Sunfrt Pty Ltd v Lithium Battery Storage Pty Ltd

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SUPREME COURT OF QUEENSLAND

CITATION:

Sunfrt Pty Ltd v Lithium Battery Storage Pty Ltd  [2023] QSC 164

PARTIES:

SUNFRT PTY LTD (ACN 119 338 671) AS TRUSTEE FOR TYRRELL FAMILY TRUST NO 2 TRADING AS BAINBRIDGE TECHNOLOGIES
(applicant)

v
LITHIUM BATTERY STORAGE PTY LTD (ACN 608 590 503) TRADING AS LITHIUM BATTERY SYSTEMS

(respondent)

FILE NO/S:

6056/23

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

21 July 2023

DELIVERED AT:

Brisbane

HEARING DATE:

29 May 2023 and 7 June 2023

JUDGE:

Muir J

ORDER:

1.   The applicant is to bring in minutes of order reflecting these reasons.

2.   I will hear the parties as to costs.

CATCHWORDS:

CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND – OFFSETTING AND OTHER LIKE CLAIMS – GENERALLY – where applicant has been served with a statutory demand – where the applicant seeks to set aside a statutory demand issued by the respondent for liquidated debt due and owing – where the applicant contends that is has a number of genuine offsetting claims including a claim for unliquidated damages – where an offsetting claim requires the identification of a genuine cause of action as well as a claim advanced in good faith with evidentiary basis for the amount claimed – where the applicant contends that the offsetting claim is not precisely quantifiable but exceeds the amount of the debt owed to the respondent – where the applicant contends there is a genuine off-setting claim in excess of the amount of debt that is owed – whether the statutory demand should be set aside or varied

Corporations Act 2001 (Cth) s 459H

Britten - Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344

C & E Pty Ltd v Corrigan [2006] 2 Qd R 399

Chadwick Industries (South Cost) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37

Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd (1995) 17 ACSR 128

Crontec Automotive Tooling Pty Ltd v Allsteel Australia Pty Ltd [2006] NSWSC 555
Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 34 ACSR 301
Eng Mee Young v Letchumanan [1980] AC 331
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

Fleur de Lys Pty Ltd v Jarrett (2004) 51 ACSR 238
Gabriel Hotels Pty Ltd v Corlita Pty Ltd [2010] NSWSC 826

Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452

Group Pty Ltd v Premier Drywall Pty Ltd [2006] NSWSC 1012.

JD Enterprises (Qld) Pty Ltd v Staedtler (Pacific) Pty Ltd [2014] QSC 237

John Shearer Ltd v Gehl Company [1995] FCA 1034; (1995) 60 FCR 136
Karimbla Construction Services Pty Ltd v Alliance Group Building Services Pty Ltd [2003] NSWSC 617
Ligon 158 Pty Ltd v Huber [2016] NSWCA 330

Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743

Metro Chatswood…

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Details
Case
[2023] QSC 164
Decision Date

CaseChat Overview and Summary

Sunfrt Pty Ltd, the applicant, applied to the Court to set aside a statutory demand issued by Lithium Battery Storage Pty Ltd, the respondent, for a liquidated debt of $271,777.83. The applicant contends it has offsetting claims that exceed the amount of the debt owed. The main dispute is whether the applicant’s offsetting claims are genuine and quantifiable enough to set aside or vary the statutory demand. The court considered whether the applicant had established a genuine offsetting claim under section 459H of the Corporations Act 2001 (Cth), which requires a genuine cause of action, a claim advanced in good faith, and some evidentiary basis for the amount claimed.

The applicant argued it had an offsetting claim for unliquidated damages for breach of the exclusivity clause in the distribution agreement, which the respondent conceded for the purposes of this application. The applicant also raised various other claims, including claims for defective products and loss of profits. The Court found that the applicant failed to establish any of its claims as genuine offsetting claims because of inadequate evidence and lack of cogency in the submissions. The applicant’s primary claim for loss of sales in Victoria due to the respondent’s breach of exclusivity was also rejected because it was speculative and based on potential future breaches. The Court concluded that the applicant did not meet the threshold requirement of satisfying the Court that any of the claims were genuine offsetting claims. The Court will hear the parties as to costs.

Orders

Orders of the court

1. The applicant is to bring in minutes of order reflecting these reasons.

2. I will hear the parties as to costs.

Background

Background to the litigation

Before turning to the applicant’s various claim(s) for a set-off it is necessary to outline what are said to be the accepted or agreed facts for the purpose of this application. Relevant factual background. The applicant is a retailer of battery and power products to the automotive and marine industries. The respondent is a manufacturer and supplier of battery products. The parties commenced discussions in early 2020 to work together in the supply and sale of battery systems. On 7 July 2021, the applicant and respondent entered into a written distribution agreement by which the applicant is said to have obtained the exclusive rights to sell the respondent’s lithium battery products in Australia. The respondent’s evidence and submissions initially contested the validity and enforceability of this agreement. But subsequently it conceded that for the purposes of this application, the court should proceed on the basis that there is a valid and enforceable distribution agreement in place between the parties. Initially the parties enjoyed a successful and harmonious commercial relationship, with the respondent selling a number of battery products to the applicant, including 12, 24 and 26 volt lithium batteries. But then in October 2021, the applicant started receiving complaints in relation to the 24-volt and 36-volt lithium batteries on-sold by it. On 14 April 2022, the Australian Securities and Investments Commission (ACCC) issued a product safety recall in relation to the 24-volt and 36-volt lithium batteries. Of the approximate 7,517 battery products delivered to the applicant over the last three years, 71 (or 72) batteries sold between 9 July 2020 and February 2022 were subject to this recall notice.[22][22]The respondent’s evidence is 71 batteries were recalled. The applicant asserts that 72 were recalled. Given the way the case was run by the applicant, nothing turns on this factual dispute. The applicant continued to order about 2,408 units of batteries from the respondent after the recall notice – up until about 21 February 2023, when the respondent declined to continue supplying battery products due to the outstanding accounts the subject of the statutory demand. The applicant was served with the demand on 3 May 2023. The invoices attached to the affidavit accompanying the statutory demand relate predominantly to the 12-volt batteries. The respondent has not received a warranty claim from the applicant on any of the batteries that are subject of the statutory demand. This is not surprising as it was only the 24-volt and 36-volt batteries that were the subject of the product safety recall from the ACCC. It is against this general background that the applicant contends that it has offsetting claims that total “at least $378,890.79.”[23] [23]Second affidavit of Tyrrell at [7].Applicant’s offsetting claims Seven distinct offsetting claims were raised by the applicant during the course of the application. These claims totalled over $3M under the following categories of loss:

Evidence

Evidence Before The Court

The applicant submitted that once a genuine cause of action for unliquidated damages is shown by a company, the court is compelled to accept at face value the damages claimed by the plaintiff as the amount of the offsetting claim for the purpose of the calculation required by s 459H(2).[12] I reject this submission because it misconstrues the authorities. For example, in Sewmail (Australia) Pty Ltd v Booby Traps Pty Ltd[13] a director’s unsubstantiated assertions of an offsetting claim without evidence were found by Burley J not to constitute a genuine offsetting claim for the following reasons:“While I am satisfied, on the basis of the affidavit evidence filed by the plaintiff, that a genuine offsetting claim exists, I am not satisfied that the claim amounts to $50,000 or any other amount. To support the genuineness of an offsetting claim amounting to $50,000, the plaintiff relies upon the unsubstantiated assertion of Mr Taylor, a director of the plaintiff, that the offsetting claim amounts to $50,000. That in my view is not sufficient. There needs to be evidence supporting quantum of the offsetting claim so that the Court may determine whether or not there is a genuine offsetting claim of a given amount. It is not necessary that the evidence be such as might be advanced at a trial, but it is, in my view, necessary to adduce some evidence in that regard…In the absence of such evidence it is impossible for the Court to determine whether or not the statutory demand must be altered or set aside in accordance with the provisions of s 459H of the Law.” Emphasis added. [12] Applicant’s submission dated 29 May 2023 at para 25 with reference to Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at [17] per Palmer J; but cf applicant’s supplementary submissions at paragraphs 4 to 6. [13](1997) 23 ACSR 339. An offsetting claim for the purpose of s 459H(1) and (2) requires more than just the identification of a genuine cause of action.[14] It requires a claim on a cause of action advanced in good faith, for an amount claimed in good faith and with some evidentiary basis for the amount claimed. Good faith means “arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful.”[15] The amount claimed does not necessarily have to be precisely quantifiable to the last dollar and cent but rather needs to be of a “fairly quantifiable or calculable amount.”[16] [14]Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at [17] per Palmer J. The applicant’s submissions of 29 May 2023 at [25] appear to have misconstrued the passage at paragraph 17. [15]Macleay Nominees at [18]. [16]Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2010] NSWSC 1017 at [13] per Barrett J. The onus of establishing a genuine offsetting claim rests with the applicant. The standard of proof for the quantification of an offsetting claim has been described as “plausible contention” as opposed to “balance of probabilities.”[17] The standard of satisfaction is therefore not a particularly high one.[18] The evidence need only show a “serious question to be tried” or an “issue deserving of a hearing” and need not conclusively prove the claim or be “incontrovertible or substantially non- contestable”.[19] But there must be a “plausible and coherent” basis for the claim which, despite aspects of uncertainty, can be seen to be more than the debt the subject of the statutory demand.[20] [17]Crontec Automotive Tooling Pty Ltd v Allsteel Australia Pty Ltd [2006] NSWSC 555 at [34].[18]Chadwick Industries (South Cost) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39 per Lockhart J; C & E Pty Ltd v Corrigan [2006] 2 Qd R 399 at 404 per Keane JA. [19]Ligon at [9].[20]Karimbla Construction Services Pty Ltd v Alliance Group Building Services Pty Ltd [2000] NSWSC 617 at [28].

Decision

Reasons for decision

I reject the applicant’s claim of a set-off for this sum or any other amount under this heading is a genuine one for four reasons:(a)First, the basis of such an entitlement was not cogently articulated in either the evidence or developed in the submissions;(b)Second, this claim appears to be one that may exist in the future (for example if the batteries are not covered under warranty); (c)Third, such a claim appears to be in direct conflict with the claim for refunds and credits discussed under that heading above; and(d)Fourth, the claim is confusing and appears to conflict with the claim for loss of profits arising from the defective batteries. That claim was premised on the input costs being deducted – but then under this head, those actual costs are said to be a valid but separate claim. In that sense this claim is double dipping.Conclusion in relation to the smaller set-off claims. Apart from the amounts totalling $38,228.46, which were conceded by the respondent as being genuine (potential) off-setting claims, I am not satisfied that the applicant has overcome the low threshold requirement of satisfying me that any claims said to arise as a result of the defective batteries are genuine offsetting claims. My findings on these claims are generally based on the inadequacy of the evidence and the lack of bona fides, cogency or reasoning behind the claims. During the course of argument, Counsel for the applicant conceded that none of these claims were his best points because they didn’t get the applicant across the line. My findings are therefore consistent with the real focus in the application being on the applicant’s claim in excess of the debt. Turning now to turn to that claim. The applicant’s primary contention was[28] that it has an offsetting claim against the respondent for “loss of sales” in the sum of $2,073,564.37 for breach of the exclusivity clause in the distribution agreement. The breach is said to arise because the respondent granted other parties rights to distribute its products in Victoria. [28]The word “was” is used because both the cause of action and the quantum changed during the course of the oral hearing on the second return date. For the purpose of this application, the respondent accepted the breach. But it submitted that the court could not be satisfied that the claim is a bona fide claim or that the quantum of the claim is in excess of the debt. The claim for over $2 million was premised on the gross loss of sales in Victoria from 1 July 2022 to May 2023, being $2,073,564.37. This figure is extracted from an interrogation of two single page undated excel spreadsheets in evidence.[29] One sets out the monthly sales for each State in the financial year ending June 2022. Relevantly the total sales in Victoria for that year are stated to be $2,405,765.23. The other spreadsheet does not set out the monthly figures but simply shows the total sales to date (apparently as at May 2023) for each State. Relevantly, the sales figure for Victoria to May 2023 is $332,200.86.[30] The claim for loss of sales was therefore premised on the difference in these two amounts.[31] The reasoning behind the applicant’s claim is that the drop in sales is causally linked to the respondent having supplied battery products to other distributors in Victoria. [29]Exhibit M-4 to first Tyrrell affidavit.[30]It was not entirely clear from the first affidavit (MT-4 to Tyrrell first affidavit) but the figures were submitted to be “as at May 2023”. [31]The applicant also submitted that as the distribution agreement is in operation until 7 July 2024, it has an arguable claim for lost sales (in the amount of $2.4M) for the following year. Given my findings about the claim for loss of sales or loss of profits for the first year not being a genuine one, it follows that I do not accept this submission. Otherwise this claim is a speculative one premised on potential future breaches and therefore not in existence at the time of the hearing.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.