Rainbow and Nature v Bronson and Jacobs [2006] NSWSC 217

New South Wales Supreme Court

CITATION : Rainbow and Nature v Bronson and Jacobs [2006] NSWSC 217

HEARING DATE(S) : 17 March 2006

JUDGMENT DATE : 31 March 2006

JURISDICTION : Equity

JUDGMENT OF : Austin J

DECISION : Statutory demand set aside, with indemnity costs.

CATCHWORDS : CORPORATIONS - creditor's statutory demand - genuine dispute as to existence of debt - financing by "buy and sell plan" including set-off arrangements - PRACTICE & PROCEDURE - indemnity costs

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 459G, 459

Austrac Rail Pty Ltd v Hunter Premium Funding Ltd [2001] NSWSC 654 CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100 CASES CITED : Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1997) 16 ACLC 529

PARTIES : Rainbow and Nature Pty Ltd ACN 054 555 903 (P) Bronson and Jacobs Pty Ltd ACN 000 063 249 (D)

FILE NUMBER(S) : SC 1030/06

COUNSEL : Ms T Leibman (P) Mr J T Johnson (D)

SOLICITORS : E Philips & Company (P) Sally Nash & Co (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

FRIDAY 31 MARCH 2006

1030/06 RAINBOW AND NATURE PTY LTD V BRONSON AND JACOBS PTY LTD JUDGMENT 1 HIS HONOUR: By an originating process filed on 10 January 2006, the plaintiff seeks an order that the statutory demand dated 14 December 2005 served by the defendant on the plaintiff be set aside. The statutory demand was for an alleged debt of $836,893.90. It gave the following particulars: Outstanding Tax Invoice 3637201 dated 26 August 2005 $681,147.93 Outstanding Tax Invoice 3528360 dated 11 August 2005 $152,701.00 Outstanding Tax Invoice 3534078 dated 22 August 2005 $ 21,350.48 Less Credit note 60101083 dated 8 November 2005 $ 18,305.51 Balance $836,893.90 2 The statutory demand was accompanied by an affidavit by Kenneth James Kirby dated 14 December 2005. Mr Kirby deposed that he was the Business Manager - Pharmaceuticals of the defendant and was the person who had dealings with the plaintiff. Mr Kirby said he believed that the debt was due and payable and that there was no genuine dispute about its existence or amount. 3 The plaintiff's grounds for setting aside the statutory demand are two: first, that, contrary to Mr Kirby's affidavit, there is a genuine dispute as to the existence of the alleged debt; and secondly, the plaintiff has an offsetting claim exceeding the amount claimed in the statutory demand. In her written submissions, counsel for the plaintiff also raised issues about alleged formal defects in the statutory demand, but at the hearing she withdrew those submissions. Genuine dispute as to the existence of the alleged debt 4 The plaintiff admits that it received the three invoices specified in the statutory demand, and that it received the goods to which those invoices relate. The plaintiff's case is that, by virtue of the agreement between it and the defendant pursuant to which it received those goods, it was entitled to set off those three invoices against the value of that portion of goods held by the plaintiff, which the defendant was obliged to purchase from it. 5 The plaintiff is a manufacturer and distributor of a range of health care products, including a product called Policosanol ("Manufactured Product"). It is manufactured from sugar cane wax alcohol ("Raw Material") imported from Cuba. It takes approximately two months from the time of placing an order in Cuba for the Raw Material to arrive in Australia, and after it is received in this country, it can take an additional two months to produce the Manufactured Product. 6 According to the evidence of the plaintiff's sole director, Mr Lee, he entered into an agreement on behalf of the plaintiff with Mr William McCarthy on behalf of the defendant in 2003, before the defendant was acquired by Orica Ltd. Under the agreement the defendant would provide finance to the plaintiff in an unusual fashion, referred to in evidence as a "buy and sell plan". In his affidavit made on 10 January 2006, Mr Lee summarised the terms of the agreement as follows: (a) the defendant agreed to hold Raw Material and Manufactured Product having an aggregate value of $2 million at any time; (b) when the plaintiff required additional Raw Material from Cuba, it ordered the product from Cuba and the defendant agreed to purchase the Raw Material from the plaintiff, provided that the total value of the stock held by the defendant did not exceed $2 million; (c) the plaintiff agreed to re-purchase Raw Material from the defendant, at a 5% premium to the price at which the plaintiff had sold it to the defendant, and on payment terms of at least 60 days from the date of the defendant's invoice; (d) the plaintiff manufactured Raw Material into Manufactured Product, in tablets of two dosages, namely 5 mg and 10 mg; (e) the plaintiff sold Manufactured Product to the defendant, and the defendant was obliged to purchase it provided that the total value of the Raw Material and Manufactured Product held by it did not exceed $2 million, the payment terms for the defendant's purchase of Manufactured Product from the plaintiff being 7 days from the date of invoice by the plaintiff; (f) the plaintiff agreed to purchase Manufactured Product held by the defendant at a 5% premium to the price at which the plaintiff had sold it to the defendant, on payment terms of at least 60 days from the date of invoice by the defendant; (g) the plaintiff sold Manufactured Product to its customers; (h) the defendant was licensed by the plaintiff to sell Manufactured Product directly to Blackmores, the effect of this arrangement being that the defendant obtained a 7% premium on sales to Blackmores. 7 Broadly speaking, the defendant funded the plaintiff's business operations by taking ownership of Raw Material and Manufactured Product to the value of $2 million, for which the defendant paid, and supplying those goods to the plaintiff on demand at a marked-up price, the mark-up being the defendant's "interest". Mr Lee claimed that these arrangements were in operation between 2003 and October 2005. Of the invoices that are the subject of the statutory demand, one related to a sale by the defendant to the plaintiff of Raw Material and the other two were for sales by the defendant to the plaintiff of Manufactured Product. 8 In his affidavit made on 9 March 2006, Mr Lee deposed that in practice, the agreement operated on a "contra" basis. He said: (a) when the defendant sold Raw Material or Manufactured Product to the plaintiff, the effect was that the stock held by the defendant was depleted below the $2 million level; (b) the plaintiff would therefore clear its account with the defendant by asking the defendant to purchase more Manufactured Product from the plaintiff, so as to bring the value of the defendant's aggregate holding back up to $2 million; (c) the defendant was required to meet such requests, as long as the total value of Raw Material and Manufactured Product held by the defendant at any time did not exceed $2 million; (d) the plaintiff invoiced the defendant for Manufactured Product ordered by the defendant, and set off its invoices against the invoices issued by the defendant; (e) invoices issued by the defendant were not payable by the plaintiff unless they could not be offset by the defendant purchasing stock when required to do so (that would be so if the defendant already held Raw Material and Manufactured Product to the aggregate value of $2 million); (f) as long as the defendant's stock levels were below the $2 million level, the plaintiff was entitled to offset the defendant's invoices against the value of stock that the defendant was obliged to purchase from it; (g) the difference in the price paid by the defendant and the price paid by the plaintiff for Raw Material and Manufactured Product that changed hands between them was 5%, and therefore periodically the plaintiff paid money to the defendant to "net out" the running account. 9 Annexed to Mr Lee's affidavit of 9 March 2006 are some sets documents comprising the plaintiff's accounting records, invoices issued by the defendant and bank statements of the plaintiff, which support his contention that the offsetting arrangements to which Mr Lee deposed were in place, accepted by the defendant by its conduct. 10 The plaintiff's counsel carefully took me through these sets of documents, one by one. It is sufficient for present purposes to refer to one of the sets of documents. The plaintiff's Transaction Journal for 21 January 2005 shows that the plaintiff had rendered an invoice to the defendant for $883,071.96. The Transaction Journal for that date also shows that the plaintiff had been invoiced by the defendant for $679,945.49. That is the total figure shown on the defendant's statement to the plaintiff dated 4 January 2005, after deduction of an amount of $8,800 which, according to a handwritten endorsement on the statement, had been paid. The total figure comprised four items. The defendant's subsequent statement dated 1 February 2005 shows five items for "cash and adjustments processed in January", namely the payment of $8,800 and "cust con" for each of the four amounts comprising the total shown in the 4 January statement. I infer that "cust con" is an abbreviation for "customer contra". In the plaintiff's accounting records there is a listing for "Supplier Balance Detail" from which one can see that on 21 January 2005 the balance for the defendant's account of $679,945.49 was netted back to zero. The evidence also includes a bank statement for the plaintiff's account which shows a transfer of funds to the credit of the account on 21 January 2005 in the sum of $203,126.45, which is approximately the difference between the plaintiff's invoice to the defendant of $883,071.96 and the defendant's invoice to the plaintiff of $679,945.49. 11 The defendant did not adduce any evidence denying that the arrangements between the parties were as deposed to by Mr Lee. In his affidavit made on 28 February 2006, Mr Kirby referred to Mr Lee's first affidavit, but his evidence about the arrangement between the parties was simply that the August invoices were rendered after the defendant completed orders made by the plaintiff for the goods specified in the invoices, payment was not received on the due dates, the defendant rejected orders placed by the plaintiff, and it issued a demand for payment. As to any underlying arrangements, Mr Kirby merely said that "the defendant has from time to time purchased stock from the plaintiff but until such time as the defendant's account is paid in full by the plaintiff, the defendant will not purchase any further stock from the plaintiff". Mr Kirby thought it appropriate to say that he was "unaware of any genuine dispute" relating to the debt claimed by the defendant, even though the defendant had been served with Mr Lee's first affidavit and Mr Kirby appears to have read it. Mr Kirby referred to the defendant's letter of demand of 1 November but made no mention of Mr Lee's reply of 4 November, in which he set out the terms of the arrangements and his view that the plaintiff was entitled to set off the value of the defendant's obligation to buy goods against the plaintiff's obligation to pay invoice amounts. 12 Having regard to the documentary evidence of the set-off arrangements annexed to Mr Lee's second affidavit, and the fact that Mr Kirby has not denied Mr Lee's evidence of the arrangements in his first affidavit, I find that there is (at the very least) a plausible contention that the arrangements between the parties were the arrangements deposed to by Mr Lee in his two affidavits. 13 The defendant sought to resist this conclusion by tendering the original invoices which are the subject of the statutory demand, and drawing attention to the due dates for payment and the "Terms and Conditions of Sale" appearing on the back of each of them. For two of the three invoices, the due date of payment was 31 October 2005. For the other one (the invoice for $152,701) the due date for payment was 28 September 2005. One of the provisions of the Turns and Conditions of Sale is as follows: "5. PAYMENT BY DEFAULT Unless otherwise agreed expressly in writing, the terms of payment shall be net monthly, on or before the due date for payment as per the invoice or Statement of Account. If the Buyer fails to make payment for the goods in accordance with these terms, … then all monies owing and outstanding to the Seller on any account whatsoever and irrespective of whether the due date has occurred or not, shall become immediately due and payable. In addition the Seller may, without prejudice to its other rights, either suspend further deliveries, require payment in advance for all such deliveries, or terminate any contract forthwith by written notice to the Buyer." 14 In my opinion these provisions should not be taken to have negated the arrangements of which Mr Lee gave evidence. The printed terms and conditions cover only part of the relationship between the parties, namely their relationship of seller and buyer of goods in circumstances where, pursuant to the broader arrangements explained by Mr Lee, the plaintiff requested the defendant to supply Raw Material or Manufactured Product. They do not purport to cover the underlying financing arrangement which required the defendant to hold goods of a certain value and to buy and sell pursuant to the overall arrangements, which included set-off. Although the due dates of payment are stated on the face of the invoices, Mr Lee's evidence raises a plausible contention that, pursuant to the wider arrangements between the parties, payments by the plaintiff on the defendant's invoices were on at least 60 day terms. 15 Orica Ltd became the ultimate holding company of the defendant in about June 2004. While previously, he had dealt with Mr McCarthy, thereafter Mr Lee dealt with a number of managers from the defendant, most recently Mr Kirby. Mr Lee gave evidence in his first affidavit, not denied by the defendant, that the agreement that he had described continued after Orica had became the defendant's holding company, although after that time the defendant provided the plaintiff with various draft agreements for product supply and distribution, presumably for proposed new arrangements. 16 Mr Kirby's affidavit annexes a chain of e-mail correspondence on about 11 August 2005, in which Mr Kirby told Pearson Park, the plaintiff's financial accountant, that he wanted the plaintiff to pay for a particular consignment of 5 mg tablets by the end of September, because that was the end of the defendant's financial year. Mr Park confirmed that "we will clear all Rainbow's outstanding before end of September 05". The defendant placed emphasis on this in submissions but I note that Mr Park did not promise to make cash payment, but only to "clear" all the "outstanding", something that could have been done through the contra arrangement. 17 The plaintiff's evidence was that, as at 31 August 2005, the defendant was holding stock to the value of $1,075,505.21. Because of the events that I shall explain, since August 2005 the defendant has not purchased any Manufactured Product from the plaintiff. This gives rise to the inference that at the end of October 2005 the stock levels held by the defendant were no higher than they were at the end of August. 18 Mr Lee gave evidence of his negotiations with the defendant from September 2005 to November 2005, largely confirmed in Mr Kirby's affidavit. As appears from Mr Kirby's evidence, these negotiations occurred after the defendant had refused to meet the plaintiff's orders, and had denied any obligation to do so. On 30 September 2005, Mr Lee wrote to the defendant proposing three conditions "to solve the current relationship" between the defendant and the plaintiff. His proposals involved an increase in the defendant's "commission" under the funding arrangements, retention of the "buy and sell plan" and payment by the plaintiff of the "current balance" within 6 months if the defendant did not accept the other conditions. Mr Lee insisted on the defendant meeting the plaintiff's last order for Manufactured Product. 19 On 6 October 2005 Mr Kirby replied, saying that that the agreed business dealings between the defendant and the plaintiff were "very much outside the core business that Orica Chemnet operates". He referred to "the financial parameters" within which he was required to operate and the "outcomes" that he was required to achieve, and said that his proposal for the defendant's future business relationship with the plaintiff would be aimed at achieving those outcomes. He said that the business conducted between the defendant and the plaintiff could not continue the way it had been operating. He made a new proposal for financing arrangements which provided for a mark-up of 12%, a reduction of the value of stock held to $500,000 and "no contra payments in future". 20 As a matter of construction, Mr Kirby's letter of 6 October was not a purported termination of the financing arrangements between the parties, or notice of an intention to terminate after a reasonable period had elapsed. It was a letter by way of negotiation for new arrangements to replace the existing arrangements, when and if agreed. 21 Shortly afterwards Mr Lee send an e-mail to Mr Kirby in which he expressed surprise at the changes Mr Kirby had proposed, having regard to his long relationship with the defendant, and he said he was disappointed that Mr Kirby felt that Orica could change conditions so dramatically. He pointed out that the people with whom he had previously dealt at the defendant were happy with the arrangements. He said the defendant's refusal to supply stock to the plaintiff was seriously jeopardising supply to the market and seriously compromising the plaintiff's business. 22 According to Mr Lee's first affidavit, on about 26 October 2005 the defendant rejected the plaintiff's request to fulfil an order to supply one million tablets of Manufactured Product to Blackmores, after the defendant had previously refused to supply Blackmores direct. In his affidavit Mr Kirby said the defendant had rejected the plaintiff's request to fulfil an order to Blackmores because the price to be paid was below the price at which the defendant had purchased product from the plaintiff. 23 On 28 October 2005 Mr Park wrote to Mr Kirby, inter alios, saying that since no agreement had been reached in relation to changes to the agency agreement between the plaintiff and the defendant, the plaintiff assumed that the terms and conditions of the agreement remained unchanged. In my opinion that was a correct analysis of the position. Mr Park therefore requested the defendant to forward an order to cover specified stock of Manufactured Product to the value of $1,015,018.02. The defendant did not place a purchase order as requested. 24 I note that the communication of 28 October 2005 was a few days before the due date for payment shown on two of the three invoices that are the subject of the statutory demand. It was a month later than the stated due date of the third invoice but if Mr Lee's evidence is accepted, the delivery was on 60 day terms and so the due date for payment on the third invoice was no earlier than 28 October. 25 By letter dated 1 November 2005 from Mr Kirby to Mr Lee, the defendant made a "final demand" for $833,848.93, an amount slightly less than the amount appearing on the statutory demand. Mr Lee responded on 4 November 2005. The first substantive paragraph of Mr Lee's letter is important enough to be set out in full: "We are Confused as to why you have sent this letter of demand. We have over $1 Million Dollars worth of stock currently in our warehouse awaiting a purchase order from you. I have sent e-mails and fax to you requesting a purchase order, as is the existing agreement, and to confirm delivery date with no response. Our current agreement works on a contra basis, and if you were to take the stock in our warehouse based on the agreement Bronson and Jacobs would in fact be in debt to Rainbow and Nature." 26 Although the letter is not written in legal terminology, it unambiguously asserts an arrangement of the kind that Mr Lee has subsequently deposed to in his affidavits. It informed Mr Kirby that according to the plaintiff, the defendant was obliged to take stock worth over $1 million and that its obligation to pay for that stock was to be set off against the plaintiff's indebtedness under the defendant's invoices. 27 The letter went on to point out that the agreement had been in effect since before the purchase of the defendant by Orica, and then it particularised the terms of the agreement along the lines of the subsequent affidavit evidence. The letter concluded by raising the question whether the defendant wished to terminate the existing agreement. There was no reply to the letter of 4 November. 28 On 9 December 2005 the plaintiff's solicitor wrote to the defendant, noting that there had been no reply to the plaintiff's letter of 4 November. The letter gave notice that the plaintiff accepted the defendant's repudiation of the agreement recorded in the letter of 4 November, and said: "Rainbow does not propose making any payment to you for stock held by you which remains in your possession by reason of the breach by you of the obligations under the agreement". 29 Whatever be the precise effect of a letter of 9 December, on a full analysis, one thing is clear. The letter could not, and did not purport to, affect accrued rights and obligations. It did not take away the plaintiff's obligation to pay the defendant $833,848.93 for the August invoices, nor its entitlement to set that payment obligation off against the defendant's obligation to order Manufactured Product from the plaintiff to the value of $1,015,018.02. 30 The defendant did not apply to the letter of 9 December. The statutory demand was served on about 20 December 2005, together with Mr Kirby's supporting affidavit in which he asserted his belief that there was no genuine dispute about the existence or amount of the debt. 31 On 22 December 2005 the plaintiff's solicitor wrote to the General Counsel of Orica, referring to the statutory demand and expressing surprise, given the contents of the "termination letter" of 9 December 2005 and the lengthy negotiations in which Mr Kirby, the deponent of the affidavit supporting the demand, had participated. The letter asked the defendant to withdraw the demand. On the following day Orica's legal counsel replied, saying that since Orica had been unable to reach a satisfactory commercial outcome with the plaintiff and the debt remained unpaid, the statutory demand would not be withdrawn, but he would consider "sensible commercial proposals" for payment. On 10 January 2006 the defendant's solicitors wrote to the plaintiff's solicitors saying that the statutory demand would not be withdrawn. 32 Section 459H governs the determination of an application to set aside a statutory demand in a case where there is a dispute. It provides that the court must set aside the demand if there is a "genuine dispute" between the company in the respondent to the proceeding about the existence or the amount of a debt to which the demand relates, if the "substantiated amount" of the debt is nil or less than the statutory minimum. The "substantiated amount" is calculated by taking the "admitted total" and subtracting the "offsetting total", the latter comprising "genuine claims by way of counterclaim, set-off or cross-demand". 33 The key concept for present purposes is "genuine dispute". It is sufficient, in this straightforward case, to rely on the often-quoted explanation given by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785. His Honour said (at 787): "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 …. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute." 34 Here, Mr Lee's evidence satisfies me that there is a genuine dispute as to whether the amount claimed in the statutory demand was due and owing. I take into account the evidence of the contra arrangements existing between the plaintiff and the defendant, the evidence that the defendant's holdings were well below the $2 million figure that had been arranged, and the evidence that on 28 October 2005 the plaintiff called upon the defendant to place an order for Manufactured Product of a value in excess of $1 million and therefore higher than the amount claimed in the statutory demand. It is unnecessary for me to make a finding, on the balance of probabilities, as to any of those matters, but I do find that the plaintiff has clearly established the kind of plausible contention to which McLelland CJ in Eq referred. 35 The plaintiff's purported acceptance of the defendant 's repudiation of their agreement on 9 December 2005 does not affect my conclusion on this point. Any termination of the agreement would not remove the plaintiff's entitlement, already accrued well before 9 December 2005, to set off its entitlement to require the defendant to place an order against its obligation to meet the defendant's invoices. 36 Nor is my conclusion affected by what counsel for the defendant referred to as the plaintiff's failure to enforce the right it claimed, namely the right to require the defendant to submit a purchase order. The plaintiff's request for the defendant to do so was dated 28 October, and just four days later, on 1 November, the defendant issued a letter of demand for payment of the invoice amounts. Three days after that Mr Lee set out the terms of the arrangements he alleged to exist, evidently hoping (as appears from the terms of that document) that Mr Kirby would ascertain the accuracy of Mr Lee's claim and respond accordingly. The letter of 9 December reflected some concern on the plaintiff's part about future performance of the agreement but it did not address the question of existing accrued rights and obligations. The defendant's response to the correspondence of 4 November was really only received when the statutory demand was served, and thereafter the matter proceeded as an application to set aside the demand. I can detect in this sequence no failure or reluctance, on the part of the plaintiff, to assert rights that it had expressly articulated on 28 October and 4 November. Offsetting claim 37 In addition to claiming an entitlement to set-off under the contra arrangements, giving rise to a genuine dispute as to the existence of the whole debt claimed by the defendant, the plaintiff asserts an offsetting claim in the following circumstances. 38 Mr Lee gave evidence that the plaintiff had been unable to supply the local and tourist markets with 5 mg tablets of Manufactured Product because those tablets would ordinarily be available from the defendant but were not available in the circumstances. He said the peak selling time for 5 mg tablets to the tourist market is the period from October to December. He estimated that, had the plaintiff being in possession is sufficient Raw Material, it would have produced and sold no less than 2,350 units of 5 mg tablets in December 2005, and a further 1,250 units for January 2006, a total of 3600 units which at $22 per unit represented a loss of $79,200. 39 Mr Lee also claimed that, since it was unable to supply Manufactured Product in 5 mg tablets, the plaintiff lost three major customers. He said that from his inspection of sales records of the plaintiff, it appeared that those three customers would have purchased, in total, approximately $600,000 worth of tablets during the peak selling time for 5 mg tablets, and at least an additional $600,000 per year, making the total loss of sales at least $1.2 million. He said his opinions on these matters were based on his analysis of the records of the plaintiff relating to sales made in 2005, together with sales trends in late 2004. 40 The existence of an offsetting claim may be asserted as a ground for setting aside a statutory demand, where the ingredients of s 459H are satisfied. The offsetting claim must be "a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)". Counsel for the defendant presented me with a lengthy list of authorities concerning offsetting claims. It is sufficient for the purposes of this judgment to refer to only one of them. In Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [13] Barrett J said: "The test to be applied in determining whether there exists a genuine offsetting claim of the kind contemplated by s 459H(1)(b) was stated by Palmer J in Macleay Nominees Pty Ltd v Bell Property East Pty Ltd [2001] NSWSC 1088: 'In my opinion, a genuine offsetting claim for the purposes of CA s 459H(1) and s 459H(2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for liquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s 459H.'" 41 The plaintiff's evidence of an offsetting claim is insufficient to satisfy me to the standard enunciated by Palmer J and Barrett J. The only evidence of the offsetting claim for damages is the evidence given by Mr Lee in his affidavits. It is evidence of his assessment of the receipts that the plaintiff would have received from three customers had it not been for the defendant's action. But the evidence seems to be directed towards lost gross receipts rather than lost profits, and is not supported by any documentation, although Mr Lee claims that his assessment is based upon his analysis of the plaintiff's sales records and his assessment of sales trends. Conclusion 42 The plaintiff has established that the defendant's statutory demand for $836,893.90 dated 14 December 2005 should be set aside, on the ground that there is a genuine dispute as to the existence of the whole of the amount claimed. The plaintiff having thus succeeded, my view is that the defendant should be required to pay its costs. The fact that the plaintiff did not succeed on the alternative ground of offsetting claim should not, in my view, diminish the amount of costs recoverable by the plaintiff, because only a small amount of the evidence and the small amount of the hearing time were devoted to that issue. 43 The plaintiff seeks an order that its costs be paid on the indemnity basis, relying on a line of cases in which indemnity costs have been awarded where a creditor has used the statutory demand procedure to force payment of the genuinely contested debt (e.g., Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1997) 16 ACLC 529; Austrac Rail Pty Ltd v Hunter Premium Funding Ltd [2001] NSWSC 654; CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100). In my view that order should be made. 44 The plaintiff asserted in its correspondence on 28 October 2005 that in its opinion the terms and conditions of the arrangements between the parties were unchanged, and it requested the defendant to order additional Manufactured Product pursuant to the arrangements. On 4 November 2005 Mr Lee wrote to Mr Kirby setting out the arrangements as he understood them. The defendant did not answer Mr Lee's assertions about the existence and nature of the arrangements either in correspondence or in evidence, except by asserting that the amount it claimed was due and owing. But Mr Kirby was aware of the plaintiff's version of those arrangements because of Mr Lee's transmission of 4 November, and he was aware from the letter of 28 October 2005 that the plaintiff asserted, under those arrangements, that the defendant had an obligation to take Manufactured Product of a value in excess of the amount claimed by the defendant. He did not tell the plaintiff or the court why he disagreed with Mr Lee's assertions. Instead he sworn affidavit supporting the statutory demand in which he said he believed there was no genuine dispute about the existence or amount of the debt, and repeated that view in his affidavit in the proceeding. The consequence was that the statutory demand procedure was misused, and the issue of the demand had the effect of applying illegitimate pressure for payment on a party who had made out a genuine ground for disputing that any money was owing.