Reschke Pty Ltd v DiGiorgio Family Wines Pty Ltd - [2017] SASC 148

Supreme Court of South Australia
(Civil)
RESCHKE PTY LTD v DIGIORGIO FAMILY WINES PTY LTD
[2017] SASC 148
Judgment of Judge Dart a Master of the Supreme Court
20 October 2017
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENUINE DISPUTE AS TO INDEBTEDNESS - ASSESSING GENUINENESS - GENERALLY
Defendant served a statutory demand on the plaintiff - the amount claimed is $1,610,194.63 - provision of services - plaintiff alleges a genuine dispute about the existence and amount of the debt - genuine dispute in respect of part of the debt - statutory demand varied to claim the sum of $1,026,541.10 - service of statutory demand not an abuse.
Held:
1. Amount claimed in the statutory demand varied to claim the amount of $1,026,541.10.
Corporations Act 2001 s 95A, s 459C, s 459H, s 459J, referred to.
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 51 ACLR 1025; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 24 ACSR 353, applied.
Bentham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42; Meehan v Glazier Holdings (2005) 53 ACSR 229; Paperlinx Ltd v Skidmore (2005) 51 ACSR 614, considered.

RESCHKE PTY LTD v DIGIORGIO FAMILY WINES PTY LTD
[2017] SASC 148
JUDGE DART:

The plaintiff and defendant have had a commercial relationship for approximately 13 years. The defendant processes the plaintiff’s grapes into wine and also stores wine for the plaintiff.
In these proceedings the plaintiff seeks to set aside a statutory demand served on it by the defendant. The demand claims that the amount of $1,610,194.63 is due to the defendant in respect of services provided to the plaintiff. For the reasons that follow, it is not appropriate to set aside the statutory demand. However, it is appropriate to make an adjustment of the amount claimed. The amount claimed in the statutory demand should be varied to claim the sum of $1,026,541.10.
Background
As mentioned, the parties have dealt with each other for approximately 13 years. In respect to the storage of wine the defendant invoices the plaintiff on a monthly basis. Historically, the plaintiff paid each monthly invoice when it became due. However, there has been no payment made by the plaintiff to the defendant since April 2016. The defendant continues to store wine for the plaintiff and the debt due to it is increasing.
The current arrangement between the parties is set out in a written agreement called “Grape Processing Agreement” (“GPA”),[1] executed by the parties on 9 September 2015. Schedule A to that agreement sets out the charges applicable for the various services provided by the defendant. The Schedule also provides for the charging of interest on overdue invoices.
[1] Affidavit of Francesco Italo Robin DiGiorgio sworn 15 September 2017, FDN3, Exhibit FIRD1.
One issue that arises on the application is an additional charge for storage that arises during the period of vintage, ie. February to June each year. Wine which is simply stored from previous vintages attracts a charge of 6 cents per litre per month during that period. The explanation is that, during vintage, the winery requires as much storage as possible, to store wine processed from the vintage being undertaken. A part of the defendant’s claim relates to this additional storage charge.
The plaintiff has filed two affidavits of Mr Burke Reschke,[2] a director of the plaintiff. The defendant filed an affidavit of Mr Francesco DiGiorgio,[3] a director of the defendant.
[2] Affidavit of Burke Robert Stanley Reschke sworn 30 August 2017, FDN2 and the second Affidavit of Burke Robert Stanley Reschke sworn 10 October 2017, FDN4.
[3] Affidavit of Francesco Italo Robin DiGiorgio sworn 15 September 2017, FDN3.
The affidavit of Mr DiGiorgio exhibits a series of email exchanges between 12 October 2016 and 24 May 2016. Briefly summarised, the emails show that the defendant is expressing concern that invoices remain unpaid and pressing the plaintiff for payment. The plaintiff in response sets out the steps it is taking to re-finance, so as to be able to make payment of the invoices. There are two relevant matters arising from the email exchanges. First, it is clear that the plaintiff was not in a position to make payment pending obtaining further finance. The second is that there are 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 are any queries raised in respect of any of the charges.
The legal issue
The approach to be adopted by a court in dealing with an application to set aside a statutory demand is set out in s 459H of the Corporations Act 2001 (“the Act”), which provides as follows:
459HDetermination of application where there is a dispute or offsetting claim
(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula:
where:
admitted total means:
(a)the admitted amount of the debt; or
(b)the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
offsetting total means:
(a)if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or
(c)otherwise—a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a)varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5)In this section:
admitted amount, in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c)otherwise—the amount of the debt.
offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set‑off or cross‑demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
respondent means the person who served the demand on the company.
(6) This section has effect subject to section 459J.
The plaintiff says there is a genuine dispute about the existence or amount of the debt to which the demand relates.
There are many judicial pronouncements setting out the test to be applied in determining whether or not a plaintiff has established that a genuine dispute exists. While the formulations differ slightly, a fair summary would suggest that the test is not particularly onerous, so long as there appears to be a proper evidentiary basis for the assertion that there is a genuine dispute.
A widely-adopted definition was provided by the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd which said: [4]
In our view a “genuine” dispute requires that:
·the dispute be bona fide and truly exist in fact;
[4] (1997) 24 ACSR 353 at 365.
In Eyota Pty Ltd v Hanave Pty Ltd[5] it was stated that the expression “genuine dispute” connotes a plausible contention requiring further investigation.[6]
[5] (1994) 12 ACSR 785.
[6] (1994) 12 ACSR 785 at 787.
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:[7]
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.
[7] [2007] SASC 42 at [15].
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. A failure to comply with a statutory demand leads to the presumption of insolvency,[8] which founds most applications to wind up a company.
[8] Section 459C of the Act.
The plaintiff also relies, to some extent at least, on s 459J, which provides as follows:
459JSetting 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.
Consideration
The defendant’s claim is made up of three components. The first component in the amount of $1,026,541.10 is simply the running balance in respect of storage fees and interest accrued as a result of the non-payment of invoices. It also includes amounts for the crushing of the plaintiff’s grapes and the making of the wine. There is nothing particularly controversial about that amount. The GPA creates an entitlement to charge interest on unpaid amounts.
Separately, there are two invoices in relation to the additional storage fee for wine during vintage. One is for the 2015 vintage and the other is for the 2016 vintage. What is notable is that both of those invoices were sent in January 2017.
The plaintiff raises three issues which are said to justify the Court’s intervention to set aside the statutory demand. They are:
1The fact that the balance claimed of $1,026,541.10 is not able to be verified.
2That the invoices in respect of the additional vintage storage charges being in the amounts of $298,261.26 (invoice 2015VIN) and $285,392.27 (invoice 2016VIN) are not payable.
3That the applicant is solvent.
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.
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[9] 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.
[9] Second Affidavit of Burke Robert Stanley Reschke sworn 10 October 2017, FDN4.
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.
The plaintiff also relies on the provisions of 459J, which provides a broader basis to the Court to set aside a statutory demand. The contention is that the defendant knows full-well that the plaintiff is solvent and that, accordingly, the serving of the statutory demand is for an improper purpose, ie. pressuring the plaintiff to pay the invoices.
I accept that it is often said that statutory demands are not to be used for debt collection, but are for use in circumstances of insolvency. That being said, it is often difficult to distinguish between the two. It is simply the case that insolvent companies do not pay their debts as and when they fall due. This leads to the inevitable invocation of debt collection procedures in respect of insolvent companies. If a debt is due, it is common to serve a statutory demand. Except in extreme circumstances, that would not ordinarily provide cause for complaint.
The boundaries of the discretion provided by s 459J(1)(b) have been explored in a number of cases. In Meehan v Glazier Holdings Young CJ said:[10]
58 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, see Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 17.
…
61 A judge is not at liberty to set aside a demand under s 459J(1)(b) merely because he or she subjectively considers it fair to do so.
[10] (2005) 53 ACSR 229.
The plaintiff relies on the case of Paperlinx Ltd v Skidmore.[11] In that case Finklestein J found that the demand was being used for an improper purpose. The circumstances of that case were that the person serving the demand had been successful in an unfair dismissal case and had been awarded compensation. The statutory demand was served on his former employer, which was a publicly listed and extremely profitable company. Most of the demand was paid, but an amount was retained for the payment of taxation. It was a case with quite unusual facts and is of limited assistance in this matter. Generally speaking, insolvency is an issue that falls for consideration on a winding up summons rather than in proceedings about a statutory demand.
[11] (2005) 51 ACSR 614.
In Master Paving Pty Ltd v Heading Contractors Pty Ltd Lander J said: [12]
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 (sic) it could pay its creditors. Moreover it could be quite burdensome for a creditor 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.
[12] (1997) 51 ACLR 1025 at 1032.
Nonetheless, the difficulty for the plaintiff is that, in respect of solvency, the director’s assertion that the company is insolvent 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.[13]
[13] Corporations Act 2001 s 95A.
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 simply does not arise, nor is the jurisdiction provided by s 459J(1)(b) enlivened.
The order of the Court, in the circumstances, should be that the amount claimed in the statutory demand is varied so that the statutory demand claims the amount of $1,026,541.10. I will hear the parties as to the form of the order.