In the recent decision of  QUBE Logistics (Vic) Pty Limited v United Equipment Pty Limited [2015] WASC 70 in the Western Australian Supreme Court, it was held that a contractual term which prevented a debtor from raising a dispute or cross-claim unless the invoice had been paid, did not make the creditor’s statutory demand unassailable.

Background

The facts of the case were simple:

1. The plaintiff and the defendant entered into two rental agreements for two forklifts in 2010.
2. The defendant was required to perform all maintenance and repairs on the forklifts.
3. Cracks and damage appeared on the forklifts. One of the forklifts essentially split in half.
4. The Plaintiff refused to pay rent for the forklifts as they were unsafe.
5. The Defendant claimed the forklifts were repaired, safe and fit for purpose.
6. The Defendant issued statutory demands to recover the debt for unpaid invoices.
7. The Plaintiff brought an application to set aside the statutory demands.

The Court observed that in the ordinary course, the facts would lead to a finding that an offsetting claim existed and the statutory demand would be set aside. However, the waters were muddied by a clause in the rental agreement.

The Clause

Condition 7k of the rental agreement provided that:

“The Renter’s obligations to make payments and otherwise perform its obligations under this Agreement will continue regardless of any defect in, or lack of performance of, the Equipment and the Renter has no right to claim any setoff or withhold any payments.”

The Defendant suggested that if they had been suing in the normal course for the unpaid rent, the Plaintiff by virtue of this clause would be precluded from making a counterclaim or claim for set off.

In such a situation, the Plaintiff would be required to pay the amount of the rental before litigating in an attempt to recover any damages it claims to have suffered.

The Court had to consider whether this clause was a bar to the Plaintiff’s application to set aside the statutory demand.

The Decision

The factual situation described has been the subject of three conflicting decisions in New South Wales.

In Jem Developments Pty Limited v Hansen Yuncken Pty Ltd [2006] NSWSC 1308, Austin J held that in the same circumstances, any claim for damages could not provide an offsetting claim.

The same conclusion was reached by Barrett J in Blue Hills Village Management (Liverpool) Pty Limited v Babcock & Brown International Pty Limited [2009] NSWSC 87.

These decisions were held to be incorrect by Barrett J (ironically) in Bakota Holdings Pty Limited v Bank of Western Australia Limited [2011] NSWSC 1277. In overturning the precedent in the previous two decisions, Barrett J relied upon John Shearer Limited v Gehl Company [1995] FCA 1789.

Ultimately, Barrett J found, which was supported by Master Sanderson in this case, that:

“it is the existence of a genuine claim by way of counterclaim, setoff or cross-demand that is relevant, not the ability to use it as a defence in an action for recovery of the demanded debt.”

It was observed that the purpose of the statutory demand process was to provide an indication of a company’s solvency. It was considered that this process would be undermined if the demand could not be set aside in such circumstances where a genuine set-off or counter claim did exist.

The statutory demand was set aside.

Summary

A statutory demand can be set aside by virtue of a cross-claim or set off, even if such cross-claim or set-off would not be available in ordinary debt recovery proceedings.