- 2 Roslyn Street Pty Ltd v Leisure Inn Hospitality Management Pty Ltd

Supreme Court of NSW|2021-03-19|Before: Black J, Mr J

d Australia Pty Ltd [2012] NSWSC 256 - Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; (1997) 147 ALR 444; (1997) 24 ACSR 353 - Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 - Wollongong Coal Ltd v Gujarat NRE India Pty ltd (2015) 104 ACSR 425; [2015] FCA 221 Category: Principal judgment Parties: Savemore Wholesale Pty Ltd (Plaintiff/Applicant) The Infant Food Co Pty Ltd (Defendant/Respondent) Representation: Counsel: Mr J R Young (Plaintiff/Applicant) Mr D Krochmalik (Defendant/Respondent)

Solicitors: Thuan Nguyen & Associates (Plaintiff/Applicant) Ashurst Australia (Defendant/Respondent) File Number(s): 2021/30945

Judgment

By Originating Process dated 2 February 2021, Savemore Wholesale Pty Ltd ("Savemore") applies to set aside a creditor's statutory demand ("Demand") dated 14 January 2021 issued by The Infant Food Co Pty Ltd ("IFC"). IFC manufactures and supplies infant formula and organic baby food product and Savemore and a Vietnamese company ("TVV") are the distributors of those products in Vietnam. The Originating Process did not identify the basis on which the application was brought, but it appears that it primarily relies on a contention that there is a genuine dispute as to the debts that are the subject of the Demand under s 459H(1)(a) of the Corporations Act 2001 (Cth) (the "Act") and a contention that the Demand should be set aside for some other reason under s 459J of the Act.

Affidavit evidence and chronology

I first set out the affidavit evidence, before turning to a chronology of events. Savemore relies on the affidavit dated 1 February 2021 of its director, Ms Nguyen. Significant parts of that affidavit would not have been admissible, but for the fact that an application to set aside a creditor's statutory demand turns upon whether a genuine dispute exists, rather than requiring the Court to reach findings of fact on a final basis; those parts of the affidavit were admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) to establish the contentions on which Savemore relied to set aside the Demand and not as proof of the fact.
Ms Nguyen's affidavit refers to the terms of a Services Agreement, to which I will refer below, and contends that Ms Nguyen made clear to the chief executive of IFC, Ms Carr, that the expiry date of products was "extremely important, especially for large shipments". Ms Nguyen also contends that the three invoices which are the subject of the Demand for products were supplied directly to TVV and (in evidence admitted with a limiting order under s 136 of the Evidence Act as a contention and not as proof of fact) that they had "such short expiry dates that it was virtually entirely unsaleable in Vietnam". Ms Nguyen contended that she would never have allowed goods to be shipped to Vietnam if she had believed that IFC would supply "old stock"; that had the difficulty that Savemore had been advised of the expiry dates of the stock before they were dispatched. Ms Nguyen also contended (in evidence also admitted with a limiting order) that there was a genuine dispute as to the existence of the amount of the debt, because IFC "has engaged in unfair practices in misrepresentation and the misleading and deceptive conduct"; the products delivered were not fresh; and also relied on an alternative dispute resolution provision in cl 23 of the Services Agreement. I address subsequent communications and correspondence referred to in that affidavit in the chronology set out below.
IFC relied on the affidavit dated 19 February 2021 of Mr Leevers, its export manager. Mr Leevers' evidence (admitted with a limiting order under s 136 of the Evidence Act as submission only) was that the goods supplied by IFC to Savemore, and the subject of the Demand, were supplied in accordance with the Services Agreement. Mr Leevers also referred to the supply of goods to Savemore under the three invoices in issue and to the products supplied in respect of those invoices. He contended there was a departure from normal payment terms in respect of those invoices, so far as Ms Carr had, in March 2020, offered Ms Nguyen extended 90 day payment terms until 30 June 2020. Mr Leevers also referred to several messages and emails from Savemore on which IFC relied as acknowledgements of indebtedness by Savemore. Mr Leevers contended that all inventory shipped to Savemore had at least 79% of its shelf life remaining at that time, with the bulk of the cases having 84-96% of shelf life remaining. Mr Leevers also referred to orders subsequently placed by Savemore from May 2020 to November 2020, which are relied on to contest the proposition that Savemore was dissatisfied with the product supplied.
By an affidavit dated 2 March 2021 in reply, much of which was also admitted with a limiting order under s 136 of the Evidence Act as contention rather than proof of the fact, Ms Nguyen contested that the products were supplied pursuant to the Services Agreement; claimed to have relied on the representations of Mr Leevers and Ms Carr that only stock which had "just been made fresh" would ever be supplied to TVV; referred to the fact the product was supplied directly to TVV in Vietnam and not delivered to or collected by Savemore in Melbourne or in Sydney and that Savemore did not pay for product prior to delivery; took issue with the suggestion in Mr Leevers' affidavit that title passed to Savemore when the goods were loaded to a ship in Australia; and suggested that she negotiated with IFC between August and November 2020 because she did not wish to have a dispute with IFC, and hoped that IFC would allow a "reasonable amount of time to pay the debt" and "wanted to fix the problems and continue the relationship". Ms Nguyen also referred to several emails and text exchanges in which she contended she raised the issue of short dating of products. Many of these texts duplicated evidence which had been led in chief.
Turning now to the chronology of events, Savemore contends that its involvement with the "Bubs" brand of infant products produced by IFC commenced in September 2019. By the Services Agreement dated 9 November 2019 between Savemore, TVV and IFC, TVV and Savemore were appointed as exclusive distributors in Vietnam for IFC during the specified term from 8 August 2019 for a term of two years. Clause 10 provided that title and risk to the products would pass from IFC to Savemore upon the collection of goods by Savemore from IFC's designated warehouse in Melbourne, or upon delivery of the products from IFC to a Savemore designated warehouse in Australia. Savemore emphasises that that clause contemplated delivery in Australia, rather than direct to Vietnam. Clause 14 of the Services Agreement provided for payment; referred to the wholesale unit price payable by Savemore, subject to adjustment by IFC on 3 months' prior written notice; and recorded that IFC would invoice Savemore for each purchase order following an order, and that products were to be fully paid for by Savemore in advance, one day prior to delivery. Savemore also relies on the fact that payment arrangements altered, in the transactions on which the Demand relies, to allow additional time for payment to Savemore. Clause 23 provided for dispute resolution and stated that: "Any dispute under this Deed must be dealt with first by negotiations by senior executives of [IFC], [Savemore] and TVV. If the negotiations by senior executives of [IFC], [Savemore] and TVV have not resolved the dispute within 10 Business days, the dispute may be referred by any party for determination by an independent arbitrator …" No party has sought to refer any dispute to arbitration. The Services Agreement also contained a provision dealing with limitation of liability and a liability cap, but no party sought to rely on those provisions.
Ms Nguyen's evidence is that, in late March 2020, Mr Leevers offered to reduce the price for certain products from AUD$28 to AUD$20 per unit, on the basis the product was shipped directly to Vietnam; Ms Nguyen responded that "I need to be sure that TVV will only get fresh products, for the Vietnamese mothers it is going to be a brand new brand so it will need a long expiry date"; and Mr Leevers assured her of that matter and recognised the importance of fresh products in Vietnam. Ms Nguyen also contended that this arrangement caused her to lose the ability to monitor the expiry dates of shipments; although there is evidence that information was provided as to the expiry dates of the relevant products before they were shipped.
On 27 March 2020, Ms Carr sent a message to Savemore that: "I propose we work together and get your next 3 months forecasted stock processed and get these containers onto ships asap (next week would be best) all stock has just been made fresh so there won't be any issue with Best Before dates. [IFC] will offer you 90 day payment terms on these orders so you can move through them as 'normal' from a cashflow perspective. Any new order will only be required to be paid by 26 June." Ms Carr also there referred to the risk that the export of infant formula would be blocked, as lock downs increased and international trade became more difficult because of the COVID-19 pandemic.
By an email dated 27 March 2020, Ms Shen of IFC sent draft information relating to two containers being loaded and sought confirmation as to the import clearance, and Ms Ngo confirmed that "all is correct". By an email dated 3 April 2020, Ms Shen sent Ms Nguyen a draft bill of lading for the three containers for departure that week and Ms Ngo confirmed that "all are correct". By an undated email, apparently sent on or about 9 April 2020, Mr Leevers sent "best before dates" relating to the second and third invoices for approval, and TVV appears to have responded that those dates "looks good to us" and requested IFC to proceed with the shipment. By an email dated 20 April 2020, Mr Leevers sent Ms Nguyen invoices for two containers loaded at Melbourne in April, noting that the two invoices were due for payment on 29 June, reflecting extended payment terms, and seeking confirmation of acceptance of the invoices. On 21 April 2020, Ms Shen sent an email, including to Ms Nguyen, attaching an invoice, packing list and health certificate for products contained in the two containers, referable to the second and third invoices relied on in the Demand, which included information as to expiry dates. Ms Ngo, who appears to be associated with Savemore, responded on 21 April 2020 that "all is OK" and requested that she be sent the original documents.
Ms Nguyen refers to contact with Mr Leevers, apparently in late May 2020, in respect of a claim that stock with a life of less than 24 months had been sent to Vietnam. Several communications, the date of which is unclear, suggest discontent with the shelf life of the relevant products, with Ms Nguyen advising Mr Leevers that: "I have been communicate with Kristy [Carr] because I am sick of us being treated like little kids. I can buy goods with current dates at low prices. We work so hard for your brand and we need to be treated with respect. … I have a long discussion with TVV. We have shorter dated stock compare to others … We are at disadvantage and we need to reduce price so we can sell them fast. Right now is the recession time for the global economy - the market is slow and we have a lot of short dated goods. … Remember we want to work with you but we need your protection. We must help TVV to sell goods otherwise they won't have money to pay our bills."
Ms Nguyen also sent a message to Mr Leevers recording that "stock is made fresh but not what TVV received. I am requesting TVV sending you the list of short dates compare to the current market". A further text, the date of which is unclear, stated that: "As I have mentioned to you weeks ago David, We have loaded with old goods. TVV would like to get this issue discussed today. The text does say freshly made stock but the goods received at the end of May is not freshly made stock."
By an email dated 15 August 2020, Ms Nguyen referred to a late arrival of a container with short dated stock "compare to current dates in Australia" and stated that: "Our Vietnam market is very clever, both of the end consumers and sub-distributors are very alert with the EXP date in the local Australian market. Sadly, the EXP date we received was ranging between August to November which at least six months behind compare to the current dating stock in Australia. As you are aware! If the export good EXP date is behind compare to the local date then we will have to quickly clear at good price so we won't be stuck with the stock. The longer we leave them then the worst we will get. The dilemma here is TVV has tried so hard to sell them but she couldn't get them sold." Ms Nguyen also advised IFC that: "… TVV and I are here to commit a growth for your brand. There was tough and harsh time for both of us. We are not quitters because we are strong fighters. We are here to build the brand to success. We pay late but we will finalise all the Payment's [sic] as listed out above. I have put this in writing and I will be fully responsible. Let's hold hands together to get through this tough time together. We will win."
By an email dated 17 August 2020, Ms Nguyen advised Mr Leevers that she had communicated with TVV and agreed payment schedules, and would send a payment schedule for short dated stock (less than 15 months) and a payment schedule or the remaining two containers; and: "In regarding [sic] to payments, I will be fully responsible for all payments set out per my next email so just for you to understand. To that, I am totally confident TVV can achieve with the sale target during this tough or difficult time. I know you insist this is just an excuse but inside all of our hearts! We are all know that globally all milk power brands are suffering with declining sales. … As mentioned in my previous phone conversation with you! Savemore and TVV are now struggling with the COVID just like the rest of the world but we won't be not paying you. What's we owe you shall be paid! This I can reassurance you and [Ms Carr]." IFC relies on the absence of reference to any dispute as to liability for the debts claimed in this email.
In further emails in early October 2020, Mr Leevers referred to Savemore's need to continue to pay IFC under a payment plan and Ms Nguyen responded "Sure. Will do". IFC again relies on the absence of reference to a dispute as to liability for the debts claimed at that time. Mr Leevers also refers to correspondence later in October where Savemore proposed to pay interest on late payments and observed that: "We have been trying really hard to keep our promise and make payments on time, however some stocks purchased are still on the move, some are with our distributors who also offer their customers credit terms. Therefore, I would desperately need your assistance to support us to tackle our cashflow issue."
By letter dated 9 November 2020, Ms Carr wrote to Ms Nguyen and to TVV referring to the substantially overdue amount of $578,865.16, from orders that were dispatched 7 - 8 months ago in March and April 2020; recognising the relationship between IFC and TVV and the difficulties arising from the COVID-19 pandemic noting that the last six payments on an extended payment plan had not been met and that IFC "now have serious concerns about the escalating overdue balance and the commercial impact on our business operations and financial accounts", and setting out the balance that was due in the amounts claimed in the Demand. By an email dated 18 November 2020, Ms Nguyen responded that: "I just signed the acceptance of offer yesterday and the fund won't be in till next week. I will arrange fund allocate to TVB so she can pay you off at a period of time. Until I have confirmed date I will send you an email. Sorry about the delay and appreciate your understandings." Ms Nguyen does not address this correspondence in her affidavit evidence.
Savemore purchased a substantial quantity of stock over the 2020 calendar year, with the last purchase dated 23 November 2020 with the stock purchase totalling $1,620,417; an amount of $1,041,552 being paid and the amount of $578,865 remaining unpaid (Ex D4).
By letter dated 3 December 2020, the holding company of IFC sent a document to Savemore headed "Final Notice - Debt Owing" in respect of the amount claimed, which characterised it as due "for product ordered pursuant to the Services Agreement … which remained substantially overdue despite our numerous requests for payment and an agreed payment plan". That letter contended that IFC believed it had already satisfied the requirement to manage the dispute over the timing for payment of the debt by negotiation, under cl 23 of the Services Agreement, and referred to the "disregard for the payment plan negotiated with you and our repeated, unsuccessful attempts to engage with you for recovery of the unpaid balance". That letter foreshadowed the pursuit of rights to recover the debt. The letter was marked "without prejudice, except as to costs" but no objection was taken to IFC's reliance on it in the proceedings.
By an email dated 10 December 2020, Ms Nguyen contended that: "Expiry date - must be fresh, at least the same as the local stock. Any shorter dating after 6-8 week shipment would created massive issues for brand new product on the brand new market. The negative image can be reflected on the brand as stock are unable to sell in Australia. This is absolutely crucial in building brand from zero in Vietnam." Ms Nguyen also referred to "short expiry dates" in the product supplied to Vietnam, and also identified issues as to the prices in respect of the product.
The Demand was dated 14 January 2021 and claimed the amount of $578,865.16, and the relevant debt was described in a schedule as follows: "The amount owed for the supply of services by [IFC] to [Savemore] under a Service Agreement dated 9 November 2019 and with commencement date of 8 August 2019, as per the following invoices: (a) Invoice number S1-00007109 dated 30 March 2020 in the amount of $127,303.50, less $70,475.84 already paid (totalling $56,827.66 still owing); (b) Invoice number SI-00007180 dated 17 April 2020 in the amount of $267,617.50; and (c) Invoice number SI-00007230 dated 17 April 2020 in the amount of $254,420.00.
The first invoice referred to in the Demand was dated 30 March 2020 and relates to goods delivered on 26 March 2020; the second was dated 17 April 2020 and relates to goods delivered on 14 April 2020; and a third was dated 17 April 2020 and also relates to goods delivered on 14 April 2020. The Demand was verified by an affidavit of Ms Miller, the General Counsel of IFC, who confirmed her belief that there was no genuine dispute about the existence or amount of the debt.
By an email dated 25 February 2021, Ms Nguyen advised Ms Carr and Mr Leevers of a number of steps taken in respect of the distribution of product in Vietnam, and also identified matters causing difficulty, stating that: "The expiry dates aren't good. The first containers mainly delivered old stock from August-December dating. As you are aware export market in [Vietnam] will not accept any goods less than 15 months. The dates must be similar to Australian local market or else we must reduce the cost heavily to clear to the bulk. Unfortunately we can not afford to lose more money since we have already put funds into marketing."

Whether a genuine dispute is established

Mr J R Young, who appeared for Savemore, contends that a genuine dispute exists in respect of the Demand. The Court has power to set aside a creditor's statutory demand under 459H(1)(a) of the Corporations Act 2001 (Cth) where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. The threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J (as his Honour then was) in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 (at [18]) that: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."
I also have regard to the decision of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 where, the Court in summarising the case law applicable to offsetting claims, conducted a comprehensive review of the cases referable to establishing whether a genuine dispute was established. The Court emphasised that the evidence necessary for that purpose "need not conclusively prove or otherwise be incontrovertible or substantially non-contestable", and also observed (at [46]) that: "In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the Court is not concerned to engage in an inquiry as to the credit of the deponent of the affidavit filed in support of the application." The Court also emphasised (at [47]) that the Court's role was, in such an application: "… to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim."
Mr Krochmalik, who appears for IFC, in turn refers to the summary of the relevant principles applicable to a genuine dispute by Barrett AJA in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8], which approved my observations in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], as follows: "(1) A dispute is "genuine" if it is not "plainly vexatious or frivolous" or "may have some substance" or "involves a plausible contention requiring investigation". A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are "real and not spurious, hypothetical, illusory or misconceived" and which demonstrate the dispute's "objective existence" and "prima facie plausibility". (2)The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section. (3)The task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted. (4)The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute, the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine."'
A similar approach was adopted by the Court of Appeal in Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 and again by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397 [2019] NSWCA 60. I summarised the relevant principles in my judgment in Re Australian Tailings Group Pty Ltd [2019] NSWSC 1218 and in Re Garawin Pty Ltd [2020] NSWSC 983 from which I have partly drawn the summary set out above.
In oral submissions, Mr Young described the basis of the genuine dispute for which Savemore contends as follows: "It is a genuine dispute based on two bases. One is that [the debt] is not pursuant to the Services Agreement and that of itself is sufficient to set it aside. The second is that the arrangement by which the new arrangements were entered included a warranty that only fresh stock would be provided and that did not occur."
First, Mr Young contends that a genuine dispute exists because, in March 2020, IFC "chose to totally depart from the contractual arrangements without any formal arrangements being put in place for the entirely different procedure". He submits that the new arrangement was not covered by the contractual terms which required delivery to or collection by Savemore in Australia, or which provided for payment before delivery or collection. In oral submissions, Mr Young identifies the matters which demonstrate that the products were not supplied and the invoices were not issued under the Services Agreement as that they were provided under a credit arrangement and were not provided to Savemore in Australia so they were "certainly not provided under the Services Agreement" (T27). Mr Krochmalik responds (T48) that the Services Agreement was not abandoned and there could be no suggestion that what was undertaken was "some completely different arrangement" where there were no other written arrangements in relation to the parties' dealings as to the goods which are the subject of the invoices and the Demand, although he recognises that there were several communications as to those arrangements, including in respect of the shipping of goods. He also points to Savemore's continued involvement in the arrangements by which the goods were shipped directly to Vietnam.
I do not accept that a genuine dispute arises as to this issue. The Services Agreement covered a range of wider issues between parties, including the exclusivity of the distribution arrangement in Vietnam and the role of TVV in that arrangement. I can see no genuinely arguable claim that that arrangement ceased to have effect as providing an overall framework for the supply of the products or that the provision of credit during a global pandemic or the variation of delivery practices so as to provide for direct delivery to Vietnam amounts to a termination of that Agreement, or has the consequence that the products were not supplied under that Agreement, as varied, or under that Agreement and a collateral agreement dealing with the provision of credit and the manner in which delivery would take place. It seems to me that there is no genuinely arguable case that the amendments to the delivery procedure and the concessions provided by IFC as to payment terms amounted to more than a variation of the Services Agreement, or a collateral agreement that operated together with it, so that the Services Agreement in either case continued to govern the wider relationship between the parties.
For completeness, the reference in the Demand to the Services Agreement without an additional reference to the provision of credit or delivery in Vietnam or any collateral arrangements may arguably have given rise to a misdescription of the debt in the Demand. However, Mr Young sensibly did not rely on that matter to seek to set aside the Demand, and Mr Krochmalik rightly submits that the Demand plainly identified the invoices from which the debt arose and its quantum, so that Savemore can have been under no uncertainty as to the nature of the debt claimed against it or how it arose (T44). He also submits that: "There could be no doubt whatsoever that whether or not the debt was described by reference to the Services Agreement or not, in the statutory demand, [Savemore] here was at all times aware of the basis on which the debt was claimed." (T50) There does not seem to me to be any basis for a view that any defect in the Demand arising from such a misdescription gave rise to injustice, still less substantial injustice, to Savemore to permit the Demand to be set aside under s 459J(1)(a) of the Act.
Second, Mr Young submits that IFC knew of the significance of fresh stock and promised to deliver it, and refers to the statement in Ms Carr's email that "all stock has just been made fresh" to which I have referred above. He points to correspondence from Savemore, to which I have referred above, which involved complaints that stock was short dated. It is apparent that there was debate between the parties, in which Savemore complained of the length of the remaining shelf life of the products delivered, although Mr Leevers' evidence indicates that the products in fact had substantial shelf lives prior to expiry. Mr Krochmalik responds, and I accept, that there was no suggestion that the goods supplied by IFC to Savemore did not have a shelf life permitting resale or were unmerchantable, and the debate was instead as to the length of the remaining shelf life of the goods. Mr Krochmalik submits, at a factual level, the content of any representation made by IFC with respect to "fresh stock" is not clear; there is no proper evidentiary foundation for a contention that the goods supplied were not "fresh stock", where they had shelf lives of at least 11 months and up to 2 years before the expiry of their best before dates; and there was no reliance by Savemore on any representation by IFC, where information as to the goods to be delivered was provided to TVV prior to supply, and that information was copied to representatives of Savemore at the time or shortly thereafter. Mr Krochmalik also points to the subsequent commitments made by Savemore to pay the amounts due.
It seems to me that the debate between the parties as to this matter is not capable of giving rise to a genuine dispute as to the debt claimed in the Demand, because it does not amount to a total failure of consideration, which would be capable of impugning IFC's entitlement to the amounts due. Here, any issue as to the shelf life of the product might establish a claim by Savemore to damages for breach of warranty, or a claim based on the representations to which Savemore refers, but provides no basis for a suggestion that there has been a total failure of consideration; the contract price is payable and there is no genuine dispute in respect of the debt, at least prior to termination of the Services Agreement; and the real question is whether there is an offsetting claim for damages or breach of warranty or on a representational basis: Construction Management Services Pty Ltd v Bidnia Group Pty Ltd [2008] NSWSC 1152 at [5]; Independent Portable Buildings Pty Ltd v Modular Building Systems Pty Ltd [2011] FCA 511; Speciality Fashion Group Ltd v Global Red Australia Pty Ltd [2012] NSWSC 256 at [19].
Mr Krochmalik also relies on the continuance of dealings between Savemore and IFC, from May until September 2020, after the supply of the goods as to which payment is claimed in the Demand; the absence of complaints in relation to the shelf life of the products until about June 2020; and the several acknowledgements by Savemore that the debts were due and payable in correspondence to which I have referred above, to support a submission that the dispute raised by Savemore is a recent invention and not a genuine dispute. There is force in that submission, but it is not necessary to determine the matter on that basis, when no genuine dispute arises on the basis on which Savemore puts it.

Whether an offsetting claim is established

In oral submissions, Mr Young initially submitted (T28) that Savemore's claim that the new arrangements, replacing the Services Agreement, included a warranty that only fresh stock would be provided and that did not occur alternatively gave rise to an offsetting claim (T28). However, Mr Young also accepted in oral submissions that Savemore "is not in a position where [it] can quantify the offsetting claim" (T34). I deal with the position as to an offsetting claim in case a contention is pressed that such a claim is available despite that concession.
An offsetting claim, for the purposes of s 459H(1)(b) of the Corporations Act 2001 (Cth), is the amount of a claim or claims that a company has against a person who served a creditor's statutory demand by way of counterclaim, set off or cross demand, whether or not that amount arises out of the same transaction or transactions as the debt to which the demand relates. If the Court is satisfied that a company has an offsetting claim, then the Court is required to calculate the substantiated amount of the demand by deducting any offsetting claim from the admitted amount of the debt, as defined. An offsetting claim is established if there exists a "serious question to be tried", or an issue deserving of a hearing, as to whether the company has such a claim against the creditor and that claim is made in good faith and is arguable and not frivolous or vexatious: Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605; Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 356-357; [1993] FCA 951. The Court of Appeal has in turn explained the test for an offsetting claim in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd above (at [30]) as follows: "It is settled law that s 459H requires the Court to be satisfied that there is a 'serious question to be tried'...or 'an issue deserving of a hearing' as to whether the company has such a claim against the creditor… The claim must be made in good faith: …"
The Court of Appeal also addressed the applicable principles in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd above (at [8] and [62]-[66]), in the judgment of Bell P, with whom Sackville AJA agreed (at [98]).
In order to establish an offsetting claim, it would also be necessary for Savemore to establish a seriously arguable case not only as to liability, but also as to quantum of an offsetting claim: Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743. In Douglas Aerospace Pty Ltd v Indistri Engineering Albury Pty Ltd [2015] NSWSC 167 (at [40]), Brereton J observed that: "While the full amount of an offsetting claim is to be deducted from the admitted total to ascertain the substantiated amount [Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263], that applies only to the extent that the offsetting claim is genuine. Thus a company relying on an offsetting claim must adduce evidence that enables the court to ascertain the amount of the genuine claim to the extent necessary to apply the formula in s 459H. If the offsetting claim must plainly exceed the amount of the demand, it is unnecessary that it be precisely quantified. But where that is not clear, the court must be able to quantify an offsetting claim, and if the evidence does not permit it to do so, will attribute to it only a nominal value [Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 1) (1994) 13 ACSR 455]."
The evidence led by Savemore does not provide any basis for assessing the amount of any loss suffered by Savemore by reason of the matters as to which it has from time to time complained. Savemore has therefore not established a genuinely arguable claim that any offsetting claim should be allowed more than a nominal value, or that any offsetting claim reduced the amount of the debt it owed to IFC below the statutory minimum.

Whether the Demand should be set aside for some other reason

Mr Young submits that the Demand should be set aside under s 459J of the Act. That section confers a discretion to set aside a creditor's statutory demand, and is available at least where the issue of that demand would be unconscionable or amounts to an abuse of process or where the issue of the demand would subvert the statutory scheme: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22 at [27]; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393 at [33]. The Court's power to set aside a creditor's statutory demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229; [2005] NSWCA 24; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [16]; Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 at [24].
First, Mr Young submits that the Demand should be set aside under s 459J of the Act, relying on Mr Krochmalik's response to Savemore's contention that the supply of goods was governed by something other than the Services Agreement. Mr Krochmalik contended that, where the goods were supplied but not paid for, IFC is alternatively entitled to recover payment on the basis of the purchase orders and email confirmations which he contends would constitute, in each case, separate agreements. Mr Young responded, with more ingenuity than substance, that Mr Krochmalik's submission amounted to a change in the basis on which the Demand was supported, and that gave rise to some other reason to set aside the Demand where Savemore had not had the opportunity to lead evidence to meet that argument within the 21 day period specified for an application to set aside the Demand, on the basis considered in my decision in Re Attard and Others (trading under the partnership name of Colin Biggers & Paisley) [2013] NSWSC 1579; (2013) 96 ACSR 581, and by Wigney J in Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (2015) 104 ACSR 425; [2015] FCA 221 at [126].
I do not accept Mr Young's submission in this respect. The position here is very different from that in Re Attard, where the party that issued the demand had wholly abandoned the basis on which it was issued, and sought to substitute an entirely different claim. Here, at its highest, Mr Krochmalik maintains IFC's entitlement to payment under the Services Agreement, and seeks to identify an alternative basis for that entitlement which may be available from the evidence already led by the parties in the proceedings. In any event, nothing turns on this, where I have not accepted that there is a seriously arguable case that the parties had abandoned the Services Agreement.
Second, Mr Young contends that the Demand should be set aside by reason of a dispute resolution clause in the Services Agreement, either on the basis that it gives rise to a genuine dispute or under s 459J of the Act. Mr Young submits that, if the Services Agreement applied (which Savemore contends it did not), that required negotiation followed by arbitration in the case of a dispute. Mr Krochmalik submits that a dispute resolution term will not apply where there is no genuine dispute as to the underlying debt, and refers to my decision in Re Infratel Networks Pty Ltd (2012) 91 ACSR 170; [2012] NSWSC 943 at [39] and to Palmer Petroleum Pty Ltd v BGP GeoExplorer Pte Ltd [2016] QSC 033 at [47]. It seems to me that this case is not the simple case addressed in Infratel, since here there is evidence of debate as to the length of shelf life remaining in respect of the relevant products, and not merely a contest as to the claim for payment. There is force in Mr Krochmalik's submission that the relevant dispute does not arise under the Services Agreement, where there is no obligation in respect of the shelf life under the Services Agreement, even putting aside Savemore's contention that the supply of products did not take place under that Agreement. Mr Krochmalik also submits, by reference to authority, that it is difficult to see that a dispute resolution provision could be violated, in respect of a claim for payment, where the Court has found that no genuine dispute exists.
In National Telecoms Group Ltd v Bulldogs Rugby League Club [2003] NSWSC 654, a statutory demand was issued by a creditor although the contract with the debtor contained a mediation clause. Gzell J there held that the question whether proceedings would have been stayed, if they had been commenced in the ordinary way, gave rise to a genuine dispute for the purposes of s 459H(1) of the Corporations Act as to the debt claimed. In Arris Investments Pty Ltd v Fahd [2010] NSWSC 309, Palmer J noted that such a clause would not necessarily preclude the service of a statutory demand, but nonetheless treated non-compliance with it as giving rise to "some other reason" to set aside a statutory demand under s 459J(1)(b) of the Act. His Honour also observed (at [18]) that: "… the existence of a mediation or arbitration clause in an agreement between parties will not automatically preclude one of them from serving a Statutory Demand on the other for a debt said to arise under the agreement. This is so because the Court retains its discretion under s 459J(1)(b) as to what significance to attach to such a contractual term in the circumstances of the case. A dispute between the parties might have to be resolved by compulsory arbitration before one party can enforce the result by judgment against the other, but the Court may see the position taken by one of the disputants is so transparently untenable that it can conclude for the purposes of s 459J(1)(b) that that party is invoking the arbitration clause in bad faith. Again, the Court might give no discretionary weight under s 459J(1)(b) to a compulsory arbitration clause where a plaintiff seeking to set aside the Statutory Demand has continually frustrated the endeavours of the defendant to have the dispute resolved in accordance with the arbitration clause."
In 2 Roslyn Street Pty Ltd v Leisure Inn Hospitality Management Pty Ltd [2011] NSWSC 512, Ward J (as per Honour then was) considered a contention that a creditor's statutory demand should be set aside when it had been issued when the creditor was on notice of a genuine dispute or offsetting claim and in breach of a dispute resolution procedure in the relevant management agreement. Her Honour referred to Arris Investments Pty Ltd v Fahd above and to National Telecoms Group Ltd v Bulldogs Rugby League Club above and noted that a question of compliance with the dispute resolution procedure is unlikely to arise in isolation of a question whether there is a genuine dispute so that the statutory demand should be set aside; and doubted whether a failure to mediate a dispute as to the amounts owing or the present obligation to pay them would be sufficiently independent of the genuine dispute ground so as to fall within s 459J(1)(b) of the Act. As I understand her Honour's reasoning, it is that it is unlikely to be necessary to have regard to that ground, where the existence of a genuine dispute so as to enliven the obligation to mediate would already have provided a basis to set aside the Demand under s 459H(1) of the Act. There seems to me to be substantial force in that reasoning. I reviewed the relevant authorities in Re Vivo International Corporation Pty Limited [2013] NSWSC 1462 on which I have partly drawn for the summary which appears above.
It seems to me that Savemore has not established the factual basis of its claim to set aside the Demand on this basis, where the requirement for negotiation has been met by the correspondence between the parties at a senior level that occurred before the Demand was issued. The Services Agreement does not provide for mandatory arbitration, and no party has sought to have the issues referred to arbitration. It also seems to me that, here, the Court would not exercise a discretion under s 459J(1)(b) to set aside the Demand, because no genuine dispute is established; there have been attempts, by correspondence, to resolve the position; and the issue of the Demand in these circumstances is not inconsistent with the statutory regime. I note that Boddice J reached a similar result in Palmer Petroleum Pty Ltd v BGP GeoExplorer Pte Ltd above at [47]ff.

Orders

For these reasons, the application to set aside the Demand is dismissed with costs.

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Corporations Act 2001(Cth)ss 459H, 459J

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