Griffiths J in Platinum Communications Pty Ltd v Computer Networks Pty Limited [2012] FCA 1260 considered an amendment to application to set aside a statutory demand.

FACTS

The plaintiff, a retailer, and the defendant, a software provider, entered into an agreement whereby the plaintiff would use the defendant’s software under licence and receive related services for payment [1].  When the software was switched on the plaintiff suffered difficulties in many of its stores [7].  The plaintiff claimed the software was not fit for purpose [9] and that it had suffered losses of $400,000 as a result of the defects in the software.  The defendant issued a statutory demand for a total amount of $102,981.86 being the sum of 10 invoices for work in installing the software and providing the related services [6].

The plaintiff filed an application under section 459G of the Corporations Act 2001 (the “Act”) seeking and order, at [12]:

pursuant to s 459J(a) (i.e. setting aside the demand if the Court is satisfied that, because of a defect in the demand, substantial injustice will be caused) or, alternatively, under s 459J(b) of the Act (i.e. setting aside the demand where there is “some other reason” why the demand should be set aside).

DECISION

Amendment application

At the commencement of the hearing the plaintiff sought to amend its application seeking and order under section 459H of the Act which provides:

(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.

The Defendant opposed the amendment application on the basis that absent a patent error in the plaintiff’s originating application, the Court lacks jurisdiction to permit an amendment which would have the effect of adding a reference to relief also being sought under s 459H based on the ratio in David Grant & Co Pty Limited v Westpac Banking Corporation and the New South Wales Supreme Court decision in Process Machinery v ACN 057 260 590 [16].

His Honour granted leave to amend relying on the ratio of Topfelt Pty Limited v State Bank of New South Wales Limited where the court stated that there is  “.. nothing in the terms or spirit of s 459G which would lend support to the view that a party may not amend its application under s 459G to add further grounds [19].  There is a difference between seeking leave to amend the originating application in a way which will bring it into conformity with the contents of the supporting affidavit and seeking leave to amend an application to rely upon a fresh ground about which the defendant had no prior notice arising from the contents of the original application or supporting affidavit [20].  In this case the supporting affidavit put the defendant on notice of the grounds being relied upon, if not stated in the application. A reinforcing factor here was the defendant;s prior knowledge, obtained via an exchange of correspondence, of type of application the plaintiff would make; information which predated the application being served [21].

Genuine dispute & offsetting claim

His Honour in reviewing the relevant principles stated that“genuine” requires that the dispute be “bona fide and truly exist in fact”; and that the grounds for alleging the existence of a dispute are “real and not spurious, hypothetical, illusory or misconceived”[26] and that the the investigation requires the same same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat [27].

Regarding an offsetting claim the court stated:

1. it must be bona fide and not based on mere assertion with the threshold being relatively low [30].
2. it must have some chance of success [31] with the threshold of a serious question to be tried being used in this context, being described as ” sufficient evidence to establish the objective existence and foundation for the claim” [32]
3. it is necessary for the plaintiff to ascribe an amount to any offsetting claim such that the Court can determine the substantiated amount as required by s 459H(2) [33]
4. that a claim for unliquidated damages can amount to an “offsetting claim” for the purposes of s 459H provided the amount claimed is genuine and made in good faith. The plaintiff  should adduce some evidence to show the basis upon which the loss is said to arise and how it is calculated [33].
5. that appropriate allowance  may be made in a case where the plaintiff’s ability to adduce the material  is handicapped because of the defendant’s conduct which is the subject of the asserted offsetting claim [34].

At [35] – [45] his Honour considered the evidence and found there was a genuine dispute but even if he was in error on that point there was evidence of an offsetting claim.

In the circumstances of this case the Court made a condition on an order setting aside the statutory demand. The plaintiff had provided its legal representatives with  instructions  to commence proceedings in the Federal Court in respect of the alleged failure of the software but it had not occurred by the date of hearing the application. The court regarded this as an appropriate case in which to impose a condition that the plaintiff institute and diligently prosecute its offsetting claim and made orders that the proceedings should be commenced within three weeks [46].

ISSUE

This is a very useful authority in support (or opposing) an amendment application.  It is necessary to have sufficient material within the affidavit material (and preferably other notice provided to the defendant) to establish a basis for seeking to include a further ground to set aside a statutory demand.  It is also good practice to highlight by correspondence to the putative defendant the basis upon which the application will be made.  That form of notice will reduce the often made claim that the defendant is taken by surprise by any application that may be made.