In the matter of Force Draft Pty Limited

1. [1]

   HER HONOUR: This is an application by Daikin Australia Pty Ltd to set aside a statutory demand served on it by Force Draft Pty Limited on the basis that there is a genuine dispute as to the existence of the debt. The statutory demand seeks payment of $23,119.60 arising from 23 invoices issued by Force Draft from February 2016 to January 2019.

2. [2]

   Force Draft carries on business in the Northern Territory as “Blizzard Air & Refrigeration”. Gavin Pocock is the sole shareholder and officeholder of Force Draft. From time to time, Force Draft has repaired Daikin’s air-conditioning units under warranty and invoiced Daikin for its labour in doing so. Force Draft also has a line of credit with Daikin, under which Daikin provides spare parts to do repairs and refunds the costs of parts used for warranty repairs.

3. [3]

   Although the amount sought in the statutory demand was relatively small, the parties relied on eleven affidavits describing Daikin’s warranty procedures, conversations which Mr Pocock says he had with Daikin’s warranty manager, the details of each invoice (which range from $182.05 to $2,679.72), credit notes, emails and other correspondence in relation to particular invoices, and parallel proceedings in which Daikin is suing Force Draft for monies owing under the line of credit. One might think from the mere description of this application that there exists a genuine dispute within the meaning of section 459H of the Corporations Act 2001 (Cth). It is timely to set out the relevant law.

4. [4]

   In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [31], the Court of Appeal approved McLelland CJ in Eq’s consideration of a “genuine dispute” in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 as involving a plausible contention requiring investigation, raising much the same sort of considerations as the “serious question to be tried” criterion that applies in the case of an interlocutory injunction. As McLelland CJ in Eq stated at 787:

5. [5]

   The Court, at [48], also approved the following statement of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605:

6. [6]

   The characteristics of a “genuine dispute” were described in similar terms by the Victorian Court of Appeal in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, by Dodds-Streeton JA (with whom Neave and Kellam JJA agreed), at [71]:

7. [7]

   Mr Pocock referred me to two other authorities which consider a genuine dispute. In a much-cited passage of Spencer Constructions Pty ltd v G&M Aldridge Pty Ltd (1997) 24 ACSR 353, the Full Court of the Federal Court (Northrop, Merkel & Goldberg JJ) reviewed the many authorities and concluded at 365:

8. [8]

   In September 2015, Daikin issued a document entitled “How to claim a part and/or labour under warranty from Daikin Australia”, which Daikin says formed the basis for the parties’ dealings. The document stated: (emphasis original)

9. [9]

   At some time prior to November 2015, Mr Pocock says he spoke to Mr Narasimhachar, Warranty Manager at Daikin, outlining his concerns about the hourly rates and time allowed to do repairs. Mr Pocock explained the characteristics of his business, including its location in Darwin, and says Mr Narasimhachar agreed that some dispensation needed to be made to allow additional labour charges. As Mr Pocock put it in submissions:

First invoice

1. [10]

   On 17 February 2016, Force Draft issued the first of the invoices referred to in the statutory demand in the amount of $1,747.25 including GST. The invoice was for a number of spare parts and seven hours’ labour, plus a service fee. Layla Lazar, an employee of Daikin, faxed a letter in response as follows:

2. [11]

   Mr Pocock denies having received this letter. He also denies that, in light of his conversation with Mr Narasimhachar, it was legitimate to restrict Force Draft to the time and rate restrictions contained in the schedule to the September 2015 document. Either way, Daikin received no revised invoice and so rejected the warranty claim.

Second invoice

1. [12]

   On 18 January 2016, Daikin issued an invoice to Force Draft for spare parts supplied on 15 January 2016, in the amount of $24.51 including GST. On 4 April 2016, Force Draft issued an invoice for $378.42 including GST for “Parts, Labour, Service Fee”, comprising labour charges of $297, $27.02 for parts and a service fee of $20.00, plus GST on the total. The particulars of the work undertaken suggest that the parts charged for on 4 April 2016 were those supplied by Daikin on 15 January 2016; there is a discrepancy of $2.51 between these invoices in respect of parts.

2. [13]

   On 24 May 2016, Daikin issued two credit notes to Force Draft. The first was for $24.51, being the parts supplied, and the second for $348.70, being the labour charges, service fee, and GST. The total of the credit notes was $373.21, being $5.21 less than Force Draft’s invoice. Daikin attributes this difference to:

3. [14]

   On 31 May 2016, Daikin issued a Statement to Force Draft, where the two credits were noted. On 14 December 2016, Daikin allocated the credits against overdue debts owing by Force Draft and wrote off a further $422.12. On 31 December 2016, Daikin issued a further Statement which confirmed that the credits had been used to pay part of the debt then owing by Force Draft. Mr Pocock complains that there was no explanation of why the credits were issued for an amount different to Force Draft’s invoice, or the process by which credit notes were allocated against debts owing, such that, as far as he was aware, they had simply disappeared after having been on the books for several months. Daikin’s Statements do not explicitly refer to the use of the credit notes to write off other amounts owing, and could have been clearer, but it is reasonably clear that the 4 April 2016 invoice has been paid except, perhaps, as to $5.21.

Four more invoices

1. [15]

   On 19 December 2016, Force Draft issued Invoice no. 4046666 in the amount of $182.05 for an hour and a half’s labour plus a service fee. On 23 February 2017, Force Draft issued:

2. [16]

   On 22 March 2017, Ms Lazar emailed a letter to Force Draft at admin@blizzardair.com in respect of these invoices:

3. [17]

   Force Draft did not reply. Mr Pocock considered the request to be merely a delaying tactic: the invoices already contained “all relevant details”. Overall that is a fair description of the invoices but some of the invoices were missing some of the information requested. Either way, the further information was not supplied and so Daikin rejected the warranty claims.

New terms

1. [18]

   On 3 February 2017, Daikin issued a document entitled “Warranty Procedures”, which superseded the September 2015 document. It provides: (emphasis original)

2. [19]

   Daikin also issued a new “Repairer’s Warranty Claim Form”, which contained a notice at the top of the page: (emphasis original)

3. [20]

   Ms Lazar of Daikin deposed:

March 2017 invoices

1. [21]

   On 9 March 2017, Force Draft issued:

2. [22]

   On 10 March 2017, Force Draft issued a further invoice, no. 4046952, for $203.50, for an hour and half’s labour and a service charge.

3. [23]

   On 10 May 2017, Ms Lazar sent two more letters in response to the 9 March 2017 invoices. In relation to Invoice no. 4046937, a letter was sent to blizzardair@notifications.aroflo.com requesting the Delivery Docket number for parts supplied. Mr Pocock says this email address was a “system generated email for sending only” and he never received the letter relating to Invoice no. 4046937. In relation to Invoice no. 4046940, a letter was sent to admin@blizzardair.com requesting further details similar to Daikin’s 22 March 2017 letter. Mr Pocock repeats that his invoices were detailed, and that the request for provision of further particulars was a “stalling tactic not to pay”. Force Draft did not provide the information sought and Daikin rejected the warranty claims.

4. [24]

   On 12 May 2017, Ms Lazar responded to the 10 March 2017 invoice:

More invoices

1. [25]

   On 9 August 2017, Force Draft issued an invoice for $1,701.72 for labour, parts and a service fee. On 31 August 2017, Ms Lazar wrote to Force Draft requesting further information about the claim, in similar terms to the 22 March 2017 letter. Force Draft did not respond and Daikin thus rejected the warranty claim.

2. [26]

   On 7 September 2018, Force Draft issued:

3. [27]

   Ms Lazar requested further information in respect of both invoices and, for the second invoice, a revised invoice as the labour charges were deemed excessive. Mr Pocock says the letters were sent to the wrong email address and didn’t come to his attention. Having heard nothing further, Daikin rejected the warranty claims.

Debts owed to Daikin

1. [28]

   On 5 December 2018, Daikin sent Force Draft a letter of demand for $16,638.58 owing on the line of credit, advising “As your trading terms of 30 days have now been exceeded, credit facilities have been withdrawn.” On 11 December 2018, Daikin advised Mr Pocock that it was commencing recovery proceedings. On 17 January 2019, Daikin directed Becker Commercial Services to send further letters of demand on its behalf.

2. [29]

   On 21 January 2019, Force Draft began issuing a number of invoices: three invoices were issued on 21 January 2019 for work done between June and September 2017 for a total of $2,790.09; an invoice was issued on 23 January 2019 for work done in September 2017 in the amount of $626.51; and six invoices were issued on 24 January 2019, for work done between February 2017 and September 2018, for a total of $7,901.43. On 25 January 2019, Ms Lazar wrote to Force Draft rejecting these invoices as the claims were made outside the 28 day period prescribed by Daikin. Mr Pocock does not accept that this rejection is valid, since he does not accept that he is contractually bound by Daikin’s terms. He says he issued the invoices late and all together as “I just got tired of the runaround”.

3. [30]

   A final invoice, no. 4048386, was issued on 25 January 2019 for $1,355.20. This invoice has a due date of 8 February 2019. This invoice brought the total of the January 2019 invoices to $12,673.23, about half of the total amount in dispute.

4. [31]

   On 25 January 2019, Daikin commenced proceedings in the Local Court at Sutherland against Force Draft and Mr Pocock personally for recovery of monies owing under the line of credit. A defence has been filed, and the proceedings are ongoing.

5. [32]

   On 25 January 2019, Force Draft issued a statutory demand to Daikin in respect of the 23 invoices. On 30 January 2019, Daikin was served with the statutory demand.

These proceedings

1. [33]

   On 14 February 2019, these proceedings were commenced. At the first return of these proceedings on 27 February 2019, there was no appearance for Force Draft. The Registrar adjourned the proceedings to the Corporations List on 11 March 2019 for further directions. On 11 March 2019, Mr Pocock appeared in person. In considering the distance he had come, his Honour Justice Black referred the application to me for final hearing that day. I gave leave for Mr Pocock to represent the company and, after the hearing, made directions for further evidence to be served before reserving judgment. Three further affidavits were served by Force Draft and three affidavits were served by Daikin.

2. [34]

   Because of this unusual procedural history, an issue arose as to an affidavit filed by Mr Pocock outside the terms of the leave I granted. Daikin objects to this affidavit being read. I apprehend that the mistake on Mr Pocock’s part was innocent: perhaps understandably for a self-represented litigant. I do not propose to take note of the affidavit to the extent that it contains evidence although I do not consider that the findings I have made would have differed materially. To the extent that that affidavit contains submissions, it falls within the leave granted and I have considered the submissions. Mr Pocock took objection to the affidavit of Mr Narasimhachar which was filed and served in time but was then unsigned. I consider that, despite the formal issue, which has since been cured, Mr Pocock has had an opportunity to respond to its contents. I have read this affidavit.

3. [35]

   It is apparent to me from reviewing the evidence that there is a dispute between Daikin and Force Draft which includes both legal and factual issues. As to legal issues, there is a dispute as to whether the contract between them included the following terms:

4. [36]

   As to disputes as to factual matters, the following appear to me to arise:

5. [37]

   Mr Pocock submitted orally:

6. [38]

   Force Draft submitted that Daikin’s constant request for further details on invoices was punitive; its requirement to submit warranty claims within specified time frames was “tyrannical”; and Daikin:

7. [39]

   But it seems to me from the correspondence between the parties and the affidavits of Mr Pocock and Daikin’s employees that the legal and factual disputes I have listed at [35]–[36] are “genuine” in the sense that they involve a plausible contention requiring investigation and cannot be dismissed as mere assertions unsupported by evidence, or as patently feeble legal arguments. Each dispute has a sufficient objective existence and prima facie plausibility, evidenced by contemporaneous documentation, and cannot be said to be spurious, bluster or assertion.

8. [40]

   Two invoices fall into a slightly different category. Although the first invoice remains in dispute, Ms Lazar’s letter indicates that Daikin did not cavil with Force Draft charging $335 for its work. There is no genuine dispute as to this amount.

9. [41]

   Second, the final invoice was due to be paid on 8 February 2019, a fortnight after Force Draft’s statutory demand was issued. Force Draft was not entitled to include the debt in the statutory demand when it was not due and payable: section 459E(1) of the Corporations Act. The inclusion of debts not due is a defect such that the whole of the demand may be set aside under section 459J: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 at 750; [1996] NSWSC 199; In the matter of MK Group Phoenix Pty Ltd [2014] NSWSC 1467 at [40]; In the matter of Longking Pty Ltd (2017) 123 ACSR 456; (2017) NSWSC 1534 at [44]; In the matter of Erma Properties Pty Ltd [2017] NSWSC 1748 at [32].

10. [42]

    As such, there is an undisputed amount of $335. This is the “substantiated amount” for the purposes of section 459H. Since this amount is less that the statutory minimum of $2,000, the Court must set aside the demand: section 459H(3).

11. [43]

    Finally, I note Mr Pocock’s oral submission in respect of the use of statutory demands:

12. [44]

    For these reasons, Daikin’s application must be granted. I make the following orders:

    1. (1)

       Pursuant to section 459H(3) of the Corporations Act 2001 (Cth), set aside the creditor’s statutory demand dated 25 January 2019 and served by the defendant upon the plaintiff on 30 January 2019.

    2. (2)

       The defendant to pay the plaintiff’s costs.