Seaham Air Pty Ltd v Australian Aerospace Ltd

DECISION : 1. Order that the defendant's statutory demand for the payment of debt dated 27 April 2006 addressed to the plaintiff be set aside; 2. order the defendant pay the plaintiff's costs of the proceedings; 3. The exhibits may be returned after 28 days.

CATCHWORDS : CORPORATIONS - Winding up - Winding up in insolvency - Statutory demand - Application to set aside statutory demand - Genuine dispute as to indebtedness - Offsetting and other like claims - Defendant served plaintiff with statutory demand - No dispute between parties that debt the subject of statutory demand presently due and payable - Plaintiff alleged offsetting claim for damages against defendant in amount substantially exceeding debt claimed by defendant - s 459H Corporations Act 2001 (Cth) considered - Whether plaintiff precluded by estoppel or waiver from reliance on offsetting claim - Where plaintiff not precluded from raising offsetting claim - Application granted.

LEGISLATION CITED : Corporations Act 2001 (Cth) Trade Practices Act 1974 (Cth)

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 783 Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 Mideb Nominees Pty Ltd v Begonia Pty Ltd (1994) 15 ACSR 70 CASES CITED : Advance Ship Design Pty Ltd v DJ Ryan t/as Davies Collison Cave & Anor (1995) 16 ACSR 129 Maniotis v Valimi Pty Ltd (2002) 4 VR 386 John Shearer Ltd v GEHL Company (1995) 60 FCR 136 Legione v Hately (1983) 152 CLR 406 Commonwealth v Verwayen (1990) 170 CLR 394 Polaroid Australia Pty Limited v Minicomp Pty Ltd (Santow J, 15 December 1997, unreported)

Seaham Air Pty Ltd PARTIES : v Australian Aerospace Ltd

COUNSEL : Plaintiff: M Luitingh Defendant: M Condon

SOLICITORS : Plaintiff: SWAAB Attorneys Defendant: Norton White

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2813/06 Seaham Air Pty Ltd v Australian Aerospace Ltd JUDGMENT 1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The statutory demand claims a debt due by the plaintiff to the defendant of $51,063.32. The debt relates to repairs or maintenance work carried out by the defendant for the plaintiff on the plaintiff's helicopter. 2 There is no dispute that the debt the subject of the statutory demand is presently due and payable. The plaintiff says it has an offsetting claim for damages against the defendant in an amount substantially exceeding the debt claimed. The defendant says that the plaintiff is precluded by estoppel or waiver from relying on its offsetting claim. Counsel for the defendant also submitted that, by the plaintiff having agreed unconditionally to pay the debt, the plaintiff's offsetting claim is not one which is presently enforceable against the defendant. 3 The defendant had sold the helicopter in question to the plaintiff before 2001. On 1 March 2002, the helicopter was damaged in an accident on take-off. The plaintiff has brought proceedings in this court for damages for breach of contract, and in tort, and for breach of s 52 of the Trade Practices Act 1974 (Cth). 4 There is no dispute that the claim it has brought for damages is a genuine claim it has against the defendant within the meaning of the authorities under s 459H of the Corporations Act (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743; Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560). 5 The damages claimed by the plaintiff vastly exceed the amount of the debt. They have been quantified in this application at over $836,000. 6 Following the accident, the defendant carried out repairs to the helicopter. It claimed a lien for the repairs. That claim was resolved on or about 18 February 2004 and the helicopter was released to the plaintiff. The defendant's present claim for repairs and maintenance, which is the subject of the statutory demand, is substantially for work done before the accident, or for work done after the release of the helicopter in 2004. 7 On 13 March 2006, there was a meeting between the parties. Prior to that meeting, a representative of the plaintiff, Mr Wayne Fussell, told a Mr Brian Fletcher, of the defendant, on two occasions that "I have no problem paying invoices for repairs and maintenance not related to the first aircraft accident." 8 The undisputed evidence is that at the meeting of 14 March 2006, Mr Fussell agreed to pay the invoices for work performed from 6 February 2004, and to pay for certain upgrade work done to the helicopter during the course of repairs following the accident, but which was unrelated to the accident. He also agreed to pay an invoice dated 22 January 2002. 9 Following a meeting on 7 April 2006, the plaintiff's solicitors wrote to the defendant's solicitors and said: " In respect of the maintenance work referred to in your facsimile as the number 3, we are instructed that our client agrees to pay this amount of $32,862.24. We are instructed that our client will forward a cheque to your client within the next seven days in respect of this amount. "

10 Prior to 9 June 2006, the plaintiff paid $16,183.57, being, apparently, part of the amount claimed in invoices totalling $32,862.24. The defendant says that had it had any indication from the plaintiff that the plaintiff would not pay for the cost of the maintenance or repair work, it would not have released the aircraft until the amounts due for that work had been paid. 11 The statutory demand claims payment of more than the $32,862.24 which the plaintiff had agreed to pay. However, no ground for disputing the balance of the debt claimed in the statutory demand was raised in the plaintiff's supporting affidavit. The plaintiff did not attempt to raise any such ground in submissions. 12 Section 459H of the Corporations Act provides: "459H Determination of application where there is a dispute or offsetting claim (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:

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." 13 There is no dispute that a company can rely upon an offsetting claim which it has against the respondent, even though the amount of the claim could not be set off against the debt the subject of the statutory demand. There is no dispute that a claim for damages can be an offsetting claim. There is no dispute that the defendant's claim for damages against the plaintiff is genuine, nor that the causes of action on which the plaintiff relies have accrued (compare Mideb Nominees Pty Ltd v Begonia Pty Ltd (1994) 15 ACSR 70 at 91). Nor is it disputed that the amount of the claim exceeds the amount of the defendant's debt. 14 Mr Condon of counsel, who appeared for the defendant, referred to a number of authorities which deal with the question of whether an offsetting claim should be characterised as one which the company "has" against the respondent. 15 In Mideb Nominees Pty Ltd v Begonia Pty Ltd, Senior Master Mahony held that a company's claim under an indemnity was contingent, that it had no accrued cause of action against the respondent, and its cause of action might never accrue. Accordingly, it did not have a present offsetting claim. 16 In Advance Ship Design Pty Ltd v DJ Ryan t/as Davies Collison Cave & Anor (1995) 16 ACSR 129, Master McLaughlin (as his Honour then was) held that the company did not have a claim against the respondent where it had filed process claiming damages, but where its only existing claim was for nominal damages, or at least for very small damages. Its claim for any greater damages was dependent on future events. Its offsetting claim was limited to the amount of damages for which it then had a cause of action. 17 In Maniotis v Valimi Pty Ltd (2002) 4 VR 386, the Victorian Court of Appeal held that a company had a present offsetting claim against a respondent for damages, notwithstanding its claim was temporarily stayed. 18 None of these cases is of assistance on the present question. There is no doubt that the plaintiff has an existing genuine claim for damages against the defendant on causes of action which, if established at trial, have already accrued. For the plaintiff to satisfy the requirements of s 459H of the Corporations Act by showing that it has an offsetting claim, the question is not whether it would be precluded from relying on that claim as a set-off against the defendant's debt. The question is simply whether the company presently has that claim. It did not promise not to pursue its claim for damages. 19 Both the terms of the definition of "offsetting claim" in s 459H(5) and authority (John Shearer Ltd v GEHL Company (1995) 60 FCR 136), show that offsetting claims include cross-demands that do not amount to a set-off. Accordingly, unless the plaintiff is precluded by estoppel or waiver from relying on s 459H, the plaintiff is entitled to an order setting aside the demand. That is because the amount of the offsetting claim exceeds the admitted amount of the debt. 20 The alleged waiver or estoppel is that the plaintiff is precluded from asserting its claim for damages as an offsetting claim as a basis for setting aside the statutory demand. It is said to arise from the plaintiff's representation that it would pay invoices which are not in dispute. It was submitted that where a party represents that it will pay a debt, the party is saying that it will pay the debt without set-off or deduction. 21 I am prepared to accept that the representations made by the plaintiff, which were relied upon by the defendant in its releasing the helicopter, may preclude the plaintiff from asserting any set-off against a claim for the debt. However, the plaintiff does not assert such a set-off. 22 For the representations made by Mr Fussell to give rise to an estoppel, they must be clear and unambiguous (Legione v Hately (1983) 152 CLR 406 at 435-437). 23 Assuming a claim based on waiver, as distinct from estoppel, is available to preclude the plaintiff from invoking a ground for setting aside a statutory demand, there would have to be shown an unequivocal renunciation by the plaintiff of that right (Commonwealth v Verwayen (1990) 170 CLR 394 at 472 to 474 and 482). 24 The discussions and correspondence between the parties did not address the issue of whether the defendant could serve a statutory demand if its invoices were not paid, or, if the defendant did so, whether the plaintiff could rely on its offsetting claim. The Corporations Act allows for the presumption of insolvency to be rebutted by an offsetting claim which does not impeach the respondent's debt. The fact that the plaintiff admits the debt, and has promised to pay it, is irrelevant to the existence of an offsetting claim within the meaning of s 459H which can be set against the admitted debt under the section (not set off against the debt on an action for recovery of the debt). 25 There can be no implication from the plaintiff's promise to pay that the plaintiff would not rely on its cause of damages in answer to a statutory demand. Even if, as a matter of principle, an estoppel or waiver could arise by inference or implication from what is expressly stated, no such inference or implication arises in this case to preclude the plaintiff from relying on its offsetting claim. 26 For these reasons, the plaintiff is not precluded from raising its offsetting claim as a ground for setting aside the statutory demand. 27 Accordingly, I order that the defendant's statutory demand for the payment of debt dated 27 April 2006 addressed to the plaintiff be set aside. I order the defendant pay the plaintiff's costs of the proceedings. The exhibits may be returned after 28 days.

[Counsel addressed on costs.] 28 In relation to costs, the plaintiff seeks an order that the defendants should pay its costs on an indemnity basis. The defendant submits that there should be no order as to costs. The plaintiff relies upon a letter of 10 May 2006 in which its solicitors observed that the plaintiff's claim in the existing Supreme Court proceedings far exceeded the amount of debt in the statutory demand. They sought confirmation that the statutory demand would be withdrawn. That confirmation was not given. The plaintiff's solicitors replied curtly by denying that the defendant had any relevant offsetting claim. 29 I was referred to the decision of Santow J in the matter of Polaroid Australia Pty Limited v Minicomp Pty Ltd (15 December 1997, unreported) in which his Honour observed that insufficient appreciation was given to the basic principles that statutory notices should not be used to force payment of genuinely contested debts; that mini-trials of such disputes simply added to costs; and that it may be appropriate for indemnity costs orders to be made to ensure that the profession and the public had a sufficient appreciation of the relevant principles. 30 This was not a case where there was a dispute as to the defendant's debt. Nor did the defendant contest the genuineness of the plaintiff's claim for damages. The issue, rather, was as to the relevance of the plaintiff's promise to pay part of the claimed debt to its entitlement to rely upon the offsetting claim. 31 The defendant's argument in that regard was unsuccessful, but I do not think that the defendant acted unreasonably in advancing the grounds which it did. Moreover, prior to the issue of the statutory demand, the plaintiff did not pay the amounts which it had previously agreed to pay. Even after service of the statutory demand, it appears that it did not pay all that it had agreed to pay. The demand was for more than the amount which the plaintiff had agreed to pay. Nonetheless, there is at least a possibility that no demand would have been issued and the proceedings would not have been necessary had the plaintiff done what it had agreed to do. 32 As I understand it, it was on this basis that the defendant resists an order that it should pay the plaintiff's costs. However, the fact remains that the defendant has been unsuccessful in resisting the availability of the plaintiff's offsetting claim as a ground for setting aside the statutory demand. 33 In my view, costs should follow the event in the ordinary way. Accordingly, I decline to vary my order that the defendant pay the plaintiff's costs of the proceedings.

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