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[2002] NSWSC 584
Supreme Court of NSW
2002-06-17
Palmer J, Mr P, Ms P
Original judgment source is linked above.
CITATION : Club Marconi of Bossley Park v AVR Services NSW Pty Ltd [2002] NSWSC 584 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1280/02 HEARING DATE(S) : 17 June, 2002 JUDGMENT DATE : 17 June 2002
PARTIES : Club Marconi of Bossley Park Social Recreation & Sporting Centre Limited - Plaintiff A.V.R. Services NSW Pty Ltd - Defendant JUDGMENT OF : Palmer J
COUNSEL : Mr P.A. Fury - Plaintiff Ms P.M. Lane - Defendant SOLICITORS : J.A. Buda & Associates - Plaintiff Kerrie Symons - Defendant CATCHWORDS : CORPORATIONS - STATUTORY DEMAND - GENUINE DISPUTE - Defendant claims a debt under a complex building contract - Plaintiff claims debt genuinely disputed - the grounds of the dispute ventilated in solicitors' correspondence - Defendant serves statutory demand. HELD: In a complex building dispute when it can be seen that there are honestly held competing views on either side the Court is justified in simply taking a broad brush approach and requiring the dispute to be dealt with by litigation in the ordinary way, unless it can see clearly and without protracted enquiry that the assertion of a genuine dispute is unfounded. INDEMNITY COSTS - Successful Plaintiff claims indemnity costs on basis that Defendant ought not to have served statutory demand when the debt was genuinely disputed. HELD: A putative creditor is entitled to test the genuineness of an alleged dispute as to the debt by invoking the machinery of the statutory demand and it cannot be penalised by an indemnity costs order merely because the statutory demand is ultimately set aside. LEGISLATION CITED : Corporations Act, 2001 (Cth) - s.459E, s.459G - Eyota Pty Limited v Hanave Pty Ltd (1994) 12 ACSR 785 - John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 - W & F Lechner Pty Limited v Drummond & Rosen Pty Limited (2001) 38 ACSR 42 CASES CITED : - Mibor Investments Pty Limited v Commonwealth Bank of Australia [1994] 2 VR 290 - Process Machinery Australia Pty Ltd v ACN 057 260 590 2002 NSWSC 45 - Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867 - Rohalo Pharmaceuticals Pty Limited v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347 DECISION : Statutory demand set aside; Defendant to pay the Plaintiff's costs on a party/party basis.
1 This is an application by the Plaintiff to set aside a Statutory Demand served on it by the Defendant under s.459E of the Corporations Act, 2001 (Cth) ("CA"). The Demand was served, or is said to have been served, by facsimile on 8 January 2002. An application by the Plaintiff under CA s.459G was filed on 29 January 2002, supported by an affidavit which deposes to what is said by the Plaintiff to be a genuine dispute. 2 There was initially some issue as to whether service by facsimile on 8 January 2002 was proper or sufficient service of the Statutory Demand for the purposes of the Corporations Act . The Defendant says that a copy of the Statutory Demand, properly executed, was sent by registered post shortly after the facsimile transmission. That fact is not conceded by the Plaintiff so that the Plaintiff still wishes to conserve its right to object to the validity of the Statutory Demand for want of proper service. It is not necessary to embark upon that debate for the purposes of this application because in any event, on the grounds argued today, I have come to the conclusion that the Statutory Demand must be set aside, notwithstanding the valiant and very able efforts of Ms Lane, who appears for the Defendant, to persuade me to the contrary. 3 The circumstances giving rise to the matter may briefly be described, as follows. The parties entered into a building contract on 24 September 1999 whereunder the Defendant, which carries on business as a builder and project manager, agreed to carry out and supervise certain renovations to the club premises owned by the Plaintiff. During the course of the construction progress claims were made by the Defendant. There seems to have been no dispute or difficulty between the parties until progress claim number 13. Thereafter, the engineer, who had supervision of the contract and was responsible for the issue of progress payment certificates, namely Mr Abou Youssef, increasingly disallowed claims made by the Defendant. Progress claim certificate number 16 allowed nothing for due payment by the Plaintiff to the Defendant. 4 At a meeting between the parties which took place on 31 August 2001 the Plaintiff was represented by certain members of its building committee and the Defendant was represented by Mr DelDuca. Mr DelDuca explained that, because of the dispute as to amounts payable under the progress claims, the Defendant was placed in increasing financial difficulty. A compromise or agreement was concluded at that meeting. Its terms are the subject of disagreement between the parties. There are clearly important matters which were not discussed by the parties at that meeting, a circumstance which in itself is largely responsible for the conflict which has produced this application. 5 What was discussed and agreed at the meeting was not taken down in comprehensive form; it did not result in any formal variation to the building contract which the parties had earlier entered into. The precise legal effect of such agreement as was made on 31 August 2001 ("the August Agreement") is one of the live issues in this dispute. According to the Plaintiff, it was agreed that the amount to be paid by the Plaintiff to the Defendant under the building contract was $763,596. It is not clear from the evidence whether this amount took account of a sum, said to be in the vicinity of $356,850, which was provided as the retention allowance in the building contract. The amount of the retention allowance is taken from a progress payment certificate which Mr Abou Youssef had issued in July 2001. 6 However, what does appear fairly clear from the parties' accounts of the meeting is that in order to assist the Defendant in its financial difficulties, the Plaintiff agreed to pay a sum of $10,000 per week to the Defendant until a total sum of $200,000 had been reached. At that time, so it appears, the Plaintiff stipulated that the parties would negotiate for a new payment structure. It is in dispute as to whether the Defendant was to proceed immediately to carry out rectification work which was said to be outstanding in respect of the construction or was required to carry out only the balance of works uncompleted. The Defendant says the terms of the agreement were that it was not obliged to carry out rectification work at all until it had received 50% of the sum of $763,596. 7 The Plaintiff made payments to the Defendant of $10,000 a week up until the end of 2001. Sixteen payments were made so that the Defendant had received $160,000 by the time that it issued its Statutory Demand on 7 January 2002. The Plaintiff was then in default in respect of two weekly payments: one on 28 December 2001 and the other on 4 January 2001. 8 The Plaintiff says that although, according to the August Agreement, it was indebted to the Defendant in the sum of $20,000 as at 7 January 2002, nevertheless, as at that date, it had an off-setting claim against the Defendant for the cost of rectification work which it says the Defendant had failed to carry out. As I have noted, the Defendant says it was not obliged to carry out this rectification work until it had received 50% of $763,596. 9 The Plaintiff has filed an affidavit by a building expert, who quantifies the rectification work at $299,203.50. I need hardly say that the Defendant disputes both the rectification work to be carried out and the value of that work. 10 The Plaintiff says that the Defendant has, by its conduct, repudiated the August Agreement and, in addition, has repudiated the underlying building contract which was varied by the August Agreement. The Plaintiff says that it has accepted that wrongful repudiation and has rescinded the building contract. It says, therefore, that it has a claim for damages against the Defendant for breach of the covenant to rectify. 11 The Defendant denies that the building contract itself was varied by the August Agreement. However, it says that the building contract has been repudiated by the Plaintiff and that it has itself accepted that wrongful repudiation and rescinded. 12 The Defendant says there can be no genuine dispute as to the existence of a debt as at 7 January 2002 in at least the sum of $262,071. The reason advanced for that proposition is as follows: the Defendant says that it was agreed at the 31 August meeting that the Plaintiff was indebted to the Defendant under the building contract in the sum of $763,596. From this amount, the Defendant deducts the sum of $160,000 which is the amount paid to date by the Plaintiff pursuant to the arrangement for weekly instalments, and the Defendant further deducts the sum of $356,850 which the contract provides as a retention allowance to be retained by the Plaintiff pending completion of the contract and all rectification work. Even making these deductions, says the Defendant, of the total of $763,000 odd admitted to be owing, a balance of some $262,000 remained unpaid as at 7 January 2002. 13 The difficulty is as to what was meant by the parties in agreeing to a sum of $763,000-odd being owed under the building contract by the Plaintiff to the Defendant. The evidence does not at all make clear, as I have noted, whether this sum takes account of the retention allowance and whether it includes any provision for GST. The Plaintiff contends that the amount was inclusive of GST. The Defendant contends that the amount was exclusive of GST. It may very well be that there was no attention directed to this question at all by the parties and that no term can be implied in the agreement as to a total amount to be admitted as outstanding on 31 August. 14 It seems to me that there is certainly a respectable and reasonable argument to the effect that all that the parties agreed upon at their meeting of 31 August was for the Plaintiff to pay to the Defendant a sum of $10,000 per week pending resolution of all other matters in dispute and that the parties contemplated that this temporary arrangement would, in due course, be superseded either by completion of all works in the manner satisfactory to the Plaintiff or else some further agreement between the parties which would resolve matters outstanding. It seems to me that there is a respectable argument that the parties did not agree at all on 31 August that the amount of $763,596 referred to was a crystallisation then, and once and for all, of what was owing by the Plaintiff to the Defendant under the building contract. 15 It seems to me that there is made out upon the voluminous affidavit evidence filed by the Plaintiff, a respectable, reasonable and particularised argument in support of its claim, first, that there was no more than $20,000 outstanding to the Defendant under the August Agreement as at the date of service of the Statutory Demand and, second, that it has a claim for damages against the Defendant in a sum substantially exceeding that amount. 16 This case has all of the hallmarks of a classic building and construction dispute. The contract was complex; the building works to be carried out were extensive; the value of the contract was somewhat in excess of $8 million. The parties have exchanged correspondence through their solicitors which has set out their competing contentions. In those circumstances, it is particularly difficult for a creditor to claim successfully that there is no genuine dispute sufficient to warrant the setting aside of a Statutory Demand. 17 A number of authorities show that the threshold that an alleged debtor has to cross in establishing the genuineness of a dispute for the purposes of s.459H is a low one. I would refer in this regard to the decision of Barrett J in Process Machinery Australia Pty Limited v ACN 057 260 590 [2002] NSWSC 45, in which his Honour collects many of the cases dealing with the question. His Honour refers to a submission that a Court should, in the case of a complex building contract, take at face value the fact that there is a clear difference of opinion between the parties which should be resolved in an appropriate way before a Court can safely allow non-compliance with a Statutory Demand to operate to provide prima facie grounds for the making of a winding-up order. His Honour expressed himself as having considerable sympathy with that view. 18 In that regard, Barrett J referred to what was said by Young J, as the Chief Judge in Equity then was, in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250. In that case Young J, referring to a dispute arising under a building contract, said at 254: "It may be that it is far more appropriate in the instant sort of case for the court to just take a broad brush approach. Thus the court might just say that because this is not a debt collecting court, where there is a construction case of this nature, the demand should be set aside under s.459J(1)(b) whenever it can be seen from the correspondence that there are honestly held views on either side which have brought a dispute between the parties. Thus, the matter can be dealt with in the ordinary way in which construction disputes are dealt with without the time and expense that is involved in running this sort of litigation ahead of that dispute." 19 With respect, I agree with the views of Young CJ in Eq and Barrett J as to this general approach to disputes arising under building contracts. It accords with what I have described as a low threshold which an alleged debtor has to cross in order to satisfy the Court that there is a genuine dispute: see e.g. per Hayne J in Mibor Investments Pty Limited v Commonwealth Bank of Australia [1994] 2 VR 290, and per McLelland CJ in Eq in Eyota Pty Limited v Hanave Pty Ltd (1994) 12 ACSR 785. The Federal Court applies the same essential standard. For example, in Rohalo Pharmaceuticals Pty Limited v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347, Lindgren J regards the standard to be met in demonstrating a genuine dispute as no more onerous than that which a debtor would confront if it were seeking to meet an application by the creditor for summary judgment. 20 I do not suggest that there can be no dispute arising under a construction or building contract which does not surmount that low threshold. There obviously will be cases in which the Court can see clearly and without a protracted enquiry that a contention by a debtor that there is a genuine dispute under a building contract is unfounded. Such a case was W & F Lechner Pty Limited v Drummond & Rosen Pty Limited (2001) 38 ACSR 42. 21 However, this case is one in which there is, at the very least, a serious question to be tried as to what was agreed between the parties on 31 August 2001 and as to whether or not that agreement had any effect upon the building contract or was merely a temporary arrangement pending resolution of disputes, in order to afford the Defendant some financial relief. There is a serious question as to whether the amount referred to in the agreement was inclusive of GST or exclusive of GST. There is a serious question as to what is the cost of any rectification works for which the Defendant may be liable. 22 In those circumstances, I am not satisfied that the Defendant has demonstrated that there is no genuine dispute of the debt claimed in the Statutory Demand. The application should therefore be allowed and the Statutory Demand set aside.
(Counsel addressed on costs.) 23 The Plaintiff seeks costs of the application on an indemnity basis on the ground that the Defendant should have known that there was a genuine dispute and that a Statutory Demand was bound to be set aside. I do not accept that that is a proper basis on which to make an indemnity costs order. The Defendant was entitled to test the Plaintiff's claim that the debt was disputed by serving a Statutory Demand and invoking the machinery of the Corporations Act ; it was entitled to test whether the Plaintiff was sufficiently genuine in its assertion of the dispute to file an application under s.459G and to particularise upon affidavit the basis of the alleged dispute. By serving a Statutory Demand the Defendant took the risk that if the Plaintiff responded by making an application under s.459G, the Defendant would have to pay the costs of that application. 24 In my opinion, a putative creditor which avails itself of the statutory machinery for testing the genuineness of a debtor's claim that a debt is disputed and fails cannot, on that ground alone, be penalised in indemnity costs. In this respect, what I said in Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd ([2001] NSWSC 867) is pertinent. 25 In my view, the Defendant should pay the Plaintiff's costs of the application on a party/party basis. - oOo -
Last Modified: 07/03/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Club Marconi of Bossley Park
AVR Services NSW Pty Ltd