Re Ad Astra Institute Pty Ltd [2018] VSC 563 (25 September 2018) and : Section 359G Corporations Act, application to set aside statutory demand, 21 day affidavit required to ‘raise’ or ‘identify’ a particular ground expressly, genuine dispute, offsetting claim.

November 3, 2018 |

The Victorian Supreme Court in Re Ad Astra Institute Pty Ltd [2018] VSC 563 considered an application to set aside a statutory demand.  In dismissing the application the court undertook a useful analysis of both genuine dispute but more particularly the approach to be taken in preparing an offsetting claim.


The defendant was engaged to develop QMS and other documentation (‘Training Documentation’) to meet the requirements of being a Registered Training Organisation (‘RTO’) and on the Commonwealth Register of Institutions and Courses for Overseas Students (‘CRICOS’) [4].

In July of 2016, the plaintiff offered the defendant a contract for services, [4], with consultancy fees at:

    • an hourly rate (minimum of 3 hours) $575 per hour + GST
  • daily rate (maximum of 8 hours) $2,800 per day + GST [5].

The note at the bottom of the consultancy fees provides:

Please note:The terms of all invoices are 14 days and all invoices will be charged according to the hourly rate plus GST (Goods and Services Tax). These rates are reviewed from time to time and may change. We will tell you of any changes as soon as practicable after a change occurs [6].

with a further stipulation :

As negotiated:It is agreed that IRM [the Defendant] will cap its fees payable for initial registration and CRICOS registration at AUD$100,000 inclusive of required ASQA fees.

The Agreement was set out to have been made on 25 July 2016 and executed by James Sackl on behalf of the plaintiff. At all material times, Ms Eavis was a director of the defendant [9].

On 3 November 2016, the defendant gave the plaintiff an invoice (AANov16) for the sum of $77,000.00 which represented $70,000.00 plus $7,000.00 GST. It was for the period of July 2016 to November 2016. There is a notation on the invoice as follows:

Note: Delayed issuing of invoice as agreed [10].

The due date for payment was 10 November 2016 [11].

Ms Eavis in her personal capacity, was:

  • engaged by the plaintiff as Chief Executive Officer (CEO) [12].
  • remunerated  at the rate of $180,000.00 per annum with superannuation and other items.
  • under the heading ‘Consultation Services’ :

IRM Consultation Services invoice of $70,000.00For the initial development of QMS and other documentation to meet the requirements of initial registration order for both RTO and CRICOS requirements.

As Agreed this payment will be deferred until the 1st August 2017 and made payable to … As per invoice. … [24]

In February 2018 Eavis had not been paid [26] and in March 2018 at a time when 30 students were enrolled, no further payment had been made [17].  On 29 May 2018  Eavis sought an update from Mr Sackl, a director of the plaintiff, as to when the defendant was to receive payment of its invoice and when she could expect to receive payment of wages [18] to which the response late that day was that ” a salary of $180k+ is for the moment unaffordable” and we can amend your employment agreement with us to ensure you are still involved with compliance or articulations etc. But bringing your working hours down to a level that is affordable for me?” [19].  Sackl on 30 May 2018 emailed Eavis stating that her employment and consulting were separate services and happy to honour the initial service and he will be forced to take over as CEO [20].  Eavis responded by stating she was not prepared to change her contract until the invoice was paid in full [21].

On 31 May 2018 Eavis’ position was terminated[22].  Eavis removed what she stated was her personal possessions.  The Plaintiff, per Sackl, alleged that she removed training documents which she refused to return [25].  There was evidence led about that contention by both parties with the plaintiff relying on a photograph from CCTV showing Eavis carrying a box from the premises [27].

A statutory demand dated 2 July 2018  with respect to the outstanding invoice owed to the defendant but not with respect to wages and other entitlements owed to Ms Eavis was issued [23].  It described the debt in the statutory demand as:

Invoice number AAAUG17 dated 1 August 2017 for July 2016 to November 2016 RTO Consultancy Services provided by the creditor, more particularly described as:

  • RTO Registration Processes;
  • Development of Quality Management System;
  • Set up of AVETMISS compliant SMS;
  • Research and Facilitation of qualification resources;
  • Development of Qualifications:
    • SIT30816 Certificate III in Commercial Cookery;
    • SIT40516 Certificate IV in Commercial Cookery;
    • SIT50416 Diploma of Hospitality Management;

Which became due and payable on 7 August 2017. $77,000.00Total amount: $77,000.00

The defendant’s 21 day affidavit (also known as a Graywinter affidavit) relevantly stated:

  1. As the Plaintiff is required to have the training documentation on site, it has been necessary for the plaintiff to incur the costs of recreating the training documentation, which it is estimated to exceed 1000 hours at a cost of $55 per hour. Until that work is undertaken it is not possible to know whether the costs of rectification exceeds the amount being demanded by the Defendant.

The plaintiff submitted that under the 21 day affidavit:

  • it raised a ‘genuine dispute’ as well as a ‘genuine offsetting claim’.
  • one of the natural inferences to be drawn from the allegation that documents had been removed was that the work to be carried out by the defendant was done in the first place. Therefore, a genuine dispute arose as to the necessity to pay the invoice for $77,000.00 [32]


The Court cited Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (In liq), where the Court of Appeal summarised the longstanding and settled principles applicable when considering whether to set aside statutory demands, being:

  •  the applicant is required only to establish a genuine dispute or offsetting claim.
  • the applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task but not necessary to advance a fully evidenced claim.
  • it is not necessary or appropriate to engage in an in-depth examination or determination of the merits of the alleged dispute because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction.
  • it is sufficient to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim.
  • the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived.
  • the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile.
  • the court is not required to accept uncritically:
    • 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
    • a patently feeble legal argument or an assertion of facts unsupported by evidence, which is not the same as requiring the applicant to formally or comprehensively evidence the basis of its dispute or off-setting claim.
  • except in extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.

Genuine Dispute

The Court considered the operation of the Graywinter principle:

  • in reviewing the Western Australian Court of Appeal decision of Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 3] :
    • the supporting affidavit must “disclose facts showing there is a genuine dispute between the parties.
    • a mere assertion that there is a genuine dispute is not enough nor is a bare claim that the debt is disputed sufficient” [33]
    • there was no settled and universal principle, which must be satisfied by an affidavit before it can be accepted as “supporting the application” and as satisfying the jurisdictional requirement being considered.
    • the statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires [34]
  • an affidavit by the plaintiff’s solicitor which simply said that the plaintiff disputed that it was indebted to the defendant, was insufficient to satisfy the statute.
  • the relevant concept of “raising” or “identifying” a particular ground involves some verbal delineation of that ground in the s 459G(3)(a) affidavit [36]
  • the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand including a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss 459H and 459J.
  • the grounds for applying to set aside a statutory demand must be raised in the supporting affidavit,  expressly, by necessary inference, or by a reasonably available inference, and a ground which is not so raised cannot be relied upon [38].
  • the correct approach is to treat a ground as having been raised within the 21 day period ‘if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed document the content of which “reveals” it [39].
  • while there has been a relaxation of the rigor of Graywinter over the years, there must be an articulation in some manner whether express, by necessary inference or by reasonably available inference [40].

The Court found:

  •  no ‘verbal delineation of the ground’ or any matter filed within the 21 day period that ‘fairly alerts the claimant to the nature of the case the company will seek to make in resisting the statutory demand’ [40].
  • the only genuine dispute raised in the 21 day affidavit is whether or not the $77,000.00 invoice was entitled to include the GST amount of $7,000 [40]

The Plaintiff’s submission regarding the GST component had not traction with the court because:

  • it ignored the extensive provisions requiring payment of GST referred to in the Consultancy Agreement;
  • it  ignored the substance of the provision which refers to the invoice which includes GST ‘as per invoice’ and the invoice had been produced on 3 November 2016;
  • the plaintiff’s construction of the agreement was not maintainable [41]

Offsetting Claim

The court stated that from the supporting 21 day affidavit it was apparent that the real issue in this application was whether the plaintiff had an offsetting claim pursuant to s 459H of the Act [31].

In reviewing the authorities the Court stated:

  •  unlike ‘genuine dispute’ which must be raised or alluded to in the 21 day affidavit [44]
  • precise quantification of the offsetting claim is unnecessary with the evidence needing only be sufficient for the court to make “an estimate of the amount of an offsetting claim” in monetary terms [45].  That is particularly the case  where the claim is of an unliquidated kind and there may be various ways of approaching the issue of assessment of damages  and there may be elements of the assessment that are, of necessity, based on broad estimate.
  • hearsay evidence is admissible [47] 
  • it is sufficient if there is a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty as to details of calculation which is greater than the amount of the debt the subject of the statutory demand. The narrower the margin between the alleged debt and the plaintiff’s estimate or initial quantification, the greater the need for particularity of the amount of the offsetting claim.
  • there needs to be evidence supporting quantum of the offsetting claim so that the Court may determine whether or not there is a genuine offsetting claim of a given amount and the absence of such evidence makes it impossible for the Court to determine whether or not the statutory demand must be altered or set aside in accordance with the provisions of s 459H.

Ominously the court noted that during submissions that his Honour “I let it be known to the plaintiff” that inter alia:

The estimate of rectification costs were nothing more than director’s contentions without any support;

Notwithstanding these observations the plaintiff did not seek to adjourn the matter to further augment the material [49].

The defendant submitted that an offsetting claim is  not available by reason of lack of mutuality because:

  1. it is an allegation against  Eavis personally that she removed the documents and not the defendant.
  2. there is a conflation of what if any amount is to be offset against the defendant’s claim as compared to the claim which is not prosecuted in the statutory demand for wages in the capacity as CEO [42].

The court rejected the first submission [42] because  Eavis was at all material times a director of the defendant and the defendant, being a legal person needed to act through a natural person to undertake carrying the documents. The court found there had been a conflation of the tasks undertaken by the corporate defendant and Ms Eavis in her capacity as CEO [43] and noted that:

  • the work undertaken by the defendant was not queried in November of 2016 or in May of 2018.  As such the only inference open on the material produced by the plaintiff and the defendant is that the survival of the school was in jeopardy unless there was an immediate reduction in costs, that the plaintiff could not afford to pay
  • the position taken by the plaintiff appears to have all the hallmarks of recent invention responding to the pressure of the statutory demand,
  • as to the photographic evidence of document removal the only real dispute is whether or not they were personal documents [52].
  •  Sackl’s statement that it was  necessary for the plaintiff to incur the costs of recreating the training documentationestimated to exceed 1000 hours at a cost of $55 per hour was nothing more than an unsubstantiated assertion [53]
  • His Honour would have expected timesheets or at least a summary of those timesheets so that he could embark upon an exercise of determining to what extent if any employees were paid extra or whether they devoted normal hours to locating or reconstructing documents but nothing was provided [56]

The Court found that it could not determine the quantum of any offsetting claim as there is no material which might assist the Court [62].

The application was dismissed [63].


The Plaintiff had significant difficulties in arguing a genuine dispute when there was a fairly straight forward contract evidencing a consultancy agreement and sufficient correspondence to show that the issue was over a capacity to pay.  The court highlighted the problem that is often had with an offsetting claim which is based on an estimated and not a liquidated sum, such as a debt owed by the Defendant to the Applicant.  The court made clear that assertion was not enough.  There had to be some substantiation even with a more relaxed approach to evidence in applications of this nature.  At minimum a conclusion as to the sum of the offsetting requires some basis which is set out in understandable and capable of some analysis.

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