says that in about March 2018, after the erythritol had been delivered by Ixom to Natvia and after it had been incorporated into product sold by Natvia, Nuttvia’s and Natvia’s staff started receiving complaints from Natvia’s distributors and customers who were complaining that the grain size of the Natvia product was much larger than usual and that the smell and taste of the product was different. Mr Hanna exhibits some emails from a customer making such complaints.[9] Mr Hanna says that Nuttvia’s and Natvia’s staff communicated with BLB by email on about 14 March 2018 about the complaints, during which BLB confirmed that the mesh size of the erythritol supplied by BLB was incorrect and different to the mesh size required by Natvia in its purchase orders.[10]
[8]First Hanna Affidavit, [6].
[9]First Hanna Affidavit, [7]; Exhibit MH-3 to the First Hanna Affidavit.
[10]First Hanna Affidavit, [8]. Mr Hanna exhibits a copy of these emails: Exhibit MH-4 to the First Hanna Affidavit.
Mr Hanna then gives evidence about a meeting he said he had with Mr Wilson and Mr Morris in or around April 2018 (‘Meeting’). As this meeting forms the crux of Nuttvia’s application to set aside the Statutory Demand, I will set out Mr Hanna’s evidence about this meeting in full:[11]
9.In or around April 2018, due to the technical nature of the issues pertaining to the mesh size and the quality of the erythritol ordered by Natvia and the admissions by BLB that the mesh size of the erythritol supplied was incorrect, I had a meeting with Toby Morris and Ray Wilson of the Plaintiff [sic] at Jerry’s Milkbar (a café) in Elwood, Victoria. I said to Toby and Ray, “We (Natvia and Nuttvia) are facing serious financial losses as a result of having to discount our products globally, for example, we’ve reduced monies owed to us by Tesco and Woolworths by at least 50%, due to those customer complaints about the faulty product supplied.” I said further, “We are facing losses that may very well exceed $1,000,000.00 and in view of those losses, it’s unconscionable for the Defendant to seek payment of its invoices from Natvia and Nuttvia right now and particularly until such time as our losses are quantified. Toby then asked me, “When do you think you’ll be able to put a dollar figure on your damage?” I said to Toby and Ray, “I’m having the chemical engineer prepare a report.” Toby then said, “Ok we want to help you with this, I’ll personally get on a plane and go to China with you to try and resolve the unmerchantable erythritol supplied and we’ll put payment of Natvia and Nuttvia’s accounts on hold until we come to an agreement about how much you are owed, how does that sound?” I said, “Yes ok that sounds reasonable.” Toby, Ray and I then shook hands and left the café shortly thereafter.
10.Based on the above conversation, I did not believe that Nuttvia had to pay the invoices because the time for payment of those invoices had not arrived, because the Plaintiff, Defendant and Natvia have not yet reached an agreement on the quantification of Natvia’s damages, as we are still waiting for the chemical engineers [sic] report.
[11]First Hanna Affidavit, [9]–[10].
Mr Tew deposes that he is also a director of Nuttvia. He exhibits a copy of the chemical engineer’s report regarding the quality of the erythritol ordered by Natvia, as referred to by Mr Hanna in paragraph 9 of his affidavit.[12] That report concluded that based on the testing of the retained samples for their particle size distribution and the visual inspection of the materials, the erythritol did not meet the specification of the purchase order or the product description.[13] He gives no evidence about the Nuttvia Debt or the Nuttvia Spread.
[12]Tew Affidavit, [3]-[4]; Exhibit SK-1 to the Tew Affidavit.
[13]Exhibit SK-1 to the Tew Affidavit, 7.
Ixom’s evidence in opposition to the application
Ixom’s dealings with Natvia and Nuttvia
Mr Wilson and Mr Morris give evidence about Ixom’s dealings with Natvia and Nuttvia. They explain that Ixom supplied Natvia with erythritol, sourced first from a Chinese company called Shandong Sanyuan Biotechnology Co. Ltd (‘Sanyuan’) and then from BLB.[14] Erythritol is an artificial sweetener which is incorporated into products that Natvia manufactures in Melbourne and sells.[15] Ixom supplied Nuttvia with the Nuttvia Spread, which is imported from a manufacturer in Germany that arrives in parcels of sealed jars.[16]
[14]Morris Affidavit, [7]-[8]; First Wilson Affidavit, [6], [12]-[13].
[15]Morris Affidavit, [6].
[16]Morris Affidavit, [13], [16]; First Wilson Affidavit, [21], [27].
The gist of their evidence in this respect is that Ixom’s dealings with each of Natvia and Nuttvia were separate. In summary:
(a) Natvia and Nuttvia each completed separate credit applications and submitted them to Ixom, at different times. Natvia’s completed credit application was submitted to Ixom on 6 April 2017;[17] and Nuttvia’s completed credit application was submitted on 12 April 2017;[18]
[17]First Wilson Affidavit, [8]; Morris Affidavit, [7(a)].
[18]First Wilson Affidavit, [22]; Morris Affidavit, [14].
(b) Natvia submitted purchase orders for the supply of erythritol, to be sourced from Sanyuan, between April and September 2017.[19] In September 2017, Natvia instructed Ixom to source erythritol from BLB, and submitted purchase orders between September and December 2017 in that respect;[20]
[19]First Wilson Affidavit, [11].
[20]First Wilson Affidavit, [12]-[14]; Morris Affidavit, [7(b)].
(c) Ixom sent invoices to Natvia for these purchases.[21] By 30 January 2018, Natvia had a debt for erythritol supplied to it by Ixom of US$284,600.[22] By the time Mr Morris made his affidavit, Natvia owed Ixom US$440,000 for the supply of erythritol, which has not been paid (‘Natvia Debt’).[23] Ixom has not issued a statutory demand to Natvia for the Natvia Debt;
[21]First Wilson Affidavit, [15].
[22]First Wilson Affidavit, [16].
[23]Morris Affidavit, [9].
(d) between 18 May 2017 and January 2018, Nuttvia submitted purchase orders to Ixom for the supply of Nuttvia Spread and Ixom supplied it to Nuttvia;[24]
(e) Ixom issued invoices to Nuttvia for the Nuttvia Spread it had supplied, which comprise the Nuttvia Debt;[25] and
(f) Nuttvia did not order erythritol from Ixom[26] and all Nuttvia Spread supplied by Ixom was ordered by and invoiced to Nuttvia.[27]
[24]First Wilson Affidavit, [27]; Morris Affidavit, [16].
[25]First Wilson Affidavit, [27]; Morris Affidavit, [16].
[26]Morris Affidavit, [7(b)].
[27]First Wilson Affidavit, [27]; Morris Affidavit, [16].
Natvia and the complaints about the erythritol supplied
Mr Morris says that he was copied into an email from Mr Hanna on 14 March 2018 reporting to Ixom that there were problems with the erythritol obtained from BLB. He replied to that email on 22 March 2018, stating that Ixom was investigating the issue with BLB, and sought further information about the nature and extent of the problem and said Ixom would respond further.[28]
[28]Morris Affidavit, [10]-[11].
Mr Wilson also gives evidence that during March 2018, Mr Hanna and Azrina Iqbal of Natvia told him there was a problem with the size of granules (also referred to as mesh size) of certain batches of erythritol supplied by BLB. He says he notified BLB of the allegation. He also says that Mr Hanna told him he had had an independent report done on the mesh size and that Natvia had suffered loss.[29]
[29]First Wilson Affidavit, [17]–[18].
Ixom’s evidence about the Meeting
I note that Mr Wilson and Mr Morris both say that the Meeting occurred on 3 May 2018, whereas Mr Hanna says it occurred ‘in or around April 2018’, however it appeared to be common ground that they were all referring to the same meeting. I have approached it on that basis.
Mr Wilson says that he has read paragraph 9 of the Hanna Affidavit and then he gives evidence about what he says occurred at the Meeting, which he said occurred on 3 May 2018 in Elwood between Mr Hanna, Mr Morris and himself, as follows:[30]
[30]First Wilson Affidavit, [35]–[42].
35.During the meeting Toby and I offered that if Nuttvia paid the outstanding amounts due to Ixom and Natvia paid the undisputed amounts due to Ixom for erythritol supplied by Sanyuan, Ixom would assist Natvia in resolving its claim against BLB. Specifically, Toby and I said that if the Nuttvia and Sanyuan amounts were paid, we would work with Mark Hanna on the claim with BLB and will not go after the money owed by Natvia to Ixom for the erythritol supplied from BLB for the moment.
36.Mark Hanna did refer repeatedly to his belief that Natvia had suffered a loss as a result of the erythritol supplied but did not provide any specific detail. He did not say that Nuttvia had suffered any loss or that there were problems with the Nuttvia product supplied by Ixom to Nuttvia. He also said that he was having a chemical engineer prepare a report in relation to Natvia and the erythritol.
37.We also asked for that report and the amount of the claim. [sic] which I have still not received to this date. In this discussion, Mark then said something like: “Ok, I will pay this amount only if you can get 90 days trading terms with (another firm) Nutkow out of the US for Ixom to purchase Nuttvia from them”. Toby and I responded that this condition was nothing to do with the issues we were discussing.
38.Toby Morris did not say: “Ok we want to help you with this, I’ll personally get on a plane and go to China with you to try and resolve the unmerchantable erythritol supplied and we’ll put payment of Natvia and Nuttvia’s accounts on hold until we come to an agreement about how much you are owed, how does that sound?” Although Toby Morris may have offered to fly to China, that offer was made on condition that the unpaid accounts – including those due to Ixom from Nuttvia – were paid. The offer was made in order for Ixom to understand and to assist in relation to the issues Mark Hanna had concerning the erythritol supplied by BLB and any damages he was able to show had been suffered by Natvia.
39.There was no offer to put all of Nuttvia and Natvia’s accounts on hold. In particular, here [sic] was no reason at all for Ixom to agree to not require payment from Nuttvia.
40.In that sense, the meeting ended in a stalemate because Mark insisted on additional conditions concerning future supplies of Nuttvia product which was a condition that was unacceptable to Ixom.
41.By the end of the meeting it was the position of Toby and I that if Mark Hanna did not cause Nuttvia (and Natvia) to pay their outstanding debts to Ixom, we would end up in Court. I recall Mark Hanna responding that he would see us in Court.
42.There was no agreement reached at the meeting at all. When the meeting was finished I recall that I said to Toby, words to the effect: “he is not going to pay us and has come up with another road block not to pay us.”
Mr Morris also says that he has read paragraph 9 of the Hanna Affidavit. His evidence in respect of the meeting is as follows:[31]
[31]Morris Affidavit, [20]–[31].
20.On 3 May 2018, Ray Wilson and myself met Mark Hanna at Jerry’s Milkbar. The meeting was expressed to be a without prejudice meeting. This was stated several times. I also explained at the beginning of the meeting that Ixom had no liability to any claim. That was Ixom’s position. Having established that, I explained that we wanted to discuss the overdue payment of the amounts due from each of Nuttvia and Natvia to Ixom. Ixom wanted to obtain payment of the undisputed debts for erythritol product supplied to Natvia from Sanyuan (which remains unpaid) and for the debt due from Nuttvia (which is the subject of the statutory demand). I explained that Ixom also wanted to discuss a way forward to resolving the matters complained of by Mark Hanna about the BLB product (including the debt due).
21.In the context of being pressed for payment of the outstanding amounts, Mark Hanna said something like “we are facing serious financial losses as a result of having to discount our products globally” but he made no specific reference to Nuttvia being in that position. I understood it to be a complaint about the financial position of Natvia as a result of the erythritol issue that he had raised.
22.In the same context, Mark Hanna also mentioned a figure of $1 million “potentially” although he provided no explanation of how the loss was being calculated. I recall a statement about “reducing monies owed to Natvia from Tesco and Woolworths”. I asked for details of the amounts he was referring to.
23.I did ask Mark Hanna when he thought he would be able to put a figure on the (alleged damage). I did so because I considered it necessary for Ixom to understand that in order to deal with the complaint.
24.Mark Hanna did say that he was having a chemical engineer prepare a report and said he was paying a significant amount for this report.
25.I did not say: “Ok we want to help you with this, I’ll personally get on a plane and go to China with you to try and resolve the unmerchantable erythritol supplied and we’ll put payment of Natvia and Nuttvia’s accounts on hold until we come to an agreement about how much you are owed, how does that sound?” Nor did Mark Hanna say to me in response “That sounds reasonable”. This sentence misrepresents what I said by taking parts of things that I did say in a conditional context and combining them in a misleading way.
26.I did not say anything about unmerchantable erythritol. I understood that Mark Hanna was only saying that the erythritol was not what he had ordered and this had caused problems.
27.I did not offer to put Nuttvia and Natvia’s accounts on hold. The only offer that I made was to put the payment of approximately USD$400,000 (the Natvia invoices for BLB) on hold pending the potential claim and details that had not yet been provided on condition that the amounts due to Ixom from Nuttvia and the invoice for Natvia in respect of Sanyuan erythritol were paid. There was no reason at all for Ixom to agree to not require payment from Nuttvia. It was a separate company and no erythritol had been supplied to it. I was concerned to get payment of the invoices due to Ixom from Nuttvia for the Nuttvia product.
28.There was also no reason in my view why Ixom should agree to put payment on hold for the erythritol product supplied from Sanyuan (which was not the subject of the complaint). I did not offer that.
29.I said to Mark Hanna, words to the effect: “If you pay the Nuttvia and the Sanyuan invoices then I will personally get on a plane and go to China with you to try to resolve the issues with BLB and we can sort out the remaining Natvia invoices when we know the result of that review.”
30.Mark Hanna did not agree to this. I recall that we finished breakfast, I paid and concluded with one more attempt to convince Mark Hanna to pay the Nuttvia invoices (the invoices in the statutory demand) and the undisputed Nattvia [sic] invoices. He refused.
31.There was no agreement about deferring any payment as a result of this meeting. There is no way that Mark Hanna can have left the meeting under any mistaken impression that an agreement to do that had been reached.
Ixom’s evidence regarding the period between the Meeting and the issuing of the Statutory Demand
Mr Wilson gives evidence as to communications and correspondence between Ixom and Nuttvia, Natvia and Mr Hanna after the meeting and before the Statutory Demand was issued. In summary, he says as follows:
(a) on 9 May 2018, Mr Morris sent an email to Mr Hanna setting out Ixom’s position.[32] That email communicated an offer that if Ixom received payment of the Nuttvia Debt and the Natvia debt for the erythritol supplied by Sanyuan by 14 May 2018, Ixom would not start any debt recovery procedure against Natvia for a further 30 days, and during that 30 day period Ixom would assist Natvia in discussions with BLB to try and resolve the erythritol issue.[33] Mr Wilson and Mr Morris discussed what would be said in the email before it was sent, and Mr Wilson says he agreed with what Mr Morris had written;[34]
[32]First Wilson Affidavit, [43].
[33]Exhibit RW-11 to the First Wilson Affidavit.
[34]First Wilson Affidavit, [43].
(b) on 15 May 2018, Ms Thompson sent a letter by email to Mr Hanna demanding full payment of the Nuttvia Debt by 22 May 2018;[35]
[35]First Wilson Affidavit, [44]; Exhibit RW-12.
(c) that same day, Mr Hanna sent an email to Ms Thompson, copied to Mr Wilson, Mr Morris and to Dion Morgan of Ixom in response. The content of that email is not particularly intelligible, but refers to having ‘over $!m [sic] damages caused by defective raw materials’ provided by Ixom and that ‘we are working with you to help Ixom get a outcome from these defective goods’. Mr Hanna goes on to make complaints about purchase orders which Ixom had not accepted as Mr Hanna’s ‘group’ was on hold. This is not explained in the email and nor was it explained in any affidavit. Mr Hanna concludes by suggesting that before he gets his lawyers involved, he and Ms Thompson have a chat;[36]
[36]Exhibit RW-12 to the First Wilson Affidavit.
(d) Ms Thompson then responded by email, stating that there was no quality issue related to the Nuttvia Spread and that Ixom’s position was as per the letter she had sent earlier that day. She also said ‘you had promised to pay the total amount by Monday 14th May 2018, but no payment has been received’.[37] In his affidavit, Mr Wilson says that the position taken by Ms Thompson, that the Nuttvia Debt remained due and payable, was correct.[38] He does not contradict her statement that Mr Hanna had promised to pay by 14 May 2018 but I have seen no evidence to suggest that he had so promised. Rather, the only evidence I have seen regarding payment by 14 May 2018 is that described in sub-paragraph (a) above;
[37]Exhibit RW-12 to the First Wilson Affidavit.
[38]First Wilson Affidavit, [44].
(e) on 17 May 2018, Mr Hanna replied to Mr Morris’ email of 9 May 2018. This was copied to Mr Wilson and to Kurt Friedel of Ixom. Again, there are aspects of this email which are either barely intelligible or which have not been explained. Without correcting any errors in the text, Mr Hanna’s email stated as follows:[39]
[39]Exhibit RW-13 to the First Wilson Affidavit.
So we are clear once and for all.
We don’t need to pay Nuttvia monies due for reason stated before.
We will pay it once the account is set-up with Nutkao and your able to trade on your credit insurance. We have a greed supply agreement signed of the back of this.
Also I have advised Nutkao you will supply them 2 ingredients that are requited [sic] to produce. Ray Kurt said that you can’t do this as your don’t trade with USA. Is this correct?
Out side of that I was the belief we had sorted this matter out.
With regards to Sanyuan again you may say we owe this but our lawyers say not as it part of the overall mess caused by Ixom and BLB but I said if you write of BLB monies with us then I would pay. This does not mean we will not support you to collect the damages from BLB with our forensic report or buying again from them if this is how the compensation finally works out.
I think we are demonstrating that we are trying to work with you and acting in good faith considering we are nearly at damages at over $1m from this mess size mess.
To be honest it would help me a lot if your had some good stevia sales as the market is now buying this product but where are he [sic] sales from your team.
Kurt I hope this is what you are looking for and see that I just need some boxes ticked from you as I am paying back what we consider never will have to be paid.
(f) of this email, Mr Wilson says that it was not clear to him what the ‘reason stated before’ was, as there were no reasons stated before regarding Nuttvia. Mr Wilson says that this was the first time he was aware that Mr Hanna denied the amounts due to Ixom from Nuttvia were due and payable. He says that at times during telephone conversations, Mr Hanna said he would not pay because Natvia’s losses were more than Natvia and Nuttvia owed to Ixom and, if he did pay then Ixom would not assist him with a claim against BLB. Mr Wilson says he told Mr Hanna that this was ridiculous;[40] and
(g) later on 17 May 2018, Mr Friedel sent an email to Mr Hanna in response, copied to Mr Wilson and Mr Morris. Mr Friedel stated that the position outlined in Mr Hanna’s email was not acceptable to Ixom and that Ixom’s position remained as set out in the letter from Ms Thompson sent on 15 May 2018, such that the Nuttvia Debt was to be paid by 22 May 2018.[41] Mr Wilson says in his affidavit that this email reflects the position of Ixom on the Nuttvia Debt.[42]
[40]First Wilson Affidavit, [45].
[41]Exhibit RW-14 to the First Wilson Affidavit.
[42]First Wilson Affidavit, [46].
Mr Morris states in his affidavit that he has read paragraphs 43 to 46 of the First Wilson Affidavit (which are the paragraphs summarised in paragraph 26 above) and the exhibits referred to in those paragraphs and that so far as those matters are within his knowledge or refer to him, he agrees with them.[43]
[43]Morris Affidavit, [32].
It is necessary at this point to refer to Ms Moseby’s evidence about Mr Morris’ affidavit. Ms Moseby deposes that she prepared the First Wilson Affidavit and the Morris Affidavit, with the intention that they would be sworn at the same time. As it turned out, Mr Morris attended her office on 8 August 2018 and she showed him paragraphs 22-28 and 43-46 of the First Wilson Affidavit. At that time, Mr Wilson had approved the content of his affidavit but had not yet sworn it. Mr Wilson swore his affidavit before Ms Moseby on 10 August, which she confirms was the same as the version seen by Mr Morris on 8 August and that the stated paragraphs were in exactly the same form.[44] Therefore, when Mr Morris states that he read paragraphs 22-28 and 43-46 of Mr Wilson’s affidavit, his reference is to an unsworn version of that affidavit which did not differ in relevant respects.
[44]Moseby Affidavit, [2]-[8].
Evidence regarding the First Wilson Affidavit
In the Second Hanna Affidavit, Mr Hanna deposes that on or about 13 August 2018, he sent text messages to Mr Wilson to discuss the First Wilson Affidavit. He states as follows:[45]
I said in my text messages of 13 August that I could not believe the contents of Mr Wilson’s affidavit and that neither he nor Mr Toby Morris (who also swore an affidavit in these proceedings) were truthful. Subsequent to sending the text messages and on that same day I telephoned Mr Wilson and said to him words to the effect of “what you have said in your Affidavit is incorrect”. Mr Wilson responded to me that he did not agree with what was contained in his affidavit. Subsequently Mr Wilson sent me a text message stating “Mark for the last time I have already given you my word I have read my affidavit and don’t agree with what it says”.
[45]Second Hanna Affidavit, [4].
Mr Hanna then exhibits a copy of the text messages, which are reproduced below (‘Text Messages’):[46]
[46]Exhibit MH-2 to the Second Hanna Affidavit.
[Mr Hanna]: I can’t believe your affidavit Ray
[Mr Wilson]: What are you talking about?
[Mr Hanna]: You and Toby aren’t speaking the full truth
[Mr Hanna]: Can I call you?
[Mr Wilson]: So you can abuse me like the other calls!!
[Mr Hanna]: Ok I will be calm and explain myself without screaming.
[Mr Wilson]: Happy to talk but stick to your promise.
[Mr Hanna]:Ray thanks for chat but some how I still can’t believe your word. I expected you to be more honorable.
[Mr Wilson]: Mark for the last time I have already given you my word I have read my affidavit and don’t agree what it says Ray
It is clear from the sequence of text messages that Mr Hanna’s description of what occurred is incomplete: he does not say that the text message that Mr Wilson sent after the telephone call was preceded by another text message from Mr Hanna.
The Second Wilson Affidavit addresses this material. Mr Wilson says that he has read the Second Hanna Affidavit. He says that the Text Messages relate only to a specific sentence of the First Wilson Affidavit, being a sentence in paragraph 17 where he said ‘I asked Mark to give me some idea of his losses’. He said that he had since conceded that he did not ask Mr Hanna that question at that time and that this is the only concession he makes regarding any inaccuracy in the First Wilson Affidavit, and he otherwise confirms the accuracy of it.[47]
[47]Second Wilson Affidavit, [3], [6].
Of the Text Messages and telephone calls on 13 August 2018, Mr Wilson states as follows:[48]
4. Mark Hanna and I had two telephone conversations on 13 August 2018. The first conversation occurred when Mark called me on a private number. When I found out it was him, I told him that I couldn’t speak to him. Mark replied that I was liar and I should do the right thing. I said “what are you talking about?” Mark replied that he could not trust me or my company anymore and that I was not trying to sort out the BLB problem (concerning Natvia and erythritol) just debt collecting. I replied to Mark that he needed to pay the debt owed by Nuttvia and the invoices (for erythritol) supplied by Sanyuan. Ixom will then look at the claim. Mark responded that I was an idiot, naïve and that my word was worthless in response to which I hung up the phone. Mark then sent me a text message saying he wanted to talk further and would be calm. Mark called me again and said that I didn’t ask him for his losses in March 2018 as stated in my Affidavit at paragraph 17. I thought about that and then I said he was correct.
5. I then received the second to last text message in the exhibit MH-2. I then sent the last text message in the exhibit MH-2 which, as I have stated above was a reference to the last sentence of paragraph 17 of my first affidavit only.
[48]Second Wilson Affidavit, [4]-[5].
Paragraph 17 of the First Wilson Affidavit states the following:
In March 2018, I was told by Mark Hanna and Azrina Iqbal that there was a problem with the mesh size (size of granules) of certain batches of erythritol supplied by BLB. I notified BLB of the allegation. Approximately one week later, during a telephone conversation, Mark Hanna told me that he was receiving more complaints about mesh size from his customers. Mark Hanna told me that he had decided to shut down production. I asked Mark to give me some idea of the size of his losses. He did not do so.
While Mr Wilson refers to the ‘final sentence of paragraph 17’ as the inaccurate portion, it is clear from the content of the Second Wilson Affidavit as extracted above that it is actually the second last sentence of that paragraph to which he refers. No party made submissions about the mis-description of the relevant sentence as the final sentence, and in my view nothing turns on it as it is clear which part he now concedes was incorrect.
Consideration
Is there a genuine dispute as to the existence or amount of the Nuttvia Debt?
By virtue of s 459E of the Act, a statutory demand must relate to a single debt, or two or more debts, that the company owes to the person serving the demand which is/are ‘due and payable’ and whose amount/s total at least the statutory minimum.[49]
[49]The ‘statutory minimum’ being $2,000 as per the definition of ‘statutory minimum’ in s 9 of the Act.
Nuttvia does not dispute the amount of the Nuttvia Debt or that it remains outstanding.[50] Rather, its application to set aside the Statutory Demand is based on the contention that at the time the Statutory Demand was served, the Nuttvia Debt was not then due and payable, as a result of what it contends was an agreement between Nuttvia and Ixom that the Nuttvia Debt would be ‘put on hold’ until an agreement had been reached on the quantification of Natvia’s damages (‘Alleged Agreement’), which had not occurred by the time the Statutory Demand was served. Ixom denies the Alleged Agreement.
[50]Transcript, 4.1-14.
It was therefore common ground between the parties that the issue for determination was whether the Alleged Agreement amounts to a genuine dispute within the meaning of s 459H of the Act.[51] In other words, the question is whether there is a genuine dispute as to whether the Nuttvia Debt was due and payable at the time the Statutory Demand was served, such that the Statutory Demand should be set aside.
[51]Transcript 37.16-20, 38.3-8.
Nuttvia’s submissions
Nuttvia submits that there is a serious question to be tried as to whether or not the Alleged Agreement was reached as to the timing of the payment of the Nuttvia Debt. It submits that the matters preceding the Alleged Agreement are supported by contemporaneous evidence supporting Nuttvia’s version of events, by reference to the customer complaints about the erythritol, the admissions from BLB that the mesh size did not meet the relevant specifications, and the procurement of the chemical engineers’ report. This is said to justify an inference that that Mr Hanna’s version of events at the Meeting are a bona fide account of the Alleged Agreement and that Nuttvia’s claim is not spurious or hypothetical.
Nuttvia further submits that Mr Morris’ evidence agrees with Mr Hanna’s evidence as to what was said at the Meeting, in all but Mr Morris’ agreement to put the ‘accounts on hold’ pending the determination of Natvia’s damages claim.
This is said to constitute a genuine dispute, as it cannot be determined without viva voce evidence and cross-examination of Mr Hanna, Mr Wilson and Mr Morris. Nuttvia submits that this is consistent with the Court’s view in Malec that the Court need not embark on an in-depth examination of the merits of the dispute to find that a genuine dispute exists.[52]
[52]Malec, [48].
Nuttvia submits that there is now a serious question as to whether Mr Wilson has given truthful sworn evidence, and that this supports its contention that the Alleged Agreement is plausible and requires further investigation. In her written outline of submissions (which were filed and served before receipt of the Second Wilson Affidavit), Nuttvia’s counsel submits that Mr Wilson[53] ‘has completely resiled from his sworn evidence’, including his version of the Meeting, as he subsequently informed Mr Hanna that he doesn’t agree with the First Wilson Affidavit.
[53]For completeness, I note that the written outline refers to Mr Morris rather than Mr Wilson in this regard, but it is clear that is an error and that the reference is meant to be to Mr Wilson.
In oral submissions, Nuttvia’s counsel addressed the Second Wilson Affidavit and submitted that the only point of difference about the Meeting was whether there was an agreement to put the accounts on hold and that this gives rise to a reasonable inference that when Mr Wilson said ‘I’ve read my affidavit and don’t agree with it’ then he can only be referring to the very issue in dispute. Mr Wilson’s explanation of the Text Messages and his telephone call with Mr Hanna on 13 August 2018 is said to create a serious question mark over the reliability of his evidence. This is said to be critically important, as Ixom is inviting the Court to say that there is no genuine dispute about the timing of the payment of the Nuttvia Debt because Mr Wilson and Mr Morris ought be believed over Mr Hanna.
Ixom’s submissions
Ixom submits that there is no dispute about the existence or amount of the Nuttvia Debt, and notes that Mr Hanna confirms that the debt arises from the invoices attached to the Statutory Demand. The credit agreement entered into between Ixom and Nuttvia provided that unless otherwise agreed in writing, all accounts were payable within 30 days of delivery or as otherwise identified on any statement of account issued by the seller.[54] The offer to supply Nuttvia Spread was made on 18 May 2017 on terms that payment was to be made as to 30% of the total order value up front and the balance to be invoiced on terms of credit of 90 days from the date of the bill of lading in Germany.[55] There are three invoices attached to the Statutory Demand: the first required payment by 31 December 2017; the second required payment by 31 January 2018; and the third required payment by 31 March 2018.
[54]First Wilson Affidavit, [23]; Exhibit RW-7.
[55]First Wilson Affidavit, [24]-[25]; Exhibit RW-8.
Ixom says that the components of the Nuttvia Debt were payable on the dates outlined above, and it is common ground that they have not been. Ixom also denies the Alleged Agreement, such that it says the Nuttvia Debt was due and payable at the time the Statutory Demand was issued.
Ixom submits that Mr Hanna conflates separate transactions between Ixom and Natvia, and Ixom and Nuttvia, whereas the relationships between Ixom and each of Natvia and Nuttvia are totally distinct. They involve separate entities and separate lines of credit, and involve different products. Ixom also submits that this conflation extended to the submissions made on Nuttvia’s behalf: I agree with this submission, as both the written outline and aspects of the oral submissions did not accurately distinguish between which product was supplied to which entity, including at one point a submission that some of the erythritol which was the subject of complaint was used in the Nuttvia Spread. The evidence does not support this.
Ixom submits that Mr Wilson and Mr Morris give consistent, but not identical, accounts of what happened at the Meeting. While Mr Morris states that he has read certain paragraphs of the First Wilson Affidavit, these are not the paragraphs which relate to the Meeting. They both set out, in more detail, the range of matters they said were discussed, including matters which Mr Hanna does not mention. Mr Wilson and Mr Morris both say that no agreement was reached and that the offer made was conditional upon the Nuttvia Debt and the debt for the erythritol supplied by Sanyuan being paid.
Further, Ixom submits that the subsequent correspondence between the parties (as summarised in paragraph 26 above) is not consistent with the Alleged Agreement. It is said that at no time when responding to demands for payment after the Meeting and before the Statutory Demand was issued did Mr Hanna refer to the Alleged Agreement or state that Nuttvia was not required to pay the Nuttvia Debt by reason of the Alleged Agreement. It is said that the first time the Alleged Agreement was referred to was in the First Hanna Affidavit, such that the allegations about this agreement were not made contemporaneously with the actual events. Rather, Ixom says that it has no objective existence in fact and arises at a time of convenience, in response to the Statutory Demand.[56]
[56]In this regard, Ixom relied on Malec at [49].
Referring to paragraph 50 of Malec, Ixom submits that the Alleged Agreement is a most cursory allegation, where Mr Hanna conflates Natvia and Nuttvia, makes a broad-sweeping claim which lacks particularity, and which is contradicted by other evidence. Ixom says that it is implausible that it would have agreed to the matters alleged by Mr Hanna, and that other than Mr Hanna’s assertion, there are no factors pointing to the existence of the Alleged Agreement.
Ixom rejects the submission that Mr Wilson’s evidence has become entirely unreliable by virtue of the Second Hanna Affidavit and the Second Wilson Affidavit. Ixom says that if Mr Hanna was confining the discussion with Mr Wilson to the Meeting and the Alleged Agreement, then one would have expected him to say so in the Second Hanna Affidavit. Ixom’s counsel submitted that the way in which Mr Hanna described the conversation on 13 August 2018 and the Text Messages is a ‘remarkable sleight of hand’ and that the conversation he has deposed to is implausible.[57]
[57]Transcript, 34.16 – 35.2.
Analysis
I do not consider that the Alleged Agreement amounts to a genuine dispute within the meaning of s 459H of the Act. In my view, there is no genuine dispute as to whether the Nuttvia Debt was due and payable at the time the Statutory Demand was served. It follows that Statutory Demand should not be set aside on this basis.
Mr Hanna has conflated, possibly deliberately, his evidence as to the supply of erythritol and the complaints as to the quality of some of the erythritol supplied so as to make it appear that erythritol was supplied to both Natvia and Nuttvia and that the complaints concerned both companies. The evidence does not support this: it is clear that erythritol was supplied only to Natvia and Nuttvia Spread was supplied only to Nuttvia, and that the ordering and invoicing for each was done separately. In my view, Nuttvia’s evidence in this regard was an attempt to lend legitimacy to the alleged dispute over the Nuttvia Debt.
I accept that there were complaints about some of the erythritol supplied by Ixom, sourced from BLB, to Natvia and that these complaints were raised with Ixom. This is uncontroversial.
In my view, the Alleged Agreement is ‘inconsistent with undisputed contemporary documents’ and is ‘inherently improbable’, such that it does ‘not have sufficient prima facie plausibility to merit further investigation as to its truth.’[58]
[58]Malec, [50].
While it is uncontroversial that the matters preceding the Alleged Agreement are supported by contemporaneous evidence, being the correspondence about the erythritol complaints and the investigations into that, I do not accept Nuttvia’s submission that this justifies an inference that Mr Hanna’s version of events at the Meeting are a bona fide account of the Alleged Agreement or that Nuttvia’s claim is not spurious or hypothetical. This contemporaneous evidence is consistent with the erythritol complaints and what could be done about it forming part of the discussion at the Meeting, but it goes no further than that.
I also do not accept Nuttvia’s submission that Mr Morris’ evidence about the Meeting concurs with Mr Hanna’s evidence, save for whether Mr Morris said he would put the accounts on hold. Mr Morris set out, in far more detail, what he says occurred at the Meeting and there are a number of differences between his account and that of Mr Hanna. Nuttvia’s submission that Mr Wilson’s evidence is inconsistent with Mr Morris’ evidence, because Mr Wilson frequently says ‘Toby and I said …’ when referring to events at the Meeting, whereas Mr Morris says ‘I said …’ is also rejected. Such differences are not material. In my view, Mr Wilson’s evidence about the Meeting is consistent with Mr Morris’ evidence, but is not identical. The evidence is that they did not review each other’s evidence in this regard before giving it: Mr Wilson does not say that he read Mr Morris’ affidavit, and Mr Morris says that he read certain paragraphs of Mr Wilson’s affidavit (which paragraphs do not concern the Meeting). Ms Moseby confirms this.
Nuttvia submits that because there is this difference in the evidence as to whether the Alleged Agreement was reached at the Meeting, which it says can only be resolved by vive voce evidence and cross-examination of the three people involved, this is a genuine dispute which justifies setting aside the Statutory Demand, including because the Court is not required at this stage to embark on an in-depth examination of the merits of the dispute. I accept that this is an accurate statement of the law, but I do not accept the submission made by Nuttvia in this instance.
I do not have to decide whether the evidence of Mr Wilson and Mr Morris is more credible or believable than Mr Hanna’s, or whether one should be believed over the other in order to reach my conclusion. There is no support for the Alleged Agreement in the contemporaneous documents, being those documents which followed soon after the Meeting. Mr Hanna sent a number of emails to Ixom in that period as to why he said he wouldn’t, or didn’t have to, pay the Nuttvia Debt and he also had conversations with Mr Wilson about it (which have not been contradicted). None of the reasons or positions articulated by Mr Hanna referred to the Alleged Agreement or anything like it: rather, he was either refusing to pay while he said the losses from the erythritol outweighed what Natvia and Nuttvia owed to Ixom; or, in his email on 17 May 2018, he appears to have been attempting to extract revised trading terms for the supply of Nuttvia Spread from a different supplier. I accept Ixom’s submission that if Mr Hanna believed the Nuttvia Debt did not have to be paid at that time because he had an agreement with Ixom that the account was on hold until the Natvia damages claim had been resolved, then he would have said so. It is implausible that he would not have done so.
Nuttvia gives no evidence at all about the correspondence shortly after the Meeting, and it did not respond to Ixom’s evidence in this regard. Nor were any submissions made by Nuttvia about it. One would expect that if Mr Hanna had some explanation for it or wished to contradict Mr Wilson’s or Mr Morris’ evidence in that regard, that he would have done so.
I also accept Ixom’s submission that it is implausible that it would have agreed to put all accounts on hold, where two of them (including for the Nuttvia Debt) were not disputed.
In my view, the lack of support for the Alleged Agreement in the contemporaneous documents sent soon after the Meeting, the implausibility of the agreement itself, and the fact that the Alleged Agreement was first mentioned by Mr Hanna in the First Hanna Affidavit and not before lead to a conclusion that the Alleged Agreement does not exist and is a recent invention by Nuttvia in an attempt to resist the Statutory Demand.
I do not accept Nuttvia’s submission that Mr Wilson’s evidence is ‘wholly unreliable’ by virtue of the material set out in the Second Hanna Affidavit. Mr Wilson has explained what he says occurred in the telephone calls on 13 August 2018 and the Text Messages. In my view, Mr Wilson has sufficiently explained what he meant by his text message, and Mr Hanna has not contradicted his account. I do not accept the submission that Mr Wilson must have been saying that he didn’t agree with all of his own affidavit, or the submission that he didn’t agree with his own account of the Meeting.
Should the Statutory Demand be set aside for ‘some other reason’?
Nuttvia submits that the Court should set aside the Statutory Demand for ‘some other reason’ pursuant to s 459J(1)(b) where the conduct ‘may be described as unconscionable, an abuse of process, or which gives rise to a substantial injustice’.[59] Nuttvia submits that Mr Wilson’s evidence is ‘wholly unreliable’ and that maintaining the Statutory Demand in these circumstances would cause a substantial injustice to Nuttvia.[60]
[59]Relying on Arcade Badge Embroidery Co Pty Ltd v DCT [2005] ACTA 3, [27].
[60]Transcript, 20.15-21.
I do not accept Nuttvia’s submissions in this regard. Given the explanation provided in the Second Wilson Affidavit of what he meant by the Text Messages and what he said in the telephone call on 13 August 2018, which has not been challenged or contradicted by any evidence led by Nuttvia, it is over-reaching to say that Mr Wilson’s evidence is ‘wholly unreliable’ and I do not accept that submission. I do not consider that Mr Wilson correcting a specific statement in the First Affidavit amounts to a basis for characterising his evidence as wholly unreliable. Nor do I consider that it constitutes ‘some other reason’ to set aside the Statutory Demand.
Conclusion
For the above reasons, I do not consider that there is a genuine dispute in respect of the Nuttvia Debt or that there is some other reason for setting aside the Statutory Demand. Accordingly, Nuttvia’s application will be dismissed.
I will hear the parties as to the form of orders and as to costs.
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