[2005] NSWSC 638
Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212
[2017] NSWCA 300
Crowe-Maxwell v Frost (2016) 91 NSWLR 414
[2015] NSWSC 1607
In the matter of XSRE Pty Ltd [2011] NSWSC 1147
Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 297 ALR 372
Source
Original judgment source is linked above.
Catchwords
[2013] NSWCA 344
Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd (2005) 23 ACLC 1266[2005] NSWSC 638
Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212[2017] NSWCA 300
Crowe-Maxwell v Frost (2016) 91 NSWLR 414[2015] NSWSC 1607
In the matter of XSRE Pty Ltd [2011] NSWSC 1147
Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 297 ALR 372[2012] NSWCA 365
Lee v Mallam (1910) 10 SR (NSW) 876
Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495
The MCF Group Pty Ltd v G.J.B. Legal Pty Ltd trading as Byles Anjos Lawyers [2019] NSWSC 333 | Case summary | Zoe
[2016] FCAFC 154
Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) (2014) WAR 483
Judgment (11 paragraphs)
[1]
These proceedings
In June 2018, the Firm issued a statutory demand which the parties agree was served on 4 July 2018. On 23 July 2018, MCF filed an originating process seeking to set aside the statutory demand.
On 25 July 2018, MCF filed a motion in the Liverpool proceedings to set aside the default judgment. On 2 August 2018, the motion was dismissed with costs. On 13 September 2018, MCF filed a second motion to set aside the default judgment. On 5 October 2018, the second motion was dismissed with costs.
On 19 December 2018, MCF filed a statement of claim against the Firm claiming damages for professional negligence in respect of the Firm's retainer in the Sydney proceedings and the Brisbane proceedings (professional negligence proceedings), the details of which will be considered shortly.
[2]
"An affidavit supporting the application"
Section 459G(2) provides that an application to set aside a statutory demand may only be made within 21 days after the demand is served, and section 459G(3)(a) provides:
An application is made in accordance with this section only if, within those 21 days … an affidavit supporting the application is filed with the Court …
An applicant may supplement an initial affidavit in support of an application to set aside a statutory demand by leading further evidence relevant to matters raised by the initial affidavit, but cannot rely on any ground for setting aside that demand which was not raised in the affidavit filed within that 21 day limit: Austin and Black, Australian Corporations Legislation at 589-90 (2019 edition, LexisNexis Butterworths) citing Process Machinery Aust v ACN 057 260 590 [2002] NSWSC 45 at [21]-[22]; Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130; Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [7]; Re Attard (2013) 96 ACSR 581. This is referred to as the "Graywinter principle", from Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452.
As Ward J explained in Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2011) 87 ACSR 1; NSWSC 1343 at [36] (citations omitted):
There need not be an explicit articulation in the supporting affidavit of the ground(s) on which the application to set aside is to be raised, provided the ground is raised expressly or by necessary or a reasonably available inference.
For example, in Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) (2014) WAR 483; [2014] WASCA 132 at [63], a reasonably bare affidavit supporting the application was nonetheless found to be adequate as it annexed documentation and thereby disclosed the legal basis upon which the offsetting claim was being asserted.
More recently, in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330, Barrett AJA, with whom McColl and Meagher JJA agreed, confirmed at [10]:
The grounds on which the company disputes the alleged debt must appear from the affidavit filed by it within a relatively short period allowed by section 459G(2).
His Honour cited Graywinter, Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 297 ALR 372; [2012] NSWCA 365; MNWA Pty Ltd v Deputy Commissioner of Taxation (2016) 250 FCR 381; [2016] FCAFC 154 at [93]-[97] and Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liquidation) [2015] VSCA 330.
In the last mentioned case, Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq), the authorities in respect of the extent to which an applicant can rely upon supplementary affidavits filed after 21 day period are perhaps best collated, at [52]-[65], and are well illustrated by the facts of that case. The Court noted the following learned observations:
1. In Tuta Health Care Pty Ltd v Nipro Asia Pty Ltd [2005] NSWSC 644 Campbell J rejected an affidavit filed after the 21 day period which founded a submission "which could never been gleaned from the supporting affidavit" (at [10]) and noted that the supporting affidavit must fairly notify the respondent of the evidentiary basis for a submission that the statutory demand should be set aside on the particular ground on which the applicant seeks to rely: at [13].
2. In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143, Barrett J said that the correct approach was to treat a ground as having been raised within the 21 day period "if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed document the content of which 'reveals' it": at [25].
3. In UGL Process Solutions Pty Ltd [2012] NSWSC 1256, Black J concluded that the Graywinter principle has been qualified to the extent that the initial affidavit will sufficiently raise a dispute if that ground is raised by a necessary or reasonable inference, including from documents exhibited to the initial affidavit: at [30].
4. Finally, in In the matter of Australia Zhongfu Oil Gas Resources Pty Ltd [2012] NSWSC 1208, Brereton J concluded that it was sufficient if the material facts on which the applicant intended to rely were discernible from the supporting affidavit and / or annexures and exhibits to it. It was important that the affidavit convey some fair notice to the respondent of the case: at [31].
The facts in Malec Holdings are illustrative. Malec operated a transport company and had a fleet of trucks. Scotts supplied Malec with fuel. Scotts served a statutory demand in the amount of $603,367.94 for fuel sold and delivered. Malec filed three affidavits in support of an application to set aside the statutory demand on the basis of a genuine dispute or an offsetting claim, only the first of which was within the 21 day period.
The first affidavit raised the issue of overcharging on the ground that Scotts charged for fuel which it could not have delivered on specific days where the total fuel allegedly delivered exceeded the safe fuel capacity of the tankard. The ground was sufficient to raise an offsetting claim for charges related to those deliveries.
The third affidavit sought to raise an issue of overcharging, not on the basis of fuel that was delivered to Malec on any particular days, but on the basis of fuel that was used by Malec between 1 January 2012 and 3 June 2014. The third affidavit alleged that the fuel which Malec had used was vastly less than the quantity for which it had been charged. The Court agreed that the applicant was not entitled to rely on the allegation contained in the third affidavit as it constituted a different ground for the purposes of the Graywinter principle, being of a different character or type from the offsetting claim in the first affidavit. At [105]:
Although both grounds raised the broad issue of overcharging, the Graywinter principle is not satisfied simply because the ground relied upon in the supporting affidavit and the ground sought to be raised in affidavit filed after the expiration of the 21 day period deal with the same broad issues. Thus, in Energy Equity Corporation Pty Ltd v Sinedie Pty Ltd (2001) 161 FLR 179, an allegation that the respondent had provided negligent advice relating to the purchase of a gas plant in India was held to raise a different ground from an allegation that the respondent had provided negligent advice in relation to the obtaining of a loan. The fact that both allegations raise the issue of negligence was insufficient to satisfy the Graywinter principle.
Further, there was nothing in the first affidavit that was capable of conveying to Scotts that Malec would seek to raise an offsetting claim based on fuel decanted from the tankard by Malec's drivers as distinct from the impossibility of Scotts' drivers having filled the tankard by more than its safe fuel capacity on any particular day. Malec has been followed numerous times at first instance and in Courts of Appeal in Goconnect Ltd v Sino Strategic International Ltd (in liq) [2016] VSCA 315 at [40],Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [17] and, as noted above, in Ligon 158 Pty Ltd.
[3]
First affidavit in support of the application
In this case, the application to set aside the statutory demand was supported by an affidavit sworn by the new director of MCF, Mr Selby, who deposed on 23 July 2018:
[11] The Respondents had the conduct of a number of matters for the Applicant including [the Sydney proceedings]. As a consequence of what I believe to be the negligence and/or misconduct of Byles Anjos Lawyers, the plaintiff in [the Sydney proceedings] obtained a judgment in circumstances where there were related proceedings ongoing in Queensland and Byles Anjos Lawyers failed to obtain a stay of [the Sydney proceedings] for a transfer of those proceedings to [the Brisbane proceedings]. The Applicant is suffering prejudice by way of Byles Anjos Lawyers' conduct.
[12] As a consequence of Byles Anjos Lawyers' ineptitude, over $200,000 that the Applicant has spent on legal fees in [the Brisbane proceedings] together with the claim itself of approximately $600,000 may not be able to be pursued. A true copy of the court documents from [the Sydney proceedings] and [the Brisbane proceedings] in the possession of the Applicant are annexed hereto and marked as 'SS-5'.
The annexure "SS-5" comprised the 260 pages to which I have earlier referred.
There is no suggestion, in the material annexed to Mr Selby's affidavit, of any "misconduct" by the Firm and the basis for the belief which Mr Selby says he held is not set out in his affidavit. Nor was it correct to say that, at the time consent orders were made in the Sydney proceedings, that the Brisbane proceedings "were ongoing". The Brisbane proceedings were dormant and had to be re-activated.
The ground upon which the offsetting claim was being asserted was that, by reason of the Firm's negligence, Fleetcon obtained judgment in the Sydney proceedings. In short, the Firm failed to 'stave off' entry of judgment, or enforcement of judgment, by staying or transferring the Sydney proceedings to Brisbane. MCF thereby suffered a potential loss, being an inability to pursue the Brisbane proceedings. If the loss was realised, MCF would lose the benefit of the legal fees expended thus far in the Brisbane proceedings together with the damages it may otherwise be awarded on its causes of action pleaded in those proceedings.
There are two problems with such an offsetting claim. First, MCF was already obliged to pay Fleetcon the garnisheed monies and interest by reason of the consent judgment entered in the Parramatta proceedings on 12 October 2015. Second, the Brisbane proceedings remain on foot, although apparently inactive. There is nothing to stop MCF re-activating those proceedings to recover the damages sought from the defendants and, if successful, its costs of the proceedings less the costs orders which have already been made in the defendants' favour. Mr Selby does not say why MCF cannot do this, nor do the documents annexed to his affidavit shed any light on any reason why MCF cannot do this.
[4]
Further affidavits in support of application
On 25 October 2018, Michael Coleman swore an affidavit annexing a statement of claim which he had instructed MCF's solicitors to file in the District Court against the Firm. The statement of claim was not signed, verified or certified. Beyond annexing the statement of claim, Mr Coleman said nothing about its contents.
On 27 February 2019, MCF's new solicitor, Mr Spedding, swore an affidavit annexing the statement of claim as filed, together with a request for further and better particulars, and the particulars provided. Mr Spedding certified the pleading as he was required to do under the Legal Profession Uniform Law Application Act 2014 (NSW). The statement of claim was verified by Mr Selby, who deposed that he believed that the allegations of fact in the statement of claim were true. As Mr Selby became a director of MCF on 31 January 2018, he did not have personal knowledge of the matters referred to in the pleading, nor did he refer to the source of his belief but simply that he held one.
[5]
Allegations in respect of the Sydney proceedings
The cross-referencing within the statement of claim contains some errors which were remedied by a request for further and better particulars, and the answer to that request. MCF says that on 28 March 2017, the Firm advised MCF in relation to the Sydney proceedings:
i. that it was not possible for MCF Group to cross-claim against a party that was not the plaintiff in the proceeding and that a cross-claim 'by its very nature' can only be made against the Plaintiff;
ii. that the court was likely to give summary judgment in favour of Fleetcon concerning its claim relating to the Garnishee Moneys, but that it was also likely to stay the enforcement of that judgment until the Brisbane proceedings were determined; and
iii. that MCF Group should consent to judgment in Fleetcon's favour in the Sydney Proceedings and then to seek a stay of execution of that judgment until the conclusion of the Brisbane Proceedings or a transfer of the Sydney Proceedings (after judgment) to the District Court of Queensland.
The statement of claim refers to an email from the Firm to Michael Coleman of 22 March 2017, a letter from counsel to the Firm of 24 March 2017, an email from the Firm to Michael Coleman of 28 March 2017 said to contain the advice and various conversations between Michael Coleman and the Firm. None of the documents referred to are in evidence in these proceedings.
MCF says it accepted the Firm's advice in consenting to a judgment being entered in the Sydney proceedings and filing an application to stay the consent judgment. MCF says that the Firm's advice was wrong and not in MCF's interest because, it is said, a consent judgment would crystallise a judgment debt to Fleetcon in respect of the garnisheed monies and, once entered, a stay of the judgment would depend upon the uncertainty of the Court exercising its discretion in MCF's favour. Further, it is said that it might have prejudiced MCF's ability to maintain its claim against Fleetcon in the Brisbane proceedings because of the judgment's potential to create a res judicata, issue estoppel or Anshun estoppel. The basis of the latter contention is unclear to me.
It is said that the Firm should have advised MCF instead.
i. to maintain and advance in the Sydney proceedings a counterclaim against Fleetcon, based on MCF Group's allegations against Fleetcon in the Brisbane proceedings, and a defence by way of set-off.
ii. to seek a stay of those proceedings (while defending them) until the conclusion of the Brisbane Proceedings; and
iii. upon being instructed in the Sydney Proceedings, to seek:
1. to have the Brisbane Proceedings transferred to the District Court of New South Wales, alternatively, the Local Court of New South Wales and consolidated with the Sydney Proceedings.
2. alternatively, to discontinue the Brisbane Proceedings and pursue its claims against one or more of the defendants in the Brisbane Proceedings by way of cross-claim in the Sydney Proceeding or, alternatively, by way of new proceedings in the District Court of New South Wales.
[6]
Allegations in respect of the Brisbane proceedings
MCF says that on 13 April 2017, MCF instructed the Firm to apply for a transfer of the Brisbane proceedings to the District Court of New South Wales in order to expedite their progress. These instructions were conveyed in a telephone conversation between Michael Coleman and Mr Byles, who was instructed to do whatever was necessary to transfer the Brisbane proceedings to the New South Wales District Court. MCF alleges that the Firm breached its duties under its retainer to act for MCF in the Brisbane proceedings when it:
a. failed, within a reasonable time of being so instructed or at all, to take all necessary and reasonable steps to seek to have the Brisbane Proceedings transferred to the District Court of New South Wales; and
b. otherwise failed, throughout the time that it was retained in relation to the Brisbane proceedings, to take all necessary and reasonable steps to progress the Brisbane Proceedings towards a hearing or a resolution.
It is said that the Firm's breach of duty under its retainer in respect of the Brisbane proceedings caused the consent judgment to be entered in the Sydney proceedings on 11 May 2017. This contradicts MCF's allegations that the Firm breached its retainer in respect of the Sydney proceedings by giving wrong advice on which MCF says it relied in agreeing to the consent judgment.
Further, it is said in the alternative that the Firm's breach of its duties in respect of the Brisbane proceedings caused the Local Court in the Sydney proceedings to dismiss the stay application on 5 October 2017 "by reason of the lack of progress in the Brisbane proceedings caused by the breach of the Firm's duty." The stay of execution of the consent judgment in the Sydney proceedings thereby lapsed "with the result that MCF incurred a judgment debt to Fleetcon in the amount of $102,347.95 (including interest) and that judgment debt crystallised."
[7]
Alleged loss and damage
MCF claims that by reason of the Firm's breach of duty, MCF has suffered loss and damage particularised as follows:
i. Moneys paid by MCF Group to GJB Legal pursuant to invoices issued by GJB Legal as follows:
Date Amount
8.2.17 $ 4,034.36
3.4.17 $ 18,853.56
24.8.17 $ 13,468.27
$ 36,356.19
ii. Amount claimed by MCF Group to remain due and payable to it by MCF Group: $19,186.84
iii. Amount of the Sydney Proceedings judgment:
Judgment sum $ 92,090.60
Interest $ 10,257.35
$102,347.95
iv. Amount of Fleetcon's assessed costs in the Sydney Proceedings payable by MCF Group: $13,740.00
v. Total of (i) and (iv) above: $171,630.98
The particulars of loss and damage do not include any loss referable to an inability to prosecute the Brisbane proceedings, unlike Mr Selby's affidavit in support of the application. The invoices issued by the Firm on 3 April 2017, 8 April 2017 and 24 August 2017 are not in evidence, nor do the particulars in the statement of claim indicate what those invoices relate to. Nor are the invoices which formed the basis of the statutory demand, although I know from the statement of claim filed by the Firm in the Liverpool proceedings that the invoices were rendered in respect of legal work done by the Firm in respect of the Sydney proceedings and Brisbane proceedings.
Before considering whether the supplementary affidavits concern the same ground notified in Mr Selby's affidavit, it is necessary to consider was the supplementary affidavits establish on this application.
[8]
Reliance on verified pleading
The Firm submitted that the statement of claim relied upon by MCF should not be received as evidence of the facts said to underlie the alleged offsetting claim, relying on Bhagat v Global Custodians Limited [2002] FCA 223 and ICM Agriculture Pty Ltd v Young [2009] FCA 109. MCF submitted that the verified statement of claim could be admitted as evidence, citing Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWSC 46. It is necessary to examine these authorities.
In Bhagat v Global Custodians Limited, Mr Bhagat applied to set aside a bankruptcy notice founded upon a judgment debt obtained by Global Custodians Ltd before Young J in this Court. It was necessary for Mr Bhagat to satisfy the Court that he had a reasonable ground for bringing his action to set aside the judgment against him. Mr Bhagat contended that the judgment was obtained by the fraud of Global Custodians and tendered the statement of claim in this Court seeking such relief, together with the summons for leave to appeal to the Court of Appeal from the judgment of Young J. The Full Court of the Federal Court of Australia (per O'Loughlin, Whitlam and Marshall JJ) observed (at [53]):
Counsel for Global submitted, quite correctly, that the mere production of a statement of claim in an action that pleads facts which, if proved, would support a claim, has long been held to be insufficient: "[a] statement of claim is no evidence of anything": In re Foster, Ex parte Basan (1885) 2 Morr 29 at 33 per Brett MR: see also Re Cox (1934) 7 ABC 98 at 101 and Re Verma; Ex parte Deputy Commissioner of Taxation [1984] FCA 340; (1985) 4 FCR 181 at 187. It is not even sufficient for a debtor to file an affidavit which merely propounds a claim and states how the debtor proposes to establish it: Ebert v The Union Trustee Co of Australia Ltd [1960] HCA 50; (1960) 104 CLR 346 at 350. There is an obligation on the debtor to adduce evidence that provides reasonable grounds for the institution of proceedings: Vogwell v Vogwell (1939) 11 ABC 83 at 85 per Latham CJ. The task that Mr Bhagat faced was an onerous task. He has raised serious allegations but has not placed before the Court the material (if indeed such material exists) that would justify a Bankruptcy Court from interfering with the judgment that founded the Bankruptcy Notice.
The Court did not consider it necessary to delve further into Mr Bhagat's allegations but found that, on the material presented to the Court, the allegation of fraud by Mr Bhagat did not encourage the Court to go behind the judgment on which the bankruptcy notice was issued: at [54]. Bhagat has been applied in the context of setting aside statutory demands: see Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2011) 87 ACSR 1; [2011] NSWSC 1343 at [50]-[51] per Ward J; In the matter of XSRE Pty Ltd [2011] NSWSC 1147 at [34] per Ward J; Diploma Construction WA Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 at [90].
[9]
CONCLUSION
I am not satisfied to the requisite standard that MCF has an offsetting claim within the meaning of section 459H of the Corporations Act. The offsetting claim asserted in Mr Selby's affidavit filed in support of MCF's application is utterly hopeless for the two reasons already stated. There is no issue deserving of a hearing. The offsetting claim is not arguable on the basis of facts that were asserted. There is no plausible contention requiring investigation. There is no genuine offsetting claim in the required sense, but rather mere bluster and assertion. The supplementary affidavits filed by MCF do not change this position, but simply annex a statement of claim in separate proceedings.
[10]
ORDERS
For these reasons, I make the following orders:
1. Application dismissed.
2. Plaintiff to pay the defendants' costs.
[11]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 29 March 2019
Parties
Applicant/Plaintiff:
The MCF Group Pty Ltd
Respondent/Defendant:
G.J.B. Legal Pty Ltd trading as Byles Anjos Lawyers
LR 130
TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70
Tuta Health Care Pty Ltd v Nipro Asia Pty Ltd [2005] NSWSC
UGL Process Solutions Pty Ltd [2012] NSWSC 1256
Windsor v Sydney Medical Service Co-operative Limited (No 3) [2010] FCA 364
Texts Cited: Austin and Black, Australian Corporations Legislation (2019 edition, LexisNexis Butterworths)
Category: Principal judgment
Parties: The MCF Group Pty Ltd ACN 100 683 369 (Plaintiff)
Offsetting claims
I have had the benefit of detailed and careful submissions by counsel for MCF, Mr Holmes, and for the Firm, Mr Davis. The parties were largely agreed as to the relevant principles. Section 459H of the Corporations Act 2001 (Cth) defines "offsetting claim" as:
… 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).
The authoritative statement as to how the Court should consider offsetting claims is that of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, at [30]-[31]:
It is settled law that s 459H requires the court to be satisfied that there is a "serious question to be tried": see Scanhill v Century 21 Australasia at 467, or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor: see Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd (1995) 17 ACSR 128 at 136 per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454 per Emmett J (as his Honour then was). The claim must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd. In that case, Palmer J observed, at [18], that good faith, in this context, meant that the offsetting claim was arguable on the basis of facts that were asserted "with sufficient particularity to enable the Court to determine that the claim is not fanciful".
In similar vein, although dealing with the question whether there was a genuine dispute within the meaning of s 459H(1)(a), McLelland CJ in Eq, in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 considered that the expression "genuine dispute" involved a plausible contention requiring investigation and raised much the same sort of considerations as the "serious question to be tried" criterion that applied in the case of an interlocutory injunction.
The Court of Appeal added, in the context of the standard of evidence required in such an application, at [36]-[37]:
Accordingly, there must be evidence that satisfies the court that there is "a serious question to be tried", or "an issue deserving of a hearing", or a "plausible contention requiring investigation" of the existence of either a dispute as to the debt or an offsetting claim. It is apparent, therefore, that evidence sufficient to satisfy this test, given the time period in which the affidavit must be filed, cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable.
Having regard to the test that applies in determining whether the evidence is sufficient for the purposes of setting aside the demand, which is discussed below, the hearsay rule will not apply with the same strictness as is required in a fully contested hearing of a principal dispute. Rather, as in the case of an interlocutory proceedings, hearsay evidence may be admissible provided evidence of the source of the hearsay is adduced: see the Evidence Act, s 75.
The Court, at [48], also approved the following statement of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, on which both parties relied:
There is little doubt that Div 3 … 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).
The standard of proof was put in similar terms by the Victorian Court of Appeal in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, by Dodds-Streeton JA (with whom Neave and Kellam JJA agreed), at [71]:
The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. … Something "between mere assertion and the proof that would be necessary in a court of law" may suffice.
The plaintiff on such an application bears the onus, albeit a relatively light one, in relation both to the genuineness of the offsetting claim and to its quantum: In the matter of XSRE Pty Ltd [2011] NSWSC 1147 at [34]; Earthwave Corporation Pty Ltd v Starcom Group Pty Ltd [2011] NSWSC 694; Royal Premier Pty Ltd v Taleski [2001] WASCA 48 at [57]; Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [23]; Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd (2005) 23 ACLC 1266; [2005] NSWSC 638. It is not for the Court to engage in an assessment of a deponent's credit on such an application (Britten-Norman at [46]). Nonetheless, McLelland CJ in Eq's explanation of "genuine dispute" in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; (1994) 12 ACLC 669 (approved in Britten-Norman at [46]) remains apposite. At 787 (citations omitted):
This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be" not having "sufficient prima facie plausibility to merit further investigation as to [its] truth", or "a patently feeble legal argument or an assertion of facts unsupported by evidence".
Whilst the parties were agreed as to the evidentiary requirements which plaintiffs must satisfy in establishing an offsetting claim, the question is whether the requirements were met in this case. Two further issues arose which I will address in due course:
1. to what extent the affidavit in support of the application to set aside a statutory demand can be supplemented by further evidence; and
2. to what extent an applicant can rely on a verified statement of claim filed in separate proceedings.
Facts
The following facts have been gleaned from some 260 pages annexed to MCF's affidavit filed in support of the application. The documents were not arranged in any particular order. Many documents only had every second page. Several documents were illegible. Copies of affidavits were included without annexures. From these documents, it appears that the undisputed debt and the alleged offsetting claim arose out of a fierce dispute between Michael Coleman and his cousin David Coleman, from Ireland.
Michael Coleman was the sole director and shareholder of MCF, which is part of the Coleman Group of companies. He remains the sole shareholder of MCF. Another company in the group was Coleman's Group (Aust) Pty Ltd, of which Michael Coleman was also the sole director.
In 2012, Michael Coleman entered into a business arrangement with David Coleman. The arrangement was differently described by each of them. No court has determined whose description of the arrangement is correct, and it seems unlikely that a court will ever determine this.
According to David Coleman, in 2012 there was a recession in Ireland. David Coleman was a director of Coleman's Quarry Ltd, which owned excavating equipment that was sitting idle. In April 2012, David Coleman obtained a temporary work visa to work in Australia for Coleman's Group (Aust) Pty Ltd. As mentioned, Michael Coleman was a director of that company and sponsored David Coleman's visa. In about August 2013, the excavating equipment was shipped to Australia for David Coleman to use in undertaking civil works with Coleman's Group (Aust) Pty Ltd. Apparently, in order to ship the equipment to Australia, the shipping company needed a commercial invoice selling the machines to an Australian company. Invoices were issued by Coleman's Quarry Ltd for the excavators but not paid as the invoices were for the purpose of importing the equipment to Australia only. David Coleman became the sole director and shareholder of an Australian corporation, Fleetcon Pty Ltd.
Michael Coleman's description of the business arrangement, as summarised by the Queensland Court of Appeal in The MCF Group Pty Ltd v Coleman & Ors [2015] QCA 268, was, at [5]-[6]:
[5] The excavators in question were originally located in Ireland, where [David Coleman] utilised them in a business operated by [Coleman's Quarry Ltd]. [MCF] alleged it entered into an agreement to purchase the excavators from [David Coleman] and [Coleman's Quarry Ltd]. Part of the agreement was that the excavators would be relocated to Australia for use in a new enterprise, in which [David Coleman] would have an involvement as an employee.
[6] The excavators were transported to Australia and used by [MCF] in that enterprise. However, [David Coleman, Coleman's Quarry and Fleetcon] began to use them for a monthly fee to complete certain jobs on their own behalf.
MCF alleged in those proceedings (the Brisbane proceedings) that MCF and Fleetcon had an agreement that Fleetcon would tender on construction projects and pay MCF for the use of the excavators.
MCF commences proceedings in Parramatta and Brisbane
On 24 March 2015, MCF commenced proceedings in the District Court of New South Wales at Parramatta (Parramatta proceedings) against Fleetcon seeking payment of $297,000 with interest and costs. Michael Coleman did not initially retain solicitors to act in the Parramatta proceedings. MCF served the statement of claim on Fleetcon at an address later given by Michael Coleman in an affidavit of debt sworn in support of an application for default judgment in the proceedings as being his address.
On 7 April 2015, MCF also commenced proceedings in the District Court of Queensland at Brisbane (earlier referred to as the Brisbane proceedings) against David Coleman, Coleman's Quarry Ltd, Fleetcon and Euro Auctions (UK) Ltd. MCF was represented by Pattison Law. MCF sought damages of $518,880 from Fleetcon for conversion of the excavators and alleged breach of the agreement under which Fleetcon had hired the excavators. On 9 April 2015, MCF filed an ex parte application for an interlocutory injunction restraining the defendants from dealing with or disposing of the excavators until further order of the Court. An interlocutory injunction was granted by Judge Rackermann, extended until 28 April 2015 by Judge Bowskill, and further extended to 14 May 2015 by Judge Dorney. On 22 April 2015, MCF also filed an interlocutory application seeking possession of two excavators until final hearing of the matter.
On 14 May 2015, Judge Samios declined to further extend the interlocutory injunction, dismissed MCF's application for possession of the excavators until trial and ordered MCF to pay the defendants' costs: The MCF Group Pty Ltd v Coleman & Ors [2015] QDC 130. Judge Samios expressed doubt about the claim by MCF to have paid for the excavators but accepted that there was a serious question to be tried. However, Judge Samios considered that the balance of convenience favoured the defendants as his Honour was not satisfied that the usual undertaking as to damages was supported by assets.
Also on 14 May 2015, MCF obtained default judgment against Fleetcon in the Parramatta proceedings in the amount of $298,918.01. As already noted, Michael Coleman's address in the affidavit of debt in support of the application for default judgment was the same address as that at which Fleetcon had been served with the statement of claim. It would appear that MCF did not inform Fleetcon, at the hearing that day in the Brisbane proceedings, of its application for default judgment.
On 15 May 2015, Fleetcon filed a defence in the Brisbane proceedings.
Monies obtained by MCF under garnishee order
On 26 May 2015, the Local Court at Parramatta formally issued the default judgment and MCF served the order and a garnishee notice on Coleman's Group (Aust) Pty Ltd. As later explained by Michael Coleman, Fleetcon undertook work for Coleman's Group (Aust) Pty Ltd pursuant to an agreement between MCF and Fleetcon. Coleman's Group (Aust) Pty Ltd thereby became indebted to Fleetcon. The garnishee order was issued by MCF to Coleman's Group (Aust) Pty Ltd in respect of this indebtedness. On 26 May 2015, Fleetcon's solicitors wrote to Coleman's Group (Aust) Pty Ltd demanding that it not pay the monies to MCF under the garnishee notice. The demand was in vain.
On 11 June 2015, MCF filed an application for leave to appeal against the decision of Judge Samios. On 19 June 2015, MCF received $92,090.60 from Coleman's Group (Aust) Pty Ltd pursuant to the garnishee order.
In August 2015, Fleetcon applied to set aside the default judgment in the Parramatta proceedings. David Coleman swore an affidavit in support of the application, saying that the excavating equipment was never owned by MCF but was owned by Coleman's Quarry Ltd. David Coleman said that the statement of claim had never been served on Fleetcon. On 12 October 2015, consent orders were made setting aside the default judgment in the Parramatta proceedings. As was submitted in these proceedings, where a party has paid monies in satisfaction of a judgment or court order, that party is entitled to repayment of the money with interest once the judgment is reversed, either as monies had or received or in restitution: Windsor v Sydney Medical Service Co-operative Limited (No 3) [2010] FCA 364 at [66]-[67]; Lee v Mallam (1910) 10 SR (NSW) 876; Proprietors of Strata Plan 5399 v Feehan (1996) 8 BPR 16,211. As such, MCF thereby became liable to repay the $92,090.60 received from Coleman's Group (Aust) Pty Ltd pursuant to the garnishee order together with interest. MCF did not repay the monies.
In ICM Agriculture Pty Ltd v Young, ICM obtained judgment against Mr Young in the District Court of New South Wales and issued a bankruptcy notice based upon it. Mr Young applied to set aside the bankruptcy notice by reason of a counter-claim for unliquidated damages sought in separate proceedings commenced by Mr Young in the District Court. The only evidence supporting the quantum of the counter-claim was an affidavit verifying the statement of claim in which the deponent stated that he believed that the allegations of fact in the statement of claim were true. The affidavit verifying the claim was not read although the statement of claim and accompanying affidavit were tendered and admitted. For that reason alone, Lindgren J considered that there was no evidence of quantum before the Court. Lindgren J noted at [76]:
If an attempt had been made to read the affidavit as evidence of any facts under the heading 'Claim for relief', there would have been an objection and the affidavit would have been rejected. First, the affidavit was nothing more than a statement of Mr Young's 'belief'; his state of belief was not evidence of any of the primary facts, and was not able to satisfy the test discussed in Glew v Harrowell of Hunt & Hunt Lawyers [2003] FCA 373 … Second, and more importantly, if Mr Young had sworn that the allegations of fact in the statement of claim were true, his affidavit would still have been inadmissible because of the nature of the material in the statement of claim. It was an amalgam of conclusions, rather than a statement of facts.
His Honour continued at [78]-[79]:
… it was not enough for Mr Young to formulate a claim in sweeping conclusory terms and to say on oath that he believed in his claim or was confident that he would be able to sustain it on a hearing: see, for example, Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350-351; Bhagat v Global Custodians Ltd [2002] FCAFC 51 at [53].
… Mr Young's supposed affidavit verifying the material … could not even being properly to satisfy the Federal Magistrates Court that Mr Young had a counter-claim against ICM in an amount equal to or exceeding the amount of ICM's judgment against him.
ICM Agriculture has also been applied in the context of setting aside statutory demands: Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [90]; In the matter of J Group Constructions Pty Ltd (2015) 303 FLR 139; [2015] NSWSC 1607 at [6] per Robb J; Earthwave Corporation Pty Ltd v Starcom Group Pty Ltd [2011] NSWSC 694 at [25]-[26] per White J; In the matter of XSRE Pty Ltd [34] per Ward J.
In Crowe-Maxwell v Frost, a liquidator sought to recover unreasonable director-related transactions from directors, Mr and Mrs Frost, under section 588FE of the Corporations Act 2001 (Cth). Mr Frost appeared at the trial in person. The trial judge read into evidence the verified defence filed by Mr Frost. The liquidator submitted that the defence was not evidence, citing Bhagat and ICM. President Beazley, with whom Macfarlan and Gleeson JJA agreed, noted that Bhagat was concerned with the use to which pleadings in one proceeding may be put in another, and in particular, with the interaction between the proceedings in question and a second set of proceedings or the claim underlying those proceedings, whilst ICM Agriculture concerned using verified averments in a pleading filed in the same proceedings: at [29]-[30]. I am unsure as to the distinction drawn, as the facts in ICM Agriculture appear to be relevantly the same as Bhagat in that respect.
The President noted that, in the latter situation, ICM Agriculture was authority that, in a given case, depending upon the terms of the pleading, verified pleadings may constitute evidence of a person's belief in the matters asserted, although in ICM Agriculture the averments in the pleadings were conclusory only unlike the verified defence in Crowe-Maxwell v Frost which contained a detailed explanation that would have been admissible if given by way of formal affidavit or oral evidence: at [30], [34]. At [30].
… I do not consider that the conclusion in ICM Agriculture Pty Ltd v Young is authority for the proposition that a verified pleading can only ever be evidence of the person's opinion. It is thus necessary to consider each of the paragraphs of the defence to determine whether they constitute evidence of the fact of the matters asserted.
Crowe-Maxwell v Frost has not been applied in the context of an application to set aside a statutory demand.
Here, MCF seeks to rely in these proceedings on a statement of claim filed in another proceeding. Applying Crowe-Maxwell v Frost strictly, therefore, there is no reason to depart from Bhagat. But, following the approach suggested by Beazley P, I am entitled to examine more closely the statement of claim in the professional negligence proceedings. The statement of claim was verified by Mr Selby. The affidavit verifying the statement of claim was not read in these proceedings, but even if it had been, Mr Selby was not a director of MCF at the time of the events in question and thus had no first-hand knowledge of the facts pleaded. His affidavit verifying the claim stated only that he believed that the allegations of fact were true but did not identify the source of his belief. If Mr Selby had sworn an affidavit in these proceeding replicating the contents of the statement of claim in the professional negligence proceedings, it would have been inadmissible unless he had done so.
Whilst I can understand why the trial judge in Crowe-Maxwell v Frost may have treated a detailed, verified pleading as, effectively, an affidavit sworn by Mr Frost, who was appearing in person, the situation here is quite different. Mr Selby doesn't know about the facts pleaded but believes the allegations to be true. Michael Coleman, who does know about the facts pleaded, did not depose to the truth of the facts stated or otherwise depose to the facts at all. Accordingly, I do not consider that the statement of claim in the professional negligence proceedings is evidence of the underlying facts asserted in those proceedings.
If the statement of claim annexed to the second and third affidavits is not taken as evidence of the underlying facts, then the affidavits are only evidence that MCF has commenced the professional negligence proceedings. This amounts to a mere assertion that an offsetting claim exists but does not supplement the affidavit filed in support of the application. It is not necessary, therefore, to consider whether the supplementary affidavits go to the same ground identified in Mr Selby's affidavit or embark upon new territory. It also follows that MCF is effectively relying on Mr Selby's affidavit and its compendious annexure in support of the application, together with the fact that professional negligence proceedings have been commenced, to support its offsetting claim. For the reasons already given, those facts alone are insufficient for MCF to succeed.
Either way, in August 2014, MCF began to issue invoices of $49,500 a month to Fleetcon for hire of the excavators. Whether these invoices were payable depended largely on whether Michael Coleman or David Coleman had correctly described the business arrangements and thus whether MCF owned the excavators and was entitled to charge for their use. David Coleman obviously didn't think MCF was so entitled. Fleetcon ceased trading. David Coleman returned to Ireland. MCF continued to issue invoices, but to David Coleman and Coleman Quarry Ltd. In March 2015, Michael Coleman sent an email to David Coleman demanding payment of $297,000 for hire of the excavators and that David Coleman instruct Euro Auctions (UK) Ltd to release the excavators, saying "I will pursue you for every cent you owe me."