Consideration and determination
39 The threshold issue is whether Skyroad Logistics has established materiality. In considering this matter I apply the narrow view as outlined above.
40 If Mr Dinoris's evidence is accepted, the materiality requirement is satisfied. As noted above, TIT urged the Court to prefer Mr Senatore's evidence. Mr Senatore's analysis resulted in him concluding that Skyroad Logistics is insolvent if it were to pay the demanded amount of $448,385.43 and that it was "likely" to be insolvent if it were to pay the alleged amount of $194,296.29 (see page 17 of his Report). Mr Senatore explained that this qualification in respect of payment of the alleged amount depended upon whether or not Skyroad Logistics continued to receive funding from Skyroad Investments and its shareholders, as Mr Senatore makes clear at p 4 of his Report. In re-examination Mr Senatore explained why he considered the financial position of Skyroad Investments to be "pretty fragile". He said that its net asset position was only $30,000 if Skyroad Logistics was excluded from that calculation. He said that Skyroad Investments had limited cash at bank and that, in these circumstances, if it were to inject money into Skyroad Logistics it itself would need an injection of capital.
41 It should be noted that, under schedule 3, clause 1.10.1 of the Shareholders Deed of Agreement dated 1 November 2016, the capital and loans made to Skyroad Investments are to continue via loans and transfers to Skyroad Logistics and that this provides the funding of cashflows for Skyroad Logistics.
42 Skyroad Logistics has the burden of satisfying the Court that the materiality requirement is satisfied. This issue largely turns on whether or not the Court accepts Mr Dinoris's evidence in circumstances where he was not required for cross-examination and TIT was content to rely upon Mr Senatore's criticisms of aspects of Mr Dinoris's report. Mr Dinoris's report is based on unaudited financial information. The same may be said, of course, with respect to Mr Senatore's report. It is important to bear in mind, however, that the Court is dealing with an application for leave under s 459S and not an application under s 459P that Skyroad Logistics be wound up. In the latter case, it is established that, because of the presumption of insolvency (see s 459C(2)(a)), to discharge its onus of proving solvency the Court should ordinarily be presented with the "fullest and best" evidence of the company's financial position (see Commonwealth Bank of Australia v Begonia (1993) 11 ACSR 609 at 617 per Hayne J). Moreover, in that context, it has been said that unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency, nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants (see Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 at [44] per Weinberg J).
43 Having regard to the interlocutory nature of a s 459S application and the stage of the process when it is made, I doubt that the evidentiary requirements are as strict or demanding as those which apply to a s 459P application. Appropriate evidence has to be adduced by the applicant seeking leave which is sufficient to establish the materiality requirement, as well as other relevant matters under s 459S. Given the wide range of circumstances in which leave is sought under s 459S it is undesirable to be prescriptive about what evidence will be sufficient to satisfy the Court that the statutory requirements are met.
44 I find that Skyroad Logistics has adduced sufficient evidence, primarily in the form of Mr Dinoris's expert report, for the Court to be comfortably satisfied that the materiality requirement has been met. In particular, I accept Mr Dinoris's evidence that Skyroad Logistics has sufficient cash on hand (approximately $230,000) to pay the agreed amount of $194,296.19 and remain solvent, having regard to the surplus of current assets over current liabilities and the net asset position of Skyroad Logistics having improved in the nine months concluding 31 March 2018. I also accept Mr Dinoris's evidence concerning Skyroad Logistics's profitability and its forecast to generate positive cashflows in the period 1 April 2018 to 30 June 2018.
45 As noted above, Mr Senatore opined that if the agreed amount of $194,296 was paid, this would reduce Skyroad Logistics's cash at bank to zero and $16,000 would have to be funded from either recovery of account receivables or a financial injection. I find that $16,000 is a relatively modest sum and it is reasonable to assume that, in accordance with clause 1.10.1 of schedule 3 of the Shareholders Deed of Agreement, such an amount would be injected by Skyroad Investments in circumstances where, as Mr Senatore himself acknowledged, that company had funds available to it of $30,000.
46 Having regard to these matters, which focus directly on the issue of materiality by reference to the amount of the debt which is disputed, I do not consider it necessary at this stage of the proceeding to consider and determine the validity of Mr Senatore's various criticisms of other aspects of Mr Dinoris's evidence. It is also appropriate to note that TIT made a considered decision not to call Mr Dinoris for cross-examination.
47 As to the other relevant requirements, as noted above, TIT conceded that, despite all the denials and counter-claims made by its witnesses (including Mr Hogan) in respect of Skyroad Logistics's case and evidence, there is a serious question to be tried on the ground raised by Skyroad Logistics to the effect that the debt the subject of the statutory demand is not due and owing.
48 That leaves for determination whether any of Skyroad Logistics's conduct or that of its legal advisors, should preclude it from obtaining leave. This directs attention to the adequacy of the explanation why Skyroad Logistics did not raise the issue of the disputed debt in a timely application to set aside the statutory demand.
49 This is not a case where no steps were taken to have the statutory demand set aside. It is clear that the parties were in discussion over several weeks both before and after service of the statutory demand with a view to resolving their various differences. Those differences related not only to the alleged debts from one to another, but also terminating their broader business relationship.
50 The apparently belated steps taken by Skyroad Logistics and/or its lawyers to finalise the legal documentation challenging the statutory demand has to be assessed in the context of the parties' attempts to resolve their differences commercially and not by legal processes. On 25 January 2018, TIT lawyers indicated to Skyroad Logistics that their client was "keen to ensure an amicable separation". The parties continued to hold discussions with a view to resolving their differences. The statutory demand was served on 23 February 2018. On 1 March 2018, Skyroad Logistics's lawyers suggested a meeting between the parties so as to avoid what they described as unnecessary and expensive legal proceedings. It was reasonable for Skyroad Logistics to continue to believe that there were some prospects of resolving the matters in dispute when TIT's lawyers wrote to them on 5 March 2018 and indicated that the TIT directors were willing to participate in a telephone conference with Skyroad Logistics "to discuss payment of the debt". In the meantime, Skyroad Logistics was conducting the internal audit which informed a large part of the letter dated 7 March 2018 in which Skyroad Logistics's offsetting and counterclaims were set out. That letter explained why Skyroad Logistics considered that the true debt was $349,162.11 which, when offset by other identified items, reduced the amount to $190,021.66. The letter contained an offer to settle the dispute, which offer remained open until 13 March 2018. It was not until a week later, on 13 March 2018, that TIT responded saying that TIT denied Skyroad Logistics's assertion that there was a genuine dispute and it pressed for payment of the full amount.
51 In circumstances where the parties were involved in ongoing discussions about possibly resolving their dispute until receipt of that 13 March 2018 letter, Skyroad Logistics should not be criticised for delaying the preparation of legal documentation to have the statutory demand set aside. It is true that the evidence does not disclose when those steps were first taken but, having regard to the chronology, it is likely that it was not until receipt of TIT's lawyer's letter dated 13 March 2018. It may be inferred, however, given the bulk of Mr Clark's draft affidavit in support (308 pages), that some preparatory work must have been done before 3:30 pm on 16 March 2018, when Mr Clark came to Ms Tuson's office to execute his affidavit. That work also included the drafting of the application and affidavit in support by Ms Tuson, copies of which documents were available at 3:30 pm and must have been prepared beforehand. It is also evident from Mr Tuson's evidence, which I accept, that the process of lodging the application and supporting affidavits online commenced at approximately 3:55 pm on 16 March 2018, but was not completed until 4:40 pm because of the time taken to transfer the bulky documentation electronically to the Court Registry.
52 I reject TIT's submission that, in accordance with Jones v Dunkel, an adverse inference should be drawn from the fact that Ms Tuson did not describe what steps, if any, had been taken prior to 3:30 pm on 16 March 2018 to prepare the relevant legal documentation and that the Court should find that any such evidence would not assist Skyroad Logistics. As Heydon J observed in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345 at [232], the principle in Jones v Dunkel has two aspects. The first is that the trier of fact may infer from the unexplained failure of a party to call a witness whom that party would be expected to call, that the evidence of the absent witness would not assist that party's case. The second aspect is that the trier of fact may draw an inference unfavourable to that party with greater confidence, but Jones v Dunkel does not enable the trier of fact to infer that the evidence of the absent witness would have been positively adverse to that party. TIT also relied upon Handley JA's well-known judgment in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418, which extended the Jones v Dunkel principle to a case where a party calls a witness but fails to examine that witness in chief on some relevant topic, with the consequence that an inference can be drawn that such evidence would not have assisted the party's case.
53 I do not accept that these principles apply to the circumstances here. The only proper inference reasonably to be drawn from the evidence before the Court is that Skyroad Logistics's solicitors had commenced preparation of the necessary legal documentation before 3:30 pm on 16 March 2018, given the bulk of the documentation which existed as at 3:30 pm. It is true that it is left unclear precisely when work began on preparing that documentation. But I do not consider that this consideration attracts much weight in circumstances where I am prepared to accept at this interlocutory stage that Skyroad Logistics genuinely believed that a large amount of the debt was disputed and it sought to negotiate a commercial resolution to the issues in dispute between the parties relating not only to the demanded amount but also to Skyroad Logistics's claimed offsets and the termination of the parties' broad business relationship. Prior to receipt of TIT's lawyers' letter dated 13 March 2018, I consider that it was reasonable for Skyroad Logistics to believe that there was some prospect that the dispute could be resolved commercially and without litigation.
54 Having regard to all these matters, I do not accept TIT's submission that the conduct of Skyroad Logistics or its solicitors warrants leave being withheld. Nor do I consider that there is any other discretionary reason why leave should not be granted.