The Plaintiff, Xton Group Pty Limited, ("Xton") applies to set aside a creditor's statutory demand dated 17 August 2016 (but not served until a date on or after 16 September 2016) ("Demand") issued by the Defendant, Custom Shades Pty Limited ("Custom Shades"). The application was heard in the absence of Custom Shades, in circumstances that the solicitors for Custom Shades had recently filed a notice of ceasing to act in the matter. There is evidence that Xton had, in accordance with directions given by the Court, given notice to Custom Shades, including at the address specified for service in its solicitors' notice of ceasing to act, of the hearing of this matter today. There was no appearance for Custom Shades when the matter was called.
Mr Steirn, who appears for Xton, has taken me through the affidavit evidence on which Xton relies, to which I will refer below, and drawn attention to correspondence contained in the affidavits in which Custom Shades, both by itself and by its solicitors, have set out its position from time to time. I have had regard to Custom Shades' position, so far as it emerges from that correspondence, in determining the application. There were several bases relied upon to set aside the Demand. In the event, I will focus only on one of those bases, since it seems to me to be sufficient to reach the conclusion that the Demand must be set aside.
Xton relies primarily upon an affidavit of Mr David Hanley dated 29 September 2016, which sets out the background to the dealings between Xton and Custom Shades and annexes relevant documents. Xton carries on business in the building and construction industry and, relevantly, entered a contract with a large property group to perform certain building works at a shopping centre in Tamworth. On 22 September 2015, Xton entered a subcontract with Custom Shades in respect of the manufacture and installation of certain structures within the car park at that shopping centre. That subcontract provides, inter alia, for Custom Shades to assume responsibility for certain significant aspects of the work, including, inter alia, site installation of footings, steel work and fabric and other works. Contemporaneous correspondence indicates that difficulties arose in respect of the performance of the works, including not only emails recording the property group's, and Xton's, discontent with the manner in which the work was performed, but also emails from Custom Shades which acknowledge the existence of relevant delays. It appears, from some of the correspondence, that difficulties may have arisen for Custom Shades in respect of dealings with another entity, which presumably was providing services in respect of the works; however, the existence of those difficulties does not assist Custom Shades, to the extent that it is the direct subcontractor to Xton in the relevant matters.
At least by February 2016, Custom Shades had acknowledged that existing difficulties would be a "major issue" and, by later in February 2016, a representative of Xton was recording the existence of delays, excuses, promises, failures to arrive on site and so on, and indicating that the issue would need to be addressed with the property group. Contemporaneous correspondence also records the fact that the property group responsible for shopping centre management had indicated its discontent with the position and, by an email dated 17 February 2016, Xton had advised Custom Shades of the fact that the shopping centre's project manager had requested a refund of moneys paid to date to Custom Shades for that project, although Xton had then been seeking to negotiate a position that Custom Shades would be entitled to retain some moneys paid to it for work that had been done. That provides contemporaneous support for the existence of the difficulties referred to in Mr Hanley's affidavit evidence. By a further email dated 10 March 2016, when Custom Shades was pressing a claim for payment for the works, Xton had provided a comprehensive list of costs which it claimed to have suffered, by reason of deficiencies in the work, including delayed completion costs, and there is further evidence of those matters in Mr Hanley's affidavit to which I will shortly refer.
Custom Shades then issued the Demand in the amount of $17,050, which was described as moneys due and payable for an invoice dated 28 April 2016 for excavation and other works in relation to the shopping centre project. There is again contemporaneous correspondence indicating Xton's attitude to that claim, where an internal email sent within Xton on 28 April 2016 had expressed its understanding of the claim in that invoice in strong terms to the effect that the invoice was an inappropriate claim, by reason of what were described as Custom Shades' "delays, non-performance, damage on site, failure to meet published programmes, etc". Xton in turn applied, by the Originating Process to which I have referred above, to set aside the Demand filed within 21 days after the service of the Demand.
Mr Hanley's evidence refers, inter alia, to an allegation that Custom Shades breached its obligations under the subcontract with Xton by failing to perform the contract of works in a proper and workmanlike manner and in an agreed time frame, and also sets out costs of make good work which he claims was undertaken by Xton. Some of those costs are provided as estimated figures, but a number of them are actual costs incurred, and are supported by contemporaneous invoices that are in evidence, and the amount of those actual costs incurred, particularly costs of additional boring works for supports for the shade structures and electrical costs, exceed the amount claimed in the Demand.
As I noted above, Custom Shades did not appear and it has led no evidence to seek to contest Mr Hanley's account of events, notwithstanding orders previously made by the Court requiring it to serve its affidavit evidence, inter alia, by 19 December 2016. Mr Hanley's evidence is therefore relevantly uncontested although, even if it were contested, it might still have been sufficient to establish a genuine dispute or an offsetting claim on the principles to which I will refer below.
The first basis on which Xton seeks to set aside the demand is the existence of a genuine dispute. A genuine dispute will be established for the purposes of s 459H(1)(a) of the Corporations Act if, broadly, a dispute exists which is not plainly vexatious or frivolous or may have some substance or there is a plausible contention requiring further investigation. The authorities which stand for that proposition are well established and it is not necessary to review them further here. They have been recently reviewed by me in Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134, in a decision which was subsequently referred to, without disapproval, by the Court of Appeal in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330; (2016) 117 ACSR 495. In this case, it seems to me that there is plainly a genuine dispute as to the adequacy of the work performed by Custom Shades. There may be a question as to whether that dispute would arise to the level that impeaches any right to payment, under the contractual arrangements, which may require that there be a total failure of consideration. It is not necessary to address that question further, because the matters relied upon to give rise to a genuine dispute also seem to me to give rise to an offsetting claim which exceeds the amount claimed in the Demand.
An offsetting claim in turn arises where the company to which a creditor's statutory demand is issued has a claim against the creditor that issued the demand, which need not arise out of the same transaction or circumstances, although in the present case it does so. A company can establish an offsetting claim if there is a serious question to be tried or an issue deserving of a hearing as to whether the company has such a claim against the creditor and that claim is made in good faith and is arguable, and if the company to which the demand is issued leads sufficient evidence to establish the amount of that claim, at least on a preliminary basis. It seems to me that in the present case the contemporaneous correspondence recording defects in the work, together with Mr Hanley's affidavit evidence, is sufficient to establish the existence of an offsetting claim against Custom Shades, and Mr Hanley's evidence, supported by contemporaneous invoices, of works done by way of remediation is sufficient to establish that the amount of that offsetting claim exceeds the amount claimed in the Demand.
I have not neglected, in this respect, the exchange of correspondence between solicitors to which Mr Steirn has fairly drawn my attention, so far as that exchange of correspondence may set out Custom Shades' position. I have had regard to the position set out in that correspondence, although I also recognise, of course, that a position asserted by solicitors in correspondence does not provide a substitute for evidence led by Custom Shades in response to the application to set aside the Demand. In that correspondence, the solicitors for Custom Shades initially sought further particulars of any offsetting claim, a matter which appears in large part to have been addressed by the evidence led by Mr Hanley in this application. In subsequent correspondence, including a letter dated 24 October 2016, solicitors for Custom Shades acknowledged that Xton "may have a claim for losses arising from [Custom Shade's] failure to complete contracted works", although taking issue as to the measure of damages in that respect. They also contended, in a submission that is not now supported by evidence, that the work which was done by way of remediation by Xton was not reasonably consequential to any defect or remedial works which were required to be carried out. The difficulty with that proposition is, of course, that to the extent it is intended to impugn an offsetting claim, there would need to be sufficient evidence to identify that the relevant claim was not genuine, and here such evidence is absent so far as Custom Shades is concerned.
I should note, for completeness, that Xton also raises other issues in respect of the Demand, including a suggestion that the affidavit accompanying the Demand had not been properly sworn, and an issue, which may or may not be of continued significance, as to the address for service of the creditor specified on the Demand. I do not consider it necessary to address those questions, where it is possible and appropriate to determine this matter by reference to the substantive issues as to the existence of a genuine offsetting claim to which I have referred above.
I am satisfied that, for the purposes of s 459H of the Corporations Act, Xton has an offsetting claim that exceeds the amount of the Demand issued by Custom Shades and the effect of that offsetting claim will be to reduce the substantiated amount of the Demand, for the purposes of s 459H of the Corporations Act, to nil. Where that amount is in turn less than the statutory minimum for a creditor's statutory demand, the Court must set aside the Demand. In the ordinary course costs should follow the event.
[3]
Application for indemnity costs
Following the delivery of my judgment, Mr Steirn properly raised the question whether an order for costs should be made in favour of Xton on an indemnity basis. Mr Steirn identified several matters on which he relied for that application, including the contemporaneous correspondence indicating the existence of a dispute as to the adequacy of the work undertaken by Custom Shades; the subsequent correspondence between the solicitors, in which Xton, by its solicitors, had set out the basis of its position that the debt claimed by Custom Shades was disputed, or alternatively an offsetting claim existed, in considerable detail; the fact that evidence was led in these proceedings, and has been available at least since the date of Mr Hanley's affidavit dated 29 September 2016 setting out the detail of that claim; and the fact that, over an extended period between the filing of the Originating Process until the hearing today, Custom Shades has pursued the Demand rather than indicating, as it might have, to Xton that the Demand was no longer pressed or consenting to the Demand being set aside.
The principles which are applicable to an award of indemnity costs in litigation generally are well known, and I need not set them out in any detail here. Those principles have a particular application in respect of applications to set aside creditors' statutory demands. In CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100, Barrett J referred to several decisions in which indemnity costs had been ordered in applications to set aside a creditor's statutory demand, and observed that:
"[T]here are cases in which attempts to resist the setting aside of the demand are, even on the interpretation of the facts most favourable to the defendant, so devoid of the prospects of success as to be perverse. The opportunity to put the company to proof of the asserted genuine dispute is something to which the defendant should not be regarded as entitled in such obvious cases. A defendant, on having an obvious and irremediable weakness in its position pointed out, ought to withdraw the statutory demand. If, in such circumstances, such a defendant does not do so, it may well be appropriate to the Court to award costs to the plaintiff on an indemnity basis."
That observation has been applied in many subsequent cases, of which one recent example is my decision in Re Fishbank Development Corp Pty Ltd [2016] NSWSC 949.
It seems to me that, having received the correspondence from Xton's solicitors, and at least by the point that it was served with Mr Hanley's affidavit, it ought to have been apparent to Custom Shades that there was substantial evidence, much of which would already have been known to it through the contemporaneous emails, indicating deficiencies in the work that had been done, and that Xton had incurred remediation costs which, in the absence of evidence indicating that they were not properly incurred, were likely to establish an offsetting claim exceeding the amount of the Demand. Custom Shades did not subsequently lead such evidence, and there is no reason to think, in the circumstances, that it had the capacity to do so. It seems to me that, absent a proper expectation that such evidence was available, and it being led, it ought to have been apparent to Custom Shades that the Demand would ultimately be set aside, and in those circumstances the proper course was, as Barrett J noted, to consent to that occurring at the earliest possible point, rather than to put Xton to the additional costs of preparing for, and being represented at, a hearing which was ultimately uncontested. In these circumstances it seems to me that Xton's claim for indemnity costs is well founded.
Accordingly, I make the following orders:
Set aside the creditor's statutory demand for payment of debt served by Custom Shades Pty Limited on Xton Group Pty Ltd dated 17 August 2016.
The Defendant pay the Plaintiff's costs of and incidental to the application to set aside the creditor's statutory demand, including the costs of the hearing today, on an indemnity basis, as agreed or as assessed.
[4]
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Decision last updated: 18 July 2017
Parties
Applicant/Plaintiff:
CGI Information Systems and Management Consultants Pty Ltd