Australia: "There is a dispute because I said so!" Is this now enough to set aside a Statutory Demand?

Last Updated: 12 November 2013
Article by Richard Lyne
Focus: Britten-Norman Pty Limited v Analysis & Technology Australia Pty Limited [2013] NSWCA 344
Services: Commercial, Dispute Resolution & Litigation, Financial Services
Industry Focus: Financial Services

It is not often that an Appeal Court has to consider a dispute over a Creditor's Statutory Demand. In Britten-Norman Pty Limited v Analysis & Technology Australia Pty Limited [2013] NSWCA 344, the New South Wales Court of Appeal may have lowered the bar on applications to set aside statutory demands.

The judgment, delivered on 21 October 2013, appears to suggest that demands should perhaps be contemplated for a bare debt for the supply of goods or a loan, and not for more sophisticated contractual arrangements requiring specifications to be met.


Britten-Norman Pty Limited (BNPL) leased a Surveillance Management System MkII (SMS2) from Analysis & Technology Australia Pty Limited (ATAPL). The SMS2 was to be used by BNPL as part of its tender to provide aerial surveillance in aid of bushfire fighting.

BNPL verbally informed ATAPL that it required the SMS2 to be accurate to .001 nautical miles during trials. The SMS2 was accurate to between 2 and 5 nautical miles. BNPL was unsuccessful in the tender and alleged this to be because of the lack of accuracy with the SMS2.

BNPL did not meet the lease payments leaving an outstanding balance of $128,421.50, and ATAPL served a Creditor's Statutory Demand (the Demand).

BNPL applied to set aside the Demand and relied upon a number of conversations between Mr Baddams, the Managing Director of BNPL, and Mr Fothergill, the Managing Director of ATAPL, in which Mr Fothergill allegedly made representations as to the accuracy of the SMS2. No documentary evidence in support of the conversations was included in the affidavit of Mr Baddams, ie no other subsequent document corroborated Mr Baddam's position on the specification.

This evidence was said to give rise to a cross claim which was broadly valued at the amounts paid to ATAPL to date and the loss in profit Mr Baddams estimated BNPL would have made in the first year of trading. This evidence however was unsupported by way of an expert report.

In response, Mr Fothergill denied a number of the conversations regarding the representations. He also put into evidence various emails from Mr Baddams that made no reference to the issues asserted by Mr Baddams in the conversations. Those emails even acknowledged an indebtedness.

Mr Baddams explained that the complaints were not put into writing as his son worked for ATAPL at the time, and he was concerned about the effect a full dispute would have on his son's employment. Again that was not communicated to Mr Fothergill.

There were also some other allegations unanswered by Mr Fothergill in emails including assertions that there were "software problems".

First instance decision – Justice Black

In originally dismissing the application, Black J determined that BNPL had not established an offsetting claim primarily on the basis that the evidence put forward by BNPL was insufficient to quantify the claim.

While Black J did not determine whether BNPL had sufficiently established that it had a cross claim, he did comment that the "first difficulty" of the offsetting claim was that it was based on "no more than Mr Baddams' evidence, unsupported by contemporaneous correspondence referencing the complaints now advanced".

Appeal decision

It was accepted by the full bench that, if BNPL was to satisfy the court that it had an offsetting claim, it needed to prove that it had:

  • a "serious question to be tried"1
  • "an issue deserving of a hearing",2 and
  • that such a claim was made in good faith in the sense that the offsetting claim was arguable on the basis of facts that were asserted "with sufficient particularity to enable the Court to determine that the claim is not fanciful."3

The contest on Appeal was whether there was sufficient evidence to satisfy the Court of the requirements of s 459H(1)(b) of the Corporations Act 2001: namely that BNPL had an offsetting claim in an amount that was greater than the amount claimed in the Demand.

The Court then undertook a review of the various authorities and statutes concerning the standard of proof required on such an application. The Court determined that "all the primary judge needed to do is to determine whether there was a genuine dispute, that is one in which a plausible contention has been raised by the company on which the statutory demand was served".4

The Court also referred to the observation made by McLelland CJ in Eyota Pty Limited v Hanave Pty Limited [1994] 12 ACSR 785:

This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, 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, it may be' not having 'sufficient prima facie plausibility to merit further investigations as to [its] truth'... or 'a patently feeble legal argument or an assertion of facts unsupported by evidence'...

The task for the Court is simply to identify the genuine level of a claim – not the likely result of it.

Applying this test and taking into account the difficulties the email evidence posed for BNPL, the unanimous decision of the Court of Appeal found that the evidence established a plausible contention requiring investigation and, therefore, satisfied the test of a genuine dispute. It was stated that:

...the existence of evidence that casts doubt, even significant doubt, on an applicant's contention that there is a disputed debt or an offsetting claim, is not the basis for a rejection of an application under section 459H.

The Court of Appeal then considered the evidence as to quantum of the claim which had not been challenged in the lower court and found that this also (in part) satisfied the test of an offsetting claim.

The Appeal was allowed, with the effect that the Demand be set aside, with costs payable to BNPL.


Although the NSW Court of Appeal has applied the previous authorities it has done so in such a way that the threshold of a "genuine dispute" appears to have been lowered even further. This may result in first instance judges being less inclined to uphold Statutory Demands even though evidence is adduced that establishes significant doubt on an applicant's contention that there is a "genuine dispute" – such as an admission. This is no longer a basis for rejecting an application to set aside a Demand.

It follows that the level of evidence required to successfully oppose such an application is now such that even if there is a documentary trail to suggest there is no dispute, assertions of conversations to the contrary may be sufficient.

Parties regularly serving such demands may now see an increase of similar "genuine disputes" unsupported by documentary evidence but based on asserted oral representations.

Where there has been any lengthy chain of discussion and any email exchanged between parties regarding an unpaid debt, it would be very risky for the creditor to now issue a Statutory Demand upon the debtor. Any failure or inability to challenge any alleged dispute could now result in such a Statutory Demand being set aside. It appears only the most straightforward of debt claims will now pass the "no genuine dispute" test.

Parties usually involved in such contractual arrangements should ensure that all terms (including required technical specifications) are documented and agreed at the outset. All tests and trials should also be documented and certified, if possible, by both parties. Further, paper trails should be used wherever possible.

Nobody can prevent allegations of verbal issues being raised, all that parties can do is try to limit their possible effect and utility.


1Scanhill Pty Ltd v Century 21 Australasia (1993) 47 FCR 451.
2Chase Manhattan Bank Australia Limited v Oscty Pty Ltd [1995] FCA 1208.
3Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743.
4Following Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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