New South Wales Supreme Court CITATION : Ryledar Pty Ltd v Euphoric Pty Ltd [2006] NSWSC 1288 HEARING DATE(S) : 13/10/06, 09/11/06, 13/11/06 JUDGMENT DATE : 30 November 2006 JURISDICTION : Equity Division JUDGMENT OF : Associate Justice Macready at 1 DECISION : Paragraph 28 CATCHWORDS : Corporations Act. Application to set aside statutory demand under s459J(1)(b) due to pending appeal giving rise to an off-setting claim. Demand set aside. PARTIES : Ryledar Pty Ltd v Euphoric Pty Ltd FILE NUMBER(S) : SC 2264 of 2006 COUNSEL : Mr B. Rayment QC and Mr M Sahade for plaintiff Mr M. Ashhurst for defendant SOLICITORS : Mallesons Stephen Jaques for plaintiff Thomson Playford for defendant - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Associate Justice Macready Thursday 30 November 2006 2264/2006 RYLEDAR PTY LIMITED v EUPHORIC PTY LIMITED JUDGMENT 1 His Honour: This is an application to set aside a statutory demand under s459G of the Corporations Act 2001 (Cth). The plaintiff and the defendant were parties to litigation which was determined by Palmer J on 30 January 2006. His Honour held that the defendant was entitled to judgment against the plaintiff and dismissed the plaintiff's cross claim for damages against the defendant. 2 The proceedings concerned agreements between the parties for the supply of petroleum products which were distributed to a number of outlets throughout New South Wales. 3 The statutory demand is dated 17 March 2006 and claims an amount of $13,277,631.36 which is the amount of judgment and interest thereon. 4 There is an appeal from the orders of Palmer J. That appeal is set down for hearing for three days in the Court of Appeal commencing 13 February 2007. 5 There has been no application for a stay of the judgment which the defendant obtained against the plaintiff. Absent any stay and pending the appeal, there can be no genuine dispute as to the existence of the judgment debt; see: (Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235 at 238; Hoare Bros Pty Ltd v DCT (1995) 16 ACSR 213 and Eumina Investments Pty Ltd v Westpac Banking Corp [1998] 84 FCR 454 at 458). 6 The plaintiff contends that it has an offsetting claim in the form of the cross claim which it brought against the defendant. It would seem that, until such time as the order dismissing the cross claim is set aside, there cannot be an offsetting claim based upon the facts underlying that cross claim. See Eumina (at 458). 7 It would seem that the only basis that would allow the court to set aside the statutory demand is s459J(1)(b) of the Corporations Act, on the basis that there may be some other reason for setting aside the demand. This was also dealt with by Emmett J in Eumina. There His Honour identified a circumstance which would lead to the setting aside in these terms: "One circumstance where it may be unjust for a demand to stand, in my opinion, is where there is a judgment or order which precludes a contention that there is a genuine dispute or an offsetting claim but there is on foot a bona fide appeal from that judgment or order. In those circumstances, the Court may, if justice requires, and subject to the possibility of imposing conditions as contemplated by s459M, set aside a demand which is based on the judgment or order which is subject to appeal or in respect of which, if an appeal succeeds, there would be an offsetting claim." 8 After referring to the difference between a statutory demand and a bankruptcy notice, His Honour then said: "It is, in my opinion, appropriate for a Court to exercise the discretion conferred by s459J(1)(b) where the Court is satisfied that there is an appeal based on reasonable and arguable grounds which, if successful, would result in the existence of an offsetting claim. The expression "reasonable and arguable grounds" is suggested by the decision of the Full Court in Ahern v DCT (1987) 76 ALR 137 at 148. In Barclays Australia v Mike Gaffikin Marine Pty Ltd McLelland CJ in Eq expressed the view that dependency of the appeal in that case would not of itself provide any sufficient reason for setting aside the demand under s459J(1)(b). His Honour cited Hoare Brothers Pty Ltd v DCT (1995) 16 ACSR 213 and Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1039 as support for that conclusion. His Honour, however, did not give any detailed reasons for that view. In Hoare Bros, Olney J of this Court observed (at p219) that the general flavour of s459J is one of a section which gives the Court a discretion to set aside a statutory demand when the justice of the case demands that a company which is otherwise likely to become deemed to be insolvent should be relieved of that possibility. The debt in question in that case was one arising from the issue of an assessment under the Income Tax Assessment Act 1936 (Cth). Questions remained unresolved in relation to the company's objection to one year's assessment and questions remained unresolved in relation to the Commissioner's decision to reject an objection lodged out of time in respect of another year's assessment." The extent of any possible cross-claim 9 The quantum of the Plaintiff's cross claim is described in the defendant's submissions at the trial. The components of this claim are: (a) Lost profits on resales to Azkanaad Pty Limited being management fees of $5,566,403, and goodwill of $4,920,000 a total of $10,486,403; and (b) In the alternative to (a), loss occasioned by the need to purchase fuel from alternative suppliers and loss of the benefit of a credit agreement being a total of between $2,171,106 and $2,701,762 ; (c) In addition to (a) or (b), damages payable by the plaintiff to Azkanaad of $6,859,195.94. 10 On the second of these matters, there was evidence before the trial judge, which would allow him to find damages in the sum in the range I have mentioned. On the third matter, Palmer J rejected the primary material upon which that assessment was based, on the ground that it was served outside the leave which he had granted for supplementation of the evidence. In respect of the first matter, there was some evidence of calculations given by Mr Bill Magar but the foundation for those calculations was not before the judge. See Transcript pages 294-5. The expert, Mr Condon, gave evidence of his calculations that lead to the above figures. However the trial judge, for the same reasons, rejected the factual basis of his calculations. 11 Thus in respect of the two major claims there was no evidence before Palmer J to substantiate the claims. 12 It was submitted that the granting of a new trial would relieve any prejudice which led to the rejection of the evidence in support of the loss of profits and accordingly there was the possibility that the plaintiff could recover such amounts. 13 The first difficulty with this argument, according to the defendant, is that pursuant to Pt 51 r 23 (1) of the Supreme Court Rules the Court of Appeal will only order a new trial if it appears that "some substantial wrong or miscarriage has been occasioned." In circumstances where there was no admissible evidence of any loss (other than the alleged $2,701,762 referred to above) it was submitted that it cannot be claimed that any substantial wrong or miscarriage of justice occurred as a result of the alleged errors of law appealed from by the plaintiff even if the Court accepts that the appeal otherwise has merit (Freeman v GJ Coles & Co Ltd [1967] 1 NSWR 297 at 300 and Middleton v Parramatta City Council [1999] NSWCA 448 at [10]). 14 A second difficulty with the plaintiff's argument that it may get a subsequent opportunity to adduce further evidence was said to be that, even if a new trial was ordered, the evidence in that trial may be expressly limited to the evidence before the trial judge (Pt 51 r 23(5) SCR). Alternatively an application to adduce further evidence may be refused on the grounds that it would not have been allowed in the appeal itself (McCarthy v McIntyre [2000] FCA 1250 see however Mulvena v New South Wales Insurance Ministerial Corporation NSWCA (1995) unreported 22.8.95). 15 The other matter of some substance is that there does not appear to have been any appeal from the rejection of the evidence by Palmer J which was necessary to establish the claim. 16 Absent any appeal on that point, even if the Court were to uphold the appeal on liability, the Court of Appeal would simply be faced with a situation where the plaintiff at trial had tendered no admissible material in respect of the damages claim. As it is necessary for there to be some substantial wrong or miscarriage, in the circumstances where the plaintiff presented no such evidence, it was submitted that there is little chance of a new trial being ordered. 17 The plaintiff's submissions draw attention to the fact that Palmer J never got to the situation of considering the damages claim because he found against the plaintiff on liability. In these circumstances it suggests that there is no need for it to appeal in respect of the rulings on the rejection of the evidence because they do not form part of the reasons for decision. Indeed, it submits that it cannot appeal. This is technically correct, although it may be unwise to proceed on this basis. 18 Under s107 of the Supreme Court Act (1970) (NSW) the Court of Appeal, if it is satisfied that it is fully able to assess the amount of debt or damages, may assess damages on the appeal. The plaintiff's claim for the need to purchase fuel from an alternative supplier is the one area in which there is evidence before the trial judge of the amount of the claim. However, as I have indicated above, it is expressed in the form of a range by the expert who was, no doubt, cross examined before the trial judge on that aspect. In these circumstances the Court of Appeal may have some difficulty, or feel some reluctance, in assessing damages itself and may prefer to remit that issue to the trial judge who had seen the witnesses. 19 As it is likely to be a remission to the trial judge of the damages claim, if the plaintiff is successful on liability, the question of whether the trial should be limited to only those damages is the debate. 20 His Honour's reasons for rejecting the material are summarised in his decision on 10 October 2005 (at paras 1-63) in the following terms: "On 9 November 2004, I rejected the tender of certain documents through Mr Nabil Magar, those documents purportedly being business records supporting the calculation of loss suffered by Ryledar Pty Ltd ("Ryledar") from the alleged breach of contract. The basis of the rejection of that evidence was explained in an ex tempore judgment which I gave on that day. The principal basis upon which the documents were rejected was that they did not appear on their face to be business records and there was no evidence which otherwise qualified them as business records. However, I observed that I would not necessarily reject that material if Mr Nabil Magar could, in the appropriate way, qualify the documents as business records. As I recollect it, the opportunity was given to Mr Magar on that occasion to qualify the documents as business records. No advantage was taken of that opportunity. Directions and case management thereafter proceeded on the basis that all evidence, both lay and expert, would be completed well in advance of the resumption of these proceedings today. Further directions were made for the purpose of ensuring that experts reports were supplied and exchanged in good time. Further statements were put on by Mr Nabil Magar and Mr Eddie Magar in December 2004. The material did not seek to prove in a comprehensive way and properly by qualification of business records, the material which is now sought to be tendered in paragraph 2 of a statement of Nabil Magar dated and filed on 30 September 2005. Mr B.J. Coles QC, who appears with Mr Ashhurst and Mr Docker of Counsel for Euphoric, objects to the tender of that material on the basis that it is very late and contrary to the directions which were previously given. The subject material ought to have been put on in good time after the difficulty of its proof was made apparent on 9 November 2004. If that material had been put on in good time after that date, the Plaintiff ("Euphoric") would have had a reasonable opportunity of dealing with it. However, the material which is now sought to be put on is very voluminous. It is important: it is material by which Ryledar seeks to demonstrate the quantum of the loss which it claims against Euphoric. It is reasonable to assume that Euphoric would have wished the opportunity of investigating that material. It is material upon which an expert has expressed an opinion. Its importance, therefore, is quite obvious. There is no explanation of why this material has been filed only days before the commencement of the trial and is now sought to be relied upon. I do not think that Ryledar has demonstrated any proper basis why, in justice and in fairness, this material ought now to be admitted and to be relied upon in the face of the opposition of Euphoric. Accordingly, I reject the material sought to be tendered in paragraph 2 of the statement of Mr Bill Magar of 30 September 2005." 21 It is plain that a substantial quantity of material was served but quite some time has expired since that was made available. The plaintiff submits any prejudice has long gone and there should be no difficulty for the defendant to deal with the material. The defendant's answer is simply that that there is still no substantial wrong or miscarriage which has been occasioned. I can only conclude that it is a debatable matter as to whether the plaintiff will obtain a new trial on the full range of damages. 22 Leaving aside the question of damages, it is necessary of course to give some consideration to whether the appeal on liability might be characterised as being based on reasonable and arguable grounds. One matter on this aspect is raised by the defendant in its notice of contention in the Court of Appeal. That contention is that even if there has been an exercise of an option to renew the supply agreement (contrary to what the trial judge found) the cross defendant was, in any event, entitled to terminate the supply agreement on 24 May 2001. This was because the cross claimant was in substantial default of its obligations to pay for the petroleum products under the Supply Agreement. On 17 May 2001 notice was given under clause 3.6(c) of the Supply Agreement and the plaintiff failed to remedy the breaches. According to the report of the referee, there were still outstanding amounts even if the cross claimants claims which, when argued on appeal, are successful. Having heard the appellant's arguments on this point there will be a substantial debate on appeal about the validity of this point. 23 I note also that the trial judge's reasons at paragraphs 201 to 204 seem, on their face, to be a good answer to the cross claimant's case. One of the difficulties in a matter such as the present is that I have not had full argument on the prospects of success on the appeal, in part because those arguments are still being formulated. However the threshold "based on reasonable and arguable grounds" is not a high one. Given the argument I have heard and the way the appellant is prosecuting the appeal, I would conclude that the threshold has been reached and it is a debatable matter as to whether there will be a new trial generally on damages. 24 If there is a full retrial the likely range of damages is $17,345,598 or a range of $9,030,301 to $9,560,957, depending on the alternatives that will be dealt with at trial. I have had no argument on which alternative is likely and the underlying admissibility problems are the same for each alternative. 25 In these circumstances, as the range of alternatives are greater than the amount of the demand, conditions requiring the payment on account are not appropriate. Security for the costs of the appeal is a matter for the Court of Appeal. 26 These proceedings were commenced on 6 April 2006 and after summary dismissal argument in June they were set down for hearing before me on 13 October 2006. They were heard then and on 9 November 2006. As a result of what are court delays in the hearing of the matter, the stage has now been reached where it is only a little over two months until the three day appeal is heard in the Court of Appeal. The shortness of this period is a factor which I should take into account in the exercise of my discretion as to whether to set aside the demand under s459J(1)(b) of the Corporations Act. 27 Considering all the circumstances, I think it is appropriate to set aside the demand. 28 The orders that I make are as follows: 1. I set aside the demand dated 17 March 2006 served by the defendant on the plaintiff. 2. I order the defendant to pay the plaintiff's costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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