Reschke Pty Ltd v DiGiorgio Family Wines Pty Ltd - [2017] SASC 187

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
RESCHKE PTY LTD v DIGIORGIO FAMILY WINES PTY LTD
[2017] SASC 187
Judgment of The Honourable Justice Doyle
12 December 2017
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENERALLY
The respondent (defendant) had for a number of years processed and stored wine for the plaintiff (appellant). The plaintiff sought to set aside a statutory demand served on it by the defendant. The demand claimed a total of $1,610,194.63 referrable to two stand-alone invoices as well as the running balance ($1,026,541.10) of the monthly invoices that had been rendered by the defendant.
At first instance, the Master held that there was a genuine dispute in respect of the amount claimed in the two stand-alone invoices, but rejected this contention in respect of the balance of $1,026,541.10. The Master thus varied the demand to claim this reduced sum.
On appeal, the plaintiff contends that the Master erred in rejecting the plaintiff’s contention that the balance of $1,026,541.10 was also the subject of genuine dispute for the purposes of s 459H of the Corporations Act 2001 (Cth) (the Act), and in rejecting the contention that there was “some other reason” to set aside the demand under s 459(1)(b) of the Act.
Held per Doyle J, dismissing the appeal:
1. There was no error in the Master’s rejection of the plaintiff’s contention that the balance of $1,026,541.10 was the subject of a genuine dispute for the purposes of s 459H of the Act (at [43]-[52]).
2. Consideration of the circumstances in which a demand might be set aside on the basis there was “some other reason” to do so under s 459J(1)(b) of the Act, and in particular the circumstances in which reliance upon the demand facility might involve an improper purpose (at [53]-[65]).
3. There was no basis on the facts of this case to infer any improper purpose from the defendant’s knowledge of a genuine dispute (at [81]).
4. There was no basis on the facts of this case to infer any improper purpose from the defendant’s knowledge of the plaintiff’s solvency (at [87]).
5. There was no error in the Master’s rejection of the plaintiff’s contention that there was “some other reason” to set aside the demand under s 459J(1)(b) of the Act (at [88]).
Corporations Act 2001 (Cth) s 459H, s 459J, referred to.
Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd ( 2007) 61 ACSR 321; Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179; Genesis Management Services Pty Ltd v Soniclean Pty Ltd [2005] SASC 224; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250; TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; John Shearer Ltd v Gehl Co (1995) 60 FCR 136; Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; Yoogalu Pty Ltd v Intentia Australia Pty Ltd [2006] NSWSC 278; Delta Beta Pty Ltd v Vissers (1996) 20 ACSR 583; Reavill Farm Management Pty Ltd v Ashford Properties Pty Ltd [2010] NSWSC 1128; Chippendale Printing Co Pty Ltd v Commissioner of Taxation (1995) 55 FCR 562; Alcatel Australia Ltd v PRB Holdings Pty Ltd (1998) 27 ACSR 708; Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62; Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229; Halal Meats Pty Ltd [2015] NSWSC 2041; Re Eastmark Holdings Pty Ltd [2011] NSWSC 108; Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602; Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62; Poonon Pty Ltd v Deputy Commissioner of Taxation [1999] NSWSC 1121; TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074; Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 165 FLR 72; Intergraph Public Safety Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523; Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411; First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939; Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256; Re Wollongong Coal Ltd (2015) 110 ACSR 134; Rinfort Pty Ltd v Arianna Holdings Pty Ltd (2016) 306 FLR 413; Re Scahill & Co Pty Ltd [2016] NSWSC 566; Re Tetbury Pty Ltd [2017] NSWSC 37; Polstar Pty Ltd v Agnew (2007) 208 FLR 226; Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675; Old Kiama Wharf Co Pty Ltd v Deputy Commissioner of Taxation (2005) 55 ACSR 223; Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025; Paperlinx Ltd v Skidmore (2004) 51 ACSR 614, discussed.

RESCHKE PTY LTD v DIGIORGIO FAMILY WINES PTY LTD
[2017] SASC 187
Civil
DOYLE J:

The appellant (plaintiff) and respondent (defendant) have had a commercial relationship for approximately 13 years. The defendant processes the plaintiff’s grapes into wine and also stores the wine for the plaintiff.
In these proceedings, the plaintiff sought to set aside a statutory demand served on it by the defendant. The demand claimed an amount of $1,610,194.63 on account of processing and storage services provided by the defendant to the plaintiff.
A Master of this Court declined to set aside the statutory demand. However, his Honour varied the demand to claim the sum of $1,026,541.10.
In this appeal, the plaintiff contends that the Master erred in failing to set aside the demand on the bases:
1. that there was a genuine dispute for the purposes of s 459H of the Corporations Act 2001 (Cth) (the Act) as to the entire sum claimed; or
2. that there was “some other reason” for setting aside the demand under s 459J(1)(b) of the Act.
Background
The statutory demand related to services provided by the defendant to the plaintiff under the Grape Processing Agreement (GPA) entered into between those parties on 9 September 2015.
Pursuant to the GPA the parties agreed that the defendant would process the plaintiff’s grapes and store the resulting wine. They agreed that the plaintiff would pay the defendant for these services in accordance with the prices listed in Schedule A to the GPA. Schedule A specified charges for processing and other related services, including “tank storage” at the rate of $0.02/litre/month. The Schedule also specified that “vintage tank storage not associated with processing is at $0.06/litre/month for February to June inclusive”.
The GPA provided that payment terms were 30 days from the invoice date, and that outstanding accounts would attract a late payment fee of 1.5 per cent per month.
During the period of the GPA the defendant sent the plaintiff monthly invoices setting out their charges for services rendered under that agreement. The invoices also set out the outstanding balance at the end of each month, and a late payment fee, calculated at 1.5 per cent of the outstanding balance.
Prior to entry into the GPA, and throughout the period of their commercial relationship, the defendant had rendered similar monthly invoices based upon similar lists of service charges.
A director of the defendant, Mr Francesco DiGiorgio, deposed that he had spoken to the sole director of the plaintiff, Mr Burke Reschke, on a number of occasions about the outstanding balance, both prior to and during the period of the GPA. He said that no concern had been expressed to him about the quantum of the accounts, or the outstanding balance. Nor had Mr Reschke said anything to him, prior to receipt of the statutory demand, that suggested there was a dispute about such amounts. Mr DiGiorgio annexed to his affidavit a bundle of email communications from October 2016 to May 2017 that were consistent with this evidence.
The statutory demand the subject of these proceedings was dated 9 August 2017. It claimed an amount of $1,610,194.63 described as:
Monies due and owing by the Debtor Company to the Creditor relating to services provided and work undertaken pursuant to a Grape Processing Agreement dated 9 September 2015.
Of this figure, $1,026,541.10 related to the amount outstanding (inclusive of late payment fees) in respect of the regular invoices for processing and storage charges. The last payment in respect of those invoices had been $200,000 paid back in April 2016. Some 23 invoices remained outstanding. The outstanding balance had been included on each invoice. The 3 July 2017 invoice included the charges for the services rendered for the preceding month, and sought the outstanding balance as at 30 June 2017 of $1,026,541.10.
The balance of the amount in the statutory demand was referrable to two separate invoices. These invoices were both dated 31 January 2017 and related to “vintage storage charges” for the 2015 and 2016 vintages, being invoices 2015VIN and 2016VIN for $298,261.26 and $285,392.27 respectively. These invoices related to storage of prior vintage wines for the periods February to June 2015 and February to June 2016 respectively, charged at the rate of an “additional” $0.04 per litre per month. It is apparent that the figure of $0.04 represents the difference between the $0.02 charge for “tank storage” and the $0.06 charge for “vintage storage” under the GPA.
In a statement of account and remittance advice dated 2 August 2017, these charges were described as “penalty storage charges” for 2015 and 2016. But Mr DiGiorgio explained that this description was given in error by a clerk, and that the charges reflected amounts charged for vintage storage under the GPA and were not penalties.
According to Mr DiGiorgio, the basis for the vintage storage fee was a matter he had discussed with Mr Reschke, and was well known throughout the industry. He explained that during the period from February to June, tank space was at a premium and delays in removing the wine from an earlier vintage from storage meant that wine from the next vintage may need to be stored elsewhere at additional cost, including the cost of tanker freight to and from the winery. Further, storing earlier vintage wine may reduce the crushing capacity of the winery, given the requirements for working space, wine movements and storage during vintage.
The plaintiff’s affidavits
In support of its contention that the statutory demand should be set aside, the plaintiff relied upon two affidavits from Mr Reschke, the first of which was filed within the 21 day period prescribed for an application to set aside a statutory demand, and the second of which was filed after the expiration of that period. As the parties accept, it is a corollary of the so-called Graywinter principle (which requires that a company seeking to set aside a statutory demand on the basis of a genuine dispute file affidavit material raising the ground(s) for that dispute within the statutorily prescribed 21 day period),[1] that the Court cannot act upon new grounds raised in an affidavit filed outside the 21 day period. The Court can, however, act upon supplementary affidavits filed outside the 21 day period that merely expand upon grounds raised in an affidavit filed within that period.[2]
[1] Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 459-460; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321 at [28].
[2] Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 at [29]; Genesis Management Services Pty Ltd v Soniclean Pty Ltd [2005] SASC 224 at [59].
In his first affidavit, Mr Reschke said that the statutory demand had enclosed the 2015VIN and 2016VIN invoices, but did not provide the running balance for the remainder of the debt brought forward in the amount of $1,026,541.10, adding that “there is no way of independently verifying this balance”. Mr Reschke went on to say that the plaintiff did not owe the defendant the amount in the demand because there were issues in respect of its calculation, which he described in the following terms:
1.   The plaintiff had been charged “penalty storage charges” by the defendant under invoices 2015VIN and 2016VIN. He said they were described as penalties and were not enforceable.
2.   The plaintiff had been charged for “vintage storage charges” under invoices 2015VIN and 2016VIN at the rate of $0.04 per litre, which rate had no voice under the GPA.
3.   The plaintiff had been charged under invoice 2016VIN “as per service charges 2016”, which charges had no voice under the GPA.
Mr Reschke also referred to a 28 August 2017 letter from the plaintiff’s solicitors setting out these complaints or issues. He concluded by stating his belief, based on his review of the plaintiff’s books and records, that the plaintiff was solvent.
The matters raised in items 1 to 3 above were not ultimately pressed. That was for good reason, given that each is answered by the matters set out in my summary of the terms of the GPA and Mr DiGiorgio’s explanation of the amounts claimed. The grounds that remained were that the sum of $1,026,541.10 was not able to be independently verified, and the solvency of the plaintiff.
In his second affidavit, Mr Reschke provided additional detail addressing the following eight topics.
Refusal of access. First, Mr Reschke deposed that since about November 2015, the defendant had been refusing to permit the plaintiff access to the wine in storage until the plaintiff paid the debt. He said this had precluded the plaintiff from taking possession of the wine to sell it, asserting that the plaintiff had thus lost valuable opportunities to sell the wine. He annexed some email communications on this topic which included reference to a sale opportunity to certain Chinese buyers that was said to be worth $90,000.
Withholding possession. Secondly, Mr Reschke deposed that the plaintiff’s position was that the defendant was not entitled to withhold the possession of the wine, or in the alternative was not entitled to do so to the extent that the value of the wine exceeded the outstanding charges. He said that the plaintiff’s wine in storage with the defendant was valued for insurance purposes at $15.4 million, and that the total value of all of the plaintiff’s wine stock was approximately $26 million.
Concession of overcharging. Thirdly, Mr Reschke asserted a belief that the defendant had inflated its charges the subject of the statutory demand for the purposes of pressuring the plaintiff into meeting the defendant’s demand for payment of the debt. Mr Reschke went on to assert that in a 12 May 2017 conversation with Mr DiGiorgio he had made something of a concession of overcharging. Mr Reschke deposed to the following exchange:
Mr Reschke: Frank, I’m expecting you have increased the charges excessively to be eligible for more cents in the dollar if everything goes wrong.
Mr DiGiorgio: I will deny ever saying this if questioned about it but yes, and I’m prepared to remove them if you pay.
Mr Reschke said that they then discussed the plaintiff’s financial position. He said that he told Mr DiGiorgio his asset and debt position, and that by the end of the discussion he believed that Mr DiGiorgio was satisfied that the plaintiff was not insolvent.
Agreement not to charge additional storage fee. Fourthly, and in relation to the vintage storage charge the subject of the 2015VIN and the 2016VIN invoices, Mr Reschke agreed that it was industry practice for wineries to charge some customers higher storage fees during vintage. However, he said that the plaintiff and defendant had always had an agreement that the defendant would not charge this fee to the plaintiff. He said that the plaintiff had used the defendant’s winery and storage facilities for more than 10 years, and the defendant had not previously attempted to charge it such a fee. He suggested that it had been levied for the purpose of supporting a statutory demand, punishing the plaintiff and pressuring the plaintiff into meeting the defendant’s demands for payment. He regarded this as consistent with the statement made by Mr DiGiorgio in the 12 May 2017 conversation in relation to inflating the charges as set out above. He said that the charge in question was above market rates for storage in South Australia, adding that in his experience in the industry the storage fees during vintage were usually only $0.04 and not $0.06 per litre (that is, double and not triple the standard rate). He said that had it been indicated to him in 2015 or subsequently that such a charge was being levied he would have sought alternative storage facilities for the plaintiff’s wine.
Excessive late payment fee. Fifthly, he said that the 1.5 per cent late payment fee, which equated to 19.6 per cent per annum compounding, was from his commercial experience grossly in excess of the market rates of finance during the relevant period (which he said were closer to 4 per cent per annum). He said that the defendant had never charged this fee to the plaintiff, and believed it was a penalty designed to pressure it into paying. He did not believe it represented the true cost to the defendant of late payment and was not an accurate pre-estimate of its loss if a customer failed to pay on time.
Refusal of stocktake. Sixthly, Mr Reschke estimated that the defendant currently held approximately 2 million litres of its wine. He said that bulk wine storage was commonly subject to loss, damage and contamination and that for this reason it was customary to permit a customer to access the wine and inspect it to verify its condition and volume. He said that the defendant had refused the plaintiff a stocktake since about October 2016, and had on a number of occasions since November 2015 denied the plaintiff access to sell its wine.
Solvency of plaintiff. Seventhly, Mr Reschke deposed to the solvency of the plaintiff. He annexed copies of the plaintiff’s (unaudited) accounts for the 2016 and 2017 financial years. Both show significant net profits being earned by the plaintiff, and significant net assets. Mr Reschke explained that as well as being the sole director and shareholder of the plaintiff, he was also the sole director and shareholder of Reschke Vineyards Pty Ltd. That company is the trustee of the Koonara Property Trust, of which Mr Reschke is a beneficiary. Reschke Vineyards owns land which Mr Reschke said was valued at about $7 million. That land was mortgaged to National Australia Bank to secure the indebtedness of another related company. The balance of that debt is presently about $4 million. Mr Reschke explained that the plaintiff company was his primary trading vehicle and that he would do everything in his power to avoid it being wound up. He said that if the plaintiff were adjudged to be liable for the debt alleged to be owing by the defendant, then he would cause Reschke Vineyards to sell sufficient land to put the plaintiff in funds to pay the amount owing.
Defendant’s knowledge of solvency. Eighthly, Mr Reschke deposed to his basis for believing that the defendant (through Mr DiGiorgio) knew the plaintiff was not insolvent or anywhere close to being insolvent. While Mr Reschke’s belief about these matters is irrelevant, and he cannot give admissible evidence as to Mr DiGiorgio’s state of mind, I accept that it is relevant to have regard to the evidence that Mr DiGiorgio and the defendant have been long-standing participants in the South Australian wine industry; have had commercial dealings with the plaintiff company over a period of more than 10 years; and are presently storing wine for the plaintiff that Mr Reschke has valued at approximately $15 million. Mr Reschke also deposes to having had several discussions, and email communications, with Mr DiGiorgio about his (Mr Reschke’s) landholdings in the Coonawarra. I will return later to consider what inferences, if any, might be drawn from the above evidence.

The defendant took objection to various aspects of Mr Reschke’s second affidavit. It objected to his evidence in relation to the first topic (refusal of access), second topic (withholding possession) and sixth topic (refusal of stocktake) on the grounds that these were new issues that had not been raised in Mr Reschke’s first affidavit; that reliance upon them was thus contrary to the corollary of the Graywinter principle mentioned earlier. It objected to aspects of his evidence in relation to the third topic (concession of overcharging), fourth topic (agreement not to charge additional storage fee) and eighth topic (defendant’s knowledge of solvency) on the basis that they involved opinions or conclusions on the part of Mr Reschke for which no proper basis had been disclosed, or impermissible evidence about Mr DiGiorgio’s knowledge and motivations. The Master did not expressly rule on these objections. I will return to the significance of these objections, to the extent necessary, later in these reasons.
Principles governing existence of genuine dispute
The Master accurately summarised the principles governing determination of whether there was a “genuine dispute” as to the existence or amount of the debt claimed in a statutory demand for the purposes of s 459H of the Act. He explained that while formulations in the authorities differed slightly, a fair summary of the test was that it was not particularly onerous, so long as there appeared to be a proper evidentiary basis for the assertion that there was a genuine dispute. His Honour also referred to authorities to the effect that the dispute must be bona fide and truly exist in fact,[3] and that the notion of a “genuine dispute” connotes a plausible contention requiring further investigation.[4]
[3] Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 462.
[4] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787.
In this context, I would add merely that the authorities also make it plain that establishing a genuine dispute requires that there be some factual and evidential basis for the asserted dispute. It must be established that the dispute has a sufficient objective existence and prima facie plausibility to distinguish it from mere assertion,[5] or from a claim that is spurious, fanciful or futile.[6] But it is not necessary to advance a fully evidenced claim; what is required is something between mere assertion and the proof that would be necessary in a court of law.[7]
[5]    John Shearer Ltd v Gehl Co (1995) 60 FCR 136 at 143, 147-148; Genesis Management Services Pty Ltd v Soniclean [2005] SASC 224 at [49]-[50].
[6]    TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67 at [71].
[7]    John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253.
The Master went on to explain the limited function of the Court in determining whether there is a genuine dispute:
The Court's function on an application to set aside a statutory demand is limited. In Bentham Management Pty Ltd v Union Finance Pty Ltd Debelle J stated:
“In short, the Court's task is not to seek to resolve the competing claims of the applicant or respondent but to resolve whether a genuine dispute exists or whether there is a genuine counterclaim, set-off or cross-demand. It is not to try the claim but merely to establish its genuineness.”
The purpose of the statutory demand regime is to act as a filter. That is, to separate out those disputes which are genuine and those disputes which are not. If there is a genuine dispute, the demand is set aside and the matter is left to be litigated in the usual manner. If there is a genuine offsetting claim, the demand is adjusted accordingly. Where neither exists, the demand is not set aside or varied.
The Master’s reasons as to existence of genuine dispute
In considering the merits of the plaintiff’s contention that there was a genuine dispute, the Master dealt separately with the amounts referrable to the outstanding balance of $1,026,541.10 and the amounts in the 2015VIN and 2016VIN invoices.
As to the former, the Master had earlier noted the email communications between the parties referred to by Mr DiGiorgio. His Honour summarised the emails as showing that the defendant was expressing concern that invoices remained unpaid and pressing the plaintiff for payment. In response, the plaintiff was setting out the steps it was taking to refinance so as to be able to pay the invoices. The Master concluded that there were two relevant matters arising from the email communications. First, it was clear that the plaintiff was not in a position to make payment pending obtaining further finance. Secondly, there were no complaints from the plaintiff in respect of any of the charges. In none of the emails did the plaintiff dispute that the monies were owing, nor raise any queries in respect of any of the charges.
The Master rejected the contention that there was a genuine dispute arising out of the plaintiff’s complaint that the claim of $1,026,541.10 was not able to be verified. His Honour reasoned:
Dealing with the first matter, I do not accept it as founding any basis for an argument there is a genuine dispute about the existence or amount of debt in respect of the $1,026.541.10. There is no doubt that the defendant stores a considerable amount of wine (millions of litres) for the plaintiff. The storage charges have always been invoiced on a monthly basis. The suggestion that the plaintiff in some way needs to verify how much wine is stored suggests merely that it is hoping to find an area of dispute. It does not amount to an allegation that there is a genuine dispute about the amount of the debt or the existence of the debt. As was noted in Spencer Constructions Pty Ltd, the dispute must be bona fide and truly exist in fact. When the best a plaintiff can say is it wishes to verify the amount of the debt, a court cannot be satisfied a dispute truly exists in fact.
As to the amounts claimed in the 2015VIN and 2016VIN invoices, the Master found that a genuine dispute had been established. His Honour reasoned:
The position is slightly different in respect of the two invoices for additional vintage storage. The affidavit material filed by the plaintiff asserts that, historically, the additional storage fee (incorrectly called “penalty charges” in the invoices) was not charged. Mr Reschke in his second affidavit deposes to a conversation with the director of the defendant on 12 May 2017. The effect of the conversation is that the January invoices are not necessarily payable if the other debts are paid. That might ultimately be disputed, but does suggest a basis for a dispute.
I am satisfied, just, that in relation to the two invoices for additional vintage storage, there is a genuine dispute in the sense of a plausible contention requiring further investigation. This is reinforced by the fact that the invoices were not sent at the time the obligation was incurred, but in respect of the 2015 vintage, not for a period of almost two years. No explanation is provided for the delay.
Challenge to the Master’s finding of no genuine dispute
On appeal, the plaintiff contends that the Master erred in not finding that a genuine dispute had been established in respect of the claim for $1,026,541.10.
In support of this challenge, the plaintiff relies primarily upon the evidence in relation to what I have described as the sixth topic (refusal of stocktake) in Mr Reschke’s second affidavit. That is, Mr Reschke’s evidence to the effect that he had about 2 million litres of wine in storage with the defendant; that bulk wine storage was commonly subject to loss, damage and contamination; and that the defendant had refused the plaintiff access to inspect the wine or carry out a stocktake of the wine. The plaintiff contends that this evidence was sufficient to establish a genuine dispute in respect of the $1,026,541.10.
The first issue that arises in respect of the plaintiff’s challenge to the Master’s decision is that it relies upon evidence (summarised above) that was the subject of objection at first instance. The objection was on the basis that the evidence related to a new or additional ground for a genuine dispute not within the grounds articulated in Mr Reschke’s first affidavit; and that reliance upon this evidence was thus precluded by the corollary of the Graywinter principle. While both parties accept there was no express ruling on this objection, the plaintiff contends that the Master must be taken to have received the evidence, whereas the defendant contends that the Master should be taken to have ignored the evidence as inadmissible.
I am inclined to accept the plaintiff’s construction of the Master’s approach. I consider it likely that his Honour’s reference in the passage extracted above to “the suggestion that the plaintiff in some way needs to verify how much wine is stored suggests merely that it is hoping to find an area of dispute” is a reference to the evidence in question, making it apparent that his Honour considered that evidence to be relevant and admissible.
It is in any event appropriate that I consider the challenge to the Master’s conclusion on the assumption that this evidence was admissible, and able to be relied upon. It is true that Mr Reschke’s reference in his first affidavit to there being “no way of independently verifying the balance” was somewhat ambiguous, and might more naturally be construed as a reference to an inability to verify the breakdown or calculation of the amount claimed. However, given that the Graywinter principle requires merely that a ground be “raised” in the affidavit material file within 21 days,[8] and not that it be stated or delineated with precision, I do not think too strict an approach is appropriate. In circumstances where Mr Reschke’s reference to independent verification is capable of being understood as a reference also to an inability to verify the accuracy or appropriateness of the charges levied, I consider that Mr Reschke’s subsequent elaboration upon his difficulties in verifying the accuracy of the charges in the absence of an ability to inspect or carry out a stocktake was permissible and admissible.
[8] Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321 at [28]; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393 at [25].
However, even having regard to this evidence, I agree with the Master’s conclusion. I agree that the evidence falls short of establishing that there is a genuine dispute as to the existence or amount of the debt; that the suggestion that the plaintiff needs to verify the amount of wine in storage suggests merely that it is hoping to find an area of dispute.
In my view, Mr Reschke’s affidavit does not go beyond mere assertion. It does not articulate a dispute that has any foundation in the evidence. While Mr Reschke refers to his experience of loss and contamination of wine held in storage, he does not provide any evidential foundation for supposing that the charges levied by the defendant do not reflect these matters, or have otherwise been inaccurately determined. The fact that this assertion has not been made in the communications between the parties preceding the issue of the demand is not of itself a disqualifying matter,[9] but it is nevertheless consistent with, and supportive of, the assertion being one that is based on no more than speculation.
[9] Yoogalu Pty Ltd v Intentia Australia Pty Ltd [2006] NSWSC 278 at [28].
The plaintiff’s counsel makes the point that it is difficult to criticise the plaintiff for the lack of evidential basis for its complaint in circumstances where it has been prevented from inspecting the wine in storage. While the availability of evidence can be a relevant matter in weighing the probative value of evidence, there is a limit to the work to be done by this principle. It cannot be used to make something out of nothing. In my view, the evidence in this case went no further than establishing that Mr Reschke considers he might have a basis for a dispute, and wishes to have access to the wine to determine if he does. I agree with the Master’s observation, citing Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd,[10] that when the best a plaintiff can say is that it wishes to verify the amount of the debt, a court cannot by reason of that alone be satisfied that a dispute truly exists in fact.
[10] Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 462-464; see also Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787.
The plaintiff relied upon Delta Beta Pty Ltd v Vissers[11] as authority for the proposition that the inability to ascertain the amount of a purported debt may be sufficient to warrant a statutory demand being set aside. The first point to note in relation to that case is that the demand was set aside under s 459J(1), and not on the basis that there was a genuine dispute. But in any event, the case is readily distinguishable on its facts in that it involved a demand for an undifferentiated sum, the composition of which was not able to be determined by reference to either the material in (or attached to) the demand, the communications between the parties or the records of the company served with the demand. Here, on the other hand, the amount claimed within the demand is readily referable to invoices which set out the basis for the calculation of the sum claimed and its various component parts.
[11] Delta Beta Pty Ltd v Vissers (1996) 20 ACSR 583.
To the extent that the plaintiff relies upon any other basis for suggesting the existence of a genuine dispute in relation to the $1,026,541.10, I do not accept that there is any merit in such a suggestion.
In my view, reliance upon the first and second topics in Mr Reschke’s second affidavit as independent grounds for establishing a genuine dispute or offsetting claim is precluded by operation of the corollary of the Graywinter principle. But even if I am wrong about this, and to the extent these matters are relied upon, I do not consider that they go beyond mere assertions of a dispute or offsetting claim.
Reliance upon the third matter, namely the conversation between Mr Reschke and Mr DiGiorgio in which the latter is said to have conceded some overcharging, was largely confined by the plaintiff to the VIN2015 and VIN2016 invoices. There was some suggestion by counsel for the plaintiff that the concession of overcharging might also have included the charging of the 1.5 per cent late payment fee within the $1,026,541.10. In that respect, there was potentially some overlap between the third and fifth topics. While Mr Reschke asserted in his second affidavit that the defendant had not previously charged a late payment fee, this is contradicted by the inclusion of that fee in the various monthly invoices rendered under the GPA. His evidence in this respect must be confined to the period prior to the GPA; otherwise it is merely an assertion that the plaintiff has simply not paid this fee, despite it being regularly charged. In circumstances where the late payment fee is clearly provided for in the GPA, the charge has been included in the various monthly invoices, and there has been no previous complaint about this fee, I do not consider that the third and fifth matters in Mr Reschke’s second affidavit establish a genuine dispute in relation to the claim for $1,026,541.10.
The plaintiff did not pursue any contention that there was a dispute about the late payment fee on the basis that it was void as a penalty. That is a matter that would have to have been squarely raised at first instance, or at the very least in the notice of appeal, if it was to be relied upon.
Reliance upon the fourth topic was confined to the VIN2015 and VIN2016 invoices. I have already addressed the fifth and sixth topics.
The seventh and eighth topics were directed towards the plaintiff’s contention that the demand should be set aside for “some other reason” under s 459J(1)(b) of the Act (which I address below), rather than as support for the existence of a genuine dispute. While there is some authority for the proposition that the solvency of a company may assist in establishing the existence of a genuine dispute,[12] I have some reservations about the weight such an argument might carry.[13] Certainly I do not think it would be a consideration of sufficient weight to establish the existence of a genuine dispute in the present case.
[12] Reavill Farm Management Pty Ltd v Ashford Properties Pty Ltd [2010] NSWSC 1128 at [27]-[28]; Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 55 FCR 562 at 575.
[13] Alcatel Australia Ltd v PRB Holdings Pty Ltd (1998) 27 ACSR 708 at 712.
Setting aside a demand under s 459J
Under s 459J(1) of the Act, the Court may set aside a statutory demand if it is satisfied:
(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.
The plaintiff contended that there were two reasons which either individually, or in combination, constituted “some other reason” why the statutory demand in this case should be set aside under s 459J(1)(b). The first was that the demand was grossly inflated and/or included amounts that the defendant ought to have known were the subject of a genuine dispute. The second was that the plaintiff was, to the knowledge of the defendant, solvent.
For reasons which will become apparent, I consider that these two contentions are best seen as two strands in a more general contention that the demand should be set aside on the basis that it was issued for an improper purpose; that is, it was issued for a purpose which was foreign to that for which the statutory demand facility exists.
While it is accepted that the power conferred by s 459J(1)(b) is a broad power,[14] nevertheless the operation of the section is not governed merely by subjective notions of fairness.[15] In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd,[16] Bryson J said that there must be “some sound or positive ground or good reason which is relevant to the purposes of which the power exists”, adding that the reason must also be “of appropriate seriousness”.
[14] Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62 at [53].
[15] Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 at [60]-[61].
[16] Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 at 757; Re Eastmark Holdings Pty Ltd [2011] NSWSC 1084 at [39].
Drawing on this focus upon a statutory demand being issued for a purpose other than for which it was intended, subsequent authorities have acknowledged that one circumstance in which there may be “some other reason” to set aside a demand is where the issue of the demand involved an abuse of process.[17]
[17] Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602 at [49]-[50].
Issuing a statutory demand does not itself involve invoking a court process, and so probably cannot strictly constitute an abuse of process.[18] But it is accepted that analogous considerations apply, and inform the scope of s 459J(1)(b).[19] For example, in Createc Pty Ltd v Design Signs Pty Ltd,[20] Martin CJ (with whom Owen and Miller JJA agreed) said:[21]
Adopting the criterion from Williams v Spautz (1992) 174 CLR 509 … there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers – such as the application of pressure to compel payment of the disputed debt.
[18] Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62 at [55].
[19] Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62 at [56].
[20] Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602.
[21] Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602 at [50].

While it is often said that it is an abuse of process to use the statutory demand facility as a means of debt collection, or to apply pressure, that will not always be so.[22] As Doyle CJ (with whom Bleby and Kelly JJ agreed) said in Accordent Pty Ltd v RMBL Investments Ltd:[23]
A court that considers an application under s 459J(1)(b) must also be careful not to allow the ordinary incidents of the service of a statutory demand, which might sometimes seem to operate harshly, to become a basis for setting aside a statutory demand. Care is also called for in using the notion of ‘pressure’ to recover a debt, because there is no doubt that the service of a statutory demand will put pressure on a debtor company.
[22] Poonon Pty Ltd v Deputy Commissioner of Taxation [1999] NSWSC 1121 at [21].
[23] Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62 at [55].
While care is thus needed, it is accepted that impropriety of purpose may constitute “some other reason” for setting aside a statutory demand under s 459J(1)(b).[24] It is also accepted that the propriety or otherwise of a creditor’s use of a statutory demand will be determined by reference to the legislative scheme.[25]
[24] Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62 at [58].
[25] Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; ReEastmark Holdings Pty Ltd [2011] NSWSC 1084 at [32]-[41].
In an attempt to give some content to these general statements of principle, it seems to me that the mere fact that a purpose, or even the primary purpose, of a creditor in issuing a statutory demand is to apply some pressure, or to achieve recovery of the relevant debt, does not mean that the creditor has made an improper use of the statutory demand facility. As Barrett J explained in TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd:[26]
Abuse of process is concerned predominately with propriety of purpose. The issue must be judged according to the legitimate objectives of the particular process. A challenge under s459J(1)(b) on the grounds of abuse of process would pay attention to the objectives properly pursued by the service of a statutory demand, whereas an abuse of process allegation in relation to the pressing of winding up proceedings would pay attention to the objectives for the which winding up proceedings are properly pursued.
It seems to me that, even apart from the different timing factors I have mentioned, the two purposes do not coincide. A creditor serving a statutory demand aims, first and foremost, to obtain payment of the creditor’s debt. The word ‘demand’ means what it says: the creditor is demanding payment of what is due. The creditor may have a second or subsidiary purpose, which is to obtain the benefit of a presumption of insolvency if the primary purpose of eliciting payment is not achieved and no successful application to set aside the demand is made. But the principal purpose is to obtain payment.
A winding up application is designed to serve a different purpose … [P]roper pursuit of winding up proceedings entails the purpose of securing the imposition of a scheme of insolvent administration …
[26] TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074 at [17]-[20].
However, impropriety may well arise if the creditor uses the statutory demand facility knowing that the debt is the subject of a genuine dispute, or knowing that the company is solvent. The reasons for this are obvious, and reflect the legislative scheme. In particular, it is apparent from the ability under s 459H of the Act to set aside a statutory demand if there is a genuine dispute as to the existence or amount of the relevant debt, that the legislative intention is that those debts and disputes be addressed through ordinary legal proceedings rather than through the statutory demand facility. Similarly, as a purpose of a statutory demand is to facilitate a presumption of insolvency for the purposes of a subsequent winding up application, it is clear that it is intended for use in a context in which there is some reason to think that the debtor company is, or might be, insolvent. The statutory demand procedure is not intended for use in the case of a company which the creditor knows is solvent, and hence in respect of which there is no prospect of any subsequent winding up application.
In summary, the statutory demand facility is intended for use in a context of potential insolvency, and in respect of debts which are not genuinely in dispute. There is no impropriety in using a statutory demand in that context, even if the initial and primary focus is an attempt to recover, or apply some pressure in relation to, such debts. However, there may be impropriety in using a statutory demand to recover, or apply pressure in relation to, debts that the creditor knows are genuinely disputed, or in a context where the creditor knows the company is solvent.
Both of these forms of impropriety or abuse were adverted to in Createc v Design Signs Pty Ltd.[27]In that case, Martin CJ held that there was both a genuine dispute as to the existence of the debt, and an offsetting claim which would exceed the amount of the debt claimed. It followed that the Judge below had been correct to set aside the demand, and that the appeal should be dismissed.[28] However, Martin CJ held that the appeal should also be dismissed on the ground that the issue of the statutory demand involved an abuse of process. His Honour explained:[29]
The issue of the statutory demand, and the appeal from the decision of the master setting it aside, reflect a fundamental misconception as to the purpose of the statutory demand process created by Pt 5.4 of the Corporations Act. That purpose is to provide a means whereby the insolvency of a company may be established for the purposes of an application to wind up that company. Its purpose is not to provide a means whereby those claiming a genuinely disputed debt can avoid the obligation of establishing their entitlement to that debt in a court of appropriate jurisdiction by placing commercial pressure on the party resisting payment. There is a clear inference from the evidence that Createc’s purpose in issuing the statutory demand was the improper purpose of using the statutory demand process to enforce payment of a debt which it knew to be genuinely disputed. That is an abuse of process.
[27] Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602.
[28] Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602 at [55].
[29] Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602 at [2].
His Honour later elaborated:[30]
There is a further reason why this appeal should be dismissed. That is because the issue of the statutory demand is, and any winding-up application proposed to be brought pursuant to the demand would be, an abuse of process.
There is no suggestion in the evidence that Design Signs is insolvent, or lacked the financial capacity to pay the debt if the debt had not been disputed. To the contrary, the evidence established that finance was available from a bank, which would have provided Design Signs with the capacity to pay the debt had it not disputed its obligation to do so.
The evidence to which I have referred, including in particular the terms of the email from Mr Page to the CEO of Createc on 15 January 2008, compel the conclusion that Createc was at all times aware that there were legal issues which required resolution. The email specifically refers to “a legal fight”. That knowledge was reinforced by the terms of the letter dated 7 February 2008 from the solicitors for Design Signs. There is a clear and compelling inference that notwithstanding that knowledge, instead of bringing proceedings in a court of competent jurisdiction for recovery of the debt it claimed, Createc issued a statutory demand for the purpose of attempting to avoid that legal dispute, by putting pressure upon Design Signs to pay the debt. It is of course possible that Createc was induced to take this course as a result of flawed legal advice, but even if that were so, it would not be to the point, as Createc must take responsibility for its actions. Createc issued the statutory demand for an improper and collateral purpose of the kind described in Williams, giving rise to an abuse of process.
[30] Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602 at [56]-[58].
Inferring improper purpose from knowledge of genuine dispute
While the mere fact of a genuine dispute will be sufficient to warrant a court setting aside or reducing the amount of a statutory demand under s 459H, not every case involving a genuine dispute will involve an abuse of process sufficient to constitute “some other reason”. It will be necessary to establish at least that the existence of such a dispute was so clear or obvious that it can be inferred that the creditor must have known there was a genuine dispute, and hence invoked the statutory demand facility for the (improper) purpose of applying pressing to achieve payment of a debt that ought to have been pursued through ordinary court proceedings rather than a statutory demand.[31]
[31] Poonon Pty Ltd v Deputy Commissioner of Taxation [1999] NSWSC 1121 at [21]; Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 165 FLR 72 at [30].
In Intergraph Public Safety Ltd v Tess Lawrence Media Services Pty Ltd,[32] Heerey J set aside a demand on the basis that it related to what was known by the creditor to be a disputed debt. His Honour reasoned:[33]
I note that there is no evidence whatsoever suggesting insolvency of the applicant or any other ground for winding up. If the respondent considered that it had such a strong case there is no reason why it could not have proceeded in the County Court of Victoria and sought summary judgment. The answer put on behalf the respondent to my enquiry as to why this was not done was simply that the winding up proceeding provided a ‘faster track’. This is precisely what the law does not permit. Winding up proceedings are to be used for the winding up of companies, that is, paying off creditors and distributing whatever surplus remains amongst the shareholders. There is not the slightest indication in my mind that that was the true purpose for which the statutory demand was issued. Rather, I infer that it was issued for the improper purpose of exerting pressure on the applicant for the payment of what clearly was, and was known to be, a disputed debt.
[32] Intergraph Public Safety Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523.
[33] Intergraph Public Safety Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523 at 526-527.
On the other hand, in Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd,[34] Palmer J (relying upon an earlier decision of Tamberlin J in Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd)[35] cautioned against too readily inferring impropriety of purpose from knowledge that a debt was disputed. In Palmer J’s view, the only inference that can usually be drawn, absent compelling evidence to the contrary, is that the demand was issued in order to invoke the statutory demand procedure for testing whether the dispute is genuine.
[34] Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 165 FLR 72 at [28]-[30].
[35] Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411.
It seems to me that these two approaches are reconcilable. But to the extent that they reflect a difference in emphasis, I prefer the approach suggested by Palmer J. This approach reflects the permissibility of a primary purpose of seeking recovery of a debt in an insolvency context. It acknowledges that a mere assertion of a dispute by the debtor company will not preclude use of the statutory demand facility. In that circumstance, the creditor is entitled to test the genuineness of the dispute. However, if the creditor knows full well that there is not merely an asserted dispute, but rather a dispute that has a sufficient objective existence and prima facie plausibility for it to qualify as a “genuine dispute”, then it would not ordinarily be appropriate to invoke the statutory demand facility.
All of that said, there will not usually be any need to consider this form of abuse. The existence of the genuine dispute will be sufficient to set aside the demand, and so there would not ordinarily be any need to determine whether that demand might also be set aside for “some other reason” under s 459J(1)(b). However, in a case such as the present where the genuine dispute does not relate to the entirety of the amount in demand, the issue of abuse may still need to be considered.
In the present case, the plaintiff only established a genuine dispute in respect of about one-third of the sum claimed in the statutory demand; the balance of the demand ($1,026,541.10 out of $1,610,194.63) was not the subject of a genuine dispute. However, the plaintiff contends that because the defendant knew that a large proportion of the amount claimed was disputed, the entire demand should be set aside.
In support of this contention, as well as the general principles outlined above, the plaintiff relies upon a line of authority, commencing with the decision of Santow J in First State Computing Pty Ltd v Kyling.[36] In that case, the statutory demand claimed a sum of $146,014. There was a genuine dispute in respect of most of the sum, with the substantiated amount ultimately being reduced to $3,236. Santow J acknowledged that when there was a discrepancy between the amount claimed and the substantiated amount, then provided the latter exceeded the statutory minimum, the circumstances would ordinarily call for the exercise of the Court’s discretion to vary the demand (reducing it to the substantiated amount). However, Santow J went on to observe:
… there may be some circumstances in which a substantial overstatement of the amount claimed in a statutory demand might constitute ‘some other reason why the demand should be set aside’ under s 459J(1)(b) … it has been said on numerous occasions that the Companies Court is not to be the court which deals with disputed debts. If there is an honest dispute between the parties as to the amount of the debt, they are expected to resolve the dispute through the normal channels such as litigation in the Common Law Division or the District Court, but not by means of winding up proceedings …
Where a statutory demand has been so grossly inflated as almost exclusively to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served, then an order under s 459J(1)(b) setting aside the demand may well be required to prevent such an abuse of the regime under Pt 5.4. This is so even if the substantiated amount remained above the statutory minimum. The lack of bona fides on the part of the creditor in serving a demand where substantially the whole claim was obviously in dispute might be relevant to this.
[36] First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939.
Nevertheless, on the facts of that case, and despite the significant discrepancy between the amount of the demand and the substantiated amount, Santow J varied the amount of the demand rather than setting it aside. His Honour accepted that there were grounds for the defendant creditor making the contentions she did, even though they were substantially unsuccessful.
This approach has been approved in several decisions of Black J in the Supreme Court of New South Wales.[37] As his Honour explained in Re Halal Meats Pty Ltd:[38]
Section 459J(1)(b) of the Corporations Act permits the Court to set aside a demand where there is some other reason for it to do so. The Court’s power to set aside a demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but is not exercised by reference to subjective notions of fairness. A particular situation in which a creditor’s demand may be set aside is where it claims amounts that the issuer should have recognised are genuinely disputed. … It seems to me that that proposition in turn reflects the wider proposition that the creditor’s statutory demand regime under Pt 5.4 of the Act does not exist to collect debts that are the subject of dispute, or debts where significant offsetting claims are known to exist. That reflects the nature of the provisions, which are intended to create a summary procedure to give rise to a presumption of insolvency, where a company does not pay an undisputed debt as to which it has no genuinely arguable offsetting claim.
[37] For example, ReUGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [12], [43]; Re Wollongong Coal Ltd (2015) 110 ACSR 134 at [81]-[85]; Re Halal Meats Pty Ltd [2015] NSWSC 2041 at [23]; Rinfort Pty Ltd v Arianna Holdings Pty Ltd (2016) 306 FLR 413 at [75]; Re Scahill & Co Pty Ltd [2016] NSWSC 566 at [43]-[45]; Re Tetbury Pty Ltd [2017] NSWSC 37 at [43]-[44].
[38] Re Halal Meats Pty Ltd [2015] NSWSC 2041 at [23].
To similar effect were his Honour’s observations in Re Tetbury Pty Ltd:[39]
If the substantiated amount exceeds the statutory minimum, the Court would generally vary the demand pursuant to s 459H(4), unless the demand was so grossly inflated, or comprised matters which were so obviously in dispute, that the service of the demand amounted to an abuse of the regime under Pt 5.4 of the Corporations Act and should be set aside for some other reason under s 459J of the Act …
[39] Re Tetbury Pty Ltd [2017] NSWSC 37 at [43].
Other judges have also indicated support for the approach suggested by Santow J. However, they have generally emphasised that a mere discrepancy between the sum claimed and the substantiated amount will not constitute “some other reason”; it is only if that discrepancy provides a basis for inferring some bad faith or abuse of process in the use of the statutory demand facility that there will be “some other reason” to set aside the demand.[40] As the Full Federal Court observed in Equuscorp Pty Ltd v Perpetual Trustees WA Ltd:[41]
If a notice of demand has been drawn with the view to damaging the alleged debtor by wilfully claiming an amount substantially higher than that known to be due or recklessly demanding such a sum then that would be tantamount to a fraudulent or abusive use of the process and would ordinarily require the notice be set aside in the public interest to maintain confidence in the law and the administration of justice. There may be other cases in which a demand is made in excess of any admitted sum and for such collateral purposes or with such carelessness as to be frivolous or vexatious or an abuse of process. These could all constitute ‘some other reason’ for setting aside the notice under section 459J(1)(b). But the fact that there is a substantial discrepancy does not require a conclusion to be drawn that there is a lack of bona fides on the part of the creditor or that there has been an abuse of process. Each case must be considered on its own merits. Where the discrepancy turns … upon the proper construction of contractual documents and transactions of some complexity and upon questions of statutory construction, there is no real basis for the exercise of the discretion under s 459J(1)(b). The discrepancy itself does not give rise to such a discretion and in this case will not operate as the progenitor of ‘some other reason’ for setting aside the notice.
[40] Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675 at 694; Old Kiama Wharf Co Pty Ltd v Deputy Commissioner of Taxation (2005) 55 ACSR 223 at [16]; Polstar Pty Ltd v Agnew (2007) 208 FLR 226 at [45]-[48].
[41] Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675 at 700.

Here, the plaintiff relies upon the Master’s conclusion that there was a genuine dispute in respect of a sum that was large, both in absolute terms and as a proportion of the overall sum claimed in the statutory demand. It also relies upon the conversation with Mr DiGiorgio, deposed to by Mr Reschke, in which Mr DiGiorgio was said to have effectively conceded overcharging. The plaintiff contends that it can be inferred from these matters that the defendant well knew there was a genuine dispute about the debt, and that the defendant must therefore have issued the demand for the improper purpose of applying commercial pressure in respect of a disputed debt.
The starting point in considering this contention is a consideration of the Master’s reasons for holding that there was a genuine dispute in respect of INV2015 and INV2016. While his Honour held that Mr Reschke’s evidence about this conversation was, in combination with the late timing of the two invoices and absence of previous similar charging, a basis for inferring the existence of a genuine dispute, there are three points to note. First, his Honour was only “just” persuaded that this was so. Secondly, his Honour did not find that the conversation did in fact occur, let alone that it occurred in precisely the terms recounted by Mr Reschke; it was not necessary to go that far for the purposes of finding some basis for the contention that there was a genuine dispute. Thirdly, as the Master observed, the effect of the conversation (even as recounted by Mr Reschke) was not necessarily a direct clear concession of overcharging; it was open to be construed as a mere statement to the effect that some of the charges might not need to be paid if the invoices were otherwise paid.
Understood in this context, I do not accept that the Master’s finding that there was a genuine dispute in relation to the amounts included in INV2015 and INV2016 provides a basis for inferring an improper purpose on the part of the defendant in issuing the demand. The sum referrable to those invoices, while large, was only about a third of the total sum claimed. While the amounts claimed under those invoices were claimed under the GPA, they were quite separate from the charges rendered in the regular invoices, and which made up the $1,026,541.10 not the subject of a genuine dispute.
More significantly, and while Mr Reschke was not cross-examined, I do not accept that his evidence establishes that there was any concession of overcharging by Mr DiGiorgio. While it was sufficient for the purposes of establishing a genuine dispute that there was some evidential foundation for the suggested dispute, when considering an allegation of abuse or improper purpose, a more solid foundation may be required. Here, even if the evidence were accepted, it is open to be construed as a mere acknowledgement that the defendant might accept less than the full amount, or might accept that the additional storage charges need not be paid, if the debt was otherwise paid. This construction is consistent with, and indeed supported by, the fact that the GPA expressly provides for the additional storage charges.
In summary, it is my view that the evidence falls well short of establishing an impropriety of purpose on the part of the defendant that would provide “some other reason” for setting aside the statutory demand under s 459J(1)(b). I do not accept that the plaintiff has established that the existence of a genuine dispute was so obvious that it can be inferred that the defendant was motivated by some improper purpose in serving the plaintiff with a statutory demand in respect of the amounts claimed in INV2015 and INV2016, let alone the balance of the sum claimed.
Inferring improper purpose from knowledge of solvency
Generally speaking, the solvency of the debtor company will not be relevant in the context of an application to set aside a statutory demand. As Lander J explained in Master Paving Pty Ltd v Heading Contractors Pty Ltd:[42]
The solvency of the recipient of the statutory demand is not a relevant matter for an application to set aside the statutory demand under s 459G and could not provide some other reason why the demand should be set aside [s 459J]. It would be a very curious result if a company could avoid paying its creditors upon their making a demand by the company simply proving it could pay its creditors. Moreover it could be quite burdensome for a creditor if, upon making a demand upon a company, the creditor immediately became embroiled in an argument as to whether the debtor was solvent. The question of solvency therefore is not a question that can be raised in an application to set aside a statutory demand but can always be raised at the time of the application for winding up, whether or not the defendant company did in the time prescribed make application to set aside the statutory demand.
[42] Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025 at 1032.
However, as I mentioned earlier, it may be relevant if the circumstances of the case are such that an abusive purpose might be inferred. For example, in Paperlinx Ltd v Skidmore[43] the defendant creditor served the plaintiff company with a demand, in circumstances where the latter was a manifestly solvent public company, and defendant conceded that it did not intend to apply to wind the plaintiff up. In holding that the demand should be set aside under s 459J(1)(b), Finkelstein J said:[44]
For present purposes, I am prepared to accept that Lander J's statement is generally correct. But it cannot be correct for all purposes. Take the case where it is alleged that winding up proceedings are threatened for a purpose which would constitute an abuse of process. Gummow J recognised such a situation in David Grant & Co Pty Limited (rec apptd) v Westpac Banking Corporation (1995) 184 CLR 265 at 279; 131 ALR 353 at 362; 18 ACSR 225 at 234; [1995] HCA 43. He said that in those cases appropriate relief, for example an injunction, would be granted. In deciding whether a person is threatening a winding up application for an improper purpose it is quite legitimate, indeed it will often be necessary, to enquire into the solvency of the company.
Here I have no doubt that the defendant served the statutory demand for a purpose foreign to the Corporations Act. He could not have intended to rely on non-compliance with the demand to establish insolvency because he knew the company could easily rebut the presumption. Indeed, I am sure that after he had received part payment (if not before then) the defendant never intended to apply for the plaintiff's winding up. Nevertheless, the plaintiff was entitled to bring this application to avoid what, from its perspective, was the risk of having to face a winding-up application.
[43] Paperlinx Ltd v Skidmore (2004) 51 ACSR 614.
[44] Paperlinx Ltd v Skidmore (2004) 51 ACSR 614 at [9]-[10].
In the present case, after referring to these authorities, the Master rejected the plaintiff’s contention that its solvency constituted “some other reason” for setting aside the statutory demand under s 459J(1)(b). His Honour reasoned:
Nonetheless, the difficulty for the plaintiff is that, in respect of solvency, the director’s assertion that the company is [solvent] is inadequate. There are some internal accounting records for the 30 June 2017 year. They are not audited and are not final. A company is solvent if, and only if, it is able to pay its debts as and when they become due.
The material before the Court, in the emails at least, tells the tale of the company continually seeking further time from the defendant to pay the invoices. The emails talk about selling of assets and/or seeking to refinance. There is nothing in the affidavit material that provides any explanation for the failure of the plaintiff to pay the invoices as they fall due each month. That failure has continued for a period of 18 months. The assertion that the company is solvent cannot be accepted. It follows that the question of whether or not the service of the statutory demand is an abuse of process does not arise, nor is the jurisdiction provided by s 459J(1)(b) enlivened.
In my view, the evidence in relation to the plaintiff’s solvency falls well short of what would be required to establish an abuse of process or improper purpose. I agree with the Master’s observations about the shortcomings in the plaintiff’s evidence as to solvency. But more fundamentally, even if it had been established that the plaintiff was solvent, that is not the issue. The issue is whether the position was sufficiently clear to the defendant that it can be inferred that it issued the statutory demand for an improper purpose rather than for a purpose contemplated by the legislative scheme. In this respect, it is not necessary that the defendant had a positive belief that the plaintiff was insolvent. It was enough that the defendant had some reason to believe the plaintiff might have been insolvent. And, in my view, that would be so even if the defendant’s primary purpose at the time of issuing the demand was to achieve payment of the debt. It is only at the time of issuing any subsequent application to wind up the plaintiff that the defendant might require more than this.[45]
[45] See the observations of Barrett J in TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust)Pty Ltd [2007] NSWSC 1074 at [17]-[20] as to the different timing and purposes of the statutory demand and winding up application, extracted at [61] above.
I accept that the defendant’s dealings with the plaintiff over an extended period of time, as deposed to by Mr Reschke, are likely to have resulted in Mr DiGiorgio having some understanding that Mr Reschke and his entities had an interest in assets with a very significant value. But I do not consider I can draw any more precise inference than this. There is no basis for me to infer that Mr DiGiorgio, and therefore the defendant, knew anything more detailed or precise about the financial position of the plaintiff. While Mr Reschke may have provided assurances to Mr DiGiorgio that the plaintiff had sufficient funds, or had access to funds, to pay the amount claimed, the email communications relied upon by the defendant provided ample basis for Mr DiGiorgio to have reservations about the plaintiff’s capacity to pay the amount claim, and about the plaintiff’s solvency.
In summary, I am not satisfied that there is “some other reason” to set aside the statutory demand under s 459J(1)(b) of the Act. The matters raised by the plaintiff do not, either individually or in combination, provide a basis for inferring that the defendant issued the statutory demand for a purpose that went beyond, or might somehow subvert, the legislative scheme.
Conclusion
For the reasons set out above, the plaintiff has not established any error on the part of the Master. I therefore dismiss the appeal.