Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund

1 This is an application by the Plaintiff under s.459G of the Corporations Act 2001 (Cth) to set aside a statutory demand served by the Defendant on 29 September 2003. The statutory demand claims a debt arising out of three invoices totalling $24,065.25. The debt is said to arise by reason of services provided to the Plaintiff by the Defendant. 2 The Plaintiff commenced these proceedings by an Originating Process filed on 16 October 2003. There was filed with the Originating Process an affidavit by the corporate manager of the Plaintiff, Mr Sam Francipane. That was the only affidavit filed in support of the Originating Process within the time of 21 days required by s.459G(3) of the Corporations Act . In that affidavit Mr Francipane relevantly deposes as follows: "3. The Plaintiff employed the services of the Defendant in respect to providing engineering expertise and testing of the proposed technology. The Defendant executed a confidentiality agreement on 31 May 2002. Annexed hereto and marked "A" is a copy of the agreement.

4. The Plaintiff has been paying the Defendant for his services, however, a dispute has arisen between the Plaintiff and the Defendant for which the Plaintiff has a claim for damages against the Defendant.

5. The Plaintiff claims that the Defendant breached the confidentiality agreement in the following ways:

a) The Defendant has not returned all records and other documents and all copies thereof constituting or relating to confidential information (including plans, blueprints, drawings, designs, summaries, analysis, financial data, financial projections and notes).

b) The Defendant has further breached the confidentiality agreement by directly initiating contact and engaging in discussions with the customer of the Plaintiff without the plaintiff's prior consent.

6. The damages suffered by the Plaintiff will exceed $50,000.00 and the Plaintiff will be commencing action against the Defendant for damages as a result of the breach of agreement." 3 It will be seen from the terms of the affidavit that the Plaintiff does not dispute that it has incurred the debt to the Defendant which is the subject of the statutory demand. Rather, the sole ground for resistance to the statutory demand is that the Plaintiff has an offsetting claim against the Defendant arising out of the circumstances set out in paragraph 5(a) and 5(b) of the affidavit, resulting in a claim for damages against the Defendant said in paragraph 6 to exceed $50,000. The Plaintiff was therefore clearly relying on s.459H(1)(b) of the Corporations Act as the sole ground upon which it founded the claim to set aside the statutory demand. 4 Thereafter there were affidavits filed by Mr Fischer, a director of the Defendant, which were responded to by further affidavits from Mr Francipane and Mr Hayes on behalf of the Plaintiff. 5 It emerges from an affidavit filed by Mr Francipane on 10 December 2003 that the Plaintiff alleges that in breach of the Defendant's obligations under its confidentiality agreement with the Plaintiff, Mr Fischer contacted a joint venture partner of the Plaintiff, namely Oshkosh Truck Manufacturing ("Oshkosh"), in April 2003 and told senior officers of that company something about the engineering designs on which he had been working for the Plaintiff. Those designs were the subject matter of the joint venture between the Plaintiff and Oshkosh. It is not necessary to go into all of the detail of what is alleged. A sufficient summary is that it is alleged that Mr Fischer cast doubt on the utility of the engineering designs. Those doubts caused Oshkosh concerns sufficient for it to require the engineering designs to be rechecked. As a result, Oshkosh invoiced a related company of the Plaintiff called Favco Truck Mixers International Pty Ltd for an amount of US$85,000, being the cost of retesting the development of the subject equipment. Mr Francipane says that the invoice of US$85,000 had to be paid by the Plaintiff and that that is the damage which the Plaintiff has suffered by reason of the Defendant's breach of the confidentiality agreement. 6 There was also correspondence between the parties' solicitors appearing in the affidavits filed after 16 October in which the Defendant says that it has returned all of the confidential documents of the Plaintiff and the Plaintiff denies that assertion. The ultimate position which came about was that the Defendant's solicitors required particulars of the documents which the Plaintiff alleged the Defendant still retained, but the Plaintiff was unable, apparently, to provide those particulars. 7 In those circumstances, the Plaintiff says that it has sufficiently demonstrated that it has a genuine offsetting claim for the purposes of s.459H(1)(3) so that the statutory demand should be set aside. 8 I am unable to accept this submission. In my opinion, the affidavit of Mr Francipane of 16 October 2003 does not, in paragraphs 5 and 6, give sufficient facts to enable the Court to form a view as to whether the offsetting claim is genuine. It will be noted that there is no particularity whatsoever as to what records and documents have been retained by the Defendant. There is no particularity whatsoever as to what discussions are said to have taken place between the Defendant and an unidentified customer of the Plaintiff. There is no particularity as to the subject matter of those discussions, nor is there any particularity as to how those discussions have caused loss to the Plaintiff. Finally, there is no particularity whatsoever as to how a sum said to exceed $50,000 in economic loss is calculated. I repeat what I said in this respect in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 as follows: "In my opinion, a genuine offsetting claim for the purposes of CA 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)." 9 I note that that particular statement has been approved in a number of different decisions subsequently, such as Panforta Pty Ltd v International Marine Electrics Pty Ltd [2003] QSC 287 and Karimbla Construction Services Pty Ltd v Alliance Group Building Services Pty Ltd [2003] NSWSC 617. 10 In the absence of any particularity whatsoever as to how the loss exceeding $50,000 is said to arise from the Defendant's unparticularised breaches of the confidentiality agreement alleged in paragraph 5, I am unable to form the view that the offsetting claim raised by those paragraphs of the affidavit is genuine, for the purposes of s.459H. 11 Mr R. Harper, who appears for the Plaintiff, says that the deficiency in particularity in Mr Francipane's affidavit of 16 October 2003 is cured by the evidence of Mr Francipane in his affidavit of 10 December 2003. There he gives evidence of the alleged conversation between Mr Fischer and the officers of Oshkosh resulting, so it is said, in an invoice to the Plaintiff or its associate company in the sum of US$85,000. I do not think this evidence is either admissible to prove a genuine offsetting claim, nor is it relevant for those purposes for reasons which I will give. 12 I do not think this evidence is admissible because it does not seem to me that the so-called claim arising out of the alleged conversation in April 2003 can fairly be supposed to be the same claim as is alleged in paragraph 5(b) of Mr Francipane's affidavit of 16 October 2003. This is so, firstly, because Mr Francipane in paragraph 5(b) refers to discussions between Mr Fischer or the Defendant and "the customer" of the Plaintiff, whereas the conversations between Mr Fischer and Oshkosh referred to in his affidavit of 10 December 2003 are with a joint venture partner of the Plaintiff, not a customer. If the discussions which Mr Francipane had in mind when he swore paragraph 5(b) of his affidavit were the discussions which had occurred in April with Oshkosh, it is a natural supposition that he would have referred explicitly to them by identifying Oshkosh as the party with which discussions had been held. 13 Secondly, if the discussions with Oshkosh were the subject matter of paragraph 5(b) of the affidavit of 16 October, one would have expected that the claim for damages would have at least encompassed the amount of US$85,000 which was the subject of the invoice received from Oshkosh on 12 September 2003, just over a month before Mr Francipane swore his affidavit. Yet the only reference to economic loss in paragraph 6 of the affidavit of 16 October is to loss in excess of "$50,000" , presumably in Australian dollars. 14 It seems to me, taking all of this evidence together, that the evidence in Mr Francipane's affidavit of 10 December relates to a claim, if there is one, which is quite different from the claim which is alleged in paragraph 5(b) of his affidavit of 16 October, and that the evidence in the later affidavit was put on very much as an afterthought. According to the principles enunciated by Sundberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, evidence which Mr Francipane gives in the 10 December affidavit about an offsetting claim not raised in the affidavit filed in compliance with s.459G(3) cannot be taken into account in determining whether there is a genuine offsetting claim for the purposes of s.459H. 15 For those reasons, I am not satisfied that the Plaintiff has made out that it has a genuine offsetting claim in respect of the debt claimed in the statutory demand. I note that the Plaintiff no longer seeks an order in terms of paragraph 2 of its Originating Process. It therefore seems to me that the only order which the Court can now make is that the Originating Process be dismissed. 16 I order that the Plaintiff pay the Defendant's costs of the Originating Process. - oOo -

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