BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd

Background and affidavit evidence

1. By way of background, EBS was established in January 2012, following agreement reached between Pages Hire and Mr Sean Watt to establish that company, to which Pages Hire was to contract work involving the construction of temporary structures at large events. Entities associated with Pages Hire or its chief executive officer, Mr Boros, on the one hand, and Mr Watt on the other, each held half of the shares in EBS. There were unusual payment terms between the parties, by which amounts due by Pages Hire to EBS were recorded in a company loan account, and Pages Hire paid employees of EBS and placed EBS in funds to pay its creditors as needed, and the amounts paid out were in turn debited to the loan account. I will refer below, in dealing with the affidavit evidence, to the circumstances in which Pages Hire ceased trading and an administrator was appointed to it, and EBS was requested to re-invoice Pages Sales for amounts that would otherwise have been due to it by Pages Hire.
2. The parties relied on extensive affidavit evidence in respect of the application. Pages Sales relied on an affidavit of Mr Boros dated 1 March 2016. Mr Boros there noted that Pages Hire had ceased to trade on or about 30 June 2015. That entity was subsequently placed in administration. Mr Boros also referred to conversations with Mr Watt in 2012 which had led to establishing EBS to perform contracting work for Pages Hire. Mr Boros set out the terms of the agreement which he claimed was formed between Mr Watt and himself, in a form which would not have been admissible in substantive proceedings. That part of Mr Boros' evidence of that agreement which was objected to was admitted subject to an order under s 136 of the Evidence Act 1995 (NSW) that limiting its use to the identification of the claim relied on to contest the Demand and was not proof of the asserted agreement. Mr Boros' evidence, admitted subject to that limitation, was that (Boros 1.3.16 [13]): "During the above discussions we also agreed on certain administrative arrangements and responsibilities as follows: 12.1 It was agreed between the parties that [Pages Hire] was to handle the payroll process every week to facilitate payment of wages due to employees of EBS. 12.2 It was agreed between the parties that officers of [Pages Hire] would make the weekly payment of wages and other employee benefits due to employees of EBS. 12.3 [Pages Hire] staff would provide other financial and accounting services for EBS. 12.4 Where EBS required capital to pay creditors it was agreed that [Pages Hire] would fund some of that capital expenditure and other items and that this outlay would be off-set against EBS rendering services to [Pages Hire]. 12.5 I would be the sole signatory to the Bank Account of EBS."
3. Mr Boros' evidence (Boros 1.3.16 [15]) (also admitted to a limiting order under s 136 of the Evidence Act) was that, after management of the Pages Group of companies decided that Pages Hire would cease to trade effective from 30 June 2015: "It was agreed that Pages Sales would take over the responsibility for the provision of payroll services and administrative functions previously carried out by Page Hire Centre for EBS. In return it was agreed that EBS would continue to service clients of Pages Sales which was to take over a number of contracts previously undertaken by [Pages Hire] pre-30 June 2015."
4. An email dated 9 September 2015 sent by the chief financial officer of the Pages Group of Companies to an accountant within EBS (Boros 1.3.16, Annexure "C") stated that the Pages Group had ceased trading in Pages Hire as at 30 June 2015 and that: "In order to ensure that the outstanding balance in the EBS intercompany account with [Pages Hire] as at the 30th of June continues to be recognised, it is important that we re-establish this balance in [Pages Sales]. So to that end, can I please ask you to issue credit notes for all amounts that remain outstanding in the EBS intercompany account at the end of June and to reissue these amounts in the name of Pages Sales." Mr Boros describes this email in his affidavit (Boros 1.3.16 [16]) as: "confirming the arrangement associated with [Pages Hire] ceasing to trade and Pages Sales taking over responsibility for administrative functions and in effect being a substitute in the arrangements previously between EBS and [Pages Hire] on and after 30 June 2015 between EBS and Pages Sales." That email does not in fact refer to any assumption of responsibility for administrative functions by Pages Sales. An administrator was appointed to Pages Hire on 9 September 2015, the same date as that email.
5. Mr Boros also refers to a subsequent invoice dated 21 December 2015 rendered by Pages Sales to EBS in the amount of $156,090.91 exclusive of GST ("21 December invoice") which was to become the basis of the offsetting claim advanced by Pages Sales in these proceedings. That invoice (Boros 1.3.16, [18], Annexure D) referred to "[a]dministration fees from 01 Feb 2012 to 17 December 2015 @ $850 per week", totalling $156,090.91, to which GST of $15,609.09 was added. A covering email to the 21 December invoice sent by Ms Connell of the Pages Group to Ms Puntoriero of EBS described the invoice as relating to: "The Pages Management Fee invoice relating to the weekly Admin Fee associated with running the EBS payroll over the last few years." (Ex D1, 22)
6. Mr Boros' evidence (Boros 1.3.16 [19]), which was not the subject of objection but should properly be treated as in the nature of a submission, was that: "The rendering of the invoices was consistent with the arrangement that had taken place between EBS and [Pages Hire] and following the takeover and rearrangement, consistent with Pages Sales assuming liability for debts of [Pages Hire], and Pages Sales having a credit for services previously provided by [Pages Hire] to EBS."
7. Mr Boros also stated (Boros 1.3.16 [27]) that: "the debt the subject of the Statutory Demand was disputed by me in emails between myself and the solicitors for EBS sent in late January 2016 and well before the issuing of the Demand." My attention was not drawn, in the course of submissions, to any emails in evidence that met that description.
8. Pages Sales also relied on an affidavit of its sole director, Mr Stephen Thatcher, who stated that he was "instructed" to apply to the Court for the Demand to be set aside on the basis of the information and facts deposed to in Mr Boros' affidavit. Putting aside the curiosity that the sole director of Pages Sales was taking, rather than giving, instructions as to the conduct of the proceedings, that affidavit added little to the substance of the evidence in the proceedings.
9. Pages Sales also relied on an affidavit of the Chief Financial Officer of the Pages Group of companies, Ms Connell, dated 2 March 2016. Ms Connell referred to Mr Boros' affidavit dated 1 March 2016 and also referred to the email sent in September 2015 to EBS, to which I referred above. Ms Connell confirmed the contents of Mr Boros' affidavits in respect of the agreements between EBS and Pages Hire and subsequently between EBS and Pages Sales. She also confirmed that the 21 December invoice had not been paid and referred to the absence of adverse comment or complaint about the receipt of the invoice by EBS.
10. A further affidavit of Mr Boros dated 24 March 2016 responded to Mr Watt's affidavit dated 11 March 2016, to which I will refer below. Mr Boros accepted that arrangements described by Mr Watt in that affidavit partly reflected the arrangements between Pages Sales (or, I interpolate, for a large part of the period, Pages Hire) and EBS and referred to other additional terms which he claimed were included in those arrangements, including the provision of other services, systems and funding by Pages Hire to EBS. However, the 21 December invoice did not refer to the provision of such other services but only to "administration fees". Mr Boros' evidence (admitted with a limiting order under s 136 of the Evidence Act as a submission only) was that the provision of the systems to which he referred to EBS at a cost of $850 per week or $44,000 per annum represented a "substantial commercial windfall and benefit" for EBS which made it cost competitive within the events industry.
11. Mr Boros in turn referred to several matters that contributed to the breakdown of relations between the Pages Group of companies and EBS and between Mr Boros and Mr Watt. He referred to his having instructed officers of Pages Sales to issue the 21 December invoice and to the fact that that invoice remained unpaid. He also stated that it was not until he received a letter (from EBS' solicitors, on or about 1 February 2015) that he became aware of any dispute as to the amount of that invoice. Importantly, in paragraph 29 of Mr Boros' affidavit, he indicated that he did not dispute the invoices that were contained in and exhibited to Ms Puntoriero's affidavit, to which I refer below, which related to the amounts claimed by EBS in the Demand. I understand that acknowledgement at least to extend to the extent of the work done and the amounts reflected in those invoices.
12. EBS in turn relied on an affidavit of Mr Watt dated 11 March 2016, who referred to the conversations giving rise to the arrangements between Pages Hire and EBS. In particular, he referred to a conversation in which Mr Boros had offered, and he had accepted, that (Watt 11.3.16 [4]): "Pages will cover the payroll of staff and forward any moneys needed to cover creditors when needed to offset normal payment terms of invoices." Mr Watt's evidence, which is plainly in dispute, was that there was no discussion about Pages Hire being paid a fee for paying staff of EBS and that he would not have agreed to the arrangement with Pages Hire if he had believed that it would cost EBS $850 per week plus GST. Mr Watt in turn described the operation of the arrangement between Pages Hire and EBS as follows (Watt 11.3.16 [6]): "Pursuant to the Special Payment Terms Arrangement [as defined] and in consideration of the special payment terms being extended, up until 30 June 2015: (a) Pages Hire made payment of wages to a small number of employees each week. (b) When [EBS] needed to pay creditors, funds would be forwarded by Pages Hire to a bank account established by Pages Hire staff in the name of [EBS] … with such funds set off against amounts otherwise due by Pages Hire to [EBS]. (c) It was not agreed that Mr Attila Boros be the sole signatory to the [account] but rather [EBS's] secretary, Tanya was to be signatory on the account along with another staff member of Pages Hire."
13. Mr Watt also led evidence as to the functions performed by Pages Hire as part of that arrangement, which are also in dispute between Mr Boros and himself. Mr Watt's evidence was that other sourcing work, administrative, financial accounting or other back office services were not provided by Pages Hire to EBS and that matter is also in dispute. Mr Watt reiterates that he did not agree that EBS would pay for the limited function provided by Pages Hire and his evidence is that he understood that function was performed in consideration of EBS extending the "Special Payment Terms Arrangement" as defined. Again, that matter is plainly in dispute between Mr Boros and Mr Watt.
14. Mr Watt refers to the circumstances in which EBS became aware that Pages Hire had ceased to carry on business. His evidence is that he first became aware that EBS would undertake work for Pages Sales following the email on 9 September 2015, although he did not then turn his mind to whether that involved a substitution of Pages Sales for Pages Hire. Although Mr Somerville criticised Mr Watt's evidence that he did not become aware of that matter until that date, it seems to me to be consistent with other evidence that indicates that Pages Hire initially informed EBS on 10 August 2015, wrongly, that it had changed its name to Pages Sales, rather than that it had ceased its business and that Pages Sales had taken over that business before it was placed in administration. Mr Watt's evidence is that he was willing to extend the previous arrangements between Pages Hire and EBS to Pages Sales although he contends that (Watt 11.3.16 [12]): "I did not agree to any substitution from Pages Hire to [EBS] but saw the ongoing relationship as a new relationship on the same terms and conditions as the Company Setup Agreement or Special Payment Terms arrangement." Mr Watt also repeats his earlier denials that he agreed to pay "fair value" or any other amount for the limited functions that he claims Pages Hire provided to EBS.
15. Mr Watt also refers to the circumstances in which difficulties arose between Pages Sales and EBS, including that a payment made by Pages Sales to EBS was dishonoured in late October or November 2015 and, by 18 November 2015, Pages Sales started to refuse to make payments to EBS on account of creditors despite being indebted to EBS. Mr Watt's evidence is that, by 18 December 2015, shortly before the issue by Pages Sales of the invoice for administrative services to which I have referred above, Pages Sales informed EBS that it would not pay any more amounts to EBS and would not pay employees and also ceased offering to subcontract work to EBS. Mr Watt also refers to an inquiry made by Ms Connell to EBS's accountant early on 21 December 2015, shortly before the issue of the 21 December invoice, asking for the latest balance of the debt which was later the subject of the Demand. In the event, the invoice for administrative services was issued by Pages Sales prior to EBS having responded to that request. Mr Watt also refers to his view that Pages Sales "can't be serious" in respect of the issue of that invoice for administrative services, and that he did not consider it necessary to dispute that invoice as he did not consider that it had any proper legal basis.
16. Mr Watt's evidence is also that, after the amounts claimed in the Demand were not paid, he instructed his solicitors to send a letter of demand dated 1 February 2016 to Pages Sales, which denied the existence of the debt for administrative services claimed in the 21 December invoice. The letter from EBS's solicitors to Pages Sales stated that (Ex D1, 30): "EBS categorically denies any liability to Pages for the amount claimed in the invoice issued by Pages on 21 December 2015 for performance of payroll 'administration services' over the preceding four years. We particularly note that the amount of $156,090.91 ex GST alleged to be due, by some happy coincidence or contrivance, roughly correlates with the amount owed by Pages to EBS. On our above instructions, disregarding that the quantum of the charges appear to grossly exceed a reasonable charge for the minor administrative role performed, there was never any agreement to pay Pages for its agreed function of paying EBS employees directly. This was a function performed by Pages pursuant to the Company Setup Agreement and in consideration of the agreement by EBS to defer payment of invoices otherwise due by Pages to EBS."
17. EBS also relies on the affidavit of Ms Monica Puntoriero dated 11 March 2016, who is an accountant with EBS and who confirms aspects of Mr Watt's affidavit. She gives evidence that one of the invoices issued, which was initially addressed to Pages Hire, was issued in error and was reissued to Pages Sales after she received the email dated 10 August 2015 advising (wrongly) that Pages Hire had changed its name to Pages Sales. She also leads evidence indicating her estimate of the time which would have been taken to perform the function of paying EBS's employees, and estimates that, on what she describes as an "overly generous" estimate, that would amount to two hours per week, and the work could have been competently performed by a bookkeeper, with appropriate rates being $50 per hour plus GST (Puntoriero 11.3.16 [10(c)]).
18. Ms Puntoriero in turn asserted, by way of a conclusory statement, that the amount claimed in the Demand was due and payable and her evidence was that no one from Pages Sales had questioned or disputed the invoices the subject of the Demand. Ms Puntoriero also exhibited the invoices that were the subject of the Demand (Ex D2) which contained detailed descriptions of the goods supplied and the amounts charged, commencing with the earliest job date of 18 August 2015, after Pages Hire had ceased to conduct business and Pages Sales had taken over the business.
19. By a further affidavit dated 1 April 2016, Mr Watt in turn responds to Mr Boros' second affidavit dated 24 March 2016. Mr Watt denies that there were further terms as to administrative arrangements and services to be provided by Pages Hire to EBS of the kind alleged by Mr Boros, beyond those set out in his earlier affidavit. Mr Watt explains, in particular, that Pages Hire did not provide the specified services to which Mr Boros had referred, and why he contends that such services were not necessary for EBS. He also responds to other matters raised in Mr Boros' affidavit which relate to disputes that had arisen between shareholders in EBS, which are of limited relevance in this application. I will return to the relevance of the extent of disagreement between Mr Boros and Mr Watt to whether a genuine dispute is established below.

Whether a genuine dispute is established for the purposes of s 459H(1)(a) of the Corporations Act

1. As I noted above, Pages Sales submits that there is a genuine dispute about the existence or amount of the debt to which the Demand relates for the purpose of s 459H(1)(a) of the Corporations Act, although it placed less weight on that submission than on its claim that it had an offsetting claim against EBS for the purpose of s 459H(1)(b) of the Corporations Act.
2. Section 459H(1)(a) of the Corporations Act provides that a creditor's statutory demand may be set aside when the Court is satisfied that there is a genuine dispute about the existence or amount of the debt to which that demand relates. That test has been variously formulated as requiring that the dispute is not "plainly vexatious or frivolous" or "may have some substance" or involves "a plausible contention requiring investigation" and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787; Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [6].
3. In Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295, Hayne J observed that: "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."
4. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a "genuine dispute" must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 (at [16]), Barrett J summarised the principle as follows: "[T]he task faced by the company challenging a statutory demand on the genuine dispute grounds is by no means at all a difficult or demanding one. The company will fail in that task only if it is found, upon the hearing of its s 459G application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. 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."
5. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71], Dodds-Streeton JA observed that a company which seeks to establish a genuine dispute or offsetting claim: "… is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. … [I]t is not necessary for the company to advance, at this stage, a fully evidenced claim. Something 'between mere assertion and the proof that would be necessary in a court of law' may suffice."
6. In Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44], Young AJA (with whom Hoeben JA and Ward J agreed) referred to Eyota Pty Ltd v Hanave Pty Ltd above and noted that the question for a primary judge, in determining an application to set aside a statutory demand under s 459H(1)(a), is: "[T]o determine whether there was a genuine dispute, that is one in which a plausible contention has been raised by the company on which the statutory demand was served."
7. Mr Somerville also submits that the creditor's statutory demand procedure should not be used as a debt collecting mechanism to coerce a party to pay disputed sums. While there is authority for that position, including Moutere v Deputy Commissioner of Taxation [2000] NSWSC 379; (2000) 34 ACSR 533 at [54] to which Mr Somerville referred, it should be recognised that that proposition depends on whether the amount claimed is, in truth, the subject of a genuine dispute.
8. In his written opening submissions, Mr Somerville submitted that there was "clearly a dispute" as to the debt which was the subject of the Demand, although he did not there identify the character of that dispute, and pointed to the wider commercial dispute that plainly exists between the parties as to their commercial relationship. Mr Somerville submitted that the existence of the dispute is underlined by the voluminous nature of the evidence filed in the proceedings, although I would not treat the quantity of evidence led, as distinct from its content, as demonstrating that matter. Mr Somerville points to several matters which he submits support the existence of a genuine dispute, including a dispute as to the terms of the commercial arrangement between Pages Sales and EBS; whether there was a "substitution" of Pages Sales into the position of Pages Hire; the reasonableness of Pages Sales' offsetting invoice; the balance of accounts between Pages Sales and EBS in the context of their commercial relationship; the respective indebtedness of Pages Sales and EBS to each other; and the payment of dividends to shareholders of EBS. Mr Somerville also submitted that these broader matters had relevance to the existence or amount of the debt to which the Demand relates. Mr Somerville also points to the existence of a relationship between "the parties" such that an account was taken in respect of debts said to be owing by each party to the other. The reference to "the parties" in that submission does not recognise the distinction between Pages Hire (now in administration) and Pages Sales. There is evidence of such a practice, at least in respect of the dealings between Pages Hire and EBS.
9. Mr Somerville submits that each invoiced amount (subject to any issue as to validity) ought to have been reconciled within the inter-company account with any debt crystallising thereafter and submits that such a reconciliation has not yet occurred. In oral submissions, Mr Somerville identified the basis of the genuine dispute by reference to the inter-company account and reconciliation of amounts due between the parties (T9). Mr Somerville submitted that the parties' relationship involved reconciliation or offsetting of their respective debts and that no amount was due until that had occurred (T12). That submission overlaps with the offsetting claim on which Pages Sales relies, so far as the debt which it has said has not been taken into account in such a reconciliation is that claimed by the 21 December invoice and relied on for its offsetting claim. Pages Sales has not led any other evidence of amounts due to it that would affect such a reconciliation or give rise to any dispute as to an amount otherwise due to EBS. As Mr Somerville fairly recognised in oral submissions (T20), there is a degree of inconsistency between Pages Sales' conduct in itself issuing the 21 December invoice claiming an amount due by EBS by way of administration fees and the contention that amounts were not due by one party to the other until any such reconciliation was completed.
10. Mr Lees, who appears for EBS, submits that Mr Boros' first affidavit does not provide sufficient evidence to support the claim for a genuine dispute, and that the affidavit evidence led by Pages Sales rises to no more than a mere assertion that the debt is disputed and does not identify the material facts underlying such a dispute. Mr Lees points out that, as I noted above, Mr Boros had accepted that he did not dispute the invoices on which EBS relied (Boros 24.3.16 [29]; Ex D2). Mr Lees also submits that it is not to the point for Mr Boros to refer to other, wider disputes as between the Pages Group and EBS, where s 459H(1)(a) of the Corporations Act is directed to whether there is a genuine dispute between the parties as to the existence or amount of the debt to which the Demand relates.
11. It seems to me that a fundamental difficulty with the way in which Pages Sales puts its claim that a genuine dispute exists is that it does not distinguish between a dispute which may or may not exist as to the terms of the relationship between Pages Hire and EBS, and the position as to the invoices issued by EBS to Pages Sales in respect of work done for Pages Sales after Pages Hire had ceased to trade. It seems to me that no genuine dispute is established as to those invoices. First, the invoices themselves identify a date when payment is due. At best, the practice for which Pages Sales contends may have suspended the obligation to pay those amounts, to the extent that the previous practice between Pages Hire and EBS was continued by Pages Sales and EBS. It does not seem to me that a seriously arguable basis has been established for any legal substitution of Pages Sales into the position of Pages Hire, or any requirement of a reconciliation as to amounts claimed by Pages Hire before EBS can recover amounts due by Pages Sales. The difficulties with that proposition include, as I will note below, that the debt owed to Pages Hire was an asset of that company; and there is no evidence of any corporate decision of Pages Hire, whether properly made by its directors or by the administrator after his appointment, that would allow that debt or any wider contractual arrangement between Pages Hire and EBS to be assumed by Pages Sales. There seems to me, at best, evidence of an informal arrangement by which EBS, for a period, was content to deal with Pages Sales on the same basis as which it had previously dealt with Pages Hire. There does not seem to me to be a seriously arguable basis for a contention that, once that arrangement collapsed, the amount due by Pages Sales to EBS was otherwise deferred, and Mr Boros' affidavit evidence that he does not dispute the relevant invoices indicates at least that he does not dispute that the relevant services were provided by EBS or the amount that was charged for them.
12. In these circumstances, even bearing in mind the relatively low threshold necessary to establish a genuine dispute, I am not satisfied that such a dispute has been established in respect of the amount claimed by EBS against Pages Sales. Accordingly, the Demand should not be set aside on that basis.

Whether an offsetting claim is established

1. Mr Somerville made clear in oral submissions that Pages Sales placed primary reliance on its offsetting claim (T9) arising from the 21 December invoice issued by Pages Sales to EBS. An "offsetting claim" for the purposes of s 459H(1)(b) of the Corporations Act is the amount of a claim or claims that a company has against the 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 circumstances as the debt to which the demand relates: s 459H(5). 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: s 459H(2).
2. A company can establish an "offsetting claim" if 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 and that claim is made in good faith and is arguable and not frivolous or vexatious: Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 356-7; Re Halal Meats Pty Ltd [2015] NSWSC 2051 at [18]. In Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605, Thomas J observed that: "… 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 simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an off-setting claim (not the likely result of it)."
3. In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at [18], Palmer J observed that: "A genuine offsetting claim … means a claim or cause of action advanced in good faith for an amount claimed in good faith. '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."
4. The test for an offsetting claim was summarised by Brereton J in BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982; (2008) 68 ACSR 1 at [4] as follows: "The test for determining whether there is a genuine offsetting claim is whether the court is satisfied that there is a serious question to be tried that a party has an offsetting claim (Scanhill Pty Ltd v Century 21 Australasia; (1993) 47 FCR 451; 120 ALR 173; 12 ACSR 341) or that the claim is not frivolous or vexatious Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. In other words, the claim must be bona fide and a truly existing fact and not spurious, hypothetical, illusory or misconceived (Ozone Manufacturing Pty Ltd v DCT (2006) 94 SASR 269; [2006] SASC 91 at [46]). In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 (Macleay Nominees), Palmer J put it in the following terms (at [18]): In my opinion, a genuine offsetting claim for the purposes of [Corporations Act] s 459H(1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. "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. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s 459H(1) and (2)."
5. In Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [23], Barrett J observed that s 459H(1)(b), read in conjunction with the definition of "offsetting claim" in s 459H(5): "… requires the court to consider whether the plaintiff has a 'genuine' claim against the defendant in respect of the matter raised. It is also necessary to ascribe an 'amount' to any 'genuine' claim in order to determine, under s 459H(2), the 'offsetting total' which plays a central part in determining whether the 'substantiated amount' is less than the statutory minimum of $2,000. The court's task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried (Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith (Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious (Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37)."
6. In Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 ("Britten-Norman") at [30]-[31] and [39]-[55], the Court of Appeal in turn referred to the relatively low minimum requirements for demonstrating an offsetting claim. The Court of Appeal there noted at [30] that: "It is settled law that s 459H requires the court to be satisfied that there is a 'serious question to be tried': see Scanhill v Century 21 Australasia at 467, or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor: see Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd [1995] FCA 1208; 17 ACSR 128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824 ; 84 FCR 454 per Emmett J (as his Honour then was). The claim must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd. In that case, Palmer J observed, at [18], that good faith, in this context, meant that the offsetting claim was arguable on the basis of facts that were asserted "with sufficient particularity to enable the court to determine that the claim is not fanciful".
7. Not surprisingly, Mr Somerville also emphasised the Court of Appeal's observation in Britten-Norman above (at [36]) that, although there must be evidence that satisfies the court that there is a serious question to be tried or an issue deserving of a hearing or a plausible contention requiring investigation as to the existence of an offsetting claim: "evidence sufficient to satisfy this test, given the time period in which the affidavit must be filed, cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable." Mr Somerville also emphasised the Court of Appeal's observation (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 enquiry as to the credit of the deponent of the affidavit filed in support of the application." The Court of Appeal summarised the position (at [47]) as being that the court's role is: "to determine whether there was plausible evidence to establish the existence of a genuine dispute [or offsetting claim], not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim."
8. At the same time, in Re Diveva Pty Ltd [2015] NSWSC 509, I in turn observed (at [26]) that: "I do not understand the Court of Appeal's approach in Britten-Norman above to require the Court to eschew any evaluative exercise as to whether there is a plausible basis for an offsetting claim, where such an evaluation is contemplated by the earlier cases to which they refer, and seems to me to be necessarily required by any determination of whether there is a serious question to be tried, an issue deserving of a hearing, or a plausible contention requiring investigation." Mr Somerville did not contend that Britten-Norman above precluded such an assessment.
9. Mr Somerville submits that: "The invoiced amount [in the 21 December invoice] is for the provision of administrative services performed by Pages Hire and [Pages Sales] for [EBS] from 1 February 2012 to 17 December 2015." However, the large part of the amount invoiced by the 21 December invoice relates to a claim for payment for administrative services alleged to have been provided by Pages Hire not by Pages Sales. Mr Somerville recognises that EBS contests Pages Sales' entitlement to invoice it for work done by Pages Hire and submits that there is evidence before the Court of "notice of the assignment" given to EBS on 9 September 2015. That submission refers to the email of that date to which I have referred above. That email does not refer to an assignment, but instead to a practice which it is suggested should in future be adopted as between Pages Sales and EBS.
10. Mr Somerville also submits that the "assignment" of the debt to Pages Sales was impliedly accepted by EBS on the basis that it continued arrangements previously in place with Pages Hire; did not raise any objection to the substance of the email "giving notice of the assignment"; rendered invoices to Pages Sales which it had previously rendered to Pages Hire; and there was no reconciliation upon substitution of Pages Sales into the agreement. However, the fact that EBS would in future deal with Pages Sales on the same basis as it had previously dealt with Pages Hire does not seem to me to require or imply whether a debt previously owed to Pages Hire had been assigned to Pages Sales; the email did not in fact give notice of an assignment, so no inference arises from EBS not taking an objection to such a notice; and the fact that EBS, at Pages Sales' invitation, re-invoiced it for amounts due by Pages Hire does not support the inference that Pages Hire had diverted a substantial asset, the debt Pages Sales now claims against EBS, to Pages Sales. It should also be recognised that the invoices that are the subject of the Demand are for services supplied by EBS to Pages Sales, after Pages Hire had ceased to trade, so there is no other reason why a debt allegedly owed to Pages Hire should be set off against a claim against Pages Sales.
11. Mr Lees responds, first, that the offsetting claim asserted by Pages Sales is not established because there was no agreement between Pages Sales and EBS to pay for the alleged services provided (primarily by Pages Hire) to EBS. Mr Lees refers to Mr Watt's evidence in support of the proposition that there was no agreement between Pages Sales and EBS to pay for the claimed administrative services. Mr Lees points out that Mr Watt leads evidence in admissible form and denies that there was any agreement to pay the Pages Group $850 per week or any other amount (Watt 11.3.16 [5], [15]). Mr Lees submits that, on the other hand, Mr Boros' evidence as to that agreement is vague and not in admissible form. Mr Lees also submits that, for various reasons, Mr Watt's account of the agreement is more plausible that Mr Boros' account, but the Court cannot and should not determine that matter in an application of this kind, where witnesses are ordinarily not cross-examined and were not cross-examined in this case. It is plain, as I have noted above, that there is a dispute between Mr Watt and Mr Boros as to these matters, and the authorities to which I have referred above emphasise that it is not the Court's role in an application of this kind to determine that dispute. It does not seem to me that Mr Watt's evidence is capable of excluding the existence of any offsetting claim that is otherwise established.
12. Mr Lees initially submitted, second, that the debt claimed by Pages Sales is not a genuine bona fide claim, and that claim was advanced to defeat the debt claimed in the Demand. Several matters might give rise to cause for scepticism as to whether the 21 December invoice on which Pages Sales relies for its offsetting claim is genuine in character. These include the fact that it purports to charge for services provided for several previous years, where there is no evidence that a receivable in respect of the costs of those services had previously been recognised in Pages Hire's financial records; there appears to be no objective basis for the amount of the charge claimed; and the invoice was issued shortly after the breakdown of the relationship of the parties and in circumstances that Pages Sales might well have anticipated that EBS would seek to recover the debt claimed by it. However, I recognise that the Court of Appeal's decision in Britten-Norman above suggests that the Court may only give limited weight to the absence of contemporaneous documents supporting the offsetting claim in determining whether it is genuine in character. Mr Boros was also not required for cross-examination and it was not expressly put to him that the invoice was a fiction, intended to defeat a claim by EBS against Pages Sales in respect of the relevant debt. I would not draw such an inference, where it was not put to Mr Boros to allow him the opportunity to answer it, and Mr Lees who appeared for EBS properly withdrew a submission of that kind on that basis.
13. Mr Lees submits, third, that even if there was an agreement for the provision of services to EBS, the bulk of any debt was owed by EBS to Pages Hire and not to Pages Sales. Mr Lees points out that Pages Hire ceased trading on 30 June 2015, and that $151,300 of the purported administration fees would relate to that entity and only $20,400 (being the fees claimed for 24 weeks between 30 June and mid-December 2015) would relate to Pages Sales. Mr Lees points out that Pages Sales has not adduced any evidence of an assignment to it of the entitlement to administration fees due to Pages Hire; that the email dated 9 September 2015 from Ms Connell to Ms Puntoriero, sent on the date on which an administrator was appointed to Pages Hire, does not refer to any debt owed by EBS to Pages Hire; and that no inter-company loan account recording such a debt has been placed in evidence by Pages Sales. Mr Lees also submits, with considerable force, that Pages Sales did not have the power to cause debts purportedly owed to Pages Hire to be assigned to Pages Sales on or after the date of appointment of an administrator to Pages Hire on 9 September 2015, and also not at the date the 21 December invoice was issued by Pages Sales. Mr Lees submits, fourth, that, if EBS owes Pages Sales an amount for payroll services, the amount recoverable on a quantum meruit would be significantly less than the $850 per week claimed by Pages Sales, having regard to Ms Puntoriero's evidence as to the cost of provision of such services by a bookkeeper.
14. In summary, no serious question has been established that the substantial part of the debt invoiced by Pages Sales was owed to it rather than to Pages Hire. The correspondence on which Mr Boros relied to assert that Pages Sales had assumed responsibility for administrative functions previously provided by Pages Hire did not establish that matter and, even if it had done so, that would not establish a seriously arguable question that it was entitled to appropriate a large amount allegedly due to Pages Hire for services previously provided by Pages Hire and not by Pages Sales. It does not seem to me that Pages Sales can establish a seriously arguable basis for a contention that an assignment had in fact occurred or been authorised by any proper corporate decision of Pages Hire, where it is not apparent that the administrator authorised such an assignment, or that the director(s) or management of Pages Hire had the authority to make, or made, such an assignment on the date an administrator was appointed to Pages Hire or that the diversion to Pages Sales of a substantial debt allegedly owed by EBS to Pages Hire could be for the corporate benefit of Pages Hire. While Mr Somerville submits, and I accept, that a detailed factual inquiry into the validity or otherwise of any assignment is beyond the appropriate scope of an application of this kind, Pages Sales must at least raise a seriously arguable claim as to that matter in order to establishing an offsetting claim. There is also no evidence to raise a seriously arguable question that Pages Sales had authority to invoice that debt on Pages Hire's behalf. It seems to me that an offsetting claim is not established by reliance by Pages Sales on an amount which was not due to it, but to another entity.
15. It remains to deal with the relatively small amount of $20,400 inclusive of GST (as agreed by Counsel at T24) which forms part of the 21 December invoice, and relates to the services allegedly provided by Pages Sales to EBS from 30 June 2015. With hesitation, but having regard to the approach adopted by the Court of Appeal in Britten-Norman above, it seems to me that I must treat the matters raised by Pages Sales as giving rise to an offsetting claim in respect of that amount. Again with hesitation, it seems to me that I must accept, at least as giving rise to a matter that warrants further inquiry, Pages Sales' claim as to the reasonable amount that can be charged for those services. I recognise that EBS has led evidence to the contrary, which may well be accepted at a final hearing, but that does not seem to me to be sufficient to deprive that lesser claim of an arguable basis.

Substantiated amount of the Demand

1. The substantiated amount of the Demand, for the purposes of s 459H of the Corporations Act, is therefore $131,059.83, being the amount of the Demand ($151,459.83 including GST) less the amount claimed by Pages Sales attributable to administrative services allegedly provided by it (rather than Pages Hire) to EBS from 30 June to 17 December 2015 ($20,400 including GST). I make an order under s 459H(4) of the Corporations Act varying the Demand to that amount and declaring the Demand to have had effect, as varied, as from when the Demand was served on Pages Sales. The substantiated amount is substantially greater than $2,000 and I therefore may not set aside the Demand under s 459H(3) of the Corporations Act.

Orders

1. Accordingly, I order that the creditor's statutory demand dated 8 February 2016 issued by the Defendant be varied by amending the amount of $151,459.83 claimed to $131,059.83. The Plaintiff's Originating Process should otherwise be dismissed. I will hear the parties as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 May 2016