In the matter of TZI Australia Pty Limited

The plaintiff, TZI Australia Pty Limited, has applied pursuant to s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 18 October 2023 served on TZI pursuant to s 459E of the Corporations Act by the defendant, Black Ink Networks Pty Limited, demanding payment of $33,495.00.

TZI is a wholly owned subsidiary of TZ Limited, a developer and supplier of smart-locking technologies and associated secure access solutions. Black Ink is a provider of technical consulting services. TZ Limited is listed on the Australian Securities Exchange (ASX).

By about 19 November 2021, TZI and Black Ink entered into a Contract for Services under which Black Ink agreed to provide consulting services to TZI to assist TZ Limited with the planning, architecture, design and development of a new SaaS (software as a service) customer enablement platform, in consideration for which TZI would pay Black Ink for the services it rendered.

From December 2021 to January 2023, Black Ink rendered 27 invoices to TZI pursuant to the Contract, and all but the last two of those invoices were paid in full by TZI.

The debts the subject of the statutory demand are the following two unpaid invoices rendered by Black Ink to TZI pursuant to the Contract:

TZI alleges that the statutory demand is defective due to the misstated date in respect of the January 2023 invoice, that there is a genuine dispute about the existence and amount of the alleged debt which is the subject of the statutory demand and that it has offsetting claims. TZI submits that support for each of these grounds can be found in a wide smorgasbord of factual material raising numerous different issues which are necessary for me to determine. Black Ink contends that this material does nothing of the sort.

Ms S Worsfield appeared as counsel for TZI, instructed by Nevett Wilkinson Frawley Lawyers. Ms S Scott appeared as counsel for Black Ink, instructed by Diamond Conway.

As already stated, by about 19 November 2021, TZI and Black Ink had entered into the Contract. The Contract is variously dated on different pages, with the date 16 November 2021 appearing on the cover page of the Contract, the date 7 June 2021 appearing on the first operative page of the Contract, the date 12 July 2021 appearing below the signature of Mario Vecchio on behalf of TZI on the execution page of the Contract, the date 19 November 2021 appearing below the signature of Anthony Buckton on behalf of Black Ink on the execution page of the Contract and the date 22 November 2021 appearing in the definition of Commencement Date in clause 1.1(a) of the Contract. At the hearing I was informed by TZI that none of the issues to be determined by me depended on any aspect of these multiple dates (T10.44–11.24).

In the Contract, TZI is defined as the Company and Black Ink is defined as the Contractor.

The principal operative provisions of the Contract are as follows:

The individuals who rendered the Services under the Contract on behalf of Black Ink were Richard Frawley and Anthony Buckton. They also engaged in communications on behalf of Black Ink.

Across the relevant times, the directors of TZI were Mario Vecchio (who was also Chief Executive Officer of TZ Limited and ceased to be a director and the Chief Executive Officer on 30 January 2023), Simon Van Es (who ceased to be a director on 28 April 2023) and John Wilson (who is still a director and was the founder of TZ Limited).

On 28 February 2023, Peter Graham was appointed as a director of TZI and remains so, together with John Wilson.

Other personnel involved in the relevant events are Izzat Shadid (Finance Director of TZ Limited) and Jowins Jose (Chief of Software of TZ Limited).

In the period from December 2021 to March 2023, Black Ink rendered 27 invoices to TZI under the Contract, 25 of which were paid, totalling $371,402.41.

Several of those invoices are in evidence, including the two unpaid invoices. All of them are on Black Ink’s letterhead, addressed to TZI, with an invoice number, an invoice date, a due date, the number of units, a description of the services provided, the date range of those services, the unit price and the amount.

On 23 August 2022, TZ Limited made an ASX announcement that it had entered into a software licensing deal with Ricoh utilising the TZ Cloud offering, with a total contract value of A$950,000, payable to TZ Limited in tranches over a three-year licence term. Ricoh was one of TZ Limited’s major customers. The licensed software was to be used by customers of Ricoh, including DHL.

On 24 October 2022 at 2:05pm, Mr Vecchio sent an email to Mr Graham and others, copied to Mr Van Es, with the subject heading “DHL/Ricoh Licensing Payments Risk”. In the email, Mr Vecchio said that he wanted “to alert the board to the following risk”, and then set out what he described as “significant challenges with the DHL project” which he then detailed. He raised the potential issue of the contract with Ricoh being cancelled, which might give rise to the risk that DHL look to defer the contract payments of about $1 million due to TZ Limited.

On 24 October 2022 at 3:26pm, Mr Graham sent an email to Mr Vecchio and others, copied to Mr Van Es, in which he raised three questions regarding whether the Ricoh deal was a white label deal between TZ Limited and Ricoh, whether DHL was a client of Ricoh under the licensing deal and how interwoven the DHL transaction was with the Ricoh licence.

On 24 October 2022 at 3:33pm, Mr Vecchio sent an email to Mr Graham and others, copied to Mr Van Es, in which he provided answers to the questions that had been raised in Mr Graham’s earlier email, stating that Mr Graham was correct that the Ricoh deal was a white label deal, that DHL was a client of Ricoh under the licensing deal and stating that while he was not really sure whether he understood Mr Graham’s final question, if the question was whether Ricoh gave TZ Limited the order knowing that they had a DHL deal and would offset what they were paying TZ Limited, the answer was yes.

There is no reference to Black Ink in the ASX announcement or any of these emails. There is no direct or inferential evidence in any these documents demonstrating any involvement of Black Ink in the dealings between TZ Limited, Ricoh and DHL. Ultimately, TZI did not press any of these facts concerning Ricoh and DHL as supporting an alleged offsetting claim.

On 29 November 2022, Mr Shadid sent an email to Messrs Vecchio, Van Es and Frawley to which he attached what he described as “the proposed costs savings discussed in our meeting this afternoon”. In the email he indicated that there were items highlighted for confirmation based on further meetings the following day. Attached to the email was a spreadsheet titled “Monthly Cost Savings to be incorporated at TZ Limited from 1 January 2023” with a heading “Other Costs Savings”, under which appears a subheading, “Contractors”. Below that subheading, the following appeared as part of a table:

On the spreadsheet the amount of “3,333” is highlighted, and in a connected box next to it is the following:

At the bottom of the table, it states “values to be confirmed”.

There is no evidence that these “proposed costs savings” were agreed between, or the values confirmed by, TZI and Black Ink.

On 12 December 2022 at 10:52am, Mr Graham sent an email to Messrs Vecchio and Frawley, amongst others, and copied to Mr Wilson, which was directed to Mr Frawley in the following terms:

On 12 December 2022 at 10:55am, Mr Vecchio sent an email. It is not clear precisely to whom it was addressed but I infer that it was at least sent to Mr Frawley given that it refers to “Richard”. The email said:

On 12 December 2022 at 11:33am, Mr Frawley sent an email to Mr Vecchio in response saying (all grammar and punctuation issues left in place):

There was no other evidence relating to whatever issues were being experienced with Scape. There was no direct or inferential evidence which would indicate that those issues might support a claim by TZI against Black Ink.

On 14 December 2022, Mr Vecchio sent an email to a number of people, including Messrs Graham, Shadid and Van Es, with the subject “Cost reductions” stating:

Attached to the email was a document titled “Cost Reduction Updates”, with a subheading “Cost reductions Phase 1”, followed by a succession of bullet points, amongst which was the following:

There is no evidence of what became of the cash flow to be provided by Mr Shadid on the following day. There is no evidence that these “Technical Staff reductions” were agreed between TZI and Black Ink.

On 31 December 2022, Black Ink rendered the December 2022 invoice to TZI.

The December 2022 invoice was on Black Ink’s letterhead, addressed to TZI, bearing invoice number 2475 and stated units of 15.00, a unit price of $1,050.00, an amount of $15,750.00, GST of $1,575.00, an amount due of $17,325.00, a due date of 28 January 2023 and the following description:

It was common ground that the reference to “CTO Work” is a reference to Chief Technical Officer, and specifies work performed by Mr Frawley for Black Ink providing the Services under the Contract (T21–22).

On 30 January 2023, Mr Wilson sent an email to Mr Frawley stating:

This email clearly constituted one month’s written notice by TZI terminating the Contract. The email made no mention of there being any agreed variation of the Contract to limit the hours that Black Ink might invoice for past work but instead there was an attempt to limit the billable hours for February 2023 which had yet to be worked.

On 31 January 2023, Black Ink rendered the January 2023 invoice to TZI.

The January 2023 invoice was on Black Ink’s letterhead, addressed to TZI, bearing invoice number 2478 and stated units of 14.00, a unit price of $1,050.00, an amount of $14,700.00, GST of $1,470.00, an amount due of $16,170.00, a due date of 28 February 2023 and the following description:

Again, the “CTO Work” refers to Chief Technical Officer and the work undertaken by Mr Frawley for Black Ink under the Contract.

On 10 February 2023, Mr Buckton sent an email to Mr Graham listing three outstanding invoices which included the December 2022 invoice and the January 2023 invoice.

In relation to the December 2022 invoice, Mr Buckton said it was for:

In relation to the January 2023 invoice, he said it was for:

Mr Buckton asked Mr Graham to advise when these invoices would be paid. He also commented that Mr Frawley was currently standing down to relieve pressure on the cash flow but was under pressure from the team to re-engage.

On 15 February 2023 at 7:47am, Mr Buckton sent an email to Mr Graham, copied to Mr Frawley, to which he attached a formal request for the outstanding invoices to be paid.

On 15 February 2023 at 4:15pm, Mr Graham responded by email to Mr Buckton by saying that TZI was reviewing the situation between TZI and Black Ink, “mainly the personal relationships between Vecchio and Frawley”, commenting that “TZI does not have in its possession the Monthly Reports as required under the [Contract]” and asking for a copy of those monthly reports.

On 17 February 2023 at 11:42am, Mr Buckton responded by email to Mr Graham, copied to others including Messrs Wilson, Shadid and Frawley, stating that Black Ink was taking TZI’s position “under advisement”.

On 17 February 2023 at 12:17pm, Mr Graham sent an email to Mr Buckton, copied to others including Messrs Wilson, Shadid, Frawley and Vecchio, stating that:

On 22 February 2023 at 7:12pm, Mr Frawley sent an email to Mr Van Es which shared a Google Drive folder with him, which was then on sent that day at 8:22pm by email to Messrs Graham and Wilson.

On 23 February 2023 at 7:42am, Mr Wilson sent an email to Mr Graham, copied to Mr Van Es, in which he said:

In this description by Mr Wilson, there is no evidence as to what was contained in the Google Drive.

After this time and until 25 July 2023, there is no evidence of any communications between Black Ink and TZI regarding the outstanding invoices.

On 28 April 2023, Mr Jose sent an email to Mr Wilson in which he forwarded an email of 27 May 2022 sent by Mr Frawley to Mr Jose and attached a letter of offer dated 8 June 2022 from Mr Frawley to Mr Jose.

The email of 27 May 2022 from Mr Frawley to Mr Jose says:

The letter of offer of 8 June 2022 from Mr Frawley to Mr Jose is on TZI letterhead offering him the role of Chief of Software of TZI. The letter stated:

Attached to the offer was a document describing a “Bonus Payment Structure” indicating that 70% of the bonus would be paid on contribution to “firm outcomes” and 30% would be paid on acknowledgement of Mr Jose’s “soft skill developments”. The document then set out a description of the “Firm Outcomes” and “Soft Skills”.

Having attached the email and letter of offer, Mr Jose said in his email of 28 April 2023 to Mr Wilson:

There is no evidence of any response by Mr Wilson to Mr Jose in relation to this email.

On 9 June 2023 at 9:19am, Mr Jose sent an email to Mr Wilson concerning his remuneration, to which was again attached the letter of offer of 8 June 2022. In the email, Mr Jose said (all grammar and punctuation issues left in place):

Again, there is no evidence of any response by Mr Wilson to Mr Jose in relation to this email.

On 9 June 2023 at 9:24am, Mr Wilson sent an email to Mr Graham forwarding the email chain containing the email of 27 May 2022 from Mr Frawley to Mr Jose, the email of 28 April 2023 from Mr Jose to Mr Wilson and the email of 9 June 2023 from Mr Jose to Mr Wilson. In the email to Mr Graham, Mr Wilson said:

On 9 June 2023 at 11:11am, Mr Graham sent an email to Mr Buckton with the subject line “Richard Frawley Representatiobns [sic]”, which forwarded the email of 9 June 2023 from Mr Wilson to Mr Graham, together with all of the emails that were attached to it. Mr Graham said:

There is no evidence of any response by Mr Buckton to this email.

On 25 July 2023, the solicitors for Black Ink (Diamond Conway) sent a letter by email to the directors of TZI referring to the December 2022 invoice and the January 2023 invoice (by their respective invoice numbers, invoice amounts and due dates) demanding payment of the sum of $33,495.00 by 2 August 2023, failing which Black Ink would take such action as it was advised to recover that sum.

On 3 August 2023, the solicitors for TZ Limited/TZI (Nevett Wilkinson Frawley) sent an email to the solicitors for Black Ink stating that they were formulating a response to the letter of 25 July 2023 on behalf of TZ Limited which they anticipated would be finalised and forwarded by the end of the following week. I have taken all of the correspondence of Nevett Wilkinson Frawley to have been sent on behalf of both TZ Limited and TZI.

On 14 August 2023, the solicitors for Black Ink sent an email to the solicitors for TZ Limited/TZI asking that they indicate by close of business that day if they were instructed to respond, failing which Black Ink would not wait any longer and would proceed on the basis that TZ Limited/TZI did not intend to respond.

On 16 August 2023, the solicitors for TZ Limited/TZI sent an email to the solicitors for Black Ink stating that they did intend to respond to the letter of 25 July 2023, that Black Ink’s claim was disputed and that they were still obtaining further instructions and would respond as soon as possible.

There followed a two-month gap in communication between the parties.

On 25 July 2023 at 10:57am, Mr Wilson sent an email to Mr Graham with the subject heading “RICOH EUROPE UPDATE”. In the email, Mr Wilson refers to a discussion he had that evening with Spencer Handley (the head of Ricoh’s annuity business in Europe) who stated that changes had occurred in the Ricoh organisational structure and that he would still like to consider TZ Limited for their enterprise software solutions, but Mr Wilson queried how genuine that was. Mr Wilson stated that opportunities for enterprise-wide deployments were few and far between and that while Ricoh had sought TZ Limited’s help on a few opportunities, none had really come to fruition. Mr Wilson outlined a deal between Ricoh Poland and Polish Post for the supply of 1,000 locker banks, in which Polish Post would be using software they purchased from Alfred 24.

In the email, Mr Wilson stated:

There is no mention of Black Ink in this email. There is no direct or inferential evidence in this email demonstrating any involvement of Black Ink in the dealings between TZ Limited, Ricoh and DHL.

On 22 August 2023, Shuannie Guo of TZI sent an email to Mr Wilson and Chris Kelliher stating:

Below this email is a string of emails commencing on 8 September 2021 between personnel from Telezygology Inc (Oscar Ortiz) and Circuit Works Corporation (CWC) (Doug Mayer and Jessica Paredes) regarding the market for electronic components which appears to have been affected by supply chain issues during the period of COVID-19, particularly pushing out the date for the supply of a particular component used on PCA-102047 in purchase order 3898 to April 2022 and then November 2024.

On 11 January 2023 at 11:32am, Mr Ortiz sent an email to Mr Mayer and Ms Paredes, copied to Fernando Valadez of CMC, stating:

In response, on 11 January 2023 at 11:41am, Mr Mayer sent an email to Mr Ortiz saying that they would go ahead and cancel the order and see if they could return any of the material.

Across January to April 2023, an exchange of emails between Mr Ortiz and Mr Valadez about the purchase order continued, culminating on 19 April 2023 with Mr Valadez sending an email to Mr Ortiz saying:

In respective emails dated 8 and 19 August 2023 from Ms Paredes and Mr Valadez to Mr Ortiz and Ms Guo, an update on purchase order 3898 was sought.

These were the last emails in the chain of emails attached to the email of 22 August 2023 from Ms Guo to Messrs Wilson and Kelliher set out above.

There is no mention of Black Ink in any of these emails. There is no direct or inferential evidence in these emails demonstrating any involvement of Black Ink in the dealings with CMC over the purchase order for these electronic components.

On 18 October 2023, the solicitors for Black Ink served the statutory demand and the supporting affidavit on TZI.

The statutory demand described the debts in the following way:

It was agreed that invoice number 2478 is dated 31 January 2023 and was incorrectly described in the statutory demand as dated 31 January 2022.

On 24 October 2023, the solicitors for TZ Limited/TZI sent a letter by email to the solicitors for Black Ink responding to the letter of 25 July 2023 and the statutory demand served on 18 October 2023, stating that it was TZI’s position that the statutory demand constituted an improper and unconscionable abuse of process and was liable to be set aside by the court. The email alleged several matters, being:

The letter concluded that if Black Ink did not withdraw the statutory demand in clear and open correspondence by close of business on 25 October 2023, the solicitors for TZI were instructed to issue a setting aside application without further notice.

On 27 October 2023, the solicitors for Black Ink sent a letter by email to the solicitors for TZ Limited/TZI responding to the letter of 24 October 2023. In this letter it was stated that:

The letter concluded by saying that Black Ink was happy to consider any reasonable terms that TZI may propose for payment of the amounts due.

On 2 November 2023 at 9:19am, the solicitors for TZ Limited/TZI sent an email to the solicitors for Black Ink which referred to the emails sent on 22 February 2023 (referred to above) which forwarded a Google Drive folder, stating that TZI was no longer authorised to access the Google Drive folder and had not retained a copy of the documents enclosed in the Google Drive folder, and asking that Black Ink provide a copy of all documents contained in the Google Drive folder and all timesheets compiled by Black Ink to record the number of hours and days worked under the terms of the Contract. The email also stated:

The email concluded by stating that the solicitors for TZ Limited/TZI had instructions to bring an application to set aside the statutory demand and, in light of the looming expiry of the statutory timeframes to file and serve that application, requesting that the solicitors for Black Ink provide a response by close of business that day, failing which TZI intended to rely upon the correspondence in its application to have the statutory demand set aside.

On 2 November 2023 at 4:49pm, the solicitors for Black Ink sent an email to the solicitors for TZ Limited/TZI asking them to indicate specifically the legal basis for TZI’s demand for a copy of the documents referred to in their email and how that related to the statutory demand.

On 6 November 2023 at 11:13am, the solicitors for TZ Limited/TZI sent an email to the solicitors for Black Ink referring to cll 4.1 and 4.2 of the Contract and stating that it was TZI’s position that Black Ink was only entitled to render invoices under the Contract and seek payment of them in circumstances where Black Ink had strictly discharged its obligations pursuant to cll 4.1 and 4.2. The email also stated:

On 6 November 2023 at 3:13pm, the solicitors for Black Ink sent an email to the solicitors for TZ Limited/TZI responding to their emails of 2 and 6 November 2023. They said:

On 6 November 2023, TZI filed the originating process for orders to set aside the statutory demand.

On 10 November 2023, the solicitors for TZ Limited/TZI sent an email to the solicitors for Black Ink, amongst other things, responding to the email of 6 November 2023.

In the email, it was stated that TZI’s position was that the Contract was amended by way of agreement so that Black Ink would reduce by 50% the total quantum of hours of services rendered to TZI for December 2022 and January 2023 compared to November 2022 and Mr Buckton would provide no services to TZI on behalf of Black Ink from 1 January 2023 onwards. It was alleged that by issuing the December 2022 invoice and the January 2023 invoice, Black Ink was in breach of the terms of the Contract as amended by the parties and that Black Ink has charged TZI in excess of the agreed maximum number of billable hours for the months of December 2022 and January 2023.

In the email, it was also stated that TZI’s further position was that neither the December 2022 invoice and the January 2023 invoice nor the documents provided in the Google Drive folder on 22 February 2023 discharged Black Ink’s obligation to compile and provide monthly reports under cl 4.2 of the Contract.

The request was then repeated for all documents contained in the Google Drive folder sent via the link contained in the email of 22 February 2023 and a copy of all timesheets compiled by Black Ink to record the hours and days worked under the terms of the Contract.

The email concluded by requesting that the solicitors for Black Ink provide the precise scope and terms of the variation alleged by Black Ink, state which persons were party to the negotiations on behalf of the respective parties, and provide all other relevant circumstances to the negotiations, including the date when the variation was purportedly agreed and the written evidence to substantiate the variation.

TZI allege that the statutory demand should be set aside because of a defect in it.

Section 459J of the Corporations Act is the source of the court’s power to set aside a statutory demand due to, inter alia, the existence of a defect in the demand. That section provides:

Section 9 of the Corporations Act defines “defect”, in relation to a statutory demand, as including the following:

The principal authorities on the application of s 459J(1)(a) of the Corporations Act concerning a “defect” in a statutory demand can be summarised as follows:

TZI claims that there is a significant defect in the statutory demand because TZI has never received an invoice from Black Ink with the number 2478 and dated 31 January 2022. TZI says that this error or misdescription in the statutory demand is a defect that brings it within s 459J(1)(a) of the Corporations Act. Although alluded to at the outset of written submissions, the “some other reason” for setting aside the statutory demand in s 459J(1)(b) of the Corporations Act was not the subject of any substantive submission by TZI.

Black Ink conceded that the statutory demand contained a typographical error in its description of the date of the January 2023 invoice, saying 31 January 2022 instead of 31 January 2023. But Black Ink submitted that even if this was a “defect” in a statutory demand as defined in s 9 of the Corporations Act, it was not capable of causing substantial injustice in the sense described in s 459J(1)(b) because the statutory demand still correctly described the quantum and the invoice number.

I do not consider that the misstatement of the single numeral in the date of the January 2023 invoice in the statutory demand gives rise to any substantial injustice for TZI. It was abundantly clear to which invoice reference was being made in the statutory demand because the number of the invoice was stated and the amount of the invoice was stated. The misstatement of the date was obvious on the face of the statutory demand for TZI because it had received the January 2023 invoice with the correct date.

I have determined not to set aside the statutory demand under s 459J(1) on the basis of this argument by TZI.

Section 459H(1) of the Corporations Act is in the following terms:

Section 459H(5) provides that “offsetting claim”:

In the recent decision of Re JDH Capital Pty Ltd [2024] NSWSC 164, Black J at [13]–[16] conveniently summarised the relevant principles governing the determination of an application to set aside a creditor’s statutory demand under s 459H(1)(a) of the Corporations Act as follows:

The court must exercise restraint in determining any rational question concerning the proper construction of a contract where there are competing views in the context of an application under s 459H of the Corporations Act. This was a point emphasised in Creata by Barrett JA (Gleeson and White JJA agreeing) at [26]–[29] (supported by the authorities cited):

The approach of the court to such an application, and especially to the issue of whether the dispute is genuine, was further elucidated in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330, where the Victorian Court of Appeal (comprising Kyrou, Ferguson and Kaye JJA) at [47]–[50] stated (citations omitted):

In Re Libdy Developments Pty Ltd [2023] NSWSC 647, Williams J at [10]–[11] collected the applicable principles from the authorities for determining whether there is a genuine “offsetting claim” within s 459H(1)(b) of the Corporations Act as defined in s 459H(5), saying:

TZI submitted that on the proper construction of the Contract, TZI was not obliged to make payment of the December 2022 invoice or the January 2023 invoice to Black Ink because Black Ink failed to provide it with monthly reports as required under cl 4.2 of the Contract. TZI argued that the contractual provisions operated such that the monthly report was required to accompany the invoice and was a precondition to payment of the invoice so that if the monthly report was not provided before the 30-day period for payment of the invoice in cl 4.3 of the Contract, that invoice would not be payable and was unenforceable (T37.37–38.38).

Black Ink submitted that the proper construction of cll 4.1, 4.2 and 4.3 of the Contract do not require Black Ink to provide monthly reports to TZI as a condition which must be met before Black Ink is entitled to payment of any invoice which it rendered to TZI. Black Ink also submitted that in any event, the obligation of Black Ink to provide monthly reports was met in the form of the information contained in each of the December 2022 and January 2023 invoices.

In line with the principles outlined in Creata, I consider that there is a rational basis for the competing views as to the proper construction of cll 2.1, 2.2, 4.1, 4.2 and 4.3 of the Contract and I have determined that I will not resolve that question on this application where I am only to determine whether there is a genuine dispute.

In any event, I consider that the December 2022 invoice and the January 2023 invoice each contained the information required by cl 4.2 of the Contract to be provided in a monthly report, being the date the Services were rendered (“1st Dec – 31st Dec” in the December 2022 invoice; “1st Jan 2023 – 31st Jan 2023” in the January 2023 invoice), a description of the Services rendered (“Consulting Services - TZ Limited CTO Work” in both the December 2022 invoice and the January 2023 invoice) and a monthly invoice for Services rendered (each of the December 2022 invoice and the January 2023 invoice themselves). To the extent that cl 4.2 of the Contract operated to require Black Ink to provide a monthly report as a condition for the payment of each invoice under cl 4.3 of the Contract, that condition was met in each case by the rendering of the December 2022 invoice and the rendering of the January 2023 invoice.

As a result, based on the terms of the December 2022 invoice and the January 2023 invoice, I consider that there is no genuine dispute between TZI and Black Ink about the alleged failure of Black Ink to provide monthly reports to TZI and it is not a basis on which the statutory demand ought to be set aside under s 459H of the Corporations Act.

TZI submitted that in November 2022, TZI and Black Ink agreed that Black Ink would reduce by 50% the number of hours of Services provided in December 2022 and January 2023 as compared to November 2022 (or pause work for one month such that the total hours for the two months would be halved) and that Mr Buckton would provide no further services to TZI from 1 January 2023.

As evidence in support of the alleged variation of the Contract, TZI relied on:

TZI contended that Black Ink admitted that there was a variation of the Contract in the form of the email of 6 November 2023 from Black Ink’s solicitors to TZI’s solicitors where the former stated that “whilst the number of hours was reduced by agreement from what had been supplied in preceding months, the number of hours provided did in fact exceed 112 hours per month”.

Based on these alleged variations, TZI said that Black Ink was not entitled to render the December 2022 invoice and the January 2023 invoice under the Contract.

In response to TZI’s contentions on the alleged variation to the Contract, Black Ink submitted:

In my view, TZI has failed to satisfy the evidential burden it bears on this application to demonstrate that it has a genuine dispute with Black Ink about the existence or amount of the debt in each of the December 2022 invoice and the January 2023 invoice to which the statutory demand relates. Whilst TZI has a low bar to meet in the undemanding test, I consider that, in relation to its assertion that there was a variation to the Contract in the form it has alleged, it falls well short of being a plausible contention worthy of investigation as described in Wollongong Coal.

This is because there is no evidence of any sort that anyone at Black Ink agreed to a variation of the Contract which reduced the billable hours to the extent asserted by TZI, the suggestion of a variation of the Contract did not arise in any of the responses by TZI prior to the service of the statutory demand, the form of variation contended for by TZI is completely at odds with the email of 30 January 2023 seeking to reduce Black Ink’s future hours and the letter of 24 October 2023 asserting that Black Ink failed to meet the requirement to provide Services for the minimum hours in the Contract.

It is clear that there was a reduction of the hours which were billed by Black Ink in the December 2022 invoice and the January 2023 invoice compared to the invoices for the previous months in 2022. That reduction is consistent with the form of variation which is referred to in the email of 6 November 2023 from Black Ink’s solicitors.

The inconsistent and late positions taken by TZI on the alleged variation of the Contract suggests that it is not genuine, amounting to nothing more than an assertion of facts unsupported by evidence, of the type outlined in Malec. For that reason, it provides no support to justify the setting aside of the statutory demand under s 459H of the Corporations Act.

TZI submitted that it has an offsetting claim against Black Ink for breach of contract and negligence in the amount of $20,000 in the form of the annual bonus that Mr Frawley promised to Mr Jose as an employee of TZI, which TZI was required to but did not honour. In this regard, TZI relies on the email of 27 May 2022 from Mr Frawley to Mr Jose and the letter of offer dated 8 June 2022 which were attached to the email dated 28 April 2023 from Mr Jose to Mr Wilson, and Mr Graham’s assertion in his email of 9 June 2023 at 11:11am to Mr Buckton that the representations made by Mr Frawley were never presented to the board of TZ Limited (referred to above). TZI said that Mr Frawley acted outside the scope of his authority. TZI also said that by operation of cl 7.1 of the Contract, Black Ink was an independent contractor of TZI and the actions of Mr Frawley caused Black Ink to breach cl 7.7 of the Contract because Black Ink was obliged not to bind, attempt to bind or purport to bind TZI to any legal obligation.

Black Ink submitted that this alleged offsetting claim does not rise to the standard required to make it a genuine claim, only amounting to an assertion that Mr Frawley had involvement in a decision with which TZI does not agree. Black Ink said that there is no evidence of Mr Frawley’s duties or responsibilities or TZI’s policies and procedures which might support a claim that there had been a breach by him. Black Ink also said that an analysis of the email of 27 May 2022 from Mr Frawley to Mr Jose indicates very clearly that he was waiting for Mr Vecchio to say that there was approval from the board of TZ Limited before making an offer to Mr Jose so any submission that Mr Frawley was acting beyond his authority could not arise on the facts as evidenced in that email. Black Ink further asserted that, if such a claim were to arise, it needed to be properly articulated and it is not clear from anything in the evidence what cause of action TZI has against Black Ink by virtue of the email chain.

Black Ink also notes that its submission that this alleged offsetting claim is not genuine is underpinned by the fact that TZI:

None of the evidence put forward in support of this alleged offsetting claim rises to the level at which it could be considered genuine in the sense described in Grandview and Citadel Financial. The material does not found a serious question deserving of a hearing nor could it be considered as a plausible contention requiring investigation. There is no evidence that the email of 27 May 2022 was sent by Mr Frawley to Mr Jose without the authority of TZI. In fact, the terms of that email make it clear that Mr Frawley was acutely aware that the question of the remuneration of Mr Jose was a matter on which he could only act with the authority of the Chief Executive Officer of TZ Limited, Mr Vecchio, who was waiting on board approval.

Further, there is no evidence that the letter of offer dated 8 June 2022 was sent by Mr Frawley to Mr Jose without the authorisation of Mr Vecchio. This is a basic integer in the alleged offsetting claim and it is missing on the material before me.

There is also evidence from Mr Jose’s email of 28 April 2023 to Mr Wilson that Mr Jose was told that Mr Vecchio had “taken care of the approval from the board”. This supports the approach enunciated by Mr Frawley to Mr Jose – that he could only proceed after authorisation was given by Mr Vecchio, who was the person dealing with the board of TZ Limited.

I also agree with Black Ink that TZI’s failure to mention this alleged offsetting claim until after the statutory demand was served and TZI’s failure to take any action to prosecute the claim over the past five months further demonstrates that it should not be considered genuine.

TZI submitted that it has a breach of contract claim and a negligence claim relating to the loss suffered by TZI in the amount of at least US$165,000 of wasted expenditure on purchasing ELC components that were made redundant as a result of decisions made by Black Ink. TZI relied on the email chain concerning the ELC purchase order 3898 for PCA-102047 which ends with an email on 22 August 2023 sent by Ms Guo and commences with an email dated 8 September 2021 between personnel from Telezygology Inc and CWC.

Black Ink submitted that this alleged offsetting claim is not genuine because no factual foundation for it was provided, it has not been articulated beyond assertion and there was no indication as to how it could be quantified. Further, Black Ink also submitted that it is also not genuine because it was not mentioned until TZI’s solicitor’s letter of 24 October 2023 (after the statutory demand was served on 18 October 2023) and it has taken no step to bring proceedings in relation to it, despite saying on 6 November 2023 that it intended to do so.

There is nothing put before me that provides any evidential support for the assertion that TZI has an offsetting claim against Black Ink for wasted expenditure on ELC component parts. TZI conceded as much at the hearing (T18.32–20.2). On that basis alone, I consider that this alleged offsetting claim is not genuine because there is no plausible claim worthy of investigation, to use the description in Citadel Financial.

For this reason, it does not aid the application to set aside the statutory demand under s 459H of the Corporations Act.

TZI submitted at the hearing that the emails of 12 December 2022 (which are referred to above) demonstrate that Mr Frawley of Black Ink was involved in a remediation process concerning Scape which caused actual loss to, and damage to the reputation of, TZI.

Black Ink submitted that this alleged offsetting claim is not genuine because no factual foundation for it was provided.

I consider that the alleged offsetting claim concerning Scape is not genuine because it rises no higher than an assertion in submissions by TZI with no evidential support. It suffers from multiple problems. There is no clarity in the factual foundation which is said to have given rise to the alleged claim. It is not at all clear that it is a claim alleged by TZI as opposed to TZ Limited. There is no quantum attached to the alleged claim. It was not even raised in any correspondence from the solicitors for TZI when setting out the grounds on which the application to set aside the statutory demand would be made or in the written submissions provided by TZI for the hearing.

In my view, this alleged offsetting claim can be properly characterised using the descriptions used in Citadel Financial (there being no evidence sufficient to establish that the offsetting claim is genuine), and there has been a failure to demonstrate that it has sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, or something merely fanciful or futile.

Accordingly, it is not a basis on which the statutory demand can be set aside under s 459H of the Corporations Act.

For the reasons stated above, I propose to make the following orders: