[1993] FCA 618; (1993) 47 FCR 451

Corporations Law - Winding up - application to set aside statutory demand: s459G Corporations Law - whether application should be determined separately from substantive offsetting claims - admissibility of affidavit in support of application to set aside statutory demand - existence of offsetting claim - standard of proof required under s459H Corporations Law: prima facie case or serious question to be tried - sufficiency of evidence - interpretation and operation of provisions of Pt 5.4 Corporations Law

Corporations Law, Pt5.4: s459E, s459F, s459G, s459H, s459K, s459P, s459Q, s462, s471B

Trade Practices Act 1974, s52, s82

Corporate Law Reform Act 1992

Federal Court Rules, Division 8, O1 r8, O8, O11 r2, O14 r2, O33 r2, O33 r3, O36 r4, O71 r36A, O71 r36C, O71 r36B

Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 11

Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 109 ALR 247

Merpro Montassa Ltd v Conoco Specialty Products Inc [1991] FCA 70; (1991) 28 FCR 387

State of Western Australia v Vetter Trittler Pty Ltd (In Liq.) (Receiver and Manager Appointed) (1991) 30 FCR 102

Thomson v The Mulgoa Irrigation Co Limited (1893) 4 BC (NSW) 33

Ogilvie-Grant v East (1983) 1 ACLC 742

Vagrand Pty Limited (In Liq.) v Fielding and Ors (1993) 113 ALR 128

Ebert v The Union Trustee Co. of Australia Ltd. [1960] HCA 50; (1960) 104 CLR 346

Re Duncan; Ex parte Modlin [1917] NSWStRp 77; (1917) 17 SR (NSW) 152

Morris Catering (Australia) Pty Limited (Thomas J, Queensland Supreme Court, 28 September 1993, unreported)

Topfelt Pty Limited v State Bank of New South Wales Ltd (Lockhart J, 7 December 1993, unreported)

Mibor Investments Pty. Ltd v Commonwealth Bank of Australia (Hayne J, Supreme Court of Victoria, 14 September 1993, unreported)

Solicitors for the Respondent: Kemp Strang and Chippindall

1. Leave be granted to the applicant to file an amended

application and a statement of claim.

2. On the determination of the separate question, that the

statutory demand served upon the applicant on or about 3

August 1993 be set aside.

3. The question of whether the statutory demand served on the

applicant should be set aside pursuant to the provisions of

s459G of the Corporations Law be determined separately from

the claims for damages in the amended application.

4. The respondent pay the applicant's costs in respect of the

determination of the separate issue.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BEAZLEY J There are two applications before the court. The first is an application under s459G of the Corporations Law. The second is an oral application that the applicant be granted leave to file an amended application and statement of claim. The s459G application is supported by an affidavit which seeks to establish that the applicant has an offsetting claim within the provisions of the Corporations Law: s459H. Both the original application and the affidavit were filed within the 21 day time period prescribed by s459G. The proposed amended application repeats the original claim under s459G and adds further claims for damages for breaches of the Trade Practices Act 1974 and for breach of agreement. If leave is granted to file the amended application, the applicant would seek to have all claims heard together. The effect of this would be that the substantive claim which the applicant seeks to raise by way of set-off to the statutory demand would be determined at the same time as the s459G application.

2. Central to the respondent's resistance to the s459G application is the admissibility of the affidavit filed in support (the s459G affidavit). Counsel for the respondent submitted that the affidavit does not comply with the Rules of Court governing applications under the section, with the consequence that in truth no affidavit was served in accordance with the section. Alternatively, counsel submitted that the affidavit is not in admissible form so that its contents should be rejected. It was submitted that if the affidavit evidence was not admitted, the applicant would not have established that it has a prima facie case for the purposes of s459H.

3. These submissions raise for determination the questions whether it is appropriate to hear the substantive application at the same time as the s459G application; what is the proper test to be applied for the court to be satisfied that the applicant has an offsetting claim; and finally, what material the court may consider to so satisfy itself. It is convenient to deal with the second and third issues first.

4. Part 5.4 of the Corporations Law provides for the winding up of a company on the grounds of insolvency. For the purposes of the Corporations Law, insolvency may be established by proving non-compliance with a statutory demand served upon a company pursuant to s459E. That section provides that a person may serve a demand (a statutory demand) on a company relating to a debt or debts that is or are due and payable, which, either singly or in total, amount at least to the statutory minimum before a winding up order may be made against a company on the ground of insolvency. A failure to comply with a statutory demand enables the person making the demand to apply for the winding up of the company: ss459F; 459P and 459Q. Application may be made to the court to set aside a statutory demand: ss459G and H. Those sections, which are central to this case, provide:

"459G(1) A company may apply to the Court for an order

setting aside a statutory demand served on the

company.

(2) An application may only be made within 21 days

after the demand is so served.

(3) An application is made in accordance with this

section only if, within those 21 days:

(a) an affidavit supporting the application is

filed with the Court; and

(b) a copy of the application, and a copy of

the supporting affidavit, are served on

the person who served the demand on the

company."

459H(1) This section applies where, on an application

under section 459G, the Court is satisfied of

either or both of the following:

(a) that there is a genuine dispute between

the company and the respondent about the

existence or amount of a debt to which the

demand relates;

(b) that the company has an offsetting claim.

(2) The Court must calculate the substantiated

amount of the demand in accordance with the

formula:

Admitted total - Offsetting total

where:

"Admitted total" means:

(a) the admitted amount of the debt; or

(b) the total of the respective admitted

amounts of the debts;

as the case requires, to which the demand

relates;

"Offsetting total" means:

(a) if the Court is satisfied that the company

has only one offsetting claim - the amount

of that claim; or

(b) if the Court is satisfied that the company

has 2 or more offsetting claims - the

total of the amounts of those claims; or

(c) otherwise - a nil amount.

(3) If the substantiated amount is less than the

statutory minimum, the Court must, by order, set

aside the demand.

(4) If the substantiated amount is at least as great

as the statutory minimum, the Court may make an

order:

(a) varying the demand as specified in the

order; and

(b) declaring the demand to have had effect,

as so varied, as from when the demand was

served on the company.

(5) In this section:

"admitted amount", in relation to a debt, means:

(a) if the Court is satisfied that there is a

genuine dispute between the company and

the respondent about the existence of the

debt - a nil amount; or

(b) if the Court is satisfied that there is a

genuine dispute between the company and

the respondent about the amount of the

debt - so much of that amount as the Court

is satisfied is not the subject of such a

dispute; or

(c) otherwise - the amount of the debt;

"offsetting claim" means 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);

"respondent" means the person who served the

demand on the company.

(6) This section has effect subject to section

459J."

5. The effect of making an order setting aside the demand under s459H is that the demand has no effect whilst the order is in force: s459K.

6. Part 5.4 was introduced into the Corporations Law by the Corporate Law Reform Act 1992 and came into effect on 25 June 1993. There is nothing in the Explanatory Memorandum to the Act which is relevant to its interpretation. However, Pt 5.4 was enacted in the same terms as it appeared in the Corporate Reform Law Bill. The Explanatory Memorandum to the Bill states:

"685. This Division will implement the Harmer Report's

recommendations in connection with the setting

aside of statutory demands. The Harmer Report

considered that the existing, largely

unregulated, procedure in relation to notices of

demand too often produces disputes about the

debt at the hearing of a winding up application.

The Report further noted that companies

presently often need to bring injunction

proceedings where a debt claimed in a demand is

disputed. The Report took the view that the

legislation should specifically provide for the

determination of disputed debt issues and other

disputes in respect of a statutory demand.

686. The Harmer Report proposed that a demand may be set

aside if the Court is satisfied that:

. there is a substantial dispute as to whether the

debt is owing;

. the company appears to have a counter claim

which may exceed the amount of the debt;(my

emphasis) or

. the demand ought to be set aside on other

grounds."

7. Rules of Court have been introduced into the Federal Court Rules (the Rules) in respect of applications under Pt5.4. The specific rule introduced to deal with s459G applications is O71 r36B which provides:

"An application under subsection 459G(1) of the

Corporations Law must be made in accordance with Form 5 and

must be accompanied by an affidavit:

(a) stating any material facts relied upon by the

applicant in support of the application; and

(b) identifying the grounds on which it is said that the

Court should make an order under section

459H...setting aside the demand."

8. Other Rules of Court may also be relevant to the consideration of such applications. Order 1 r8 provides that the court may dispense with compliance with any of the requirements of the Rules, either before or after the occasion for compliance arises. Order 14 deals with affidavits. Order 14 r2 provides that an affidavit shall be made in the first person and divided into paragraphs with each paragraph, so far as possible, confined to a distinct portion of the subject. Hearsay evidence may be admitted in interlocutory proceedings, provided the evidence is given on information and belief and the deponent gives the source and ground of the information: O33 r2. Order 33 r3 then provides:

"The Court may at any stage of the proceedings -

(a) dispense with compliance with the rules of

evidence for proving any matter which is not

bona fide in dispute; or

(b) dispense with compliance with the rules of

evidence where such compliance might occasion or

involve unnecessary or unreasonable expense or

delay, including, but without limiting the

generality of this power, compliance with the

rules relating to proof of handwriting or of

documents and the proof of the identity of

parties or of authority."

9. The s459G affidavit was that of Paul Max Gabler sworn 23 August 1993. Counsel for the respondent submitted that this was not an affidavit made in accordance with O71 r36B, as it does not state the "material facts" upon which the applicant relies and was no more than a pleading. Accordingly, the applicant had not complied with the requirements of s459G to file and serve its s459G affidavit within 21 days of service of the statutory demand. Alternatively, it was submitted that the affidavit was inadmissible so that there was no evidence upon which I could be satisfied that there was an offsetting claim.

10. Objection was taken to paragraphs 2 to 7 and paragraph 6 (which appears to be misnumbered a second time) of the affidavit. In order to determine the admissibility of these paragraphs it is convenient to first set out the body of the affidavit:

"1. I am a Director of the Applicant Company and am

authorised by it to make this Affidavit.

2. The Applicant did on the 9th September, 1991 execute

an Agreement between the Applicant as Franchisee (sic)

and the Respondent as Franchisee ("the Franchise

Agreement").

3. Prior to the execution of the said Franchise Agreement

the Respondent agreed to -

(i) vary the Franchise Agreement

(ii) waive parts of the said Agreement

4. Prior to the execution by the Applicant of the

Franchise Agreement the Respondent represented -

(a) The Respondent was expert in the setting up of

real estate businesses relating to commercial

and retail sales throughout the world

(b) The Respondent would make available to the

Applicant the benefits of its expertise.

(c) By by (sic) reason of items (a) and (b) the

Respondent would provide satellite link-up with

the Franchisor's offices throughout the world

for the purposes of assisting the Applicant to

list and sell commercial and retail property.

(d) By reason of items (a) and (b) the Respondent

would market the name "Century 21" so as to

obtain for the Applicant recognition of the

expertise of the Respondent in the commercial

and retail market of Real Estate.

(e) The Respondent would provide facilities at its

offices to conduct meetings with corporate

clients.

(f) The Respondent would arrange by invitation

quarterly meetings between prospective corporate

clients and the Applicant.

(g) The Respondent would provide brochures for the

purpose of attracting or assisting the

Franchisee to attract corporate clients in the

field of commercial and retail real estate.

(h) The Respondent would announce or cause to be

announced the name of the Applicant in press

releases identifying that the Applicant was part

of the commercial and retail arm of the

Respondent.

(i) That by virtue of items (a) and (b) the

Respondent represented to the Applicant that in

the first year of operation that the Applicant

would earn gross commission of between $250,000

and $300,000 and in the second year $350,000 on

operating expenses of $250,000 in each year.

5. On the faith...of the representations made in (3) and

(4) above the applicant entered into the said

Franchise Agreement, leased premises and commenced

business in North Sydney trading as Century 21 Prime

Real Estate.

6. The Respondent failed to carry out the representations

made in Clause (4) or any of them.

7. The representations were made in the course of trade

and commerce and were misleading and deceptive and the

Applicant suffered damges (sic) in the following

amounts:

(a) The opportunity cost foregone in accordance with

the projected profit referred to in the document

annexed hereto and market "PG A" namely:

1992 $139,131.00

1993 $202,458.00

and

(b) Losses incurred in the financial years to the

30th June, 1992 and to the 30th June, 1993

namely:

1992 Loss $131,811.00

1993 Loss $ 79,403.00

6. The Respondent is in breach (of) Sections 52, 53 and

55A of the Trade Practices Act, 1974.

7. Annexed hereto and marked "PG B" is a copy of a letter

received by the Applicant from Messrs. Kemp Strang and

Chippendall (sic) dated 26th May, 1993.

8. Annexed hereto and marked "PG C" is a copy of a letter

from the Respondent's Solicitors B.Q. Williams and Co.

dated 8th June, 1993 to Kemp Strang and Chippendall

(sic). I am informed and believe that no reply has

been received to that letter.

9. Annexed hereto and marked "PG D" is a letter and

Creditor's Statutory Demand for payment of debt

received by the Applicant on the 3rd August, 1993."

11. The objection to paragraph 2 was on the basis of form. The franchise agreement was not tendered. However, Mr Gabler annexed to his affidavit correspondence from Messrs. Kemp Strang and Chippindall, solicitors for the respondent, in relation to the alleged debt. There was no objection to this correspondence. The first piece of correspondence was a letter dated 26 May 1993, headed "CENTURY 21 FRANCHISE" in which the solicitors stated that they acted for the respondent, whom they described as "the Franchisor, of the Franchise Agreement executed by you trading as Century 21 Prime Real Estate". The letter proceeded: "We are instructed that you are in breach of the Franchise Agreement...". The letter annexed pages 14 to 17 of a document which is clearly a franchise agreement. Neither the title page nor any pages upon which a signature appears was annexed, so that it is not possible to determine the parties to or the date of the franchise agreement referred to in the letter. However, according to the letter, pages 14 to 17 were annexed so as to draw to the attention of the applicant the termination provisions of the agreement. Further, in the statutory affidavit of Anthony Francis d'Arbon sworn 26 July 1993 served with the statutory demand, Mr d'Arbon deposes to the indebtedness of the applicant to the respondent "in the sum of $33,486.42 being service fees, advertising fund contributions, auction fees, training expenses and initial Franchise fees payable by the Respondent to the Applicant pursuant to a Franchise Agreement between the Applicant and the Respondent". Whilst none of these documents identify the franchise agreement by date, it seems that it is not seriously in dispute that there was a franchise agreement between the parties. In those circumstances, I am of the opinion that pursuant to O33 r3(a), this paragraph should be admitted.

12. Objection is taken to paragraph 3 on the grounds of relevance and form. The objection on the basis of form is well taken. The paragraph makes an assertion which involves a conclusion of fact and law. There is no other material which is before me from which it can be determined whether these assertions are or are not in dispute. Therefore, there is no basis established to enable O33 r3(a) to be applied. Accordingly, the paragraph is rejected. Objection is also taken on the ground of relevance. There is no claim for rectification in the proposed statement of claim. Nor is it alleged either in the affidavit or in the proposed amended application or statement of claim that the franchise agreement was varied or that parts of it were waived. In these circumstances it is difficult to know what this paragraph relates to. Accordingly, I also reject it as being irrelevant.

13. Paragraph 4 sets out the representations alleged to have been made which found the trade practices claims. Objection is taken to this paragraph on the basis of form. The paragraph is not in admissible form. It resembles a pleading. It is not in the first person: see O14 r2(1). No particulars are given of the circumstances in which it is alleged the representations were made. It is not known from the affidavit by whom they were made or whether they were made orally or in writing. The question which thus arises is whether this paragraph, although not in admissible form, and not complying with O14 r2(1), nonetheless complies with O71 r36B. The rule requires a statement of the "material facts" which are relied upon in support of the application, as well as an identification of the grounds upon which it is said the court should make an order setting aside the demand. This latter requirement involves a statement in an affidavit of matters other than evidence. The question therefore is whether the provision in par(a), that there must be a statement of "material facts", requires evidence of material facts in admissible form.

14. Rule 36B is contained in Division 8 of O71 which is headed "Winding Up by the Court (Part 5.4)". The Rules in this division prescribe the requirements for applications made pursuant to Pt5.4 of the Corporations Law. Rule 36(2)(a) provides that in an application for winding up under s462, the applicant must file and serve, with the application for winding up, an affidavit setting out the prescribed information which may be in, or substantially in, accordance with Form 128. Form 128 is a form of affidavit in which the deponent must state in paragraph 1 that a search was undertaken at the Australian Securities Commission in respect of the company subject of the application. The prescribed form continues:

"2. That search indicates that:

(a) the company was incorporated under (specify

relevant statute);

(b) the date of the company's incorporation was

(date of incorporation); and

(c) the general nature of the business carried on by

the Company as disclosed in its last annual

return...; and

(d) The address of the registered office or (sic)

the Company is (address)

...

3. That search indicated that the amounts of the

authorised and issued share capital of the Company,

and the classes, if any, of the issued shares are

(specify)"

15. Rule 36(2)(b) provides that a further affidavit, made not earlier than seven (7) days before the filing of the application, must be filed and served setting out:

"(i) any other material facts to be relied on by the

applicant in support of the application; and

(ii) the grounds of the application and a reference to the

provision or provisions of section 461 of the

Corporations Law upon which the applicant relies."

"The affidavit referred to in paragraph 2(b) must be made

by a person who can depose of his or her own knowledge to

at least some of the grounds relied on for the winding up

of the company."(emphasis added)

17. Order 71 r36A prescribes the form of the affidavit to be filed in support of the statutory demand. Relevantly, the rule provides:

"(1) An affidavit verifying that a debt is due, for the

purposes of subsection 459E(3) of the Corporations

Law, must:

(a) be in accordance with Form 93B;...

...

(3) Unless the Court orders to the contrary, an affidavit

under this rule must be made by a person who can

depose to his or her own knowledge of the indebtedness

of the company."

"Affidavit

(Formal parts)

(1) To my knowledge, the amount of...(amount or amounts)

is due and payable by the debtor to the creditor.

(2) (Specify details of how and when the debt was

incurred).

19. Order 71 r36C deals with applications for leave to bring a winding up application under s459P(2). That section provides that certain persons may bring an application to wind up a company on the grounds of insolvency only with the leave of the court. They are a person who is a creditor only because of a contingent or prospective debt; a contributory; a director; or the Commission. Subsection (3) provides that the court may give leave:

"if satisfied that there is a prima facie case that the

company is insolvent, but not otherwise".

"(1) An application by a person described in section

459P(2) of the Corporations Law for leave to bring a

winding up application must be made in accordance with

Form 5.

(2) An application for leave must be accompanied by an

affidavit:

(a) setting out the prescribed information; and

(b) specifying the material facts on which the

applicant relies, for the purposes of subsection

459P(3) of the Corporations Law, to establish a

prima facie case that the company is insolvent."

21. As I have said, Division 8 of the Rules provides the procedural scheme for the operation of the legislative scheme in Pt5.4 of the Corporations Law. The Rules require, in accordance with the streamlined nature of the legislation, that the various applications which may be brought under Pt5.4 be supported by evidence which is not always in traditionally admissible form, although the precise content of the individual Rules varies, reflecting the nature of the individual sections. Division 8 also contemplates a form of affidavit which does not comply with other provisions of the Rules. For example, in an application for winding up, which is an application for final relief, the Rules prescribe that the affidavit to be filed in support must be substantially in accordance with Form 128. Form 128 permits evidence which is not in strictly admissible form, and certainly not in the form which would, in the normal course, be admissible on an application for final relief. Similarly, the evidence in support of the grounds of the winding up does not have to be given by a person with personal knowledge of the whole of the grounds. This is to be contrasted with the r36A affidavit, which specifically provides that the evidence is to be given by a person with personal knowledge of the indebtedness of the company.

22. Presumably, the requirement in the case of a statutory demand is stricter because of the serious consequences potentially flowing to a company which has been served with a statutory demand. It is to be noted that there is no such requirement in r36B. Rule 36C, whilst requiring an affidavit as to "material facts", specifies the standard of proof which those facts must satisfy. It is, and of course, must be, the same standard as is specified in the section to which it relates, namely s459P(3). That standard is of a prima facie case. However, this Rule does not require that the affidavit be made by a person with personal knowledge of the "material facts" which are deposed to. It is also useful to compare the Rules in Division 8, and in particular the provisions of r36B, with the provisions of O11 r2 which provide:

"Subject to these Rules -

(a) a pleading of a party shall contain, and contain only,

a statement in a summary form of the material facts on

which he relies, but not the evidence by which those

facts are to be proved..." (my emphasis)

23. Paragraph 4 would be acceptable as a pleading under O11 r2, subject to the provision of adequate particulars, such as by whom and when the representations were made. It seems to me that, having regard to the expeditious and streamlined nature of the scheme of Pt5.4, the differing requirements of the Rules regarding the evidence which is to be filed in support of applications made pursuant to Pt5.4, and the similarity in the wording of O71 r36B and O11 r2, O71 r36B does not require an applicant to set out in admissible form the evidence by which the "material facts" are to be proved. Rather, it requires the verification of "material facts" which will enable the court to be satisfied whether, in this case, there is a serious question as to the existence of an offsetting claim. The view which I have reached as to the requirements of O71 r36B is reinforced by a consideration of the question of what evidence is required to satisfy the court of the substantiated amount of the demand, a matter to which I refer later. It follows from what I have said that, in my opinion, paragraph 4 is admissible. Whether it is sufficient for the purposes of enabling the court to have the requisite satisfaction for the purposes of s459H is a separate and independent question, to which I shall return.

24. Objection is taken to paragraph 5 on the basis of form and relevance. Counsel for the respondent conceded that if paragraph 4 was admitted, paragraph 5 should be admitted. As I have admitted paragraph 4, it follows that this paragraph is admitted. Objection is taken to paragraph 6 (first appearing) on the basis of form. Counsel for the respondent also conceded that if paragraph 4 was admitted, the court was "in a position to say there is evidence...which would justify 6". Accordingly I admit paragraph 6 (first appearing).

25. Objection is taken to paragraph 7 (first appearing). In this paragraph the applicant identifies two separate bases upon which it claims damages. The first, in paragraph 7(a) is "opportunity cost foregone" in the years 1992 and 1993. The second, in paragraph 7(b) is "losses incurred in the financial years to the 30th June, 1992 and to the 30th June, 1993." Objection is taken to paragraph 7(a) on the basis that the claim for opportunity cost foregone is not sustainable in a claim for damages under s82 of the Trade Practices Act and secondly on the strict basis of form.

26. The claim for opportunity cost foregone was supported by a document annexed to the affidavit entitled "Projected Profit Based on Commissions Advised by Century 21 Australasia Pty Ltd" (the schedule). The schedule is divided into the financial years 1992 to 1996 and contains the following entries: "Commissions Received, Expenses, Net Profit/(Loss)", and "Opportunity Cost Foregone". There is a separate entry which adds back to the "net profit/(loss)" figure the amount of directors' salaries, which are itemised within the expenses section. A line divides the 1992 and 1993 years from the years 1994 to 1996. There is no explanation of the schedule in the s459G affidavit, nor is there any statement as to or identification of the source material from which the schedule is drawn.

27. The items listed under "expenses" for the 1992 and 1993 years have the appearance of actual figures. For example, bank charges for 1992 are itemised at $1,021 and for 1993 at $816. Electricity is itemised as $517 and $831 for 1992 and 1993 respectively. Interest for 1992 is $624 and for 1993 is $1,438. The figures for "commissions received" are stated to be $250,000 in 1992 and $300,000 in 1993. These do not appear to be actual figures and probably reflect the gross commissions which the applicant alleges were represented as being the commissions which would be earned. The basis of an opportunity cost foregone calculation would also indicate that this was so. However, the matter is not attended with perfect clarity. The allegation made in paragraph 4(i) of the affidavit is of a representation that the applicant would earn gross commissions in the first year of operation of between $250,000 and $300,000. The figure of $250,000 in the "commissions received" column for the 1992 year reflects the lower of these two figures. If this is the proper interpretation of the 1992 "commissions received" entry, it might have been hoped that the item itself would be internally consistent. This does not seem to be the case, as the allegation in paragraph 4(i) of the affidavit is that there was a representation that the applicant would earn gross commission in the second year of $350,000. Notwithstanding this, the figure specified in the "commissions received" column for 1993 is $300,000. There is nothing which assists in resolving this apparent inconsistency. However, some assistance is to be gained from a Statement of Account (the statement) which was prepared by the respondent and annexed to the affidavit supporting the creditor's statutory demand. That statement, if a true reflection of commissions received, reveals gross commissions significantly lower than the figures contained in the schedule. The statement records that between October 1991 and June 1992 the applicant reported commissions on settled sales in the sum of $27,700. According to the statement, no report was furnished for February 1992. If a twelve month period is taken up to and including September 1992 (the representation alleged relating to the first year of operation, not the financial year), the total commissions on settled sales is recorded in the statement to be in the sum of $46,471. The statement records that there were nil settlements in November 1992 and there were no reports for the months of December 1992 to April 1993 inclusive, April 1993 being the last month included in the statement. Notwithstanding these omissions, it would require commissions in a monthly amount substantially in excess of any reported monthly amount, for the figure of $350,000 to be earned in the second year. I should note in passing that in the schedule, the 1993 figure for commissions received of $300,000 is increased by 10% per year for the years 1994 to 1996 inclusive. The individual items of expenses, except Directors' emoluments, are also increased although not by any consistent percentage. Notwithstanding the detail provided in the document, no claim is made in respect of the years 1994 to 1996. Having regard to the whole of this material, and notwithstanding its shortcomings, it seems to me that the only reasonable inference to be drawn is that the "commissions received" entry in the schedule represents the amount which the applicant alleges was represented in the schedule it would receive in the first and second year of operation.

28. The figures claimed in the entry "opportunity cost foregone" in each financial year have been arrived at by deducting total expenses from the figure for commissions received, so as to arrive at a net profit and then adding back director's salaries. The respondent submitted that such damages amounted to a claim for loss of profit. In other words, it was a claim for damages of the kind which are available for breach of contract, but which are not recoverable in a claim for damages under s82 of the Trade Practices Act.

29. In Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Mason, Wilson and Dawson JJ said at 11-12:

"The Act does not prescribe the measure of damages

recoverable by a plaintiff for contravention of the

provisions of Pts IV and V. Accordingly, it is for the

courts to determine what is the appropriate measure of

damages recoverable by a plaintiff who suffers loss or

damage by conduct done in contravention of the relevant

provisions. Two established measures of damages, those

applicable in contract and tort respectively, compete for

acceptance. In contract, damages are awarded with the

object of placing the plaintiff in the position in which he

would have been had the contract been performed - he is

entitled to damages for loss of bargain (expectation loss)

and damage suffered, including expenditure incurred, in

reliance on the contract (reliance loss). In tort, on the

other hand, damages are awarded with the object of placing

the plaintiff in the position in which he would have been

had the tort not been committed (similar to reliance

loss)."

"Because the object of damages in tort is to place the

plaintiff in the position in which he would have been but

for the commission of the tort, it is necessary to

determine what the plaintiff would have done had he not

relied on the representation. If that reliance has

deprived him of the opportunity of entering into a

different contract for the purchase of goods on which he

would have made a profit then he may recover that profit on

the footing that it is part of the loss which he has

suffered in consequence of altering his position under the

inducement of the representation. This may well be so if

the plaintiff can establish that he could and would have

entered into the different contract and that it would have

yielded the benefit claimed...The lost benefit is referable

to opportunities foregone by reason of reliance on the

misrepresentation. In this respect the measure of damages

in tort begins to resemble the expectation element in the

measure of damages in contract save that it is for the

plaintiff to establish that he could and would have entered

into the different contract."

31. In Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 109 ALR 247 Mason CJ, Dawson, Gaudron and McHugh JJ said at 253-4, in respect of a claim for damages arising from an alleged contravention of s52:

"In a case such as the present, it may safely be assumed

that the plaintiff is entitled to recover "a sum

representing the prejudice or disadvantage (the plaintiff)

has suffered in consequence of his altering his position

under the inducement" of the misleading conduct or "the

actual damage directly flowing from" that conduct, to take

up and adapt well-known statements of the measure of damage

applicable in an action of deceit...

Under s 82(1), as under the common law, a plaintiff can

only recover compensation for actual loss or damage

incurred, as distinct from potential or likely damage."

32. In my opinion, the opportunity cost foregone claim is not a loss which can be claimed in respect of the alleged contravention of s52. However, the applicant's proposed claim is brought not only for damages under s82, but also for breach of contract, although there is nothing in the affidavit, as read, which states "material facts" relating to a breach of contract. I have referred to the affidavit "as read" because paragraph 5 had originally stated: "On the faith and promise of the representations...". After objection was taken to this paragraph, the words "and promise" were not read. Further, the only ground of the claim stated in the affidavit is breach of the relevant provisions of the Trade Practices Act. However, the proposed statement of claim includes, in a rolled up and general way, a claim for breach of contract. Notwithstanding this, it seems to me that having regard to the totality of the material before me, I should admit paragraph 7(a), on the ground that it is a claim for damages which may be made on the proposed contract count. That still leaves the question whether as a matter of form the paragraph should be admitted, and if admitted, whether there is sufficient material to satisfy me that there is an offsetting claim which includes this amount. I shall deal with these questions later.

33. The second basis of the claim for damages is in paragraph 7(b) which alleges losses incurred of $131,811 in 1992 and $79,403 in 1993. There is no explanation of this claim in the affidavit. However, if regard is had to the expenses specified in the schedule and the commissions earned reported in the statement, there is material indicating that the applicant sustained an actual loss, which, if proved, is recoverable as damages under s82 of the Trade Practices Act and for breach of contract. It is difficult to determine the amount of that loss in each year because of difficulties with the interpretation of the schedule, and in particular whether it has been prepared on the basis of financial years ended 30 June, or whether it is premised on 12 months' operation from the commencement of trading in October 1991. However, the material does provide a basis for calculating the total loss. The statement reveals total reported commissions of $64,071.00. The schedule reveals expenses in 1992 and 1993, excluding Directors' emoluments, of approximately $208,000. As it turns out this is approximately the amount of the total alleged losses in paragraph 7(b). In my opinion, if I find that I have the required satisfaction for the purposes of s459H, this amount will be the offsetting amount. The applicant has not disputed the amount of the debt in the statutory demand. Accordingly, I am of the opinion that that is the admitted amount of the debt.

34. Objection was also taken to the admissibility of the whole of paragraph 7 on the basis of form. Counsel submitted that the way of proving such allegations was to file an expert's affidavit annexing or exhibiting the financial records of the applicant. As I have indicated earlier, this objection throws up the difficulty of the construction of O71 r36B for which counsel for the respondent contends. In my opinion, it is inconceivable that evidence such as that of an expert is required for the purposes of s459G. It must be remembered that s459G requires that the supporting affidavit be filed and served within 21 days. This time period reflects the expeditious mode which the legislature has determined is to be the manner of staying the operation of a statutory demand. That is not to say, however, that the mere assertion of the amount of loss, or the amount of the claim, however based, is sufficient to satisfy the court of the amount of the offsetting claim. One would normally expect that there would be reference to at least some primary material in the affidavit to enable the court to have the requisite satisfaction for the purposes of s459H. If there was any difficulty in the production of primary material, it would always be open to the court to exercise its discretion under O33 r3. However, in the present case, dealing with the question of admissibility for the purposes of O71 r36B, consistently with my ruling that the other challenged paragraphs of the affidavit are admissible, I am of the opinion that paragraph 7 (first appearing) is admissible.

35. The second numbered paragraph 6 is objected to on the basis that it sets out a conclusion of law. This is correct. However O71 r36B requires the identification of the grounds upon which it is said the court should make an order under s459H. In my opinion, this paragraph satisfies that part of the requirements of the rule and is admissible.

36. Having admitted the evidence, the question arises whether I am satisfied for the purposes of s459H that the company has an offsetting claim under par(b), and if so whether there is sufficient evidence to enable me to determine the substantiated amount. This raises the question of what test is to be applied for the purposes of s459H.

37. Counsel for the respondent submitted without elaboration that the applicant had failed to prove a prima facie case, and that the test for the purposes of s459H was a "prima facie case of a sort". The traditional meaning of a prima facie case is that there be evidence of every element of the claim. The proof of a prima facie case does not mean, however, that on that evidence a party will be successful on the ultimate issue: see generally May v O'Sullivan [1955] HCA 38; (1955) 92 CLR 654 at 658. It is noteworthy that even where a prima facie case is called for, the courts have taken a flexible approach depending upon the circumstances in which the test is to be applied. By way of example, it has been consistently held that to be satisfied that a prima facie case has been shown for the purposes of making an order under O8 for service out of the jurisdiction, it is relevant that the test has to be satisfied at the outset of proceedings. In those circumstances, as Heerey J said in Merpro Montassa Ltd v Conoco Specialty Products Inc [1991] FCA 70; (1991) 28 FCR 387 at 390:

"As a matter of practicality, one is here concerned with,

in Sheppard J's words, "evidence which discloses in a

little detail what the facts are..." (Stanley Kerr). It

may be therefore that a court at this stage might draw

inferences more readily in favour of an applicant, bearing

in mind, amongst other things, that the applicant will not

have had the advantage of discovery, subpoena and other

procedural aids to the making out of a prima facie case at

trial".

38. In State of Western Australia v Vetter Trittler Pty Ltd (In Liq.) (Receiver and Manager Appointed) (1991) 30 FCR 102 French J held at 110 that the requirement of a prima facie case was made out for the purposes of O8 if

"...on the material before the court, inferences are open

which if translated into findings of fact, would support

the relief claimed."

39. If the test called for by the provisions of s459H is the satisfaction of a prima facie case, the applicant must fail, as it has not provided evidence of its claim at all. It has only stated its claim in verified form. However, I am of the opinion that the section does not call for the application of a prima facie test, as that term is to be understood in its traditional sense. There is nothing in the express provisions of the section which require such a construction. Indeed, having regard to the presence of a requirement of a prima facie case in s459P, the absence of that requirement in s459H is eloquent. I am further of the opinion that O71 r36B recognises this, although the Rule cannot be determinative of the proper construction of the section. The section requires satisfaction as to the existence of an offsetting claim.

40. A test of satisfaction that a real dispute exists has been held to apply to the provisions of s371(2) of the Companies (NSW) Code (S471B Corporations Law). That section provides that the leave of the court is required before action can be commenced or proceeded with against a company in liquidation. In dealing with what is meant by the test that the court be satisfied that a real dispute exists it has been held that something less than a prima facie case is required. In Thomson v The Mulgoa Irrigation Co Limited (1893) 4 BC (NSW) 33, Manning J of the New South Wales Supreme Court held that it was sufficient that the applicant for leave "pledge his oath that he has a valid and unimpeachable document". The reference to "documents" was a reference to the mortgage relied upon in a foreclosure suit, the validity of which was under challenge.

41. In Ogilvie-Grant v East (1983) 1 ACLC 742 McPherson J set out the history of and principles governing the requirement of leave in s230(3) of the Companies Act 1961 (Qld), a predecessor to s371(2). In doing so his Honour did not propound a prima facie test, rather, he referred to requirements of "the amount and seriousness of the claim" and "the degree of complexity of the legal and factual issues involved" (at 744-745). In Vagrand Pty Limited (In Liq.) v Fielding (1993) 113 ALR 128 the court held that the test for s371(2) is akin to that now used in considering whether interlocutory relief should be granted, namely that there is a serious question to be tried.

42. Prior to the introduction of s459G, a party could seek an injunction to restrain the taking of any or any further steps to wind up a company on the basis of a demand issued pursuant to s364 of the Companies Code or s460 of the Corporations Law. One of the grounds upon which an injunction could be granted was if the company served with a demand under the section could establish the existence of a bona fide counter-claim based on substantial grounds for an amount equal to or exceeding the debt the subject of the demand. It seems clear that as the order which was being sought was an injunction, the court had to be satisfied that there was serious question to be tried in relation to the existence of the counter-claim. In other words, a like test was applied as in relation to s371(2).

43. In Ebert v The Union Trustee Co. of Australia Ltd. [1960] HCA 50; (1960) 104 CLR 346, the High Court was required to determine what was necessary to satisfy the requirement of s52(j) of the Bankruptcy Act 1924 (Cth) that a debtor have a counter-claim, set-off or cross demand against a judgment creditor sufficient to defeat a bankruptcy notice. The Court stated at 350:

"The debtor clearly must satisfy the Court that there

exists in him a counter-claim, set-off or cross demand...

The appellant cannot satisfy the Court that a cross demand

exists by showing no more than that she propounds one and

states how she suggests that she can make it out.

...Perhaps the standard may be expressed by saying that the

debtor must show that he has a prima facie case, even if

then and there he does not adduce the admissible evidence

which would make out a prima facie case before a court

trying the issues that are involved in his counter-claim,

set-off or cross demand."

44. In stating the test in these terms, the court expressly rejected as too favourable to the debtor, the test propounded by Street J in Re Duncan; Ex parte Modlin [1917] NSWStRp 77; (1917) 17 SR (NSW) 152 that the debtor need not satisfy the court that there are reasonable grounds for believing that he will establish his cross action, but only that he has a bona fide claim which he is fairly entitled to litigate. Counsel for the respondent submitted that the standard propounded in Ebert's case was to be applied in this case. In my opinion, the test in Ebert's case is not applicable to s459H. It refers to the requirement of a prima facie case. The court's findings as to the sufficiency of the evidence must be read in light of that test. In my opinion, s459H does not require proof of a prima facie case. Accordingly, Ebert does not assist in the resolution of this case.

45. Sections 459G and 459H have now been considered in a number of cases. In Morris Catering (Australia) Pty Limited (Thomas J, Queensland Supreme Court, 28 September 1993, unreported), Thomas J stated at 7-8:

"There is little doubt that Division 3 is intended to be a

complete code which prescribes a formula that requires the

Court to assess the position between the parties, and

preserve demands where it can be seen that there is no

genuine dispute and no sufficient genuine offsetting claim.

That is not to say that the Court will examine the merits

or settle the dispute. The specified limits of the Court's

examination are the ascertainment of whether there is a

"genuine dispute" and whether there is a "genuine claim".

It is often possible to discern the spurious, and to

identify mere bluster or assertion. But beyond a

perception of genuineness (or the lack of it) the Court has

no function. It is not helpful to perceive that one party

is more likely than the other to succeed, or that the

eventual state of the account between the parties is more

likely to be one result than another.

The essential task is relatively simple - to identify the

genuine level of a claim (not the likely result of it) and

to identify the genuine level of an offsetting claim (not

the likely result of it).

46. In Mibor Investments Pty. Ltd v Commonwealth Bank of Australia (Hayne J, Supreme Court of Victoria, 14 September 1993, unreported) Hayne J noted that prior to the enactment of Pt5.4, the court would not, as a matter of discretion, make a winding up order where there was a bona fide dispute as to the existence of a debt. He referred to McPherson, The Law of Company Liquidation (3rd Ed) at 63, which states that:

"...The principal reason (for the rule) is that a winding-up

application is not to be used for the improper purpose

of compelling a solvent company to pay a disputed debt

which would certainly be discharged as soon as the

company's liability was clearly shown to exist."

47. His Honour then stated (at 9) that having regard to the provisions of Pt 5.4 including the summary procedure prescribed:

"...it is not expected that the Court will embark upon any

extended inquiry in order to determine whether there is a

genuine dispute between the parties and certainly will not

attempt to weigh the merits of that dispute. All that the

legislation requires is that the Court conclude that there

is a dispute and that it is a genuine dispute."

48. It is noteworthy that the references to the requirement of the existence of a "genuine dispute" or "genuine claim" are similar to the test propounded by Street J in Re Duncan; Ex parte Modlin (supra)

49. In my opinion the test to be applied for the purposes of s459H is whether the court is satisfied that there is a serious question to be tried that the applicant has an offsetting claim.

50. The next question which arises therefore is whether, on the material before me, I am satisfied that the applicant has an offsetting claim. In determining a s459G application, the court is entitled to look at evidence other than that contained in the s459G affidavit: Topfelt Pty Limited v State Bank of New South Wales Ltd (Lockhart J, 7 December 1993, unreported). The question of the sufficiency of the material before the court arose in Mibor Investments Pty. Ltd v Commonwealth Bank of Australia (supra). In that case there were three applicants. In the case of the applicant Mideb Nominees Pty Ltd (Mideb), the affidavit evidence comprised an affidavit of the solicitor in which he deposed to the history of litigation between the applicant and the Bank (the litigation), which litigation involved the monies claimed in the statutory demand; a further affidavit of the solicitor stating in general terms the kinds of defence he anticipated the applicant would make in the litigation; and a third affidavit by the solicitor annexing the applicant's defence in the litigation and stating on information and belief that he had been told by the principal of Mideb that he had read the defence and counterclaim and that "insofar as the facts and matters therein refer or relate to Mideb and himself they are true and correct". During the course of the hearing a facsimile copy of an affidavit sworn by the principal of Mideb was, by consent, admitted into evidence. In that "affidavit" the principal deposed to the truth and correctness of the facts and matters set out in the defence and counterclaim which were within his knowledge. Hayne J held that he was satisfied on this material that there was a genuine dispute as to the existence of the debt. His Honour rejected a submission that in so determining, he was confined to the affidavit material filed within the 21 day period prescribed by s459G. However, he went on to state, at 11:

"...even if I were confined to consideration of the

affidavits filed with the applications to set aside the

demands, I consider that it is shown on that material that

there is a genuine dispute between these parties in each

case."

51. That material was limited to the first affidavit of the solicitor, which referred only to the history of the litigation between the parties in relation to the subject matter of the alleged debt. It goes without saying that every case must be determined on its own facts. In the present case, there is no background as was the case in Mideb. However, there is before me an application for leave to amend the application and to file a statement of claim. In large measure, although not precisely so, the proposed statement of claim follows the allegations in the s459G affidavit. If that leave is granted, the applicant will have commenced litigation in the court, with all the consequences that will flow from having done so. Not the least of those consequences is that of costs. It cannot be assumed that the step of seeking to commence litigation as has been done here, has been taken lightly. Therefore, this circumstance is of some weight in determining the question of whether I am satisfied that there is a genuine offsetting claim.

52. Counsel for the respondent tendered a business proposal/application for franchise submitted to the respondent on behalf of the applicant and two letters from the applicant to the respondent. The business proposal contained a projected income and cash flow analysis based on a first year gross income of $218,000. Counsel submitted that this indicated that even if the representations alleged were proved, there was no reliance, so that the case under s52 must fail. However, that analysis was done on a "worst case scenario" basis. For that reason alone, this material cannot prove conclusively that there was no reliance so as to defeat the s52 claim. It merely demonstrates that there will undoubtedly be a dispute as to this element of the case. Further, the document is dated 16 May 1991. The proposed statement of claim particularises that the alleged representations were made between June and September 1991. There is also a statement in the franchise application portion of the document that the applicant warranted that the statements contained therein were true and that the respondents could rely on that fact in assessing the application. However, that statement is not likely to have any relevance to a claim that after the making of the application, and before entry into the agreement, representations were made which, it is alleged, contravene s52.

53. The correspondence comprised two letters. The first, dated 16 December 1992 was from the applicant to the respondent in relation to an account from the respondent for anticipated franchise fees. The applicant referred to its practice of paying those fees when commissions were in fact received. The second letter was dated 3 May 1993 and again was from the applicant to the respondent advising the respondent of the "Business at Hand" and stating that whilst it understood the respondent's concern as to the viability of the business, it was confident the business would survive. No complaint was made in either letter that the representations allegedly made had not been fulfilled. This undoubtedly will be a significant matter to be canvassed at the hearing. However, in my opinion, the fact that the failure to complain at an earlier point of time, including in those letters, of itself is not sufficient to demonstrate that the claim made by the applicant is not genuine.

54. There is another factor of significance. The respondent did not seek to cross-examine the deponent on his affidavit. Therefore, although there is nothing in the affidavit to enable me to determine whether there were conversations or correspondence between the parties which could give rise to the allegations in paragraph 4 of the affidavit, the respondent did not seek by way of cross-examination to contest the allegation that such representations were made. A further significant factor is that at the time of the hearing of the s459G application, the respondent had a copy of the proposed statement of claim which particularised that the representations alleged were made in conversations at meetings held between June and September 1991 at the Sydney offices of the respondent between Paul Gabler, the deponent of the affidavit, and William Sare on behalf of the applicant and Michael Gordon and Michael Gethen on behalf of the respondent. Even after having been provided with this additional material, counsel for the respondent did not seek to cross-examine. Given all of these circumstances, I am satisfied, although by the barest of margins, that the applicant has an offsetting claim. I am also satisfied that the material in the schedule and the statement, which I have analysed earlier, is sufficient to satisfy me of the offsetting amount. Having regard to the offsetting amount and the amount of the admitted debt, the substantiated amount is less than the statutory minimum. Accordingly, I must set aside the demand: s459K.

55. Notwithstanding that I have come to this conclusion on the evidence filed, I consider that a word of warning is warranted in relation to the affidavit material which should be filed in support of an application under s459G, lest the affidavit here be adopted as a precedent in such applications. This case must be considered as one where the evidence was sufficient by the barest of margins to satisfy the test under s459H, and it was fortuitous that there was other evidence which was available to support the s459G affidavit.

56. There remains to be dealt with the application for leave to file an amended application and statement of claim. I am of the opinion that leave should be granted. An application may include in it more than one claim for relief. However, it is not appropriate that both the s459G application and the trade practices and contract claims be dealt with at the same time. To adopt that course would be to make nonsense of the intention behind the statutory scheme. Having regard to the manner in which the matter proceeded before me, it is necessary to formalise the conduct of the proceedings. The appropriate way to do this is to order pursuant to O29 r2 that there be separate determination of the s459G application, which I have now separately determined.

1. That leave be granted to the applicant to file an amended

application and a statement of claim.

2. Order that the question of whether the statutory demand

served on the applicant should be set aside pursuant to the

provisions of s459G of the Corporations Law be determined

separately from the claims for damages in the amended

application.

3. On the determination of the separate question, order that

the statutory demand served upon the applicant on or about

3 August 1993 be set aside.

4. That the respondent pay the applicant's costs in respect of

the determination of the separate issue.