Supreme Court New South Wales Medium Neutral Citation: In the matter of YCH Logistics (Australia) Pty Ltd ACN 078 330 837 [2013] NSWSC 1874 Hearing dates: 2 September 2013 Decision date: 02 September 2013 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: In proceedings 2013/170349: Order that the creditor's statutory demand served by the defendant on the plaintiff on 15 May 2013 be set aside. In proceedings 2013/170350: Order that creditor's statutory demand served by the defendant on the plaintiff on 28 May 2013 be varied by substituting for the amount of the debt claimed the sum of $746,673.72. Catchwords: CORPORATIONS - external administration - winding up - winding up in insolvency - application to set aside statutory demands under s 459H and s 459J - adequacy of description of debt claimed - whether genuine dispute as to existence of debt or amount or any offsetting claim. Legislation Cited: (CTH) Corporations Act 2001 s 459G, s 459H, s 459J Cases Cited: Canon Australia Pty Limited v Yong Brothers Pty Limited [2009] NSWSC 842 Chippendale Printing Company Pty Ltd v Deputy Commissioner of Taxation Office (1995) 15 ACSR 682; 55 FCR 562 Condor Asset Management Limited v Excelsior Eastern Limited [2005] NSWSC 1139; (2005) 56 ACSR 223 Energy Equity Corporation Limited v Sinedie Proprietary Limited [2001] WASC 419; (2001) 166 FLR 179 Financial Solutions Australasia Pty Limited v Predella Pty Limited [2002] WASCA 51; (2002) 26 WAR 306 Goldspar Australia Pty Limited v KWA Design Group Pty Limited (1999) 17 ACLC 456 Hansmar Investments Pty Limited v Perpetual Trustee Co Limited [2007] NSWSC 103; (2007) 61 ACSR 321 John Holland Constructions and Engineering Pty Limited v Kilpatrick Green (1994) 14 ACSR 250 LSI Australia v LSI Holdings [2007] NSWSC 1406 NA Investments Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210 Category: Principal judgment Parties: YCH Logistics Australia (plaintiff) Allied Overnight Express Pty Ltd (defendant, 2013/170349) Allied Express Transport Pty Ltd (defendant, 2013/170350) Representation: Counsel: S Golledge (plaintiff) D Riedstra (solicitor) (defendants) Solicitors: Champion Legal (plaintiff) Prime Lawyers (defendants) File Number(s): 2013/170349; 2013/170350 Judgment - EX TEMPORE 1HIS HONOUR: By applications filed in each proceeding on 3 June 2013, the plaintiff company YCH Logistics Australia Pty Ltd seeks orders under (CTH) Corporations Act 2001, s459G, s 459H and s 459J setting aside creditors statutory demands served on it by each defendant Allied Express Transport Pty Ltd (AET) and Allied Overnight Express Pty Ltd (AOE). 2AET served its demand on 28 May 2013 and AOE served its demand on 15 May 2013. There is no question but that the relevant applications were filed within the 21 day period limited for so doing. 3The demand served by AET claimed a debt of $946,873.72, described in the schedule as follows: Description of the debt: Money owing to the creditor relating to the transport of goods by the creditor for the company together with reversal of storage fees. See attached affidavit of Margaret Jackson for schedule of invoices and payments which particularise the calculation of the amount of debt. Amount of the debt $946,873.72. 4The accompanying affidavit of Ms Jackson sworn 28 May 2013 included the following: 5 On or about February 2011 the creditor agreed to provide freight services to the debtor for reward. 6 In accordance with the agreement to provide freight services and/or in accordance with the debtor's requests the creditor transported goods for the debtor company ("the Freight Services"). 7 Once the services have been performed the creditor issues an invoice and weekly statement specifying the services provided requesting payment within 7 days. Credit claims will only be recognised if lodged within 14 days from date of invoice. 8 Numerous invoices have been issued by the creditor to the debtor company for the Freight Services, those invoices being set out in the schedule to this affidavit marked "B" ("the AET invoices"). 9 The AET invoices issued by the creditor to the debtor company as particularised in paragraph 8 total $4,916,556.72. 10 Since the commencement of trade the debtor company has paid the amount of $4,188,914.20 towards the AET invoices. A breakdown of the various payments made against the AET invoices is set out in the schedule to this affidavit marked "C". ... 20 As at the date of swearing this affidavit the debtor company's trading account with AET remains outstanding in the amount of $746,673.72 being as follows: Total Invoices $4,916,556.72 Total Debit Notes $642.07 Total Repayment $60,614.05 Total Debits $4,977,812.84 Less Total Payments $4,188,914.20 Less Total Credit Notes $25,279.73 Less AOE housekeeping transfer $16,945.19 Total Credits $4,231,139.12 Total Trading Account Debt $746,673.72 21 In addition to the Freight Services the creditor has issued the debtor company invoice YCH001 in the amount of $200,200.00 for reversal of payment of 'storage fees'. The debtor company has not paid invoice YCH001 and remains indebted to the company for same. 5The demand of AOE claimed an amount of $39,255.83, described in the schedule as follows: Description of the debt: Money owing to the creditor relating to the transport of goods by the creditor for the company. See attached affidavit of Michelle McDowell dated 15 May 2013. Amount of the debt $39,255.83. 6The accompanying affidavit of Ms McDowell was relevantly as follows: 5 On or about February 2011 the creditor agreed to provide freight services to the debtor for reward. 6 In accordance with the agreement to provide freight services and/ or in accordance with the debtor's requests the creditor transported goods for the debtor company ("the Services"). 7 Numerous invoices have been issued by the creditor to the debtor company for the Services. The debtor company has not paid all invoices issued for the Services and the debtor company owes to the creditor the sum of $39,255.83 on these invoices. 7As to the relief claimed under s 459H on the basis that there is a genuine dispute as to the indebtedness and/or an offsetting claim, and although there may be a threshold "Graywinter" issue, to which I shall return, ultimately the indebtedness was said to be disputed in three respects: first, as to the amount of $200,200 (being part of AET's demand that there was no proper or legitimate basis for invoice YCH001 and the reversal of the payment of "storage fees" referred to in paragraph 21 of Ms Jackson's affidavit; secondly, as to the sum of $362,200 (also being part of AET's demand) , the difference between amounts invoiced by the creditor Allied to YCH in respect of "close regional" services, and the amount paid by YCH to LG Electronics (Australia) for whose benefit they were performed for those same services; and thirdly, as to an unspecified amount, discrepancies in the amounts of invoices for "metropolitan" freight services said not to be in accordance with agreed rates. 8The offsetting demand asserted was, first, for $230,000 paid by YCH to AET or AOE during the period August to November 2012 said to be in excess of the amounts paid to YCH by LG for those services during that period and, secondly, an unspecified amount said to have been overcharged by AET or AOE for or in respect of metropolitan services. 9As to the relief claimed under s 459J, it was contended that the demands were defective and causative of substantial injustice by reason of their failure to particularise each unpaid invoice that comprises the balance claimed. 10It is convenient to deal first with the claim under s 459J. A statutory demand must contain a sufficiently clear and accurate description of the debt claimed as to identify to a reasonable person in the shoes of a director of the debtor company the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to its existence or amount, or any offsetting claim [LS I Australia v LSI Holdings [2007] NSWSC 1406, [54]]. The demand must enable a company served with it to identify with precision the debt or each and every one of the multiple debts upon which the demand is based [Condor Asset Management Limited v Excelsior Eastern Limited [2005] NSWSC 1139, [28]; (2005) 56 ACSR 223]. Where multiple debts are claimed, each must be itemised, together with the total sum claimed. Failure to describe a debt with sufficient clarity is a defect in the demand [Chippendale Printing Company Pty Ltd v Deputy Commissioner of Taxation Office (1995) 15 ACSR 682, 699; 55 FCR 562; Condor Asset Management v Excelsior Eastern Limited (supra), [20]-[21]]. Of course, such a defect will warrant setting aside the demand only if the Court is satisfied that the defect will be productive of substantial injustice unless the demand is set aside [Corporations Act, s 459J(1)(a)(2)]. 11As to the demand by AET, it is true that the schedule to the demand itself does not disclose how the total amount is comprised, however, the verifying affidavit of Margaret Jackson particularises each invoice debited and each payment credited on the account to show how the balance is calculated. In the light of that affidavit, the debtor company, contemporaneously with receipt of the demand, was enabled to know each component of the debt, and how the balance was reached. It is not conceivable that there was or would be substantive injustice to the debtor company on that account if that demand were not set aside. 12In respect of the demand of AOE, however, the verifying affidavit did not have the same quality. It merely deposed that numerous invoices had been issued by the creditor to the debtor, and that the debtor "has not paid all invoices" and owes the sum claimed "on these invoices". It is quite impossible to ascertain how that balance was calculated, and which of the invoices were allegedly unpaid in part or in whole, even with the benefit of the verifying affidavit. That demand, even with the benefit of that affidavit, failed to enable the debtor to ascertain whether the amount claimed was disputed in whole or in part. To my mind, there would be substantive injustice to the debtor were that demand not set aside. 13Accordingly, the demand of AOE should be set aside under s 459 J(1)(a) on the basis of a defect in the demand which would otherwise be productive of substantive injustice. 14I turn then to the grounds which propound a dispute as to the indebtedness. Because of the view I have reached in respect of the AOE demand, consideration of this question can be confined to the AET demand. 15From about May 2011, YCH provided logistics and distribution services to LG under a "master services agreement". Before then, LG had provided these services itself. In conjunction with entering into the master services agreement with YCH, LG transferred the employees who had previously worked for it in that sector - including its General Manager Supply Chain, Mr Harris - to YCH and Mr Harris became Managing Director and subsequently Australian Country Manager of YCH, an Australian subsidiary of a Singapore corporation. Mr Harris retired on 12 April 2013, whereupon Mr Lun Kai Shen assumed responsibility for the day-to-day management of YCH's operations in Australia. 16Until mid to late 2012, the services which YCH was obliged under the master services agreement to provide to LG did not include transportation and delivery; LG contracted directly with the Allied group to provide transportation services. During 2012, however, LG called for tenders for transportation services. YCH, TNT and Allied, inter alia, submitted tenders. As a result of that process, LG and YCH in September 2012 entered into a master services agreement for transportation services. The agreement was signed on behalf of YCH by Lun Kai Shen on 21 September 2012. 17Although this agreement did not receive much attention during the hearing, its contents on further examination seem to me very important. By clause 2, LG appointed YCH on a non-exclusive and non-transferable basis as its provider of transportation services in the "territory", which was defined as Australia. By clause 3, YCH was obliged to provide to LG the transportation services in the territory, and LG was obliged to pay YCH for the transportation services on the terms of the agreement. By clause 4.12, YCH was permitted to use subcontractors to provide the transportation services without the consent of LG. The clause proceeded to provide that if YCH entered into any agreement with subcontractors for the performance of the transportation service, the terms for such agreement must comply with the terms of the master services agreement, that YCH was fully responsible for the acts and omissions of any subcontractor and the subcontractor's employees and agents, that no contractual relationship was to exist between LG and any subcontractor, and that in its contract with each subcontractor YCH should explicitly require that the subcontractor look solely to YCH for payment and waive its right to collect from LG directly. 18Clause 5.1 provided that LG pay YCH for the provision of the transportation services in accordance with the transportation rates. The transportation rates were defined as the rates specified in schedule 3. Schedule 3 provided rates for metropolitan delivery and rates for close regional delivery. The metropolitan delivery rates commenced at $20 per cubic metre for up to 0.49 cubic metres. The close regional rates commenced at $13.69 per cubic metre for up to 80 kilometres "milk run distance range". 19As I have said, the master service agreement for transportation services was signed on behalf of YCH by Lun Kai Shen. According to Mr Harris, from about August 2012 YCH on a daily basis emailed to Allied the cubic metre volume of products to be delivered and Allied arranged for the correct number of trucks to attend YCH's distribution centres the following day to collect and deliver each order. Allied rendered invoices to YCH for the freight services. Mr Harris then apparently passed those invoices onto LG. In any event, YCH appears to have invoiced LG, not for the amounts referred to in the master services agreement, but for the amounts for which YCH was invoiced by Allied which were higher. 20In about September 2012, Allied provided to Mr Harris their close regional rates. These were rates that Allied actually charged YCH. Knowing that they were Allied's rates, YCH continued to place orders with Allied. Despite the terms of the master services agreement, YCH purported to pass on to LG the Allied charges, but unsurprisingly LG paid only at the lower rates referred to in the master services agreement. 21YCH nonetheless paid Allied's invoices at the invoiced higher rates until about January 2013. Although it describes this as "covering the shortfall", and says that it was endeavouring to resolve "the dispute" with YCH and LG during this period, there was no dispute between YCH and LG, as there was no contractual or other relationship between them. LG's relationship was only with YCH, and Allied's relationship was only with YCH. 22YCH never asserted that it was not bound to pay the amounts invoiced by Allied until after the demand was received. Indeed, on 20 February 2013, YCH sent an email to Allied pointing out that LG had not paid close regional rates since the beginning of the business and seeking information from Allied, but pointing out "do not worry, it is the issue between YCH and LG, but I need your help to get LG payments ASAP". Thereafter, YCH communicated to Allied that it was seeking head office approval and/or finance to pay the amounts outstanding to Allied. 23Even in Mr Harris' affidavit in reply, which put the case for YCH at the highest, the high point was his attribution to Mr McDowell of Allied in around May or June 2012 if no adverse response when Mr Harris claims to have said to him: We have been forced into a situation with LG whereby YCH will make no margin on the rates between YCH and LG, and between YCH and Allied the rates have to be the same or else we can't do the deal with Allied. LG have been very clear on this. 24Taken at its highest, that does not begin to establish an agreement binding on Allied that it would not charge any rate higher than that agreed to be paid by LG. 25In any event, if (as YCH contends) there were no overall agreement between YCH and Allied on any particular schedule of fees, then in the absence of any over-arching agreement, each order and the acceptance of each order itself constituted a separate contract. The idea that in this industry those contracts were made on terms that the price would be worked out later is implausible to the point of being fantastic. The idea that the price was not agreed so that the charge would be on a quantum meruit is also implausible in the extreme. The proper construction of such dealings is that YCH agreed to procure the services from Allied at Allied's normal rates and on Allied's normal trading terms. By not only continuing to place orders with notice of what Allied was charging, and then paying those invoices and continuing to do so for a period of three months, YCH plainly manifested acceptance of Allied's terms and charges. 26The theory that the amount chargeable by Allied to YCH was regulated by some agreement that Allied would not charge more than LG agreed to pay YCH does not sustain examination in the light of the master services agreement for transportation to which I have referred. YCH was at liberty to subcontract the work to whomever it liked and at whatever prices it liked without LG's consent. It was not bound to use Allied. By ordering Allied's services with knowledge of Allied's rates, it accepted those rates. 27The proposition that there was no agreement as to rates, though there was an undoubted contract to provide the services, is commercially nonsensical. Although it was argued that Mr Jones through whom some of the negotiations appear to have taken place, was not authorised to accept Allied's rates, the argument is beside the point. The conclusion does not depend on any authority of Mr Jones, but on the fact that someone who was authorised by YCH to place orders with Allied did so at a time when YCH plainly knew what it was being charged. 28The commercial problem of YCH finding itself in a position of supplying a service to LG through a subcontractor and being remunerated at lower rates than it was being charged by the subcontractor is a consequence of the prices to which YCH and LG agreed in the master services agreement. It has nothing to do with Allied. It was suggested that it would be commercially unlikely or improbable that YCH would enter into such an arrangement. There are a number of explanations for why it might do so. One accords with Mr McDowell's evidence, who attributes to Mr Harris a statement that he had "stuffed up" and had failed to read the contract correctly, attributing to him "they have lower rates than the contract but I did not read them, neither did Peter". While it seems to me that that is very likely to be the explanation, I do not need to find it is so. Another potential explanation is that the value to YCH of LG's business as a whole was such that the risk of some loss on this aspect of it might have been tolerable. In any event, whatever the explanation, the legal position as a result of the master services agreement is clear enough. 29So far as the metro rates are concerned, Mr Shen said that he was unable to find any contract in respect of the metropolitan rates, and that even if the rates were those referred to in the 16 May 2012 email from Mr Jones to Allied, the invoices did not appear to have been calculated in accordance with them. Ms Jackson responded that the metropolitan rates had been modified with effect from September 2012 following discussion and in agreement not only with Mr Jones but also with Mr Harris. It was not in dispute that, once the modified rates alleged by Ms Jackson were applied, the apparent discrepancies were resolved. Mr Harris conspicuously gave no evidence on this topic. In particular, he gave no evidence, not only about metropolitan rates in general, but did not respond to the allegation that modified rates had been agreed with him from September 2012. 30In those circumstances, I can comfortably conclude that there is no genuine dispute about what Ms Jackson says in that respect. In any event, as I said in respect of the close regional rates, absent an over arching contract, each order gave rise to a separate contract, and payment of invoices and placement of subsequent orders evidences acceptance of the modified rates that were being charged from September 2012. 31I am not satisfied that any dispute raised in respect of the close regional rates or the metropolitan rates is other than spurious or vexatious or frivolous. I am not satisfied that there is any genuine dispute on the basis of the close regional rates or the metropolitan rates, nor any off setting claim in that respect. 32So far as the reversal of the storage fees are concerned, I have referred above to the way in which that was described in the schedule to the creditors statutory demand and in Ms Jackson's verifying affidavit. This debit was raised by invoice YCH 001 on 22 March 2013. It described the item as "reimbursement of pallets as per agreement dated 28.6.2011 $182,000 GST at 10 per cent $18,200 total due and payable $200,200." 33YCH's journal shows an entry on 28 June 2011 of a sale on that date of $182,000 and presumably GST of $18,200. YCH's bank statements for June 2011 evidence receipt on 30 June 2011 of $200,200, and payment on 1 July 2011 of $182,035. 34Mr Harris says that at the time he was leaving LG and joining YCH, a large number of pallets used for deliveries were missing, and that the payment was made by Allied whose drivers were supposedly responsible, without admission, to enable reimbursement of the pallet owners CHEP. Mr McDowell for Allied disputes this, and says that it was a loan to YCH to enable the reimbursement of CHEP in respect of the missing pallets, to be repaid "when the situation permitted". Mr McDowell refers to a letter written by Mr Harris on LG letterhead as if it corroborates Mr McDowell's version, but in truth it in no way supports the contention that the payment was originally a loan. It does no more than confirm, as Mr Harris had always said, that Allied made no admission. 35To my mind, there is plainly a genuine dispute in respect of this invoice. However, there is a question of whether the scope of the dispute raised on the s 459G affidavit includes this dispute. In conformity with the "Graywinter" principle, a supporting affidavit cannot be used to raise new grounds of objection not raised by the s 459G affidavit [Energy Equity Corporation Limited v Sinedie Proprietary Limited [2001] WASC 419, [29]; (2001) 166 FLR 179]. However, a 459G affidavit need not be in admissible form nor detail all the evidence necessary to establish the grounds of dispute relied upon. A mere assertion of a dispute is insufficient, but admissible evidence or a prima facie case is not required. What more than mere assertion is required may differ from case to case [John Holland Constructions and Engineering Pty Limited v Kilpatrick Green (1994) 14 ACSR 250]. 36A s 459G affidavit will be sufficient if it verifies correspondence containing assertions and denials of the debt from which it is apparent that there is a genuine dispute [Goldspar Australia Pty Limited v KWA Design Group Pty Limited (1999) 17 ACLC 456]. It suffices if the grounds are raised by reasonably available inference from the whole affidavit, annexures and exhibits [Hansmar Investments Pty Limited v Perpetual Trustee Co Limited [2007] NSWSC 103; (2007) 61 ACSR 321, [26] - [34]]. It also suffices if it contains or annexes evidence from which the ground relied on can be made good [Canon Australia Pty Limited v Yong Brothers Pty Limited [2009] NSWSC 842; NA Investments Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210]. It is not always necessary for the affidavit to set out a statement of the material facts. What is sufficient needs to be assessed in the context of the information provided in the creditor's statutory demand and verifying affidavit [Financial Solutions Australasia Pty Limited v Predella Pty Limited [2002] WASCA 51; (2002) 26 WAR 306]. 37Here, it is conceded that the affidavit does not refer in terms to invoice YCH001 or the reversal claim at all. I have set out above the minimalist information provided in the demand and the verifying affidavit about that claim. There is nothing in the demand or in the affidavit which explains any basis upon which the creditor was entitled to raise a reversal, let alone a reversal of $200,200. 38The s 459G affidavit of Lung Kai Shen sworn 31 May 2013 contains the following: 10. ... I do not believe that the charges contained on the invoices are correct and believe that YCH has been over charged in many instances, in that it does not appear that Allied has charged their invoices in any consistent manner in accordance with any agreed rates or otherwise. In this regard, even if there were agreed rates which I have been unable to locate, the charges on various invoices for similar jobs are entirely different when they should be similar. 11. Based on my review of the invoices, the charges contained therein do not appear to have any consistency whatsoever, and I can find no basis whatsoever as to how Allied have come up with each charge and what it bases these charges upon. 12. Based on my review of Allied's invoices, YCH does not admit that these invoices are outstanding and does not admit that each charge contained on the invoices are charges that were properly incurred for work undertaken by Allied on the day before work was purported to be undertaken. ... 14. Based on the above, I dispute Allied's charges and their invoices ... 15. ... until such a reconciliation occurs, I do not know if the charges in each invoice are for actual work undertaken. I believe that the invoices contain overcharging and I do not know what amount is actually owing if anything to Allied. 39In essence, the affidavit disputes all the invoices comprised in the demand on the ground that YCH was then unable to admit that there was a contractual basis for the rates claimed, or that those rates corresponded to agreed rates. Whatever might be the position in respect of the other invoices, such a position was entirely justifiable in respect of YCH001. As I have said, neither the demand nor the affidavit provided any detail or basis for that invoice. Unlike apparently routine charges for transport services rendered, this was a quite extraordinary transaction. By saying that YCH disputed all the invoices because it was unable to ascertain whether there was a proper contractual basis for them, YCH sufficiently raised a ground of dispute in respect of at least invoice YCH001. 40Accordingly, I am satisfied that there is a genuine dispute raised within time as to so much of the Allied express transport demand as reflects YCH 001 being the sum of $200,200. That demand should be varied, on the basis that the substantiated amount is $746,673.72. 41In proceedings 2013/170350: (1)I order that the creditor's statutory demand served by the defendant on the plaintiff on 28 May 2013 be varied, by substituting for the amount of the debt claimed the sum of $746,673.72. (2)I declare the said demand to have had effect, as so varied, as from when the demand was served on the plaintiff. 42In proceedings 2013/170349: (1)I order that the creditor's statutory demand served by the defendant on the plaintiff on the date on 15 May 2013 be set aside. 43In the circumstances of this litigation, in my view it would be inequitable for YCH to take the benefit of a costs order in 2013/170349 without assuming the burden of a costs order in 2013/170350. 44In proceedings 2013/170349, I make no order as to costs taking into account the costs of those proceedings. 45In 2013/170350, I order that the plaintiff pay the defendant's costs, assessed in the sum of $12,500. ********** 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: 26 March 2014