Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd

Nature of the application

1. By Originating Process filed on 27 October 2021 the Plaintiff, JWI Louvres (Sydney) Pty Ltd ("JWI") applies under s 459G of the Corporations Act 2001 (Cth) ("Act") to set aside a creditor's statutory demand ("Demand") issued by the Defendant, Tradesquad Pty Ltd ("Tradesquad"), dated 27 September 2021 claiming a debt of $46,534.40 on the ground that the debt claimed is genuinely disputed. The Demand in turn claims that JWI owes Tradesquad the amount of $46,534.40, being the aggregate of debts described in the schedule and which are referrable to Tradesquad's supply of labour and associated items from November 2020 to January 2021, as recorded in three invoices. The Demand was verified by an affidavit of Mr Krotko dated 27 September 2021, who is a director of Tradesquad, and there affirmed that the total amount of the debts was due and payable by JWI and that he believed there was no genuine dispute about the existence or amount of any of the debts.
2. In the course of the hearing today, JWI has provided a document to the Court, which I have marked MFI 1, which refers to a potential cross-claim to proceedings in the Local Court of New South Wales, to which I will later refer, and identifies a reduction of $23,780.27 for which JWI contends in the amount claimed in the Demand, resulting from a claimed overpayment in respect of amounts overcharged in other invoices of $6,292 and further overcharges in respect of these invoices, which JWI contends amounts to $15,588.87. That has the consequence, as Mr Harkness who appears for JWI accepts, that JWI now admits that an amount of $22,754.13 is owed to Tradesquad and, to the extent that the Demand would otherwise have been set aside, it would now only be varied to the amount of $22,754.13, in accordance with s 459H(4) of the Act. I will return to that matter below.

Affidavit evidence

1. I will now turn to the affidavit evidence, before returning to the applicable principles and the determination which must follow from them. By her affidavit dated 27 October 2021, Ms Susan Carter, who is a director of JWI, refers to the commencement of a third party as a project manager with JWI, and it appears that third party in turn introduced Tradesquad to provide installation services to JWI, and had responsibility for dealings with Tradesquad in respect of at least some of the relevant projects. Ms Carter refers to the fact that invoices issued by Tradesquad were inconsistent with the amount budgeted by JWI for particular installations. I recognise, of course, that that does not mean that the amounts claimed by Tradesquad were not necessarily properly supported. She refers to the fact that that third party subsequently ceased employment with JWI, and refers to proceedings brought by Tradesquad against JWI in the Local Court, implicitly in circumstances that debts claimed by Tradesquad had not been paid. Notably, the first version of the Statement of Claim filed by Tradesquad in the Local Court claimed three of the amounts which are now claimed in the Demand, for invoices 173, 174 and 178, relating to work done at the Queanbeyan Local Court and a project in Lilyfield. One would ordinarily draw an inference that there was a dispute as to those invoices, because the commencement of proceedings in the Local Court is consistent with the existence of that dispute. Subsequently, an Amended Statement of Claim filed by Tradesquad in the Local Court proceedings removed the claim for those amounts, which it now treats as undisputed for the purposes of the Demand.
2. Ms Carter also refers to a request made by JWI for what she described as substantiation of the amounts claimed by Tradesquad, and identifies several concerns as to the invoices, which commence with the proposition that Tradesquad's invoices substantially exceeded the budgeted amount in all but one project, a matter to which I have referred above, and then identifies several other matters which I need not address, which do not seem to me likely to give rise to a genuine dispute as to the amount claimed in the Demand. More significantly, Ms Carter refers to the fact that Tradesquad's invoices have not been substantiated with timesheets or other corroborative material, and refers to inquiries which she had made in respect of a project at Roseville, which, on the face of them, at least raises the prospect that Tradesquad had claimed for a significant amount of work in circumstances that it had no workmen present on the site, or that workmen were present for a shorter period than the amount of work claimed. Ms Carter also refers to a further difficulty, that the daily hours worked claimed by Tradesquad in respect of that project exceeded permissible working hours at that site, and that raises a prospect that the amounts claimed exceeded the number of hours worked. I do not, of course, reach any finding that that is the case, because the Court in dealing with an application to set aside a creditor's statutory demand on a genuine dispute does not and cannot reach findings of that kind, where this is not a determination on the merits after a contested hearing.
3. Mr Fermanis, who appears for Tradesquad, dismisses the significance of Ms Carter's concerns on the basis that they relate to a different project than those claimed in the Demand. It seems to me this matter cannot be so readily dismissed, because it would not be unreasonable for a consumer of services to infer that, if there is a significant degree of apparent overstatement of costs by a supplier in respect of one project, then that problem may exist in respect of other work doner by that supplier. Ms Carter in turn refers to the matters which have given rise to concerns, arising from these matters, and to the issues which are being raised in the Local Court proceedings in respect of JWI's attempt to test the extent to which amounts claimed in past invoices issued by Tradesquad can be substantiated.
4. Mr Krotko, who as I noted above is a director of Tradesquad, responds in his affidavit evidence by referring to invoicing in respect of particular projects, and conversations relating to the relevant projects, and the circumstances in which projects were undertaken. Mr Krotko there refers to communications with Ms Carter which, on the face of them, raise a question as to whether amounts claimed were not paid by JWI, not because they were disputed, but because of JWI's financial difficulties, including difficulties arising from the COVID-19 pandemic. Mr Krotko also contested the circumstances in respect of signing in and signing out at the project to which I referred above, in which a question of the hours worked by Tradesquad arises. However, the fact that Mr Krotko contests the inference which is drawn by Ms Carter from the discrepancy between the hours claimed by Tradesquad and the work hours recorded does not mean that a dispute does not arise from that matter or extend to invoices as to other projects. Rather, the fact that Mr Krotko contests that matter identifies the nature of the dispute which exists in that respect.
5. In her affidavit in reply, Ms Carter responds to aspects of Mr Krotko's evidence, and corrects an annexure to her first affidavit which had identified aspects of the challenge to the amounts claimed. I proceed on the basis that that matter has further been corrected by MFI 1 on which JWI relies today.
6. Tradesquad also tenders evidence as to the progress of the Local Court proceedings, and I recognise that, on the face of it, JWI is late in filing a cross-claim which it was due to file and serve by 24 March 2022, a matter which is, regrettably, common in litigation. Mr Fermanis relies on that matter to challenge the genuineness of JWI's cross-claim. I bear in mind that, of course, there has litigation between the parties occurring at the same time in this Court in respect of the Demand, and in the Local Court, and it does not always follow that claims which are filed late are not genuine claims.

The applicable legal principles

1. With this background, I now turn to the applicable legal principles, as to which there is no dispute. Mr Fermanis refers to at least some of the earlier cases dealing with what is required to set aside a creditor's statutory demand and Mr Harkness does not address the relevant legal principles in submissions. It was, perhaps, not necessary for him to do so, where the principles applicable to setting aside a creditor's statutory demand are well-established.
2. The Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Act where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; 24 ACSR 353; [1997] FCA 681, the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived.
3. As Mr Fermanis fairly recognises, the threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18] that: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."
4. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70 at [71], the Victorian Court of Appeal in turn observed that, in order to set aside a creditor's statutory demand, the dispute: "should have sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile…Something 'between mere assertion and the proof that would be necessary in a court of law' may suffice."
5. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal summarised the case law applicable to establishing whether a genuine dispute was established, in determining the position as to an offsetting claim in that case. The Court observed that the evidence necessary for that purpose "need not conclusively prove or otherwise be incontrovertible or substantially non‑contestable" and also observed (at [46]) that: "In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the Court is not concerned to engage in an inquiry as to the credit of the deponent of the affidavit filed in support of the application."
6. The Court observed (at [47]) that the Court's role, in such an application, was simply: "to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim."
7. I summarised the applicable principles in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], and that summary was approved by Barrett JA in the Court of Appeal in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8]. A similar approach was taken by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60, and I again summarised those principles in Re Malosi Group Pty Ltd [2021] NSWSC 633 at [16]ff, on which I have partly drawn for this summary of those principles.

Determination

1. Subject to the application of s 459H(4) of the Act, to which I will return below, I am satisfied that a genuine dispute is established as to the amounts claimed by Tradesquad in the Demand. First, as I noted above, the relevant invoices were initially the subject of claims in the Local Court proceedings, which is consistent with the existence of a dispute to be resolved in respect of them. Second, and more fundamentally, it seems to me apparent that there is a genuine dispute, in the sense of a dispute that is genuinely arguable and has a degree of prima facie plausibility about it, as to the reliability of Tradesquad's invoicing practices, which is raised in respect of the apparent discrepancy between amounts invoiced and workmen on site in respect of the project to which I have referred, and it is not to the point that that project is not itself the subject of the Demand, where the existence of that concern in respect of one project is capable of establishing a genuine dispute in respect of claims as to other projects. To put that proposition simply, if Tradesquad tendered its invoices or its work records in proceedings in the Local Court to seek to establish the hours worked, it would be open to JWI to challenge the reliability of those documents, and deny the amounts claimed in them, by reference to any evidence of the unreliability of those documents on other occasions. In these circumstances, it seems to me that a genuine dispute arises in respect of the amounts claimed.
2. I have not neglected the fact that, as I noted above, there is evidence which suggests that, at least for a period, JWI may have had difficulty in paying the amounts claimed and had not raised any dispute about them. Mr Fermanis put substantial emphasis to that matter. However, the fact that an amount claimed was not challenged immediately, or that a party may have had difficulty in paying it, does not mean that it is not capable of being genuinely disputed, where the basis of a genuine dispute is later established. To put that matter another way, if there is in fact a genuine dispute as to the reliability of the invoices rendered by Tradesquad, then that genuine dispute is not displaced because it is raised late, or because JWI has other reasons why it may have found it difficult to pay the disputed invoices at the time they were due.
3. As I noted above, JWI now accepts that an amount of $22,754.13 is due to Tradesquad. Section 459H(2) of the Act therefore requires the Court to calculate the "admitted total" and then the "substantiated amount" of the debt and where, as here, the substantiated amount is at least as great as the statutory minimum, the Court must make an order varying the Demand to the substantiated amount of the debt. The Demand should here not be set aside, but instead should be varied to reflect the amount of the debt that is now admitted by JWI.
4. For completeness, I had considered whether this is one of the relatively rare cases in which the Court should set aside the Demand on condition that an amount claimed by Tradesquad be paid into Court. I would likely have taken that course, given that there is evidence of other matters that may have affected JWI's capacity to pay the amount claimed, had JWI not made the concession noted above as to the lesser amount due to Tradesquad. Where that concession was made and the Demand will be varied to that lesser amount, leaving only the balance to be determined in the Local Court proceedings, it does not seem to me that that condition should be imposed, where it would potentially prefer Tradesquad as a creditor of JWI to JWI's other creditors, by giving it a form of security for its claim.

Costs

1. I advised the parties that my preliminary view was that there should be no order as to costs. JWI has succeeded only in part, and that success has been qualified by the concession which it has now made as to the amount due to Tradesquad. Tradesquad, which otherwise may not have succeeded, has now succeeded in part so far as the Demand will be varied by reference to the amount admitted by JWI. Where there is a mixed result of that kind, the preferable order is that there be no order as to costs.
2. I then heard both parties as to costs. Mr Fermanis fairly accepted for Tradesquad that, where the parties have had that mixed result, the Court could properly make no order as to costs in respect of the application. Mr Harkness, ambitiously, seeks to maintain a claim by JWI in respect of costs. He fairly draws attention to paragraph 28 of Ms Carter's affidavit dated 9 December 2021 where she acknowledged the amount owing by JWA for the three invoices included in the demand was $21,681.333 inclusive of GST, and points out that the amount that is now conceded as the admitted debt in MFI 1 is a marginal increase in that figure. The difficulty, however, in JWI relying on that matter to obtain its costs, is that JWI did not pay that amount when it acknowledged it was due, about five months ago. Tradesquad has not here pursued the Demand only in respect of the disputed balance, and now failed in an attempt to sustain it, but also in respect of an admitted amount due to it, and JWI has delayed payment of that amount through its application to set aside the Demand. That provides, in my view, no basis on which to order costs in JWI's favour. I will therefore make no order as to costs.

Orders

1. I make the following orders:
2. Pursuant to s 459H(4) of the Corporations Act 2001 (Cth), vary the creditor's statutory demand dated 27 September 2021 issued by Tradesquad Pty Ltd to the amount of $22,754.13 and declare the demand to have had effect, as so varied, as and from when the demand was served on JWI Louvres (Sydney) Pty Ltd.
3. There be no order as to the costs of the proceedings, with the intent that each party bear their own costs.

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