Rodenstock v Leahy; Rodenstock v Linnan [2002] NSWSC 957 | Case summary

3511/02 - RODENSTOCK AUSTRALIA PTY LTD v DAVID LEAHY 3512/02 - RODENSTOCK AUSTRALIA PTY LTD v BARRY LINNAN JUDGMENT 1 On 3 October 2002, I heard two related applications under s.459G of the Corporations Act 2001 (Cth). The plaintiff, in each case, is Rodenstock Australia Pty Ltd ("the company"), which is the Australian subsidiary of a German company which deals in frames for spectacles and other optical products. 2 The company seeks orders setting aside two statutory demands. Each demand was served by a former employee whose employment had been terminated by the company. The former employees are Mr Leahy (the defendant in 3511/02) and Mr Linnan (the defendant in 3512/02). Each statutory demand is dated 17 June 2002. The demands are in identical form save for elements going to quantification of the debt asserted. The nature of the debts 3 The debt upon which each statutory demand is based is described as "statutory entitlements due and payable" for annual holidays. It was accepted in the course of the hearing that the "statutory entitlements" asserted are sourced in the Annual Holidays Act 1944. The provisions of that Act need to be examined briefly. 4 Section 3(1) of the Annual Holidays Act confers on every worker an entitlement to an annual holiday on ordinary pay. The holiday is to be given by the employer and taken by the worker at a time consistent with s.3(4). By virtue of s.3(5), payment in lieu of any annual holiday is prohibited, except as provided in s.4 or s.4A. Section 4 deals with the case of termination of employment of a worker who has "become entitled" to one or more holidays provided by the Act. Upon termination, the employer is deemed by s.4 to have given the holiday or holidays (except to the extent, if any, already taken) as from the date of termination "and shall forthwith pay to the worker, in addition to all other amounts due to the worker, the workers' ordinary pay for the period of the holiday or holidays". Under s.3(1), an entitlement to annual holiday is an entitlement to holiday "on ordinary pay", an expression defined by s.2(1) as follows: " 'Ordinary pay' , in relation to any worker, means remuneration for the worker's normal weekly number of hours of work calculated at the ordinary time rate of pay; and, where the worker is provided with board or lodging by his or her employer, includes the cash value of that board or lodging." 5 Section 2(2) makes provision for the calculation of "ordinary time rate of pay" according to a number of factors with which it is not necessary to deal here. 6 The entitlement arising under s.4 upon termination of employment involves an amount dependent on two factors, being the period of each holiday deemed to have been given and the "ordinary pay" for the period. The way in which the relevant amount was described in the statutory demands is the same in each case, except as to figures. The description in the case of Mr Linnan is as follows: "a. Annual leave being the statutory entitlements due & payable to Barry Linnan, calculated according to the audited accounts of the company as follows: a.1) Monthly ordinary wage 2002 $ 9,041.67 Annual ordinary wage 2002 $108,500 Daily rate 2002 = 108,500 52x5 = $417.31 a.2) Monthly ordinary wage 2002 $ 9,041.67 Bonus year ending Dec 2001 $ 20,000 Annual ordinary Dec 2001 = $128,500 52x5 = $494.23 b) Barry J Linnan Accrued annual leave to 31.12.01 = 138.0 days Accrual from 1st Jan '02 to 8th May '02 = 7.2 days Total days due = 145.2 days Therefore, 138.0 days @ 494.23 daily rate = $68,203.74 7.2 days @ 417.31 daily rate = $ 3,004.63 Annual leave due = $71,208.37 " The company's general contentions 7 The company contends that each statutory demand should be set aside on both of the grounds specified in s.459H, namely, that there is a genuine dispute between the company and the relevant claimant as to the existence or amount of the debt and that the company has an offsetting claim. The latter ground arises from the initiation and prosecution of separate provisions in this Division in which the company makes claims against each of Mr Leahy and Mr Linnan related to alleged breaches of duty owed by them as employees and officers of the company. I refer to these, for convenience, as "the breach of duty proceedings". 8 The employment of each of Mr Leahy and Mr Linnan was terminated in May 2002. The reasons for termination will be mentioned in discussion of the offsetting claim aspect of the present application. I consider first the company's claim based on s.459H(1)(a) that there exists a genuine dispute between the company and each former employee as to the existence or amount of the debt the subject of the statutory demand. The genuine dispute ground 9 The task of the court under s.459H(1)(a) is to consider whether there exists "a genuine dispute between the company and the respondent about the existence or amount of the debt to which the demand relates". In order to make the necessary assessment as to the existence of dispute (and, if that is shown, the genuineness of the dispute) in the present case, I begin by reviewing the correspondence which passed between the respective solicitors in the period leading up to the service of the statutory demands. 10 By letters dated 13 and 15 May 2002, the solicitors for Mr Leahy and Mr Linnan demanded payment of their full statutory entitlements, as evidenced in the December 2001 audited accounts. These were quantified in a letter sent by the solicitors for Mr Leahy and Mr Linnan on 20 May 2002. A separate figure was given for holiday pay and long service leave for each. 11 On 22 May 2002, the solicitors for the company were understood by the solicitors for Mr Leahy and Mr Linnan to have indicated that the amounts claimed would not be paid. This produced a letter dated 23 May 2002 from the solicitors for Mr Leahy and Mr Linnan which read in part as follows: "We confirm your adviCe of yesterday that despite the fact that our clients entitlements are based on audited accounts of your client there is an alleged issue as to whether the amounts as claimed are correct. We are instructed to take legal action to recover those entitlements immediately however, in the circumstances we invited your clients to advise us of the following matters: a) Does your client assert that its audited accounts for the period ending on 31.12.01 are inaccurate. b) If the answer to (a) above is Yes. On what basis does you4r client assert that its audited accounts are inaccurate. c) What investigation has your client undertaken to substantiate any basis as stipulated in reply to (b) above. d) What evidence does your client hold to support the basis as stipulated in response to (b) above. e) What is the amount of statutory entitlements which your client alleges is due and payable to our clients. (In this regard we request that your itemise the amounts due and payable in respect to Long Service Leave and Holiday pay separately for each of our clients) We advise that we require your client to provide a full response within 7 Days of the date of this letter. In the event that no response is received we are instructed to issue a statutory demand for the amount of our client's entitlements as set out in our letter of the 20th May 2002." 12 On 27 May 2002, the solicitors for the company replied that it was incorrect to say that they had advised that the entitlements as claimed would not be paid. They said that the claims were being investigated. The company's solicitors wrote again on 29 May asking for dates (particularly in the preceding six years) on which each of Mr Leahy and Mr Linnan took annual holidays or long service leave. This brought the following response (also dated 29 May) from the solicitors for Mr Leahy and Mr Linnan: "We acknowledge receipt of your facsimile of 27 May 2000 and note the contents therein. We note the contents of paragraph 2 and the implied admission that our client's statutory entitlements are due and payable. Your letter does not assert that there is a genuine dispute the payment of our client's full entitlements nor indeed any set off against those statutory entitlements. In these circumstances, we see no basis for any further delay in the payment of our client's full statutory entitlements beyond a seven day period provided for in our letter of 23 May 2002. Consequently, we are instructed to proceed with the issue of statutory notices against your client unless full payment of our client's statutory entitlements are received by 5pm on 30 May 2002." 13 The response from the company's solicitors also dated 29 May was as follows: "We refer to your letter dated 29 May 2002, concerning your clients' claim for statutory entitlements. You once again incorrectly assert a position. It has been made clear to you orally and we repeat in writing that there is a genuine dispute. This is in the context of your clients, whilst still in our client's employ, establishing a competing business, without our client's knowledge, authority or consent. This is also in the context of records being missing and one of your clients arranging for information to be deleted from our client's computer system and removing records from our client's premises. Further we are instructed that your clients maintained the records, including the leave records, and supplied the information upon which the auditors relied. Your clients claim $60,593.41 (B Linnan) and $45,570.25 (D Leahy) for holiday pay. They claim $20,030.88 for long service leave, on the basis of "audited accounts". These amounts suggest that for the last, say, 6 years, your clients have taken not 1 single annual or long service leave day. In the circumstances, we urge you to promptly respond to our letter of 29 May 2002, which asks for details of dates, particularly during the last 6 years, on which Mr Linnan and Mr Leahy took annual leave and/or long service leave. Additionally, please provide us with the information which your clients used to calculate their claim. Your clients should not issue the statutory notices. They are well aware, as are you, that there is a genuine dispute." 14 On 3 June 2002, the solicitors for Mr Leahy and Mr Linnan wrote to the solicitors for the company saying that the earlier correspondence had not in reality shown any genuine dispute about the leave entitlements. The letter went on to say that the amounts initially claimed did not include bonus payments and that the entitlements were being re-calculated. On 7 June 2002, the solicitors for the company replied, noting an apparent concession that the amounts originally claimed were incorrect, repeating that the auditors had always relied on details provided by Mr Leahy and Mr Linnan themselves regarding leave taken and renewing the request for particulars. The solicitors for Mr Leahy and Mr Linnan said in a letter also dated 7 June 2002: "We refer to previous correspondence in relation to the payment of our client's statutory entitlements of holiday pay and long service leave. We advise that our client's accountant has recalculated the amount due and payable as a result of taking into account the bonus payments due to our client under the service agreements. We advise that the amounts due and payable to our clients are as follows: 1. David Leahy: (i) Holiday Pay - $53,416.09 (ii) Long Service Leave - $25,699.96 Total: $79,116.05 2. Barry Linnan: (i) Holiday Pay - $71,208.37 (ii) Long Service Leave - $25,699.96 Total: $96,908.33 We confirm that your clients have been in control of the books and records of the company evidencing the amount of annual leave and long service leave entitlements of our clients for in excess of four (4) weeks. We advise that unless cheques are received for the above sums by 4pm on Wednesday, 12 June 2002 we are instructed to proceed with legal action to obtain recovery without further notice." 15 The statutory demands were served on 18 June 2002. They claimed the amounts referred to in the letter of 11 June 2002 a break-down of which was provided with a second letter of the same date. 16 Each originating process seeking an order under s.459G was filed on 9 July 2002. Filed at the same time, in each case, were four affidavits in support, being an affidavit of Mr Tschoepe, an officer of the German parent company, and affidavits of Ms Hall, Mr Mrakovcic, Mr Itchins and Ms Roberts, all of whom are employees of the company who worked with or in proximity to Mr Leahy and Mr Linnan. These witnesses all gave evidence going to the quantum of leave taken by Mr Leahy and Mr Linnan, as judged by their observations of comings and goings and understandings of reasons for absences. 17 It should be noted, at this point, that Mr Leahy and Mr Linnan were the two most senior employees of the company and the two most senior officers in Australia. They effectively managed the company's business from the time they were employed in 1990 until termination of their employment in May 2002. 18 Mr Tschoepe has conducted investigations into various auditing matters concerning the company. This has included the adequacy of leave records. He deposes that such records were in fact kept for the company by Mr Leahy and Mr Linnan. He says that, according to his investigations, all employees other than Mr Leahy and Mr Linnan filled out leave application forms and that these were approved by Mr Leahy or Mr Linnan. He has not been able to identify any primary records kept by the company recording the leave entitlements of Mr Leahy and Mr Linnan, apart from some isolated print outs of computer entries. In the case of other employees, he has been able to verify leave entitlements by cross referencing to leave request files in the personnel file. This has not been possible in relation to Mr Leahy and Mr Linnan as no personnel file or leave forms have been found for either. He has received information from the auditors but, for reasons stated, has not been able to verify it. 19 The affidavits of the other employees refer to each of Mr Leahy and Mr Linnan having taken leave at various times. In the case of Mr Leahy, there is a reference to his having taken five weeks leave in 2001 to visit a sick relative in Ireland, as well as other less clearly defined occasions of leave with some evidence to suggest that he took leave of at least two weeks each year. The evidence in relation to Mr Linnan is to generally similar effect, although with the details concentrating on his trips to Phillip Island for motor racing. 20 Mr Leahy and Mr Linnan essentially rely on the audited accounts and the leave provisions therein. As to the evidence of fellow employees about their comings and goings, they say that none of them was in any position to know when their absences were on account of leave and when they were not. They say that records of their leave were in the company's files when they left. 21 The papers apparently produced by the auditors are significant. These show year-end leave accrual calculations for the company for each year from 1994 to 2000. Mr Tschoepe says (and Mr Linnan does not appear to deny) that the handwritten notes on them were made by Mr Linnan. These notes show in relation to various employees the number of days to be added to the leave provision, no doubt representing the untaken balance of the year's leave entitlement. These figures are not brought up to date for the year to 31 December 2001, but in so far as a trend is shown by the papers for earlier years, it would tend to support the entitlements claimed by Mr Leahy and Mr Linnan. 22 It was submitted on behalf of the company that a combination of factors justifies a finding of genuine dispute in this case, viz, the inability of Mr Tschoepe to piece together from the company's records details of the leave actually taken, the failure of Mr Leahy and Mr Linnan to produce, as requested, details of leave taken (and when) and what is classified by the company as dishonesty in relation to matters to which I shall come in due course relevant to the offsetting claim aspect. 23 The company relied on the approach taken by Hodgson J in Soverina Pty Ltd v Jackson & Associates Pty Ltd (1987) 12 ACLR 693 which, of course, pre-dated s.459G. That case concerned the question whether a party claiming to be a creditor should be restrained from proceeding with its winding up application on the ground that there was a genuine dispute as to the existence of the debt. That debt was said to have arisen in January 1986. Just over a year later, all shares in the company had been sold by vendors who warranted to the purchasers that there were no debts other than those identified by the vendors. The debt claimed by the applicant for winding up was not among these. Hodgson J granted the injunction sought. His Honour said that the supposed creditor should not, in winding up proceedings, be put in a better position than it would occupy if required to sue for its debt. His Honour also said: "It does seem to me, as I have indicated, that where the directors and proprietors of a company simply had no knowledge at all about a claimed debt and have acquired the company pursuant to an agreement in which they were promised that no such debt existed and they wishes to put the plaintiff to proof of such a debt, it is correct to say that the debt is disputed on substantial grounds." 24 The present case cannot be compared with Soverina. The company's controllers and directors do not say that they have been led to think that there is no debt for annual holidays. They merely say, first, that they cannot verify the amounts claimed, second, that they suspect the claims may be exaggerated, third, that Mr Leahy and Mr Linnan themselves provided all information and, fourth, that they do not trust those two persons. 25 It is to be borne in mind that a company served with a statutory demand can succeed in a claim based on s.459H(1)(a) to have it set aside on the genuine dispute geound only if the company puts forward some contention, supported by evidence, that sufficiently calls in question the particular claim to justify the conclusion that there is a dispute and that it is properly regarded as genuine. The well known formulation of the criteria of "genuine dispute" by McLelland J in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 draws an analogy with the "serious question to be tried" test for interlocutory injunctions and concentrates on such prima facie plausibility as will merit further investigation, as distinct from an assertion of fact unsupported by evidence. One of the elements referred to by the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 is that "the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived". The analogy preferred by Lindgren J in Rohalo Pharmaceuticals Pty Ltd v R P Scherer SpA and Pharmagel SpA (1994) 15 ACSR 347 was with the standard to be met in resisting an application for summary judgment. 26 Implicit in these statements is the notion that the dispute must be shown by reference to some alleged factual position and that, while the applicant company does not by any means need to plead and verify a defence, it does need to point to evidence in support of some articulated contention that calls in question the creditor's claim. It cannot just say, "We do not believe or trust you" and rely on that as a showing of genuine dispute. 27 Each of Mr Leahy and Mr Linnan was employed for more than eleven years. On the footing that annual holidays accrue at the rate of four weeks (or 20 working days) per year, the payment entitlement of each under s.4 of the Annual Holidays Act, assuming no holiday had ever been taken, would be at the least an entitlement based on eleven holidays each of 20 days, being an aggregate of 220 days. The periods claimed by them as untaken leave in their statutory demands are 109 days for Mr Leahy and 145 days for Mr Linnan, that is, 111 days and 75 days less than the total to which I have referred, representing on average some ten days leave per year taken in one case and almost seven in the other. The evidence the company has adduced on the present application does not, in my assessment, give rise to such a degree of doubt as to the claims of Mr Leahy and Mr Linnan as to bring into existence any genuine dispute. 28 In saying this I of course say nothing about the strength or weakness of the claims of Mr Leahy and Mr Linnan and do not intend to detract from the reality that each would be put to proof if and when he sought to recover the sum claimed in the statutory demand. My comments relate solely to the need for the company to show, by reference to evidence, the existence of a dispute as distinct from merely pleading the general issue and maintaining that a blanket denial establishes a genuine dispute. To be genuine in the relevant sense, a dispute must be seen to be based on more than mere assertion. 29 I should add that there has been no suggestion that the terms of the Act, as presently in force, preclude accumulation of holidays for the purposes of s.4 in a way which was not open before the amendments of 1984: see Fletchers Photographics Pty Ltd v Patman [1982] 2 NSWLR 877. 30 The company's case based on s.459H(1)(a) is not made out. I therefore proceed to the case based on s.459H(1)(b). The offsetting claim ground 31 The offsetting claim asserted by the company for the purposes of s.459H(1)(b) is the subject of the breach of duty proceedings it has commenced against Mr Leahy and Mr Linnan in this Division. Those proceedings arise out of allegations by the company that, while employees and officers of the company, Mr Leahy and Mr Linnan conducted for their own benefit a business known as "dot.com.optical" which competed with the business of the company and utilised staff and facilities of the company in an unauthorised way to the financial detriment of the company. The company maintains that its trading loss of $608,000 for the year to 31 December 2001 was caused or at least contributed to by the operation of the dot.com.optical business by Mr Leahy and Mr Linnan in breach of contractual and other duties owed by them to the company. The company also points to payments of about $45,000 that it says were made by the company to dot.com.optical in circumstances said to involve a secret commission to Mr Leahy and Mr Linnan. The summons in the breach of duty proceedings is in evidence, together with affidavits that have been filed and certain interlocutory orders. 32 It appears that Mr Leahy and Mr Linnan do not deny having established and operated the dot.com.optical business for their own benefit while employed by the company. But they contend that they acted with the knowledge and approval of the company. They by no means admit any liability in the breach of duty proceedings. 33 This is not, of course, the occasion for seeking to determine the rights and wrongs of these contentions. The sole task of the court at this point is to determine whether there exists, in the words of the definition of "offsetting claim" in s.459H(5): "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)". 34 The way in which that task is to be approached was described as follows by Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743: "In my opinion, a genuine offsetting claim for the purposes of CA s.459H(1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s.459H." 35 I refer also to the following statement by Wallwork J in Royal Premier Pty Ltd v Taleski [2001] WASCA 48: "In my opinion the criteria by which to judge whether the appellant has satisfied the court that it has an offsetting claim should be the same as would be used to determine whether there was a genuine dispute between the parties pursuant to s.459H(1)(a), namely, the court is required to undertake an investigation 'that raises much the same sort of considerations as the "serious question to be tried" criterion which arises in an application for an interlocutory injunction or for the extension or removal of a caveat' - per Owen J in Turner Corp [ Turner Corp WA Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294]." 36 On the evidence before me, I am satisfied that the company has shown sufficiently that it has an arguable claim against Mr Leahy and Mr Linnan of the proportions asserted. But it is necessary to consider an argument advanced on behalf of Mr Leahy and Mr Linnan that, even if that be so, the company's claim cannot be regarded as within the s.459H(5) definition of "offsetting claim" because of provisions found in Part 10 of Chapter 2 of the Industrial Relations Act 1996 dealing with payment of remuneration. 37 It was apparently assumed before me that a payment pursuant to s.4 of the Annual Holidays Act is a payment of "remuneration" for the purposes of the Industrial Relations Act. Given the reference in s.4 to payment of "the workers' ordinary pay for the period of the holiday or holidays" and the specific reference to "remuneration" in the s.2(1) definition of "ordinary pay", the assumption seems to me to be correct. The provisions with respect to remuneration in Part 10 of Chapter 2 of the Industrial Relations Act should therefore be regarded as extending to payments under s.4 of the Annual Holidays Act. Such a conclusion also seems correct as a matter of policy. 38 Part 10 of Chapter 2 of the Industrial Relations Act contains the modern statutory expression of rules stemming from the Truck Act 1831 (Imp) to ensure that employees' wages are paid in money and without improper deduction. Section 117 requires payment of remuneration in money. Section 118 precludes deduction for goods, board or lodging or any other services supplied by the employer in payment (or part payment) of remuneration, but with an exception for deductions authorised by an industrial instrument and deductions principally for the benefit of the employee made with his or her authority. Section 120 states that, in any proceedings by an employee against an employer to recover an amount due as remuneration, the employer is not entitled to any set-off or reduction of the claim in respect of various goods and services supplied. The provisions are as follows: " 117. Employees to be paid in money (1) Remuneration payable to an employee must be paid in money and, if demanded, at least once each fortnight. (2) Payment is made in money only if it is made: (a) in cash, or (b) with appropriate authority, by cheque payable to the employee, or (c) with appropriate authority, into an account in the name of the employee (whether or not jointly with another person) at a financial institution by electronic transfer of funds or other means. "Appropriate authority" is authority conferred in writing by the employee or authority conferred by an industrial instrument. (3) Payment of remuneration is to be made in advance if the employee is entitled to payments in advance by agreement, custom or otherwise. (4) An employer must not pay remuneration to an employee contrary to this section. Maximum penalty: 100 penalty units.

Recovery of remuneration---no set-off or action for goods or services supplied by employer (1) In any proceedings by an employee against the employer to recover any amount due as remuneration, the employer is not entitled to any set-off or reduction of the claim in respect of: (a) any goods or services supplied to the employee as, or as part of, remuneration, or (b) any goods sold or supplied at any shop or other premises of the employer or in the profits of which the employer has any share or interest, or (c) any goods supplied to the employee by any person under the direction of the employer or the employer's agent. (2) An employer is not entitled to maintain any action in any court or tribunal against an employee for or in respect of any goods sold or supplied to the employee by the employer while in the employer's employment as or as part of the employee's remuneration." 39 Mr Leahy and Mr Linnan contend that these provisions preclude an assertion by the company in the present case that its claims against them in the breach of duty proceedings already on foot are within the s.459H(5) definition of "offsetting claim". 40 This contention cannot be accepted. If Mr Leahy and Mr Linnan were to proceed against the company for the amounts they say are due to them by virtue of s.4 of the Annual Holidays Act, s.120 of the Industrial Relations Act would not stand in the way of a cross claim by the company based on the causes of action it asserts against them. Those causes of action have nothing to do with goods or services supplied by employer to employee and are accordingly irrelevant to the operation of that section. Likewise, assertion of a right of action in damages for breach of contractual and other duties of fidelity and the like does not involve any claim for "goods, board or lodging or any other services supplied by the employer in payment (or part payment) of remuneration" as referred to in s.118. The Truck Act provisions do not entail the consequence that there can never be deduction from or set-off against an employee's remuneration. So much was recognised by the Court of Appeal in Midya v Sagrani [1999] NSWCA 187. The sections operate by reference to deduction and set-off on account of items of particular kinds. Once the item sought to be made the subject of the deduction or set-off is found to be of some other kind, the prohibitory provisions do not operate. 41 There is also the point that the definition of "offsetting claim" in s.459H(5), in referring to "set-off", does not pay attention solely to the question whether set-off is available in accordance with the general principles which allow a defendant to say, in answer to a plaintiff's claim, that he has a countervailing claim against the plaintiff which absolves him, in whole or in part, from the plaintiff's claim. Nor, in speaking of "counterclaim" and "cross-demand", does the definition refer only to the kind of cause of action asserted by the defendant against the plaintiff that will ground a cross-action in the strict sense. The words in brackets in the definition of "offsetting claim" show that there is no requirement of mutuality and that the only question is whether the company has some cogently arguable claim against the person by whom the statutory demand has been served. The fact that such a claim exists is enough to satisfy the statutory definition. It does not matter whether, in a hypothetical action by the serving party to recover the alleged debt the subject of the statutory demand, the company could plead the cogently arguable claim by way of defence. It is sufficient that the claim is seen to exist. 42 In Toorallie Pty Ltd v Black [2001] NSWSC 1088, I expressed the opinion that, particularly in light of the bracketed words in the definition of "offsetting claim", the purpose of these provisions is to prevent the statutory presumption of insolvency arising in cases where circumstances other than the existence of the debt the subject of the demand appear, on cogent grounds, to affect the true state of the overall ledger between the parties to that debt. I remain of that view and regard this as such a case, noting also that such a characterisation in a situation where the Truck Act provisions are relevant is consistent with the decision of Senior Master Mahony in Lighting Sciences Australasia Pty Ltd v Southgate (1997) 15 ACLC 632. 43 Having regard to the claims made by the company against Mr Leahy and Mr Linnan in the breach of duty proceedings, I hold that the company has, as against each, an "offsetting claim" as defined by s.459H(5) and that the substantiated amount is less than the statutory minimum.

Rodenstock v Leahy; Rodenstock v Linnan

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Judgment (9 paragraphs)

Legislation Cited (1)

Cases Cited (6)

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