FMA Facilities v Reflections Group

COUNSEL : Mr K. Pierce for plaintiff Mr. C.D. Wood for defendant

• 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

005222/05 - FMA FACILITIES MANAGEMENT AUSTRALIA PTY LIMITED v REFLECTIONS GROUP SERVICES PTY LIMITED

1 HIS HONOUR: This is an application to set aside a statutory demand under section 459G of the Corporations Act. The demand was dated 7 September 2005 and it claimed $69,091.52, being for maintenance and cleaning.

2 The parties had a subcontract between them for cleaning, which was coming to an end on 30 June 2005. There had been a tender in 2002 that had led to their contract which went over some years for a lump sum payment of $816,618.22 including GST.

3 Clause 6.3 of the contract provided for equal monthly instalments during the contract, the amount of which was in the sum of $69,091.52.

4 The parties' contract was ending on 30 June 2005 and there was to be a change as a result of the fresh tender process. The plaintiff, who had been the head contractor of the defendant up until then, won the tender for the future work. There therefore had to be a hand-over and in the process of this the same cleaners continued to do the work. Effectively on 30 June 2005, at midnight, there was a change in the supervisors and the companies responsible for the cleaning.

5 The dispute relates to the condition of the premises at the time of handover. Clause 6.5 of the contract between the parties provided: "6.5 Payment of Fee FMA must pay the amount it is satisfied is due to the Specialist Supplier for the relevant part of the Period within thirty (30) days of receipt of each invoice unless the Specialist Supplier has failed to perform the services in accordance with the Agreement (including changes to the Services under clause 1.3) in which case, FMA may withhold payment of the invoice until the performance criteria for the Services have been met by the Specialist Supplier. If FMA disputes any amount included in an invoice, FMA must pay the amount, if any, not in dispute." 6 The defendant issued an invoice for the June cleaning which was dated 1 June 2005. There was a letter from the plaintiff of 6 July 2005 in which complaints were made about the adequacy of the cleaning and the non performance of work towards the end of the contract period.

7 On 25 August 2005 there was a very angry response from Mr Crewes of the defendant, who endeavoured to deal with some of the complaints. Immediately following there was an email from Mr Khoury in response, in which he dealt with all the matters that were said to arise. In the letter he said: "I will be forwarding a cheque for $53,095.19 in payment for the June invoice 00039054, and this is the only amount outstanding. There are considerable rectification items which are in dispute."

8 The letter did not in any particularise how this difference between the amount due under the invoice and the amount that was going to be paid had been calculated.

9 On 26 August 2005 there was an immediate reply from Mr Crewes saying that if payment was not made for the full amount, winding up orders would be issued forthwith. On the same day, 26 August 2005, a cheque was deposited into the defendant's bank account in the sum of $53,095.19. The details of the account were set out in detail on the invoice as is common practice.

10 On the same day there was an email to Mr Khoury from Mr Galea complaining about depositing funds into the account and saying that Suncorp had been advised "to return your $53K today".

11 On 7 September 2005 the demand was signed and the affidavit in support was sworn. That was served, and ultimately on 19 September 2005 the amount of $53,0095.19 was credited to the account of the plaintiff.

1. Defects in the affidavit.
2. Abuse of process.
3. Genuine dispute or offsetting claim.

13 The actual form of the affidavit which was sworn is as follows: "On 7 September 2005 I, Wayne Crewes, Director, say on oath, 1. I am a director of the creditor and am authorised by it to swear this affidavit. 2. I believe that an amount of $69,091.52 being the total amount of the debt specified in the accompanying demand is due and payable by the debtor to the creditor. 3. The debt is due because the invoice to which the debt relates has not been paid by the debtor. 4. The source of my knowledge of the matters stated in this affidavit concerning the debt is that the invoice issued for work and services duly performed has not been paid by the Debtor. 5. I believe that there is no genuine dispute about the existence or the amount of the debt referred to in paragraph 2." 14 The first matter complained about was the source of knowledge which is dealt with in the actual affidavit in paragraph 4, but which under Form 7 is required to be completed to: "State the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt or each of the debts, 'I am the person who, on behalf of the creditor, had the dealings with the debtor company that gave rise to the debt'. I have inspected the business records of the creditor in relation to the debtor company's account with the creditor." 15 Strictly when one looks at the actual terms of paragraph 4 of the affidavit there is no compliance with the intent of the form. It is apparent from other evidence that the deponent of the affidavit, Mr Wayne Crewes, is plainly a person who was intimately involved, and would have the relevant knowledge of the contract. He was involved in the negotiations about the breach and held an appropriate position in the company. I will come back to that matter shortly.

16 The other defect is what appears in paragraph 3 of the actual affidavit, where there is a reference to "the debt is due". In paragraph 4 of Form 7 there is a requirement that either the debt or the total amount of the debt referred to in paragraph 1 of the affidavit be stated as "is due and payable by the debtor company". The difference is immediately apparent and is by leaving off the words "and payable".

17 This is not a case like Main Camp v Australian Rural. (2002) NSWSC 219, where there was a failure to comply with the words "due and payable" in both the demand and the affidavit in support. As was pointed out in that case, and is apparent from the Form, which is Form 509H, paragraph 2 of the statutory demand has to say, "The amount is due and payable by the company" or another alternative. The other alternative is, "attached is the affidavit of blank dated blank verifying that the amount is due and payable by the company".

18 Plainly the demand also picks up the requirement that there be a reference to the amount being due and payable. There would seem to be compliance with the requirement in respect of the demand as one of the alternatives has been complied with. To the extent that that was not correct there is no suggestion that there was any evidence of substantive injustice caused by this minor non compliance in the demand.

19 One needs, as in Panel Tech Industries v Australian Skyreach [2003] NSWSC 619, to look at whether there was an unconditional demand for immediate payment. The affidavit refers to the invoice and the demand identifies it by both number and date. That invoice makes it clear that it is "due" seven days after 1 June 2005. That time has well elapsed.

20 I was not addressed on the precise difference between the word "due" and the word "payable" and in one sense either word carries the connotation that an amount is required for immediate payment.

21 A consideration of the whole of the material, which includes specific references to a particular identified invoice, the message required by "due and payable" in the specification which is made necessary by the legislation was, I believe, conveyed to the recipient of the demand in the affidavit which, as Barrett J observed in Pantech, are intended to be read together.

22 This is said to arise because of the time of the demand. There was the payment of $53,000 and its rejection by the creditor with a determination to proceed by way of statutory demand and winding up in respect of the whole debt. It was said to be an attempt to apply pressure to the plaintiff to force the payment of the disputed amount of the debt. Reference was made to a decision of mine in Kiama Wharf v Deputy Commissioner of Taxation (2005) NSWSC paragraphs 42 to 43.

23 In respect of the facts in the matter, the evidence shows that Mr Galea ordered the moneys be returned on 1 September 2005 before the demand and affidavit were signed and sworn on 7 September 2005. Although not returned to the plaintiff's account until 9 September 2005, there is nothing to show that at the time he swore the affidavit he did not believe the amount had been returned. Those statements in the affidavit were true to the extent of the information before him, although obviously it is plain that there was a dispute in respect of part of the amount.

24 Plainly, in the light of clause 6.5, there was a mistaken belief that he could not accept part of the debt because he would lose his right to dispute the balance.

25 What is a relevant abuse in those circumstances has been addressed in a number of cases, where there had been correspondence before the demand raising a genuine dispute as there is in this case. In Redglove Holdings Pty Limited v GNE & Associates Pty Limited [2001] NSWSC 867 Palmer J completed his analysis of the submissions in that matter, which was very similar, with the following comments in paragraphs 26 to 30: "Whether an abuse of process 26. In order to resolve the question at issue in this case one must go back to what was meant by Gummow J when his Honour referred, in David Grant , to making or threatening a winding up application 'for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz' . His Honour clearly chose those words carefully, intending to convey that 'abuse of process' is a concept precisely defined in law and is not to be loosely used, as it often is in strenuously contested proceedings when one party considers that the other is motivated by animosity or else has a patently insupportable case. 27. In Williams v Spautz the majority said (at page 526) that an abuse of process occurs when the purpose of bringing the proceeding is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or for some collateral advantage beyond what the law offers. At 529, the majority said that a party alleging abuse of process bears a heavy onus of proof that the predominant purpose of the other party in commencing the legal process had been one other than that for which it had been designed. 28. In the present case there is no evidence that the Defendant in issuing its statutory notice of demand, seeks to invoke the legislative scheme of Pt 5.4 for any purpose other than to have its debt paid or else to have the Plaintiff wound up and its debt admitted to proof in the liquidation. True it is that, prior to issuing the statutory demand, the Defendant knew that the Plaintiff disputed the debt. But at the heart of the scheme imposed by Pt 5.4 is the legislative intent that debtors wishing to dispute debts should not be permitted merely to protest in general terms and for an indefinite period; they must particularise the grounds of the dispute upon affidavit and they must do so quickly. By this means, many spurious attempts to delay payment of just debts will be defeated, either because the debtor company cannot support the existence of a genuine dispute when called upon to do so on affidavit or because the grounds of the dispute, once sufficiently exposed, simply do not stand up to the Court's scrutiny. 29. Every creditor claiming payment by a company of a disputed debt is entitled to test the genuineness of that dispute by serving a notice of demand under section 459E in order to invoke the procedures of Pt 5.4. If the dispute is indeed genuine, the creditor will pay the penalty of a costs order when the debtor successfully applies to set aside the demand under section 459G. That is the risk that the creditor takes in serving the notice of demand. But if the debtor company fails to substantiate the dispute in the manner which is required by Pt 5.4 and, in particular, by section 459G, then it cannot, without more, be an abuse of process for the creditor to proceed with a winding up application in reliance upon section 459C, section 459Q and section 459S. This is the very procedure which the Legislature has devised to secure either the prompt payment of just debts or else the winding up of insolvent companies unable to pay their just debts. Where the debtor company has failed to set aside a statutory demand, it would have to establish by very cogent evidence that, despite the existence of a debt which can no longer be disputed, the creditor's purpose in seeking the winding up is not to collect payment of its debt or, in default, to have the company wound up, but is, rather, to achieve some entirely collateral end. Such a case is conceivable but would be extremely rare in reality. 30. It follows from the above discussion that I consider the reasoning of Tamberlin J in Liverpool Cement I s correct. I am unable to accept the reasoning of Heerey J in Intergraph . I disagree with the view that the issuing of a statutory demand when the creditor knows that the debt is disputed gives rise to an inference that the demand is issued for the purpose of exerting improper pressure on the company for payment. In my opinion, the only inference which should be drawn, absent compelling evidence to the contrary, is that the demand is issued in order to invoke the statutory procedure for testing whether or not the dispute is genuine." 26 This approach has been followed by Barrett J in State Bank v Tela (No 2) [2002] NSWSC 220.

27 Notwithstanding the anger Mr Galea expressed in the correspondence, I do not see his actions in issuing the demand as anything more than an attempt to recover what he believed was due in respect of which a small part had been disputed on grounds that he thought were spurious. I am thus not satisfied that there was any abuse. In respect of the failure to specify the source of the deponent's information and belief in the affidavit, although the breach of the requirement is not sufficiently serious, the circumstances of this case to lead to the setting aside.

28 Correspondence shows what I consider to be a genuine dispute about whether all relevant cleaning was done in accordance with the contract immediately prior to its determination. This, to my mind, is not a dispute about the amount of the debt but about a breach of the terms of the contract. All that this could lead to is a claim for damages.

29 In Macleay Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743 Palmer J usefully described a genuine offsetting claim in these terms: "In my opinion, a genuine offsetting claim for the purposes of CA section 459H(1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of section 459H(1) and (2)." 30 To the same effect are comments by Santow J in Torrens Aloha Pty Limited v San Modern Painting Limited [2001] NSWSC 227.

31 Although the dispute between the parties is bona fide one has to have some quantification of the amount claimed. I have earlier adverted to the fact that the reduction in the amount that was paid was not in any way quantified or explained in the evidence and there has been no other evidence put on which might suggest the extent, for instance, of the number of hours which would be required to do the work, or the cost that would otherwise be involved.

32 In those circumstances, although there is what might be described as a bona fide claim in the sense of there being a relevant dispute, the claim can only be valued as an offsetting claim of $1. In those circumstances I decline to set aside the demand and dismiss the proceedings.

33 I have heard submissions on costs. I think it has ended up as a dispute in relation to a small amount, and it has run its course. In the circumstances I think the plaintiff should pay the defendant's costs, and I so order. I order the exhibits be returned.

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