Cartwright Hill Pty Limited v Stargames Corporation Pty Limited

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5378/02 CARTWRIGHT HILL PTY LIMITED -v- STARGAMES CORPORATION PTY LIMITED JUDGMENT 1 MASTER: By originating process filed on 4 November 2002 the Plaintiff, Cartwright Hill Pty Limited, claims an order that the creditor's statutory demand for payment of debt dated 15 October 2002 and served by the Defendant on the Plaintiff on 17 October 2002 be set aside. The Defendant named in the originating process is Stargames Corporation Pty Limited. 2 In support of the application there was filed on 4 November 2002 an affidavit of Paul Piraner, a director of the Plaintiff. 3 Neither that affidavit nor the originating process itself annexed a copy of the statutory demand. However, that omission was remedied at the hearing by the tender (as Exhibit C) of a copy of the statutory demand. By that demand the Defendant claimed payment of the amount of $66,000, being the amount of the debt described in the schedule thereto. The debt is described in the schedule as follows, Five gaming machines supplied and delivered to the company by the creditor at the company's request on 8 December 2000 and installed on 24 December 2000 pursuant to order number 06301 $66,000 4 The affidavit to which I have referred, being that of Paul Piraner sworn 2 November 2002 is essentially an affidavit based upon information and belief. The deponent stated that the Plaintiff operates a number of hotels; that the day to day business of the company is managed by Gary Watts who was at the time of the swearing of the affidavit overseas, and that he is assisted in the day to day management of the company by his son Gavin Watts who at the time of the swearing of the affidavit was interstate; that both Gary Watts and Gavin Watts are directors of the Plaintiff company. The balance of the affidavit then sets forth matters of which the deponent was informed by Gavin Watts. 5 According to that affidavit, the Plaintiff in July or August 2000 entered into an agreement with the Defendant to purchase from the Defendant a number of new and second-hand gaming machines, details of which are then set forth. Those machines consisted of five new Stargames machines, four second-hand Aristocrat machines and twenty-four second-hand machines of any brand. In addition, the Defendant contracted to provide a holiday to Bali or Callaway Golf Clubs, as well as ninety days' credit. 6 The affidavit then states that on 24 December 2000 the Defendant delivered five new machines only. In August 2001 the Defendant delivered four second-hand machines which were of a brand other than Aristocrat. According to the affidavit, two of those latter machines were not in working order, and the machines were not keyed alike. 7 The deponent of the affidavit asserts that there is a genuine dispute between the Plaintiff and the Defendant about the performance by the Defendant of its obligations under the contract. To the affidavit are annexed copy letter dated 25 March 2002 sent by Gavin Watts to the Liquor Administration Board of New South Wales (such letter, according to the affidavit, being in response to an inquiry from the Board about a complaint to the Board from the Defendant about the Plaintiff), and copy letter dated 23 October 2002 from Gavin Watts to Pricewaterhouse Coopers Legal. 8 The present proceedings are brought pursuant to the provisions of Division 3 of Part 5.4 of the Corporations Act 2001, and, in particular, section 459G of that statute. The Plaintiff asserts that there is a genuine dispute as to the existence or amount of the debt claimed in the statutory demand. The Plaintiff further asserts that it has an offsetting claim. 9 I have had the benefit of receiving a written outline of submissions from Counsel for the Defendant, which will be retained in the Court file. 10 There are a number of preliminary matters to which I should refer. 11 I have already observed that no copy of the statutory demand was annexed either to the originating process or to the affidavit filed in support of that originating process, but that a copy of the statutory demand was admitted into evidence (Exhibit C) on 4 April 2003, during the course of the hearing. The failure of the Plaintiff to put the statutory demand into evidence until the hearing is an unsatisfactory aspect of this case. Had it not been put into evidence, then, without proof of the existence of the statutory demand, the Plaintiff would be bound to fail, as the Court cannot set aside something which has not been proven to exist. (See Expressway Spares Pty Limited v CTK Engineering Pty Limited [2000] NSWSC 1200, Austin J, 12 December 2000, unreported.) 12 Further, it will be appreciated that the affidavit filed in support of the originating process was that of Paul Piraner sworn 2 November 2002. The deponent of that affidavit has no personal knowledge of the subject matter of the proceedings, and essentially the affidavit (as it is expressly stated to be) is based upon information and belief. 13 It is submitted on behalf of the Defendant that, in those circumstances, the affidavit does not constitute an affidavit of the nature required by section 459G(3)(a) of the Corporations Act. 14 Although there is no mandatory requirement (either by statute or by Rule of Court) that the affidavit "supporting the application" be sworn by a person directly involved in the incurring of the alleged debt, nevertheless, The affidavit must disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient.

( Graywinter Properties Pty Limited v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, Sundberg J). 15 It follows from the fact that the affidavit need not go into evidence, which is the customary function of affidavits, that it may read like a pleading. (See Graywinter Properties Pty Limited v Gas & Fuel Corporation Superannuation Fund, supra; see, also POS Media Online Limited v B Family Pty Limited (Austin J, 12 March 2003, unreported), where his Honour collected the relevant authorities, at paragraphs 26-43.) 16 The foregoing cases dealt with the minimum content requirements for the affidavit in support of an application to set aside a statutory demand. As was observed by Austin J in POS Media, at paragraphs 33-34, A corollary of their reasoning is that if the affidavit discloses certain grounds only, the plaintiff should be limited to those grounds at the hearing. That proposition was accepted in D&S Group of Companies Pty Limited v O'Connor Investments Pty Limited (1997) 15 ACLC 1794, where Perry J remarked (at 1798), in respect of an affidavit filed on behalf of the plaintiff well after the expiration of the period of 21 days, "in so far as it raises any ground offered in support of the application not identified in the affidavit… filed within time, [it] could not be taken into account in determining the application". The same point was accepted by Mandie J in Missay Pty Limited v Seventh Cameo Nominees Pty Limited (in liquidation) [2000] VSC 397.

The foregoing decisions should be compared with Callite Pty Limited v Adams [2001] NSWSC 52. In that case the statutory demand was by solicitors who sought to recover in respect of fees charged for legal work. At the hearing the plaintiff (the client) wanted to assert that there was a genuine dispute because the defendant (the solicitor) had not complied with mandatory requirements of the Legal Profession Act 1987 (NSW). The affidavit supporting the client's application to set aside the statutory demand annexed the relevant invoices but did not assert the ultimate facts that would allow the legal conclusion to be drawn that there had been no proper fee disclosure as required by the Legal Profession Act . However, it was evident on the face of the invoices that they did not comply with the requirements of that Act in various ways. Santow J [as he then was] held that it was unnecessary for the affidavit to point out explicitly that omissions had occurred, since it was self-evidence from a perusal of the annexed accounts that they lacked certain mandatory inclusions. He concluded (at [12]) that "the legal consequences which follow are not required to be pleaded in such an affidavit". 17 I shall later in this judgment, in dealing with the asserted offsetting claim, return to a consideration of what Austin J in POS Media described as a corollary of the reasoning concerning the minimum content requirement for the affidavit in support of the application, that corollary being that if the affidavit discloses certain grounds only, then the Plaintiff should be limited to those grounds at the hearing. 18 Although an affidavit sworn by a total stranger to a dispute, who merely states that he has been informed of the existence of the dispute by someone who might be thought to have personal knowledge thereof, would almost certainly not fall within the description of an affidavit "supporting the application" (section 459G(3)(a)), the circumstances in the instant case are not so extreme. Here, the affidavit was sworn by a director of the Plaintiff company. He stated the source of his information, being Gary Watts, also a director of the Plaintiff company, and that Gary Watts was at the time of the swearing of the affidavit overseas. He further stated that Gary Watts was assisted in the day to day management of the company by his son Gavin Watts, who was also director of the company, and who was also at the time of the swearing of the affidavit interstate. 19 In those circumstances, I am not prepared to conclude that the affidavit of Paul Piraner of 2 November 2002 does not fall within the description of "an affidavit supporting the application", required by section 459G(3)(a) of the Corporations Act. 20 I turn now to the question of whether the evidence discloses that there is a genuine dispute as to the existence or amount of the debt. The accepted test for the existence of a genuine dispute is that formulated by McLelland CJ in Eq in Eyota Pty Limited v Hanove Pty Limited (1994) 12 ACSR 785 at 787, namely, a plausible contention requiring further investigation. 21 In the instant case the amount claimed in the statutory demand is "the amount of $66,000.00 being the amount of the debt described in the Schedule". That schedule describes the debt as being in respect of five gaming machines supplied and delivered by the Defendant at the Plaintiff's request on 8 December 2000 and installed on 24 December 2000 pursuant to order number 06301. That order is in evidence (the front side thereof being Annexure A to the affidavit of Peter Edward Fay sworn 9 January 2003 and the reverse side thereof being Annexure C to the affidavit of Gary Watts sworn 7 April 2003). Order 06301 discloses the order date as being 4 October 2000, the delivery date as 30 October 2000 and the installation date as 30 October 2000. The customer is described as "Red Steer Hotel", with a specified address at Wagga Wagga. The contact is identified as Gary Watts, his position being shown as owner. The document is signed by Gary Watts as customer. The order form shows under the heading New Installations five separate specifically described items, each having a net price of $13,200. The total net price (including GST) is shown on the order as $66,000, with trading terms as 90 days. The order form also contains reference to "5 Star Deal" and "Bali Holiday". 22 There is also in evidence (Annexure B to the foregoing affidavit of Peter Edward Fay) a tax invoice dated 8 December 2000 addressed to Red Steer Hotel and making reference to order number 06301. That tax invoice identifies the various five separate machines, and is for a total amount (including GST) of $66,000. The tax invoice bears the endorsement "It is a legal requirement of the LAB that payment is made prior to the due date. Due date: 08/03/2001." (LAB is the abbreviation for Liquor Administration Board.) 23 There is no dispute on the part of the Plaintiff that five machines of the nature described in the order and in the tax invoice were, in fact, delivered by the Defendant to the Plaintiff. As I understand it, there is no dispute that those five machines were part of the subject of the agreement alleged by the Plaintiff in respect whereof the Plaintiff alleges that there is a genuine dispute. 24 It is the assertion of the Plaintiff that there was an oral agreement between the parties that the Defendant would supply to the Plaintiff not merely five new machines, but also four second-hand machines of a specified nature (Aristocrat) and twenty-four second-hand machines of any brand. 25 The asserted dispute between the Plaintiff and the Defendant relates, not to the five new Stargames machines which were in fact supplied, but to 28 other second-hand machines which were not supplied, and in respect whereof the Defendant makes no claim. 26 It would be an extraordinary coincidence if the Defendant, having entered into a careful written agreement (set forth in order 006301), signed by a director of the Plaintiff company, for the sale of five specified machines (identified by, inter alia, serial numbers), were also at the same time to have entered into some form of collateral oral agreement to supply, for some unspecified price or (as would appear to be the inevitable consequence of the case asserted by the Plaintiff) for no price at all, 28 other machines. The Plaintiff asserts that because those other 28 machines were not delivered there is some dispute concerning the liability of the Plaintiff to pay, in accordance with the signed written order, for the five machines which were delivered. 27 The Court should not close its eyes to the commercial realities of the situation, and to the fact that the Defendant was in the business of selling gaming machines to hotels. What the Plaintiff is really suggesting is that there was an agreement that the Defendant would sell five new machines to a customer, and would at the same time give the customer twenty-eight second-hand machines, free of charge. 28 I am not satisfied that the Plaintiff has established that there is any dispute concerning the claim of the Defendant for payment of the five machines which were actually delivered - let alone any genuine dispute in that regard. 29 I turn now to the question of the asserted offsetting claim. At the hearing that was the matter upon which the Plaintiff appeared to place greater reliance, rather than upon the asserted genuine dispute as to the claim of the Defendant made in the statutory demand. 30 The Plaintiff mounts its offsetting claim in the following fashion. In 2000 the Defendant, through its director Gary Watts, became aware that the New South Wales Government proposed to introduce a freeze on the number of gambling devices in New South Wales. Effect was given to that freeze by the enactment of the Gambling Machines Act 2001, in particular, Part 3 of that statute. That Part contains Division 2 thereof, dealing with what is described in the heading to that Division as "Tradeable poker machine entitlement scheme", by which provision is made for the allocation of poker machine entitlements (sections 15, 16) and for the transfer of poker machine entitlements (sections 19-25). 31 It was submitted on behalf of the Plaintiff that, in the event that the Defendant had complied with its agreement, the Plaintiff would have had an entitlement to a further twenty-two poker machines, and that, in consequence of the asserted failure of the Defendant to provide the poker machines alleged to be the subject of the agreement between the parties within the time specified, and before the statutory freeze came into effect, the Plaintiff has lost an opportunity to obtain a very significant profit, by way of subsequently transferring its additional poker machine entitlements. In this regard there was placed in evidence (Exhibit A) on behalf of the Plaintiff an agreement dated 26 February 2002 between the Plaintiff as vendor and Duggan Family Hotels Pty Limited as purchaser, that agreement being entitled "Agreement for Sale of Poker Machines and Poker Machine Entitlements". Three poker machines owned by the Plaintiff and the poker machine entitlements attaching to those poker machines were the subject of that agreement, for which a sale price of $260,000 was provided in the agreement. There was also evidence that the Plaintiff had recently sold an entitlement to one gambling machine for $286,000. 32 It was submitted on behalf of the Plaintiff that if the additional machines had been supplied at the time when, according to the Plaintiff, the Defendant was required to supply them, then the Plaintiff would have had under the foregoing provisions of Part 3, Division 2 of the Gaming Machines Act an entitlement to a further twenty-two machines. Upon the basis of the values referred to in the agreement which is Exhibit A ($260,000 for an entitlement to three machines), and the sale price for the entitlement attached to one machine of the Plaintiff recently sold, it is asserted that the Plaintiff has an offsetting claim in the order of $2 million. 33 At the outset, it was submitted on behalf of the Defendant that the assertion of the Plaintiff that it has an offsetting claim should not be entertained, for various reasons. 34 Firstly, the offsetting claim was not the subject of any affidavit filed in support of the application to set aside the statutory demand, within the 21 day period stipulated in section 459G(3). The offsetting claim was raised for the first time in the affidavit of Gary Watts, sworn 26 March 2003, that being four and a half months after the filing of the originating process. 35 It was the submission of the Defendant that the purpose of the mandatory requirements of section 459G(3) is to alert the Defendant to proceedings to the case which the Plaintiff will seek to make as the ground for setting aside the statutory demand. In this regard the Defendant relied upon the decision of Barret J in Process Machinery Australia Pty Limited v ACN 057-260-590 Pty Limited [2002] NSWSC 45 (13 February 2002, unreported). At paragraph [22] of that judgment His Honour said, The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by section 459H and section 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period. 36 In the instant case the Defendant points to the fact that the affidavit filed in support of the originating process, being that of Paul Piraner of 2 November 2002 contains in the body of that affidavit no reference whatsoever to any asserted offsetting claim. It asserts (upon the basis of information and belief) "a genuine dispute between the Company and Stargames about the performance by Stargames of its obligations under the contract" (paragraph 14). There are, however, two relatively obscure references in correspondence annexed to Mr Piraner's affidavit, which are now relied upon in respect to the offsetting claim. The first of those references appears in the letter of 25 March 2002 addressed by Mr Gavin Watts to the Liquor Administration Board. That letter essentially sets forth the asserted complaint of the Plaintiff in relation to non-delivery of machines by the Defendant. That letter contains the following sentence, "With the changes to the gaming regulations, Stargames have cost our group of companies potentially millions of dollars." 37 The other letter, which is headed Without Prejudice, is dated 23 October 2002, and is addressed to the solicitors for the Defendant. That letter refers to the statutory demand served upon the Plaintiff, which is the subject of the present proceedings, and encloses a copy of the letter from the Plaintiff to the Liquor Administration Board. That letter contains the following sentence, "We also remind you of the millions of dollars your clients have cost our companies by their non-delivery prior to the recent change in legislation." 38 I do not see how those two relatively obscure statements in correspondence emanating from the Plaintiff before the institution of the present proceedings, albeit correspondence annexed to the affidavit filed in support of the application, in the absence of any reference to an asserted offsetting claim in the body of the affidavit itself (which affidavit addresses itself only to an asserted genuine dispute in respect to the amount claimed in the statutory demand) can be properly regarded as, in the words of Barrett J, fairly alerting the Defendant to the nature of the case which the company will seek to make in resisting the statutory demand. The affidavit neither expressly nor by necessary inference provides a clear delineation of the area of controversy in respect to an asserted offsetting claim. 39 For the foregoing reason, therefore, I am in agreement with the submission of the Defendant that the Plaintiff is precluded from now raising an asserted offsetting claim as a ground upon which the statutory demand should be set aside, in circumstances where, as here, that ground was not raised in the affidavit supporting the application. 40 But even if, contrary to my foregoing conclusion, the asserted offsetting claim were not defeated by the absence of any relevant reference thereto in the affidavit supporting the application, it is submitted that the Plaintiff cannot rely upon an asserted loss (and thus an asserted offsetting claim) attributed to the Defendant, since, so runs the argument of the Defendant in this regard, there is no evidence that the Plaintiff had received any approval from the relevant consent authorities for an additional twenty-four machines. The Defendant in this regard relies upon the provisions of section 182C of the Liquor Act 1982. Subsection (1) of that section provides, It is a condition of a hotelier's licence that not more than 15 poker machines may be kept, used and operated on the premises to which a hotelier's licence relates, unless the licensee holds a permit issued by the Minister for each poker machine in excess of that number that is kept, used and operated on those premises. 41 In the absence of such a permit of the nature contemplated by section 182C (1) of the Liquor Act, the Plaintiff cannot lawfully hold the additional poker machines which, according to the Plaintiff, the Defendant failed to supply. Therefore, thus runs the submission of the Defendant, the Plaintiff cannot now complain that, in the absence of the supply of such additional machines, the Plaintiff has suffered loss or damage. 42 Further, it was submitted on behalf of the Defendant that there was no evidence that the Liquor Administration Board would approve, or has approved, the transfer of the poker machines entitlements which, according to the Plaintiff, would have resulted in the considerable profits to be made by the Plaintiff which, the Plaintiff now asserts, it will not receive, as a consequence of the failure of the Defendant to supply the additional machines. In this the Defendant relies upon the provisions of section 19 of the Gaming Machines Act 2001. That section contains the following relevant provisions, in subsections (1) and (2), (1) A poker machine entitlement allocated in respect of a hotelier's licence or the premises of a registered club is transferable.

(2) The transfer of a poker machine entitlement does not have any effect unless the transfer: (a) is approved by the Board, and (b) complies with the requirements of this Division and any requirements specified in the regulations. 43 I am in agreement with the submission on behalf of the Defendant that, in the absence of any evidence that the Plaintiff had received approval for an additional twenty-four machines, and in the absence of any evidence that the Plaintiff had received approval from the Liquor Administration Board for the transfer of any poker machine entitlements, the Plaintiff's asserted offsetting claim cannot even be elevated to a loss of opportunity claim. What the Plaintiff is asserting is a hypothetical future loss, not yet suffered. 44 In support of the foregoing submissions, the Defendant points to the fact that there is an absence of any attempt on the part of the Plaintiff to articulate, or to institute proceedings to recover damages in respect of, this asserted offsetting claim, in the period of well over two years since, according to the Plaintiff, the Defendant failed to comply with its contractual obligations by supplying the additional machines. That absence of any attempt on the part of the Plaintiff to seek to recover damages for the alleged contractual breach, certainly reflects upon the genuineness of this asserted offsetting claim. 45 For the foregoing reasons I am not satisfied that the Plaintiff has established that it has a genuine offsetting claim equal to or exceeding the amount claimed in the statutory demand. Further, as I have already recorded, I do not consider that the Plaintiff is even entitled to raise at this stage the existence of such an asserted offsetting claim, in the absence of any reference thereto being made in the affidavit in support of the originating process. 46 It follows, therefore, that the originating process will be dismissed with costs. 47 I make the following orders.

(1). I order that the originating process be dismissed.

(2). I order that the Plaintiff pay the costs of the Defendant.

(3). The exhibits, other than Exhibit C (which is to be retained), may be returned. **********

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