Product People (International) Pty Ltd v Box Seat Company Pty Ltd

Product People (International) Pty Ltd v Box Seat Company Pty Ltd - [2013] FCA 277 - FCA 2013 case summary — Zoe

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December Affidavit 13 Ms King swore a further affidavit on 13 December 2012 (December Affidavit) in which she addresses several issues raised in the Edwards Affidavit. In the December Affidavit, Ms King notes that she is responsible for the accounts of TPP and the plaintiff and that she was responsible for the defendant's accounts before it entered into liquidation. She states at paragraph [7] that the outstanding loan balances owed by TPP to the defendant were recorded in internal financial statements which were not in final form at the time she swore the Supporting Affidavit. She says that she has, at the time of swearing the December Affidavit, finalised balance sheets for the plaintiff and TPP which are correct as at 30 June 2011. The defendant's balance sheet is not exhibited to her affidavit. Much of the affidavit deals with transactions between TPP and the defendant. 14 In response to the suggestion implied by the table of transactions in paragraph [16] of Ms Edwards' affidavit, Ms King says that the plaintiff issued invoices for services which were rendered by the plaintiff to the defendant. She says the invoices were paid on the same day they were rendered. The effect of this was to suggest that the following payments were not loan advances (as suggested in paragraph [16] of the Edwards Affidavit) but rather payments for services: $63,985.90 (Tooling 903) on 3 April 2008, $640 (Tooling: TBS Pivot Bracket) on 4 July 2008 and $8,928.41 (Prototype TBS) on 11 May 2009, totalling $73,554.31 (paragraphs [21], [22], [25] and exhibit AK01). 15 In relation to the $8,697.92 payment by the plaintiff, Ms King corrects the statement she made at paragraph [10] of the Supporting Affidavit (errors in the original): 24 On 27 March 2009 the Plaintiff in error transferred the amount of $ 8,697.92 to the Defendant. On 27 March 2009, the Defendant rectified this error by transferring the identical amount back to the Plaintiff. At paragraph 10 of my affidavit sworn 25 September 2012, I incorrectly stated that the transfer by the Plaintiff to the Defendant extinguished any loan balance which is owed by the Plaintiff to the Defendant. When I swore that affidavit, I was relying on TPPI's General Leger (which was annexed to that earlier affidavit and marked "H") which did not record that the amount was transferred in error and transferred back the same day. 16 Ms King concludes: 28 The total amount of advances from the Plaintiff to the Defendant outlined above is $8,583.33. The total amount of repayments from the Plaintiff to the Defendant outlined above is $200. Accordingly, the balance owing from the Plaintiff to the Defendant is $8,383.33. 29 I have made arrangement for the sum of $8,383.33 to be transferred into the trust account of Carrolls Lawyers. 17 The amount of $8,383.33 at paragraph [28] of the December Affidavit is the aggregate of the advances by the defendant to the plaintiff referred to in paragraph [9] of the Supporting Affidavit, less $200 for professional fees which Ms King says at paragraph [27] of her December Affidavit were paid by the plaintiff for the defendant.

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relevant law 23 The principles for determining whether a statutory demand should be set aside under s 459H(1) on the basis of there being a genuine dispute over the existence or amount of the debt were generally agreed by the parties. 24 For there to be a genuine dispute, there must be a "plausible contention requiring investigation". It raises the same sort of considerations as the "serious question to be tried" criterion applicable to interlocutory injunctions. At this stage, the Court is not called on to determine the merits of or to resolve the dispute: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 per McClelland CJ in Eq. The claim must be "bona fide and truly exist in fact" and the grounds for alleging the existence of a dispute must be "real and not spurious, hypothetical, illusory or misconceived": Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464 per Northrop, Merkel and Goldberg JJ. 25 The threshold is not high or demanding: Kirrak Pty Ltd v Compass Scaffolding and Plant Hire Pty Ltd [2007] NSWSC 1002 at [3] per Hammerschlag J; Roadships Logistics Ltd v Tree as trustee for the Tree Superannuation Fund (2007) 64 ACSR 671 at [24] per Barrett J (as his Honour then was). The Court must nonetheless be satisfied that the claim made by the plaintiff has some substance; if the Court were to rely on mere assertion almost every statutory demand would be set aside: Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39 per Lockhart J. A useful analogy to the burden of the plaintiff is that of an alleged debtor resisting an application for summary judgment: Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347 at 353-354 per Lindgren J. If the Court sees any factor that, on rational grounds, indicates an arguable case on the part of the plaintiff, it must find that a genuine dispute exists even where any case apparently available to be advanced against the plaintiff seems stronger: Panel Tech Industries v Australian Skyreach (No 2) [2003] NSWSC 896 at [18] per Barrett J. 26 A sufficient affidavit in support of an application to set aside a statutory demand must be filed and served within 21 days of service of the demand: David Grant & Co Pty Limited (Receiver Appointed) v Westpac Banking Corporation (1994) 184 CLR 265 at 276-277 per Gummow J (Brennan CJ, Dawson, Gaudron and McHugh JJ agreeing). It is not sufficient for such an affidavit to merely assert the existence of a dispute or offsetting claim, although it is not necessary to lead all the evidence supporting the claim in admissible form; it may read like a pleading: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 459 per Sundberg J. The vital question is whether, expressly or by reasonably available inference, the grounds of challenge of the statutory demand were sufficiently identified in the affidavit: see Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 92 ACSR 27 at [32] per Young AJA (Hoeben JA and Ward J agreeing); In the matter of King Furniture Australia Pty Limited; King Furniture Australia Pty Ltd v Higgs [2011] NSWSC 375 at [33] per Ward J. An affidavit filed within the 21 day period need only identify the material facts giving rise to the dispute: In the matter of Australia Zhongfu Oil Gas Resources Pty Ltd [2012] NSWSC 1208 at [30]-[31] per Brereton J. 27 The Court can act upon supplementary affidavits filed outside the 21 day period if they expand on the grounds raised in an affidavit filed within the 21 days. The Court cannot, however, act on new grounds raised by an affidavit filed outside that time: Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 at [29] per Wallwork J (Steytler J and Olsson A-UJ agreeing); Jian Xing Knitting Factory v SCASA Pty Ltd [2004] SASC 152 at [18] per Doyle CJ.

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Is there a "genuine dispute" disclosed in the Supporting Affidavit? 28 The basis of the statutory demand was an entry in the 2010 Balance Sheet of the defendant, a copy of was annexed to the Supporting Affidavit. The 2010 Balance Sheet relevantly shows: Other Assets Loan to TPP INT -114.59 Loan to TPPI 75,221.96 Total Other Assets 75,107.37 29 As has already been noted, the plaintiff characterised its case as one of a typographical error and a case of mistaken identity. At paragraph [6] of the Supporting Affidavit, Ms King says: The Balance Sheet states that the Defendant has an asset in the form of a loan to the Plaintiff. I made that entry and it was incorrect. In fact, the loan which I apprehend forms the basis of the Defendant's Statutory Demand, was actually made to a different company, The Product People Pty. Ltd (A.C.N. 098 896 229) ("TPP"). I incorrectly entered it in the Defendant's Balance Sheet as being made to (and owed by) the Plaintiff. 30 The plaintiff says that the form of the entries in the 2010 Balance Sheet supports Ms King's claim to have made an error for two reasons. First, it is inherently unlikely that the abbreviated name of the debtor would be written in two ways. Second, it is unusual to state both a positive and negative amount from the same person under the heading "Other Assets", rather than a simple net amount. The plaintiff points to the difficulty of proving a negative and says that, faced with this difficulty, much of the Supporting Affidavit is directed at transactions between TPP and the defendant in an effort to demonstrate the plaintiff's claim that the identity of the debtor in the 2010 Balance Sheet is incorrectly recorded and that the true debtor is TPP. 31 The defendant says that: The fact that there are two entries in the relevant part of the 2010 Balance Sheet may be explained on the basis that one of the entries is a credit entry and one is a debit entry; Ms King's claims in paragraph [6] of the Supporting Affidavit are "mere assertions" not evidence. The use of the word "apprehend" demonstrates how weak an assertion it is. Ms King's statement is not supported by any of the documents provided to the liquidator before the statutory demand was made in August 2012. There was no ledger current as at 30 July 2012 annexed to the Supporting Affidavit so the plaintiff has failed to produce documentary evidence inconsistent with 2010 Balance Sheet entry. The fact that TPP may owe money to the defendant (as much of the Supporting Affidavit seeks to demonstrate) says nothing about whether the plaintiff owes the defendant anything. None of the documents Ms King annexed to the Supporting Affidavit show that TPP owes the amount claimed in the statutory demand as at 30 July 2010. The TPP balance sheet annexed to the Supporting Affidavit which is current as at 30 June 2011, showing a loan from the defendant to TPP for an amount of $94,124.47, proves nothing. The transactions between the plaintiff and defendant extracted from the defendant's bank statement and ledger records referred to at paragraph [16] of the Edwards Affidavit (and referred to at paragraph [9] of these reasons) all characterise debits to the defendant's accounts as loans to the plaintiff and they are all records which predate the statutory demand; and The 2010 Balance Sheet is a document provided by a company officer to the liquidator. Section 1305(1) of the Act applies to it. That section provides: A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book. 32 In reply, the plaintiff says that the Supporting Affidavit responds to the baldness of the assertion in the statutory demand which relies on a single line in the 2010 Balance Sheet and no documentation supporting underlying indebtedness. It goes on to contend that: Its duty is to show a plausible contention that there is a genuine dispute. The plaintiff agreed that mere assertions are not a sufficient basis to set aside a statutory demand, especially in the face of contemporaneous documents; The defendant misinterpreted the use of the term "apprehend" in paragraph [6] of the Supporting Affidavit. Rather, the plaintiff contends that Ms King uses the term in the sense of inferring the basis of the debt described in the statutory demand rather than tentativeness about the rest of her statement in that paragraph; There is no inherent improbability that a mistake was made in identifying the debtor. The entry in the 2010 Balance Sheet is strange on its face: the use of "TPP INT" and "TPPI" is as curious as using positive and negative balances for the same debtor; The contention in paragraph [17] of the Edwards Affidavit that the plaintiff owed the defendant $82,137.64 and TPP owed the defendant $84,055.51 is more inherently improbable than the possibility that Ms King left omitted one debt; and The Edwards Affidavit was a retrospective attempt by the defendant to bolster the bald assertion in the statutory demand, which ended by inflating the amount to over $82,000.

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Section 1305 33 The basis of the statutory demand is not substantial and it has, in my view, been correctly characterised as a bald assertion. It is true that the entry in the 2010 Balance Sheet must, by virtue of section 1305 of the Act, be accepted as prima facie evidence of a debt in the amount set out in the entry. Uncontested, it would be sufficient to found a statutory demand: see In the matter of Ox Operations Pty Ltd [2008] FCA 61 and In the matter of Redepay Ltd; Redepay Ltd v Net4u.com.au Pty Ltd [2009] VSC 316. 34 In Australian Securities and Investments Commission v Rich (2009) 75 ACSR 1 Austin J considers the legislative background to s 1305 of the Act and what "prima facie" means in that context: at [396]-[400]. Put briefly, the section's function as stated in the explanatory memorandum to the Companies Bill 1981 (which first introduced the provision to corporations law) is to be an "evidentiary provision that is intended to expedite legal proceedings where books are to be introduced in evidence" and to obviate "the need to call witnesses to prove that books are books of the corporation when this fact is not in question or to prove transactions recorded in books when these matters are not in dispute": at [399]. At [396], Austin J says that s 1305: … does more than merely to convey that they [books] are the starting point to proof or a "first view". All other things being equal, the fact that a matter is stated in a book kept by a company is sufficient to prove that matter in civil proceedings. That does not reverse the onus of proof in the proceedings in any general way, but it means that the tendering of the book is evidence of the matter recorded in it, and that matter will be thereby proven unless other evidence convinces the tribunal of fact to the contrary, on the balance of probabilities. 35 His Honour goes on to say at [398]: … it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation. 36 Austin J then concludes at [400] as follows: Therefore s 1305(1) allows a company's books to be introduced into evidence as they are, without any "authenticating" evidence by any witness, and allows the books to be relied upon to prove transactions recorded in them. But it does not elevate matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document. If, for example, there is some doubt as to whether a particular transaction is "recorded" in a book because of some uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome the problem. 37 In this case, the 2010 Balance Sheet, which is the basis of the statutory demand, does not relate to the most recent financial year and it was not audited. The entry which founds the statutory demand is curious on its face. It is highly unusual to record a debit and credit for the same debtor. It is also easy to make a typographical error by inserting an "I" at the end of the name of the correct debtor. It is odd to refer to the same entity by different abbreviations in the same document. These factors alone might have been enough to overcome the presumption in s 1305. 38 There are other factors which also weigh against the presumption. Although the defendant made much of the fact that the Supporting Affidavit did not annex documents which were inconsistent on their face with the entry in the 2010 Balance Sheet, Ms King was the secretary of all of the relevant companies and the person responsible for maintaining their accounting records. Ms King gave sworn evidence in the Supporting Affidavit that there was an error in the 2010 Balance Sheet. This evidence should be given some weight. Further, I consider that the defendant is wrong to attribute weakness of conviction or uncertainty to the use of the word "apprehend" by Ms King in paragraph [6] of the Supporting Affidavit. She is unequivocally stating that there has been an error in the entry. As she is the keeper of the books and having regard to the other features which I have taken into account, the statement is more than a "mere assertion".

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The Graywinter Objection 44 The defendant objected, on the basis of the so-called Graywinter principle, to the whole of the December Affidavit or alternatively to paragraphs [15]-[29] of the December Affidavit. The defendant said: (1) Paragraphs [6]-[14] are an attempt by Ms King to demonstrate that the loan due to the defendant from TPP is not the amount shown in the 2010 Balance Sheet but some different and higher sum; and (2) Paragraphs [15]-[29] are an attempt by Ms King to demonstrate that amounts which had previously been considered by Ms King to be loans from the defendant to TPP were in fact payments to the plaintiff for goods and services rendered to an aggregate amount of $73,554.31. Furthermore, to the extent there was any minor loan from the defendant to the plaintiff, that amount had recently been paid (albeit after the commencement of the proceedings). 45 The essence of the defendant's submission was that this material seeks to introduce matters of fact which travel beyond, and in fact contradict, the grounds of the dispute articulated in the Supporting Affidavit. As the December Affidavit was filed outside the relevant 21 day period it is therefore inadmissible. The December Affidavit does not have the necessary forensic relationship to the Supporting Affidavit which would permit it to be accepted as supplementing grounds expressed or implied in the Supporting Affidavit. The Supporting Affidavit, properly characterised, says "there is a debt owing to the defendant as disclosed by the entry in the 2010 Balance Sheet but it is a debt owed by The Product People Pty Ltd not by the plaintiff". This is the "mistaken identity" case. In contrast, the December Affidavit seeks to establish that the relevant entry in the 2010 Balance Sheet is erroneous because any amounts (other than $8,383.33 which has since been repaid) which the plaintiff received from the defendant were not loans but payments for goods and services. That is an entirely different case from that propounded in the Supporting Affidavit. 46 In response, the plaintiff argued that the defendant's submissions ignore the difficulty created by a statutory demand which is a bare assertion of a loan based on an entry in a balance sheet. The Edwards Affidavit sought to substantiate the unparticularised claim of debt in the statutory demand. The December Affidavit was offered in reply to the Edwards Affidavit. The ground which the Supporting Affidavit and the December Affidavit seeks to argue is identical: there is no debt owed by the plaintiff and the debt described by the statutory demand was based on Ms King's erroneous entry in the 2010 Balance Sheet. 47 After argument on the Graywinter objection I ruled that the December Affidavit is properly characterised as made in reply to the Edwards Affidavit and was therefore admissible. The items raised in paragraphs [15]-[29], and in particular those in paragraphs [21], [22] and [25] of the December Affidavit (which are the heart of the defendant's objection), directly address the accounting exercise undertaken by Ms Edwards at paragraph [16] of her Affidavit. Those items dealing with the proper accounting of TPP ultimately do not matter, but they are responsive to the Edwards Affidavit. The material in paragraph [24] of the December Affidavit corrects a statement made by Ms King in paragraph [10] of the Supporting Affidavit which she now knows to be false. This correction was necessary so as not to mislead the Court. 48 At the hearing, the defendant withdrew its objections to paragraphs [28]-[29] of the December Affidavit (the paragraphs which deal with Ms King's conclusion that the plaintiff owed the defendant $8,383.33) and to the Vaiavii Affidavit (which it had objected to on grounds of relevance and Graywinter).

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