Supreme Court of Victoria dismissed application to set aside statutory demand on basis of spurious and hypothetical dispute - Corporate and Company Law

This week's TGIF considers the case of Brandon Industries (Vic) Pty Ltd v Locker Pty Ltd [2016] VSC 373 where the Court dismissed an application to set aside a statutory demand due to the applicant's failure to establish a genuine dispute or offsetting claim pursuant to section 459H of the Corporations Act 2001 (Cth).

BACKGROUND

From 2013, Brandon (Vic) Pty Ltd (Brandon) subcontracted V Locker Pty Ltd (V Locker) to fit out their design for a refrigerated locker network requested by the Coles supermarket chain.

On 14 December 2015, V Locker served a statutory demand on Brandon for $225,486.31 – the statutory demand annexing 8 invoices (Demand). On 23 December 2015, Brandon applied for orders setting aside the Demand pursuant to sections 459G and 459J of the Corporations Act 2001 (Cth) (Act).

EVIDENCE OF A GENUINE DISPUTE AND OFFSETTING CLAIM

To determine an application to set aside a statutory demand, under section 459H of the Act, an applicant is only required to adduce evidence that establishes a genuine dispute or offsetting claim. There is no need for a Court to engage in an in-depth examination of the merits – all that is required is "a plausible contention requiring investigation of the existence of either a dispute as to the debt or an offsetting claim". The applicant will fail in this regard if the evidence which the applicant seeks to rely upon is so devoid of substance that a further investigation by the Court is not warranted.

A key issue is whether the dispute or offsetting claim exists at the date of the application. If the alleged dispute or offsetting claim will arise upon the occurrence of a future event, then there is no present genuine dispute as the claim is not in respect of an action which has already accrued.

At the hearing of Brandon's application, there was a voluminous amount of affidavit evidence relied upon by Brandon to demonstrate why payments had not been made, including allegations that the lockers provided by V Locker were defective and required rectification works.

A review of the evidence revealed that, after V Locker's installation of the lockers, Brandon was aware of the outstanding debt to V Locker and did not dispute it. In early 2015, many months prior to the service of the statutory demand, the parties were in discussions to establish a payment plan on the basis that Brandon had a cash shortage and was waiting for payment from its debtors. Also, Coles had already paid Brandon in full for the lockers. This evidence, together with evidence of part payments having already been made, was not consistent with Brandon's allegations that the lockers were defective – that allegation only appearing for the first time in Brandon's affidavit material.

His Honour Gardiner J found that, upon his review of the correspondence and after hearing the unconvincing explanations provided by the director of Brandon at the application, Brandon had not discharged the onus of establishing the existence of a genuine dispute as the evidence adduced was not bona fide or real. His Honour criticised Brandon, stating that the alleged dispute and offsetting claims were "spurious" and "hypothetical".

COMMENT

This case confirms the key principles for setting aside a statutory demand on the grounds of a genuine dispute / offsetting claim. Despite the low threshold of evidence required to establish a genuine dispute / offsetting claim, this case is a good reminder that a genuine dispute must exist at the date of the hearing of the application and cannot be concocted after the statutory demand has been served.

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