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FEDERAL COURT OF AUSTRALIA

NT Beverages Group Pty Ltd v PT Bromo Tirta Lestari, in the matter of NT

Beverages Group Pty Ltd [2017] FCA 775

File number: NSD 2156 of 2016

Judge: GLEESON J

Date of judgment: 11 July 2017

Catchwords: CORPORATIONS – application to set aside creditor’s

statutory demand for debt pursuant to s 459G of the

Corporations Act 2001 (Cth) – alternative application to

vary statutory demand pursuant to s 459H of the

Corporations Act 2001 (Cth) – whether supporting affidavit

provides plausible basis for offsetting claims in excess of

amount claimed in statutory demand – requirements to

provide plausible basis for offsetting claims for lost profits

– application largely unsuccessful – statutory demand

varied to the extent that plausible basis for offsetting claims

established

Legislation: Australian Consumer Law

Competition and Consumer Act 2010 (Cth)

Corporations Act 2001 (Cth)

Sale of Goods (Vienna Convention) Act 1986 (NSW)

United Nations Convention on Contracts for the

International Sale of Goods, opened for signature 11 April

1980, 1489 UNTS 3 (entered into force 1 January 1988)

Cases cited: Britten-Norman Pty Ltd v Analysis & Technology Australia

Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

GKN Centrax Gears Ltd v Matbro Ltd [1976] 2 Lloyd’s

Rep 555

Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty

Ltd [2012] NSWCA 365; (2012) 297 ALR 372

Infratel Networks v Gundry's Telco & Rigging [2012]

NSWCA 365; (2012) 297 ALR 372

Kerslake Superannuation Pty Ltd v C & L Building Pty Ltd

[2010] NSWSC 424

MNWA v Deputy Commissioner of Taxation [2016] FCAFC

154; (2016) 117 ACSR 446

Pravenkav Group Pty Ltd v Diploma Construction (WA)

Pty Ltd (No 3) [2014] WASCA 132; (2014) 46 WAR 483

Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR

601

Solarite v York [2002] NSWSC 411

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd

[1997] FCA 681; (1997) 76 FCR 452

Date of hearing: 26 May 2017

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Category: Catchwords

Number of paragraphs: 91

Counsel for the Plaintiff: Mr LT Livingston

Solicitor for the Plaintiff: Garland Hawthorn Brahe

Counsel for the Defendant: Mr MWE Maconachie

Solicitor for the Defendant: Nicholas George Lawyers

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ORDERS

NSD 2156 of 2016

IN THE MATTER OF NT BEVERAGES GROUP PTY LTD ACN 169 796 249

BETWEEN: NT BEVERAGES GROUP PTY LTD

Plaintiff

AND: PT BROMO TIRTA LESTARI

Defendant

JUDGE: GLEESON J

DATE OF ORDER: 11 JULY 2017

THE COURT ORDERS THAT:

1. Pursuant to s 459H(4) of the Corporations Act 2001 (Cth), the amount of the

creditor’s statutory demand dated 16 November 2016 is varied to $386,077.41.

2. The time for compliance with the statutory demand be extended to 1 August 2017.

3. The plaintiff pay the defendant’s costs of the proceeding.

THE COURT DECLARES THAT:

4. The creditor’s statutory demand dated 16 November 2016 served by the defendant on

the plaintiff, as varied by order 1 above, has effect from 25 November 2016.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GLEESON J:

1 By originating process dated 15 December 2016, the plaintiff (“company”) applied under

s 459G of the Corporations Act 2001 (Cth) (“Act”) for an order setting set aside a creditor’s

statutory demand dated 16 November 2016 and issued by the defendant (“Bromo”), a

company based in Indonesia. Alternatively, the company sought to have the demand varied

pursuant to s 459H to reflect so much of the plaintiff’s asserted offsetting claim that the Court

finds to be substantiated.

2 The statutory demand asserts that the company owes Bromo the amount of $434,201.11,

described as:

(1) “Principal debt pursuant to Contract Termination Deed made on 11 May 2016

between the company and the creditor” in an amount of $307,726.00; and

(2) “Interest on principal debt at a rate of 0.3% on a per day basis” in an amount of

$126,475.11.

3 The originating process was accompanied by an affidavit of Hugh Jones sworn 15 December

2016 (“December 2016 affidavit”). Mr Jones is a director of the company. In the affidavit,

Mr Jones states that the company disputes that it owes any money to Bromo. At the hearing,

the evidence was supplemented by a second affidavit sworn by Mr Jones on 23 May 2017

(“May 2017 affidavit”).

4 The company seeks to set aside the statutory demand on the grounds that there is a genuine

dispute about the existence of the debt claimed in the demand (pursuant to s 459H(1)(a) of

the Act), or that the company has an offsetting claim against Bromo in an amount at least

equal to the amount of the demand (pursuant to s 459H(1)(b) of the Act). The company’s

offsetting claim, which is the subject of proceedings in the District Court of New South

Wales (“District Court”), is for loss in excess of $800,000 flowing from goods supplied and

equipment sold, by Bromo to the company which are alleged to be defective.

5 The company contends that the claim advanced by it in the District Court, as amplified on the

application to set aside the demand, gives rise to a “plausible contention requiring

investigation”; or “a serious question to be tried”; or “an issue deserving of a hearing”:

cf. Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344;

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(2013) 85 NSWLR 601 (“Britten-Norman”) at [30]-[31], [36], [70]; Eyota Pty Ltd v Hanave

Pty Ltd (1994) 12 ACSR 785 (“Eyota”) at 787. It argues that the claim cannot be said to be

spurious, illusory or misconceived: cf. Spencer Constructions Pty Ltd v G & M Aldridge Pty

Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464; Solarite v York [2002] NSWSC 411 at [21]

to [23]. Accordingly, it argues, the company satisfies the test for a “genuine dispute” under

s 459H(1)(a) or an “offsetting claim” under s 459H(1)(b) of the Act.

STATUTORY FRAMEWORK

6 Section 459G(1) provides:

(1) A company may apply to the Court for an order setting aside a statutory

demand served on the company.

(2) An application may only be made within 21 days after the demand is so

served.

(3) An application is made in accordance with this section only if, within those

21 days:

(a) an affidavit supporting the application is filed with the Court; and

(b) a copy of the application, and a copy of the supporting affidavit, are

served on the person who served the demand on the company.

7 In this case, the demand was served on 25 November 2016. Bromo does not contend that the

application is not made in accordance with s 459G, although it argues that some aspects of

the alleged offsetting claim should be disregarded because they were not articulated in the

December 2016 affidavit and that the December 2016 affidavit provides no evidence upon

which the alleged offsetting claim is quantified.

8 By s 459H, where, on an application under s 459G, the Court is satisfied of either or both of

the following:

(1) 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; and/or

(2) that the company has an offsetting claim,

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the Court must calculate the substantiated amount of the demand in accordance with the

formula set out in s 459H(2). By s 459H(3), if the substantiated amount is less than the

statutory minimum, the Court must, by order, set aside the demand. By s 459H(4), if the

substantiated amount is at least as great as the statutory minimum, the Court may make an

order:

(1) varying the demand as specified in the order; and

(2) declaring the demand to have had effect, as so varied, as from when the demand was

served on the company.

9 Counsel for the company, Mr Livingston, submitted that the evidentiary basis for the two

grounds advanced is identical and that the legal tests to be applied are sufficiently similar as

not to require separate analysis. It is not necessary to address that submission. Having regard

to the way Mr Livingston advanced the company’s case, the application can be sufficiently

addressed by reference to the question whether the company has an offsetting claim against

Bromo within the meaning of s 459H(1)(b).

10 In Britten-Norman at [30], the New South Wales Court of Appeal explained what is required

to demonstrate the existence of an offsetting claim as follows:

It is settled law that s 459H requires the court to be satisfied that there is a “serious

question to be tried”: see Scanhill v Century 21 Australasia at 467, or “an issue

deserving of a hearing” as to whether the company has such a claim against the

creditor: see Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd (1995) 17 ACSR

128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking

Corporation (1998) 84 FCR 454 per Emmett J (as his Honour then was). The claim

must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd. In that

case, Palmer J observed, at [18], that good faith, in this context, meant 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”.

11 At [31], the Court referred with approval to the decision of McLelland CJ in Eq in Eyota. In

that case, his Honour explained the concept of a genuine dispute as connoting a “plausible

contention requiring investigation”, raising much the 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. His Honour gave the following caution

(at 787):

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

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prima facie plausibility to merit further investigation as to [its] truth” (cf Eng Mee

Yong v Letchumanan 1980 AC 331 at 341), or “a patently feeble legal argument or an

assertion of facts unsupported by evidence”: cf South Australia v Wall (1980) 24

SASR 189 at 194.

12 The Court of Appeal gave detailed consideration to the evidence required for the Court to

have the requisite degree of satisfaction as to the existence of an offsetting claim. The Court

emphasised that the issue is whether there is plausible evidence to establish the existence of

an offsetting claim, not whether the evidence is disputed or even likely to be accepted on a

final hearing of any such claim. At [48], the Court cited with approval the following

statement of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at

605:

There is little doubt that Div 3 ... prescribes a formula that requires the court to assess

the position between the parties, and preserve demands where it can be seen that

there is no genuine dispute and no sufficient genuine offsetting claim. That is not to

say that the court will examine the merits or settle the dispute. The specified limits of

the court’s examination are the ascertainment of whether there is a “genuine dispute”

and whether there is a “genuine claim”.

13 The Court of Appeal also referred to the summary nature of an application to set aside a

statutory demand, at [54] and [55], as follows:

54. It is also to be borne in mind that the procedure for challenging a statutory

demand is intended to be an essentially summary one. This was adverted to

by this court in Infratel Networks v Gundry's Telco & Rigging [[2012]

NSWCA 365; (2012) 297 ALR 372] at [32], where Young AJA observed, at

[41]:

“... that it is of considerable concern that many of the hearings of

cases in this type of matter spend time considering piles of decided

cases discussing nuances in the different terminology used by judges

throughout Australia who basically are saying the same thing. This

approach defeats the whole purpose of the Act, which is to enable the

court to dispose of this sort of dispute in a short, summary way.”

55. Thus, even though the courts may allow evidence to be supplemented beyond

what is raised in the initial affidavit containing the grounds upon which the

application is made, care must be taken not to elevate the requirements of the

evidence necessary to establish that there is a basis to set aside a statutory

demand beyond what we have stated it to be. For example, it would set too

high a standard to require that the evidence “prove” the facts that raise the

ground in the initial affidavit. Whether in the initial affidavit, or by a

combination of that evidence and other evidence filed or adduced at the

hearing, a party seeking to set aside a statutory demand must establish that

there was a plausible contention requiring investigation: see the discussion at

[30]-[31] above.

14 In Infratel Networks v Gundry's Telco & Rigging [2012] NSWCA 365; (2012) 297 ALR 372

(“Infratel”) at [26], Young AJA (Hoeben JA and Ward J agreeing) considered whether the

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primary judge went too far in construing the underlying contract rather than merely

determining whether the company had a plausible case. At [46], Young AJA noted that the

Court may determine questions of construction of a contract in an appropriate case on an

application to set aside a statutory demand, but that is not the ordinary situation. At [51], his

Honour concluded that the view taken by the primary judge was the only realistic approach

that could be taken to the construction of the contract.

15 In Britten-Norman at [57], the Court of Appeal noted that “it is necessary to consider both

whether the evidence was sufficient to satisfy the Court that there was an offsetting claim

and, if so, whether the evidence was sufficient to establish the amount of that claim”. The

Court considered it significant (at [72] and following) that the creditor had put in issue the

existence of a genuine offsetting claim, but had not challenged the quantum of any such

claim.

16 The offsetting claim in Britten-Norman was based on breach of contract (alleged breach of an

implied term that a surveillance system supplied would have certain performance

characteristics and breach of a warranty that the system was fit for purpose) and misleading

or deceptive conduct based on alleged misrepresentations as to the system’s performance

characteristics. The Court of Appeal decided the appeal by reference to the claim based on

misleading or deceptive conduct. It found a plausible offsetting claim in excess of the

statutory demand based upon evidence that Britten-Norman would not have incurred a

liability for unpaid rent.

17 At [76], the Court of Appeal concluded that there was insufficient evidence to establish on a

plausible basis an offsetting claim for loss of profits arising from misleading or deceptive

conduct. At [71], the Court noted that this aspect of the claim was for one year’s gross profit

which Britten-Norman maintained it would have earned had it obtained a different

surveillance system. The evidence was that the amount claimed represented gross profit

anticipated assuming that the system supplied had performed as represented. There was no

evidence that Britten-Norman would or might have achieved a similar gross profit assuming

instead that it had purchased the system that was subsequently purchased. In particular, there

was no evidence of the actual or notional monthly financing costs to Britten-Norman of its

capital expenditure for the system subsequently purchased, which was an essential integer in

the calculation of any lost profits, assuming the use of that system.

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18 In MNWA v Deputy Commissioner of Taxation [2016] FCAFC 154; (2016) 117 ACSR 446

(“MNWA”) at [96] and [97], Rares J adopted the reasoning in Britten-Norman.

19 The amount of the offsetting claim for the purposes of s 459H is to be decided as at the date

of the hearing of the application to set aside, and not at some earlier time: Pravenkav Group

Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) [2014] WASCA 132; (2014) 46 WAR

483 (“Pravenkav”) at [56].

Affidavit supporting application to set aside statutory demand

20 In MNWA at [91], Rares J noted that the affidavit required by s 459(3)(a) is an essential

condition of a company’s invocation of the right to apply to set aside the statutory demand.

At [93] and following, his Honour considered the cases concerning the meaning of the

expression “an affidavit supporting the application” in s 459(3)(a), stating:

93. In order to comply with s 459G(3)(a), an affidavit “supporting the

application” to set aside the demand must be filed and served within 21 days

of service of the statutory demand. Many cases have considered the meaning

of the expression “an affidavit supporting the application” in s 459G(3)(a).

Sundberg J gave an early formation saying that it “must, as a minimum,

contain a statement of the material facts on which the applicant intends to

rely to show a genuine dispute – it might read more like a pleading than a

story”: Graywinter Properties Pty Ltd v Gas & Fuel Corporation

Superannuation Fund (1996) 70 FCR 452 at 459G. In Energy Equity

Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 at 182-183 [17]-[18]

and 185 [29], Wallwork J, with whom Steytler J and Olsson AUJ agreed, in

the Full Court of the Supreme Court of Western Australia, applied the

approach of Sundberg J and held that an affidavit could not raise a new

ground on which to seek that a statutory demand be set aside, if it were filed

outside the 21 day period specified in s 459G: Sinedie 166 FLR at 185 [29]:

Graywinter 70 FCR at 460C-E.

94. However, although the initial affidavit must “support” the application, the

company can supplement that material later. The initial affidavit does not

have to deploy the, or all of the, evidence, or be in admissible form and the

company can file supplementary evidence so that on the hearing it will be

able to rely on admissible evidence, including evidence to quantify an

offsetting claim: see too Pravenkav 46 WAR 483 at 494-495 [43], 497-500

[52]-[64] per Newnes JA, Murphy JA and Edelman J.

95. The precise nature of the application under s 459G will determine whether

the initial affidavit(s) filed and served in accordance with s 459G(3)(a)

“support” it: Financial Solutions Australasia Pty Ltd v Predella Pty Ltd

(2002) 26 WAR 306 at 316-317 [34] per Parker J with whom Anderson and

Scott JJ agreed; Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty

Ltd (2012) 297 ALR 372 at 377 [29]-[32] per Young JA with whom Hoeben

JA and Ward J agreed. They approved what Ward J said in Hopetoun Kembla

Investments Pty Ltd v JPR Legal Pty Ltd (2011) 286 ALR 768 at 776 [36]

namely:

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There need not be an explicit articulation in the supporting affidavit

of the ground(s) on which the application to set aside is to be raised,

provided the ground is raised expressly or by necessary or a

reasonably available inference. (emphasis added)

21 In Kerslake Superannuation Pty Ltd v C & L Building Pty Ltd [2010] NSWSC 424, Barrett J

explained the significance of the affidavit required by s 459(3)(a), at [5] and [6] as follows:

5. First, however, there is a need to delineate the permitted scope within which

the defendant may seek to establish its offsetting claim as allowed by the

Graywinter principle (Graywinter Properties Pty Ltd v Gas and Fuel

Corporation Superannuation Fund (1996) 21 ACSR 581). The constraint is,

of course, defined by reference to the affidavit filed in support of the s 459G

application; in this case, the affidavit of Wayne John Kerslake of 24 February

2010.

6. The structure of the statutory provisions is such that an applicant under

s 459G is restricted to the grounds sufficiently delineated in the supporting

affidavit. ...

22 In Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365;

(2012) 297 ALR 372 at [40], Young AJA (Hoeben JA and Ward J agreeing) stated:

One does not merely check the boxes to see if certain form has been observed, but

looks to see whether the affidavit supports the claim by expressly or impliedly

identifying the real dispute.

23 In Pravenkav at [57], the Court of Appeal of the Supreme Court of Western Australia held

that the s 459G(3)(a) affidavit is not required to contain sufficient evidence to permit the

court to estimate the amount of an offsetting claim for the purposes of s 459H. That Court

concluded that, to the extent that first instance decisions suggest that this is required, they

should not be followed.

FINDINGS

24 The company carries on a business, based in the Northern Territory, involving the supply and

sale of bottled water products branded “W WATER”. Bromo carries on a business, located in

Indonesia, involving the manufacture and supply of products including bottled water

products.

25 The company commenced to import bottled water from Bromo at an unspecified time prior to

November 2015.

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Claims concerning quality of goods

26 In the December 2016 affidavit, Mr Jones gives the following evidence:

(1) From at least mid-2015 onwards, the company notified Bromo that goods

manufactured by Bromo were failing quality control measures. He states that the

company refused to pay for goods that were not of acceptable quality and were unable

to be sold.

(2) The goods were manufactured under an agreement entered into between the parties on

10 November 2015 and the quality control measures were part of that agreement.

Mr Jones does not explain the apparent discrepancy between the date of the

agreement and the earlier notification of complaints about quality of goods supplied

by Bromo.

(3) The goods supplied by Bromo were not of acceptable quality. Defects included

poor/low quality raw materials, delivery in damaged packaging and contamination as

a result of damaged packaging.

(4) The company attempted to sell goods supplied by Bromo to customers, with the result

that the company received complaints from its customers from about November 2015

onwards. The affidavit annexes correspondence from customers purporting to

evidence complaints on 29 September 2015 (from Northline Pty Ltd), in about

September 2015 (from Metcash Limited (“Metcash”)) and on 1 March 2016 (from

Radiance International Pty Ltd (“Radiance International”)).

(5) In November 2015, the company engaged an expert, Mr Terei, to attend Bromo’s

Indonesian factory to resolve the quality control issues, and incurred expenses in

doing so.

(6) From about April 2016, Bromo refused to supply the company with goods until

outstanding amounts had been paid. Mr Jones deposed that Bromo consequently

sought to terminate the November 2015 agreement, but the company’s submissions

indicated that it was the company that sought to terminate the agreement. In any

event, it is not material which party sought to terminate the agreement, as that is not

the asserted basis of the offsetting claim.

(7) On about 6 May 2016, the parties entered into an agreement entitled “Contract

Termination Deed” by which it was agreed to terminate the November 2015

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agreement in return for the company purchasing all unused raw materials and finished

goods produced by Bromo as identified in the Contract Termination Deed.

(8) When the Contract Termination Deed was made, the company was under considerable

pressure to resolve the outstanding quality control issues as a result of Bromo ceasing

all deliveries of goods. For this reason, the company felt it needed to enter the

Contract Termination Deed in order to avoid any further disruption to its business.

27 The November 2015 agreement was annexed to the December 2016 affidavit. The agreement

provides for the purchase by the company and the sale by Bromo of the company’s branded

bottled water (“Product”). The company contends that the agreement included terms to the

following effect:

(1) the quality of the Product would comply with the requirements specified in cl 2 of the

November 2015 agreement, including:

(a) the Product to be produced by the defendant was to comply with the

Australian Food Standards Regulation 2.6.2 (cl 2(i));

(b) the Product was to be aesthetically acceptable (cl 2(ii));

(c) the Product was to comply with relevant Australian Standards and was to be

fit for sale in Australia, according to the Australian Food Standards Regulation

2.6.2 (cl 2(iv));

(d) the Product to be produced and supplied by the defendant was to comply with

the conditions specified by Food Standards Australia New Zealand, including

Standards 1.4.1 and 1.4.3, for bottled water containers (packaging material) to

ensure water in contact with packaging was safe (cl 2(vi)); and

(e) the bottled water containers must also comply with the Australian Standard for

Plastic Materials for Food Contact Use AS 2070-1999 (cl 2(vi));

(2) Bromo warranted that it would not, without the written approval of the managing

director of the company, alter the quality of the packaging in any way, including the

raw material quality, PET grams per bottle or cardboard quality for thickness (cl 5);

(3) Bromo warranted that, should any Product not meet with the requirements specified in

cl 2 and/or be in any way unfit for sale in Australia, the Product would be replaced or

credited at the full cost of Bromo (cl 15);

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(4) Bromo warranted that its manufacturing facility was ISO compliant and all staff

working in the factory were correctly trained in the use of those programs and

standards (cl 16);

(5) Bromo warranted that it would replace any stock that was manufactured in faulty

packaging, including but not limited to, the plastic bottle, cardboard carton or

labelling (cl 18); and

(6) the company agreed to pay Bromo a sum of AUD $55,000 for the mould costs

relating to developing a 10lt W Water product and it was agreed that, once this

amount had been paid to Bromo, the mould would become the sole property of the

company (p 5).

28 Bromo relies on cl 15 of the November 2015 agreement to deny liability for any breach of the

November 2015 agreement. Clause 15 provides:

BROMO warrant that should any Product not meet with the requirements specified in

clause two (2) and/or be in anyway unfit for sale in Australia that the Products will be

replaced or credited at the full cost of BROMO. NTBG is entitled to raise claims of

any fair and reasonable costs incurred in the event of any such situation arising. Such

costs shall be limited to the cost of the replacement of the faulty goods

(manufacturing cost as detailed in Clause Seventeen (17)) and the cost of sea freight

per container. NTBG cannot claim more than $3,673.00 AUD in sea freight per 20’

FCL.

29 The Contract Termination Deed was also annexed to the December 2016 affidavit. The

affidavit states that:

(1) the amount due under the Contract Termination Deed was “purportedly” $307,727.00;

and

(2) the Contract Termination Deed did not extinguish Bromo’s obligation to guarantee

the quality of the products as set out in cl 2 of the November 2015 agreement.

30 Bromo relies on the following provision in the Contract Termination Deed:

Finished Product Quality

Due to the fact that W Water raw materials will be beyond its shelf life during the

time they will be processed for NTBG, BROMO can not give guarantee on the reject

rate and its overall quality, as BROMO also do not have previous experience on

manufacturing such expired raw materials.

BROMO however commits to do its best on manufacturing to the best quality

possible give the condition of said raw materials.

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31 The May 2017 affidavit supplements the December 2016 affidavit, principally by annexing a

statement of claim filed in the District Court and by quantifying the company’s claim against

Bromo. The heads of damage identified by Mr Jones in the May 2017 affidavit and referrable

to the supply of defective goods are:

(1) stock written off and damages being storage, transport and warehouse storage charges

for faulty and damaged stock;

(2) travel expenses associated with flights to and from Indonesia to deal with W Water;

(3) quality control and quality assurance management fees of Otta International Pty Ltd;

(4) losses on sale to Radiance International;

(5) five Metcash write-offs;

(6) sea freight; and

(7) loss of water sales to Metcash/Independent Grocers.

32 The total amount claimed under these heads of damage is $743,657.71.

33 The statement of claim alleges supply of defective goods in breach of various clauses of the

November 2015 agreement and, separately, supply of defective goods after the execution of

the Contract Termination Deed. In addition, it claims relief pursuant to Arts 36 and 74 of the

United Nations Convention on Contracts for the International Sale of Goods, opened for

signature 11 April 1980, 1489 UNTS 3 (entered into force 1 January 1988) (“Vienna

Convention”), which has force of law in New South Wales pursuant to s 5 of the Sale of

Goods (Vienna Convention) Act 1986 (NSW).

34 In submissions, the company also made a claim for relief pursuant to various provisions of

the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)),

particularly ss 18, 29 and 33.

35 In the May 2017 affidavit, Mr Jones also states that in about late December 2015,

Metcash/Independent Grocers cancelled its water purchases from the company due to

ongoing quality control and assurances issues with the water supplied by Bromo. He refers to

a conversation with a person on behalf of Metcash who said:

Hugh, this is the last straw. The latest five litre water pallet is also contaminated. I

cannot allow for this situation to continue, Metcash will not be making any future

sales orders.

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36 The May 2017 affidavit also provides a foundation for a complaint about contamination of

the water supplied by Bromo which, Mr Maconachie (counsel for Bromo) contended, is a

different complaint from the complaint of contamination made in the December 2016

affidavit. The earlier complaint concerned contamination as a result of damaged packaging.

The latter complaint was about orange/brown precipitate and white floating particles in the

water.

37 Finally, the May 2017 affidavit annexes an email dated 12 May 2016 from Mr Jones to

Stephanie of Bromo which says, concerning quality of the goods supplied by Bromo:

In closing I can say that Tom Terei is a very decent and upstanding man who only

came to your factory, with your full welcome permission, to action and deal with the

numerous QC issues we have experienced with your plant over the past two years.

QC issues that caused my company to lose a great deal of money and the brand of

“W Water” to be regarded as a substandard, low quality water product.

Company’s submissions concerning contractual limitation of liability

38 The company contended that it is seriously arguable that the contractual limitation is

inapplicable to the its claim based on the Vienna Convention, or to any similar or

corresponding liability under ss 18, 29, 33, 54 or 55 of the Australian Consumer Law.

39 It also argued that, as a matter of construction of cl 15 of the November 2015 agreement, it is

seriously arguable that the limitation operates only to define the concept of “fair and

reasonable costs incurred” in the replacement or crediting of the Product and does not deal

comprehensively with all forms of financial loss caused by any breach. Further, the company

submitted that it is seriously arguable that the limitation in cl 15 is subject to, and does not

qualify, the company’s entitlements under cll 17 and 18. It argued that proceedings such as

the present under s 459G of the Act are not ordinarily the occasion for the Court to construe a

contract where there are competing views about its meaning; and the cases in which it will be

appropriate for the Court to entertain a construction argument on such an application are

likely to be few in number.

Bromo’s submissions

40 Mr Maconachie contended that the company is not permitted to rely on statutory causes of

action which are not made out in the December 2016 affidavit. He also argued that nothing

that predates the November 2015 agreement is relevant because the nature of the legal

relationship between the parties prior to that date is a matter of pure speculation.

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41 On behalf of Bromo, Mr Maconachie contested that the claims made by the company are

made in good faith, on the following bases:

(1) The company has brought its proceeding against Bromo in the District Court,

although that court will only be able to deal with the matter if Bromo submits to the

jurisdiction. If the claim were brought bona fide, it would have been commenced in

the Supreme Court which has jurisdiction to grant leave to effect service outside

Australia, or in the Federal Court (which also has this jurisdiction).

(2) The District Court proceeding was commenced only days before the hearing of the

application to set aside the statutory demand.

(3) The District Court proceeding is for an amount in excess of that Court’s jurisdictional

limit of $750,000.

(4) there is no evidence that the customer complaints now relied upon were relayed to

Bromo around the time they were made.

42 Mr Maconachie also contended that the following matters cast doubt on the existence, or

alternatively, the quantum, of the asserted offsetting claim:

(1) although the claim, as articulated in the December 2016 affidavit and the District

Court statement of claim is based on breach of the November 2015 agreement, the

supplies about which complaints are made appear to pre-date that agreement;

(2) there is no evidence of the terms upon which supplies were made prior to the

November 2015 agreement;

(3) the documents put forward in support of the offsetting claim are not adequately

identified or proved, beyond the statements that they form records of the company;

(4) there is no reference to the now asserted offsetting claims in the Contract Termination

Deed; and

(5) there is no evidence of the chain of custody of the goods after arrival in Australia.

Thus, the customers’ complaints do not necessarily reflect the supply of defective

goods.

43 As previously noted, Bromo argued that various contractual provisions negated or limited any

liability which might otherwise have arisen under the November 2015 agreement.

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Consideration

44 I am satisfied as to the existence of a plausible offsetting claim for breach of the November

2015 agreement. Mr Jones’s December 2016 affidavit provides evidence of the existence of

the contract, and of a plausible claim that goods supplied pursuant to that contract were

defective and not of acceptable quality, albeit I accept that is unlikely that the particular

complaints identified in the affidavit concern goods supplied pursuant to the 10 November

2015 agreement.

45 The language of the November 2015 agreement is not pellucidly clear. I am not persuaded

that I should resolve the proper construction of the agreement on this application.

Accordingly, I do not accept that the terms of the contract provide any clear answer to the

asserted claim for breach of contract.

46 On the basis of the same evidence, I am satisfied as to the existence of a plausible claim for

relief under the Vienna Convention or the Australian Consumer Law. I also accept that this

claim extends to relief in respect of the complaints made in the December 2016 affidavit

about supply of defective goods to the extent that those goods were not supplied pursuant to

the November 2015 agreement. I accept Mr Livingston’s submission that it was not necessary

for the December 2016 affidavit to identify the legal basis for the claim: the affidavit

supported the claim by identifying, as a real issue, whether goods supplied by Bromo were

defective. In my view, it was not necessary for the affidavit to identify the contract or

contracts pursuant to which the allegedly defective goods were supplied. The evidence

reveals a claim that allegedly defective goods were supplied where the goods were of a kind

that were likely to be supplied on terms as to quality and description allegedly not met. For

the same reason, I do not accept that the claim does not include complaints relating to

supplies prior to the November 2015 agreement.

47 I am not persuaded that the company’s claim as a whole is not genuine. The reasons why the

company brought its claim against Bromo in the District Court, and why the District Court

proceeding was filed only shortly before the hearing in this Court were not fully explored. I

am not prepared to draw an inference of lack of bona fides from those matters without more.

As Mr Livingston submitted, if Bromo does not submit to the District Court’s jurisdiction, it

is open to the company to apply for a transfer of the proceeding to the Supreme Court. I do

not accept that it tells against the company’s bona fides that the evidence does not include

evidence that individual complaints were relayed to Bromo. There is plainly a case that

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Bromo was aware that the company was alleging that it was supplying defective goods, from

the visit of Otta International to the factory and from the 12 May 2016 email.

48 However, I do accept that the December 2016 affidavit is remarkably thin in its articulation

of the quantum of the offsetting claim. It gives only limited evidence of losses suffered by

reason of Bromo’s alleged breaches of contract. The only particular loss that it identifies is

the cost of engaging the expert who was sent to the Indonesian factory. It does not identify

any possible claim for loss of profits. It makes a complaint about Bromo’s refusal to supply

goods, but this complaint does not form part of the offsetting claim.

49 I address below the heads of damage identified by Mr Jones in the May 2017 affidavit,

referrable to the supply of defective goods.

Stock written off

50 The claim is for $28,010.08 and is supported by a business record of the company in the form

of a table headed:

Write off Stock & Damages Transactions

NT Beverages Group Pty Ltd

For the period 1 July 2015 to 30 June 2016

51 The entries in the table include four of the five Metcash write-off claims considered below.

When those amounts are deducted from this claim, the amount in dispute is $11,305.34. The

entries are dated from 16 September 2015 to 8 April 2016 and appear to comprise:

(a) charges for transport and storage in connection with faulty stock;

(b) amounts payable to Metcash in connection with faulty stock;

(c) amounts payable to Metcash in connection with “short delivery” of goods;

(d) a write-off of “old PT Bromo Tirta Lestari prepayment”; and

(e) costs of sending bottle caps to Nauru for leaking 10 litre bottles of water.

52 I accept that this table provides a sufficient basis for the offsetting claim in relation to items

falling within (a), (b) and (e) because they appear to be costs incurred in dealing with faulty

stock supplied by Bromo. Those items amount to $4,676.56. I do not accept that there is a

plausible basis for contending that the other items are referrable to the offsetting claims.

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Travel expenses

53 The claim is $34,176.10. The claim is supported by a business record of the company in the

form of a table headed “Travel – International Transactions NT Beverages Group Pty Ltd For

the period 1 September 2015 to 30 June 2016”. The entries on the table are dated between

18 September 2015 and 21 June 2016. Even accepting that the company incurred these

expenses, I am not satisfied that those expenses are recoverable pursuant to any of the claims

articulated. Mr Livingston did not point to any basis upon which the expenses form part of

the damages that would be recoverable.

Management fees of Otta International Pty Ltd

54 The claim is $5,920 for fees incurred to Otta International. The evidence in support of this

claim comprises:

(1) a report by Otta International entitled “Investigation of contaminated bottled water

supplied by PT. Bromo Tirta Lestari”, apparently prepared after an inspection of

Bromo’s factory in Indonesia on 9 November 2015; and

(2) a table entitled “QC & QA Management Fee – Otta Transactions NT Beverages

Group Pty Ltd For the period 1 September 2015 to 30 June 2016” containing two

entries dated, respectively 6 November 2015 and 15 December 2015. The narrations

are:

Otta International Pty Ltd – 25% Progress Payment on Indonesian QC/QA

Inspection & Report

And

Otta International Pty Ltd – QC & QA Report on PT Bromo.

55 I accept that there is a plausible basis for concluding that the company incurred the costs

claimed in obtaining the report. I do not accept that those costs are recoverable pursuant to

any of the claims articulated. Mr Livingston did not point to any basis upon which the costs

form part of the damages that would be recoverable.

Loss on sale to Radiance International

56 The company claims:

(1) loss of revenue on 3,966 W Water 10 Lt single units of $30,538.20;

(2) the original cost of the stock of $13,087.80; and

(3) freight costs to Nauru of $17,621.84.

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57 Mr Jones did not give any evidence about the circumstances giving rise to the claims. The

documents said to support the claims comprise:

(a) a credit note from the company to Radiance International dated 29 January

2016 for $30,538.20 in respect of 3,966 units of “W Water 10 Lt Single Unit”.

The credit note is annotated with the following note:

Original cost of stock = $13,087.80

+ lost revenue $30,538.20

+ freight to Nauru $17,621.84

(b) an invoice from Bromo dated 27 July 2015 for $13,087.80 for 3,966 CTNs of

“W Water 10 liter”; and

(c) an invoice from PT. Surabaya Bahari logistindo International Freight

Forwarder to the company dated 3 September 2015 for $12,350.00 for

delivery to Nauru of “W Water (Mineral Water)”.

58 Mr Livingston asked the Court to infer that the goods were shipped to Nauru where they were

rejected. He accepted that the claim may involve some double counting and that the true

amount of the claim would be the loss of profit. I am not satisfied that there was any loss of

profit because the costs of the stock and freight ($13,087.80 + $17,621.84 = $30,709.64)

exceed the lost revenue. I am prepared to infer from the credit note that there is a plausible

claim for loss based on the supply by Bromo of 3,966 defective units of 10lt W Water in the

sum of $30,709.64. I accept that the claim is substantiated to that extent.

Metcash write-offs

59 The company claims a loss of revenue and loss on “Metcash Rebates at 11%” for five

supplies to Metcash.

60 The first claim for loss is said to be “due to product recall as per deal sheet 41763 dated 23

September 2015”. There are business records which identify the figure of $3,510 as the “Deal

amt”, “Deal value”, “Total deal” and “Credit stock profit”. The company is identified as the

supplier on these records and the deal description is:

Alice Springs claim

Claim for recalled stock

W Water 10lt

585 Ctn x $6.00

Stock recalled due to taps not sealing

- 18 -

61 The second claim for loss is said to be “due to product recall as per deal sheet 41765 dated 24

September 2015”. There is a tax invoice from Metcash marked “deal sheet 41765” with the

product description “Quality Issue Voluntary Product Recall”. The invoice states: “Your

account has been adjusted by the following: Kristie Butterworth”, and the total cost exclusive

of GST is $5,688. The invoice is annotated with figures identified as costs, lost revenue, sea

freight and local freight.

62 The third first claim for loss is said to be “due to product recall as per deal sheet 41764 dated

24 September 2015”. There is a tax invoice from Metcash marked “deal sheet 41764” with

the product description “Quality Issue Customer Return Atom Supply”. The invoice states:

“Your account has been adjusted by the following: Kristie Butterworth” and the total cost

exclusive of GST is $1,574.

63 The fourth is said to be “due to quality issue with stock as per deal sheet 41824 dated

5 October 2015”. There is a tax invoice from Metcash marked “deal sheet 41824” and the

words “Quality Issue/Stock taken for Lab testing”. The invoice states: “Your account has

been adjusted by the following: Kristie Butterworth” and the total cost exclusive of GST is

$868.24.

64 The fifth is said to be “due to damaged products as tax invoice 0197 dated 17 December

2015”. There is a tax invoice from Metcash dated 17 December 2015 for an amount of

$6,638.50 with the product description “W Water twin pack”. The invoice states: “Your

account has been adjusted by the following” and the total cost exclusive of GST is $6,638.50.

The invoice appears to be annotated with an amount of $600 for local freight.

65 I do not accept that the company is entitled to claim its lost revenue from Bromo in the

absence of evidence that this amount is equivalent to its lost profits. I accept that there is a

serious question to be tried whether the company is entitled to damages comprising its lost

profit on the sales for which the Metcash tax invoices were issued but, except for the second

invoice, there is no evidence of what the lost profit might have been. For the second invoice, I

accept that there is an offsetting claim of $5,625.50 based on the figures on the deal sheet for

costs of the supply including freight costs. For the fifth invoice, I accept that there is an

offsetting claim of $600.

66 No evidence was given concerning the Metcash rebate amount, and accordingly, I do not

accept that this amount forms part of the offsetting claim.

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Sea freight

67 There was no evidence to support this claim apart from the figure for sea freight on the

second invoice from Metcash. I have accepted above that this forms part of the offsetting

claim.

Loss of water sales

68 This claim was quantified at $65,651.51 per month for nine months based on the company’s

calculation of its profit for sales to Metcash in January 2016. The claim is not based on orders

cancelled by Metcash, or any evidence of any commitment by Metcash to purchase product

from the company. Mr Livingston put the claim on the basis of expected sales having regard

to the previous relationship between the company and Metcash involving, Mr Livingston

submitted, monthly supplies. Mr Jones’ evidence did not include any evidence about an

expectation of future sales to Metcash or the basis for any expectation.

69 I accept that a claim for loss of custom resulting from the sub-sale of defective goods may be

made if shown to be within the contemplation of the contracting parties: see, for example,

GKN Centrax Gears Ltd v Matbro Ltd [1976] 2 Lloyd’s Rep 555. However, in my view, the

evidence falls well short of establishing a plausible claim in any particular amount. The

principal evidence is a calculation entitled “W Water Lost Sales – COG’s” which appears to

suggest that the company earned profits of $65,651.51 from sales of W Water to Metcash in

January 2016. Mr Jones says that he annexes to his May 2017 affidavit the documents

“presently available to [the company]” which support his calculation of the amount of the

company’s claim. Mr Jones says that the “annexed documents form part of the records

belonging to or kept by the company in the course of, or for the purposes of, its business”.

70 The calculation is supported by a document entitled “Inventory Item Summary” which

purports to record sales of 22,721 items being the total sales in January 2016, and

corresponding with the sales figures in the loss of profits calculation. The “Inventory Item

Summary” does not refer to Metcash.

71 It is also supported by two invoices:

(1) The first invoice is an invoice addressed to Independent Grocers Darwin dated

18 December 2015 for a quantity of 1,249 units of “W Water 600ml 24 pack”. The

invoice records no amount due, as the total of the invoice in the sum of $11,390.88 is

recorded as fully paid.

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(2) The second invoice is an invoice addressed to Independent Grocers Darwin dated

19 January 2016 for a quantity of 1,456 units of “W Water 1.5lt 8 pack carton”. The

invoice records no amount due, as the total of the invoice in the sum of $9,638.72 is

recorded as fully paid.

72 The unit prices in the invoices are consistent with the “Metcash sell” prices used in the loss of

profits calculation.

73 I do not accept that these documents are sufficient to demonstrate a plausible basis for a claim

that the company earned a profit of $65,651.51 from its relationship with Metcash in January

2016, in the absence of any specific statement from Mr Jones verifying that claim.

74 Further, there is no evidence that the figure of $65,651.51 represents profit that the company

could have earned after January 2016. To the extent that the claim was based on the

relationship between the company and Metcash prior to the loss of its custom, the evidence of

the relationship was scant and comprised mainly the write-offs in September, October and

December 2015 due variously to “product recall”, “damaged products” and “quality issue

with stock”.

75 Accordingly, I am not satisfied that this head of the offsetting claim is substantiated.

Claim concerning 10 litre mould

76 The December 2016 affidavit deposes to the following facts:

(1) on or about 6 March 2016, the company, as purchaser, and Bromo, as seller, entered

into a deed entitled “Deed of Arrangement” (“deed of arrangement”) in relation to the

purchase of the mould;

(2) the company paid Bromo $55,000 to purchase the mould;

(3) on delivery, the company discovered that the mould:

(a) was incomplete and not in working order; and

(b) was missing certain tooling parts;

(4) the company engaged Visy Group Pty Ltd to rectify the mould so that it could be used

for manufacture of bottled water products; and

(5) the company claims a refund of the purchase price pursuant to the “Default” clause of

the deed of arrangement.

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77 A copy of a document entitled “Deed of Arrangement” is annexed to the December 2016

affidavit. The document is not signed.

78 There is a clause headed “Default” which provides:

Any breach or failure on the part of the Seller to adhere to the Conditions of Purchase

shall render this Deed herein default. In the event of default the Seller must refund in

full, the costs to remedy the breach. Any such costs must be justified in writing, with

accompanying pictures and no claim can be refused by the Seller if documented

proof of the breach is provided by the Purchaser.

Default breaches are limited to the conditions outlined in the Conditions of Purchase

clause of this Deed.

To avoid confusion for either party, a default can be summarised as; the purchaser

being unable to use the mould provided by the seller for its said purpose. The mould

must make the 4 (four) parts required to create the finished good of the 10lt bottle

with cap tap. The product must be fit for sale in the Australian market and must in no

way leak or be faulty.

If the mould does not meet these standards it is deemed to be unfit for purpose and

this deed is immediately in default. The Seller must then remedy the default to make

the product fit for use.

79 Also annexed to the December affidavit is an email from Visy Plastics which provides a

quote of $5,920 plus GST for “works required” on the mould.

80 The deed of arrangement contains a clause headed “Limitation of Default Recourse,

Warrantee Period” which provides:

The Purchaser is given a 60 (sixty) day period from the date of execution of this

deed, by the Seller to claim a default breach. After 60 (sixty) days the Seller is

removed from all liability for the 10lt bottle mould. The Seller is not liable for issues

arising from the mould not being suitable to work in the machinery of the Purchaser

or if the purchaser uses the mould incorrectly in anyway, including the application of

unfit plastic raw materials and fault operating procedures.

81 In the May 2017 affidavit, Mr Jones states that the company was not in a position to notify

the defendant of a default breach within 60 days from the execution of the deed because the

mould was not released from Customs, despite the company having paid in full for the

mould.

82 The District Court statement of claim claims relevantly that:

(1) the mould supplied by Bromo was defective, was not fit for purpose and is not usable;

and

(2) the company is entitled to a refund in full of the purchase price for the mould, namely

$55,000.

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83 The May 2017 affidavit also annexes a tax invoice from Visypat Pty Ltd in the sum of $6,512

with the description “Trading invoice for 10L water bottle as per PO#0050 Dated 2nd Aug

2016”.

84 In its written submissions, the company described the mould’s defects as:

… in breach of the terms of the Deed of Arrangement, and in default of the

Conditions of Purchase, the 10lt Mould supplied by the defendant to the plaintiff was

defective, was not fit for purpose and is not usable. In particular, the 10lt Mould was

incomplete and was missing certain tooling parts; the 10lt Mould was not in working

order; the Leader Brush was missing from the tool build; and there was a broken

M12 cap screw to the main base insert plate.

Bromo’s response to claims concerning 10 litre mould

85 Bromo relied upon the limitation of liability clause to contend that it has no liability to the

company because the claim was made after the 60 day period stipulated in the claim.

86 Bromo also argued that, under the deed of arrangement, the company was bound by the

condition of the mould upon inspection in Probolinggo, Indonesia on 6 March 2016. The

relevant clause states:

Condition Report

The Purchaser agrees that the Seller is not liable for any damage to the mould during

shipment from Surabaya to Shanghai. The Purchaser and Seller agree to be bound by

the condition of the mould upon inspection in Probolinggo, Indonesia on Sunday

6th March 2016. Photos of the mould are contained at the end of this Deed for

reference for the condition.

Consideration

87 I accept that there is a serious question to be tried whether the mould supplied by Bromo was

fit for purpose and whether the company is entitled to damages arising from Bromo’s alleged

breaches of the deed of arrangement. The defences raised by Bromo are matters that should

not be resolved on this summary application.

88 As to the quantum of the company’s claim, I do not accept that the evidence is sufficient to

establish a plausible claim to recover the full price of the mould. Mr Livingston put the claim

on the basis of the terms of the “Default” clause in the contract. I do not accept that there is

an arguable basis to claim that the contract provided for a full refund of the purchase price in

the event of a defect which did not render the mould valueless. There was no evidence that

the mould as supplied was worth nothing. To the contrary, the evidence suggests that the

mould was repaired pursuant to the quote obtained in August 2016. In those circumstances, I

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do not accept that there is a serious question to be tried as to whether the deed of arrangement

entitles the company to damages of $55,000. I accept that there is a serious question to be

tried as to whether the company is entitled to damages of $6,512 being the costs of

remedying the alleged breach.

Conclusion

89 The statutory demand should not be set aside.

90 Pursuant to s 459H(4), the amount of the creditor’s statutory demand dated 16 November

2016 served by Bromo on the company will be varied to $386,077.41 and it will be declared

that the demand is to have had effect, as so varied, from the date of service on the company

on 25 November 2016.

91 Bromo has been substantially successful on the application. The company should be ordered

to pay its costs.

I certify that the preceding ninety-

one (91) numbered paragraphs are a

true copy of the Reasons for

Judgment herein of the Honourable

Justice Gleeson.

Associate:

Dated: 11 July 2017