Summary
In the recent case of Brandon Industries (VIC) Pty Ltd v V Locker Pty Ltd [2016] VSC 373, the respondent successfully opposed an application to set aside a statutory demand on the basis that the alleged dispute and offsetting claim did not presently exist and were therefore not genuine.
Critically, the Court held that in order to have a statutory demand set aside, any dispute or offsetting claim must exist at the date of the hearing of the application and not some later date.
Kemp Strang's Brisbane office acted for the successful respondent.
Key Facts
Brandon and V Locker supplied refrigerated locker systems to the Coles Group (Coles) for Coles Click 'n' Collect, whereby customers of Coles can order groceries online through the Coles website and collect their groceries from refrigerated lockers.V Locker supplied the software and electronic locking system components for the lockers and Brandon supplied the refrigeration components.
Coles paid Brandon in full for the lockers but Brandon did not pass on payment to V Locker for its contribution to the lockers in accordance with the unwritten agreement between them.
Before V Locker issued the statutory demand, the director of Brandon made a number of promises to pay V Locker and part paid one of V Locker's invoices. Brandon did not pay the balance of the amount claimed by V Locker, as a consequence of which V Locker issued a statutory demand for payment of $225,486.31.
Only days after V Locker served the statutory demand, Brandon served a number of invoices on V Locker to substantiate its alleged "offsetting claim".
Brandon argued that it had a latent defects case in that the lockers were defective and it believed Coles would eventually make a claim against Brandon for the defects.
Brandon also argued that its promises to pay V Locker were made in order to have V Locker complete the job and the part-payment was made before defects in the lockers became apparent.
Relevant legal standard
Sections 459G and H of the Corporations Act allow a company to apply to set aside a statutory demand if it can satisfy the court that there is a genuine dispute about the existence or amount of the relevant debt or that the company has an offsetting claim.
The standard to be met to evidence the genuine dispute or offsetting claim is low and not difficult to meet, as it does not require the court to engage in an in-depth examination of the merits of the dispute: Malex Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330.
However, the applicant company must show that the alleged dispute or offsetting claim is genuine. It must be able to show that the dispute is bona fide and truly exists, by evidencing that the grounds for alleging the dispute are real, not spurious and supported by factual particularity.
The Judgment
At the hearing, Brandon conceded that one year after the completion of the installation of the lockers, Coles had not made any allegation or demand that the lockers were defective and that there was no current claim by Coles. Brandon's submission was that the lockers had latent defects that would result in Coles making a claim against Brandon at a later stage.
His Honour Justice Gardiner considered whether the "potential or future" claim alleged by Brandon could give rise to a genuine dispute for the purpose of section 459G.
His Honour affirmed previous authorities that a genuine dispute or offsetting claim must exist at the date of the hearing of the application and not some later date: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; Advance Ship Design Pty Ltd v D J Ryan (1995) 16 ACSR 129.
As Brandon could not at present issue a proceeding for damages against V Locker for the alleged claims, His Honour considered that there was no current genuine dispute.
As to the alleged offsetting claims, His Honour held that they were also hypothetical, not real and not warranting further investigation. In this regard, His Honour agreed with V Locker's submission in adopting the observations of McPherson JA in JJMR Pty Ltd v LG International Corp [2003] QCA 519 [at 18]:
"The claim to set off against the debt demanded must not have been manufactured or got up simply for the purpose of defeating the demand made against the company. It must have an existence that is objectively demonstrable independently of the exigencies of the demand that evoked it."
Conclusion
This case reaffirms that a genuine dispute and offsetting claim must exist at the time of the hearing of an application to set aside a statutory demand and that an alleged potential future dispute (such as a latent defects case) will not be enough to set aside a statutory demand.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
