BETWEEN : ORH CONTRACTING PTY LTD (ACN 096 256 316)

Corporations law - Application to set aside a statutory demand - Whether affidavit in support of application can contain hearsay evidence - Dispute raised by plaintiff not mentioned prior to issue of demand - Effect on application

A-Pak Plastics Pty Ltd v Merhone Pty Ltd (1995) 17 ACSR 176

Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59

Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd [2007] VSCA 121; (2007) 63 ACSR 300

Infact Consulting Pty Ltd v Kyle House Pty Ltd [2005] NSWSC 1092

Keylink Physical Care Pty Ltd v Ergoline (Australia) Pty Ltd [1999] SASC 483

Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290

Terranora Group Management Pty Ltd v Terranora Lakes Country Club Ltd (in liq) (Unreported, NSWSC, 1 December 1997)

Vista Commercial Construction Pty Ltd v Deputy Commissioner of Taxation (1997) 25 ACSR 285

Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598

Westpoint Management Pty Ltd v Goakes [2002] WASCA 317

1 MASTER SANDERSON: This was the plaintiff's application to set aside a statutory demand. At the conclusion of the hearing I indicated I would set the demand aside and that I would publish reasons at a later date. These are those reasons.

2 A copy of the demand is annexed to the application. The amount of the demand is $89,813. Under the heading 'Description of the debt' there appears the following:

The balance of invoice number 44718 dated 30 December 2007 for computer software supplied by the creditor to the company at the company's request.

3 The application is supported by three affidavits - one sworn by Geoffrey David Hann dated 21 May 2009, one sworn by Samuel James Morton sworn 30 July 2009 and one sworn by Rohan Wesley Erwin sworn 30 July 2009. The plaintiff says that there is a genuine dispute in relation to the alleged debt. The summary of the plaintiff's position which follows is taken from these three affidavits.

4 The debt relates to the cost of what is known as a 'Pronto Xi Software Package'. This software was to be supplied by the defendant to the plaintiff. The purpose of the software was to provide the plaintiff with an upgrade of its existing enterprise resource planning system. Prior to the provision of the software the plaintiff had an alternative, more primitive system. The plaintiff is one of three related group companies. The software was intended to be used across the group of companies and to allow an integrated distribution system for internal information. It was also intended to enhance financial operation and reporting within the group.

5 It was Mr Morton, an employee of the plaintiff, who was involved in discussions with the defendant in relation to the software. It is alleged by the plaintiff that in or about December 2007 the defendant advised the plaintiff the total cost involved in provision of the software would be approximately $117,000. It was said by the plaintiff the representation as to this total cost was made not only to Mr Morton but to one Andrew Brand, also an employee of the plaintiff at the time. The plaintiff alleges that based upon the representation as to total cost the plaintiff agreed to proceed with the installation of the software.

6 On 30 December 2007 the defendant invoiced the plaintiff for a total sum of $101,354. This invoice appears as annexure GDH2 to the affidavit of Mr Hann. The invoice refers to '20 Concurrent users of Pronto Enterprise Software'. The invoice number is 44718 - in other words, this is the invoice which the defendant has only been paid for in part and which led to the statutory demand.

7 The plaintiff alleges that when the invoice was received by the plaintiff the software had not then been installed or supplied by the defendant. A limited version of the software was not installed until 22 February 2008. The plaintiff says the only software ever received from the defendant allowed access only to a training environment. The plaintiff says subsequent to the provision of the software, employees of the defendant made a number of site visits to the plaintiff's offices between 22 January 2008 and 13 March 2008. Invoices were received from the defendant in respect of these consulting visits. Those invoices have been paid in full by the plaintiff.

8 In January 2008 the plaintiff says it was advised by the defendant that in order to install and run the software an upgrade to the plaintiff's computer server and computer hardware would be required. The upgrade was duly undertaken and an invoice for the upgrade was rendered by the defendant to the plaintiff. This invoice has been paid in full.

9 The plaintiff alleges the only software that has been installed was useful for training purposes and nothing more. It was also loaded only onto two of the plaintiff's computers. The plaintiff says it has not been provided with any useable commercial software and it has been forced to run its old system.

10 The plaintiff alleges as at March 2008 the overall budget for the software as originally represented had been exceeded without it having received any benefit. On 13 March 2008 a project costing workshop was held between the plaintiff and the defendant. The plaintiff says the aim of the workshop was to ascertain the full cost of the software. As a result of this project costing workshop the defendant provided the plaintiff with a Project Management Plan (the plan) for the software dated 22 April 2009. Part of the plan summarised further costs that were to be charged by the defendant in order to implement the software for the plaintiff. Part of what was anticipated was a further 869 hours of consulting time resulting in substantial further cost. The estimated total cost of the project was then put at $281,183.15. The plaintiff says that until the receipt of the plan in late April 2009 it had not been aware of the full overall cost of implementing the software. It had thought the total cost would be the $117,000 as originally advised.

11 As I have said, the plaintiff made part-payment of the invoice. An amount of $10,000 was paid by the plaintiff to the defendant on 29 July 2008. A further $10,000 was paid on 16 February 2009. Mr Hann says in his affidavit that he was responsible for making these payments. He says they were made without his knowing the full facts in relation to the provision of the software. The plaintiff now says there is a genuine dispute in relation to the provision of the software and the amount, if any, outstanding under the December 2007 invoice.

12 Before considering the defendant's response to the plaintiff's claims, it is necessary to deal with two matters raised by the defendant which it was said meant, properly considered, there was no valid application to set aside the demand on foot. The thrust of these arguments was directed at the adequacy of the affidavit of Mr Hann.

13 The first argument was that Mr Hann's affidavit was largely made up of hearsay evidence. It was submitted as this was a final, not an interlocutory, application, hearsay evidence was not admissible. As an example of the evidence to which the defendant took objection there appears as par 7 to Mr Hann's affidavit the following:

I verily believe from speaking with Jamie Morton, who is an employee of the plaintiff, and who was involved in all discussions with the defendant in relation to the software at the time, that the defendant represented to the plaintiff in December 2007 that the total costs involved would be approximately $117,000 inclusive of GST. I am informed by Jamie Morton and verily believe it to be true that this representation was made by employees of the defendant to him, Andrew Brand, an employee of the plaintiff at the time.

14 There are numerous other paragraphs in Mr Hann's affidavit of a similar nature. The evidence is unquestionably hearsay. No doubt the form of the affidavit has been drafted with O 37 r 6(2)(a) in mind. Each paragraph which recites hearsay evidence states the source of Mr Hann's knowledge and information and his belief that the information is true. Counsel for the plaintiff did not seek to argue that the paragraph's complained of by the defendant were not hearsay.

15 This raises squarely the question which bedevils applications to set aside a statutory demand. If the application is final then prima facie hearsay evidence is not permitted. If the application is interlocutory then hearsay evidence is permitted. There is a difference of judicial opinion on the question. In A-Pak Plastics Pty Ltd v Merhone Pty Ltd (1995) 17 ACSR 176 the Court of Appeal in New South Wales held that an order setting aside a statutory demand was final because it determined the rights of the parties in respect of that issue. The Court of Appeal, however, did not express a view as to whether an order dismissing an application was final or interlocutory. In Western Australia this decision was followed in Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59. A similar decision was reached by Doyle CJ in the Supreme Court of South Australia in Keylink Physical Care Pty Ltd v Ergoline (Australia) Pty Ltd [1999] SASC 483. Barrett J in the Supreme Court of New South Wales followed (as he was probably bound to do) the A-Pak Plastics decision in Infact Consulting Pty Ltd v Kyle House Pty Ltd [2005] NSWSC 1092.

16 Counsel for the defendant also relied on the decision of the West Australian Court of Appeal in Westpoint Management Pty Ltd v Goakes [2002] WASCA 317. In that case Templeman J said:

The learned Master was perfectly correct in saying that this was not an interlocutory application and it was a final one and that hearsay was not normally allowable. In that statement the Master clearly had in mind O 37 r 6 of the Rules of the Supreme Court 1971 (WA) which provides for the contents of affidavit evidence [8].

17 It is instructive to note that the other two judges in this case were not prepared to say whether or not the application was interlocutory or final. Wheeler J did not think it of any consequence in the resolution of the appeal (see [13]). McKechnie J specifically reserved the question. But there is no doubt the case supports the defendant's contention that determination of an application under s 459G is final and not interlocutory.

18 A contrary view was expressed by Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290. This approach was followed by Santow J in Terranora Group Management Pty Ltd v Terranora Lakes Country Club Ltd (in liq) (Unreported, NSWSC, 1 December 1997). The full Federal Court came to the same conclusion in Vista Commercial Construction Pty Ltd v Deputy Commissioner of Taxation (1997) 25 ACSR 285.

19 But perhaps the most persuasive authority on the question is the decision of the Full Court of the Victorian Court of Appeal in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd [2007] VSCA 121; (2007) 63 ACSR 300. One of the matters for the court to decide in that case was whether leave to appeal was required from a judge's decision dismissing an application to set aside a statutory demand. All five judges who sat on that case were of the view that the decision was interlocutory. The matter went on appeal to the High Court but this question was not one of the matters the High Court was asked to consider. Just to confuse things further, three members of the court in the Aussie Plant Hire case considered that although the application was interlocutory the decision was final.

20 So the position is hopelessly confused. While the authority in Western Australia tends to support the view that an application under s 459G is final rather than interlocutory it is necessary to bear in mind what is being interpreted is a Commonwealth statute. That being the case I have consistently adopted the view that the Aussie Plant Hire case should be followed. In other words, I am satisfied that the application is interlocutory in nature and that hearsay evidence is admissible. It was on that basis that I refused to strikeout parts of Mr Hann's affidavit.

21 In looking at this question of what evidence a plaintiff must provide in an affidavit supporting an application to set aside a statutory demand it is perhaps instructive to look at what a plaintiff must establish. What must be shown is that there is a genuine dispute. So what a plaintiff needs to do is establish there is evidence which, if accepted, might satisfy a court that it is not indebted to the defendant as alleged in the statutory demand. As has been so often said, it is not the function of the statutory demand procedure to resolve any dispute between the plaintiff and the defendant. On that basis it is difficult to see why the only admissible evidence should be evidence which would be tendered on the final hearing of the dispute between the parties. To adopt that approach seems to me to place too heavy an emphasis on a plaintiff who is only called upon to establish that it has a dispute with the defendant and that the dispute is genuine.

22 The second point raised by the defendant was again an argument which is frequently put. It was said the claim that there was a dispute was only raised after the statutory demand was served. It was said that once the respective positions of the parties prior to the issue of the demand was considered it was obvious the plaintiff had concocted a story solely for the purpose of setting aside the demand. A variation of this argument was rejected by Hayne J in the Mibor Investments decision. But this case provided a particularly clear example of circumstances where it is entirely understandable that the defendant's suspicions were excited. Appearing as annexure MI1 to the affidavit of Mark Irving sworn 26 June 2009 filed in opposition to the application is a chain of email correspondence passing between Mr Brand of the plaintiff and Mr Irving of the defendant. These emails make it plain that the plaintiff was under financial pressure and was not in a position to pay the invoice the defendant had rendered. By way of example, on 26 March 2008 Mr Irving sent Mr Brand an email asking for payment or at least payment in part of the invoice. Mr Brand replied the same day. He said:

Mark, sorry for the late reply I appreciate your concern.

However, to date things have not gone as planned with the second part of our investment the process is taking much longer than anticipated and we are still in the du-diligence [sic] phase and I have today been told I will not have an answer until next week, at which point I will know when the funding will be available to us.

If you can bear with us for a little while longer I will get this resolved, I do have funds available next week and I am looking to at least pay CSG something.

I will call you when I have a clear picture.

23 There is nothing in any of this correspondence that suggests the plaintiff has an issue with the invoice. Rather Mr Brand is indicating that the invoice will be paid and the only reason it has not been paid to date is a shortage of funds. Moreover, the defendant was clearly having financial difficulties - it simply did not have the money available to meet the amount claimed in the invoice.

24 Be that as it may however, the mere fact that the dispute was not raised before the issue of the demand cannot, in my view, lead to evidence such as Mr Hann's being excluded. Doubtless if the evidence is 'inherently incredible' as that phrase is used in Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598 then the evidence can be excluded. It may even be that in such circumstances the evidence is to be analysed in a critical light. But in a case such as this, where Mr Hann's evidence is not inherently incredible, where there has been no cross-examination of Mr Hann, and where there is no reason why Mr Hann should not be believed on his oath, then the evidence must be accepted for what it is. For those reasons I allowed Mr Hann's evidence to stand.

25 Once that point is reached it is clear that the plaintiff has established that there is, in this case, a genuine dispute. The evidence filed on behalf of the defendant was to the effect that there was never any agreement as to a total price. As I understand the defendant's position, it is said that an agreement was reached for the defendant to supply the plaintiff with software and to train the plaintiff's staff as to its use. On the defendant's case it would seem that the potential cost was open-ended. On any reading of the facts there is a dispute as to the terms of the contractual arrangement between the plaintiff and the defendant and the cost limitations, if any, on the contract. There is nothing to suggest that the dispute is not genuine.

26 For these reasons I was satisfied that the statutory demand should be set aside. I will hear the parties as to the question of costs.