SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title: / Leader Joinery Pty Ltd v Cosgrave Soutter
Citation: / [2016] ACTSC210
Hearing Date: / 28 July 2016
DecisionDate: / 28 July 2016
Before: / Mossop AsJ
Decision: / The proceedings are dismissed with costs.
Catchwords: / CORPORATIONS LAW – Company – Statutory demand – Application to set aside demand – Whether genuine dispute as to indebtedness – Assessing genuineness – No issue of principle
CORPORATIONS LAW – Company – Statutory demand – Where genuine dispute about debt – Whether supporting affidavit sufficient – Corporations Act 2001 (Cth), s 459H
Legislation Cited: / Corporations Act 2001 (Cth), ss 459H, 459G, 459J
Court Procedures Rules2006 (ACT), sch 6, r 2.2(3)
Superannuation Industry (Supervision) Act 1993 (Cth)
Cases Cited: / Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179
Eyota Pty Ltd v Hanave Pty Ltd(1994) 12 ACSR 785
Greenway Hotel Pty Ltd v Parton [2004] ACTCA 13
Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302
Jian Xing Knitting Factory v SCASA Pty Ltd (2004) SASC 152
John Holland Construction & Engineering Pty Ltd V Kilpatrick Green Pty Ltd (1994) 14 ACSR 250
Moutere Pty Ltd vDeputy Commissioner of Taxation (2000) 34 ACSR 533
Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269
Re Morris Catering (Aust) Pty Ltd(1993) 11 ACSR 601
Royal Premier Pty Ltd v Taleski [2001] WASCA 48
Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd(1997) 76 FCR 452
Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130
TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd(2008) 66 ACSR 67
Parties: / Leader Joinery Pty Ltd (Plaintiff)
M.A Cosgrave & S Michelle & C.N Soutter trading as Cosgrove Soutter (Defendant)
Representation: / Counsel
A Berry (Plaintiff)
S Whybrow (Defendant)
Solicitors
Backhouse Legal (Plaintiff)
Colquhoun Murphy (Defendant)
File Number: / SC218 of 2016

MOSSOP AsJ:

Application

1.This is an application to set aside a statutory demand. The statutory demand is based upon to debts which arise out of the provision of accountancy services to the plaintiff by the defendant. Those debts are described in the schedule to the statutory demand as follows:

Description of the debt / Amount of the debt
Unpaid balance of invoice dated 27 May 2015 relating to the provision of financial and accountancy services by the Creditor to the Company. / $6,616.00
Unpaid invoice dated 27 May 2015 relating to the provision of financial and accountancy services by the Creditor to the Company. / $5,412.00

2.I will refer to these two invoices as being the first invoice and the second invoice. It is uncontroversial that the second invoice was in fact dated 28 August 2015 and that was made clear by the terms of the affidavit of Marcus Adam Cosgrave which was served with the statutory demand so that the error in the demand itself was not one creating any substantial injustice.

3.The first invoice was $26,345 and payments of $19,729 had been made, leading to the unpaid balance of $6,616. That invoice related to work done in the period from 14 May 2014 to 27 May 2015.

4.The second invoice related to work done in the period 1 June 2015 to 14 August 2015.

5.The services of the defendant were terminated by an email sent on 14 August 2015.

6.The proceedings were wrongly commenced by originating application rather than by originating process as required by the Corporations Rulesin sch 6 of the Court Procedures Rules2006 (ACT). However, no point was taken about that.

7.The application identifies that it is based upon the existence of a genuine dispute as to the debts. No reference is made in the application to any other ground. In particular no reference is made to there being an offsetting claim or the existence of some other ground for setting aside the demand.

Evidence relied upon

8.The plaintiff relied upon the affidavit of Shaun Terence Kenny dated 20 May 2015, but obviously executed on 20 May 2016. Mr Kenny is the director of the plaintiff.

9.The defendant relied upon the affidavit of Marcus Adam Cosgrave dated 20 June 2016. Mr Cosgrave is a partner in the defendant firm. It also relied upon the affidavit of Kuang Ng dated 9 June 2016. Ms Ng is an accountant employed by the defendant firm.

Statutory provisions

10.Section 459H(1) of the Corporations Act 2001 (Cth)(the Act) identifies that the section applies where:

... 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.

11.It is not necessary for the purposes of this case to set up the balance of the section. That contains amongst other things the formula by which a statutory demand is to be adjusted if an offsetting claim is demonstrated.

Test

12.The test to be applied pursuant to s 459H for the existence of a genuine dispute has been articulated in a number of well-known cases. The onus on a company seeking to set aside a statutory demand is not a heavy one: Greenway Hotel Pty Ltd v Parton [2004] ACTCA 13 at [27] (Greenway). It is not permissible on an application to set aside a statutory demand to decide which of the parties will ultimately be successful. All that needs to be decided is whether the challenge is so devoid of substance that no further investigation is warranted: Greenway at [57]. The reference to no further investigation being warranted should not, however, be taken as suggesting that a genuine dispute will be established if it might be seen as reasonable for the plaintiff to investigate its dispute or offsetting claim further. Rather, onan application the onus is on the plaintiff to demonstrate something akin to a serious question to be tried.

13.In Eyota Pty Ltd v Hanave Pty Ltd(1994) 12 ACSR 785, McLelland J said:

It is, however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. 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’ (cf Eng Mee Yong v Letchumanan[1980] AC 331 at 341), or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall(1980) 24 SASR 189 at 194.

14.The formulation preferred by Northrop, Merkel and Goldberg JJ in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd(1997) 76 FCR 452 is as follows:

In our view a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact;the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.

15.In Re Morris Catering (Aust) Pty Ltd(1993) 11 ACSR 601, Thomas J emphasised that it is not the task of the Court, in a case such as this, to “examine the merits or settle the dispute”; and that“beyond a perception of genuineness (or 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.”

16.In Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd[2002] NSWSC 411 at [23] Barrett J, after referring to these authorities, said:

It is appropriate to dwell for a moment on the guidance provided by these cases. The tests of “plausible contention requiring investigation”, “real and not spurious, hypothetical, illusory or misconceived” and “perception of genuineness (or lack of it)”, applied in the context of a summary procedure where “it is not expected that the court will embark on any extended inquiry”, mean that the task faced by a company challenging a statutory demand on the “genuine dispute” ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s.459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.

17.In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd(2008) 66 ACSR 67 Dodds Streeton JJA (with whom Kellam and Neave JJA agreed):

71As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. 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. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.

72As Barrett J recognised in Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd:

the task faced by a company seeking to set aside a statutory demand on the “genuine dispute” ground is by no means at all a difficult or demanding one.A rigorous curial approach is nevertheless essential to the effective operation of the statutory scheme.

73As in the present case, the relevant issues are frequently presented and argued more extensively or with different emphases on appeal and it may be difficult to draw the line between, on the one hand, evidence which is of a quality and particularity sufficient to support a genuine dispute or off-setting claim, and, on the other hand, that which is not.

18.In order to satisfy the requirements of s 459G(3) the affidavit filed and served within the 21-day period must be one “supporting the application”. The Court can act on supplementary affidavits filed outside the 21-day period that expand on the grounds raised in an affidavit filed within the 21 days, but the Court cannot act on new grounds raised by an affidavit filed outside the 21-day period: Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179; Jian Xing Knitting Factory v SCASA Pty Ltd (2004) SASC 152 at [18].

19.The affidavit filed in support of the application to set aside the statutory demand is in the form of an affidavit often filed in order to satisfy the requirements of s 459G so as to permit the commencement of proceedings within the 21-day period following service of the statutory demand, but which would need to be followed up by affidavits in admissible form in order to demonstrate the existence of a genuine dispute. Thus, while the affidavit is sufficient to support the jurisdictional requirements of identifying the grounds upon which the plaintiff relies, it does not because of that meet the requirement to establish a genuine dispute or offsetting claim. In Tokich Holdings v Sheraton Constructions(NSW) Pty Ltd (in liq)(2004) 185 FLR 130 at [20]-[21] (Tokich) White J recognised that material inadmissible as hearsay or opinion to establish a fact relevant to indebtedness might not be inadmissible to establish a fact relevant to whether there was a genuine dispute about indebtedness. His Honour referred to the decision of Young J in John Holland Construction & Engineering Pty Ltd V Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253 that where in a sizeable construction case correspondence between the parties may demonstrate a disputing of the figures one can then say, without looking at the evidence that backs up the figures, that there is a genuine dispute between the company and respondent about the amount of the debt.

20.However,White Jalso recognised thatwhether evidence in the form of a generalised summary is sufficient to establish a genuine dispute is a different question from whether the evidence is admissible for that purpose: Tokich at [25].

The plaintiff’s evidence and submissions in support of a genuine dispute

21.The affidavit of Mr Kenny identifies the following matters of chronology:

(a)The company engaged the defendant to provide accountancy services between July 2011 and 14 August 2015. Those services were also provided to a range of other entities associated with Mr Kenny.

(b)The engagement was terminated by email sent on 14 August 2015. That email included the statement that Mr Kenny was “very disappointed with the performance of [the] organisation”.

(c)An email in response was received from Mr Cosgrave on 17 August 2015 which defended in some detail the manner in which the firm had conducted itself.

(d)Mr Kenny replied to Mr Cosgrave on 26 August 2015 outlining some “issues” that Mr Kenny had discovered.

(e)The statutory demand was served at the company’s registered office on 2 May 2016.

22.The substance of the evidence said to demonstrate the existence of a genuine dispute was as follows:

Since 14 August 2015, the Company has engaged a new accountant. This accountant is currently reviewing the work undertaken by the defendant to further determine the loss sustained by the Company and me personally as a result the inaccuracies and inconsistencies in the work that has been performed by the defendant. I have identified the following initial issues with the work performed by the defendant:-

  1. Errors with my personal tax returns with reference to a Line of Credit. The professional fees for the preparation of these taxation returns have been included in the invoice issues to the Company. Since instructing new accountants, these errors have been remedied and I have now cleared a debt with the Australian Taxation Office that was approximately $30,000.00 and I have received a refund of $12,500.00. I am concerned as to whether there have been other mistakes in the past on my tax returns that it is now too late to remedy.
  2. The Business Activity Statement (BAS) reporting for the Company was incorrect and set up as “cash” when it ought to have been on an accrual basis. Furthermore, I have identified issues with a lot of the BAS submissions. Whilst the BAS was initially prepared by the Company, it was agreed and understood that the defendant would review the BAS before they were submitted to the ATO. I believe the Company has been charged for this services which was not satisfactorily performed.
  3. In my position as Director of the Company, I requested that the defendant provide me with advice inr epsect of payment of wages instead of dividends. I also sought advice regarding a self-managed superannuation fund that I controlled. The advice I received was non-existent and as a result of this the Company was not performing to the best of its ability.
  4. In relation to the self-managed superannuation fund, I was relying on advice from the defendant about transferring funds but there was a substantial delay in receiving any response, and as a result of this I took my own action and subsequently had to pay to have it rectified. At the time I requested the advice the Company’s account was paid in full and there were no outstanding fees payable to the defendant with reference to the self-managed superannuation fund.
  5. The defendant has charged what I now understand to be an excessive amount for accounting fees and the defendant failed to disclose the estimated fees prior to undertaking any work. The defendant has not provided the Company with an invoice that details the cost of each individual item of work. This has been requested by the Company many times.
  6. On or about 20 April 2016, the Company’s new accountant received the Company’s file in relation to a self-managed superannuation fund. This material was provided by the defendant approximately six (6) months after it was initially requested by the Company, despite this work clearly being paid for. The Company has had to instruct the new accountants to perform certain work in the meantime to ensure it is compliant with the superannuation fund.
  7. The second invoice in dispute, issued to the Company and dated 28 August 2015, was dated two (2) weeks after I advised the defendant that its assistance was no longer required. The invoice includes costs for work that the Company had not received prior to advising the defendant that it no longer required it to perform any work on its behalf.
  8. The Company, and me personally, are still investigating whether there is a potential claim against the defendant for negligence. This has yet to be determined.

23.Other paragraphs in the affidavit also raised the following matters:

(a)“The company has not entered into any Costs Agreement or financial agreement with the defendant about the estimated fees or costs associated with the work the defendant performed.”