Bass Group v Freedom Fuels

PARTIES : Bass Group Australia Pty Ltd v Freedom Fuels Australia Pty Ltd

COUNSEL : Mr N Kallipolitis for plaintiff Mr R McKeand SC for defendant

SOLICITORS : Marsdens Law Group for plaintiff Herbert Geer for defendant

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4036/09 BASS GROUP AUSTRALIA PTY LIMITED v FREEDOM FUELS AUSTRALIA PTY LIMITED

1 HIS HONOUR: This is an application to set aside a statutory demand dated 16 July 2009 for $3,622,904.05. The description in the schedule to the demand is as follows: "The debt is due and payable to the Creditor by the Debtor Company for petroleum products sold and delivered during the period December 2007 to April 2009 inclusive (as further particularised by invoice details and amounts in the Schedule A exhibited hereto) for the accounts as follows: BAS 017 ($8,040.27¹)

Dated the 16th day of July 2009" 2 There was then attached a schedule for each account, a listing of invoices, invoice date, due date and the amount. There are many invoices and it is not surprising given the amounts due. 3 In a later affidavit filed by the defendants they concede that the accounts BAS 018 and ONSI 018 relate not to the defendant but to a related company. They therefore submit the amount should be reduced to $3,353,094.75 pursuant to Section 459 H (4). 4 It is plain that there is a genuine dispute as to the amounts of $8,879.26 and $260,930.54 in those accounts which amount to an overstatement of 7.45 percent. 5 There were limited grounds in the affidavit in support for setting aside the demand. These were in paragraph 5 of the affidavit which was in these terms: "I have read the Affidavit of Mathew Charles Morland, sworn 16 July 2009, and I reply to that affidavit as follows: As to paragraphs 3 and 4: (a) in relation to accounts BAS 018, ONSI 172 and ONSI 018, whilst the Plaintiff has from time to time received a schedule, similar to Schedule A referred to in the Credit's Statutory Demand, it has not receive any of the tax invoices listed in those schedules. (b) Accordingly, the Plaintiff has no way of verifying that what it is being asked to pay for is in fact what has been delivered to it. (c) Further, the Plaintiff has never agreed that the amounts alleged to be due did in fact fall due on the dates listed. If the allegation is made on the basis of terms contained in the invoices listed, the payment terms are not known to the Plaintiff. (d) In relation to Account BAS 017, the Plaintiff has received some, but not all of the invoices listed in Schedule A referred to in the Creditor's Statutory Demand. (e) However, the Plaintiff suspects that some of the amounts invoiced under account BAS 017 may have already been invoiced under one of either accounts BAS 018, ONSI 172 or ONSI 018. (f) In order for the Plaintiff to ascertain that it has received all of the product for which it is being invoiced, it must carry out an account reconciliation which can only be done upon receipt of all the invoices listed in Schedule A referred to in the Creditor's Statutory Demand and only if those invoices contain a description and breakdown of the type of productions, quantity of products and itemised charges, for the products alleged to have been delivered. As to paragraph 5: (g) I deny that the sum of $3,622,904.05 is due and payable by the Plaintiff. As to paragraph 6:

(h) For the reasons set out herein, I say that there is a genuine dispute about the existence of the alleged debt. 6 There have also been submissions which identified other grounds. These include submissions based upon the form of the demand and affidavits in support. The affidavit in support is in these terms: "I, Matthew Charles Morland, of 65 Longman Terrace, Chelmer, in the State of Queensland, Managing Director, make oath and say as follows:­

1. I am the Managing Director of Freedom Fuels Australia Pty Ltd ("the Creditor") and am authorised to swear this Affidavit on behalf of the Creditor.

2. In my role as Managing Director of the Creditor I have access to the books and records of the Creditor and by reference thereto I am aware of the facts set out in this my Affidavit by which Freedom Fuels Australia Pty Ltd is a Creditor of Bass Group Australia Pty Ltd ACN 115 872 074 ("the Debtor Company"). 3. The Creditor sold and delivered goods, being petroleum products, to the Debtor Company during the period (so far as relevant) from December 2007 to April 2009 inclusive, at the Debtor Company's request pursuant to accounts set up between the parties including as provided for in Agreements in writing dated 2 August 2007, 22 September 2008 and 8 December 2008. 4. Particulars of the debts which are due and payable by the Debtor Company to the Creditor are more fully set out in the Schedule to the Creditor's Statutory Demand exhibited to this Affidavit and in support of which this Affidavit is made.

5. The total amount of the debts now due and payable and unpaid by the Debtor Company to the Creditor is the sum of THREE MILLION SIX HUNDRED AND TWENTY TWO THOUSAND NINE HUNDRED AND FOUR DOLLARS AND FIVE CENTS ($3,622,904.05).

6. I believe that there is no genuine dispute about the existence or amounts of any of the debts. Where disputes have been raised about invoiced amounts, those invoices have been adjusted for and fully deducted from the total amounts of the debts claimed, as shown in the note (2) to the Schedule to the Statutory Demand. The Creditor does not concede that those disputes are valid, but does not rely on any amount set out in those invoices in calculating the total of the debts claimed.

7. All the facts and circumstances herein deposed to are within my own knowledge save such as are deposed to and my means of knowledge and sources of information appear on the face of this my Affidavit." 7 The additional matters dealt with in submissions are as follows:

1. The demand was not expressed in clear, correct and unambiguous terms.

3. An abuse of process as related companies were using the process to recover their separate debts.

4. Whether there is a genuine dispute as to the balance of the debt as it is said to be not due and payable. 8 I will deal with the last one of these first. I think the most useful summation of what is a genuine dispute is that given by McLelland CJ in Eq in Eyota Pty Limited v Hanava Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments in respect of the expression "genuine dispute." "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in section 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be" not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194). But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law , and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.' 9 In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said: There is little doubt that Division 3 . . . prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim". It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simply - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).' I respectfully agree with those statements." 10 The evidence of the agreements upon which the debts arise is quite clear. There are two supply agreements dealing with different types of Petroleum. One is dated 8 December 2008 and another 22 September 2008. Payment is provided for in clause 6 and the price schedule. In one case the price schedule gives five days credit from delivery, and the other 14. The agreement also provides in clause 14 for what should happen on expiry. That terms is: "Effect of Termination or Expiry. On expiry or early termination of this agreement for any reason the Buyer must promptly pay to Freedom Fuels all amounts due under the agreement." 11 It is suggested that "prompt payment" means within a reasonable time, and at least more than seven days. I can see no warrant for this. In any event the vast majority of the amounts would have been due earlier under clause 6. 12 The agreements were terminated on 9 and 14 July and the demand was made on 16 July hence the suggestion that some amounts became due on termination under clause 14 might have become due after 16 July. 13 It is plain that many of them or a large part of them were already due in respect to the ordinary trading terms. However, there is another reason for not refusing the application on this ground or finding that there is a genuine dispute on this ground. That is, that there is nothing in the affidavit in support which would include it as a ground in the application. 14 The authorities in this area have moved from time to time over the years and a recent short reference to it is contained in the decision of Barrett J in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143 at paragraphs 22 to 25 in these terms: "22. It was submitted on behalf of the defendant these alleged deficiencies could not be read by way of challenge under section 459J (1) (b) because they were not identified in either of the affidavits supporting the section 459G application that is, Mr Hagan's affidavit of 7 August 2007 and Mr Busby's affidavit of 31 July 2007. The defendant thus calls in aid of the principle emerging from a Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452 according to which an application under section 459G is limited to grounds appearing from the supporting affidavits or affidavits filed and served within the period of 21 days mentioned in that section. 23. A valuable discussion of this principle and its precise content may be found in the recent judgement of a White J in Hansmar Investments Pty ltd v perpetual Trustee Co Ltd (2007) 61 ACSR 321. In that case, his Honour regarded as too strict the approach taken by many in Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd [2002] NSWSC 45 and Elm Financial Services Pty ltd v Macdougal {2004] NSWSC 560. White J was of the view that my observation to the effect that the ground of challenge must be raised expressly in, or appear by necessary inference from, the supporting affidavit suggested too demanding a requirement. He referred, in connection, to observations of Austin J in POS Media Online Ltd v B Family Pty Ltd (2003) 21 ACLC 533 to the effect that the approach I had taken in Process Machinery arguably took the observation of Sundberg J in Graywinter further than they were taken by the Court of Appeal of the Supreme Court of Western Australia in Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179 and might be inconsistent with Callite Pty Ltd v Adams (2001) NSWSC 52. 24. White J then dealt with the case of a ground obvious on the face of an identified document but not expressly enunciated in the supporting affidavit. In the POS Media case Austin J had inclined to the view that, if the relevant document (such as an agreement) was annexed to the supporting affidavit, a ground obvious on the face of the document would be available even though not mentioned or suggested in the text of the affidavit that (I had indicated in Process Machinery that the text would have to say something about the relevant matter). Austin J did not need to decide the point but it became the subject of the following observations of White J in the Hansmar case by reference to the decision of Santow J in Callite Pty Ltd v Adams: '[3] Such a mode of reasoning would be consistent with Callite. There, a solicitor served a statutory demand demanding payment of an amount of unpaid legal costs. One of the grounds of challenge to the demand was that the solicitor had failed to make the disclosure required by section 175 of the Legal Profession Act , 1987 (NSW). Santow J (as his Honour then was) held that this ground of challenge was not available because no facts were deposed to from which one could infer that there was no fee disclosure and the costs agreement. However, the affidavit did depose to the receipt of accounts and those accounts were annexed. Santow J held (at [10]) that a perusal of the accounts showed that they lacked the prescribed statutory content as required by section 192 of the Legal Profession Act and regulation 22A of the Legal Profession Regulations , 1994 (NSW). Section 192 of the Act precluded any action being taken for recovery of costs until 30 days had passed after the provision of a bill of costs which complied with the Act. Santow J held (at [12]) in that the legal consequences which flowed from the form in which the accounts were rendered were not required to be pleaded in the affidavit. His Honour set aside the statutory demand on the basis that public policy precluded a statutory demand being used to bypass the safeguards of the Legal Profession Act . [32] I doubt that it could be said that in Callite it was a necessary inference from the affidavit that this ground of challenge was raised. However, it was an available inference so that it could fairly be said that the ground was raised in the supporting affidavit.' 25. With the benefit of the analysis of Austin J in POS Media and White J in Hansmar Investments , I am persuaded that my earlier approach is indeed too strict. In the Graywinter case itself, the minimum requirement with respect to a supporting affidavit was said by Sunberg J to be that it must 'contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute [emphasis added]. That was, of course, a section 459H (1) case. But the same reasoning applies where the challenge is under section 459J. In endorsing the approach taken by Sundberg J, the Full Court of the Supreme Court of Western Australia, in Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd [2001] WASCA 360, said that the supporting affidavit is 'required to reveal a genuine dispute' [emphasis added]. These statements, coupled with the approaches taken by Austin J and White J and the decision of Santow J in Callite , persuade me that a ground is "raised", as referred to in Energy Equity, if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed document the content of which 'reveals' it." 15 Shortly put, this ground does not appear in the affidavit in support. Paragraph 5 (c) of the agreement only deals with whatever terms might have been in the invoices. This dispute is based on the terms of what is apparent from the defendant's affidavit and is not raised in the affidavit in support. 16 There are also other matters raised based upon the defendant's evidence. One was a reference to discussions and, although these did not even come to any concluded agreement, they were not referred to in the affidavit in support. 17 I return to the first item which I have listed above, which was not referred to in the affidavit, namely, that the demand was not expressed in clear, correct and unambiguous terms. The way that is put in submissions was as follows:

"Given that the Defendant can gain the benefit of presumed insolvency by way of the demand process, the Defendant should have ensured that the demand was expressed in clear, correct and unambiguous terms. The Plaintiff submits: (a) the Demand was not so expressed; and (b) the Affidavit in Support of the Demand was not so expressed; and

(c) The Affidavit in Support of the Demand does not disclose the facts which show that there is a debt which is due and payable; and (d) at best, the Affidavit in Support of the Demand merely asserts that a list of invoices in some way connected to three agreements made on different days are due." 18 This has to be seen in the light of what was said in the affidavit in support of the application. Before turning to that aspect I would comment that paragraph 3 (c) above is not a requirement for a statutory demand. Section 459E of the Act provides: "459E(2) [Contents of demand] The demand (a) if it relates to a single debt - must specify the debt and its amount; and (b) if it relates to 2 or more debts - must specify the total of the amounts of the debts; and (c) must require the company to pay the amount of the debt, all the total of the allowance of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and (d) must be in writing; and (e) must be in the prescribed form (if any); and

(f) must be signed by or on the half of the creditor." 19 It is not necessary to insert the full basis of how the debt is said to become due. What the demand must do is specify the debt and the amount. That much is plain from section 459E(2). Certainly it is not necessary, as is suggested in argument, to annex the invoices or the basis for the amount being payable, namely, the agreement. 20 In my view the demand on its face is perfectly clear. It does set out clearly the amount claimed and the total and it makes it perfectly plain which are the invoices relied upon and for each of the amounts. On its face, as I say, the demand is perfectly clear. 21 The complaints in paragraphs 5 (a), (b) and (d) of the affidavit in support have to be seen in the light of what already occurred between the parties shortly prior to the issue of the demand. 22 On 8 March 2009 the plaintiff sent the defendant a spreadsheet listing all the invoices issued and thus conceded them as having been served. $5,877,816.22 was claimed by the plaintiff. The spreadsheet referred to disputes on various grounds. The only grounds which claimed that there were missing invoices were in respect of four of the invoices which had been received. Clearly, what is said in paragraph 5(a) of the affidavit in support is plainly wrong 23 The other evidence demonstrates that invoices were sent with delivery dockets and documents show the receipt of substantially all invoices. There was no evidence in reply to the defendant's evidence as to these or any other aspect of the defendant's evidence. 24 The affidavit in support of the demand has been carefully drawn and the denial is only of the total amount due. There are no denials of any parts of the total sums. The suspicions referred to in paragraph 5 (e) are not sufficient to raise a dispute. Similarly, they cannot in any way be probative to suggest that there is any other reason for setting aside the demand. 25 With respect to the affidavit in support of the demand, there is reference to the inclusion of an agreement of 2 August 2007. That is not a foundation for any misleading given the form of paragraph 3 of the demand. 26 It was also suggested that because of the concessions now made the first sentences in paragraph 6 was wrong. In hindsight, the deponent's belief could have turned out to be wrong but there is no evidence that he did not hold that belief at the time of making the affidavit. There is thus no ground based on the evidence to set aside the demand under section 459J (1) (b) of the Act. 27 The grounds advanced in the affidavit in support of the application to the extent that they may be sought to be advanced under section 459J (1) (a) do not suggest any difficulty in the demand, nor do I find any. To the extent that they are advanced under section 469J (1) (1) (b) the evidence of what was available to the plaintiff negates the force of the impression the affidavit was trying to give. 28 Giving due weight to what appears in the evidence, I am not satisfied there is some other reason to set aside the demand. 29 I turn to the other matters. There is said to be an abuse of process as related companies were using the process to recover their debts. This seems to be based on the following paragraphs of the affidavit of Mr Morland of 14 September 2009, which is in these terms: "Consistently with the details shown in that the ASIC search results, pursuant to the above-mentioned annexures, I say as follows:

(a) I am and was at all material times a Director of the Defendant, and Company Secretary, as well as the sole Director and Company Secretary of Freedom Fuels Terminalling Pty Ltd; (b) In my role as Director of the Defendant I have knowledge of the business records of the Defendant relating to the matters contained in this Affidavit and in my Affidavit, which is annexed to the Affidavit of Mark Bassal; (c) I was duly authorised to issue the Creditor's Statutory Demand in this matter as Director of the Defendant and also had and have full authority to act on behalf of Freedom Fuels Terminalling Pty Ltd concerning debts owed to it and demands relating thereto." 30 There was also reference to the inclusion in the affidavit in support of the demand of the 7 August 2008 agreement which no doubt related to the amounts now conceded. The appropriate concession has been made and any potential for abuse has been avoided. 31 There was no request to cross-examine Mr Morland and put to him that his conduct was deliberate rather than mistaken. Absent such an application and any other evidence which might suggest a deliberate attempt to circumvent the requirements for separate demands, I would not find there is any relevant abuse. Overstatement of the debt 32 The overstatement is a small proportion of the total amount and relates to one subject matter. In the circumstances I would not refuse to exercise my discretion to reduce the amount of the debt by the amount of the overstatement. 33 The orders I make are:

1. I find that the substantiated amount of the demand is $3,353,094.75. 2. I vary the demand dated 16 July 2009 served by the defendant on the plaintiff by reducing the amount to $3,353,094.75. 3. I will hear the parties on the question of costs. (Solicitor and counsel addressed on costs) 34 The concession which I have referred to in the judgment was given in an affidavit of 3 December and it was only shortly before the hearing. The plaintiff has had substantial extensions of time to file affidavits in reply but no affidavits have been filed. An order was made being the usual order for hearing which would normally involve the elaboration of the basis of the defence. This was not complied with until argument this morning. 35 The defendant has not been wholly successful. Although it is suggested that costs be on an indemnity basis because of the time that has been wasted without any evidence in reply, I think on balance I will not make an order for indemnity costs. As the defendant has been only partly successful, the order I make is that the plaintiff should pay 90% of the defendant's costs on the ordinary basis and I so order. The exhibits can be returned. **********

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