Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd

Corporations Act 2001 (Cth) Supreme Court (Corporations) Rules 1999 LEGISLATION CITED : Supreme Court Rules 1970 Evidence Act 1995 Supreme Court Act 1970

Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 222 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 CASES CITED : Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd NSWSC, unreported, 29 October 1998 Mibor Investment Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362 National Telecoms Group Ltd v Bulldogs Rugby League Club Ltd [2003] NSWSC 654 Fords Principles of Corporation Law, Butterworths, Australia, 2000

Broke Hills Estate Pty Ltd - Plaintiff PARTIES : Oakvale Wines Pty Ltd ACN 091 673 399 - Defendant

Mr E Cox - Plaintiff COUNSEL : Mr A Lo Surdo - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2720/05 BROKE HILLS ESTATE PTY LTD v OAKVALE WINES PTY LTD EX TEMPORE JUDGMENT 1 Broke Hills Estate Pty Ltd is the owner of a vineyard. It entered into a contract with Oakvale Wines Pty Ltd for it to act as winemaker. Oakvale presented a number of invoices with respect to its work under the contract. A portion of those invoices was paid and credits were given for wine sold. The balance remaining on the invoices was $88,132.10. That sum became the subject of a statutory demand. 2 It is common ground that an application by way of originating process to set aside the statutory demand was made within the 21-day period as required by the Corporations Act 2001 (Cth), s 459G(2). 3 The originating process had attached to it a page headed "Affidavit in support". There followed a document in the form of an affidavit by Thomas Beale. It asserted that he was the solicitor for Broke Hills and he was informed and verily believed a number of matters, as follows:

(a) Broke Hills owned a vineyard on which a variety of grapes were grown for the purpose of being made into wine. Broke Hills had entered into an agreement with Oakvale in which Oakvale agreed to provide winemaking services.

(b) In 2004, Oakvale made a large quantity of wine pursuant to the agreement, a significant quantity of which was defective in quality as a result of the winemaking process adopted. That wine could not be sold or had to be sold at significantly reduced prices.

(c) As a result Broke Hills suffered loss and had a claim against Oakvale with respect to that loss. Accordingly, Broke Hills had an offsetting claim against Oakvale. 4 There was annexed to the document a copy of a letter from Professor Graham Fleet in which he analysed samples of wines produced to him and concluded that they were bad. 5 Also annexed was a facsimile from the solicitors for Broke Hills to the solicitors for Oakvale asserting that Broke Hills disputed the amount of the debt of Oakvale and it had an offsetting claim as a result of the poor quality of wine made by Oakvale under the winemaking agreement. It asserted that Broke Hills would contend that the bulk of the wine produced by Oakvale could not be sold or, alternatively, had to be sold at significantly reduced prices because of the poor quality that stemmed from the winemaking process. There followed a request to withdraw the statutory demand to which there was no agreement. 6 A third document was annexed. It was a copy of the statutory demand. It gave particulars of each of the invoices and the amounts thereof, the credits against those amounts and the ultimate balance of $88,132.10. 7 Objection was taken to my reception of the document on a number of grounds. First, it was pointed out that the Supreme Court (Corporations) Rules 1999, r 2.6(a) provided that an affidavit must be in a form that complies with the rules of the Court. Rule 2.1 required the title of a document to be in Form 1. As I have indicated, the document attached to the originating process was headed "Affidavit in support". It lacked a title in Form 1. It was submitted on this basis that the document was not an affidavit for the purpose of the Supreme Court Rules 1970, Pt 38 r 5 that was called in aid by Broke Hills. That rule provides that an affidavit may, with the leave of the Court, be used notwithstanding any irregularity in form. 8 I dismiss that submission. It seems to me that the document was in the form of an affidavit as specified in the Supreme Court Rules 1970, Pt 38 r 2 and the omission of a title in Form 1 was such an irregularity as can be excused by the Court and I do so. 9 The second contention was that since the Corporations Act 2001 (Cth) s 459G(3) speaks of an application and a supporting affidavit and service of both, it requires the supporting affidavit to be a separate document. I do not construe s 459G(3) so restrictively. What it requires is an application supported by an affidavit. What occurred in this matter complied with that requirement albeit that the affidavit was incorporated in the application. In my view, there was no infringement of s 459G(3). 10 The third argument stems from the Evidence Act 1995, s 75. It provides that in an interlocutory proceeding, the hearsay rule does not apply to evidence if the party who adduces it also adduces evidence of its source. As I have indicated, the source of the information set out in the affidavit was not revealed. 11 The source need not be stated in the affidavit itself. It may be established otherwise (Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 222). It seems to me that the inferences to be drawn from the annexures to which I have referred, satisfy the requirement as to source. They were certainly sufficient to indicate to Oakvale the basis for the assertions to enable a check to be made of them. The inferences are that the information with respect to the vineyard was given by officers of Broke Hills and the information as to the quality of the wine was given by Professor Graham Fleet. 12 If I be wrong in this view, the Supreme Court Act 1970, s 82(1)(a) provides that the Court may dispense with the rules of evidence for proving any matter that is not bona fide in dispute. There was no dispute raised with respect to the allegations contained in the solicitor's letter annexed to the affidavit. 13 The Evidence Act 1995, s 9(1) provides that the Act does not affect the operation of a principle or rule in relation to evidence in a proceeding, except so far as the Act provides otherwise expressly or by necessary implication. Section 9(2)(c) provides that the Act does not affect the operation of such a principle or rule so far as it relates to a court's power to dispense with the operation of a rule of evidence or procedure in an interlocutory proceeding. 14 The Evidence Act 1995 does not expressly and does not, in my view, by necessary implication override the Court's power under the Supreme Court Act 1970, s 82(1)(a) to dispense with the rules of evidence, at least in an interlocutory proceeding such as the present. Section 9(2)(a) of the Evidence Act 1995 is an express provision to the contrary and must displace any implication that the power of the Court to dispense with the requirement to name the source of hearsay material is a mandatory requirement that cannot be overruled. 15 I may dispense with the stricture of the Evidence Act 1995, s 75 with respect to the affidavit of Thomas Beale and I do so. In my view, therefore, its contents are admissible and constitute the supporting affidavit for the purposes of the Corporations Act 2001 (Cth), s 459G(3)(a). 16 The main area of dispute was whether the supporting affidavit raised sufficient matters to enable the Court to act under the Corporations Act 2001 (Cth), s 459H(2). Section 459H(1) applies in two circumstances: first, where there is a genuine dispute between the company and the respondent to the application about the existence or amount of a debt, and, secondly, where the company has an offsetting claim. The application before the Court falls into the second category. 17 With respect to such a claim the Corporations Act 2001 (Cth), s 459H(2) is in the following terms: "The Court must calculate the substantiated amount of the demand in accordance with the formula: Admitted total - offsetting total Where: admitted total means: (a) the admitted amount of the debt or, (b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates. offsetting total means: (a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim or; (b) if the Court is satisfied that the company has two or more offsetting claims - the total of the amounts of those claims; or (c) otherwise - a nil amount."

In this case, there is one offsetting claim. 18 There is no difficulty in determining the admitted total. In this case it is the admitted amount because that term is defined in the Corporations Act 2001 (Cth), s 459H(5) to mean, if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of a debt, a nil amount, if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt, so much of the amount that the Court is satisfied is not the subject of a dispute or, otherwise, the amount of the debt. 19 In this case, the admitted total must be the $88,132.10 contained in the statutory demand because there is no dispute about the existence of the debt nor its amount. 20 The offsetting total is the difficulty in this case, because there is nothing in the affidavit in support that gives any indication of the quantum of the offsetting claim. That term is defined in the Corporations Act 2001 (Cth), s 459H(5) to mean a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand, even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates. 21 There is no doubt in my mind that an offsetting claim has been established by the supporting affidavit and the annexures to it. The difficulty is ascribing a value to that claim that answers the requirement to quantify an offsetting total for the purpose of the statutory formula in the Corporations Act 2001 (Cth), s 459H(2). 22 I was referred to a number of cases. In Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 it was held that the necessity of an affidavit in support of an application to set aside a statutory demand marks out a jurisdictional limit. If there is no supporting affidavit that satisfies a minimum requirement, there is no jurisdiction in the Court to entertain the application. The question is what is required, as a minimum, in such an affidavit. 23 I was referred to a number of cases in which this question was discussed in the context of the Corporations Act 2001 (Cth), s 459H(1)(a), that is, whether there was a genuine dispute between the company and the respondent about the existence or amount of the debt to which the demand relates. They included John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250, Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd NSWSC, unreported, 29 October 1998 and Mibor Investment Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362. 24 None of those cases addresses the statutory formula in the Corporations Act 2001 (Cth), s 459H(1)(b). I did so in passing in National Telecoms Group Ltd v Bulldogs Rugby League Club Ltd [2003] NSWSC 654 at [8] where I said: "NTG had set up a new telephone and communications system for the Bulldogs. Payment for this had been sought but not paid. No attempt was made to quantify this offsetting claim in the supporting affidavits. I rejected an application to read further affidavits filed outside the 21 day period which sought to remedy this failure." 25 In this case, the applicant sought to read affidavits by Peter Poulos, which in part sought to remedy the void. I indicated that I would not admit pars 16, 18 and 19 of Mr Poulos's affidavit sworn on 9 June 2005 and pars 6 to 13 of Mr Poulos's affidavit sworn 20 June 2005. I indicated that I was prepared to admit the affidavit of Graham Fleet sworn 9 June 2005 since a copy of his report was annexed to the statutory affidavit. 26 In my view, the task required of a court by the Corporations Act 2001 (Cth), s 459H(2) requires evidence to be put on within the statutory 21-day period enabling the Court to make a determination of the offsetting total. That means that some evidence of quantum must be contained in the affidavit to enable the Court to take that course. 27 Minimum requirements of an affidavit in support of a disputed debt under the Corporations Act 2001 (Cth), s 459H(1)(a) were described by Sundberg J in Graywinter Properties at 459: "An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify." 28 It was submitted that an affidavit in support that is more than a mere assertion but less than final proof is insufficient. In my view it is insufficient if it does not contain material from which a Court, in a case under the Corporations Act 2001 (Cth), s 459H(1)(b), can make an estimate of the amount of an offsetting claim. 29 I was invited not to follow my decision in National Telecoms Group. I decline that invitation. 30 In Fords Principles of Corporation Law, Butterworths, Australia, 2000 at p 27,162 the authors say this: "Because the court is required by s 459H(2) to determine 'the amount of the claim' or 'the total of the amounts of those claims', a company which alleges that it has an offsetting claim must adduce some evidence to show the basis upon which its loss is said to arise and how that loss is calculated."

31 That does not mean that a party is required to swear to matters of final proof. What it does require is sufficient material indicating the nature of the offsetting claim and the way in which it is calculated to enable the statutory exercise under the Corporations Act 2001 (Cth), s 459H(2) to be carried out by the Court. 32 In this case, there is no evidence in the statutory affidavit that answers that requirement and I have excluded evidence by supplementary affidavit to fill that void. The consequence must be that the applicant has failed. I dismiss the originating process. 33 I am asked for an order for costs in favour of Oakvale on the basis that costs should follow the event. The points taken with respect to the sufficiency of the document entitled "Affidavit in support" included in the originating process I dismissed and, while Oakvale intended to make submissions to me with respect to the absence of evidence of quantum, that issue arose in discussion between the Bench and the Bar table. In those circumstances, it seems to me that the appropriate order I should make is that each party bear its own costs.

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