Court of Appeal
Supreme Court
New South Wales

Medium Neutral Citation:

Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344

Hearing dates:

11 July 2013

Decision date:

21 October 2013

Before:

Beazley P;
Meagher JA;
Gleeson JA

Decision:

(1) Leave to appeal granted;

(2) Appeal allowed;

(3) Set aside orders made by Black J on 19 April 2013;

(4) Order that the statutory demand dated 26 November 2012 issued by Analysis & Technology Australia Pty Limited against Britten-Norman Pty Limited be set aside;

(5) Order that Analysis & Technology Australia Pty Limited pay Britten-Norman Pty Limited's costs at first instance and on the appeal;

(6) Order that Analysis & Technology Australia Pty Limited have a certificate under the Suitors' Fund Act 1951 if so entitled.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

CORPORATIONS - winding up - statutory demand - application to set aside - Corporations Act 2001, ss 459G, 459H - whether evidence sufficient to establish offsetting claim - whether evidence sufficient to establish quantum of offsetting claim

Legislation Cited:

Corporations Act 2001 (Cth)
Evidence Act 1995
Supreme Court (Corporations) Rules 1999

Cases Cited:

Beauty Health Group v Sholl [2011] NSWSC 77
Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302
Chase Manhattan Bank Australia Limited v Oscty Pty Limited [1995] FCA 1208; 17 ACSR 128
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) HCA 54; 174 CLR 64
Elm Financial Services Pty Ltd v Macdougal [2004] NSWSC 560
Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 84 FCR 454
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; 167 FLR 106
Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; 70 FCR 452
Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229
Hansmar Investments Pty Ltd v Perpetual Trustee Company Ltd [2007] NSWSC 103; 61 ACSR 32
Hills Motorway Ltd v UBS AG [2005] NSWSC 1086
Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372
Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743
Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd [2001] WASCA 360
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290
No. 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146
Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601
Roberts v Rodier [2006] NSWSC 282
Robinson v Harman (1848) 1 Ex 850;
154 ER 363
Royal Premier Pty Ltd v Taleski [2001] WASCA 48
Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; 214 FLR 393
Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451
Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411
Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; 185 FLR 130
TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; 66 ACSR 67
Troutfarms Australia Pty Ltd v Perpetual Nominees Limited [2013] VSCA 176

Texts Cited:

H McGregor, McGregor on Damages, 18th ed (2009) Sweet and Maxwell

Category:

Principal judgment

Parties:

Britten-Norman Pty Limited (Appellant)
Analysis & Technology Australia Pty Ltd (Respondent)

Representation:

Counsel:
A W Street SC; J S Emmett; A J Macauley (Appellant)
D Stewart (Respondent)
Solicitors:
McMahon Broadhurst Glynn (Appellant)
Ken Cush & Associates (Respondent)

File Number(s):

CA 2013/145448

Decision under appeal

Citation:

In the matter of Britten-Norman Pty Limited (No 1) [2013] NSWSC 394

Date of Decision:

2013-04-12 00:00:00

Before:

Black J

File Number(s):

2012/388436

HEADNOTE

[This headnote is not to be read as part of the judgment]

The respondent, Analysis & Technology Australia Pty Limited, served a statutory demand on the applicant, Britten-Norman Pty Limited, pursuant to the Corporations Act 2001 (Cth), s 459E. The applicant applied to set aside the statutory demand pursuant to the Corporations Act 2001 (Cth), ss 459H(1)(b), 459J(1)(a) and 459J(1)(b). The primary judge dismissed the application.

The applicant sought leave to appeal from that dismissal. The summons for leave to appeal and the appeal were heard concurrently. The application raised two issues for determination:

(1)Whether the evidence was sufficient to satisfy the Court that there was an offsetting claim pursuant to the Corporations Act, s 459H(1)(b); and

(2)Whether, pursuant to the Corporations Act, s 459H(2)-(3) the evidence was sufficient to satisfy the Court that the amount of the offsetting claim was greater than the amount of the statutory claim less the minimum statutory amount of $2,000.

The Court granted leave to appeal and allowed the appeal.

Held by the Court (Beazley P, Meagher and Gleeson JJA):

In respect of (1):

i.Pursuant to the Corporations Act 2001, s 459G 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 under the Corporations Act 2001, s 459H: [70].

Principal legislation and cases considered: Corporations Act 2001, ss 459G, 459H; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; Chase Manhattan Bank Australia Limited v Oscty Pty Limited [1995] FCA 1208; 17 ACSR 128; Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451.

ii.Evidence sufficient to satisfy this test need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable: [36]. The existence of evidence that casts doubt on the contention that there is a disputed debt or an offsetting claim is not the basis for a rejection of an application under the Corporations Act, s 459H: [60]. The evidence does not have to be supported by contemporaneous documentation: [61].

Principal legislation and cases considered: Corporations Act 2001, ss 459G, 459H; Evidence Act 1995, s 55; Corporations Rules, r 2.4(1); Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; 66 ACSR 67; Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372.

iii.The primary judge erred because when the evidence is considered as a whole, having regard to the absence of challenge to aspects of it, the evidence established a plausible contention requiring investigation: [70].

In respect of (2):

iv.The evidence before the primary judge was sufficient to establish that the applicant had an offsetting claim for the purpose of the Corporations Act, s 459H(1)(b) for misleading or deceptive conduct (and for that matter in contract) which was greater than the statutory claim less the minimum statutory amount of $2,000.

Judgment

1THE COURT: On 12 April 2013, Black J dismissed an application by Britten-Norman Pty Limited (Britten-Norman) to set aside a statutory demand served on it by Analysis & Technology Australia Pty Limited (A & T Australia) pursuant to the Corporations Act 2001 (Cth), s 459H(1)(b), s 459J(1)(a) and s 459J(1)(b). Britten-Norman has sought leave to appeal from that dismissal. The summons for leave to appeal and the appeal have been heard concurrently. Although, as discussed below, the principles governing the Court's jurisdiction to set aside a statutory demand are reasonably well settled, there may be difficult questions, in a given case, as to their proper application. As there is a question whether Britten-Norman has discharged its onus of establishing that it has an offsetting claim, this is an appropriate case in which to grant leave.

Factual background

2On 4 December 2012, A & T Australia served a statutory demand dated 26 November 2012 on Britten-Norman pursuant to the Corporations Act, s 459E alleging a debt of $128,421.50 in respect of outstanding monies for the use of equipment, being a "Surveillance Management System MK II" (SMS2) and the provision of support in respect of the use of the equipment between April 2010 and September 2011. The statutory demand was accompanied by an affidavit of Paul Fothergill, the managing director of A & T Australia, in which he deposed to his belief that there was no genuine dispute in respect of the debt.

3On 13 December 2012, Britten-Norman filed an originating process under the Corporations Act, s 459G seeking an order setting aside the statutory demand on the basis that it had an offsetting claim. David Baddams, the managing director of Britten-Norman, in his affidavit sworn 13 December 2012 in support of the application to set aside the statutory demand, described the business operations of Britten-Norman and the circumstances in which he came to lease the SMS2 from A & T Australia. Mr Baddams deposed that Britten-Norman operates a sales and marketing company for Britten-Norman aircraft in Australia, Asia and the Pacific. Mr Baddams is also a director and chief pilot of Airborne Surveillance (Australia) Pty Limited (ASA), which is a specialist aerial surveillance operator. It contracts to various government agencies for aerial surveillance and mapping.

4In 2009, ASA decided to seek contracts for aerial surveillance in support of bushfire fighting. To that end, it entered into discussions with A & T Australia in relation to A & T Australia's surveillance systems. Mr Baddams deposed that, in the course of those discussions Mr Fothergill said words to the effect that the SMS2 "will give you the accuracy you need to get the fire fighting contracts". In March that year, agreement was reached for Britten-Norman to lease the SMS2, together with the supply of personnel and ground support during aerial operations, including demonstrations, trials and contracts won by ASA. By April 2010, pursuant to that agreement, the SMS2 was installed in the Britten-Norman aircraft.

5Mr Baddams stated that generally, fire fighting organisations require an accuracy of .001 nautical miles in respect of surveillance and intelligence operations over fires. Mr Baddams alleged that during the course of the trials and demonstrations that he conducted, the accuracy of the SMS2 was between 2 to 5 nautical miles. Mr Baddams stated that he had various conversations with Mr Fothergill in respect of the inaccuracy of the equipment and that Mr Fothergill said that A & T Australia would improve the system so as to make it more accurate.

6Mr Baddams also said that Mr Fothergill told him, prior to a demonstration for the New South Wales Rural Fire Service in early February 2011, that he had "got the system up and running and we will be able to perform to the standard required". However, Mr Baddams said, contrary to that representation, that after the demonstration he was informed by New South Wales Rural Fire Service personnel that the system did not possess the required accuracy and Britten-Norman would not be awarded the contract for which it had tendered. Mr Baddams said that after that, he requested Mr Fothergill to take the equipment out of the aircraft as it was not working.

7By letter dated 5 May 2011, A & T Australia demanded either full payment of the monies owed or a payment schedule. Mr Baddams said that shortly after receipt of that letter, Mr Fothergill rang him in respect of trials to be conducted by the Victorian Department of Sustainability and Environment and stated that the equipment had been updated. Mr Baddams said that he told Mr Fothergill at this time that he:

"... cannot afford to keep going. I am reluctant to waste any more money. We are going to have to come to some agreement about the money you want. If we are not getting contracts and the plane isn't flying and earning money, I will never be able to pay. To date your systems have not had the accuracy you promised and we have not been able to get any contracts."

8Mr Baddams said that Mr Fothergill responded by saying, "[t]he systems have been fixed, we should get this contract".

9Although he had misgivings, Mr Baddams said that he decided to use the SMS2 equipment on one further occasion and attend the Victorian Department of Sustainability and Environment trial in September 2011. Mr Fothergill attended the trial with him. However, Britten-Norman was unsuccessful in gaining the tender, because, according to Mr Baddams, he was told by a departmental official that the SMS2 equipment was too inaccurate and insufficient for the Department's purpose. He said that shortly thereafter, he arranged for A & T Australia to remove the equipment from the aircraft.

10Mr Baddams said that subsequently, Britten-Norman purchased and installed a replacement system at a cost of $400,000. He said that the new system has an "accuracy to 0.001 nautical miles" and that Britten-Norman had since "been able to obtain contracts for surveillance and mapping operations".

11Mr Baddams deposed that Britten-Norman had agreed to hire the aircraft to ASA for $1,750 per flight hour. Mr Baddams stated that he had estimated that Britten-Norman would have been able to make a gross profit of $400 per flight hour after the payment of expenses and that if contracts had been secured the aircraft would have flown 360 flight hours per year. He estimated a gross profit of $144,000 in its first year of operation had the SMS2 been adequate. This figure assumed that Britten-Norman would have been successful in obtaining the various contracts for which ASA had tendered. Mr Baddams also particularised as part of Britten-Norman's loss the amount it had paid for the lease of what it alleged was a defective system, in a sum of $62,329.50.

12Mr Fothergill responded to Mr Baddams' affidavit by denying the various conversations alleged by Mr Baddams. Mr Fothergill also denied that he had made specific promises about the positional accuracy of the SMS2 and that he had never been shown or provided with any defined accuracy requirements or specifications for it. He said at no stage did the system not perform as required. He also denied that Mr Baddams had ever raised the issue of alleged deficiencies of the SMS2 with him or any of his staff prior to the application to set aside the statutory demand.

13Mr Fothergill said there was a conversation with Mr Baddams in August 2011, when Mr Baddams said that he could "no longer afford to lease the SMS2". Mr Fothergill accepted that he had attended the Department of Sustainability and Environment trial in September 2011 to which Mr Baddams had referred in his affidavit. He said, however, that at no stage before, during or after the trial, was the accuracy of the SMS2 questioned by departmental personnel, as alleged by Mr Baddams.

14In support of his evidence, Mr Fothergill annexed a series of email communications from Mr Baddams relating to payment for the equipment. The first email was dated 6 May 2011, in which Mr Baddams expressed his gratitude for Mr Fothergill's support and stated, "[p]lease bear with me while I see what I can do". At that time, Mr Baddams was in the United Kingdom having discussions with the Britten-Norman aircraft suppliers.

15The next email was dated 16 May 2011 in which Mr Baddams acknowledged that Britten-Norman owed monies to A & T Australia and that he needed to "work out a way forward with you". He requested, as part of a solution, that Mr Fothergill advise him of dates that he would be available to undertake the trial for the Department of Sustainability and Environment, as he had been successful in tendering for the trial.

16There was a further email of 22 August 2011, being the same date as the conversation referred to at [13] above, in which Mr Baddams advised Mr Fothergill the dates of the trial for the Department of Sustainability and Environment and also advised that ASA had not been awarded the New South Wales Rural Fire Service contract and that he was not expecting to be successful in respect of the Western Australian Fire service contract. The email continued:

"As the longer term projects have not gone forward can we please stop the rental charges from 31 August 2011, and I will only pursue other opportunities if they fall in our lap. I will endeavour to pay arrears as quickly as possible and have several contingency plans activated to ensure your [sic] paid ..."

17Mr Baddams sent another email on 21 December 2011, in response to two emails from Mr Fothergill in respect of payment. Mr Baddams stated that he was taking steps to make payments. He made reference to the possibility of an interim payment of $10,000 in the following few weeks.

18On 13 July 2012, Mr Baddams emailed Mr Fothergill contending, inter alia, that A & T Australia had been paid for all the actual work undertaken. Otherwise, the effect of the email was to point out "the commercial reality" that there was no money to pay Mr Fothergill and that "everything" was fully encumbered to a finance company, which was a secured creditor.

19Mr Baddams' swore a further affidavit on 15 March 2013 in which he said that there were significant problems with the SMS2, which had required a number of attendances by Mr Fothergill and his staff to rectify what were said to be "software problems". Mr Baddams said he was reluctant to get into a full dispute with Mr Fothergill, because his son was employed by A & T Australia and he was concerned about the effect on his employment of raising any such problems.

Relevant legislative provisions

20The Corporations Act provides, relevantly:

"Division 3 - Application to set aside statutory demand

459G Company may apply

(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.

(2) An application may only be made within 21 days after the demand is so served.

(3) An application is made in accordance with this section only if, within those 21 days:

(a) an affidavit supporting the application is filed with the Court; and

(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

459H Determination of application where there is a dispute or offsetting claim

(1) This section applies where, on an application under section 459G, 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.

...

459J Setting aside demand on other grounds

(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b) there is some other reason why the demand should be set aside.

..."

Trial judge's reasons

21The primary judge, in his reasons, set out the factual background referred to above. For the purposes of considering the argument on the appeal, there are specific aspects of his Honour's consideration of Mr Baddams' evidence that need to be mentioned.

22Black J, at [7], referred to Mr Baddams' evidence of the purchase of the alternative surveillance system at a cost of $400,000. His Honour noted that there was little detail in respect of the purchase and in particular as to whether it had been paid from the Company's own resources as an outright purchase, as distinct from licensing or leasing the equipment. It should be noted, however, that it seemed from Mr Baddams' evidence that he understood the distinction between, at least, a lease and purchase. Mr Baddams had correctly described the arrangement with A & T Australia as a lease and on more than one occasion referred to the purchase of an alternative system. Further, in the email correspondence, Mr Baddams had referred to everything being fully encumbered to a finance company, which was a secured creditor, again being indicative that he understood the difference between the various notions of ownership and other forms of possession, such as lease or licence.

23His Honour commented, at [9], that Mr Baddams' evidence relating to the hire cost of the aircraft to ASA and Britten-Norman's anticipated profit was not supported by documentation. Nor was there any documented support for Mr Baddams' evidence as to his expectation of the hours that would have been flown per annum had ASA secured the fire surveillance contracts that were being sought.

24His Honour, at [10], referred to Mr Fothergill's evidence and, in particular, to the email correspondence, observing that there was no complaint as to the accuracy of the SMS2 that had been supplied by A & T Australia. His Honour, at [11], acknowledged Mr Baddams' explanation, in his affidavit in reply, that he had not raised his concerns as to the performance of the system because of his son's employment with A & T Australia.

25His Honour discussed the legal principles to be applied by reference to Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451; Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743 at [18]; Beauty Health Group v Sholl [2011] NSWSC 77 at [23]; and Royal Premier Pty Ltd v Taleski [2001] WASCA 48 at [57]. His Honour noted, at [14], that in this last case, Ipp J (as his Honour then was) had held that an absence of evidentiary material from which damage suffered by the applicant could be calculated was fatal to the application to set aside a statutory demand.

26Black J, at [15], noted the dispute between Mr Baddams and Mr Fothergill as to whether there had been an assurance that the SMS2 would give the accuracy required to enable Britten-Norman to win fire fighting contracts. His Honour also noted the dispute as to whether the system fell short of the necessary standard, whether promises had been given about that and whether Britten-Norman had raised concerns as to the accuracy of the system. His Honour considered, in regard to each of these matters, that the absence of contemporaneous documentation to record what was, in effect, a significant assurance, was striking.

27His Honour, at [16], referred to Mr Baddams' claims as to the amount of the offsetting claim, noting that Mr Baddams' evidence was no more than a statement that the replacement system was purchased and installed for $400,000 or alternatively, an assertion of the claimed loss of profit for the first year of operation in the sum of $144,000. At [17], his Honour recorded the submission of A & T Australia that the existence of a genuine dispute was excluded by the email correspondence referred to above and the fact that payments were made after trials with fire authorities were completed, such that Britten-Norman's contentions were devoid of substance and no further investigation was warranted.

28His Honour, at [18], considered that there was a difficulty with Britten-Norman's offsetting claim in that it rested on no more than Mr Baddams' evidence, unsupported by contemporaneous correspondence, although he noted Mr Baddams' explanation that he had not complained of the deficiencies in the SMS2 because of his son's employment with A & T Australia. However, in his Honour's view, there was a more fundamental difficulty in that even if he was satisfied that a serious question had been established as to the existence of misleading or deceptive conduct or breach of contract, the material before the Court was not sufficient to conclude that Britten-Norman had sustained loss or damage in an amount that exceeded that claimed in the statutory demand.

Existence of an offsetting claim

29The argument advanced in this Court was that Britten-Norman had an offsetting claim pursuant to s 459H(1)(b). No separate argument was advanced that there was a defect in the demand pursuant to s 459J(1)(a), which the primary judge noted, at [1], had been the subject of submissions in the case before him.

30It 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 Limited v Oscty Pty Limited [1995] FCA 1208; 17 ACSR 128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 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".

31In 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.

Sufficiency of evidence to satisfy the Court there is an offsetting claim

32The principles stated in the authorities in the preceding paragraphs were not in dispute. The contestable question in the case was the sufficiency of the evidence to satisfy the requirements of s 459H(1)(b) that Britten-Norman had an offsetting claim in an amount that was greater than the amount claimed in the statutory demand (less the statutory minimum of $2,000).

33An examination of the case law reveals that there have been various attempts to formulate what evidence is required for the court to have the requisite degree of satisfaction. Before considering the case law, it is appropriate first to refer to the terms of s 459G, as well as to the requirements of the Supreme Court (Corporations) Rules 1999 (the Corporations Rules).

34Section 459G provides that an affidavit must be filed in support of the application to set aside the demand within the 21 day period in which the section provides that the application must be made. The Corporations Rules, r 2.4(1) provide, relevantly, that, unless the Court otherwise directs, an originating or interlocutory process must be supported by an affidavit stating the facts in support of the process.

35An affidavit constitutes written evidence and thus, subject to certain exceptions, must comply with the rules of evidence as to form and relevance. Relevance for the purposes of an application under s 459H is governed by the terms of the section and the particular matters raised by the application: see the Evidence Act 1995, s 55.

36Accordingly, 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.

37Having 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.

38Regardless whether proceedings to set aside a statutory demand are characterized as final or interlocutory, the issue in such proceedings is not whether a debt to which the statutory demand relates is owed. The issue is whether there is a genuine dispute about whether a debt is owed or whether there is an off-setting claim. Thus in Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; 185 FLR 130 at [21]-[22], White J explained that evidence which may be inadmissible as hearsay or opinion to establish a fact relevant to indebtedness would not on that account be inadmissible to establish a fact relevant to whether there was genuine dispute about indebtedness.

39As the Court has already noted, the question in contention in this case is whether there was sufficient evidence to establish the existence of an off-setting claim. In dealing with that question, the Court has found it of assistance to deal with a line of authority relating to the similar question that arises under s 459H(1)(a), namely, what is required by way of evidence to establish the existence of a disputed debt for the purposes of the section. The distinction between determining whether there was sufficient evidence to establish a disputed debt as opposed to whether the applicant's claim will succeed was considered by Northrop J in Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229, at 234, where his Honour observed:

"Although it is true that the Court, on an application under ss 459G and 459H is not entitled to decide a question as to whether a claim will succeed or not, it must be satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt. If it can be shown that the argument in support of the existence of a genuine dispute can have no possible basis whatsoever, in my view, it cannot be said that there is a genuine dispute. This does not involve, in itself, a determination of whether the claim will succeed or not, but it does go to the reality of the dispute, to show that it is real or true and not merely spurious."

40In Scanhill v Century 21 Australasia, to which the primary judge referred, the question in issue was whether the affidavit filed in support of an application to set aside a statutory demand complied with the Federal Court Rules, which, relevantly, are in the same terms as the Corporations Rules, r 2.4(1), referred to above at [34]. In Scanhill, an assertion in an affidavit in terms: "Prior to the execution of the ... Franchise Agreement, the Respondent agreed to - (i) vary the Franchise Agreement; (ii) waive parts of the said Agreement" was rejected on the basis that the paragraph involved mixed assertions of fact and law and was not in admissible form. There was no other available basis for its admissibility. However, a further paragraph that asserted various representations the applicant alleged had been made by the respondent was admitted on the basis that, although not in admissible form, the statement of the representations in the affidavit involved the verification of the material facts upon which the offsetting claim was based.

41In Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; 70 FCR 452 Sundberg J was concerned with what was necessary to satisfy the requirement of s 459G(3) that there be an affidavit supporting the application to set aside a statutory demand. His Honour considered, at 459, that a mere assertion of a dispute was not sufficient nor was a statement that the debt was disputed. What was required was an affidavit that disclosed "material facts" showing there was a genuine dispute between the parties.

42For that reason, his Honour was of the opinion that an affidavit "may read like a pleading". Implicit in this observation was an acknowledgment that for the purposes of an application under s 459G the evidence need not be in a form which would make it admissible at a final hearing of the underlying issue; the point made by White J in Tokich Holdings. Sundberg J concluded that there was probably little difference between the minimum requirement to satisfy s 459G(3) and the requirements of the rules of court specifying the content of the affidavit required by s 459H, although his Honour considered that the statutory requirement had to be looked at independently of the rules.

43The approach taken by Sundberg J was endorsed by the Western Australian Court of Appeal in Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd [2001] WASCA 360. In that case, Wallwork J (with whom Steytler J and Pidgeon AJ agreed) considered, at [23], that the first affidavit filed in support of the application to set aside a statutory demand "was required to reveal a genuine dispute". Provided that requirement was satisfied, it was permissible for the Court to look at any additional affidavit evidence filed to supplement the original affidavit. The Court noted, at [29], that the deponent had deposed that the applicant did not owe the debt because of the facts he had stated in his affidavit and observed that "[the applicant] did not have to prove that those facts were correct".

44In Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; 167 FLR 106 Parker J, at 115, stated:

"... [that there was no] settled and universal principle, which must be satisfied by an affidavit before it can be accepted as 'supporting the application' within the meaning of s 459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires."

This last statement reflects the notion of 'relevance', referred to above, at [35].

45In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; 214 FLR 393 Barrett J (as his Honour then was), at [25], accepted that the approach indicated by Sundberg J in Graywinter was correct. The application in Saferack had been brought pursuant to s 459J, whereas Graywinter involved an application under s 459H(1)(a). Nonetheless, Barrett J considered that the same reasoning applied in an application brought pursuant to s 459J.

46In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the court is not concerned to engage in an enquiry as to the credit of the deponent of the affidavit filed in support of the application. However, as McLelland CJ in Eq observed in Eyota, at 787:

"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."

47What underlay those remarks, of course, was that the court's concern was to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim. Thus, in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Hayne J stated, at 295:

"... in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute."

48The same approach has been taken to the evidence required in the case of an alleged offsetting claim: see s 459H(1)(b). In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 Thomas J stated, at 605:

"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)." (emphases added)

49It should be noted that the observations of Hayne J in Mibor and Thomas J in Morris Catering were cited with approval by McLelland CJ in Eq in Eyota at 787-788.

50Eyota was expressly applied by this Court in Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372 at [44], where Young AJA (Hoeben JA and Ward J (as her Honour then was) agreeing) stated the test in the following terms:

"... all the primary judge needed to do was to determine whether there was a genuine dispute, that is one in which a plausible contention has been raised by the company on which the statutory demand was served (Eyota Pty Ltd v Hanave Pty Ltd ...)."

51More recently, in Troutfarms Australia Pty Ltd v Perpetual Nominees Limited [2013] VSCA 176, Osborn JA, with whom Ashley JA agreed, endorsed the approach taken in Eyota. In this regard, Osborn JA approved the review of the authorities in Rhagodia Pty Ltd v National Australia Bank [2008] VSC 295; (2008) 67 ACSR 367 by Robson J, where his Honour made extensive reference to Eyota. Robson J in Rhagodia also referred to the remarks of Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; 66 ACSR 67 where her Honour stated, at [57], in an approach which mirrors what was said in Eyota, that when determining whether to set aside a statutory demand, an in-depth examination or determination of the merits of the alleged dispute was neither necessary nor appropriate. Her Honour likened the determination to that taken in respect of an interlocutory injunction.

52Dodds-Streeton JA explained further, at [71], that:

"As the terms of s 459H of the Corporations Act 2001 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."

53As might be expected, there are numerous first instance decisions which apply these principles and, in particular, the requirement that all that is necessary is there be a plausible basis for the claim that there is a disputed debt or an off-setting claim: see by way of example Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411; No. 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146; Elm Financial Services Pty Ltd v Macdougal [2004] NSWSC 560; Hills Motorway Ltd v UBS AG [2005] NSWSC 1086; Hansmar Investments Pty Ltd v Perpetual Trustee Company Ltd [2007] NSWSC 103; 61 ACSR 32. To the extent that there are sometimes found in these cases statements that there must be a "plausible and coherent basis" for such contention, we do not consider that any more is intended to be said than the test stated by McLelland CJ in Eq in Eyota, which we consider and understand to be the correct statement of the law.

54It is also to be borne in mind that the procedure for challenging a statutory demand is intended to be an essentially summary one. This was adverted to by this Court in Infratel Networks v Gundry's Telco & Rigging at [32], where Young AJA observed, at [41]:

"...that it is of considerable concern that many of the hearings of cases in this type of matter spend time considering piles of decided cases discussing nuances in the different terminology used by judges throughout Australia who basically are saying the same thing. This approach defeats the whole purpose of the Act, which is to enable the court to dispose of this sort of dispute in a short, summary way."

55Thus, even though the courts may allow evidence to be supplemented beyond what is raised in the initial affidavit containing the grounds upon which the application is made, care must be taken not to elevate the requirements of the evidence necessary to establish that there is a basis to set aside a statutory demand beyond what we have stated it to be. For example, it would set too high a standard to require that the evidence "prove" the facts that raise the ground in the initial affidavit. Whether in the initial affidavit, or by a combination of that evidence and other evidence filed or adduced at the hearing, a party seeking to set aside a statutory demand must establish that there was a plausible contention requiring investigation: see the discussion above at [30]-[31].

Was the evidence sufficient in this case to establish an off setting claim in an amount greater than the claimed debt?

56The primary judge's determination that Britten-Norman had not established an offsetting claim was based primarily upon the insufficiency of the evidence of the quantum of such claim. It appears, however, from his Honour's reasons, that he would not have accepted that Britten-Norman had an offsetting claim or was, at the least, doubtful that there was any genuine offsetting claim. This is apparent from his Honour's observation, at [18], that there was "a first difficulty with [Britten-Norman's] reliance on an offsetting claim", as it was based on "no more than Mr Baddams' evidence, unsupported by contemporaneous correspondence referencing the complaints now advanced". His Honour acknowledged that Mr Baddams had advanced an explanation as to why that was so, namely, that his son worked for A & T Australia. It is not clear whether that was why his Honour made no specific finding as to whether Britten-Norman had established, to the requisite degree required by the section, that it had an offsetting claim.

57Notwithstanding his Honour's approach, it is necessary to consider both whether the evidence was sufficient to satisfy the court that there was an offsetting claim and, if so, whether the evidence was sufficient to establish the amount of that claim, as this Court should not allow the appeal unless it is satisfied that an offsetting claim was established to the requisite degree. That both aspects should be considered is reinforced by the fact that the position taken by A & T Australia in the court below was to put in issue the existence of a genuine offsetting claim. It made no challenge to the quantum of any such claim.

58Mr Baddams' affidavit went further than merely asserting the existence of an offsetting claim. In this regard, it is of some significance that his evidence as to the basis of his offsetting claim was in admissible form. It was not a matter of mere assertion of a statement in the form of a pleading. His evidence was that there were statements made by Mr Fothergill that amounted to representations as to the performance of the SMS2. He gave evidence that was capable of establishing reliance on those statements.

59This evidence was met by the affidavit of Mr Fothergill, including, particularly, the evidence of the emails from Mr Baddams to Mr Fothergill in which Mr Baddams acknowledged Britten-Norman's indebtedness to A & T Australia without (subject to one matter to referred to below, at [63]) raising any problem with the SMS2 A & T Australia had provided to Britten-Norman. His Honour was well justified in considering that the email correspondence posed difficulties for Britten-Norman.

60However, the existence of evidence that casts doubt, even significant doubt, on an applicant's contention that there is a disputed debt or an offsetting claim, is not the basis for a rejection of an application under s 459H. In the result, for the reasons that follow, we have come to the conclusion that the email correspondence did not so undermine the appellant's evidence as to make it implausible or to justify a conclusion that the claim was not genuine.

61First, evidence does not have to be supported by contemporaneous documentation, a matter that his Honour appeared to consider was of significance. Whilst a witness' evidence may be more cogent if it is supported by such documentation, the absence of documentation does not, of itself, render a witness' evidence lacking in credibility, reliability or cogency.

62Secondly, the early emails, that is, those dated 6 and 16 May and 22 August 2011, were written at a time when the Department of Sustainability and the Environment trials were still to be held and, on Mr Baddams' evidence, Mr Fothergill had given him assurances that the problems with the SMS2 had been addressed.

63Thirdly, Mr Baddams gave evidence that he had offered to discuss matters with Mr Fothergill in late 2011. That evidence was not answered by Mr Fothergill. This arguably gives rise to an inference that there was a problem, which at that point remained unexpressed.

64Fourthly, Mr Baddams gave a reason for not making any complaint about the SMS2 at the time, namely, that his son was working for Mr Fothergill. Mr Fothergill did not deny this and Mr Baddams was not challenged as to his evidence that this was the reason why he did not raise his complaints earlier.

65Fifthly, Mr Baddams also said that the system had required a number of attendances by Mr Fothergill and other of his staff to rectify what he was informed were "software problems". This evidence was not refuted by Mr Fothergill nor challenged by cross-examination.

66Next, Mr Baddams gave evidence that during the trials the system had been inaccurate to a significant extent. Whilst Mr Fothergill disputed conversations that Mr Baddams said they had had, he did not dispute that he had attended the various trials to which Mr Baddams referred in his affidavit, nor, as was said in relation to the previous point, did he dispute that there were software problems that required rectification.

67On the appeal, counsel for A & T Australia submitted that any cross-examination of Mr Baddams would have been futile, as Mr Baddams would simply have maintained his evidence was correct. This could reasonably be anticipated in relation to the disputed conversations. However, that was not a foregone conclusion in relation to other aspects of Mr Baddams' evidence. One object of cross-examination is to undermine the evidence given in chief or establish that it is false, incorrect, unreliable or implausible. Whilst cross-examination is not (and ought not be) the norm in an application brought under s 459G, there are occasions where cross-examination may be permitted, if directed to whether there is a genuine dispute as to the existence of a debt or whether there is a plausible basis for an off-setting claim, as distinct from the merits of any such dispute or claim: Re Mibor Investments Pty Ltd v Commonwealth Bank of Australia at 294.

68The matter before the court was such a case, given the unrefuted evidence referred to above. Put shortly, A & T Australia failed to challenge, by cross-examination, Mr Baddams' answer to the email correspondence and his other unrefuted evidence.

69In the result, therefore, his Honour had before him evidence of the following: (i) various trials of the equipment; (ii) that Mr Fothergill had attended the trials; (iii) that the equipment was not sufficiently accurate; (iv) conversations with Mr Fothergill in respect of the accuracy of the equipment and promises that the equipment had been modified so as to improve its accuracy; and (v) that Mr Baddams had not made complaints in his email correspondence because of his son's employment. Of these matters, the only matters put into contention were the alleged conversations and whether the accuracy requirements of the SMS2 had ever been specified.

70The assessment of this evidence must be made in the context that requires it to be sufficient to establish Britten-Norman had an offsetting claim, in the sense of there being "a serious question to be tried", or "an issue deserving of a hearing", or a "plausible contention requiring investigation". When the evidence is considered as a whole, having regard to the absence of challenge to aspects of it, the dispute as to the conversations and the content of the emails, the evidence established a plausible contention requiring investigation. The email evidence poses difficulties for the ultimate proof of the claim. However, that evidence did not render Mr Baddams' asserted claim sufficiently implausible as not to merit further investigation. To have found it so would have been to enter upon an assessment of the credibility and weight of the evidence which is more than is required for an applicant to satisfy s 459H.

Sufficiency of evidence as to the amount of the claim

71The remaining question is whether the evidence was sufficient to establish that the amount of the offsetting claim was greater than $126,421.50, which is the amount of the statutory claim less the minimum statutory amount of $2,000: see s 459H(2), (3). In its submissions before the primary judge Britten-Norman formulated its offsetting claim in three ways. It alleged breach of an implied term that SMS2 would have certain performance characteristics and breach of a warranty that the surveillance system was fit for purpose. It also alleged that the making of representations as to those performance characteristics involved misleading or deceptive conduct. In relation to the two claims in contract, Britten-Norman maintained that it was entitled to damages which included the cost of purchasing and installing a replacement surveillance system ($400,000) and the gross profit which it says it lost for one year of operations ($144,000). In relation to its misleading or deceptive conduct claim, Britten-Norman claimed the amount of its alleged liability to A & T Australia of $128,421.50 as well as the one year's gross profit which it maintained it would have earned had it obtained a different surveillance system.

72When considering whether Britten-Norman satisfied the Court as to the quantum of its offsetting claims, the position taken by A & T Australia in the proceedings before the primary judge is again relevant. Counsel for A & T Australia informed the Court that his client had not contested the quantum of the claim. Its position before the primary judge was that Britten-Norman had not proved to the requisite degree that it had an offsetting claim. Whilst his Honour was nonetheless entitled to conclude that there was insufficient evidence to support the amount of the offsetting claim, he was required to assess the evidence in the context that there was no challenge to Mr Baddams' evidence in the respects identified.

73In concluding that Britten-Norman had not adduced sufficient evidence to establish the claimed losses, his Honour took into account a number of considerations. First, at [18], his Honour was of the opinion that Britten-Norman's damages for breach of contract or misleading or deceptive conduct could not include the entire cost of a different surveillance system. To do so would make no allowance for benefits derived from that system, as distinct from the additional costs to which Britten-Norman had been put by having had the SMS2 prior to installing that system. His Honour was also concerned that there was "no evidence of substance" of the purchase, cost and terms of purchase of the replacement system. In regard to Britten-Norman's claim for lost profits, his Honour was of the opinion that there was insufficient evidence (i) to support the quantification of flying hours, or (ii) the profit per flying hour, or (iii) of the basis of its expectation that it would have won the relevant contracts were it not for the defective system.

74Britten-Norman challenged these findings principally upon the basis that its claims had not been the subject of challenge and that, in any event, his Honour had erred in respect of the claim for loss of profits in that Mr Baddams' assessment of gross profit in the sum of $144,000 was after the deduction of expenses. Whilst both these contentions are correct, it is still necessary to consider whether the evidence was sufficient to establish a plausible offsetting claim equal to the amount of the statutory demand.

75It is sufficient for that purpose to address the claim based on misleading or deceptive conduct. That claim included that, but for the misleading or deceptive conduct, Britten-Norman would not have incurred any liability to A & T Australia by way of monthly rental payments. In its written submissions, the appellant said that this amount was $128,421.50. That is not, however, the amount of the liabilities which Britten-Norman incurred to the respondent. Britten-Norman's schedule of amounts owing annexed to Mr Fothergill's affidavit of 1 March 2013 revealed that it has paid a total of $62,329.50 out of a total invoiced amount of $190,751.00, leaving the balance of $128,421.50, which is the amount of the statutory demand. This evidence supports the claim that, but for the alleged misleading or deceptive conduct, Britten-Norman would not have incurred a liability in excess of $128,421.50. This aspect of the claim for damages based on misleading or deceptive conduct was not addressed by the primary judge and was sufficient to establish a plausible offsetting claim which was in excess of the statutory demand.

76We agree, however, with the primary judge's conclusion that the evidence was insufficient to establish on a plausible basis that the damages recoverable for misleading or deceptive conduct included lost profits of $144,000. Mr Baddams' evidence was that this was the gross profit which he anticipated assuming that SMS2 had performed as represented. He gave no evidence that Britten-Norman would or might have achieved a similar gross profit in its first year of operations, assuming instead that it had purchased the system which was subsequently purchased and installed at a cost of $400,000. In particular, there was no evidence of the actual or notional monthly financing cost to Britten-Norman of that capital expenditure, which was an essential integer in the calculation of any lost profits, assuming the use of that system. For this reason, rather than the absence of corroborating documents, the primary judge was correct to conclude that there was insufficient evidence to support the claimed lost profits of $144,000 as part of the misleading conduct claim.

77Our conclusion in relation to the misleading conduct claim makes it unnecessary to address whether the primary judge erred in considering the claims in contract. We do, however, make two brief observations in relation to those claims. The first is that the claim for lost profits made on the assumption that SMS2 performed as agreed or warranted was established on a plausible basis for the reasons given above.

78Secondly, Britten-Norman sought to quantify part of the damages recoverable for breach of the contract for hire by reference to what was said to be the capital cost of replacing the subject matter of the hire. It argued that in circumstances where a plaintiff could only be compensated for damage by acquiring an item better than the damaged item, it can be appropriate to allow the full value of the better item, and that once a plaintiff had adduced evidence to establish such a claim, the defendant bore the onus of proving any betterment and the quantum of that betterment: see Roberts v Rodier [2006] NSWSC 282; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302.

79This argument disregards the normal measure of damages for breach of contract and for that reason must be rejected. That measure seeks to place a plaintiff, so far as money can, in the same position it would have been in had the contract been performed: Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363; Commonwealth of Australia v Amann Aviation Pty Ltd (1991) HCA 54; 174 CLR 64. Here, where damages are claimed for breach of warranty in a contract of hire, that measure "should be the amount of hire the goods as warranted could command in the market less the amount of hire they can command as they are. In practice, this is likely to work out at the rentals which the claimant has paid under the contract less the value of such use as he has had of the goods": Harvey McGregor, McGregor on Damages, 18th ed (2009) Sweet and Maxwell at 21-003. In this analysis, no question of betterment arises.

80The primary judge rejected this aspect of Britten-Norman's claims in contract principally because he was not satisfied, at an anterior point, that there was sufficient evidence of any such loss. He referred to there being no evidence of substance as to the purchase or the costs and terms of the purchase. In these respects, his Honour required more than was necessary on an evidentiary basis to satisfy what was needed to establish an offsetting claim.

81For these reasons, the evidence before the primary judge was sufficient to establish that Britten-Norman had an offsetting claim for the purposes of s 459H(1)(b), for misleading or deceptive conduct (and for that matter in contract), which was greater than $126,000.

82 It follows that the appeal should be allowed. Accordingly, the Court makes the following orders: