Fadale v Bidnia

Supreme Court of NSW|2009-03-12|Before: Mr DP, White J

CITATION : Fadale v Bidnia [2009] NSWSC 136

CATCHWORDS : Corporations Law. Application to set aside Statutory Demand under s 459G of Corporations Act 2001. Offsetting claim established. Demand set aside. No matter of principle.

PARTIES : Fadale Pty Limited v Bidnia Group Pty Limited

COUNSEL : Mr GM Colman for plaintiff Mr DP O'Connor for defendant

SOLICITORS : MBA Lawyers for plaintiff Lou Baker & Associates for defendant

1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4092/08 - FADALE PTY LIMITED v BIDNIA GROUP PTY LIMITED

1 HIS HONOUR: This is an application to set aside a statutory demand served by the defendant on the plaintiff. The defendant served the statutory demand dated 15 July 2008 which sought payment described as follows: " SCHEDULE Description of the Debt Amount of the Debt

Payment claim titled 'Tax Invoice 61" served and dated 21 April, 2008, claiming the amount of $84,603.75 less payments made on 30 May 2008 in the amount of $15,000.00 and 4 July 2008 in the amount of $10,000.00.

TOTAL $59,603.75 " 2 The debt relates to concrete work performed by the defendant as a subcontractor for the plaintiff on certain residential premises. At the time of commencing the proceedings the plaintiff paid $11,238 to the defendant. This brings the statutory demand down to $48,365.75. On the hearing of the matter the defendant conceded that rather than press for the demand to remain at this amount it conceded it should be reduced further. This concession was based on what is submitted was a clear admission by the plaintiff in a letter of 27 July 2008 that it owed $34,327. After allowing for the $11,238 payment this brings the amount of the demand down to $23,089. 3 There are three grounds advanced by the plaintiff: (a) A genuine dispute as to whether there is a liability for some work; (b) A genuine dispute as to whether the debt is payable because of the provisions of the Home Building Act 1989; (c) Setting aside under s 459J(1)(b) for some other reason being a false affidavit in support. Genuine dispute as to liability 4 The relevant claims by the defendant were included in the invoices which were payment claims under s13 of the Building and Construction Industry Security of Payment Act 1999. There was no payment schedule by the plaintiff and the claims are those of debts due under s 14(4) of the Act. No judgment has been entered. 5 In these circumstances in Ettamogah Pub (Rouse Hill) Pty Limited v Consolidated Constructions Pty Limited (in liq) [2006] NSWSC 1450 White J set out the results of the position in these terms: "11 The procedures provided by the Security of Payment Act were designed to alleviate difficulties which builders experienced in their cash flow whilst their claims for payment under building contracts were mired in litigation or arbitration. The remedies provided by the Security of Payment Act are interim in the sense that the Act does not affect the rights of parties to a construction contract at general law or otherwise under the contract. So much is clear from s 32. 12 Whilst there can be no dispute that the plaintiff is indebted to the defendant for the amount claimed in the statutory demand, the plaintiff will nonetheless have an offsetting claim equal to the amount of that debt if there is a genuine dispute that the defendant was not contractually entitled to the amount claimed in the payment claims made under s 13 of the Security of Payment Act (see Max Cooper & Sons (Builders) Pty Limited v M & E Booth & Sons Pty Limited (2003) 202 ALR 680; M & D Demir Pty Limited v Graf Plumbing Pty Limited [2004] NSWSC 553; Greenaways Australia Pty Limited v CBC Management Pty Limited [2004] NSWSC 1186; Aldoga Aluminium Pty Limited v De Silva Starr Pty Limited [2005] NSWSC 284; Plus 55 Village Management Pty Limited v Parisi Homes Pty Limited [2005] NSWSC 559; and CCD Group Pty Limited v Premier Drywall Pty Limited [2006] NSWSC 1012)." 6 The areas where there is said to be a dispute are as follows:

Item defendant's claim plaintiff's response Pier variation $18,843 0 Footings variation $15,004 $5,322 Block infill $19,790 $12,953 Car park and drive $30,000 $23,000 TOTAL $83,637 $41,275 7 The difference between the parties is $42,362 plus GST. Pier variation 8 In paragraph 11 of Mr Hodsdon's affidavit 5 August 2008 he dealt with the matter in these terms: Originally there was given to the defendant a geo-technical report and structural engineers drawings. These were subsequently revised and there were new drawings requiring different footings. According to Mr Hodsdon in this paragraph the variation between this revised structural engineers plan and the original structural engineer's plan required no additional concrete and no extra work additional to that required for the original quote. There has, of course, been this claim for a variation in some $18,843. This was met with a simple statement by Mr Galea of the defendant: "I say there is no genuine dispute". He does not address the factual question at all. Footings 9 In paragraph 10 of his affidavit Mr Hodsdon dealt with that claim, Apparently due to adverse site conditions 30 m of the footing had to be increased in size. That necessitated extra concrete. There has simply been an invoice which does not identify how the sum of $15,004 is calculated. The plaintiff gives evidence that an appropriate figure would be $5,322. The response to this statement was simply the same response as in the previous matter. Block infill 10 This is dealt with in paragraph 12 of Mr Hodsdon's affidavit. He notes that the original quote was on the assumption that there were 55 cubic metres. He says that he realised the day before that it would only need 36 cubic metres and that the quote had been given on an inappropriate basis and in fact about 19 m was either cancelled or not used. The claim is for the full 55 cubic metres. 11 The response to this is simply that "you accepted the quote and it does not matter how much had to be used to actually do the job". There seems to be some merit in this response and it is hard to see that given the agreed price and the terms of the quote, to which I will refer later, that the plaintiff must be bound by that quote. It seems to me there could hardly be a genuine dispute, although, in circumstances I will mention later, that should be seen in the context of an offsetting claim in respect of all these amounts. Carpark and Drive 12 There was a clear dispute on the evidence before me about the circumstances of whether it was at the plaintiff's request or due to the fault of the defendant that the work was not completed. 13 In CCD Group Pty Limited v Premium Drywall Pty Limited [2006] NSWSC 1012 I addressed the nature of the claim where the Building and Construction Industry Security of Payment Act is involved in these terms: "In Max Cooper & Sons (Builders) Pty Ltd v M & E Booth & Sons Pty Ltd (2003) 202 ALR 680 I held that a party served with a statutory demand, founded upon an adjudication determination, was not precluded from raising an off-setting claim under section 459G of the Corporations Act . That decision has been followed in Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186 and Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553. In Plus 55 Village Management Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 559 White J concluded at paragraphs 11 - 12:

"11 Part 3 of the Building and Construction Industry Security of Payment Act provides a summary procedure for determining what payments should be made on an interim basis, but it does not preclude the right of the parties to a building contract to have their rights and liabilities under that contract determined in accordance with the usual civil procedures. Thus, s32(2) and (3) of that Act provide, inter alia, for restitution to be ordered by a court or tribunal hearing the matter arising under a construction contract, of any amount paid in accordance with Pt 3 of that Act. 12 It follows that whilst a party against whom a certificate requiring it to pay money has been issued, and against whom a judgment is entered in accordance with Pt 3 of that Act, is undoubtedly indebted to the other party to the contract who has obtained the certificate, nonetheless, if such a person has a genuine claim that it is not, in truth, indebted for the amount certified, it can maintain that claim as an offsetting claim under s 459H(1)(b) of the Corporations Act: see Max Cooper & Sons (Builders) Pty Ltd v M & E Booth Pty Ltd (2003) NSWSC 929; Demir Pty Limited v Graf Plumbing Pty Limited (2004) NSWSC 553; Greenaways Australia Pty Ltd v CBC Management Pty Ltd (2004) NSWSC 1186; and Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd (2005) NSWSC 284." It seems to me that the right which the plaintiff has under s 32 to claim restitution, would enable it to recover back the sums for which it was not indebted in proceedings for determining the amount due under s 32. In these circumstances there is also an off-setting claim."

14 It can be seen from this the question is whether it is a genuine offsetting claim. 15 The Court's task in assessing an offsetting claim has been dealt with in a number of cases. See instance, in Edge Technology Pty Ltd v Lite-On Technology Corp (2000) 18 ACLC 576, Santow J had the following to say at paras 24 and 25: "It is here again true (as it was in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456) that it "is not my task in the present proceedings to seek to resolve the competing claims of the Plaintiff and the Defendant": per Austin J at 462. Rather, it is to "resolve whether, for the purposes of s459(H)(1)(a), there is a genuine dispute between the Plaintiff and the Defendant about the existence or amount of the debt to which the Defendant's statutory demand relates": Austin J at 462. Or alternatively, whether there is a genuine counter-claim, set-off or cross-demand against the Defendant and, if so, in what amount. In particular, how should it be quantified; at a nominal $1 or at a large figure and if the latter, how is the quantification to be arrived at? The latter question essentially asks whether the counter-claim or set-off is fictitious or merely colourable; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Limited (No. 2) (1994) 12 ACLC 490; 13 ACSR 787. In that context, to come up with a plausible contention to requiring further investigation which, if later established, would preclude there being an offsetting claim. That would not establish that the counter-claim or set-off was fictitious, or merely colourable. In that sense, the counter-claim or set-off is not the reciprocal of the statutory demand debt. Rather it is a means of offsetting the statutory demand debt with a genuine counter-claim or set-off.

I adopt the approach of the Full Federal Court in Spencer Constructions Pty Limited v G & M Aldridge Pty Limited (1997) 15 ACLC 1,001 at 1,011, [1997] FCA 681 ; (1997) 76 FCR 452 at 464; that a genuine dispute requires that "the dispute be bona fide and truly exist in fact" and that the "grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived". The same applies to the counter-claim or set-off. One asks: Is it bona fide, is it real and not spurious?"

16 He later went on to say: "For the demand to be set aside on the basis of the demand debt being genuinely disputed, it must be established by the Plaintiff that the dispute concerning its existence is bona fide and not spurious, hypothetical, illusory or misconceived: Spencer's Case (supra). In other words, there must be a plausible contention requiring further investigation which genuinely puts in dispute the debt which grounds the statutory demand. But the merits are not now to be determined beyond the preliminary testing as to whether there is a serious question to be tried. The alternative basis for the demand to be set aside or reduced by reason of an offsetting claim involves, as I have said, a different test. The question is not whether there is a genuine dispute in the above sense against the offsetting claim. The question is rather whether the "offsetting claim" can be shown to be "not frivolous or vexatious"; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. That places a heavier onus on the party seeking to maintain its statutory demand, than if it merely had to establish the reciprocal of a genuine dispute against the offsetting claim." 17 The defendants claim that the offsetting claim is not genuine appears to be based upon: (a) The letter of 27 July 2008; (b) Delays in paying accounts already paid; (c) Avoiding telephone calls and avoiding payment. 18 In respect of the last two matters there is a conflict on the evidence which is not possible for me to resolve on this application. The main thing is the letter of 27 July 2008, which is in these terms: "Regarding concrete placement at 88 Wigram Road Forest Lodge. On Friday 25th of July 2008 a meeting was held at Victoria Road Tavern Castle Hill between Paul Galea, Director of Bidnia Group Pty Ltd and Don Hodsdon Director of Fadale Pty Ltd. The meeting was held to discuss when an amount of money still owed by Fadale to Bidnia would be paid and the validity of the claim by Bidnia of the amount owed to Bidnia by Fadale.

According to Bidnia the amount owing is $57,837 inc. GST

According to Fadale the amount owing is $34,327 inc GST

That $30,000 would be paid out of Fadale's next progress payment which falls due on Friday 1 August 2008 and would be in Bidnia's bank account no later than Friday 8 August 2008.

That Bidnia checks their estimate figures relating to these contentious issues.

(a) In Bidnia's original quote for block filling 55 cubic metres of concrete was estimated but in reality only 36 cubic metres was needed. This fact was pointed out to Bidnia the day before concrete was poured. A difference of $6,837 inc. GST.

(b) In Bidnia's claim for variation to contract footings Fadale considers that in claiming $16,504 inc GST above the footing contract price of $22,506 inc GST, a total of $39,010 inc GST, Bidnia hasn't deducted the original cost of the footings that the larger beams replaced. Fadale's claim is $10,490 inc. GST should be deducted from Bidnia's claim.

That Bidnia, upon signature of this agreement by both parties, withdraws the Statutory Demand dated 15 July 2008 and any associated legal action, and that Fadale discontinue all counter strategy in the Supreme Court.

A further meeting by Bidnia and Fadale to take place after 8 August 2008 to determine the amount still owing and time of final payment." 19 The evidence shows that this was issued after the service of the statutory demand and before proceedings were commenced. 20 It was not accepted by the defendant, so there was no compromise in accordance with its terms. It is obvious from the first paragraph that it followed a meeting to try and resolve issues between the parties before the time expired for the application to court. The defendant relied upon it as an admission that $34,327 was then owing and that now after the payment of the $11,238 an amount of $23,089 is owing. 21 It is apparent that in the letter the plaintiff was raising a total of $22,827 in respect of matters that should have come off perhaps the defendant's claim reducing it to some $35,000. 22 The defendant points out that what is now raised in Mr Hodsdon's affidavit, which was sworn a few days later, is an afterthought and should be rejected in the face of this clear admission. Three of the items are not afterthoughts. They appear in the letter of 27 July 2008. The only new matter is the pier variation and I have set out the explanations for that amount. 23 There is no dispute in this matter about the payments which have been made by the plaintiff that the works as carried out did not include the suspended floor at a quoted price of $77,250 plus GST. 24 In these circumstances it may be that the parties had different starting points in their positions for the letter of 27 July 2008. 25 The calculation in para 13 of Mr Hodsdon's affidavit of 5 August seems to show the true position of the amount owing and the party's claims as to the present dispute. 26 The explanation for the pier variation sounds quite plausible. In my view there is a genuine offsetting claim in the following amounts:

Footings variation $ 9,682 Pier variation $18,834 Carpark $ 7,000 TOTAL $35,516 27 Without the admissions this reduces the demand to $12,849.75. If the concessions made by the defendant are taken into account there is no amount left of the demand. Home Building Act 1989 28 This is based upon the provisions of ss 7 and 10 of the Home Building Act 1989 which are in these terms " 7 Form of contracts (1) A contract must be in writing and be dated and signed by or on behalf of each of the parties to it. (2) A contract must contain: (a)the names of the parties, including the name of the holder of the contractor licence shown on the contractor licence, and (b)the number of the contractor licence, and (c)a sufficient description of the work to which the contract relates, and (d)any plans and specifications for the work, and (e)the contract price if known, and (f)any statutory warranties applicable to the work, and (g)in the case of a contract to do residential building work - a conspicuous statement setting out the cooling-off period that applies to the contract because of section 7BA. (3) The contract must comply with any requirements of the regulations. (4) If the contract price is known, it must be stated in a prominent position on the first page of the contract. (5) If the contract price is not known or may be varied under the contract, the contract must contain a warning to that effect and an explanation of the effect of the provision allowing variation of the price. The warning and explanation must be placed next to the price if the price is known. (6) A contract must not include in the contract the name of any person other than the holder of a contractor licence as, or so it may reasonably be mistaken to be, the holder's name. (7) This section does not prevent the holder of a contractor licence with a business name registered under the Business Names Act 2002 from also referring in such a contract to the business name. 10 Enforceability of contracts and other rights (1) A person who contracts to do any residential building work, or any specialist work, and who so contracts: (a)in contravention of section 4 (Unlicensed contracting), or (b)under a contract to which the requirements of section 7 apply that is not in writing or that does not have sufficient description of the work to which it relates (not being a contract entered into in the circumstances described in section 6 (2)), or (c)in contravention of any other provision of this Act or the regulations that is prescribed for the purposes of this paragraph, is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person. (4) This section does not affect the liability of the person for an offence against a provision of or made under this or any other Act" 29 It is at least arguable in my view that there is a written contract here it which is the quote of the defendant dated 23 November 2007 accepted by the party's conduct in carrying the work out after it was given and the plaintiff's insistence on making sure that there was a written quotation. It is plain it does not comply with s7 in a number of respects, particularly s7(2)(a), (b) and (g). As the quote does have what I would consider for these purposes a sufficient description of the work, the provisions of s10 will only apply if there is a contravention of s10(1)(a) relating to unlicensed contracting. 30 Section 4 of the Act is in these terms: "4 Unlicensed contracting (1) A person must not contract to do: (a) any residential building work, or (b) any specialist work, except as or on behalf of an individual, partnership or corporation that is the holder of a contractor licence authorising its holder to contract to do that work. Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case. (2) The holder of a contractor licence who has contracted to do any residential building work must not contract with another person for the other person to do the work (or any part of the work) for the holder unless the other person is the holder of a contractor licence to do work of that kind. Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case. (3) The holder of a contractor licence must not contract with another person for the other person to do any work (or part of any work) for the holder for which insurance is required under this Act unless the other person is the holder of a contractor licence to do work of that kind. Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case." 31 Sub-section (2) of s 4 would appear to be not applicable as the plaintiff is not seeking to enforce a breach in the contract by the defendant. The reverse applies. 32 The plaintiff appears from its letterhead to be licensed but the position of the defendant and its director, Mr Galea, has not been the subject of any direct evidence in the proceedings. In litigation in the local court there are proceedings in which the defendant, Mr Galea, who was one of the plaintiffs along with his company, and they each sue and in the case of Mr Galea claim to have a licence under the Act. They sue in that matter in respect of two separate payment claims for the same amount which are the ones which are relevant in these proceedings. I would not infer from this that, in fact, the defendant company is not licensed. It is not as though it is a difficult matter to prove (see s 131 of the Act). 33 In these circumstances I do not think that an offsetting claim is available on the evidence before me on this ground. Terms of the affidavit and s 459J(1)(b) 34 The affidavit in support is in the appropriate form and annexed an undated tax invoice number 61 from the defendant company making the payments claim. Prior to this, on 18 April 2008 an identical tax invoice was issued by Mr Galea. There is no doubt that both were issued and this must have been known to Mr Galea when he swore his affidavit in support of the statutory demand on 15 July 2008 and said there was no genuine dispute about the debt. 35 There are a number of cases where statutory demands have been set aside where there is an intention to subvert the statutory scheme (see Saferack Pty Limited v Marketing Heads Australia Pty Limited [2007] NSWSC 1143 at paras 27-44 and the cases referred to therein). 36 There has, of course, been no cross-examination of Mr Galea and before I could draw an inference that he swore an affidavit falsely, I need to consider any other evidence, that includes the local court proceedings, when Mr Galea swore to the truth of the amended statement of claim. He alleged in paras 12 and 13 the following: "12. In the alternative to the claims pleaded in paragraphs 4 to 12 above, the Second Plaintiff served the payments claim upon the defendant pursuant to the provisions of the Building and Construction Industry Security of Payment Act 1999 (the Act). PARTICULARS OF PAYMENT CLAIM (a) Payment Claim dated 18 April 2008 in the sum of $84,603.75; (b) Service of the payment claim upon the Defendant by facsimile on 18 April 2008. (c) Reference Date pursuant to Section 8(2)(b) of the Act. 13. On about 19 April 2008 the Defendant instructed the Second Plaintiff to issue a payment claim from the first plaintiff and to withdraw the Second Plaintiff's payment claim. In accordance with the defendant's instruction the Second Plaintiff served the defendant the payment claim pleaded in paragraph 3 of this statement of claim." 37 This is a clear explanation. In the face of this I would not infer that Mr Galea did not have the belief which he swore to on 15 July 2008. This ground cannot succeed. 38 Given that the defendant does not seek to press the demand for more than $23,089 and given I accept an offsetting claim in the amount of $35,516, the demand should be set aside. 39 I make orders 1 and 2 in the originating process. 40 The exhibits can be returned. (Mr Colman sought costs payable on an indemnity basis) COUNSEL ADDRESSED STOOD OVER TO THURSDAY 19 MARCH 2009 FOR COSTS ARGUMENT

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