In the matter of 2 Roslyn Street Pty Ltd - 2 Roslyn Street Pty Ltd v Leisure Inn Hospitality Management Pty Ltd

Background facts 14The sole director of the plaintiffs, Mr Kurt Braune, was previously a shareholder and director in the Staywell Hospitality Group of Companies (of which Leisure Inn is a member). The directors of Leisure Inn are Mr Richard Doyle (a solicitor, whose firm was involved on behalf of Leisure Inn during the course of the negotiations which took place in 2010, including in the preparation of a draft settlement deed in relation to the matter) and Mr Simon Wan. Communications in relation to the matter (and the attempts to settle the disputes between the parties prior to the issue of the statutory demands) were in the main between Mr Braune, Mr James Walshe (the in-house legal adviser of the plaintiffs), Mr Doyle and Mr Wan. 15Prior to the November 2008 Management Agreement, the plaintiffs and Leisure Inn had been party to an earlier such agreement, in the course of which t here had been a similar dispute as to the imposition of "recharge" fees by Leisure Inn. Mr Braune, in his affidavit of 2 March 2011, said that this was a protracted dispute and had led to some personal animosity between himself and the directors of Leisure Inn. It seems that the disputes as to what might properly be subject of the recharges, or how they were to be calculated, were not satisfactorily resolved by the entry into the 2008 Management Agreement given that disputes continued to arise after entry into that agreement as to the recharges. 16Under the current Management Agreement, Leisure Inn is entitled throughout the term of the agreement to certain fees - a Base Management Fee and a Group Benefits Fee (specified in clause 11 of the agreement), those being payable monthly in arrears "without set-off or demand" within 14 days of invoices "and substantiating documents". Interest is payable at the rate of 12%pa if there is a failure to make the payments when due. 17Pursuant to clause 13.7 of the Management Agreement, the plaintiffs were obliged to reimburse Leisure Inn for, inter alia, Operating Costs. Those costs, broadly, are the costs incurred by Leisure Inn ancillary to the provision by it of management services for the plaintiffs (such as marketing and promotion expenses, training costs and occupational health and safety compliance costs). Those costs are what have been referred to by the parties as "recharges". 18The dispute that arose prior to November 2008, according to Mr Braune, was as to the recharges that had been claimed by Leisure Inn. Mr Braune contended that amounts had been claimed that were either unnecessary, were of no benefit to the plaintiffs or had been calculated on an unfair and disproportionate basis. It appears that this is the basis of the continuing complaint by the plaintiffs in relation to the later recharges. 19On 20 January 2010, a breach notice was issued by Leisure Inn under the Management Agreement. The plaintiffs' response, by email from Mr Walshe on 2 February 2010 was to dispute the validity of the breach notice on the basis that "certain individual charges ... are either incorrect or charged outside the terms of the Management Agreement". Relevantly, Mr Walshe also noted that the plaintiffs relied on the mechanism for dispute resolution in clause 18 of the Management Agreement. 20Clause 18, in summary, provides that all disputes, controversies or claims arising out of or in connection with the Deed will be resolved in accordance with the provisions set out therein, including an obligation on the parties promptly to enter into negotiations in good faith and use all endeavours to try to resolve the disputes; a provision for 'escalation' of disputes unresolved within 20 days to the appropriate representatives and thereafter either to expert determination (although that is only where the matter is expressly stated in the deed to be referred to an expert) or mediation. As early as February 2010, therefore, the plaintiffs had invoked the dispute resolution provisions of the deed, at least to the extent that they had expressly indicated their reliance on that clause. (I note this because it was contended in submissions that there had been no notification of a requirement to mediate under this clause.) While there was ongoing negotiation between the parties' representatives, there has been no referral of the dispute whether to expert determination (assuming, which I doubt, that the matters the subject of the breach notice fell within clause 18.7 as being matters expressly referred under the agreement to expert determination) or to mediation (within clause 18.8). 21In early 2010 a "review" was carried on behalf of the plaintiffs of the claimed recharges and the outcome of that review was provided to Leisure Inn in February 2010 in the form of a document that queried matters in relation to particular charges. The email from Mr Walshe on 10 February 2010 referred to this as an "attached reconciliation in relation to offsetting amounts" (my emphasis). It forwarded an email from an employee of the plaintiffs seeking credits for various amounts. (It seems that those are the basis for the adjustments or rebates of approximately $33,000 noted in the later statutory demands.) Mr Cook submits that this email, read in light of the review and the other correspondence exhibited to Mr Walshe's affidavit, cannot be seen to be an acknowledgement on the part of the plaintiffs that the dispute as to the amount claimed several months later by the defendant was limited to the extent of those amounts. I would agree, although I would add that the concept of a 'reconciliation' as such would suggest that the plaintiffs were asserting a concluded position on the recharges the subject of that document (and might reasonably have been thought at least at that stage to have accepted charges that were not queried or disputed in that document). 22In due course (in late February and then in March 2010), Leisure Inn responded to the maters raised in the review document. Counsel for Leisure Inn (Mr Walsh) places emphasis on the fact that the review document raised in many instances queries (not disputes) as to the recharges and that there was no response to the information provided by Leisure Inn. It was suggested that this evidenced an acceptance of the answers provided by Leisure Inn (and therefore that there was no genuine dispute as to those charges). 23What seems then to have taken place from around June 2010 was that the parties sought to reach agreement on the renegotiation of the Management Agreement and the basis on which recharges could be claimed by Leisure Inn. (Mr Walsh characterises this as negotiation in relation to future arrangements and not as evidence of an ongoing dispute in relation to the recharges the subject of the February 'review', although there is correspondence in late August which suggests that the so-called July 2010 - Recharge Summary was still in issue - see email chain at p 303 CB.) 24In the context of these discussions, Mr Braune raised with Mr Doyle complaints as to Leisure Inn's performance (or, to be more precise, as to the alleged lack of performance) of its obligations under the Management Agreement (and, as noted earlier, the plaintiffs presently claim that the fact that Leisure Inn was not providing the management services required under the agreement means that it cannot justify the fees payable under clause 11 of the Management Agreement). There was, for example, a complaint made as to the alleged failure of Leisure Inn to provide a proper budget in May 2010. Mr Braune claims that the Sales and Marketing Director of the Staywell Group (Mr Greg Parkes) in effect conceded that the plaintiffs were not being provided with proper management services due to the subsisting disputes between the parties (the making of any such concession being denied by Mr Parkes) (and see also the allegation made in the email at p 281 CB). 25At around this time there were discussions as to the settlement of the recharges dispute as part of an overall settlement involving a separate dispute in which an entity associated with Leisure Inn (Summit Capital) was involved. In summary, Vernalex (which owned shares in a company, Park Regis CTL Pty Ltd) claimed to have exercised an option to put those shares to Summit Capital pursuant to a Put and Call Option Deed of 6 November 2001. This was disputed. Mr Doyle seems to have been pressing for a resolution of the Vernalex put option claim by way of an offset against the amount that Leisure Inn was claiming as due to it by the plaintiffs under the Management Agreement (see email at p 275 CB). Negotiations in order to procure agreement by Vernalex to such an offset were being conducted by the plaintiffs. 26By mid 2010, Leisure Inn (through Mr Doyle as the principal of the law firm Doyle Corporate Pty Ltd) was asserting that the plaintiffs were "responsible for the fact that we have not settled [in its context this must refer to a settlement of the Vernalex put option claim] " and informing Mr Braune and Mr Walshe that they were "liable for any interest and legal costs involved" in that regard. There was a threat to "exercise all of our rights against yourselves in relation to the non-payment of management fees and recharges" if any action was taken against Ms D'esposito (Vernalex) in relation to the Park Regis shares (p 263 CB). Further, it was noted that "any settlement" (now presumably referring to a settlement of the claim for outstanding amounts due by the plaintiffs) "will need to involve a resolution" of the claim by Vernalex (p 263 CB). By this stage, the discussions included a requirement by Leisure Inn that it (or its associated entity) obtain a "clear title" to Ms D'esposito's shares and this was said to be a "fundamental non-negotiable requirement" as part of which certain recharges would be "discontinued" and others "altered". 27Discussions continued throughout July 2010 in relation to the proposed overall settlement of the various disputes. (The plaintiffs rely upon this correspondence, and these discussions, as giving rise to a situation where Leisure Inn cannot now resile from the basis on which the parties had conducted themselves, namely that Leisure Inn would agree to any final figure agreed between the plaintiffs and Leisure Inn in relation to the recharge dispute being offset against the amount of around $350,000 claimed by Vernalex in relation to the put option.) Mr Braune says that Mr Doyle had linked the obligation of the plaintiffs to pay Leisure Inn with the obligation of Summit Capital to pay Vernalex under the put option and has deposed to his understanding being that Leisure Inn would not seek to terminate the Management Agreement until the simultaneous settlement of both matters (at [48]ff of Mr Braune's 2011 affidavit). As at late August, Mr Doyle was himself confirming to others that there was an "in principle" agreement in relation to the "StayWell/Owner issues", in response to a communication as to the July 2010 'Recharge Summary' (see p 303 CB). 28Meanwhile, the plaintiffs assert that Leisure Inn's failure properly to perform its obligations under the Management Agreement while there was a subsisting dispute has caused the plaintiffs to suffer significant trading losses in its Hobart Macquarie hotel (as set out in paragraphs [27] to [28] of Mr Braune's 2 March 2011 affidavit). 29By email on 27 July 2010, Mr Braune (putting forward a compromise in relation to the proposed offset arrangement as between recharges and the share option) noted his belief that Staywell (ie the group of which Leisure Inn was a member) had not provided all of the services required under the Management Agreement (expressly referring to the Hobart Macquarie) and asserting that "whether you like it [or] not, Staywell have some liability in the hotel's poor performance and total lack of any plan or strategy to change this situation" (CB p 278). Mr Braune emphasised that he felt he was owed far more by the complete lack of service over the past 18 months which he said had caused the loss of hundreds of thousands of dollars (CB 281). 30Negotiations continued in August 2010. Mr Braune sent an email to Mr Wan and Mr Doyle asserting the claim that the required level of service had not been provided that "would justify the recharges" and that a huge financial loss had been suffered (CB 283) 31In late 2010, Mr Doyle's firm prepared a draft settlement deed. This is significant not because there is any suggestion that a settlement was reached on the terms of this deed but because it is indicative of the knowledge or understanding of Leisure Inn as to the state of the disputes at that time (and, in particular, that the disputes extended beyond simply the amount of the recharges). The recitals to the draft deed referred to the Vernalex dispute (Recital C) and went on in Recital D to state: ` [Leisure Inn] claims that the Owner [the plaintiffs] has failed to make payments of Base Management Fees and Group Services Fees due to [Leisure Inn] under the 6 November Management Agreement and the Owner has disputed the validity of such charges (my emphasis) 32Pausing there, it seems to me that up to this point it is clear that the parties have been in dispute as to a range of matters in relation to their business relationship, including not simply the basis on which the recharges had been calculated but also as to the liability to make the payments claimed by way of Base Management Fees and Group Services Fees. As to the outstanding fees, the basis on which liability to pay at that stage was seemingly in dispute was the complaint by the plaintiffs as to the level or quality of services rendered - or, in Mr Braune's words, the "complete lack of service"). While as at late August Mr Doyle considered that an 'in principle' agreement had been reached as to the matter and deposed to this in his initial affidavit, in his later affidavit in these proceedings Mr Doyle acknowledges that there no final agreement was reached. 33On 1 October 2010, Leisure Inn served on each of the plaintiffs a "Breach Notice" under the Management Agreement. The Breach Notices asserted, inter alia, that the plaintiffs were in default of their obligations under clause 11 of the Management Agreement which required payment of the Base Management Fees and Group Benefits Fees, on or before the date set out in the Management Agreement. (Of some relevance, in this regard, is that according to Mr Braune there is a deed in place between the plaintiffs' mortgagee (BankWest) and Leisure Inn, under which the latter is obliged to notify BankWest of any material breach of the Management Agreement. Hence, the potential ramifications for the plaintiffs of the issue of the breach notice.) 34Mr Walshe responded by email of 19 October 2010, to which much reference was made in the course of the application before me, stating the plaintiffs' disagreement that the amount claimed in respect of the base management fees and group benefit fees were due and payable and expressly asserting reliance on the previous correspondence setting out the dispute in relation to this ground of breach. The email stated that the claims made in the breach notice had been the subject of "long and detailed dispute" between the parties (referring in this regard to the claimed base management fees and group benefits fees). 35In the present proceedings, Mr Walshe deposes that the dispute arose "primarily" in relation to the recharges but that it had broadened to include the Base Management Fees and a claim in relation to the Vernalex shares. Mr Walshe's 19 October email made reference to a dispute as to the Base Management Fees in its statement that the plaintiffs disputed that the amount of base management fees for the period between April 2010 to 30 September 2010 was due and payable, referring to "previous correspondence setting out the claims of dispute in relation to this ground of breach". 36On 2 November 2010, the plaintiffs forwarded to Leisure Inn a proposed amended management agreement. Mr Braune deposes that negotiations broke down in relation to that document in late November 2010. On 20 November 2010, Mr Doyle threatened to issue the statutory demands and they were then issued on 30 November 2010. Having only a short time previously been prepared to issue for the plaintiffs' consideration a draft settlement deed containing an acknowledgement of the existence of a dispute as to the validity of the charges (expressly referring to the Base Management Fees and Group Benefits Fees), Mr Doyle nevertheless then apparently considered himself to be in a position to swear an affidavit deposing to his lack of awareness of a genuine dispute as to the existence of the debt claimed in those demands. 37With that general background in mind I turn to the issues for determination. (i) Constitution of proceedings 38At the outset, as adverted to above, Mr Walsh submitted that the proceedings had not been properly constituted by reason of the fact that the statutory demands the subject of these proceedings were not in evidence (not having been annexed to the supporting affidavit served within the requisite 21 day period) and thus it was submitted that the plaintiffs' application must fail (relying on Expressway Spares Pty Limited v CTK Engineering Pty Limited [2000] NSWSC 1200 per Austin J; Denet Pty Limited v Global Marketing Group International Pty Limited (2002) 20 ACLC 301). A Graywinter objection was raised to the tender at the hearing of the statutory demands (and as to any evidence raising any new ground of dispute not sufficiently raised in the December 2010 supporting affidavit). 39As to the failure to annexe copies of the statutory demands to the affidavit, as noted by McLaughlin M (as his Honour then was), in a case where the statutory demand had not been put in evidence in the supporting affidavit, noted that the court cannot set aside that which has not been proved to exist, referring to Austin J in Expressway and therefore that the absence of the demand from evidence raised questions as to the constitution of the proceedings. McLaughlin M noted that neither the statute nor the Corporation Rules mandated that a copy of the statutory demands be annexed and went on to say that "Nevertheless it will be appreciated that there is a certain degree of logical difficulty in establishing whether or not a debt is disputed unless the value of the debt is revealed " (my emphasis). 40In that case, the description in the affidavit of amended tax invoices "the subject of the statutory demand" was considered "just sufficient" to overcome the problem to which McLaughlin M had adverted. 41What is required therefore is that the demand, or something disclosing the amount and nature of the debt claimed in the demand, which is the subject of the application under s 459G be disclosed in the accompanying affidavit so that the debt in respect of which the demand is sought to be set aside is properly identified. Mr Walsh concedes that Ms Perry's affidavit does identify the amount of the demands but it is said that Ms Perry does not identify "other than in global terms" the means by which they arise. Ms Perry's affidavit, to which a bundle of correspondence was exhibited, says (at [4]): The Creditor's Statutory Demands served on each of the Plaintiffs and subject of the current proceedings all relate to alleged debts totalling $551,381.38, being the total of debts described as management fees, recharges and interest due as at 30 November 2010 pursuant to the terms of a Management Agreement between Leisure In [sic] Hospitality Management Pty Limited and the Company. 42It therefore indicates not only that there were statutory demands but also the total amount of the debts claimed in the statutory demands and to what the claimed debts related. Insofar as the requirement is that there be sufficient identification of the demand in the supporting affidavit so that the court can be satisfied that there is something to be set aside, I am satisfied that this is the case here. The demands (and the claimed debts to which they relate) is identified with more particularity than was the case in Denet where there was nevertheless held to be sufficient evidence before the court to remove the doubt as to whether the proceedings had been properly constituted. 43I find, therefore, that Ms Perry's affidavit provides sufficient identification of the statutory demands and of the debts claimed in the statutory demands for this purpose. (Copies of the statutory demands were admitted and marked as Exhibits on the application, the only objection to their tender being the argument that without them the proceedings had not been properly constituted, on which I have now ruled against the defendant.) 44As to the complaint that there was insufficient disclosure of the grounds on which the plaintiffs seek to set aside the statutory demands, this seemed to be based on the submission that Ms Perry's affidavit (and the email of Mr Walshe of 19 October 2010 which was annexed thereto) contained no more than a bare assertion that there was a dispute (and, to the extent that the third complaint as to defects in the notice is still pressed which was somewhat unclear, that the affidavit did not identify those defects). 45In Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (at [459]-[460]); (1996) ACSR 581 (at [588]) (applied, among others, in Process Machinery Australia Pty Ltd v ACN057 262 590 Pty Ltd [2002] NSWSC 45, at [22]; Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130 at [56]; and Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560, at [7]), Sundberg J held that the failure of an affidavit to satisfy the minimum requirements for an affidavit to be a "supporting affidavit" is a jurisdictional impediment to an application under s 459G. In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, the High Court confirmed that the court cannot entertain, as an application under s 459G of the Corporations Law, a case in which an affidavit containing the minimum requirements has not been served within time. 46What is required, by way of a supporting affidavit in this regard, is that the affidavit and application alert the party to the nature of the case sought to be made on the application to set aside the statutory demand, identifying the "area of controversy" so that it is identifiable with one or more of the grounds available under ss 459H and 459J ( Process Machinery and Elm ). 47In Graywinter, it was held that it is not sufficient merely to assert the existence of a dispute or offsetting claim (though it is not necessary for the affidavit to contain in admissible form all the evidence supporting the claim that the there is a dispute/offsetting claim). 48In the case of an application to set aside based on an offsetting claim which is unliquidated, in Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [2005] NSWSC 638, Gzell J held that an affidavit in support is insufficient if it does not contain material from which a court can make an estimate of the amount of an offsetting claim. There must be sufficient material indicating the nature of the offsetting claim and the way in which it is calculated in order to enable the statutory exercise under the Corporations Act 2001 (Cth), s 459H(2) to be carried out by the court. 49In relation to applications based on any ground under s 459J(1)(b), the affidavit needs sufficiently to identify the "other reason" why the statutory demand should be set aside. 50In Hansmar Investments Pty Ltd v Perpetual Trustee Ltd [2007] NSWSC 103; (2007) 61 ACSR 321 , White J noted that the Graywinter principle is based on an implication from the requirement in s 459G that an application to set aside must be accompanied by an affidavit supporting the application within 21 days after service of the demand. His Honour referred to what had been observed by Austin J in POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533 (namely, that s 459G was satisfied if the ground was raised expressly or by necessary inference or by a reasonably available inference) and suggested that the reasoning of his Honour in that case would be consistent with that in Callite Pty Ltd v Adams [2001] NSWSC 52 where it was an available inference from the documents annexed to the relevant affidavit that a particular ground of challenge had been raised. 51In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 25 ACLC 1392, Barrett J, noting that what was required was that the grounds of objection be evident on the face of the affidavit considered it sufficient that if the ground of challenge was a defect by reason of an omission from the creditor's accompanying affidavit and this omission was discernible on the face of a document annexed to the affidavit in support accompanying the statutory demand, then that would be sufficient even though attention had not been drawn to the point sought to be raised thereby. 52I note that there is not a requirement that the party seeking to set aside a statutory demand draw to the attention of the defendant the particular issue on which reliance will be sought to be placed. Lindgren AJA in NA Investment Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210, considering that such a submission confused the concept of "support" (as in an affidavit in support) with natural justice considerations. His Honour was there of the view that the requirement in s 459G(3) was met where, as in that case, the only issue sought to be raised was one of construction within the four corners of the provision on which the statutory demand depended and the document in question, albeit with other documents, had been put into evidence by the affidavit filed within the 21 day period. Lindgren AJA there noted that one purpose served by the requirement for a supporting affidavit to be served within the 21 day period was to accelerate the filing and service of evidence in the interests of an early hearing of the application to set aside. 53For present purposes, therefore, the question is whether there was sufficient in the supporting affidavit (and the documents exhibited thereto) as filed within the 21-day period to raise (expressly or by necessary, or a reasonably available, inference) the complaints now made. 54In Graywinter , Sundberg J said (at [587]): "In order to be a 'supporting affidavit', an affidavit must say something that promotes the Company's case...The affidavit need not detail, in admissible form, all the evidence that supports the contention of genuine dispute...The affidavit must...disclose facts showing there is a 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. 55Mr Walsh contends that Ms Perry's affidavit does not disclose any facts establishing a genuine dispute between the parties. It is submitted that Mr Walshe's email of 19 October 2010 contains various bare and unsubstantiated assertions to the effect that "the Owner disputes that this amount is due and payable", that there are "disputed recharges" and that the amount claimed is "incorrect and disputed" but discloses no facts upon which these various assertions are based. It is said that the email, in its terms seeks clarification (rather than disputing) various items (such as staff training charges pursuant to clause 4.18 of the Management Agreement, travel and living expenses payable to Leisure Inn pursuant to clause 10.8 of the Management Agreement and reimbursements payable to Leisure Inn pursuant to clause 13.7 of the Management Agreement. While it is accepted that the email disputes that the sum of $501,897.78 is due, Mr Walsh points to the fact that the quantum of the alleged dispute is not stated and reference is made to alleged errors "in the alleged calculation of recharges ... identified in a review provided to you" (that being the review sent to Leisure Inn on or about 17 February 2010 to which it is said that Leisure Inn responded on 25 February 2010 and again on 23 March 2010 and received no reply). (It is said that an analysis of the "review" and Leisure Inn's reply shows that it raises queries only in respect of recharges totalling $225,855.86.) Mr Walsh further contends that the 19 October email does not raise any offsetting claim. 56It is thus submitted that, insofar as Ms Perry's affidavit fails to adduce relevant facts upon which the assertions of the existence of a genuine dispute or offsetting claim are based, no subsequent evidence can be adduced to rectify that deficiency. (Moreover, it is said that even now the plaintiffs have not quantified or particularised the alleged disputed claim.) 57Mr Cook submits that the scope of the dispute is sufficiently identified in paragraphs [18] and [19] of the supporting affidavit by reference to the breach notice and the 19 October 2010 email from Mr Walshe that is exhibited to the affidavit (noting that in that email reference was made to "examples of errors in the calculation of recharges ...previously ... identified in a review provided to you"; to the plaintiffs' intention to "rely upon previous correspondence setting out the claims of dispute in relation to this ground of breach" and that the email also noted that "The main ground, payment of base management fees and group benefits fees sights [presumably meaning cites] an amount due that is subject of a long and detailed dispute". 58Mr Cook submits that the email also identifies the offsetting claim by reference to the ongoing negotiations "as to the disputed debt" culminating in a without prejudice meeting leading to a different agreement although noting that this had not been executed by the parties. There was a reference to negotiations between the plaintiffs and Ms Elizabeth D'esposito on behalf of Vernalex "to provide for an offset on the amount due to her pursuant to the put and call option agreement with Summit Capital Investment Pty Ltd against the amount claimed due to Staywell (a company associated with Leisure Inn)" and that the email further stated that the plaintiffs remain "committed to complete the negotiations with Vernalex and Staywell in terms of what has been agreed". 59Pausing there, I have some difficulty seeing the proposed Vernalex arrangement as an offsetting claim, as such. It seems to me that, at best, had agreement been reached on this aspect of the matter, it would have been an agreement by Leisure Inn to treat the debt of the plaintiffs as being discharged by a release obtained from Vernalex in relation to the put option claim. I was not taken to any authority in which such an arrangement was considered to be an offsetting claim for the purposes of s 459H(1)(b) (although if the release had been procured then it might well have led to a genuine dispute as to whether the debt remained in existence). I consider that such an arrangement could, however, constitute some 'other reason' why a statutory demand should be set aside (if to resile from the arrangement were to give rise to an injustice or make it unconscionable for Leisure Inn to pursue its claim in relation to the debt otherwise than by way of set-off). However, for the purposes of considering whether the affidavit sufficiently identified the Vernalex arrangements as an area of controversy, I think that it did.) 60It seems to me that there was sufficient identification in the initial affidavit of the fact that the existence or amount of the debts claimed in the statutory demands was disputed (by reference to a course of communications in which those disputes had been raised and to which the recipient of the application had been privy and by reference to the matters contained in the email communications exhibited to Ms Perry's affidavit); as well identification of the dispute based on the fact of the Vernalex negotiations (whether that be properly characterised as an offsetting claim or otherwise I will discuss in due course). 61As to the area of controversy relating to the failure to comply with clause 18 of the Management Agreement that was squarely raised in the affidavit. 62Given my finding that those areas of controversy are sufficiently identified in the supporting affidavit, reliance can then be placed on the further affidavits of Mr Walshe (sworn 25 February 2011) and Mr Braune (sworn 2 March 2011) as supplementing the factual grounds relied upon by the plaintiffs in support of the allegation of a dispute and an offsetting claim ( Energy Equity Corp Ltd v Sinedie Pty Ltd (2001) FLR 179; [2001] ASC 419 at [29]). 63The only area where in my mind there is doubt as to whether the controversy was squarely raised is as to the suggestion that emerged in submissions as to whether the demand was defective insofar as it did not raise the composite nature of the debts claimed. Had the statutory demands been annexed to the supporting affidavit then I would not have considered there to be an issue (relying on the Saferack authority). As it is I have some doubt as to whether the description in the affidavit is sufficient to raise that issue but nothing turns on it as I am satisfied that the statutory demands should be set aside on the genuine dispute ground. (ii) Is there a genuine dispute/genuine offsetting claim? 64It is recognised that there is a low threshold in establishing a genuine dispute or a genuine offsetting claim. 65The meaning of a genuine dispute in the context of a challenge to a statutory demand was considered by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; ( 1994) 12 ACLC 669 and Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896, per Barrett J. Barrett J noted that the task faced by a company challenging a statutory demand on genuine dispute grounds is by no means a difficult or demanding one - a company will fail in its task only if the contentions upon which seeks to rely in mounting the challenge are so devoid of substance that no further investigation is warranted. The court does not engage in any form of balancing exercise between the strengths of competing contention. If there is any factor that on reasonable grounds indicates an arguable case it must find a genuine dispute exists even where the case available to be argued against the company seems stronger. 66In Eyota , his Honour said (at [787]): It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs ... in my opinion that expression connotes a plausible contention requiring investigation, and raises much of the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an introductory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be not having "sufficient prima facie plausibility to merit further investigation as to its [truth]" (cf Eng Me Yong v Letchumanan [1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of fact unsupported by evidence": cf South Australia v Wall (1980) 24 SASR 189 at 194. But it does mean that, except in such an extreme case [i.e. where evidence is so lacking in plausibility], a court required to determine whether there is a genuine dispute should not embark upon an enquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute .... In Re Morris Catering Australia it was said the essential task is relatively simple - to identify the genuine level of a claim ... 67In Edge Technology Pty Ltd v Lite-on Technology Corporation (2000) 34 ACSR 301, the court was considering whether a breach of warranty in supply of goods gave rise to a genuine dispute or offsetting claim and the question of quantification of the offsetting claim. Again, it was said that the court's task was not to resolve competing claims but to determine whether there was a genuine dispute concerning the debt or a genuine offsetting claim against the party serving the statutory demand and if so in what amount. It was not necessary, nor was it appropriate, for the court to consider the merits of the dispute or offsetting claim (citing Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456; Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporises Pty Ltd (1994) 13 ACSR 37). 68In Edge Technology , it was further said (at [43] - [45]) that there are several matters of fact bearing on whether the dispute or the asserted offsetting claim is not genuine (ie that it is, "spurious, hypothetical, illusory or misconceived"): the question must be answered having regard to the evidence before the court at this time and on the basis that the contract has not been terminated. ... The threshold presented by the test to set aside a statutory demand does not however require of the plaintiff a rigorous and in-depth examination of the evidence relating to the plaintiff's claim, dispute or offsetting claim. That is why cross-examination in contested statutory demand proceedings is limited: Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290. 69In Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717; (1994) 13 ACSR 787; (1994) 12 ACLC 490 Young J, as his Honour then was, said (at [57]): It is well known that many claims are ambit claims, and not even the person making them has any real hope of recovering the maximum amount claimed. Often it is appropriate to work out what is the maximum likely amount to be recovered. However, it does not seem to me, although I have tried hard to fit this meaning into the subsection, that one can get this result. The amount of the claim is an expression which has a more or less defined meaning ... [it] means the amount claimed in good faith, so long as that claim is not fictitious or merely tolerable. (my emphasis) 70A genuine dispute is therefore one which is bona fide and truly exists in fact and is not spurious, hypothetical, illusory or misconceived. It exists where there is a plausible contention which places the debt in dispute and which requires further investigation. The debt in dispute must be in existence at the time at which the statutory demand is served on the debtor ( Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; Eyota ). 71In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743, Palmer J said (at [17] - [18]); In my view, a claim for the purposes of CA s 459H(1) and s 459H(2) means not just a cause of action, so that once a genuine cause of action for unliquidated damages is shown by a plaintiff, the court is compelled to accept at face value the damages claimed by the plaintiff as the amount of the offsetting claim for the purposes of the calculation required by s 459H(2). .... In my opinion, a genuine offsetting claim ... 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 a 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 losses calculated. If such evidence is entirely lacking, the court cannot find that there is a genuine offsetting claim ... . 72His Honour had earlier in that case said (at [16]); the real difficulty in this case is the amount of the plaintiff's alleged offsetting claim. Where the case involves a claim for a liquidated sum the application of the section is relatively easy, the court simply determines whether the cause of action is a genuine one and if that proves to be the case, the amount of the offsetting claim is the amount of liquidated sum, the subject of that claim. The position is by no means as easy where claim is a claim is for unliquidated damages and the damages are said to be economic loss suffered by the plaintiff. 73In Rainbow and Nature v Bronson and Jacobs [2006] NSWSC 217, Austin J stated that the ingredients of s 459H to be satisfied are that it is 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"). 74As to the existence of a genuine dispute, Mr Cook relies upon the fact that Mr Doyle or his firm had drafted a document which was being put forward for acceptance by the plaintiffs in which the existence of a dispute was expressly acknowledged. Further, Mr Cook submits that the fact that, in his affidavit of 12 January 2011, Mr Doyle concedes that "between November 2009 and November 2010, ongoing discussions took place" between himself, Mr Wan and representatives of the plaintiffs (Messrs Braune and Walshe) and says that it was his understanding was that those discussions were for the purposes of satisfying clause 18 of the Management Agreement (the dispute resolution clause) (at [7]), this is an implicit acknowledgement of the existence of a dispute. 75Hence it is submitted that Mr Doyle cannot have been in a position to swear to the lack of awareness as to a genuine dispute when the statutory demand was served in November 2010, unless it is suggested that the dispute was resolved at some time between provision of the draft deed (and the discussions said to have been for the purposes of clause 18) and November 2010 when the statutory demands were served. (It is noted that although in Mr Doyle's affidavit (at [8]), Mr Doyle refers to the "ongoing discussions" and a without prejudice meeting which he says "culminated in an agreement being reached (subject to documentation) between the Owner and Leisure Inn in which the Owner agreed to pay to Leisure Inn the sum of $532,000.00 in full satisfaction of the Debt, which sum has not been paid", in Mr Doyle's subsequent affidavit of 9 March 2011 (at [44]), he conceded that a final agreement had not been reached. The amount the subject of the demands is not the amount recorded in the draft settlement agreement.) 76It may, of course, be that what Mr Doyle considered he was able to depose on oath was as to the lack of awareness of a "genuine" dispute as opposed to a dispute that he did not consider to be based on any genuine foundation and I consider that he should be given the benefit of the doubt in this regard. 77That said, I am satisfied that the evidence of the plaintiffs goes beyond the mere assertion of a dispute and shows that there has been an ongoing issue not only as to the basis on which the recharges were calculated by also as to the liability to make any payment of base management fees or the like in circumstances where there was a dispute as to the provision of services. 78Mr Walsh places emphasis on the lack of evidence as to any further queries being raised by the plaintiffs in relation to the recharges after 25 February 2010. However, to my mind that would equally be consistent with the parties having chosen to concentrate their energies at that time in seeking a resolution to the overall dispute rather than focussing on the line by line recharge items in the review. I do not think it can be said that the silence in relation to the review items (in light of the ongoing negotiation as to the overall payment claimed) can be said to indicate an acceptance of the previously queried line items. 79I accept that there is a reasonable basis for Leisure Inn to maintain that the base management fees and group benefit fees are payable without set off or demand and hence that Leisure Inn was not contractually entitled to withhold payment of at least those amounts. However, the plaintiffs' contention that their complaint as to the lack of service justifies the withholding of payment cannot be dismissed as spurious or doomed to failure. If there has been, for example, a repudiation of the obligation to provide the services or a failure of consideration in relation to the provision of the services (though the argument was not put as such by the plaintiffs on the present application), then there may well be a basis on which Leisure Inn could not presently enforce a claim to payment of the fees notwithstanding the contractual provision that they be payable without set-off or demand. This is not a matter that falls for determination in the present application - it is sufficient that the facts disclose an argument that is not untenable in the sense that it could be said to be spurious or doomed to failure. 80Mr Walsh maintains that even if all the items referred to in the review were to be accepted as disputed (and the defendant does not accept this) the amount of the statutory demand (comprised of base management fees and group benefit fees) remains at $325,525.52 and the statutory demands should be varied in this amount. The force of that submission rests on the proposition that there has not been a long and detailed dispute as to the fees payable under clause 11 and that the Management Agreement makes provision for those amounts to be payable without set off or demand. However, while there may not have been such a dispute initially, there seems to have been a dispute raised at least by July or August 2010 in relation to those fees. Mr Cook submits, and I agree, that the dispute as to the allegation that Leisure Inn had not provided the required management services (raised in the affidavits of Mr Braune and Mr Doyle) is one that it is not appropriate for the court to resolve on this application, noting that all that is required is that the plaintiff raise a plausible contention requiring investigation ( Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at [787]). 81Having regard to the low threshold for establishment of a genuine dispute as to the existence of a debt, I consider that the plaintiffs have met that test and that there is a genuine dispute as to the debt claimed. The statutory demands should therefore be set aside. 82Having reached that conclusion, I briefly address the other grounds on which the plaintiffs have relied for the demands to be set aside. 83In relation to the alleged offsetting claim, I am not satisfied that the Vernalex set-off is an offsetting claim for the purposes of s 459H(1)(b). Apart from the fact that I have doubts as to whether that is the proper characterisation of the proposed arrangements as between the plaintiffs and Leisure Inn, there was no eventual agreement on those terms. I consider that there may well have been a basis on which it could have been argued that the negotiations as to the Vernalex set-off were such as to give rise to a representation or understanding (from which Leisure Inn should not be permitted to resile) to the effect that, pending the conclusion of the Vernalex negotiations it would not (at least not without reasonable notice) withdraw from the so-called 'in principle' arrangement and press instead for the immediate payment of the amounts it claimed were owing by Leisure Inn (although this was not the basis on which the off-setting claim was put in the submissions before me). 84As to any claim for damages for the loss alleged to have been suffered by alleged deficiencies in or lack of provision of services by Leisure Inn (which could have given rise to an offsetting claim for the purposes of the Act), the difficulty I see is that the articulation of the loss said to have been suffered was in very general terms and the basis on which it was quantified was simply an assertion by Mr Braune (in paragraphs [27]-[29] of his 2 March 2011 affidavit) that significant trading losses "of some $700,000" could have been avoided had the correct management principles been applied. This does not meet the test set out by Palmer J in Macleay Nominees for the court to be in a position to determine that there is a genuine offsetting claim. In any event, as I understand it, the complaint as to this issue was not put by the plaintiffs as giving rise to an offsetting claim for the purposes of s 459H(1)(b), but rather as going to the existence of a dispute as to whether the debt was presently owing (which I have discussed earlier). (iii) Are the statutory demands defective? 85It is not clear precisely the basis on which it is asserted that the statutory demands are defective. However, issue was raised (in the context of Mr Walsh's suggestion that, even if there was a genuine dispute as to the recharges, the demand could be varied to be limited to the base management fees, group benefit fees and interest thereon) that there was no identification in the demand as to what proportion of the debt claimed arose in respect of outstanding base management fees and what proportion arose out of recharges and interest. Mr Cook relies on this for the proposition that Leisure Inn cannot now seek to have part of the demand upheld on the basis that only part of the debt has been shown to be disputed. A schedule was prepared showing that breakdown and provided to the plaintiffs after the demands were served. 86Mr Cook submits that Leisure Inn should not to be allowed to rely on that schedule on the basis that the demand must, if it relates to two or more debts, specify the total of the amounts of each of the debts (s 459E(2)) and thus it is said that the defendant cannot rely upon a separate document, served after the demand, in which the composite debt is separated into a number of separate debts (those being a debt for Base Management Fees and a separate debt for recharges). 87With respect, however, it seems to me that s 459H(4) of the Act permits the making of an order to vary the demand if the substantiated amount in a statutory demand is at least as great as the statutory minimum. Therefore, had I accepted that the evidence disclosed no dispute as to the existence of the base management fees/group benefit fees (and no other ground for setting aside the demand had it been limited to that amount), then notwithstanding that the statutory demands had claimed a composite sum by way of debt there would in my view have been a basis on which an order varying the demand to reduce it to the amount of those fees would not have been inappropriate; with a declaration as to when the demand as so varied should be deemed to have had effect. As it is, however, I do not need to consider this as I am satisfied that there is a genuine dispute as to the whole of the sum claimed in the demands. (iv) Is there some other reason why the demands should be set aside? 88Where an application to set aside a statutory demand is made on the basis that there is "some other reason", for the purposes of s 459J(1)(a) or (b), it is not necessary for a company to establish substantial injustice ( Hoare Bros Pty Ltd v DCT (1996) 62 FCR 302, 135 ALR 677.) 89The exercise of the jurisdiction under s 459J(1)(b) was considered by Emmett J in Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 at [457] - [458]. Emmett J (having rejected the argument that the company there seeking to set aside a statutory demand had a genuine offsetting claim that exceeded the amount claimed in the demand - on the basis that the doctrine of res judicata precluded a contention to the contrary of the judgment against the company) turned to consider the application of s 459J(1)(b) and said (at [458]): However, s 459J(1)(b) appears to me to have relevance in the present context. It may be that "some other reason" within the meaning of s 459J(1)(b) is something other than defect in a demand, the existence of a genuine dispute or the existence of an offsetting claim. The language of s 459J(1)(a) indicates that s 459J is concerned with the possibility of injustice if a statutory demand is permitted to stand with the consequence of the presumption of insolvency which is then compelled by s 459C(2). (my emphasis) though noting that the discretion under s 459J(1) may be exercised even without showing that substantial injustice would be caused (citing Hoare Bros ). 90In Moutere Pty Ltd v Deputy Commissioner of Taxation [2000] NSWSC 379; (2000) 34 ACSR 533 Austin J, when explaining the policy underlying s 459H, said (at [54] - [55]): The policy underlying s 459H is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. A statutory demand is not an instrument of debt collection. By analogy, the commissioner should not use the statutory demand procedure to apply coercive pressure to a taxpayer who genuinely objects to the commissioner's decision. ... the statutory demand procedure should not be used to apply pressure for payment of an amount which might ultimately be found not to be payable . (my emphasis) 91Whether a matter constitutes "some other reason" is to be determined by reference to the legislative intent of Part 5.4 of the Act ( Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 at [235]; [2005] NSWCA 24). In Meehan , Santow JA said (at [35]): There being no defect in the demand, reliance was placed upon whether there be "some other reason" as would satisfy s 459J(1)(b). The claimants contend [and his Honour accepted] that such reason cannot be based simply on some need to bring to the relationship between the parties some broad form of perceived fairness or reasonableness. Rather there must be "sound or positive ground or good reason" to set aside the statutory demand for "some other reason", which was consistent with the legislative intent of Pt 5.4 of the Act : Portrait Express (Sales) Pty Ltd v Kodak (A'asia) Pty Ltd (above) a t 757 per Bryson J; Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 a t 18 per Austin J. (my emphasis) 92Young CJ in Eq (at [58]-[61]), concurring with Santow JA, added the following observations: Although the wording of s 459J(1)(b) of the Corporations Act appears wide, its context and history requires reading it down to encompass in general terms only cases where the Court is satisfied that injustice will be caused unless the demand is set aside because of a defect relating to, but not in, the demand, see Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 17. In Portrait Express (Sales) Pty Ltd v Kodak (A'asia) Pty Ltd (1996) 20 ACSR 746 at 757, Bryson J truly said that the discretio nary power under s 459J(1)(b) should not be activated "unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists". It is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so. The sort of case that will be covered will include gross defects in supporting affidavits and documentation and where the alleged creditor has made statements or representations relating to the statutory demand which have reasonably induced a change of the alleged debtor's position. A judge is not at liberty to set aside a demand under s 459J(1)(b) merely because he or she subjectively considers it fair to do so. (my emphasis) 93Further, in Meehan Santow JA said (at [52]): Indeed, it is an error of principle to invoke as a test "substantial injustice to the party seeking to set aside the statutory demand" for the purpose of subparagraph (b) of s 459J(1) when this is solely based on the position of the party subject to the statutory demand. Rather one must look at the relative position of both parties against the objectives of Pt 5.4. That is why the more general formulation of Bryson J in Portrait Express i s to be preferred as an approach; that is, setting aside a statutory demand under s 459J(1)(b) where there is proper reason viewed in the circumstances of the parties taking into account the purposes of Pt 5.4. 94Barrett J in CP York Holdings Pty Ltd v Food Improvers Pty Ltd , noted that Santow JA in Meehan had made it clear that the relevant concept of injustice for the purposes of s 459J(1)(b) is not concerned with the personal position, or the personal circumstances, of the party served with the statutory demand. 95The purpose of Part 5.4 of the Act has been noted as being to make, as far as possible, the procedure of application under s 459G the only avenue for a company's objections to a statutory demand. Thus, if a company receiving a statutory demand has a reason for objection to the demand it cannot procrastinate or defer its objections until the hearing of the winding up application ( Ford's Principles of Corporations Law at [27.062]). 96Barrett J said in CP York at [11], [14] - [17]: Part 5.4 seeks to ensure that questions about statutory demands are determined separately from a hearing of a winding up application. The objective is to ensure that the result of a creditor's attempt to obtain the benefit of a presumption of insolvency through service of a statutory demand should be known - and definitively known - before the hearing of any winding up application. ... It is with the purpose of Pt 5.4 in mind that one approaches s 459J(1)(b). The question posed by that provision is whether there is some good reason beyond and separate from those with which ss 459H and 459J(1)(a) are concerned for setting aside a statutory demand. Section 459J(1)(b) confers a remedial jurisdiction. (my emphasis) The Court of Appeal of the Australian Capital Territory described the provision in Arcade Badge Embroidery Co Pty Ltd v DCT [2005] ACTCA 3 as follows (at [27]): What is contemplated by s 459J(1)(b) is a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice: Hoare Bros Pty Ltd v Cmr of Taxation (1996) 62 FCR 302 at 317-318. In that case, the creditor had agreed to withdraw the statutory demand but later reneged on its agreement. Those circumstances were seen as coming within the relevant concept of unconscionability. Section 459J(1)(b) will operate where the person serving a statutory demand has "engaged in conduct that was unconscionable or an abuse of process or had given rise to substantial injustice", these being words of Black CJ, Einfeld, Sackville JJ in Hall Brothers Pty Ltd v Cmr of Taxation (1996) 62 FCR 302 at 317-318 which were also applied by the Queensland Court of Appeal in KW & KM Quinn Investments Pty Ltd v DCT [2004] QCA 91. 97By reference to the purposes for which the power exists, Barrett J said "the power exists to maintain the integrity of the Part 5.4 process. It should be used as necessary and appropriate to counter attempted subversion of the statutory scheme. And as Young CJ in Eq said, subjective notions of what is fair play no part." His Honour said (at [23]): There is simply no ground on which the court can properly intervene to forestall the result the defendants legitimately seek. It cannot look solely to inconvenience and discomfort or worse that the plaintiff may be experiencing or expects to experience. It must, as Santow JA said at [52] of his judgment in Meehan , look at the relative position of both parties against the objectives of Pt 5.4. The due obtainment of those objectives will be served by allowing the unfolding course of events to unfold. 98The legislative purposes identified in relation to s 459J in the Explanatory Memorandum focussed on "overcoming the prolonged proceedings which can result from legal disputation in relation to the effectiveness of a statutory demand which occurs on the hearing of a case for the winding up of a company". The legislative purpose is thus to ensure that questions about the ability to rely on the presumption of insolvency are known in advance of the winding up application. 99The plaintiffs' submissions put this ground first on the basis of the failure of Leisure Inn to comply with clause 18 of the Management Agreement and also on the assertion that Leisure Inn issued the statutory demands when it was on notice of a genuine dispute or offsetting claim and hence not for a legitimate purpose. 100As to the former, in Arris Investments Pty Ltd v Fahd & Anor [2010] NSWSC 309, Palmer J held at [19] -[20]: However, where a dispute is not resolvable by the Court virtually at a glance because the position taken by one of them is transparently untenable, or where there is no conduct making it unconscionable for one party to invoke an arbitration clause, then an express agreement that the parties' disputes must be determined by arbitration rather than by any other form of litigious proceeding should carry great discretionary weight in considering whether a Statutory Demand should be set aside under s 459J(l)(b). There are often good commercial reasons for parties to agree to air their disputes only in the privacy of an arbitration. There are considerations also of savings in time and legal expense in such proceeding. If the dispute is fairly and squarely within the purview of a compulsory arbitration clause, the Court should not lightly permit one party to ignore the clause and precipitate legal proceedings by the issue of a Statutory Demand. In short, the Court should not encourage parties to breach their contracts . (my emphasis) 101Mr Cook submits that, a fortiori, where the parties have agreed to submit disputes to expert determination rather than arbitration, the court should set aside under s 459J(l)(b) a demand issued in breach of that obligation. 102Mr Walsh referred to what was said in SMEC v CEMS Engineering, by Austin J said that he thought it unlikely that a court would set aside a statutory demand on the bare ground that service of the demand violated an arbitration clause and observed that such a question was a "little artificial" because the application of the arbitration clause is likely to arise for consideration only if there is a dispute between the parties and once there is such a dispute and if a court considers it genuine then the demand will be set aside on that ground. Mr Walsh submits that this appears to have been the approach adopted by Foster J in Tennant Ltd v Flomin Inc , where the issue related to the application of a mediation clause. 103In National Telecoms Group Ltd v Bulldogs Rugby League Club , Gzell J held that the question whether a stay of proceedings (arising from the failure of parties to engage a mediation provision in an agreement) prevented a claim to a debt being the subject of a statutory demand raised a serious issue for determination thereby constituting a genuine dispute under s 459H(1). Mr Walshe submits that this approach should not be followed for a number of reasons: first, because it is said to equate the issuance of a statutory demand with the commencement of proceedings in respect of which a stay may be granted if commenced contrary to a dispute resolution clause in an agreement between the parties; and, secondly, because it is said that what the section requires is that there be a genuine dispute about the existence or amount of the debt at the time that the demand was issued (not that a party may seek a stay if proceedings are commenced). 104Mr Walsh submitted that as there is no evidence of the nature of the alleged dispute, the court could not be satisfied that the asserted failure to undertake the dispute resolution process could form any basis for setting aside the statutory demand. Further, it is said that the plaintiffs had never notified the defendant of their desire or intention to activate the formal mediation procedure in clause 18.8 to 18.10 of the Management Agreement. 105The question of compliance with the mediation process was raised prior to the issue of the statutory demands and was in any event raised once the demands had been issued. Therefore the submission based on a failure formally to invoke the clause seems somewhat disingenuous. (As to the suggestion that the expert determination clause was operative I am by no means persuaded that this is a matter expressly referred to expert determination under the terms of the agreement.) 106However, as I have found that there is a genuine dispute it seems to me that the question as to whether the failure to comply with the mediation provision does not arise. Indeed for the reasons adverted to by Austin J when commenting on the artificiality of the exercise, insofar as the obligation to mediate is predicated on the existence of a dispute it is difficult to see how this issue could arise in isolation of the question whether there was a genuine dispute so as to provide 'some other reason' independent of that issue for the statutory demand to be set aside. I note that, insofar as Mr Doyle considered that the discussions in which he was engaged amounted to compliance with that clause, this (apart from suggesting a lack of familiarity with the mediation process) makes it difficult for him to deny an awareness at least at that stage of dispute. 107Therefore, while I endorse the view expressed in Arris , that the court should not encourage parties to depart from their contractual obligations, I have some difficulty in seeing a failure to comply with an obligation to mediate a dispute as to the amounts owing or the present obligation to pay the amounts owing (pending, say, resolution of the Vernalex set-off) as being sufficiently independent of the genuine dispute ground so as to fall within s 459J(1)(b). 108As to the second basis on which the "some other reason" ground was pressed (namely the question whether the demand was issued for an improper purpose), Mr Cook submits that the debt claimed by Leisure Inn on 30 November 2010 was clearly disputed on genuine grounds and that Leisure Inn was well aware that the plaintiffs disputed the debt the subject of the statutory demand. 109I note that in Polstar Pty Ltd v Agnew [2007] NSWSC 114; (2007) 25 ACLC 293, Barrett J at [33] accepted that in the circumstances of that case the conclusion seemed inescapable " not only that a genuine dispute as to the amount of the debt existed when the statutory demand was served but also that the defendant was then aware of the dispute " at [43] (my emphasis) and went on to say at [44] that: The intention underlying Part 5.4 is that a creditor who genuinely believes that a debt is due and payable and is unaffected by either genuine dispute as to existence or amount or offsetting claim may obtain, for the purposes of a winding up application, the benefit of a statutory presumption of insolvency. Such a creditor may be met, at the threshold, by a claim on the part of the alleged debtor company that a genuine dispute or offsetting claim exists. If the creditor then wishes to persist with his or her attempt to obtain the benefit of the presumption of insolvency, he or she must succeed in defeating the allegation of genuine dispute or offsetting claim. Clearly implicit in this statutory scheme is the proposition that a person claiming to be a creditor will not resort to the statutory demand process where that person is already aware of the existence of a genuine dispute or offsetting claim. Section 459E(3)(a) requires that person to say on oath or affirmation that the relevant amount is due and payable by the company. Via s 459E(3)(a) and the rules of court (Form 7), the person must also say that he or she believes that there is no genuine dispute about the existence or amount of the claimed debt. (my emphasis) 110In First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939 (to which Barrett J referred in Polstar ), Santow J (as his Honour then was) said (at p 951): It has been said on numerous occasions that the Companies Court is not to be the court which deals with disputed debts. If there is an honest dispute between the parties as to the amount of the debt, they are expected to resolve their dispute through the normal channels such as litigation in the Common Law Division or the District Court, not by the means of winding up proceedings; for example, see John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 at 717 per Young J. (my emphasis) 111That said, in Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867, where it was contended that it was an abuse of process for a creditor to invoke the legislative scheme of Part 5.4 for then purpose of debt collecting especially when the creditor knows that the debt is genuinely in dispute, Palmer J was not prepared to accept that the mere issuing of a statutory demand to invoke the procedure was an abuse of process. His Honour said at [30]: It follows from the above discussion that I consider the reasoning of Tamberlin J in Liverpool Cement is correct. I am unable to accept the reasoning of Heerey J in Intergraph . I disagree with the view that the issuing of a statutory demand when the creditor knows that the debt is disputed gives rise to an inference that the demand is issued for the purpose of exerting improper pressure on the company for payment. In my opinion, the only inference which should be drawn, absent compelling evidence to the contrary, is that the demand is issued in order to invoke the statutory procedure for testing whether or not the dispute is genuine. 112Of course, once the procedure for testing whether or not the dispute is genuine has been invoked, a decision to resist the setting aside of a statutory demand once the issuer (if it does) forms the view that the dispute is genuine would seem to leave the issuer open to allegations of abuse of process. 113In Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411, where a statutory demand had been served but the plaintiff had failed to make an application in time to set it aside and then sought both an injunction to restrain the defendant from proceedings further with a winding up application founded upon the statutory demand and an order to dismiss the winding up application as an abuse of process, Tamberlin J found that the debt was genuinely in dispute but on the question of abuse of process said: Counsel for Landmarks seeks to rely on this statement in the present case in relation to the residual power of the court to grant injunctive relief. In order to do so, facts must be proved which amount to a threat to wind up the company for a collateral and improper purpose, so as to be an abuse of process: see Williams v Spautz , supra, at 522. In my view, no such improper purpose has been shown in the present case. Indeed, the purpose which emerges from the evidence, is that Liverpool seeks to recover the moneys allegedly owed to it, which, it seems to me, is not only proper but is the purpose for which the statutory demand was issued. There is no suggestion of threats of undue pressure, extortion, or commercial duress. Nor is there any suggestion that the demand was a charade in that it was not intended to be pursued to its conclusion . (my emphasis) 114Palmer J, in Redglove, when considering the question whether in the case before him there was an abuse of process, said: In order to resolve the question at issue in this case one must go back to what was meant by Gummow J when his Honour referred, in David Grant , to making or threatening a winding up application "for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz ". His Honour clearly chose those words carefully, intending to convey that "abuse of process" is a concept precisely defined in law and is not to be loosely used, as it often is in strenuously contested proceedings when one party considers that the other is motivated by animosity or else has a patently insupportable case. In Williams v Spautz the majority said (at 526) that an abuse of process occurs when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or for some collateral advantage beyond what the law offers. At 529, the majority said that a party alleging abuse of process bears a heavy onus of proof that the predominant purpose of the other party in commencing the legal process had been one other than that for which it had been designed. and (at [29]): Every creditor claiming payment by a company of a disputed debt is entitled to test the genuineness of that dispute by serving a notice of demand under s459E in order to invoke the procedures of Pt5.4. If the dispute is indeed genuine, the creditor will pay the penalty of a costs order when the debtor successfully applies to set aside the demand under s459G. That is the risk that the creditor takes in serving the notice of demand. But if the debtor company fails to substantiate the dispute in the manner which is required by Pt5.4 and, in particular, by s459G, then it cannot, without more, be an abuse of process for the creditor to proceed with a winding up application in reliance upon s459C, s459Q and s459S. This is the very procedure which the legislature has devised to secure either the prompt payment of just debts or else the winding up of insolvent companies unable to pay their just debts. Where the debtor company has failed to set aside a statutory demand, it would have to establish by very cogent evidence that, despite the existence of a debt which can no longer be disputed, the creditor's purpose in seeking the winding up is not to collect payment of its debt or, in default to have 'the company wound up, but is, rather, to achieve some entirely collateral end. Such a case is conceivable but would be extremely rare in reality. 115In Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; (2006) 203 FCR 473; at [11] and [29] it was said that there is some "other reason" why the demand should be set aside must be determined in the circumstances obtaining when the court comes to consider the s 459G application. 116In B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 at [435]-[436]; 13 ACLC 88, in the context of considering the requirement for an affidavit attesting to the belief that there was no genuine dispute, that requirement was said by McLelland CJ in Eq to be "a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent cases where there is a genuine dispute as to the debt from reaching the court on such an application as the present, with a consequent waste of time and resources". 117Mr Cook notes that the total Base Management Fees said to be included in the demand (though not conceding that the demand was in fact calculated on this basis) amount to only $104,500 (less than 20% of the total debt demanded) and submits that this is in itself a proper basis for the court to decline to vary the amount of the demand so as to prevent the abuse of the statutory demand procedure as a debt-collection mechanism (referring to First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939; Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 296). 118Insofar as Mr Cook refers to the proposition that a statutory demand is not to be used as some kind of commercial lever to extract favourable settlement of disputed debts (citing Buddies Liquor Pty Ltd v Wah Lai Investment (Aust) Pty Ltd [2001] NSWSC 337) he places weight on the fact that (despite Mr Doyle apparently having understood at the time that this was the case - having regard to an email sent by him on 30 November 2010), there is a suggestion that this is indeed what was the underlying motivation for the issue of the statutory demands. In this regard, Mr Cook relies upon an email sent on 26 November 2010 by Mr Doyle: We have made 3 offers to you, each of which were rejected...The settlement terms offered by you in your discussion with me are not acceptable to us. We intend to serve statutory demands on your entities on Monday 119Of more concern on this issue, in my opinion, is the email sent by Mr Doyle to Mr Braune and Mr Wan, copied to Mr Walshe and others in which Mr Doyle (referring to the signing of mutual releases in November 2008 and an issue in respect of matters occurring before that date) said: If you want to make silly accusations then I will simply issue a default notice to you with a copy to Bankwest . The outstanding monies need to be cleared now in full and we reserve all our rights if you fail to pay (my emphasis) 120It is submitted by Mr Cook that Leisure Inn served the demands as a means of exerting pressure on the plaintiffs to accede to the offers put forward by the defendant (and relies on that conduct, together with the defendant's perseverance in opposing the present application, as warranting an indemnity costs order). 121While I am concerned at the suggestion (emerging from the email correspondence to which I have referred) that the issue of the breach notice, followed by the statutory demands, (being something that would cause the matter to be referred to the plaintiffs' mortgagee) was a course adopted with the intention of putting pressure on the plaintiffs to resolve the disputes and pay the claimed debts, it seems to me that there is an alternative more charitable explanation of those communications (namely, that the defendant felt the need to make sure that the plaintiffs understood that if it felt compelled to take that action then it would also have to notify their mortgagee - so as to avoid later recrimination that it had done so). Therefore, while I have been troubled at the flavour of the email correspondence in this regard, on balance I do not find that there has been an improper purpose, such as the use of commercial duress, in the issue of the statutory demands. 122Similarly, while I consider that the evidence shows an awareness that there was an overall dispute as to the claimed amounts, it might be said that the issue of the demands was done in order to test the genuineness of that dispute, in the sense considered by Palmer J in Redglove. 123What I am, nevertheless, firmly persuaded of is that the history of the disputes between the parties is such that these disputes should be resolved (if this cannot be done through the use of the dispute resolution process for which the parties made provision in their agreement) in the normal litigious process and not by means of the winding up process (the latter not being the process intended to deal with disputed debts, as recognised in First State and Polstar , to name but two of the cases in which this has been emphasised.) Given the history of the disputes and the seemingly protracted negotiation process, I consider it unfortunate that the dispute resolution procedures required to be followed under the Management Agreement (and to which the defendant's attention was drawn in February 2010 in the context of disputes as to the very debts the subject of these proceedings) were not pursued and I note that there is nothing to prevent the parties now pursuing that avenue for the resolution of their disputes.