In recent decisions of Sportsco Pty Ltd v Singh Group Pty Ltd (No 2) [2011] VSC 576 (per Ferguson J) and BKW Investments Pty Ltd v Training Connect Limited [2011] FCA 1314 (per Cowdroy J) the courts considered applications to set aside statutory demands. In Sportsco the court, hearing an appeal from an Associate Justice, refused to set aside the application.  In BKW the court set aside the application.

Sportsco Pty Ltd v Singh Group Pty Ltd (No 2)

Facts

The underlying dispute related to the purchase of a franchise business.  Singh, the purchaser, submitted that the statutory demand on Sportsco for $70,500 was a refundable deposit under the franchise agreement. Sportsco, the vendor, applied to set aside the demand claiming there was a genuine dispute concerning the debt and that it had an offsetting claim.  Singh alleged there was an agreement that the money was refundable if it was unable to obtain finance for the franchise business.  Singh did not obtain finance.  While Singh was provided with an  an offer to lease premises from which the franchise would operate it was never executed by Singh.  Sportsco claimed there was a dispute as to what constituted the agreement and whether the agreement was subject to finance. It also claimed Singh was liable to pay a franchise royalty fee of five years as a consequence of the breach and was liable for damages of approximately $300,000.

Decision

Ferguson J referred to TR administration proprietor Ltd V Frank marketing and Sales Brochure Ltd as support forthe proposition that in considering applications to set aside statutory demands there is no in-depth examination or determination of the merits of the dispute ([6] to [7]). Ferguson J found the evidence filed on behalf of Sportsco did not rise above the low hurdle required to show there was a genuine dispute. Her Honour found that much of the evidence was mere assertion ([9]). Her Honour was critical of the claim by Sportsco that an agreement had been entered into but it was not produced, similarly when the execution of agreement was denied by Singh Sportsco limited its allegations to a claim that it understood the documents had been sent for execution. Sportsco failed to rebut specific allegations made by Singh, in particular the production of an e-mail setting out the basis of the agreement (ie the monies were refundable if finance was unobtainable). Ferguson J stated, at [15], that while in an application to set aside a demand it is not necessary to have all the evidence required at trial it is necessary to respond to material allegations which could have easily been placed in an affidavit in reply. With respect to Sportsco’s contention that a conversation regarding refundability of the deposit was made by an accountant in the employ of Sportsco who did not have ostensible authority Ferguson J critisised the absence of evidence in support of this serious submission.

BKW Investments Pty Ltd v Training Connect Limited [2011] FCA 1314

Facts

BKW is a business which provides the methodology and material for teaching subjects online.  Training Connect provides educational services in English literacy, numeracy and other subjects ([4]). The parties entered into 2 memoranda establishing a business relationship and the parties commenced negotiations for a license agreement. The negotiations were unsuccessful, the relationship broke down and soon thereafter Training Connect issued a statutory demand regarding monies it had previously paid to BKW.

Decision

Cowdrey J relied, at [26], upon Spencer constructions v TNM Aldridge propriety Ltd regarding the criteria for establishing a genuine dispute, which requires that

• the dispute be bona fide and truly exist in fact;
• the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.

In that context Cowdrey J considered that the two memoranda showed that the parties were involved in commercial relations and prima facie the conditions within the documents governed their commercial relationship. The subsequent e-mails and events highlighted a genuine dispute regarding the operation of those conditions.  Those documents demonstrated that the dispute between the parties was real and not spurious, hypothetical or misconceived.  The issues raised by BKW were that payments it received were converted to license payments and, conversely, by Training Connect that the agreements were frustrated were such as to require judicial determination.

Cowdrey J accepted BKW’s submission that because there was no address provided in the notice of the statutory demand BKW had to approach the court to obtain leave to serve its application outside Australia. As such it was placed in a position of severe disadvantage which may amount to a substantial injustice ([33]).  His Honour found that the absence of an Australian address for service constituted a defect. His Honour however stated that given there was a genuine dispute it was not necessary  to formally determine whether the defect cause substantial injustice. BKW sought and obtained a costs order on an indemnity basis.  Cowdrey made an indemnity costs order because Training Connect failed to withdraw the demand when it became apparent that a genuine dispute existed.

Issues

Sportsco and BKW is a study in contrasts. In Sportsco the application failed because Sportsco failed to provide the minimum material necessary to satisfy the court that there was a genuine dispute.  It told heavily against Sportsco that it failed to meet allegations made by Singh in any affidavit in reply and that many of its claims were not supported by documentary evidence which should have been available.  In BKW the court set aside the demand because both parties alleged that the documentation supported their respective positions.  Almost invariably documentary evidence lies at the heart of an application to set aside a statutory demand.  While the courts do not require applicants to lay out their entire case in a “ready – for – trial” format the bar is not so low that a court will accept assertion over evidence.

Care should be taken in relying on BKW as support for an award of indemnity costs when successful in setting aside a statutory demand.  That is not the usual orders made in this jurisdiction. Even where the court finds that it was apparent there was a genuine dispute an order for indemnity costs is rare.