Supreme Court New South Wales Medium Neutral Citation: In the matter of Seduce Group Australia Pty Ltd - Seduce Group Australia Pty Ltd v Spuds Surf Chatswood Pty Ltd [2011] NSWSC 290 Hearing dates: 17 March 2011 Decision date: 28 March 2011 Jurisdiction: Equity Division - Corporations List Before: Ward J Decision: Order varying statutory demand under s 459H(4) Catchwords: CORPORATIONS - application under s 459G of the Corporations Act 2001 (Cth) for order setting aside statutory demand - whether genuine dispute as to existence of debt - whether genuine offsetting claim established under s 459H of the Corporations Act 2001 (Cth) - whether service of statutory demand amounted to abuse of process - HELD - genuine dispute established as to existence of debt as claimed - no genuine dispute as to liability for lesser amount - no genuine offsetting claim established - no abuse of process - statutory demand varied pursuant to power conferred in s 459H(4) of the Corporations Act 2001 (Cth) Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporises Pty Ltd (1994) 13 ACSR 37 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ASCR 379 Drillsearch Energy Pty Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 Edge Technology Pty Ltd v Lite-on Technology Corporation (2000) 34 ACSR 301 Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 Eyota Pty Limited v Hanave (1994) 12 ACSR 785 Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456 Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717; (1994) 13 ACSR 787; (1994) 12 ACLC 490 Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411 Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Panel Tech Industries v Australian Skyreach (No 2) [2003] NSWSC 896 Rainbow and Nature v Bronson and Jacobs [2006] NSWSC 217 Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867 Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 Category: Principal judgment Parties: Seduce Group Australia Pty Ltd (Plaintiff) Spuds Surf Chatswood Pty Ltd (Defendant) Representation: D C Eardley (Plaintiff) A Fernon (Defendant) Clark McNamara Lawyers (Plaintiff) Sweeney Tiggemann Lawyers (Defendant) File Number(s): 10/271791 Judgment 1HER HONOUR : This is an application brought by the plaintiff (Seduce Group) under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a creditor's statutory demand dated 25 July 2010 and served on Seduce Group by the defendant (Spuds Surf) the following day. The statutory demand, as served, comprised a total sum of $237, 425.83 (composed of two separately identified amounts). However, Spuds Surf indicated in the demand that it claimed only the lesser sum of $200,000 in total, which it indicated it would accept in complete discharge of the claimed debt. 2Briefly, by way of background, Seduce Group carries on business in the fashion industry as a retailer of fashion clothing and accessories. The principal officer of Spuds Surf, Ms Elizabeth Mimis-Weeks, was employed by Seduce Group in June 2007 as its General Manager on the terms set out in a letter of offer dated 19 June 2007. Under the agreement constituted by acceptance of the June 2007 letter of offer, Ms Mimis-Weeks was entitled to 8 weeks' notice of termination (after successful completion of a 3 month probation period). 3Notwithstanding that the letter of offer was addressed to Ms Mimis-Weeks (or, more precisely, Ms Mimis) and accepted by her in her personal capacity, from July 2007 Spuds Surf rendered invoices to Seduce Group for payment of consultancy fees in respect of the provision of Ms Mims-Weeks' services. Ms Mimis-Weeks explained in her affidavit accompanying the statutory demand (sworn 25 July 2010) that this change in her employment arrangements came about by reason of a request made by one of the directors of Seduce Group (Mr Guang Hong Ki, known to her as Peter Li) shortly after she commenced with the company and that Mr Li confirmed that in other respects the contract would be the same. Mr Li, in his first affidavit sworn 13 August 2010 in support of the application to set aside the statutory demand, says that this change was at Ms Mimis-Weeks' request. In any event, whether or not there was a variation of the initial contract or there was a new contract that superseded the first, it is not disputed that the arrangement under which Ms Mimis-Weeks' services were provided to Seduce Group as at May 2010 (when those services were terminated) was one between Seduce Group and Spuds Surf. Nor is it disputed that under that arrangement 8 weeks' notice of termination was to be provided if the contract was to be brought to an end. 4Prior to the termination of her services in May 2010, Ms Mimis-Weeks travelled to the United States for business purposes on behalf of Seduce Group (as she had apparently done on various occasions, sometimes accompanying Mr Li, it is said with a view to promoting the business of Seduce Group in that country). Ms Mimis-Weeks claims that there was an arrangement whereby she was to be paid additional moneys for her work overseas (by way of fees, commission and/or overtime). Seduce Group disputes the assertion by Ms Mimis-Weeks that there was any such agreement. 5The amount claimed in the statutory demand (ignoring the second component of $10,367.94 which is not pressed) relates to an agreement that Ms Mimis-Weeks alleges was reached with Mr Li on behalf of Seduce Group on 8 May 2010 for the payment of 10 months' pay ($227,057.89) in settlement of Ms Mimis-Weeks' then claims in relation to the moneys owing on termination of her services (including her claims to additional amounts referable to her work overseas). Seduce Group denies that there was a binding agreement to this effect. 6Seduce Group further asserts that it has an off-setting claim for the repayment of petty cash allegedly provided to Ms Mimis-Weeks in connection with her travel to the United States (for which it is said she has failed to account in accordance with Seduce Group policy). It has also been asserted that Seduce Group has a claim for breach of the contract under which Ms Mimis-Weeks' services were provided, by reference to an admission by Ms Mimis-Weeks that while on her last business trip to the United States she had provided consulting services to another client. 7What Seduce does not deny is liability for the 8-week notice period (and Counsel for Ms Mimis-Weeks, Mr Fernon, submits that at the least the statutory demand should be amended to record that amount) but it seeks to off-set that against amounts for which it says Spuds Surf would be liable in respect of the claims referred to above. 8The grounds on which Seduce Group seeks to set aside the statutory demand are twofold: namely, pursuant to s 459H, that there is a genuine dispute as to the existence of the debt (based on the denial of the alleged settlement agreement and of any other basis for the claim in respect of that sum) and, pursuant to s 459J, that the service of the statutory demand amounted to an abuse of process insofar as it was issued when there existed a genuine dispute as to the debt (it being said that the appropriate originating process in those circumstances was a statement of claim or summons, not the issue of a statutory demand). Issues 9Accordingly, the issues for determination are in a relatively narrow compass: is there a genuine dispute as to the existence of part or all of the debt claimed and, if not, is there some other reason why the statutory demand should be set aside. 10Counsel for Ms Mimis-Weeks (Mr Fernon) submits that, in making that determination, this is a case where the court can go further and can make a final determination of the issue of law as to whether the alleged contract came into existence (as the evidence of what was said in the conversation relied upon for the making of the relevant agreement is not disputed). 11The affidavit in support of the application to set aside the statutory demand (served within the requisite statutory period) was an affidavit of Mr Peter Li sworn on 13 August 2010. When the hearing of the application commenced, Counsel for Seduce Group (Mr Eardley) sought to read a further affidavit of Mr Li which had been sworn on 15 March 2011 (shortly prior to the hearing) and filed on 16 March 2011, annexing the various vouchers and documents in relation to the alleged failure by Ms Mimis-Weeks to account for the petty cash for her United States travel and explaining matters in relation to the treatment of such accounts within Seduce Group, and hence to supplement the fairly scant evidence as to those matters in Mr Li's first affidavit. Objection was raised by Mr Fernon to that material being read, due to its lateness. 12In particular, it was said that Spuds Surf would be prejudiced by its inability to test whether there had in fact been a failure by Ms Mimis-Weeks to account for that petty cash (which it was said it may have sought to do by issuing a subpoena to Austrade in order to determine whether expenses of this kind had been claimed by Seduce Group under grants from Austrade). Tendered and marked Exhibit 1 in this context were copies of correspondence in October 2010 between the lawyers for the respective parties, in which Seduce Group's lawyers had denied the relevance of this information in response to a notice to produce seeking the production of material in relation to any claims made on Austrade for such expenses. (As I understand it, the relevance of this material is that if Seduce Group was able to claim reimnbursement from Austrade for the US expenses, then Ms Mimis-Weeks must have accounted for those expenses in some fashion. In that regard, when complain is made as to a failure to account, the complaint is that Ms Mimis-Weeks has failed to produce supporting invoices or vouchers for the expenditure of the petty cash drawn by her or for the credit card expenses, and therefore those expenses have not been approved as such, not that Ms Mimis-Weeks has failed to repay moneys determined to be repayable to the company.) 13After some debate on this issue, I was informed by Mr Eardley that the second affidavit of Mr Li was not being read. (i) Is there a genuine dispute? 14The ambit of the dispute in relation to the debt claimed in the statutory demand was described by Mr Eardley as being whether or not a contract was formed on 8 May 2010 (as alleged by Ms Mimis-Weeks) and what entitlement flowed from the termination of Ms Mimis-Weeks' services. 15In that regard, Ms Mimis-Weeks relies on a conversation with Mr Peter Li on 8 May 2010 (after an earlier conversation on 3 May 2010 in which she says Mr Li had told her that her position was redundant and a conversation with another director, Mr David Li, in which she says she had asserted that her employment had been terminated illegally) in which Ms Mimis-Weeks says that Mr Peter Li told her that he wanted her to leave immediately and, after some negotiation, agreed to pay her an amount equivalent to 10 months' pay - half to be paid the following week and half the week after that - in satisfaction of all Ms Mimis-Weeks' claims. Accoring to Ms Mimis-Weeks, Mr Li said "I agree, write something down". 16Mr Li does not, in his affidavit, deny this conversation. Rather, he simply asserts that there was no agreement (at [29]). Therefore, for the purposes of this application, I must proceed on the basis that Mr Li did say to Ms Mimis-Weeks words to the effect deposed to by her, ie that he did say that he agreed to pay her 10 months' pay within that time frame and that he said "you write something down and I will sign it". 17On 14 May 2010, however, after Ms Mimis-Weeks had pressed for the written agreement, Mr Li sent an email to Ms Mimis-Weeks referring to a verbal termination of "your Spuds Surf Chatswood Pty Ltd contract with SEDUCE Group Australia" and attaching a termination letter (replacing one that had apparently been sent earlier that day by courier as the date and time were incorrect). That termination letter acknowledged an entitlement to 8 weeks' payment in lieu of termination but asserted that this payment would be made "within 2 days after we receive your invoice and you have returned all company property and provided the receipt for petty cash and for [the] credit card payment" (referred to in the body of the letter of US$11,400). Ms Mimis-Weeks' response was to forward by email an invoice in respect of the amount she claimed had been agreed on 8 May 2010 (and which she said Mr Li had told her on 12 May 2010 he would honour). (Mr Eardley notes that the invoice does not accord with the instalment arrangements that Ms Mimis-Weeks says were agreed on 8 May 2010.) 18Ms Mimis-Weeks also deposes to a conversation with Mr David Li on 14 May 2010 in which she says that she asked what was going on with her settlement agreement and why she had been sent the email with the termination letter on that date by Mr Peter Li. She says that Mr David Li's response was "The money that he [Mr Peter Li] agreed to pay you was too much. We can't afford to pay it". There was no evidence from Mr David Li and hence no denial of this conversation. Mr Fernon relies on this conversation as an admission by Seduce Group, by one of its directors, that there was an agreement for payment of the sum of money in question. 19Mr Eardley relies upon the assertions by Mr Li as amounting to an implicit denial of the conversation but in any event submits that the alleged agreement on 8 May 2010 was no more than (at most) an agreement to agree, or an agreement to enter into some agreement once it was written down, and says that there were no precisely concluded terms of the alleged agreement thus rendering it too uncertain to be enforceable. 20The meaning of a genuine dispute in the context of an application of this kind was considered by McLelland CJ in Eq in Eyota Pty Limited v Hanave (1994) 12 ACSR 785. There , his Honour said: It is, however, necessary to consider the meaning of the expression "genuine dispute" ... in my opinion that expression connotes a plausible contention requiring investigation, and raises much of the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an introductory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to 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 Me Yong v Letchumanan [1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of fact unsupported by evidence": cf South Australia v Wall (1980) 24 SASR 189 at 194. But it does mean that, except in such an extreme case [i.e. where evidence is so lacking in plausibility], a court required to determine whether there is a genuine dispute should not embark upon an enquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. 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 21Mr Eardley placed weight on what was said by Barrett J in Panel Tech Industries v Australian Skyreach (No 2) [2003] NSWSC 896, where his Honour noted that the task faced by a company challenging a statutory demand on a genuine dispute ground is by no means at all a difficult or demanding one. His Honour there said that the company will fail in its task only if the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. His Honour said: Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of the competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be argued against the company seems stronger. 22In Edge Technology Pty Ltd v Lite-on Technology Corporation (2000) 34 ACSR 301, the court was considering whether a breach of warranty in supply of goods gave rise to a genuine dispute or offsetting claim and the question of quantification of the offsetting claim. Again, it was said that the court's task was not to resolve competing claims but to determine whether there was a genuine dispute concerning the debt or a genuine offsetting claim against the party serving the statutory demand and if so in what amount. It was not necessary, nor was it appropriate, for the court to consider the merits of the dispute or offsetting claim (citing Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456; Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporises Pty Ltd (1994) 13 ACSR 37). 23In Edge Technology , it was said (at [43]): there are several matters of fact bearing on whether the dispute in the present case or the asserted offsetting claim is not genuine; that is, "spurious, hypothetical, illusory or misconceived" the question must be answered having regard to the evidence before the court at this time and on the basis that the contract has not been terminated. ... The threshold presented by the test to set aside a statutory demand does not however require of the plaintiff a rigorous and in-depth examination of the evidence relating to the plaintiff's claim, dispute or offsetting claim. That is why cross-examination in contested statutory demand proceedings is limited: Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290. 24His Honour referred to (at [57]) what was said by Young J as his Honour then was in Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717; (1994) 13 ACSR 787; (1994) 12 ACLC 490 : It is well known that many claims are ambit claims, and not even the person making them has any real hope of recovering the maximum amount claimed. Often it is appropriate to work out what is the maximum likely amount to be recovered. However, it does not seem to me, although I have tried hard to fit this meaning into the subsection, that one can get this result. The amount of the claim is an expression which has a more or less defined meaning ... [it] means the amount claimed in good faith, so long as that claim is not fictitious or merely tolerable. 25A genuine dispute is thus one which is bona fide, which exists as a matter of fact and which is not spurious, hypothetical, illusory or misconceived. Where there is a plausible contention which places the debt in dispute and which requires further investigation, the test is satisfied. The debt in dispute must be in existence at the time at which the statutory demand is served on the debtor ( Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; Eyota ). 26Mr Fernon concedes that there is a low threshold to be met in this regard. Nevertheless, he submits that the lack of any challenge by Mr Peter Li to what was attributed to him in the 8 May 2010 conversation and the admission by Mr David Li on 14 May 2010 that there had been an agreement by Mr Peter Li to pay an amount to settle Ms Mimis-Weeks' claim is sufficient to bring this case within the 'patently feeble' class of case such that the demand should not be set aside. 27As noted earlier, Mr Fernon further submits that this is a case where it would be appropriate to determine the question as to whether there was a binding agreement reached on 8 May 2010 on the basis that the present circumstances fall within those considered in Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ASCR 379 at [384] as being of a kind where the court may make such a determination (namely where there is a "short point of law or the construction of documents or agreed facts"), though noting that in Drillsearch Energy Pty Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192, Barrett J declined to follow such an approach. 28In Delnorth, Cohen J said (at pp384-5): Section 459 h (1) refers to the court finding that there is a genuine dispute. The parties have argued this case on the issue of whether the proper construction of the agreement and the facts results in the plaintiff owing money to the defendant. The facts were not in dispute and there was thus no question of whose evidence would be accepted on a final hearing. Under the previous legislation, when there was a claim that there was a bona fide dispute on substantial grounds as to the debt claimed, the court could decide that dispute if it arose from a question of law or was of short compass. See, for example, Offshore Oil NL v Acron Pacific Ltd (1984) 2 ACLC 8. I consider that under the provisions of the Corporations Law, the same approach can be taken. Although questions of disputed fact will not be decided on an application to set aside a statutory demand, the issue of whether there is a genuine dispute can be resolved on that application where the question arises on a short point of law or the construction of documents or agreed facts. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 ; 12 ACLC 669, McLelland CJ in Eq said that the expression "genuine dispute" connotes a plausible contention requiring investigation. Where no further investigation is required, I consider that the court on an application under s 459G may decide as a matter of law if there is a genuine dispute. The occasions when this is possible may be few, but in my view this is one of them. 29In Drillsearch , Barrett J said (at [45]-[47]): The existence of the dispute about the correct construction of the takeover mandate agreement means that there is also a dispute about the existence of the debt that would exist if the defendant's preferred construction were correct but not if the plaintiff's preferred construction were correct. A dispute as to the existence of a debt that is the product of a dispute about construction is not removed from s 459H(1)(a) just because the issue in contention is one of construction. While it has been said that "a short point of law or the construction of documents or agreed facts" may, unlike a disputed question of fact, be determined upon a s 459G application (see Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at 384), it does not follow that the court is compelled to make such a determination. In the case of a legal argument, determination might be appropriate if it were, in the words of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, a "patently feeble legal argument". I consider it appropriate to adopt in this case the approach I outlined in Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483 ; (2008) 66 ACSR 229 at [50]: Where the basis for the alleged dispute is a legal argument or question of construction which is not "patently feeble" and does not involve a "short point of law" and there are clearly arguable alternatives as to the correct outcome, the court should not, upon the s 459G application, attempt to reach a definitive resolution. The reasons are stated in the joint judgment of Brooking JA and Charles JA in Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270 ; [2001] VSCA 89 at [4]: We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes. It follows that the question about the meaning of "acquisition" (and related questions of construction) arising from the takeover mandate - involving clearly arguable alternatives - is one that of itself gives rise to "genuine dispute" within s 459H(1)(a) and no attempt should be made to determine it in these proceedings. Section 459G applications are usually determined on affidavit evidence alone. Cross-examination is very rare and allowed only for very good reason in exceptional cases. There was no cross-examination in this case. Nor, indeed, was there any real evidence of the circumstances of the formation of the takeover mandate agreement. The court therefore has no insight into pre-contractual conduct that may cast light on the genesis of the contract, its objective or the meaning of the ambiguous term "acquisition". Evidence of such conduct, if led, would in general be admissible on the question of construction: Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24 ; (1982) 149 CLR 337 at 347-352. 30In light of the fact that Mr Li does not dispute the conversation on which reliance is placed for the allegation that there was a concluded settlement agreement, there is some force in the argument that this might be a matter in which the court on an application under s 459G could decide as a matter of law if there is a genuine dispute. In Delnorth , that conclusion was reached where it was accepted that no further investigation was required, the facts were not in dispute and there was thus no question of whose evidence would be accepted in a final hearing, and there was a short point of construction which seemed to have been fully argued before his Honour. 31Here, it seems to me that while there is no dispute raised on the evidence as to the existence of a consensus reached on 8 May 2010 as to the payment of 10 months' pay, but what is in dispute (albeit raised by way of assertion on the part of Mr Li and submissions by his Counsel) is the question whether as a matter of law that consensus gave rise to an immediately binding agreement or was no more that an unenforceable agreement to agree or an agreement to be bound if and when a written document was signed. While the issue as to whether or not one could ascertain a common intention immediately to be bound by that consensus (or whether it was not intended that there be a binding agreement unless and until there was a document recording that consensus) is to be determined objectively, I am not persuaded that it is one that is not susceptible to further investigation once all of the factual circumstances surrounding the meeting of 8 May 2010 have been explored. 32It seems to me that there are clearly arguable alternatives on that issue, and the emphasis seemingly placed after tbe 8 May discussion by Ms Mimis-Weeks on the provision of something in writing means that it cannot be said that the argument for which Seduce Group contends is so patently feeble on this as to warrant a finding that there is no genuine dispute. In the words of Brooking and Charles JJA in Spacorp, to which Barrett J had regard in Wellnora Pty Ltd v Fiorentino and again in Drillsearch , I am not satisfied that it is 'as plain as a pikestaff' that the consensus reached on 8 May 2010 was one in respect of which there was an objective common intention immediately to be bound. In those circumstances, it cannot be said that there is not a plausible contention requiring investigation for the purposes of the test applicable on a s 459G application. 33Does the apparent admission of Mr David Li alter that conclusion? That has given me some pause. However, in the end I am not persuaded that the conclusion to be drawn from that brief conversation, as deposed to by Ms Mimi-Weeks, is so obvious as to go without saying or as not to permit a contrary argument to be maintained, not least because it is not apparent from the words of the conversation, as recounted, what amount Mr David Li was apparently conceding had been agreed to be paid, 34Therefore, I consider that the question as to whether the consensus reached on 8 May 2010 (and apparently conceded on 14 May 2010) is one that gives rise to a genuine dispute within the meaning of s 459H(1)(a) as to the existence of that part of the claimed debt going beyond the 8 weeks' entitlement and that dispute should not be determined on this application. In those circumstances, subject to the issue as to whether there is a genuine offsetting claim, the statutory demand should be amended to reflect the claim for 8 weeks' pay or otherwise set aside. 35In relation to the basis on which the debt is disputed, as noted earlier Seduce Group also sought to rely on the existence of offsetting claims. In Rainbow and Nature v Bronson and Jacobs [2006] NSWSC 217, Austin J noted that the existence of an offsetting claim may be asserted as a ground for setting aside a statutory demand where there is 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", those being the relevant ingredients of s 459H. His Honour there noted (at [40]) the test as outlined by Palmer J in Macleay Nominees and applied by Barrett J in Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [13]. 36In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743, Palmer J said (at [17]); In my view, a claim for the purposes of CA s 459H(1) and s 459H(2) means not just a cause of action, so that once a genuine cause of action for unliquidated damages is shown by a plaintiff, the court is compelled to accept at face value the damages claimed by the plaintiff as the amount of the offsetting claim for the purposes of the calculation required by s 459H(2). .... In my opinion, a genuine offsetting claim ... 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 a court to determine that the claim is not fanciful. In a claim for unliquidated 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 losses calculated. If such evidence is entirely lacking, the court cannot find that there is a genuine offsetting claim ... . 37His Honour had earlier in that case said (at [16]); the real difficulty in this case is the amount of the plaintiff's alleged offsetting claim. Where the case involves a claim for a liquidated sum the application of the section is relatively easy, the court simply determines whether the cause of action is a genuine one and if that proves to be the case, the amount of the offsetting claim is the amount of liquidated sum, the subject of that claim. The position is by no means as easy where claim is a claim is for unliquidated damages and the damages are said to be economic loss suffered by the plaintiff. 38In the present case, as Mr Fernon points out, there is no documentation put before the court to substantiate the quantum of the claim in relation to the petty cash amounts or the basis of that claim - all that was ultimately relied upon was the acknowledgement by Ms Mimis-Weeks that she did not account for the petty cash (presumably by the provision of receipts) in respect of her last trip to the United States and the assertions by Mr Li in paragraphs [41] and [42] of his first affidavit. 39The making of a demand for substantiation of the accounts (contained in the 14 May 2010 letter), and the fact that Ms Mimis-Weeks was on notice that Seduce Group contended she had an obligation in some fashion to account therefore, being matters to which Mr Eardley pointed in this regard, do not in my view satisfy the test outlined by Palmer J and set out above. (The failure to produce receipts does not set up any basis for a conclusion that the expenses were not properly incurred and thus repayable; it seems to relate to a failure to comply with procedural requirements.) To the extent that this is relied upon as a claim to offset the admitted liability for an 8 week termination payment, there is no evidence from which the quantum of any such claim could be tested). 40As to the allegations in relation of the alleged breach of the employment contract, again there is only an assertion based on Ms Mimis-Weeks acknowledgement in relation to work carried out overseas for other interests that there is such a claim. However, there is nothing to substantiate that this would be a breach of whatever contract governed the provision of those services overseas or to quantify what damages Seduce Group might be likely to have suffered as a result if it did amount to such a breach. 41Had the application to set aside the statutory demand rested on the establishment of a genuine offsetting claim it therefore would have failed. As it is, the allegations of an offsetting claim do not provide a basis for setting aside the demand to the extent that it is reduced to the amount referable to the 8 week payment. (ii) Abuse of process 42The second basis on which the application to set aside the statutory demand is made is that it is an abuse of process. It is submitted that such a conclusion should be drawn because (rather than complying with what are asserted to have been the reasonable requirements of the 14 May 2010 termination letter stipulating the steps to be taken before the 8 week payment would be made) the statutory demand was issued (causing, it is said, Seduce Group unnecessarily to incur significant cost). 43Mr Eardley placed reliance on what was said by Palmer J in Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867 (where it had been contended that it was an abuse of process for a creditor to invoke the legislative scheme of Part 5.4 for the purpose of debt collection especially when the creditor knows that the debt is genuinely in dispute). At [30], his Honour said: It follows from the above discussion that I consider the reasoning of Tamberlin J in Liverpool Cement is correct. I am unable to accept the reasoning of Heerey J in Intergraph . I disagree with the view that the issuing of a statutory demand when the creditor knows that the debt is disputed gives rise to an inference that the demand is issued for the purpose of exerting improper pressure on the company for payment. In my opinion, the only inference which should be drawn, absent compelling evidence to the contrary, is that the demand is issued in order to invoke the statutory procedure for testing whether or not the dispute is genuine. 44Reliance was placed in Redglove , on what was said by Gummow J in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265: No doubt, in some circumstances, the new Pt5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz . However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction. 45In Redglove , Palmer J accepted as correct what had been said by Tamberlin J in Liverpool Cement Rendereds (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411 (where a statutory demand had been served, the plaintiff had failed to make an application in time to set it aside and the plaintiff sought both an injunction to restrain the defendant from proceedings further with a winding up application founded upon the statutory demand and an order to dismiss the winding up application as an abuse of process). Tamberlin J found that the debt was genuinely in dispute but on the question of abuse of process said: Counsel for Landmarks seeks to rely on this statement in the present case in relation to the residual power of the court to grant injunctive relief. In order to do so, facts must be proved which amount to a threat to wind up the company for a collateral and improper purpose, so as to be an abuse of process: see Williams v Spautz , supra, at 522. In my view, no such improper purpose has been shown in the present case. Indeed, the purpose which emerges from the evidence, is that Liverpool seeks to recover the moneys allegedly owed to it, which, it seems to me, is not only proper but is the purpose for which the statutory demand was issued. There is no suggestion of threats of undue pressure, extortion, or commercial duress. Nor is there any suggestion that the demand was a charade in that it was not intended to be pursued to its conclusion. 46In Redglove , Palmer J, when considering the question whether in the case before him there was an abuse of process said (at [26]-[27]), in the passages preceding that relied upon by Mr Eardley: In order to resolve the question at issue in this case one must go back to what was meant by Gummow J when his Honour referred, in David Grant , to making or threatening a winding up application "for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz ". His Honour clearly chose those words carefully, intending to convey that "abuse of process" is a concept precisely defined in law and is not to be loosely used, as it often is in strenuously contested proceedings when one party considers that the other is motivated by animosity or else has a patently insupportable case. In Williams v Spautz the majority said (at 526) that an abuse of process occurs when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or for some collateral advantage beyond what the law offers. At 529, the majority said that a party alleging abuse of process bears a heavy onus of proof that the predominant purpose of the other party in commencing the legal process had been one other than that for which it had been designed. and, in the immediately preceding paragraph (at [29]): Every creditor claiming payment by a company of a disputed debt is entitled to test the genuineness of that dispute by serving a notice of demand under s459E in order to invoke the procedures of Pt5.4. If the dispute is indeed genuine, the creditor will pay the penalty of a costs order when the debtor successfully applies to set aside the demand under s459G. That is the risk that the creditor takes in serving the notice of demand. But if the debtor company fails to substantiate the dispute in the manner which is required by Pt5.4 and, in particular, by s459G, then it cannot, without more, be an abuse of process for the creditor to proceed with a winding up application in reliance upon s459C, s459Q and s459S. This is the very procedure which the legislature has devised to secure either the prompt payment of just debts or else the winding up of insolvent companies unable to pay their just debts. Where the debtor company has failed to set aside a statutory demand, it would have to establish by very cogent evidence that, despite the existence of a debt which can no longer be disputed, the creditor's purpose in seeking the winding up is not to collect payment of its debt or, in default to have 'the company wound up, but is, rather, to achieve some entirely collateral end. Such a case is conceivable but would be extremely rare in reality. 47I do not read his Honour's judgment as supporting the proposition for which Mr Eardley contends. Nor do I see any abuse of process in the present case. Ms Mimis-Weeks issued a statutory demand in circumstances where she contended that there had been an agreement reached under which that amount was payable. It was, on one view of the evidence, a situation where Seduce Group, having committed to that payment, was seeking to resile from that commitment. Whether or not that is the case is a matter to be tested in due course. 48It was suggested that it was an abuse of process for Spuds Surf, rather than trying to negotiate a termination arrangement or to have a mediation, had simply issued the statutory demand (the inference being that this was precipitate). Of course, Ms Mimis-Weeks might well have taken the view that there had already been a negotiation in relation to the termination arrangements (that having resulted in what she contended, but the Seduce Group now denies, was a binding agreement) and the appropriate course was to invoke the statutory processes. 49In any event, the mere knowledge that the debt was disputed (even assuming that the evidence in this case goes that far - and there is some doubt that it does, given Mr David Li's conversation with Ms Mimis-Weeks and the suggestion that the reason for the non-payment was due to financial difficulties within the company) is not sufficient of itself to render the issue of the statutory demand an abuse of process (having regard to the authorities referred to above). 50Accordingly, I would not have been satisfied that the statutory demand should be set aside on this ground. Conclusion 51For the reasons set out above, I am satisfied that there is a genuine dispute as to whether a binding agreement was reached on 8 May 2010 to make a 10 month termination payment but that there is no genuine dispute as to the liability to pay an 8 week termination payment. In respect of that part of the debt, I am not satisfied that there has been established a genuine offsetting claim as required for the purposes of s 459H. 52Section 459H(4) of the Corporations Act provides that if the substantiated amount in a statutory demand is at least as great as the statutory minimum, the Court may make an order: (a) varying the demand as specified in the order; and (b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company. I consider it appropriate to exercise the power under s 459H(4) to amend the statutory demand by deleting the sum claimed and substituting the amount that represents 8 weeks' notice (namely $942.54 per day plus GST, which on my calculations is $41,471.46). Orders 53Accordingly: 1.I order that the statutory demand dated 25 July 2010 issued by the defendant be varied by reducing the amount of the claimed debt to $41,471.76 (by omitting from paragraph (i) of the Schedule the sum of $227,057.89, and inserting instead $41,471.76 and inserting that sum in place of $200,000" where appearing in the schedule; and, by deleing paragraph (ii) and the words from "the sum of which" to "$10,367.94"). 2.I declare that the statutory demand has effect, as varied, from the date the statutory demand was served on the plaintiff. 54I will hear any submissions in relation to costs in light of the partial success the defendant has had in resisting the application to set aside the statutory demand. ********************* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 April 2011