Re Wonderful Capital Biotechnology Group Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2022 00521

IN THE MATTER of WONDERFUL CAPITAL BIOTECHNOLOGY GROUP PTY LTD (ACN 624 126 245)

BETWEEN:

WONDERFUL CAPITAL BIOTECHNOLOGY GROUP PTY LTD (ACN 624 126 245)	Plaintiff
v
GLOBAL DIAGNOSTIC MEDICAL CORPORATION	Defendant

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JUDGE:	Matthews AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	1 August 2022
DATE OF JUDGMENT:	28 October 2022
CASE MAY BE CITED AS:	Re Wonderful Capital Biotechnology Group Pty Ltd
MEDIUM NEUTRAL CITATION:	[2022] VSC 652

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CORPORATIONS – Corporations Act 2001 (Cth), s 459H, s 459J – Statutory demand – Application to set aside on grounds of genuine dispute – Application to set aside on grounds of offsetting claim – Application to set aside for defect in demand – Application to set aside for some other reason – Re Simmoll Pty Ltd [2021] VSC 693 – Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 – Re MHC Pathology Pty Ltd [2020] VSC 789 – Arris Investments Pty Ltd v Fahd & Anor [2010] NSWSC 309 – In the matter of Savemore Wholseale Pty Ltd [2021] NSWSC 307.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms A V M Carruthers	United Australia Barristers & Solicitors
For the Defendant	Mr D F McAloon	Hall & Wilcox

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Background......................................................................................................................................... 2

The Statutory Demand and Procedural History........................................................................ 10

Evidence............................................................................................................................................. 12

First Wang Affidavit................................................................................................................... 12
Alleged Implied Term................................................................................................................ 13
Second Wang Affidavit.............................................................................................................. 16
Verbukh Affidavit....................................................................................................................... 19
Third Wang Affidavit................................................................................................................. 24
Hong Affidavit............................................................................................................................ 26

Consideration.................................................................................................................................... 27

Should the Statutory Demand be set aside on the grounds of a genuine dispute about the Debt or the presence of an offsetting claim?....................................................................................... 29

Relevant Statutory Provisions and applicable principles regarding s 459H of the Act.... 29
Is there a genuine dispute about the Debt on the basis that the Defendant is estopped from relying on the Refund Clause?...................................................................................................... 32
Submissions........................................................................................................................ 32
Submissions regarding estoppel........................................................................ 35

Analysis............................................................................................................................... 39

Is there a genuine dispute about the Debt due to the failure to follow the Arbitration Clause?.............................................................................................................................................. 41
Submissions........................................................................................................................ 41
Analysis............................................................................................................................... 45

Does the Plaintiff have an offsetting claim for damages arising from the Defendant’s alleged breach of the Alleged Implied Term?............................................................................. 48
Submissions........................................................................................................................ 48
Analysis............................................................................................................................... 50

Should the Statutory Demand be set aside because of defects in the Statutory Demand? 53

Statutory provisions and applicable principles regarding s 459J of the Act...................... 53
Is there a misdescription of the Debt in the Statutory Demand and if there is and that is a defect, should the Statutory Demand be set aside on that basis?........................................... 55
Submissions........................................................................................................................ 55
Analysis............................................................................................................................... 56

Is there a defect in the Statutory Demand regarding the address for service and if so, should the Statutory Demand be set aside on that basis?............................................................... 58
Submissions........................................................................................................................ 58
Analysis............................................................................................................................... 60

Should the Statutory Demand be set aside for some other reason, pursuant to s 459J(1)(b)? 62

Is the lack of a physical address for service and the conduct of the Defendant in respect of service some other reason for setting aside the Statutory Demand?...................................... 62
Is the presence of and/or failure to follow the Arbitration Clause some other reason for setting aside the Statutory Demand?........................................................................................... 63

Conclusion......................................................................................................................................... 64

HER HONOUR:

Introduction

The Plaintiff, Wonderful Capital Biotechnology Group Pty Ltd (‘WCBG’), makes an application pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Act’) by originating process dated 22 February 2022 to set aside a statutory demand dated 2 February 2022 (‘Statutory Demand’) served on the Plaintiff by the Defendant, Global Diagnostic Medical Corporation (‘GDMC’).

The Plaintiff relies on the grounds set out in s 459H and s 459J of the Act in making this application. That is, the Plaintiff submits that the Statutory Demand should be set aside on the basis that firstly, there is a genuine dispute as to the existence of the debt and as to an arbitration clause within the meaning of s 459H(1)(a) of the Act; secondly, the Plaintiff has an offsetting claim under s 459H(1)(b); thirdly, the Statutory Demand ought to be set aside under s 459J(1)(a) of the Act because there is a defect such that substantial injustice will be caused unless the Statutory Demand is set aside; and fourthly, there is some other reason why the Statutory Demand should be set aside pursuant to s 459J(1)(b) of the Act.

In support of its application, the Plaintiff relies on the following affidavits:

(a) Ziye Wang sworn 22 February 2022 (‘First Wang Affidavit’). Ziye Wang (‘Mr Wang’) is a director of the Plaintiff.

(b) Ziye Wang affirmed 25 March 2022 (‘Second Wang Affidavit’).

(c) Ziye Wang affirmed 11 May 2022 (’Third Wang Affidavit’).

(d) Jason Siu-Kei Hong affirmed 2 March 2022 (’Hong Affidavit’). At all relevant times Mr Hong was a solicitor at United Associates Barristers and Solicitors, the solicitors for the Plaintiff.

In opposition to the application, the Defendant relies on the affidavit of Isaac Verbukh (‘Mr Verbukh’) affirmed 27 April 2022 (‘Verbukh Affidavit’). Mr Verbukh is the President and Chief Executive Officer of the Defendant.

Both parties filed written submissions, as well as making oral submissions at the hearing before me.

For the reasons which follow, I am not satisfied that WCBG has established a basis upon which to set aside the Statutory Demand. It follows that the proceeding should be dismissed.

Background

The debt claimed in the Statutory Demand arose in the context of an arrangement between the Plaintiff, the Defendant, and various entities affiliated with them, for the manufacture, production and distribution of COVID-19 in-vitro diagnostic test kits (‘COVID-19 Test Kits’).

At all relevant times, the Plaintiff engaged in manufacturing cosmetics, pharmaceuticals and functional health foods. It also provided an outsourcing service for the development and production of such products.[1]
[1]First Wang Affidavit, [3].

The Defendant was incorporated for the sole purpose of acquiring and selling the COVID-19 Test Kits in the United States of America for at-home use during the height of the COVID-19 pandemic.[2] At all relevant times, the Defendant was registered in Florida, USA[3] and engaged in the business of importing, distributing and marketing COVID-19 Test Kits in the United States.[4]
[2]Verbukh affidavit, [4].
[3]Ibid.
[4]Ibid.

On 18 March 2020 a Memorandum of Understanding (‘MOU’) was entered into between the Plaintiff, Shanghai Liangrun Biomedical Technology Co Ltd (‘SLBT’) and Isaac Holdings, LLC (‘IH’). In the MOU, IH was described as U.S. Distributor.[5] GDMC, the Defendant in this proceeding, was not a party to that agreement.
[5]First Wang Affidavit, [6].

The MOU concerned the exclusive distribution rights in the United States for COVID-19 Test Kits which were manufactured by SLBT and globally distributed by the Plaintiff. The essential terms of the MOU were, inter alia, to the following effect:[6]
[6]Ibid, [7]; Exhibit ZW-1, pp. 6-8.

(a) the parties would execute a formal exclusive distribution and usage agreement with essentially the same terms and conditions as described in the MOU, no more than 30 days following the MOU’s effective date;

(b) IH would be granted exclusive distribution rights by the Plaintiff and/or SLBT regarding the COVID-19 Test Kits within the United States;

(c) the price paid by IH for each COVID-19 Test Kit would be $13.00[7] per kit for single orders of less than 500,000 kits and $12.00 per kit for single orders of more than 500,000 kits;
[7]Unless stated otherwise, all dollar amounts referred to in this judgment are in USD.

(d) IH would put forth all reasonable efforts to order no fewer than 500,000 COVID-19 Test Kits in the first week the formal agreement was in effect, and no fewer than 2,000,000 COVID-19 Test Kits the first month the formal agreement was in effect;

(e) IH would put forth all commercially reasonable efforts to deposit 25% of the cost of each order with the Plaintiff at least fourteen days in advance in order to hold production capacity from SLBT;

(f) SLBT had the option to terminate exclusivity no earlier than six months after the MOU effective date, provided that IH’s sales for the 3-month period following the initial six-month period fell below an average of $5,000,000 per month;

(g) SLBT and the Plaintiff would supply IH with advertising and promotional materials in connection with the COVID-19 Test Kits; and

(h) the governing law of the MOU and the proposed agreement was the laws of the State of Florida.

On or around 20 April 2020 an Exclusive United States Distribution Agreement with an effective date of 18 March 2020 was executed by the Plaintiff and the Defendant (‘Distribution Agreement’). In the Distribution Agreement, the Defendant rather than IH was identified as US Distributor.[8]
[8]First Wang Affidavit, [10].

The essential terms of the Distribution Agreement were similar to those found in the MOU. However, the following additional terms were also agreed to:[9]
[9]Ibid, [11]; Exhibit ZW-1, pp. 12-16.

(a) the Defendant would use its commercially reasonable efforts to promote and sell the COVID-19 Test Kits in the United States;

(b) the minimum purchase requirement (as described in paragraph 11(d) above) commenced during the first week following the Approval Date. The Approval Date was defined as the date that the Food and Drug Administration (‘FDA’) issues an Emergency Use Authorization (‘EUA’) for emergency use of the kits and at home use of the products in the United States is authorized by the FDA. This clause also contained, which the MOU had not, the following:

For avoidance of doubt, [the Defendant] shall not have any obligation to purchase the Products until the Approval Date, as defined herein.

(c) the Defendant would order the COVID-19 Test Kits by written purchase orders and pay for each shipment either in cash or wire transfer including an initial deposit of 25%, and the remaining 75% paid upon receipt by the Defendant of written confirmation of clearing customs;

(d) the Plaintiff would be responsible for ensuring that the COVID-19 Test Kits cleared customs and relevant export regulations in China;

(e) the Plaintiff had the option to repurchase the Defendant’s exclusivity under the Distribution Agreement from 6 months after the approval date provided that sales failed to meet certain thresholds;

(f) if the Approval Date falls after 18 May 2020, the Distribution Agreement shall terminate in full, unless the parties amend this in writing before 11 May 2020;

(g) the governing law is the laws of Hong Kong;

(h) any amendments, modifications, supplements or other changes to the Distribution Agreement must be in writing and signed by authorized representatives of the parties;

(i) the Distribution Agreement constitutes the entire agreement between the parties and supersedes all prior representations, understandings, agreements, whether written or oral.

On or around 20 April 2020 an Exclusive United States Distribution Agreement dated 20 April 2020 (‘Tripartite Distribution Agreement’) was executed by the Plaintiff, SLBT and the Defendant. In the Tripartite Distribution Agreement, the Defendant was again identified as US Distributor.[10] The essential terms of the Tripartite Distribution Agreement were, relevantly the same as the Distribution Agreement, with the addition of terms to the following effect:[11]
[10]Ibid, [12].
[11]Ibid, [13]; Exhibit ZW-1, pp. 17-26.

(a) the Defendant and the Plaintiff agreed to submit to arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules any and all controversies arising under the Agreement. This clause provided as follows (‘Arbitration Clause’):

Each of [the Plaintiff] and [the Defendant], hereby agrees to submit to arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules with respect to any and all controversies arising under this Agreement. The Parties further agree that any such controversy be submitted to one arbitrator. If the Parties are not able to agree upon the selection of an arbitrator, within 20 days of commencement of an arbitration proceeding by service of a demand for arbitration, the arbitrator shall be selected by the American Arbitration Association. The place of the arbitration shall be Miami, Florida and Florida law shall apply. The cost of the arbitration proceeding shall be borne by the unsuccessful party, as determined by the arbitrators, and shall be awarded as part of the arbitrator’s award. The Parties further agree that they will abide by and perform any award rendered by the arbitrator(s), and that a judgment of any court having jurisdiction may be entered on the award.

(b) the governing law is the laws of the state of Florida; and

(c) the entire agreement clause provided as follows:’

This Agreement and the exhibits hereto constitute the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior or contemporaneous representations, understandings, agreements, or communications between the parties, including without limitation, the [MOU], whether written or oral, relating to the subject matter hereof.

The Plaintiff and the Defendant amended the Distribution Agreement by execution of an amendment document with an effective date of 21 April 2020 (‘First Amendment’). The First Amendment provided that:[12]
[12]Ibid, [18]; Exhibit ZW-1, pp. 28-29.

(a) clause 4(b) of the Distribution Agreement was to be amended by stating the following:

Termination. Notwithstanding paragraph 4(a) above, if the Approval Date falls after June 18, 2020, this Agreement shall terminate in full, unless the Parties amend this paragraph 4(b) in writing on or before June 11, 2020.

(b) the governing law of the First Amendment was the laws of Hong Kong; and

(c) the First Amendment and the Distribution Agreement constitute the entire agreement between the parties and supersede all prior representations, understandings, agreements, whether written or oral.

The Plaintiff and the Defendant further amended the Distribution Agreement by execution of an amendment document with an effective date of 22 April 2020 (‘Second Amendment’). The Second Amendment:[13]
[13]Ibid, [19]; Exhibit ZW-1, pp.30-31.

(a) contained a new provision that:

Notwithstanding anything to the contrary in the [Distribution Agreement], the Parties agree that the Global Distributor [that is, the Plaintiff] is the seller of the Products, and the Global Distributor represents that it has the right to sell and ship the Products ordered by the U.S. Distributor [that is, the Defendant] pursuant to this Agreement.

(b) provided that the governing law of the Second Amendment, the First Amendment and the Distribution Agreement is the laws of the state of Florida; and

(c) contained an entire agreement clause which stated as follows:

This Second Amendment, the First Amendment, the Agreement, and the separate agreement by and among [SLBT, the Plaintiff and the Defendant] constitute the entire agreement between the parties with respect to the subject matter thereof, and supersede all prior representations, understandings, agreements, or communications between the Parties, whether written or oral.

A further amendment to the Distribution Agreement by the Plaintiff and the Defendant was effected by execution of an amendment document with an effective date of 12 June 2020 (‘Third Amendment’). The Third Amendment provided for the following amendments:[14]
[14]Ibid, [20]; Exhibit ZW-1, pp. 32-35.

(a) clause 1(d) of the Distribution Agreement was to have the following statement added:

Maintenance of Exclusivity. Exclusivity granted pursuant to Section 1(a) shall be maintained for the full duration of the Term so long as U.S Distributor fulfills his obligation in accordance with Section 3(a) below.[15]
[15]‘Section 3(a) below’ is taken to be a reference to clause 3(a) of the Distribution Agreement, which is the provision described in paragraph 13(b) above.

(b) clause 1(e) of the Distribution Agreement was to have the following statement added:

Modified Home Use Approval Date. Modified Home Use Approval under this Agreement shall be the date the FDA issues an EUA for emergency use of the Product pursuant to Section 564 of the Federal Food, Drug and Cosmetic Act (the Act) (21 U.S.C.§360bbb-3) and modified at home use of the Product in the United States is authorized by the FDA.

(c) clause 3(f) of the Distribution Agreement was to have the following statement added:

Inventory for Modified Home Use Approval. If prior to the Approval Date, a Modified Home Use Approval is received, U.S. Distributor shall put forth all commercially reasonable efforts to order no fewer than 500,000 units of the Products during the first month following the Modified Home Use Approval Date and no fewer than a total of 2,000,000 units of the Product during the first three (3) months following the Modified Home Use Approval Date.

(d) clause 3(g) of the Distribution Agreement was to have the following statement added:

Orders - Custom Packaging and Needles. In order to accommodate the preparation time necessary for new customized packaging and needles, Global Distributor shall have an additional seven (7) days to ship the orders, and the Final Order Date will be determined accordingly.

(e) clause 4(b) of the Distribution Agreement was be deleted in its entirety. This is the clause described in paragraph 13(f) above;

(f) Exhibit A of the Distribution Agreement was to be replaced entirely by Exhibit A attached to the Third Amendment, which included revised prices; and

(g) the governing law of the First, Second and Third Amendments and the Distribution Agreement is the laws of the state of Florida.

The Plaintiff and the Defendant executed a further amendment document with an effective date of 23 July 2020 (‘Fourth Amendment’). The Fourth Amendment included clause 2, which provided the following (‘Refund Clause’):[16]
[16]First Wang Affidavit, [27]; Exhibit ZW-1, pp. 42-44.

Return of Deposit. The Parties hereto acknowledge that U.S. Distributor paid to Global Distributor a total of Three Hundred Eighty Thousand and Fifty Dollars ($380,050.00) as a deposit toward purchase of the Products (“Deposit”) as shown below:

Date Paid

Description

Invoice

Amount Paid

3/26/2020

Purchase of 10,000 kits at $10.40/piece

10436

$104,000.00

Credit

3,000 kits shipped and received by Global per Invoice 10346 (3,000 @ $10.40)

($31,200.00)

4/6/2020

25% deposit for test for 90,000 test kits at $13.50/piece

10437

$298,125.00

6/17/2020

Payment of additional $0.50 per kit for 7,000 units not shipped per invoice 10436

10436 (A)

$3,500.00

6/17/2020

Payment of additional $0.25 (new needle fee) added to the 25% deposit per invoice 10437

10437 (A)

$5,625.00

Deposit Due

$380,050.00

The Parties hereby agree that in the event Modified Home Use Approval is not granted by the FDA on or before April 22, 2021, Global Distributor shall refund the full amount of the Deposit to U.S. Distributor no later than May 6, 2021. Such refund shall be made via wire transfer as instructed by U.S. Distributor.

The Fourth Amendment also:[17]
[17]Ibid, [28].

(a) contained the following ‘entire agreement’ clause as follows (‘Entire Agreement Clause’):

Entire Agreement/Construction. This Fourth Amendment, the Third Amendment, the Second Amendment, the First Amendment, the [Distribution Agreement], and the separate agreement, as amended, by and among the Manufacturer [that is, SLBT], the Global Distributor [that is, the Plaintiff] and the U.S. Distributor [that is, the Defendant] constitute the entire agreement between the parties with respect to the subject matter thereof, shall be read together and construed as if they were a single document, and supersede all prior representations, understandings, agreements, or communications between the Parties, whether written or oral.

(b) the governing law of the First, Second, Third and Fourth Amendments and the Distribution Agreement is the laws of the state of Florida.

As I apprehend it, the ‘separate agreement’ referred to in the Entire Agreement Clause is the Tripartite Distribution Agreement, although no detail is given about this ‘separate agreement’ in the Fourth Amendment or any of the earlier Amendments.

The Statutory Demand and Procedural History

On 4 June 2021, solicitors acting for the Defendant at that time sent a letter to the Plaintiff and SLBT demanding a refund of USD$380,050.00, which the Defendant said it was entitled to under the Fourth Amendment as modified home use approval had not been granted by the FDA on or before 22 April 2021.[18] The Defendant did not receive any response to that letter.[19]
[18]Verbukh Affidavit [48]; Exhibit IV-1, pp. 87-90.
[19]Ibid, [48].

On 30 November 2021, the Defendant issued an earlier statutory demand to the Plaintiff, which was later withdrawn by the Defendant following correspondence exchanged between solicitors for the parties.[20]
[20]First Wang Affidavit, [34].

On 8 February 2022, the Plaintiff received by post at its registered office in South Australia the Statutory Demand from the Defendant.[21]
[21]Ibid, [4].

The Statutory Demand is dated 2 February 2022, with paragraphs 1 and 2 stating:[22]

The company owes Global Diagnostic Medical Corporation of 398 Camino Gardens Boulevard 102, Boca Raton, FL 33432 in the United States of America (“the creditor”) the amount of $380,050.00 USD, being the amount of the debt described in the Schedule.
Attached is the affidavit of Isaac Verbukh dated 2 February 2022, verifying that the amount of the debt is due and payable by the company.

[22]Exhibit JH-1 Page 2 of 100

The Schedule to the Statutory Demand is in the following terms:

SCHEDULE

Description of the debt

Amount of the debt

Refund for the deposit paid for the purchase of 110,000 test kits for in vitro detection of IgM/IgG antibodies to COVID-19 (whole blood, serum, plasma) colloidal gold immunochromatography assay in accordance with clause 2 of the Fourth Amendment to the Exclusive United States Distribution Agreement between Wonderful Capital Biotechnology Group Pty Ltd and the creditor dated 18 March 2020

$380,050.00

Total Amount

$380,050.00

The Statutory Demand claims the amount of $380,050.00 (including GST) (‘Debt’) being the total of the amounts of the debt described in the Schedule to the Statutory Demand.

A copy of the affidavit of Isaac Verbukh affirmed 2 February 2022 (‘Accompanying Affidavit’) was served with the Statutory Demand.[23] Mr Verbukh deposes in the Accompanying Affidavit that the Debt is due and payable and that in his belief there is no genuine dispute about the existence or amount of the Debt.
[23]Exhibit JH-1 to the Hong Affidavit. The Statutory Demand defines the Defendant as the Creditor.

On 22 February 2022 at 5.57pm the Plaintiff served the application setting aside the Statutory Demand and the First Wang Affidavit (and exhibits thereto) (‘Application’) on the Defendant, via email.[24]
[24]Hong Affidavit, [5]-[8].

Evidence
First Wang Affidavit

The First Wang Affidavit serves to canvas the basis upon which the Plaintiff makes its Application. It also sets out the relationship and the dealings between the parties in relation to the development, production and distribution of the COVID-19 Test Kits.

Mr Wang states that none of the MOU, Distribution Agreement or Tripartite Distribution Agreement dealt with which party had responsibility for obtaining the FDA’s approval of the COVID-19 Test Kits. He goes on to depose that:[25]

However, it was agreed between [the Plaintiff] and the Defendant that the Defendant would be responsible for obtaining the necessary approval from the FDA. Prior to the involvement of the Defendant, when it had been intended that IH would be the US Distributor, it was agreed between [the Plaintiff] and IH that IH would be responsible for obtaining the FDA’s approval.

[25]First Wang Affidavit, [14].

Mr Wang then deposes that:[26]

Consistently with the parties’ agreement to this effect:
(a)Prior to the signing of the MOU, [Mr Verbukh], the director of both IH and the Defendant, made verbal promises to me that he would be fully responsible for obtaining approval from the FDA;
(b)Prior to the signing of the MOU, [Mr Verbukh] made verbal promises to me that he had been in contact with the FDA and claimed that the FDA could grant approval within 30 days;
(c)The Defendant engaged the firm Hyman, Phelps & McNamara [(‘HPM’)] as agents to lodge an application with the FDA for the Review and Approval of the COVID-19 Test Kits, with the Defendant as the Applicant;
(d)The FDA acknowledged the application lodged by [HPM] on behalf of the Defendant as Applicant in a letter dated 28 March 2020.

[26]Ibid, [15].

Mr Wang also deposes that he is aware that the FDA only allows the registered applicant, in this case the Defendant, to submit documents relevant to obtaining FDA approval.[27]
[27]Ibid, [16].

The First Wang Affidavit then states, that as a result of the matters referred to in the previous three paragraphs, that:

in order to give business efficacy to the arrangements between the parties, it was an implied term of the Distribution Agreement that the Defendant was responsible for obtaining FDA approval for the COVID-19 Test Kits and was obliged to take all reasonable steps to obtain the FDA approval.

Alleged Implied Term

Mr Wang deposes that on 30 June 2020, Yifei (Louis) Xu (‘Mr Xu’), an employee of the Plaintiff, received an email from Mr Verbukh forwarding an email from HPM which stated that it was HPM’s conclusion that it was unlikely that FDA approval for the COVID-19 Test Kits would be granted, based on data provided by SLBT as well as testing data provided by Lakeside Life Science, a third party laboratory (‘Lakeside’).[28]
[28]Ibid, [21].

Mr Wang deposes that in that same email from Mr Verbukh, he requested that the Defendant’s deposit be refunded until FDA approval was granted, and that the Plaintiff refused that request.[29]
[29]Ibid, [22]-[23].

Subsequently, according to the First Wang Affidavit, the Defendant proposed to the Plaintiff a further amendment to the Distribution Agreement (which was ultimately the Fourth Amendment). In an email sent on 22 July 2020 to Mr Xu and others, Mr Verbukh stated:

Team, Awaiting the agreement so we can immediately move forward. Thanks. Isaac.[30]

[30]Ibid, [24]-[25]; Exhibit ZW-1, p. 41. This is the entire content of that email. This email was not sent to Mr Wang.

Mr Wang then deposes:

I understood, and relied on, [Mr Verbukh’s] statements in his email to mean that:
a)the Defendant would not proceed with any further steps to obtain FDA Approval until the Fourth Amendment was executed; and
b)consistently with the [Alleged Implied Term], the Defendant would take all reasonable steps to obtain FDA Approval once the Fourth Amendment was executed.

Mr Wang deposes that further tests were conducted by Lakeside around 22 September 2020 regarding the suitability of the COVID-19 Test Kits, and that Lakeside sent email correspondence that “the testing went very well and we believe that the results will support an FDA EUA Authorization”.[31]
[31]Ibid, [29].

According to Mr Wang, since then, there have been constant and significant delays in the completion of the modified home use approval process, that there were two types of testing required to be conducted but these did not proceed at any speed and the Defendant did not cooperate with efforts by the Plaintiff to recruit patients for those tests.[32] He further says that the Defendant had not given any sufficient explanation as to why the documents required for modified home use approval had not been submitted to the FDA.[33]
[32]Ibid, [30].
[33]Ibid, [31].

Mr Wang deposes that on 21 January 2021, Mr William Wong (Mr Wong), who acted as an intermediary between the Defendant and the Plaintiff, sent an email to Mr Verbukh asking whether clinical studies could be finalised by 10 February 2021.[34] Mr Wang deposes that he was informed by Mr Wong that no substantive response regarding his email was ever received from Mr Verbukh.[35]
[34]Ibid, [33].
[35]Ibid, [33].

Mr Wang says he believes that the Defendant engaged in deliberate action to delay the FDA approval process so that, relying on its own breach of the Alleged Implied Term, it could claim to be eligible for a refund after 22 April 2021 under the Refund Clause.[36]
[36]Ibid, [36].

Mr Wang deposes that on 30 November 2021 the Defendant issued an earlier statutory demand to the Plaintiff, which was later withdrawn by the Defendant following correspondence exchanged between solicitors for the parties.[37] Neither party went into any further detail about this earlier statutory demand or put it and the correspondence about it into evidence. Mr Wang deposes that in their dealings, the Plaintiff made clear to the Defendant that it disputed that the impugned debt is due and payable.[38]
[37]Ibid, [34].
[38]Ibid, [34].

The First Wang Affidavit states that the Defendant has breached the Alleged Implied Term, which breach has prevented FDA approval being obtained for the COVID-19 Test Kits by the Approval Date.[39] It is then stated that the Plaintiff has an offsetting claim against the Defendant for loss or damage caused to the Plaintiff by reason of that breach, which would include the loss suffered by reason of the Defendant’s failure to comply with the minimum order obligation under clause 3(f) of the Distribution Agreement (as amended).[40] Mr Wang then states that the Plaintiff’s anticipated profit from the minimum order obligation is estimated between $9.2m and $11.2m (‘Offsetting Claim’), arising from:

(a) payment by the Defendant of between $25m[41] and $27m[42] upon completion of the minimum order of 2m COVID-19 Test Kits under clause 3(f) of the Distribution Agreement;

(b) less deduction of anticipated expenses, including anticipated commission of about $8m and manufacturing costs of about $7.8m.[43]

[39]Ibid, [45].

[40]Ibid, [46].

[41]If each COVID-19 Test Kit was $12.50: First Wang Affidavit, [47].

[42]If each COVID-19 Test Kit was $13.50: First Wang Affidavit, [47].

[43]First Wang Affidavit, [47].

Second Wang Affidavit

The Second Wang Affidavit principally concerns email communications between Mr Wong, Mr Verbukh and others regarding steps taken to obtain clinical and/or FDA approval for the COVID-19 Test Kits.

Mr Wang deposes that on 17 March 2020, he attended an online meeting with Mr Xu and Mr Verbukh, in which Mr Verbukh stated that he had concerns about other companies with whom the Plaintiff had previously been in discussions regarding COVID-19 Test Kits.[44] Accordingly, Mr Verbukh requested that any order of COVID-19 Test Kits be conditional on the Defendant being given exclusive distribution rights in the U.S.[45]
[44]Second Wang Affidavit, [5].
[45]Ibid, [5].

Mr Wang deposes that on 21 March 2020 a meeting (which he did not attend) was held between representatives of SLBT, the Plaintiff, and the Defendant.[46] Mr Wang deposes that the Plaintiff’s financial director Ms Chenzi Ye who was at that meeting informed him that at the meeting Mr Verbukh made promises to the effect that the Defendant would be fully responsible for obtaining FDA approval and that FDA approval should be completed within one month.[47]
[46]Ibid, [8].
[47]Ibid, [9].

Mr Wang deposes that on 27 March 2020, he received a letter from Mr Verbukh, via a post made by Mr Wong in a WeChat group of which he was a member (‘WeChat Group’) which included statements that the Defendant had:[48]
[48]Ibid, [11].

(a) hired a team of top attorneys and medical device/diagnostic test experts specialising in regulatory FDA matters;

(b) hired an epidemiologist, biostatistician and engaged a team of nurses and physicians in order to complete additional validation studies for home use of the test kits; and

(c) paid the requisite registration fee to become a registered importer with the FDA.

Mr Wang deposes that the reason for entering into the First Amendment was that it was agreed between the parties that, because of apparent delays in the FDA approval process, it was beneficial to extend the termination deadline of the Distribution Agreement from May 2020 to June 2020.[49]
[49]Ibid, [14].

Mr Wang states that on 11 May 2020, he received messages posted in the WeChat Group by Mr Wong to the effect that Mr Verbukh was making arrangements to immediately start clinical tests. Further, that Mr Verbukh had support from a US senator and was confident that the clinical tests could be completed and FDA approval would be completed within 10–14 days.[50]
[50]Ibid, [16].

In summary, the Second Wang Affidavit contains the following further information in relation to obtaining FDA approval:

(a) on 30 May 2020, Junxian Zhao (‘Ms Zhao’) of SLBT sent an email to Mr Verbukh asking for an update regarding the scientific validation of the COVID-19 Test Kits, to which Mr Verbukh responded by forwarding correspondence from HPM that the scientific validation received from SLBT would not be accepted by the FDA;[51]
[51]Ibid, [18]-[19]. Mr Xu and Mr Wong were copied on this correspondence.

(b) on 1 June 2020, Ms Zhao sent an email to Mr Verbukh expressing dissatisfaction with the progress made in obtaining FDA approval, to which Mr Verbukh responded on the same day. Mr Wang says that Mr Wong told him that he was sceptical of Mr Verbukh’s response as his concerns regarding scientific validation data were only raised with the Plaintiff and SLBT on 30 May 2022;[52]
[52]Ibid, [20]-[22]. Mr Xu and Mr Wong were copied on this correspondence.

(c) on around 3 June 2020, an online meeting was held between Mr Xu, Mr Wong and Mr Verbukh, where amending the Approval Date in the Distribution Agreement to refer to modified home use approval was discussed. Mr Verbukh said at the meeting that given the significant delays already in obtaining FDA approval, it would be more beneficial to prioritise a more limited form of FDA approval;[53]
[53]Ibid, [23].

(d) on 6 June 2020, Mr Wong sent an email to Mr Xu attaching a progress report from Mr Verbukh, including that the Defendant had:[54]
[54]Ibid, [24].

(i) completed and submitted an EUA to the FDA and it had been assigned to a FDA reviewer;

(ii) finalised and submitted to the FDA a comprehensive protocol for a home use clinical study; and

(iii) submitted this protocol to the Institutional Review Board (‘IRB’) which had granted approval to proceed with the clinical study.

(e) on 5 October 2020, Mr Xu sent an email to Mr Verbukh outlining the Plaintiff’s understanding that the first batches of COVID-19 Test Kits which were sent to Lakeside and which received negative results during testing were damaged by heat, but the second batches sent to Lakeside were acknowledged to be in good condition and received excellent results based on testing done by Lakeside. On 7 October 2020, Mr Verbukh responded by email and disputed that the first batch of test kits were damaged by heat;[55]
[55]Ibid, [26]-[27].

(f) on 7 October 2020, Mr Verbukh sent an email to Mr Xu stating that a full report for the initial clinical study for the COVID-19 Test Kits would be completed by the end of the following week and they had recruited a number of patients to participate in a trial of the test kits;[56]
[56]Ibid, [29].

(g) on 27 October 2020, Jenny Brook, a clinical study biostatistician introduced to Mr Xu by Mr Verbukh on 16 October, sent an email to Mr Xu stating that the IRB had approved a new study required for the testing of the COVID-19 Test Kits and that the recruitment of patients would commence as soon as possible;[57]

(h) on 11 November 2020, Ms Brook informed Mr Xu by email that they had completed five tests and were getting ready to set up internet advertisements in order to gain access to more patients;[58] and

(i) on 3 December 2020, Ms Brook informed Mr Xu by email that seven patients had been tested and there would be further patients to be tested but no other candidates had been found at this point.[59]

[57]Ibid, [30]-[31].

[58]Ibid, [32].

[59]Ibid, [33].

Mr Wang deposes that in the period March to June 2020, the COVID-19 Test Kit successfully passed certification requirements for use in Germany, the Philippines and Brazil.[60]
[60]Ibid, [28].

Verbukh Affidavit

The Verbukh Affidavit is the only affidavit relied upon by the Defendant. Mr Verbukh deposes to his understanding of the steps taken to obtain FDA approval in respect of the COVID-19 Test Kits, the results of clinical tests performed on various batches of the test kits, and the circumstances that gave rise to the Defendant’s demand for a refund of the deposit.

Mr Verbukh deposes that he had various interactions with Mr Wong from March 2020,[61] and that he knew Mr Wong through a previous business contact.[62] Mr Verbukh deposes that Mr Wong told him that China had robust scientific and clinical trial data that passed regulatory muster in Europe and Asia, and that the COVID-19 Test Kits were doing very well in various European markets. Mr Verbukh says that the discussions were primarily for a business deal to distribute the kits and were not focused on obtaining FDA approval. Mr Verbukh deposes that he told Mr Wong that he would speak with and help to engage FDA experts that would guide the FDA approval process in the US but that he did not have any expertise regarding EUA submissions or the FDA process. Mr Verbukh deposes that his offer to help obtain FDA approval was based on the information conveyed by Mr Wong that SLBT had the requisite scientific and clinical data necessary to quickly obtain FDA approval for an EUA.[63]
[61]Verbukh Affidavit, [10].
[62]Ibid, [10].
[63]Ibid, [10].

Mr Verbukh deposes that shortly after entering into the Distribution Agreement, the Defendant engaged HPM, a specialist law firm based in Washington D.C. with expertise in FDA regulatory matters (including in particular with respect to medical diagnostic testing devices). The firm was engaged to evaluate the research and testing material provided by SLBT and provide guidance on clinical validation studies and home use guidelines in order to properly prepare and submit an EUA application to the FDA for the COVID-19 Test Kits. He says that the Defendant also engaged an epidemiologist, biostatistician and a team of nurses and physicians in order to complete additional validation studies necessary for obtaining an EUA, and that to improve the prospects of obtaining approval, the Defendant convened an IRB to review and monitor the biomedical research involving human subjects in accordance with FDA regulations, which board had authority to approve, require modifications for the purpose of securing approval, or disapproving research. [64]
[64]Ibid, [13]-[15].

Mr Verbukh deposes that in June 2020, the Defendant engaged Lakeside to run laboratory testing on the COVID-19 Test Kits and produce reports that were a necessary element of the EUA submission process.[65]
[65]Ibid, [17].

Mr Verbukh deposes that on 19 June 2020 he was informed by Lakeside that clinical tests it had performed revealed that the COVID-19 Test Kits did not perform as intended, in that they failed accurately or consistently to measure the presence of various antibodies used to determine lingering and recent infection.[66] He says that on 25 and 29 June 2020, he received advice from HPM that it would not be possible to obtain EUA approval from the FDA based on the then current design of the COVID-19 Test Kits.[67]
[66]Ibid, [22].
[67]Ibid, [23].

Mr Verbukh says that he attended a zoom meeting on 30 June 2020 with Mr Wong and Mr Xu, during which Mr Xu told him that the first batch of COVID-19 Test Kits which was sent to the Defendant and submitted for testing was actually meant to be sent to Africa but was instead mistakenly sent to the Defendant due to a shipping mix up.[68]
[68]Ibid, [24].

Mr Verbukh deposes that on or around 11 July 2020 during a telephone call with Mr Wong, he requested a refund of the deposit the Defendant had paid to the Plaintiff. He later received an email from Mr Wong informing him of his discussions with SLBT and conveying that SLBT had suggested it take over the FDA approval process. Mr Verbukh says that in the same email Mr Wong acknowledged his substantial financial and time investment in the project and stated:

I also asked Louis if they can compensate all your expenses (not only the deposit) If you really don’t have the confident [sic] to move forward. They said they will if you really want to stop the partnership and they respect your input.[69]

[69]Ibid, [25]. Mr Verbukh does not state, but I assume ‘Louis’ is a reference to Mr Xu.

The Verbukh Affidavit states that in August 2020 the Plaintiff shipped a second batch of COVID-19 Test Kits to the Defendant as the first batch had failed, and the Defendant then delivered this second batch to Lakeside for a new round of testing.[70]
[70]Ibid, [27].

The test results from this second batch were provided to the Plaintiff and the Defendant by Lakeside on 19 August 2020. The email from Lakeside providing the test results stated that they would not be sufficient to meet FDA requirements.[71]
[71]Ibid, [28].

Mr Verbukh deposes that in late August 2020 the Plaintiff shipped a third batch of COVID-19 Test Kits to the Defendant, who sent them on to Lakeside for additional testing. On 25 August 2020, Mr Verbukh received an email from Mr Wong stating that the third batch was ‘very likely’ heat damaged during shipping. On 1 September 2020, the Plaintiff and Defendant were provided the test results of the third batch from Lakeside. The email from Lakeside said the test results were ‘good, but mixed’.[72]
[72]Ibid, [29]-[31].

Mr Verbukh says that on about 7 September 2020 the Plaintiff shipped a fourth batch of COVID-19 Test Kits directly to Lakeside for testing. The results of this round of testing were received by the Plaintiff and Defendant on 12 September 2020 from Lakeside, who stated that the ‘results were very good’, recommended that one set of studies be re-run, and said that Lakeside was ‘confident that the results will be better and should be acceptable to FDA this time around’.[73]
[73]Ibid, [33].

Mr Verbukh deposes that because the fourth round of testing was conducted on a new batch of COVID-19 Test Kits, in order for EUA approval to be granted, a second clinical study was required with a new submission to the IRB as well as a new application for an EUA to the FDA. He says that between 25 and 28 September 2020 he exchanged emails with the Plaintiff informing it that the Plaintiff would have access to all protocols of the previous study as well as full access and control over the new clinical study and that the Defendant would provide requested oversight and necessary consulting.[74] In around October 2020, to assist with this new clinical study, the Defendant organised and submitted a second clinical study protocol to the IRB.[75]
[74]Ibid, [34].
[75]Ibid, [36].

He says that between 16 February 2021 and 1 March 2021, he exchanged several emails with Mr Wang regarding the second clinical study. On 16 February 2021, Mr Wang stated that based on the advice from Ms Brook, ‘the current clinical data [obtained during the second clinical study] did not meet the [FDA] requirements’ and that the Plaintiff was going to adjust the test kits and conduct a new third clinical study with a new submission to the IRB using existing or updated protocols prepared for the two previous studies.[76] Mr Verbukh says that the following day, Mr Wang sent him an email stating (errors as per original):[77]

The testing kits has been used more than 10 million around the world and so far, we have more than 100+ clinical trial report in Europe and South America which with doctor’s signature. I understand that FDA do not intend to receive clinical report that outside of US, but above fact should be enough to remove the 1^st and 2^nd logs testing kit’s result by simply claiming damaged product.
…
We, WCBG is a totally research background company and in industry partner of The Federal entity-Australian Research Council (ARC). We are confidence to support your work and I believe together we can get a very good result.
Personally, I am very appreciate for your effort in this project, and we shall provide more support to you from now on, like we said this is our common project and common goal.

[76]Ibid, [37].

[77]Ibid, [38].

Mr Verbukh says that he sent emails to Mr Wang about these matters on 17 February and 1 March 2021 regarding these matters.[78]
[78]Ibid, [39]

Mr Verbukh deposes that on or about 1 March 2021, the Plaintiff “assumed responsibility for the FDA approval process.”[79] No further detail is given in that regard.
[79]Ibid, [41].

He also says that on 22 March 2021 he received an email from the Plaintiff confirming that it had conducted a new clinical study, and that he was never provided with a copy or details of that study.[80]
[80]Ibid, [42].

Mr Verbukh also deposes that at the time of entry into the Distribution Agreement, and at all times otherwise, the products (being the COVID-19 Test Kits) were not approved or authorised by the FDA for at-home use either under an EUA or otherwise.[81]
[81]Ibid, [43].

Mr Verbukh deposes that in addition to the Debt, the Defendant incurred approximately $398,200 in unrecoverable costs in assisting the Plaintiff in seeking FDA approval, comprising:

(a) approximately $195,000 in legal costs for the engagement of HPM for advice, document preparation for the FDA application;

(b) $60,000 for laboratory testing of the first batch by Lakeside;

(c) $14,000 for laboratory testing of the second, third and fourth batches by Lakeside;

(d) $6,200 for shipping fees, marketing expenses and miscellaneous supplies;

(e) $53,000 for the biostatistician and epidemiology consultants for design of protocols and leading the studies; and

(f) $70,000 for clinical study oversight, subject participation and IRB submissions.

Third Wang Affidavit

In the Third Wang Affidavit, Mr Wang disputes certain matters contained in the Verbukh Affidavit. In response to the allegation by Mr Verbukh that the first batch of COVID-19 Test Kits were meant to be sent to Africa but were mistakenly sent to the Defendant, Mr Wang deposes that Mr Xu informed him that the only mention of Africa during that Zoom meeting was a statement he made that SLBT was conducting research studies in Africa using the same COVID-19 Test Kits and that the research studies were going well.[82]
[82]Third Wang Affidavit, [3].

In response to the reference in the Verbukh Affidavit to a telephone conversation between Mr Verbukh and Mr Wong about whether the Plaintiff would offer to compensate the Defendant for its expenses, Mr Wang deposes that Mr Xu told him he never suggested to Mr Wong that the Plaintiff would offer to compensate the Defendant for its expenses, and no such agreement was ever entered into.[83] Further, Mr Wang deposes that Mr Xu told him he never suggested to Mr Wong that the Plaintiff was willing to terminate the partnership between it and the Defendant.
[83]Ibid, [4].

In response to the suggestion by Mr Verbukh that the Plaintiff would have “control” over the new clinical study referred to in paragraph 63 above, Mr Wang deposes that it is clear in the email correspondence that at all times the Defendant had and would continue to have “control”.[84] Further, Mr Wang deposes that it is clear that the Plaintiff did not have any direct access to any study protocols prior to 25 September 2020.[85]
[84]Ibid, [5].
[85]Ibid, [5].

Mr Wang disputes that the Plaintiff told the Defendant on around 16 and 17 February 2021 that the Plaintiff would make changes to the COVID-19 Test Kits.[86] He also disputes that the Plaintiff assumed responsibility for the FDA approval process on or about 1 March 2021.[87]
[86]Ibid, [7]-[9].
[87]Ibid, [10].

In respect of the matters referred to in paragraph 67 above, Mr Wang says that the Plaintiff did not conduct a third clinical study as asserted by Mr Verbukh and that the statement by Mr Wang in that email that ‘we have conduct a new study with our team and facility’ contains a grammatical or typographical error, and he intended to convey to Ms Brook that the Plaintiff was willing to conduct a new study.[88]
[88]Ibid, [11].

Mr Wang deposes that the costs incurred by the Defendant, as deposed to by Mr Verbukh, were part of the costs that the Defendant agreed to pay in exchange for the exclusive distribution rights for the COVID-19 Test Kits in the relevant market pursuant to the agreements between the parties.[89]
[89]Ibid, [12].

Mr Wang deposes that the Plaintiff also incurred costs to ensure that it was in a position to perform its obligations under the agreements between the parties. He says that after entering into the MOU, the Plaintiff ordered the manufacturing of 100,000 COVID-19 Test Kits from SLBT, which cost approximately $474,214 AUD. He says that by March 2021, the market for re-sale of those kits was extremely limited as the world market had largely move towards the adoption of rapid antigen tests.[90]
[90]Third Wang Affidavit, [13]-[15].

Hong Affidavit

Mr Hong served the Application on the Plaintiff by email sent on 22 February 2022 at 5:57pm (‘Service Email’) to the email address stated in the Statutory Demand, being that of Jacob Uljans of Hall & Wilcox, the solicitors for the Defendant. The email was also sent to Jessica Pascual, a solicitor at Hall & Wilcox.[91]
[91]Hong Affidavit, [5].

In the Service Email, Mr Hong referred to those paragraphs of the First Wang Affidavit which complain of the lack of a physical address for service, stated that the Application was being served in line with the details provided in the Statutory Demand, and attached the originating process and the First Wang Affidavit (and exhibits thereto).[92]
[92]Exhibit JH-1, p. 6.

Mr Hong deposes that on the following morning, 23 February 2022, he telephoned Ms Pascual and requested that Mr Uljans send a reply email to the Service Email confirming that he had accepted service of the Application on behalf of the Defendant.[93]
[93]Hong Affidavit, [6].

Shortly after that telephone call, Mr Hong sent an email to Mr Uljans and Ms Pascual attaching a sealed copy of the ASIC search of the Plaintiff and repeating his request for an email from Mr Uljans accepting service.[94]
[94]Ibid, [7].

Mr Hong deposes that not long after sending that email, he telephoned Ms Pascual again, and she said words to the effect that Mr Uljans would accept service on the condition that the Plaintiff withdrew its argument that the Statutory Demand should be set aside by reason that it had failed to specify a physical address for service of an application in the State in which it was served. Mr Hong made a further telephone call to Ms Pascual around 1.5 hours later and asked her if the Defendant would provide unconditional acceptance of service of the Application, and she said she would seek instructions.[95]
[95]Ibid, [8]-[9].

Around 12 minutes later, Mr Hong received an email from Mr Uljans which stated that they were not obliged to provide a response confirming service by email was accepted.[96] Mr Hong replied a short time later, requesting that if the Defendant would not accept service by email unless the Plaintiff dropped its argument about the failure to specify a physical address for service in the Statutory Demand, then could they provide clear instructions as to how the Defendant would accept service unconditionally and whether a street address would be provided.[97]
[96]Ibid, [10]; Exhibit JH-1, p.91.
[97]Ibid, [11]; Exhibit JH-1, p.94.

Mr Hong deposes that on 23 February 2022 at 1:25pm, he telephoned Mr Uljans and asked for clarification regarding the Defendant’s stance on service by email. Mr Hong goes on to state that:[98]

Mr Uljans said words to the effect that their client’s position at that time was that they were not obliged to send positive email confirmation that they had accepted service. Despite numerous requests to Mr Uljans during this conversation that he provide a physical address for me to serve the documents in person, Mr Uljans refused my request.

[98]Ibid, [12].

Mr Hong deposes that at 1:54pm that afternoon, he received an email from Mr Uljans which stated that they had no obligation to positively communicate that they would accept service, but they would not be taking issue with the validity of service of the Application within the statutory timeframe.[99]
[99]Ibid, [13]; Exhibit JH-1, p.97.

Consideration

Based on the parties’ submissions, the following issues arise for consideration:

(a) Should the Statutory Demand be set aside on the grounds of a genuine dispute about the Debt or an offsetting claim? In this regard, consideration of the following is required:

(iv) whether there is a genuine dispute about the Debt on the contention that the Defendant is estopped from relying on the Refund Clause;

(v) whether the Defendant’s failure to comply with the Arbitration Clause prior to issuing the Statutory Demand gives rise to a genuine dispute as to whether a stay prevents a claim for a debt being the subject of a statutory demand, or else provides a good reason why the Statutory Demand should be set aside pursuant to s 459J(1)(b) of the Act; or

(vi) whether the Plaintiff has an offsetting claim for damages arising from the Defendant’s alleged breach of the Alleged Implied Term concerning FDA approval.

(b) Should the Statutory Demand be set aside on the grounds of the Statutory Demand being defective? In this regard, consideration of the following is required:

(i) the two defects alleged by the Plaintiff, being the failure to specify a proper address for service of a s 459G application and the misdescription of the Debt; and

(ii) whether one or other or both of these defects, if found, mean that substantial injustice will be caused unless the Statutory Demand is set aside.

(c) Whether there is some other reason, under s 459J(1)(b), to warrant the Statutory Demand being set aside.

I will address each of these issues in turn; setting out the relevant statutory provisions and applicable law, the parties’ submissions, and my analysis.

Should the Statutory Demand be set aside on the grounds of a genuine dispute about the Debt or the presence of an offsetting claim?
Relevant Statutory Provisions and applicable principles regarding s 459H of the Act

Section 459H of the Act relevantly provides that the Court can grant an application under s 459G to set aside a statutory demand if satisfied of either or both of the following:

(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.

The Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq)[100] has summarised the principles applicable in applications to set aside statutory demands on the grounds stated in s 459H as follows (citations omitted):
[100][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.

I further note that in Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[101] 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.

[101][2006] VSC 508 [48].

It is clear, therefore, that for a statutory demand to be set aside by reason of a dispute over the existence or amount of the debt or by reason of an offsetting claim, that the dispute or offsetting claim (as the case may be) must be genuine.[102] The qualifier of ‘genuine’ applies to both the dispute and an offsetting claim.[103]
[102]See, in particular, Malec, [49].
[103]In2Ply Pty Ltd v Amerind Pty Ltd (in liq) (recs and mgrs apptd) [2014] VSC 603, [30] (‘In2Ply’), referring to Diploma Constructions (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91.

The court must also consider the amount of the offsetting claim. It has been said that the “amount of the claim” in s 459H(2) means the amount claimed “in good faith, so long as that claim is not fictitious or merely colourable”.[104]
[104]Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 13 ACSR 787, 790 (‘Jesseron Holdings’).

When it comes to unliquidated claims forming the offsetting claim, courts have taken a pragmatic approach and have said that the company is not required to particularise its offsetting claim “to the last dollar and cent”.[105] Nonetheless, failing to adduce sufficient evidence to convince the court that the claim is genuine will mean that the court will ascribe a nominal value to it.[106]
[105]Elm Financial Services v Macdougal [2004] NSWSC 560, [19].
[106]Jesseron Holdings, 463.

Justice Barrett explained this broad brush approach:[107]

Despite this clear need, according to the terms of the legislation, to quantify an offsetting claim in money terms, it is not necessary that the party seeking to have the statutory demand set aside should particularise the amount of the claim to the last dollar and cent. Particularly where the claim is of an unliquidated kind, there may be various ways of approaching the issue of assessment of damages and there may be elements of the assessment that are, of necessity, based on broad estimate. It is sufficient that there be, on the evidence, a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty as to details of calculation, can be seen to be, in any event, greater than the amount of the debt the subject of the statutory demand.

[107]Karimbla Construction Services Pty Ltd v Alliance Group Building Services Pty Ltd [2003] NSWSC 617, [28].

The parties were not in dispute as to the applicable principles.

Is there a genuine dispute about the Debt on the basis that the Defendant is estopped from relying on the Refund Clause?
Submissions

The Plaintiff submits that from the affidavits filed in this proceeding, at least the matters listed below are in dispute. The matters in dispute are said to be:

(a) whether the Defendant informed the Plaintiff that it did not have expertise with EUA submissions or the FDA approval process,[108] versus whether representations were made on behalf of the Defendant that Mr Verbukh had contacts who could assist in obtaining FDA approval and that the process should be completed within a month;[109]
[108]Verbukh Affidavit, [10].
[109]First Wang Affidavit [15(a)], [15(b)]; Second Wang Affidavit, [8]-[9], [15]-[17]; Exhibit ZW-2, pp. 9-11.

(b) whether the Alleged Implied Term is implied into the parties’ agreements, and whether the Defendant was responsible for taking all reasonable steps to obtain FDA approval;[110]
[110]First Wang Affidavit, [17]. Cf Verbukh Affidavit, [10], [13]-[17].

(c) whether the Defendant took all reasonable steps to obtain FDA approval;[111]
[111]Verbukh Affidavit, [13]-[42]. Cf First Wang Affidavit, [21]-[33]; Exhibit ZW-1, pp. 36-62; Second Wang Affidavit, [18]-[22], [29]-[33]; Exhibit ZW-2, pp. 12-17, 44-65.

(d) whether the COVID-19 Test Kits worked well other than a batch damaged by heat,[112] and were approved for use in other jurisdictions by June 2020,[113] or whether the COVID-19 Test Kits did not perform adequately to obtain FDA approval for use;[114]
[112]Second Wang Affidavit, [26]-[27]; Exhibit ZW-2, pp. 34-35.
[113]Ibid, [28]; Exhibit ZW-2, pp. 37-43.
[114]Verbukh Affidavit, [22]-[25], [27]-[31].

(e) whether a batch of COVID-19 Test Kits had been intended for shipping to Africa and sent for testing in the USA due to a shipping mix-up;[115]
[115]Ibid, [24]. Cf Third Wang Affidavit, [3].

(f) whether the intermediary Mr Wong correctly conveyed an offer that the Plaintiff would compensate the Defendant for its expenses and that it was willing to terminate the “partnership” between the entities;[116]
[116]Verbukh Affidavit, [25]. Cf Third Wang Affidavit, [4].

(g) whether the Defendant required the execution of the Fourth Amendment in July 2020 before taking any further steps to obtain FDA approval;[117]
[117]First Wang Affidavit, [21]-[27].

(h) whether the Defendant was in control of the FDA approval process at all times;[118]
[118]Ibid, [14]-[17]; Second Wang Affidavit, [11], [15]-[24], [29]-[30]; Exhibit ZW-2, pp. 5, 30; Third Wang Affidavit, [5]-[6]; Exhibit 1V-1, p. 43. Cf Verbukh Affidavit, [34]-[35].

(i) whether in or around September 2020 a proposed new clinical study would be controlled by the Plaintiff or whether the Defendant had and continued to have control;[119]
[119]Verbukh Affidavit, [34]-[35]; Exhibit IV-1, pp. 42-65. Cf Third Wang Affidavit, [5]-[6].

(j) whether there were significant and unexplained delays in the final steps required to be taken by the Defendant to obtain FDA approval following the confirmation from Lakeside in September 2020 that the results of the latest round of testing would support FDA approval, including a failure to recruit 30 COVID positive patients and 150 COVID negative patients, lack of response to the Plaintiff’s requests for updates and non-cooperation with the Plaintiff’s efforts to recruit patients for these tests;[120]
[120]First Wang Affidavit, [30]; Second Wang Affidavit, [29]-[33]; Exhibit ZW-2, pp. 44-65.

(k) whether the Defendant engaged in deliberate action to delay the FDA approval process so that it could rely on its own breach of the Alleged Implied Term to claim to be eligible for a refund under the Fourth Amendment after 22 April 2021;[121]
[121]First Wang Affidavit, [36].

(l) whether there was no sufficient explanation by the Defendant of ongoing delays or why the documents required for FDA approval were not submitted to the FDA by the registered applicant, which was the Defendant;[122]
[122]First Wang Affidavit, [31]-[32].

(m) whether the Defendant failed to respond to inquiry about finalising the clinical study by 10 February 2021;[123]
[123]Ibid, [33]; Exhibit ZW-1, p. 62.

(n) whether the design of the COVID-19 Test Kits was changed or proposed to be changed in the period February to March 2021;[124]
[124]Verbukh Affidavit, [37]-[40]; Exhibit IV-1, pp. 77-82. Cf Third Wang Affidavit, [7]-[9].

(o) whether the Defendant failed to respond to the Plaintiff’s offers to support it in completing the FDA approval process;[125]
[125]Third Wang Affidavit, [10], Verbukh Affidavit [41]; Exhibit IV-1, pp. 77-82.

(p) whether the Plaintiff assumed responsibility for the FDA approval process on or about 1 March 2021;[126]

(q) whether the Plaintiff conducted a third clinical study or said that it had done so;[127] and

(r) ultimately, whether the Defendant is entitled to rely on the Refund Clause to claim the Debt or is estopped from doing so.

[126]Verbukh Affidavit, [41]. Cf Third Wang Affidavit, [10].

[127]Verbukh Affidavit, [42]; Exhibit IV-1, pp. 83-86. Cf Third Wang Affidavit, [11].

The Defendant submits that the Plaintiff’s assertion that there is a genuine dispute within the meaning of s 459H(1)(a) is misconceived. In this regard, the Defendant submits that to satisfy the requirements of s 459H(1)(a) of the Act, credible evidence sufficient to establish the existence of a bona fide dispute about the existence or amount of the debt, premised on sufficiently particularised grounds that demonstrate the objective existence and prima facie plausibility of that dispute, is required.[128] The Defendant submits that it is not sufficient to produce a laundry list of facts and issues that are disputed by the parties in some generalised sense.[129] The ‘laundry list’ referred to by the Defendant is the matters described in paragraph 95 above.
[128]Defendant’s outline of submissions, [7].
[129]Ibid, [7].

The Defendant submits that the Plaintiff seeks to identify a number of factual disagreements peripheral to the Debt, but not as to the existence of the Debt itself. The Defendant says the purported connection between these purported factual disagreements and the grounds on which the Plaintiff claims there to be a genuine dispute that the Debt is due and payable is neither apparent nor explained.[130]
[130]Ibid, [8].

The Defendant submits that when a court is determining whether there is a genuine dispute between the parties, there are two relevant considerations. Firstly, whether the dispute relates to the debt in the statutory demand, and not some satellite issue. Secondly, whether there is a coherent evidentiary basis for the dispute that is the subject of the statutory demand.[131]
[131]Transcript page 32.

The Defendant submits that the obligation to refund the Deposit is clear and not ambiguous. The obligation to pay is conditional but in only one regard: that is, FDA approval not being granted by a specified date, 22 April 2021. The defendant submits that FDA approval was not granted by that specified date, therefore the Deposit was to be refunded and it was to be refunded by 6 May 2021.[132]

Submissions regarding estoppel

[132]Ibid, page 35

The Plaintiff submits that the Defendant is estopped from relying on the Refund Clause. In support of this submission, the Plaintiff refers to paragraph 37 of the First Wang Affidavit,[133] and says the Defendant delayed in performing its obligation to obtain FDA approval so that it could obtain its Deposit back under the Fourth Amendment.
[133]Ibid, page 42.

The Plaintiff submits that the Defendant is estopped from relying on the Refund Clause as:[134]
[134]I note that Mr Wang deposes to this effect: First Wang Affidavit, [37]. I have included it here as it is more in the nature of submission rather than evidence, or a pleading rather than evidence, but that is not uncommonly included in an affidavit in support of a s 459G application given the need to set out the basis for contending that there is a genuine dispute when s 459H(1) is relied upon.

(a) the Plaintiff was induced to assume that the Defendant would take all reasonable steps to obtain FDA approval by Mr Verbukh’s representations and the Defendant’s actions in lodging the FDA approval application as the applicant;

(b) the Plaintiff relied on that assumption to its detriment, by permitting the Defendant to be the applicant and in control of the process of FDA approval;

(c) the Plaintiff further relied on that assumption to its detriment by signing the Fourth Amendment;

(d) the Defendant failed to take the steps necessary to obtain FDA approval and actively delayed in taking steps, apparently in order to obtain the benefit of a refund under the Refund Clause;

(e) in all the circumstances it would be unconscionable for the Defendant to rely on the Refund Clause.

The Plaintiff says there had been clear inducement by the Defendant for it to enter into the Fourth Amendment, and that there had been representations that the Defendant would continue to progress the FDA approval. The Plaintiff submits that there was reliance on those representations in that the Defendant progressed projects and agreed that there could be a release of the Deposit at a further date if there was no satisfactory FDA process. The Plaintiff submits there was clear knowledge on the part of the Defendant in that the Defendant would have known that the Plaintiff would be relying on the Defendant to progress and obtain FDA approval, and that knowledge was quite clear, given that return of the deposit had, immediately prior to entering into the Fourth Amendment, been refused. The Plaintiff further says that the Defendant had knowledge of the Alleged Implied Term, given that it was the only entity which could be liaising directly with the FDA to progress the approval process. The Plaintiff submits there was clear detriment in that the Defendant was the only party that was able to progress the approval process and there was resiling from the Defendant in that the Defendant did not progress the FDA approval process and yet sought release of the Deposit.[135] For this reason, the Plaintiff submits, the Defendant is estopped from relying on the Refund Clause.
[135]Transcript, page 11.

In response, the Defendant submits that there is no evidence before the Court that would permit a finding that the Plaintiff has a prima facie plausible case that the Defendant is estopped from relying on the Refund Clause, such that it gives rise to a genuine dispute that the Debt is owing.[136]
[136]Defendant’s outline of submissions, [10].

The Defendant submits that there is no evidence before the Court of the laws of the State of Florida (‘Florida Law’) that would permit a finding that, under that law, the Plaintiff has a prima facie plausible case that the Defendant is estopped from recovering the Debt in reliance on the Refund Clause. The Defendant submits that even if Australian law was to apply, the evidence provides no credible basis for the asserted equitable estoppel.[137]
[137]Ibid, [11].

Further, the Defendant says clause 2 of the Distribution Agreement expounds the responsibilities of the Defendant as the U.S distributor. The Defendant submits that it does not state that the Defendant is responsible for obtaining FDA approval for the COVID-19 Test Kits.[138] The Defendant submits that Mr Wang did not receive the email said to give rise to the estoppel claim, and the Defendant submits that whether he received it before the Fourth Amendment was executed is also relevant, especially on the question of reliance.[139] In particular, the Defendant says that the matters relied upon as giving rise to the estoppel[140] cannot support the assertions described in paragraph 101 above, noting that the Court is not required to uncritically accept inconsistent and inherently improbable assertions of this kind.[141]
[138]Transcript, page 39.
[139]Ibid, page 45.
[140]Being the matters referred to in paragraphs 21 to 33 and 33 to 36 of the First Wang Affidavit, which are summarised in paragraphs 34 to 41 above.
[141]Relying on Malec, [50].

The Defendant relied on the decision of International Materials & Technologies Pty Ltd in support of its submission that an estoppel claim may, but will not necessarily, give rise to a genuine dispute as to a claimed debt that is sufficient to set aside a statutory demand.[142] The Defendant submits the case before the Court is analogous to International Materials & Technologies, where Black J referred to three key elements for estoppel by representation: the defendant’s words or conduct must be clear and unambiguous; the plaintiff’s conduct in relying to its detriment on those words or conduct must be reasonable; and the defendant must know or intend that the plaintiff will act or abstain from acting in reliance on those words or conduct.[143] In this case, the Defendant says that all that the First Wang Affidavit says about the lead-up to executing the Fourth Amendment is that the Defendant requested a refund of the Deposit, that was refused, the Defendant then proposed what became the Fourth Amendment, and Mr Verbukh sent an email to Mr Xu and others (but not Mr Wang) in the terms set out at paragraph 36 above. Mr Wang does not depose as to whether he received it, when he received it or how he received it. After describing that email, Mr Wang then deposes to his purported subjective understanding of what was meant by it, namely that the Defendant would not proceed with any further steps to obtain FDA approval until the Fourth Amendment was executed. According to the Defendant, this is the high-water mark of the evidence relied upon by the Plaintiff and it is insufficient to ground an estoppel.
[142][2014] NSWC 168, [25] (‘International Materials’).
[143]International Materials, [27].

Does the Plaintiff have an offsetting claim for damages arising from the Defendant’s alleged breach of the Alleged Implied Term?
Submissions

The Plaintiff submits that it has an offsetting claim for the purposes of s 459H(1)(b) because it has a claim for damages caused by the Defendant’s breach of the Alleged Implied Term under the Distribution Agreement in that the Defendant failed to take all reasonable steps to obtain FDA approval for the test kits.[170] The Plaintiff says that the matters relied upon for the Offsetting Claim largely overlap with the matters identified as going to the genuine dispute based on the estoppel claim, arising from the Defendant’s conduct for the entire period from entry into the initial agreement until it openly ceased any efforts to obtain FDA approval in March 2021. Therefore, according to the Plaintiff, all the essential elements of its cause of action against the Defendant are already in existence.
[170]Plaintiff’s outline of submissions, [15]-[18].

The Plaintiff submits that it is not incumbent on the Plaintiff to have issued proceedings or made demand for the Offsetting Claim, rather it is only required to satisfy the Court that a genuine offsetting claim exists.[171]
[171]Plaintiff’s submissions in reply at [12].

The Defendant submits that there is no evidence of the Plaintiff having taken any steps to prosecute its purported multi-million dollar claim, or of it having ever even raised the existence of this purported claim with the Defendant, notwithstanding the Defendant having demanded the return of the Deposit in June 2021, until after service of the Statutory Demand.

The Defendant says that the Entire Agreement Clause relevantly provides that the Fourth Amendment (and the previous amendments, the Distribution Agreement and the Tripartite Distribution Agreement) ‘will be governed by and construed in accordance with the laws of the State of Florida’.[172] The Defendant says that the Plaintiff’s own contention is that the purported dispute must be arbitrated in Miami, Florida, applying Florida Law.[173] The Defendant submits that no evidence has been put before the Court regarding the requirements for implication of terms under Florida Law. Therefore, a finding that the Plaintiff has established a prima facie plausible case for relief under Florida Law based on a claimed breach of the Alleged Implied Term is not available in the absence of such evidence.
[172]Exhibit IV-1 to the Verbukh Affidavit, page 13.
[173]First Wang Affidavit at [38]-[40]; Plaintiff’s outline of submissions at [9]-[12].

The Defendant submits that if the issue of whether the Alleged Implied Term exists fell to be determined in accordance with Australian law, the Alleged Implied Term would plainly not meet the threshold requirements for implication of a term in fact. First, there is no evidentiary basis for the implication of such a term. In this regard, the Defendant says that the evidence in the First Wang Affidavit to the effect that certain matters were ‘agreed’ is inadmissible where it purports to state legal conclusions. The references in the First Wang Affidavit to purported ‘verbal promises’ by Mr Verbukh are not said to have been made in connection with the Fourth Amendment and are striking for their lack of specificity (for instance, as to how, when or where the promises were made). Further and in any event, it is said that the Alleged Implied Term is not necessary to give business efficacy to the agreement between the parties and nor is it so obvious that it goes without saying. On the contrary, it creates a positive obligation on the Defendant that would fundamentally change the nature of the Distribution Agreement. In addition, says the Defendant, it is contrary to the Entire Agreement Clause (and the similar clauses in the Distribution Agreement and the First to Third Amendments). If the Alleged Implied Term is asserted to be a bar to the Defendant recovering the Deposit, then it directly contradicts the text of the Refund Clause, which imposes no other condition on its entitlement to the Deposit.

The Defendant says that to the extent that there is evidence that the Court might have regard to, it is evidence which exposes that the claim based on the Alleged Implied Term as being, to use the language in Malec, patently feeble or an assertion of facts unsupported by evidence.[174] Further, the Defendant submits that an offsetting claim based merely on a vexatious or frivolous claim does not suffice, nor one based on mere assertion.[175] The Defendant says an offsetting claim must be one which the Court can see, without looking too deeply at the issues that may arise, and has some real chances of success.[176]
[174]Malec, [50].
[175]Relying on Collier Nominees Pty Ltd v Consolidated Constructions Pty Ltd (unreported, SC(NSW), 3 July 1998, BC9803056), [20].
[176]Relying on Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284, 289.

In particular, the Defendant refers to the correspondence between the parties in the period shortly prior to the deadline set out in the Refund Clause, which it contends shows that the Defendant was still trying to assist the Plaintiff in obtaining FDA approval and Mr Wang expressed his appreciation for the Defendant’s efforts. This is said to be at odds with the suggestion that the Defendant had assumed the obligation to obtain FDA approval and then discharged it in such a way as to obtain a refund of the Deposit.

Analysis

The Plaintiff says that the Statutory Demand should be set aside because it has a genuine offsetting claim under s 459H(1)(b) of the Act. This claim is said to be for loss and damage arising from the Defendant’s breach of the Alleged Implied Term.

To set aside the Statutory Demand on this basis, the Plaintiff has to establish, to the degree required by the authorities as summarised above:

(a) the existence of the Alleged Implied Term;

(b) that the Defendant has breached it; and

(c) that the Plaintiff has suffered loss and damage in an amount not less than that claimed in the Statutory Demand.

Although the Distribution Agreement as executed was said to be governed by the laws of Hong Kong, the Second Amendment provided that the Second Amendment, the First Amendment and the Distribution Agreement were governed by Florida Law. Accordingly, I read the Second Amendment as having amended the governing law clause of the Distribution Agreement.

In respect of the first of the matters referred to in paragraph 152 above, the Plaintiff has failed to adduce any evidence as to whether terms can be implied into a contract under Florida Law and, if so, what the requirements for establishing an implied term are. Therefore, the existence of the Alleged Implied Term is merely hypothetical, for the same reasons that the estoppel claim is hypothetical. Evidence regarding Florida Law would also be necessary for assessing whether there has been a breach of the Alleged Implied Term and what loss and damage has been suffered as a consequence.

As noted above, the requirement is that the offsetting claim be genuine.[177] The authorities discussed above apply both to the genuine dispute element as well as to the offsetting claim element. I cannot see how an offsetting claim, the existence of which is purely hypothetical, can constitute a genuine offsetting claim for the purposes of s 459H(1)(b) of the Act.
[177]In particular, see paragraph 90 above.

As with the estoppel claim, in my view this is sufficient to dispose of the s 459H(1)(b) as a ground to set aside the Statutory Demand.

Again, I will say something brief about it from the perspective of Australian law:

(a) in circumstances where the parties have extensively documented their arrangements in detailed contracts which contain clear and unambiguous entire agreement clauses, including the Entire Agreement Clause in the Fourth Amendment, and clear and unambiguous requirements for any amendment or variation to be in writing and signed, it would be very difficult for the Plaintiff to establish the Alleged Implied Term;

(b) the parties had the opportunity to include such a term in the Distribution Agreement, either at the time it was negotiated or subsequently with each Amendment or via additional amendments, but did not do so. They clearly gave thought to the issue of obtaining FDA approval, given that the minimum purchase requirement was contingent upon such approval being obtained and the Refund Clause itself was linked to it. That the parties worked together to obtain FDA approval is tolerably clear, as is the fact that the Defendant carried out a number of steps in that process. That does not necessarily mean that the Defendant was under a contractual obligation to do so: it may well be consistent with a contractual obligation, but I do not see that it is determinative of whether one exists;

(c) no argument was put to me to explain how it was said that it was necessary to imply the Alleged Implied Term so as to give business efficacy to the Distribution Agreement. I have not been able to identify for myself how this may be the case;

(d) I accept the Defendant’s submissions that the references in the First Wang Affidavit to certain matters being agreed is inadmissible where it purports to state legal conclusions. I also consider the references in the First Wang Affidavit to purported verbal promises to be vague;

(e) the evidence adduced by both parties as to breach of the Alleged Implied Term is such that the allegation of breach is plausible;

(f) insofar as loss and damage is concerned, the Plaintiff’s calculation appears very rough and ready to me, but is likely to be sufficient to satisfy the requirements in the authorities summarised earlier; and

(g) I accept the Plaintiff’s submission that in order to rely on an offsetting claim, it is not required that proceedings have been issued or demands made in respect of it. However, where there is no evidence of the Plaintiff having taken any steps to prosecute what on its case is a significant claim, or even raising this claim with the Defendant, a factor in assessing the genuineness of the Offsetting Claim may be a suspicion that it is a recent invention designed to provide a ground for setting aside the Statutory Demand.

Should the Statutory Demand be set aside because of defects in the Statutory Demand?
Statutory provisions and applicable principles regarding s 459J of the Act

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.

I recently had cause to consider the principles applicable to s 459J of the Act in Re Three Pillars Lynbrook Pty Ltd.[178] It is convenient to set them out here, from that judgment:[179]
[178][2022] VSC 540 (‘Three Pillars Lynbrook’).
[179]Three Pillars Lynbrook, [95]-[98] (citations omitted).

The principles applicable to s 459J of the Act were recently summarised by Hetyey AsJ in Re MHC Pathology Pty Ltd, where his Honour observed:
The case law makes clear that subparas (a) and (b) of s 459J(1) are mutually exclusive. The only source of power to set aside a demand on the basis of a defect is found in s 459J(1)(a) and not s 459J(1)(b). In other words, the provisions do not overlap.
The term “defect” as it appears in s 459J is given a wide and inclusive definition by s 9 of the legislation and may encompass an irregularity, a misstatement of an amount or total, a misdescription of a debt or other matter, or a misdescription of a person or entity. But the expression “defect” in s 459J does not imply any degree of proportionality or distinguish between defects which are major or minor in nature. Even significant defects in a demand are to be determined under s 459J(1)(a).
The question of whether substantial injustice will arise unless the demand is set aside depends on the nature of the particular defect identified and the surrounding circumstances. The requisite injustice must be experienced by the debtor company itself, but the concept cannot be treated as a proxy for disciplining a creditor who has failed to adhere to the form of the demand.
…
[T]he authorities are clear that the “other reason” required by s 459J(1)(b) cannot be a defect in the demand. Something else is required. In Arcade Badge Embroidery Co Pty Ltd v DCT, the Court of Appeal of the Australian Capital Territory found that the other reasons envisaged by s 459J(1)(b) include “conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice”. Whilst the discretion conferred by the provision is broad, a judge should not set aside a statutory demand under s 459J(1)(b) simply because she or he subjectively considers it fair to do so. The Court’s power under the sub-section exists to maintain the integrity of the statutory demand procedure in Pt 5.4 of the Corporations Act and to counter its subversion.

A statutory demand will contain a defect where the impugned statutory demand is so vague or ambiguous such 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 to enable the director to assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim. A statutory demand is required to unambiguously put the debtor company on notice of the matters required by the legislation, including the nature of the debt, a statement that the debt is due and payable, and an explanation as to how the amount claimed is composed or calculated.
While a measure of vagueness or ambiguity may not necessarily constitute a defect in the demand, it is accepted that an important factor will be the degree of vagueness or ambiguity and its impact on the perception and understanding of a reasonable reader.
As noted above, s 459J(1)(a) and (b) are mutually exclusive. This requires a short explanation. They are mutually exclusive in the sense that if the defect is in the statutory demand itself, s 459J(1)(a) applies and not s 459J(1)(b). Section 459J(1)(b) relates only to cases where there is a reason other than the existence of a defect in the demand. Accordingly, if the case is one where a defect in the demand is alleged, it can only be set aside if substantial injustice would be caused unless it was so set aside. If there is any other defect alleged, such as a defect in relation to the demand rather than in the demand itself, then the demand may only be set aside if ‘some other reason’ for setting it aside exists.

Is there a misdescription of the Debt in the Statutory Demand and if there is and that is a defect, should the Statutory Demand be set aside on that basis?
Submissions

The Plaintiff submits that the description of the Debt is misleading or ambiguous and this is a defect in the Statutory Demand such that it should be set aside under s 459J(1)(a). The Plaintiff submits the description of the Debt in the Statutory Demand refers to a refund for the deposit paid for the purchase of 110,000 COVID-19 Test Kits in accordance with clause 2 of the Fourth Amendment to the Distribution Agreement dated 18 March 2020, however, there is a Fourth Amendment dated 23 July 2020[180] but none date 18 March 2020.[181] Further, the Fourth Amendment dated 23 July 2020 deals with a deposit for 90,000 COVID-19 Test Kits and payment in full for 10,000 Test Kits (of which 3,000 were shipped).[182]
[180]Exhibit ZW-1, pp. 42-44.
[181]Plaintiff’s outline of submissions, [24].
[182]First Wang Affidavit, [51]-[56].

The Plaintiff says that in circumstances where no document is exhibited, and no further explanation given in the Accompanying Affidavit, the description of the Debt is misleading or ambiguous as it is unclear whether it intends to refer to the Fourth Amendment as exhibited to the First Wang Affidavit or some other document.

This is said to have caused substantial injustice to the Plaintiff, by hampering it in responding to allegations about a debt arising from an inadequately identified document and in determining whether there are additional grounds to dispute the Debt.[183]
[183]Assaf at [5.58], citing Financial Solutions Australasia v Predella Pty Ltd (2002) WAR 306, [33] (Parker J).

The Defendant submits that there is no defect in the Statutory Demand in the way the Debt is described. It is said that the Statutory Demand clearly identifies that the Debt claimed is for the refund of the $380,050 deposit paid by the Defendant, in accordance with the Refund Clause.

The Defendant submits that the Plaintiff’s assertion that it has suffered substantial injustice because it does not know which agreement is the subject of the Statutory Demand is disingenuous. The Plaintiff is said to have been plainly on notice of the nature and amount of the Debt, as borne out by the contents of the First Wang Affidavit.

Analysis

I do not accept the Plaintiff’s submission that the agreement relied upon for the Debt has been misdescribed or is ambiguously stated in the Statutory Demand. The agreement was clearly identified: the Fourth Amendment to the Distribution Agreement. It is the Distribution Agreement which is said to have been dated 18 March 2020, not the Fourth Amendment, which is apparent on an ordinary reading of the description of the Debt. The date follows the description of the Distribution Agreement, not the Fourth Amendment. Even if it could be read as the Fourth Amendment being dated 18 March 2020, I do not accept that this could or did cause substantial injustice to the Plaintiff: the agreement relied upon by the Defendant was plainly obvious to the other party to that agreement.

The number of test kits stated in the description of the Debt does not accord with the number of test kits referred to in the Refund Clause. On its own, that may be a misdescription of the nature of the debt claimed.

As noted above, a measure of vagueness or ambiguity may not necessarily constitute a defect in the demand: what is important is the degree of vagueness or ambiguity and its impact on the perception and understanding of a reasonable reader.[184]
[184]LSI Australia Pty Ltd v LSI Holdings Ltd (2007) 25 ACLC 1602, [54]. See also paragraph 159 above.

In this case, the Refund Clause itself defines the sum of $380,050 as the ‘Deposit’ and that clause is specified in the description of the Debt. One only has to look at the Refund Clause, to which the description of the Debt directs you, to see where the amount claimed in the Debt comes from and how it arises.

Accordingly, the description of the Debt put the Plaintiff on notice of the nature of the debt, the source of the obligation for the payment, and the amount claimed. To the extent that the number of test kits referred to is different, that is not something which would have had an impact upon the perception and understanding of a reasonable reader. Here, the reasonable reader is a person in the position of a director of the Plaintiff, who had knowledge of the very agreements stated in the description of the Debt and the surrounding circumstances.

Even if this were a defect in the Statutory Demand, I do not accept that it is such as to occasion substantial injustice to be caused if the Statutory Demand was not set aside.

As to the question of whether the gravity of the defect in question is of such a quality that substantial injustice will be caused unless the statutory demand is set aside, in Condor Asset Management Ltd v Excelsior Eastern Ltd[185] Barrett J stated that the question must:[186]

be addressed in context; and it is clear that a defect will not be productive of “substantial injustice” if the demand, viewed in the light of what the company already knows or ought reasonably be expected to know, contains sufficient information to assess its liability for the amounts demanded.

[185](2005) 56 ACSR 223 (‘Condor’).

[186]Ibid, [25].

In Condor, Barrett J also observed:[187]

Fundamental, in these circumstances, is the proposition that the company on which the demand is served must be able to identify with precision the debt - or each and every one of the several debts - upon which a statutory demand is based. Failure to provide the means of such identification means that the company is denied the ability even to begin to consider whether s 459H(1)(a) [the “genuine dispute” ground] provides a ground for challenge. The company in that position suffers severe prejudice; and that prejudice must, of its nature, mean that there will be, in terms of s 459J(1)(a), 'substantial injustice' unless the demand is set aside.

[187]Ibid, [28].

In this instance, the agreement relied upon is plainly stated, the very clause of it that is relied upon is specified, and the description of the Debt contains sufficient information for the Plaintiff to assess its liability for the amount demanded. The detailed content of the First Wang Affidavit, and Mr Wang’s ability to identify the source of the Debt and why he says it is disputed, belies the notion that any misdescription of the type alleged was capable of causing substantial injustice.

I do not consider that any injustice was caused or likely to be caused by the description of the Debt, let alone substantial injustice.

In conclusion therefore, the description of the Debt is not a defect in the Statutory Demand and even if it were, substantial injustice will not be caused by not setting it aside.

Is there a defect in the Statutory Demand regarding the address for service and if so, should the Statutory Demand be set aside on that basis?
Submissions

The Plaintiff submits the Court should be satisfied that there is a defect in the Statutory Demand for the purposes of s 459J(1)(a) because the Demand failed to specify a physical address for service of a s 459G application and supporting affidavit in the State in which it was served.[188] The Plaintiff says the Statutory Demand only provided a post office box address (‘PO Box’) in a different State, such that it was unable to serve an application by physical delivery. The Plaintiff submits that the Defendant’s omission was particularly prejudicial because the Defendant is a foreign corporation located in the US, so the Plaintiff was unable to rely on s 109X of the Act for service by delivery at the registered office to physically serve a s 459G application on the Defendant within the 21 days required.[189] The Plaintiff submits the prejudice was compounded by the refusal of the Defendant’s solicitors to confirm that service was accepted by email to the email address given on the Statutory Demand, unless the Plaintiff withdrew its argument that the Statutory Demand should be set aside on this basis, and the Defendant’s refusal to provide a physical address at which service could be effected unconditionally.
[188]Plaintiff’s outline of submissions, [19].
[189]First Wang Affidavit, [49]-[50].

The Plaintiff submits the cumulative effect of the omission of a physical address in these circumstances and subsequent conduct designed to extract a concession from the Plaintiff and force it to abandon a ground available to it in order to ensure it was able to serve the application within time, amounts to unconscionable conduct or an abuse of process in this statutory context of strict timelines, and of itself provides ‘some other reason’ to set aside the Statutory Demand under s 459J(1)(b) of the Act.[190]
[190]Plaintiff’s outline of submissions, [21].

Further, the Plaintiff refers to the decision of Safetrack Pty Ltd v Marketing Heads Australia Pty Ltd,[191] and submits that the Court is empowered to set aside a statutory demand for a reason “not otherwise indicated by the legislation as a ground for setting aside of a statutory demand”, including where there is a need to counter some attempted subversion of the intended operation of Part 5.4 of the Act. The Plaintiff says the Court ought not tolerate an attempt by the Defendant to extract a forensic advantage by inhibiting service, or only conditionally accepting service, of an application to set aside a statutory demand which must be served within 21 days to properly invoke the Court’s jurisdiction.[192]
[191](2007) 214 FLR 393, 400; [2007] NSWSC 1143, [27] (‘Safetrack’).
[192]Plaintiff’s outline of submissions, [23].

The Defendant also referred to Safetrack and submitted that there has been no subversion attempted or affected in this instance because the Defendant had two alternative modes of service identified, the PO Box or email. The Defendant submits the Plaintiff availed itself of service by email and within 24 hours of sending the Service Email, was informed by the Defendant that it took no issue with service.[193]
[193]Transcript, page 64.

The Defendant submits that where a creditor nominates an address for service in the statutory demand, it is permissible to serve an application and supporting affidavit under s 459G at that address (including an email address), and personal service is not required.[194] Accordingly, the Defendant submits that the Plaintiff suffered no prejudice as a result of the alternative means of service, and its solicitors’ demands that the Defendant’s solicitors expressly ‘confirm’ service were unnecessary and ultimately irrelevant.[195]
[194]Relying on SGR Pastoral Pty Ltd v Christensen [2019] QSC 229, [35]-[40] (‘SGR Pastoral’); Rochester Communications Group Pty Ltd v Lader Pty Ltd (1997) 143 ALR 648, 763. The Defendant also refers to In the Matter of Kornucopia Pty Ltd (No 1) [2019] VSC 756, [50], where Sifris J (as his Honour then was) stated that while s 109X of the Act provides for service on a company, it is not an exhaustive code of the ways in which a corporate entity may be served.
[195]Defendant’s outline of submissions, [23].

In its submissions, the Defendant accepted that nomination of a post office box, in a State other than the State in which the demand was served, as the sole address for service might give rise to a defect in the statutory demand, but contended that it would not necessarily cause substantial injustice.[196] The Defendant says that no substantial injustice was caused here as there was an alternative address and means of service provided in the Statutory Demand, being an email address.
[196]Relying on Fairstar Resources Ltd v Bhalla [2017] WASC 74.

Analysis

In effect, the Plaintiff contends that the failure to state a physical address for service in the Statutory Demand is both a defect such that the Statutory Demand should be set aside under s 459J(1)(a) and, in the context of the Defendant’s conduct around service by email, ‘some other reason’ for setting it aside under s 459J(1)(b) of the Act. I will deal with this second aspect of the Plaintiff’s submissions in the next section of this judgment.

As set out above, a statutory demand which contains a defect will not be set aside unless substantial injustice would be caused unless it were.

The prescribed form for a statutory demand requires that it specify the address for service of copies of any application and affidavit in the state or territory in which the demand is served on the debtor company.[197]
[197]Form 509H, item 6.

The rationale for this requirement was explained by Lander J in Players Pty Ltd v Interior Projects Pty Ltd as follows:[198]

It is readily apparent why the form would provide an address for service of any application and affidavit, that is because of the onerous requirements of s 459G and so as to make it entirely clear to any party who wished to make an application under that section upon whom and where the document under s 459G ought to be served … It seems to me that the regulations therefore contemplate that the party to whom the [statutory demand] is directed will, if that party makes an application under s 459G, serve that application at the address nominated in the Form 509H notice [ie, the statutory demand] and not be required to serve the creditor either at the creditor’s own address or at the registered office of the creditor if the creditor is a company … It is clear enough to me that the intention is to facilitate the service of an application under s 459G not to impede service or make service of such an application more difficult.

[198](1996) 133 FLR 265, 268-9 (‘Players v Interior Projects’).

In this instance, the Statutory Demand provided alternate addresses and means of service for a s 459G application. It provided as follows:[199]

The address of the creditor for service of copies of any application and affidavit is:
Hall & Wilcox
GPO BOX 4190
MELBOURNE VIC 3000
(Attention: Jacob Uljans)
[email protected]

[199]Exhibit JW-1, p. 2.

I do not see how nominating the PO Box (whether in another State to that where the statutory demand was served or not) as the address for service is capable of causing substantial injustice where the statutory demand also nominates an email address for service (emphasis added). It can hardly lie well in a creditor’s mouth to complain of service at an address and using a method provided for in the statutory demand, such that it is difficult to conceive of a situation where a court would view service at that address via that method as anything other than good service. That service by email is not a method of service on a company provided for under s 109X of the Act is neither here nor there: it is well established that that section is facultative and not mandatory.[200]
[200]Emhill Pty Ltd v Bonsoc Pty Ltd [2004] VSC 322, [27].

As stated in SGR Pastoral:

It is well established that the requirement in s 459G(3)(b) to serve the documents “on the person who served the demand” is met where the documents are served at the address for service specified in the statutory demand.[201]

[201]SGR Pastoral, [17].

It is difficult to see how nominating an email address for service in the statutory demand would do anything other than facilitate service, and certainly would not impede service or make it more difficult. It is not as if service cannot be efficiently effected by way of email such that the 21 day requirement is able to be met.

Accordingly, if the addresses for service nominated in the Statutory Demand was a defect, setting aside the Statutory Demand on these grounds is not warranted. I simply do not accept that in this case substantial injustice would be caused by not setting aside the Statutory Demand on this ground.

Should the Statutory Demand be set aside for some other reason, pursuant to s 459J(1)(b)?
Is the lack of a physical address for service and the conduct of the Defendant in respect of service some other reason for setting aside the Statutory Demand?

As noted above, the lack of a physical address for service in the Statutory Demand was relied upon as a defect in the Statutory Demand for it to be set aside under s 459J(1)(a) of the Act.

The Plaintiff’s submissions in respect of the address for service and the conduct of the Defendant regarding service did not adequately distinguish between sub-paragraphs (a) and (b) of s 459J(1). It was said that the lack of a physical address in the State in which the Statutory Demand was served prejudiced the Plaintiff and that this, combined with the Defendant’s conduct, provided ‘some other reason’ under s 459J(1)(b) of the Act.

The difficulty with that approach is that s 459J(1)(a) and (b) are mutually exclusive. It is clear on the authorities that if a defect in the statutory demand is relied upon, that is, s 459J(1)(a), then s 459J(1)(b) is not able to be invoked in respect of a defect.[202] Accordingly, the ‘some other reason why the demand should be set aside’ refers to a reason not otherwise indicated by the Act as a ground for setting aside a statutory demand, namely a defect in the statutory demand.[203]
[202]Kalamunda Meat Wholesalers (1994) 51 FCR 446, 450.
[203]Spencer Constructions (1997) 76 FCR 452, 459.

Thus, in respect of the address for service, it could only be the Defendant’s conduct in respect of service which might possibly provide ‘some other reason’ why the Statutory Demand should be set aside.

The Court should not act under s 459J(1)(b) unless the decision to do so is supported by ‘some sound or positive ground or good reason which is relevant to the purposes for which the power exists’, as statutory demands should stand unless there are reasons of ‘appropriate seriousness’ for setting them aside.[204]
[204]Portrait Express v Kodak (1996) 132 FLR 300.

In Meehan v Glazier Holdings Pty Ltd, Young CJ in Eq stated that:[205]

Although the wording of s 459J(1)(b) of the Corporations Act appears wide, its context and history requires reading it down to encompass in general terms only cases where the Court is satisfied that injustice will be caused unless the demand is set aside because of a defect relating to, but not in, the demand … It is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so. The sort of case that will be covered will include gross defects in supporting affidavits and documentation and where the alleged creditor has made statements or representations relating to the statutory demand which have reasonably induced a change of the alleged debtor’s position. A judge is not at liberty to set aside a demand under s459(J)(1)(b) merely because he or she is subsequently subjectively considers it fair to do so.

[205][2005] NSWCA 24, [60]–[61].

The Defendant’s reluctance to confirm service via the Service Email is difficult to understand and explain in the circumstances of this case, given that it had stated that email address as an address for service, and its reluctance does not reflect well upon it. However, I do not accept that in this instance, the conduct of the Defendant of which the Plaintiff complains is a reason of appropriate seriousness, let alone something amounting to unconscionable conduct or an abuse of process as submitted by the Plaintiff, such as to constitute ‘some other reason’ to set aside the Statutory Demand.

Is the presence of and/or failure to follow the Arbitration Clause some other reason for setting aside the Statutory Demand?

As set out above, the Plaintiff’s case in respect of the Arbitration Clause relied on both there being a genuine dispute and being ‘some other reason’ for setting aside the Statutory Demand. I have set these arguments out above, and also set out my analysis in respect of them. It was convenient to approach it in this way, given the way the case was argued.

Accordingly, for the reasons set out above, the presence of and/or failure to follow the Arbitration Clause is not some other reason justifying that the Statutory Demand be set aside.

Conclusion

For the reasons set out above, the Application is refused and the Statutory Demand will not be set aside.

The parties are to confer regarding a form of orders to give effect to this judgment, including as to costs.

By 9 November 2022, the parties are to send to my Chambers:

(a) consent orders; or

(b) if consent is not reached, each party’s proposed form of order and a short written submission of no more than 3 pages.

The proceeding will be listed for the making of final orders on 11 November 2022 if consent orders are not provided in accordance with the preceding paragraph.

Date Paid	Description	Invoice	Amount Paid
3/26/2020	Purchase of 10,000 kits at $10.40/piece	10436	$104,000.00
Credit	3,000 kits shipped and received by Global per Invoice 10346 (3,000 @ $10.40)	($31,200.00)
4/6/2020	25% deposit for test for 90,000 test kits at $13.50/piece	10437	$298,125.00
6/17/2020	Payment of additional $0.50 per kit for 7,000 units not shipped per invoice 10436	10436 (A)	$3,500.00
6/17/2020	Payment of additional $0.25 (new needle fee) added to the 25% deposit per invoice 10437	10437 (A)	$5,625.00
Deposit Due	$380,050.00

Description of the debt	Amount of the debt
Refund for the deposit paid for the purchase of 110,000 test kits for in vitro detection of IgM/IgG antibodies to COVID-19 (whole blood, serum, plasma) colloidal gold immunochromatography assay in accordance with clause 2 of the Fourth Amendment to the Exclusive United States Distribution Agreement between Wonderful Capital Biotechnology Group Pty Ltd and the creditor dated 18 March 2020	$380,050.00
Total Amount	$380,050.00

[2022] VSC 652

28 October 2022