RadioMio Pty Ltd v Kendell
[2011] VSC 511
•12 October 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2011 182
| RADIOMIO PTY LTD | Plaintiff |
| v | |
| DAVID WARD KENDELL | Defendant |
| - and – | |
| S CI 2011 184 | |
| SISS BUSINESS SYSTEMS LIMITED | Plaintiff |
| v | |
| DAVID WARD KENDELL | Defendant |
| - and - | |
| S CI 2011 00953 | |
| SISS BUSINESS SYSTEMS LIMITED | Plaintiff |
| v | |
| DAVID WARD KENDELL | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 29 April, 16 May and 3 June 2011 | |
DATE OF JUDGMENT: | 12 October 2011 | |
CASE MAY BE CITED AS: | RadioMio v Kendell | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 511 | |
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CORPORATIONS – Applications to set aside statutory demands under s 459G of the Corporations Act 2001 (the Act) on bases of genuine disputes and offsetting claims - whether statutory demands should be set aside “for some other reason” pursuant to s 459J of the Act because of (1) unsatisfactorily explained variation in the amounts claimed in the series of demands served on the plaintiffs immediately prior to service of the subject demands (2) abuse of process of the statutory demand regime (3) lack of particularisation of the debts. Whether demand was in respect of “debt” properly so called – plaintiffs’ evidence established to relevant degree existence of genuine disputes and offsetting claims which evidence was not overtaken by defendant’s material – demands set aside “for some other reason” and by reason of genuine disputes.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J. Evans of Counsel | John R. Morrow |
| For the Defendant | Mr D W Kendell |
HIS HONOUR:
These are three related proceedings by which the plaintiffs seek to set aside statutory demands served by the defendant, Mr David Kendell. During the course of the oral and written submissions, the three proceedings came to be identified by the last three digits of their respective proceeding numbers, 182, 184 and 953, and for convenience, I will adopt the same designation in these reasons.
In the course of the hearing, I heard argument as to whether the applications in 182 and 184 were made in time so as to comply with the provisions of s 459G. I determined that they were filed and served within 21 days of service of the demand. I also allowed amendments to be made to the originating processes in the 182 and 184 proceedings to the effect that the plaintiffs also relied upon s 459J of the Act, that is, that there was “some other reason” why the demands should be set aside. My basis for that ruling was that the factual matters which were the bases of such grounds were “raised” in the affidavit material filed and served with the originating processes.[1] For the same reason, I allowed amendments to the originating processes in the three proceedings to the effect that the plaintiffs sought to set aside the demands on the basis that they had offsetting claims against the defendant.
[1]See generally Hansmar Investments Pty Ltd v Perpetual Trustee Co Limited (2007) 61 ACSR 321 at [26]-[33] and Tuta Health Care Pty Ltd v Nipro Asia Pty Ltd [2005] NSWSC 664 at [13].
The hearing of these matters took place over three days, during which I also ruled on numerous objections which had been taken by Mr Kendell to passages of the plaintiffs’ affidavits.[2] The Court has been provided with copies of the affidavits relied upon by the plaintiffs with the objectionable passages redacted.
[2]Those rulings appear in the transcript of the second day of the hearing on 16 May 2011 at pp 18-78.
When one has regard to the nature of these applications and the relevant tests involved, the amount of affidavit material and the time occupied by argument by way of oral and written submissions was prodigious. The quantity of evidence and written submissions filed in this proceeding by the time of its conclusion was of the order that one would expect to see if these proceedings were trials in conventional inter partes proceedings conducted by affidavit.
Although separate proceedings have been issued in respect of each demand, because evidence has been incorporated by reference to one or another of the proceedings where there are common issues, I shall, where appropriate, deal collectively with the applications in these reasons.
The demand in the 182 proceeding claims that the plaintiff, (“RadioMio”) owes Mr Kendell the amount of $28,477.04. The affidavit accompanying the demand states that such sum was owing in respect of “fees and salary due and owing pursuant to accounts rendered to it”. Mr Kendell deposes, as he is required to do by the form of affidavit accompanying the statutory demand, that he believes there is no genuine dispute about the existence or the amount of the debt. The demand and accompanying affidavit were respectively signed and sworn on Christmas Day 2010, (as was the demand in the 184 proceeding, in which SISS Business Systems Limited (“SISS”) is plaintiff).
In the 184 proceeding, the demand claims the sum of $18,694.97. The affidavit accompanying the demand of Mr Kendell sworn 25 December 2010 stated that the debt was in respect of “fees due and owing pursuant to accounts rendered” to SISS.
In the 953 proceeding, in which SISS is also plaintiff, Mr Kendell claims that the sum of $93,349 is owing by SISS to him “in respect of an agreed incentive plan of $40 per hour worked by me during the term of my engagement in accordance with the reconciliation spreadsheet attached marked ‘A’.” That spreadsheet, which is attached to the affidavit accompanying the demand of Mr Kendell sworn 16 February 2011, is headed “David Kendell Invoice Summary (Fees and Incentive Bonus excluding RadioMio salary).” It details various invoices and, adjacent to the narrative “total RadioMio” under the column “incentive bonus”, the sum of $82,943 appears. Adjacent to the descriptor “total SISS”, what is described as an incentive bonus of $10,406 appears. At the foot of the spreadsheet, adjacent to the descriptor “total SISS and RadioMio” the amount $93,349 appears, i.e., the total claimed for RadioMio and SISS. I note at this juncture that the total claimed on the demand appears to consist of amounts said to be owing in the spreadsheet by RadioMio and SISS.
The evidence
In the 182 proceeding, the plaintiff relies on affidavits of John Knorr sworn 19 January 2011 and 21 February 2011. In addition, RadioMio relies, by way of reference, on Mr Knorr’s affidavit of 19 January which has been filed in the 184 proceeding.
In the 184 proceeding, the plaintiff, SISS, relies on an affidavit of Mr Knorr sworn 19 January 2011 and 21 February 2011.
In the 953 proceeding the plaintiff, SISS, relies on the affidavit of Mr Knorr sworn 3 March 2011. That affidavit relies by reference on the affidavits which have been filed in the 182 and 184 proceedings.
In the 182 proceeding, Mr Kendell relies on the affidavit which accompanied his demand sworn on 25 December 2010 and his affidavits sworn on 7 February 2011, 3 March 2011 and 19 March 2011. In the latter affidavit, Mr Kendell seeks to rely on the numerous affidavits filed by the parties in the other proceedings.
In the 184 proceeding, Mr Kendell relies on the affidavit which accompanied the demand sworn on 25 December 2010 and his affidavit of 7 February 2011. There is no affidavit akin to the 3 March affidavit filed in the 182 proceeding.
In the 953 proceeding, Mr Kendell relies on his affidavit of 19 March and an affidavit of Stephen Dart sworn 7 February 2011.[3]
[3]In addition to the above evidence, Mr Kendell tendered an email of 10 July 2010 (Exhibit A), together with a list of certain expenses (Exhibit B). Certain documents were produced to the Court as a result of a notice to produce served by Mr Kendell which included a trust deed dated 18 September 2009 by which SISS Incentives Pty Ltd is appointed as trustee as a fund described as the SISS Incentives Fund together with a spreadsheet setting out entitlements under a share incentive scheme. These documents were conceded to be relevant and were produced by SISS in the 953 proceeding and were marked Exhibit C. A document described as “Aged Payable Summary and Payment Plan” was marked Exhibit D.
The 182 and 184 proceedings – whether they should be set aside “for some other reason”
In the 182 and 184 proceedings, RadioMio and SISS sought to set aside the demands the subject of those applications on the basis that there was “some other reason” that they be set aside, that there were genuine disputes in respect of the debts the subject of the demands and that the plaintiffs had offsetting claims.
It is convenient to deal first with the applications made under s 459J in the 182 and 184 proceedings. In the 182 and 184 proceedings, Mr Evans sought to impeach the demands by reason of there being “some other reason” to do so within the meaning of that expression in s 459J of the Corporations Act 2001. The evidentiary basis for the submission is contained in Mr Knorr’s affidavit of 19 January 2011 in the 184 proceeding (which is also incorporated as evidence by reference in the 182 proceeding). It details the service by Mr Kendell of a series of statutory demands served within a short period of time before the demands the subject of these applications.
On 8 December 2010, Mr Kendell wrote to Mr Knorr as chairman of SISS. In that letter, Mr Kendell asserts, among other things that SISS owed him back salary from 5 October 2010 to 5 December 2010 of $26,666 together with $72,067 in outstanding fees, a total of $98,733. He states that if that sum was not paid by 5.00pm on 13 December 2010, he would serve a statutory demand in the form of the draft demand and supporting affidavit accompanying that letter.
On 9 December 2010, Mr Kendell emailed SISS an unsigned statutory demand (dated 13 December 2010) and an unsigned draft affidavit claiming a debt owing by SISS for $54,868.94. At the same time, Mr Kendell delivered an unsigned statutory demand and an unsigned draft affidavit (also dated 13 December 2010) claiming that RadioMio was indebted to him for $46,741.10, (while asserting in the draft affidavit which accompanied that demand that the sum was owed to Mr Kendell by SISS). The two demands totalled $101,610.40.
On 14 December 2010, Mr Kendell delivered by email a copy of a signed statutory demand claiming $54,868.94 from SISS together with a supporting affidavit which was sworn on 13 or 14 December 2010. At the same time, Mr Kendell emailed a copy of a signed statutory demand to RadioMio claiming a debt of $46,741.10, and deposing in the affidavit accompanying the demand that the debt claimed against RadioMio Pty Ltd was owed to Mr Kendell by SISS (rather than Radiomio). Several days later, SISS and RadioMio received the originals of the signed statutory demands and accompanying affidavits by Express Post.
On 18 December 2010, following a reconciliation of the accounts and adjustments in claims, RadioMio paid Mr Kendell $30,000 on account of the amounts claimed.
On 29 December, SISS received a statutory demand from Mr Kendell claiming a debt of $20,350.52 together with an accompanying affidavit which appeared to have been sworn on 23 December 2010. At the same time, a statutory demand was served on RadioMio claiming a debt of $46,259.52 together with an affidavit accompanying it which also appeared to have been sworn on 23 December 2010. In the affidavit accompanying that demand, Mr Kendell again deposed that the sum of $46,259.52 was owed to him by SISS, ie not Radiomio. The total of the claims was now $66,610.04.
On 30 December 2010, SISS received a statutory demand dated 25 December 2010 from Mr Kendell claiming $18,694.97 was owed together with an accompanying affidavit sworn on 25 December 2010. At the same time, RadioMio Pty Ltd received a statutory demand bearing the same date claiming a debt of $28,477.04 was owing to Mr Kendell together with an affidavit deposing that that debt was owed by RadioMio to Mr Kendell. The total of those demands was $47,172.01. Those demands are the subject of the present application.
In an email from Mr Kendell of 25 December 2010 to the plaintiffs’ solicitor, Mr Kendell confirmed that he had withdrawn all the previous demands. Mr Kendell stated that he had “now taken the time to independently review my invoices and attach a reconciliation which agrees with that of your clients. This spreadsheet also sets out my claims for my shares.” This appears to be the only explanation for the variation in the amounts claimed in the demands. He concludes “As far as my claim for wages and unfair dismissal is concerned I will commence proceedings on the 7th January 2011 unless both claims are resolved by that date.”
Mr Evans submitted that it is not safe for the Court to rely on Mr Kendell’s affidavits in support of the demands of 25 December 2010 in circumstances where he had previously served a series of demands for significantly different amounts shortly prior to service of the demand which were accompanied by affidavits averring that the amounts mentioned in those demands were payable and that there was no genuine dispute in respect of the debts claimed. Mr Evans says Mr Kendell has not, other than say that he had now the opportunity to review his accounts, explained why those demands, accompanied by such affidavits, varied so much as to the amount demanded.
Mr Evans submitted that having regard to the fact that Mr Kendell was prepared to swear affidavits on 14 December 2010 and 23 December 2010 stating that there was no genuine dispute about the debts the subjects of the demands and yet within days serve demands for significantly different sums accompanied by affidavits which deposed that there was no genuine dispute, was a strong basis for contending that no reliance could be placed upon the affidavits accompanying the demands which are the subject of the present applications in 182 and 184.
In B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd,[4] McLelland CJ in equity made the following observations in regard to affidavits which accompanied demands:
It is important in this regard to bear in mind that the relevant matters include not only a belief as to the existence and amount of the debt, but also a belief as to the absence of any genuine dispute about the existence or amount of a debt. The express requirement in the rule that the person making the affidavit deposed to his or her belief that there is no genuine dispute is a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent such cases from reaching the court on such an application as the present, with a consequent waste of time and resources. This mechanism would be substantially weakened unless a person likely to have personal knowledge of the existence of a dispute, if there is one, makes the affidavit. A statement of a belief that there is no genuine dispute based solely on hearsay is unlikely to have anything like the same degree of reliability. I, therefore, do not regard what has occurred in the present case as a merely technical breach of the rules.
[4](1994) 15 ACSR 433 at 435-6.
Because of the serious consequences service of a demand has, affidavits accompanying demands have a real purpose in that they provide some safeguard against a party serving statutory demands which are potentially controversial. Where a creditor has obtained a judgment, the legislature has considered that such an affidavit is not required, for the obvious reason that the existence of a judgment provides a stronger foundation for contending a debt is owing. In Anderson Formright Pty Ltdv CASC Hire Pty Ltd[5] Siopsis J stated:[6]
The rationale for exempting a statutory demand for the very sum of a judgment, from the need for verification by an accompanying affidavit is apparent. The judgment speaks for itself as to the amount which is due and payable and, prima facie, also in relation to the absence of a genuine dispute.
[5](2006) 24 ACLC 154.
[6]At 164.
In Four Seasons Construction v Eastern Metropolitan Council[7], Master Sanderson observed:
The purpose of the accompanying affidavit and the statutory demand procedure is twofold. First, the corporation is advised that the debt is outstanding and is assured that the party serving the demand has no doubts that the debt is owed. Secondly, and perhaps more importantly, when the matter comes before the Court, either on an application to set aside a statutory demand or on a winding up application, the Court, by reference to the accompanying affidavit can be sure the party issuing the demand has taken steps to satisfy themselves that the debt is outstanding. This may have particular importance on an uncontested winding up. But even on a contested application to set aside a statutory demand, if there is compliance with the rules in relation to the accompanying affidavit, the Court can be satisfied that there is a sound basis on which to begin.
[7](2001) 19 ACLC 419 at p 426.
As described above, over a relatively short period of time (some 11 days) Mr Kendell swore on several occasions in affidavits accompanying statutory demands that there was no genuine dispute in respect of the amounts demanded and that the sums owing were due and payable by the party identified. Mr Kendell, a solicitor, could not contend, as some lay people may try to do, that he was not aware of the seriousness of averring to matters on oath. Prior to service of those demands, in correspondence and in an unsigned demand which was accompanied by an unsworn affidavit, different amounts had been claimed as owing.
Adopting the observation of Master Sanderson in Four Seasons Construction, how can the Court considering these demands “be satisfied that there is a sound basis on which to begin”. I do not consider that I can and in my view, the demands should be set aside.
Mr Evans also contends that the service and withdrawal of the series of demands amounts to an abuse of process of the statutory demand regime. He submits that for Mr Kendell to serve a series of demands, each of which asserted that the sum claimed was due and payable, accompanied by affidavits on each such occasion averring that there was no genuine dispute in respect of those debts, provides a basis for the Court to find that such conduct amounts to an abuse of process such that there is “some other reason” why the demands ought be set aside pursuant to s 459J.
I have not been able, in the researches that I have conducted, to identify a case which is directly akin to the present circumstances but I consider that what has occurred falls within the type of vice which s 459J is designed to redress. In Equus Corp Pty Ltd v Perpetual Trustees WA Limited, the Full Federal Court observed:[8]
If a notice of demand has been drawn with a view to damaging the alleged debtor by wilfully claiming an amount substantially higher than that known to be due or recklessly demanding such a sum, then that would be tantamount to a fraudulent or abusive use of the process and would ordinarily require the notice to be set aside in the public interest to maintain confidence in the law and the administration of justice. There may be other cases in which a demand is made in excess of any admitted sum and for such collateral purposes or with such carelessness as to be frivolous or vexatious or an abuse of process. These could all constitute “some other reason” for setting aside the notice under s 459J(1)(b).
[8](1997) 25 ACSR 675 at 700.
I do not consider that Mr Kendell’s conduct in serving a series of demands amounts to a fraudulent use of the process but it does constitute in my view reckless, careless and vexatious use of the demand regime. The evidence is abundantly clear that Mr Kendell harbours considerable animosity to RadioMio, SISS and more particularly the personalities and directing minds associated with those companies of such a degree that his frustration has caused him to issue the series of demands in the way that he has. I agree with Mr Evans’ submission that one effect of such conduct is that the Court should be slow to accept Mr Kendell’s evidence, even in regard to undisputed assertions, when he has been prepared to swear affidavits accompanying the demands and, when withdrawn, seek to explain it away by the statement that he had now taken the opportunity to review his invoices and then proceed to serve the final in the series of demands which are the subject of these applications.
One always has to bear in mind the rationale for the statutory demand regime in the Act. In particular, one has to remind oneself of what the Court’s function is in determining applications to set aside statutory demands.
As Barrett J observed in Yoogalu Pty Ltd v Intentia Australia Pty Ltd[9]:
The [court’s] sole function is to determine whether or not the state of account between the parties is (as to the particular matters referred to in s 459H(1)) so clear cut and uncontroversial that non‑payment of the sum demanded by the defendant should, entirely of itself and without further enquiry, mean that the plaintiff must, in a subsequent winding up proceeding, be regarded as insolvent unless it can itself affirmatively prove its solvency.
[9]Butterworths Cases 2006 05795.
In my view, the service of the several demands, in both signed and unsigned form prior to service of the demands the subject of this application, which were explained away in the way they were by Mr Kendell, contains the features of an abuse by Mr Kendell of the statutory demand regime and in the 182 and 184 proceeding I would also set them aside on that basis.
The alleged genuine disputes and offsetting claims in the 182 and 184 proceedings
Because I consider that the demands the subject of the applications in 182 and 184 should be set aside, I do not intend to descend to a close analysis of the material giving rise to genuine disputes and offsetting claims in the 182 and 184 proceedings but rather shall attempt to succinctly summarise the evidence put forward by the parties on those issues. Mr Evans submits that the evidence supporting those grounds falls into several categories. I shall briefly survey the relevant legal principles before moving on to a consideration of the evidence filed by the parties.
The principles to be applied when considering applications to set aside statutory demands under Section 459G of the Act by reason of the existence of genuine disputes and offsetting claims have been the subject of numerous authorities. In the decision of TR Administration Pty Ltd v Frank Marchetti & Sons,1 the Court of Appeal of the Supreme Court of Victoria collected and considered the cases dealing with those principles.
At paragraph [56] and following of the judgment, Dodds-Streeton AJ stated:
[56] The Court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
[57]No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the ‘ultimate question’ of the existence of the debt should not be compromised.
…
[60]In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (‘Spencer’), the Full Federal Court cited a variety of different formulations of the principles applicable to determining the existence of a genuine dispute or off-setting claim. Their Honours considered the different articulations helpful, but warned that they should not become a substitute for the words of the statute.
[61]As recognised by Heerey J in Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd, any tendency to ‘trawl through a myriad of judgments’ and plethora of formulations is equally to be avoided.
[62]The Full Federal Court in Spencer concluded that:
In our view a genuine dispute required that the dispute be bona fide and truly exist in fact.
The grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.”
At paragraph [64], Dodds-Streeton AJ quoted from the decision of McClelland CJ in Equity in Eyota Pty Ltd v Hanave Pty Ltd2 where his Honour stated:
It is, however, necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 45OH [sic]. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sorts of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for an extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a general dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth… or “a patently feeble legal argument or assertion of facts unsupported by evidence…
But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute.
...
These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.
Dodds-Streeton AJ also quoted from the decision of Thomas J in Re Morris Catering (Aust) Pty Ltd3 where his Honour stated:
There is little doubt that Div 3 ... prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court's examination are the ascertainment of whether there is a ``genuine dispute'’ and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).
Dodds-Streeton AJ went on to state:
[66]In the present case, the appellant stressed the formulation of ‘a patently feeble legal argument or an assertion of facts unsupported by evidence’ set out in[the decision of the Full Court of the Supreme Court of South Australia] South Australia v Wall.
…
[69]Cox J stated that, bearing in mind the policy, there was good reason for giving the words ‘genuine dispute’ a plain and uncomplicated meaning as a safeguard against allowing a colourable and insincere denial of liability to frustrate the goal of the provisions.
[70][Cox J rejected the view that any objective appraisal of the dispute was appropriate. His Honour stated that while ‘a patently feeble legal argument or an assertion of facts unsupported by evidence would more readily disincline the Court to consider the dispute to be a genuine one, so far as the employer is concerned’, the merits were otherwise not relevant. Only a dispute which was frivolous or ‘one made without adequate inquiry and consideration’ would run the risk of not being considered genuine.”
[71]As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.
Barrett J of the Supreme Court of New South Wales, in Solarite Airconditioning Pty Ltd v York International (Aust) Pty Ltd[10] observed:
…[t]he task faced by a company challenging a statutory demand on the “genuine dispute” ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company 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 a company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seem stronger [Emphasis added].
[10][2002] NSWSC 411.
In John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd Young J, in the context of an application to set aside a statutory demand claiming moneys due under a construction contract, made the following observations as to the use of statutory demands in complicated contractual disputes.
Prior to the amendments to the Corporations Law by the Corporations Reform Act No 210 of 1992, the way in which the Companies Court approach to disputed debt applications was relatively clear, though it was sometimes difficult to work out cases that were on the boundary line. The clear principle was that the Companies Court was not to be the place where litigation was to be conducted about disputed trading debts. The Companies List is designed to wind up insolvent companies in the public interest, not as a way of getting a dispute between companies in the marketplace on before a Court quickly. Generally speaking, if it could be seen from the conduct of the parties that there was an honest dispute between them, then they would be expected to have that dispute resolved in the normal channels, that is, in litigation in the Common Law Division or the District Court or before an arbitrator, and not in the Companies List.
…
The important thing to realise is that the basic attitude that the Companies Court is not to be the court which deals with disputed debts remains the principle.
There will be various types of commercial relationships that will produce debts between traders. Sometimes the debt is very easy to compute, such as the situation where there are a limited number of buying and selling transactions between the parties to the dispute. However, on the other end of the scale can be large construction contracts where it is sometimes difficult, at least in the short term, to work out just what is owing by one party to the other.”
In the 182 proceeding, Mr Evans submits that the evidence is that by reason of overcharging by Mr Kendell of $10 per hour more than agreed, an offsetting claim of $18,080 arises against Mr Kendell. Mr Evans also contends that there are four categories of genuine dispute established. The first of these is that Mr Kendell has not substantiated alleged expenses of $4,974. Secondly, it is said that he has allegedly claimed for hours worked while he was in fact on holiday and this claim amounts to a dispute of $4,081. Thirdly, Mr Kendell has charged $6,468 in respect of work performed in July 2010 after his services had been terminated and he had agreed not to charge any further for services. Finally, it is contended that a dispute arises from a claim by Mr Kendell for salary of $16,657when he was never engaged by RadioMio.
Mr Kendell has filed lengthy affidavit material which seeks to meet that put up by RadioMio and has filed lengthy submissions accompanied by spreadsheets which detail his response to RadioMio’s evidence. His evidence attempts to address the existence of the disputes and claims but neither his affidavits or that of Mr Dart overwhelms the evidence of RadioMio in respect of its alleged offsetting claim and genuine disputes.
In my view, a similar position applies in respect of the genuine disputes and offsetting claims raised in the 184 proceeding by SISS. Again, SISS in its evidence alleges the existence of an offsetting claim which arises by reason that Mr Kendell has overcharged in previous invoices which have been paid at a rate of $70 per hour as distinct from $60 per hour, the agreed rate. The amount of that offsetting claim is said to be $2,365. The genuine disputes are said to arise first by reason of the lack of substantiation of expenses by Mr Kendell which is said to amount to $8,483.97. SISS also contends that there is a genuine dispute in respect of the claim made by Mr Kendell for the hours he has allegedly worked between 11 October 2010 and 29 October 2010. That claim is said to give rise to a genuine dispute of $7,277, representing a claim for about 95 hours of work over 15 working days. The grounds for that dispute are set out in Mr Knorr’s affidavit of 19 January 2011. The claim by Mr Kendell for the hours which are said to have been worked between 1 October 2010 and 11 October 2010 for $1,760 are said by SISS to be inconsistent with Mr Kendell’s previous claim for salary as the CEO of RadioMio during this period.
Mr Evans contends that Mr Kendell’s affidavit of 7 February in the 184 proceeding does not satisfactorily address the overcharging allegation, does not provide sufficient evidence of the incurring of expenses and does not provide evidence of hours worked.
My task in this application is to ascertain whether there are genuine disputes and offsetting claims in respect of the debt the subject of the demand, not to express any opinion about what the ultimate outcome should be in any proceedings commenced in respect of such claims. As Robson J stated in Rhagodia Pty Ltd v National Australia Bank Limited:[11]
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond the perception of genuineness ( or lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple – to identify the genuine level of a claim (not the likely result) and to identify the genuine level of an offsetting claim (and not the likely result of it).
[11]67 ACSR 367.
And as observed by Barrett J in Panel Tech:[12]
Once an applicant shows that even one issue has a sufficient degree of cogency to be arguable the finding of genuine dispute must follow. A court does not embark on a balancing exercise between the strengths of competing contentions.
[12][2003] NSWSC 896.
The claims being contended for by RadioMio and SISS in 182 and 184 are not “so devoid of substance that no further investigation is warranted” (as Barrett J formulated the test in Solarite), nor is the evidence they put forward “spurious, hypothetical, illusory or misconceived”, as the Full Court of the Federal Court described the test in Spencer Constructions Pty Ltd v G and M Aldridge Pty Ltd.[13]
[13](1997) 76 FCR 452 at 464.
On the first day of the hearing of this application, at the outset, I emphasised to the parties, and Mr Kendell in particular, that unless the evidence was clear‑cut and devoid of matters which required investigation, an application of the relevant case law required that the demands be set aside. I repeated such observations on the second day of the hearing.
The mere volume of the evidence and the accompanying oral and written submissions and the time that it has taken to hear this application also support this conclusion. It is most obvious that Mr Kendell has fallen out with the plaintiffs and is seeking to agitate his disputes with them by means of the statutory demand mechanism which is clearly not appropriate. There is no doubt that the parties are at loggerheads and that litigation will ensue in respect of matters arising from their falling out but the mechanism of statutory demands was not an appropriate mechanism to agitate such disputes.
Mr Evans contended that the 182 and 184 demands should also be set aside by reason of the form of the demands, more particularly, the lack of information in respect of the alleged debts. Mr Evans says that particularly in the context of the several demands being served for different sums, the service of a demand in each case which provides no details whatsoever of how the amount is made up, constitutes “some other reason” why the demand ought be set aside. As noted above, the demands claim a sum without particularisation as to how it is made up or calculated and the accompanying affidavit in each case merely refers to accounts rendered without identifying what those accounts are.
In LSI Australia v LSI Holdings,[14] Austin J considered statutory demands in which the debt was described in the schedule as “amount due and owing payable by the debtor to the creditor in accordance with the accounts of the debtor: $99,825.44”. In the other demand, the schedule to the demand described the debt as consisting of “amount due and owing and payable by the debtor to the creditor, being moneys lent to the debtor by the creditor $5,887.20”. Austin J observed at paragraph 29:
[14][2007] NSWSC 1406.
… It will be noted that the description is vague, and specifically the date of the loan is not identified. There is nothing to indicate whether the loan is alleged to have arisen before the trial period, or during the trial period, or after the sale of shares.
And at 44:
In the other part of its case, LSIA alleges that, because of a defect in each of the two demands, substantial injustice will be caused to it unless the demand is set aside (s 459J(1)(a)). The defect in each demand is said to be that the description of the debt is too vague and ambiguous to identify the debt. According to LSIA, this led Mr Hughes, in his affidavit supporting the applications, to misconstrue LSIH’s demand and not to be aware of the nature of the claim made by LSIC, and therefore not to put into evidence, within the 21 day limitation period set by s 459G, the indemnity upon which LSIA now wishes to rely.
He stated at 54:
A statutory demand is required by Form 509H to “describe” the debt that is claimed. If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim, then there is a lack of something necessary for completeness, and therefore a defect in the demand.
Neither demand has a schedule and the accompanying affidavit casts no light on how the amount is made up or calculated in either case. The demands should inform the recipient in unambiguous terms how the amount is made up or calculated and they do not. The situation is compounded by the fact that Mr Kendell has served demands for quite different sums in the fortnight leading up to service of the demands the subject of these applications.
Although it is not necessary for me to express a view on this submission having regard to the fact that I have determined to set aside these demands for the reasons given above, I consider that the reasoning of Austin J is apposite for application in these instances.
The 953 proceeding
In the 953 proceeding, SISS contends that the demand should be set aside because of the existence of “some other reason” within the meaning of s 459J(1)(b) of the Act and by reason that there are genuine disputes and offsetting claims in respect of the amounts claimed in the demand.
In his affidavit of 3 March 2011, Mr Knorr, the managing director of SISS, seeks to incorporate by reference the earlier affidavits filed in 182 and 184 proceedings as if they were filed in the 953 proceeding. The demand the subject of the 953 proceeding makes a claim for $93,349 “in respect of an agreed incentive plan of $40 per hour worked by [Mr Kendell] during the term of his engagement in accordance with the reconciliation spreadsheet attached and marked A.” As with the other demands, subject to the 182 and 184 proceedings, the demand makes a claim for a money sum but in this instance a schedule is appended to the demand which purports to provide particulars of the alleged debt.
In his affidavit of 3 March 2011, Mr Knorr contends that Exhibit S14 to his affidavit, which is a chain of emails passing between Mr Kendell and Mr Morrow, SISS’s solicitor in December 2010, reveals that Mr Kendell’s claim is in reality a claim for the issue or transfer to him of shares or for damages for breach of an obligation to do so and, as such, it is not a claim for debt and cannot be the subject of a statutory demand. Mr Knorr exhibits correspondence and emails which he says supports this position. In the email of 14 December 2010, Mr Kendell states in the final paragraph:
Finally it will be alleged that part of my agreement with your client SISS was to receive shares which have been from time to time allotted to a trustee. Would you kindly advise me of the name of that trustee so I may join it in proceedings.
On 21 December 2010, Mr Kendell emailed Mr Morrow and stated:
As I indicated to you in previous correspondence your client SISS Business Systems Limited agreed to part pay me in shares. Your client has refused to issue those shares to me despite several requests so I propose to commence proceedings tomorrow against them to obtain an order that they do so. I understand that the shares were held by a trustee on my behalf. I intend therefore to join the trustee as a party to the proceeding. I have asked you to obtain the name of the trustee and you have not responded to my request. Would you please provide me with the name of the trustee by 5.00pm today. If it is necessary to file a notice of motion to obtain the name of the trustee I will seeks costs on an indemnity basis.
On 23 December, in another email to Mr Morrow, Mr Kendell states in the final paragraph:
I repeat my request that you provide me with the name of the trustee who was holding the 430,474 shares that I am entitled to in SISS Business Systems Limited. I appreciate that your client denies that it is liable to issue those shares notwithstanding the email which I have forwarded to you today. Again I do not believe that the board of the company has instructed Mrs Knorr to litigate this matter and I propose to seek an order for costs on an indemnity basis against her in respect of the proceedings which she has forced me to take.
In a further email later in the day on 23 December 2010, Mr Kendell states:
As requested I will give your client until 2.00pm tomorrow to transfer my share entitlement to me otherwise I shall file a summons in the Supreme Court of New South Wales at 3.00pm seeking an appropriate declaration.
As I am sure you aware following the Sons of Gwalia case I am entitled, as a shareholder, to rights in any liquidation of your client companies and to participate with other shareholders in any action which may be commenced against its directors.
In a letter of 29 December 2010, in the final paragraph, Mr Kendell states:
In the event that your clients do not pay me the sum of $47,172 issue to me 405,293 shares in the SISS by 5.00pm on 30 December 2010 and provide me with an assurance that the directors would appoint an independent expert to report to them in respect of possible breaches of sections 180, section 588G and section 734 of the Corporations Act 2001 I will write to ASIC on 31 December 2010 asking them to conduct such an investigation.
In Mr Kendell’s affidavit of 19 March 2011, which is filed in response to Mr Knorr’s affidavit, he does not take direct issue with the contents of paragraph 9 of Mr Knorr’s affidavit that the correspondence and communications extracted above is referable to the demand the subject of the 953 application. In my view, the nature of his claim is not that of a debt properly so called.
Further, Mr Knorr’s affidavit identifies several other matters which he says give rise to a genuine dispute or offsetting claim. First, he says that the terms of Mr Kendell’s engagement were such that he had no right to call for the shares to be transferred to him whenever he determined. Rather, this was to be at the absolute discretion of the trustee’s directors. Mr Knorr deposes that the intention of the trustee’s directors was not to transfer the shares until the group had “meaningful revenue” and he stated that Mr Kendell used words to the effect that he accepted this proposal.[15] Mr Knorr states that because Mr Kendell has allegedly overcharged at a rate of $10 per hour more than agreed, his claim in any event for shares would have to be reduced, giving rise to a reduction in excess of $18,000. The claim will have to be further reduced because it is alleged that Mr Kendell has made claims for more hours than he actually worked, giving rise to a reduction of $6,960 in his entitlement.[16] Further, Mr Knorr contends that SISS has an offsetting claim in respect of amounts already paid to Mr Kendell for his September/October 2010 trip to Europe.[17]
[15]Affidavit of Mr Knorr at para 12.
[16]Affidavit of Mr Knorr at para 17.
[17]Affidavit of Mr Knorr at paras 27-35.
Mr Kendell in his affidavit of 19 March 2011 takes issue with these alleged disputes and claims but, as I have perhaps laboured, it is not possible nor appropriate to resolve such disputes in an application to set aside a statutory demand other than to observe that I consider they have objective existence. I regard it as unfortunate that Mr Kendell has gone down the path of service of statutory demands as this was clearly an inappropriate mechanism for resolution.
In my view, it is clear that the demand the subject of the 953 proceeding is not a claim in respect of a liquidated debt and cannot properly be the subject of a statutory demand and the demand should be set aside. Furthermore, it is clear that SISS has established to the required that there are genuine disputes and offsetting claims. Despite the volume of evidence and submissions directed by Mr Kendell to impeaching SISS’s evidence, he has not demonstrated that SISS’S position is spurious, implausible or misconceived.
I make orders as follows.
In the 182 proceeding:
I order that the statutory demand dated 25 December 2010 and served on the plaintiff by the defendant be set aside.
In the 184 proceeding:
I order that the statutory demand dated 25 December 2010 which was served on the plaintiff by the defendant be set aside.
In the 953 proceeding:
I order that the statutory demand dated 16 February 2011 and served on the plaintiff by the defendant be set aside.
I will permit the parties, if they desire to do so, to submit short submissions, not exceeding three pages, on the question of what order should be made as to costs.
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