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[2009] FCA 628
Federal Court of Australia
2009-06-12
Thomas J, Reeves J
Original judgment source is linked above.
INTRODUCTION 1 This is an application to set aside two statutory demands served under s 459E of the Corporations Act 2001 (Cth) ('the Act'). The statutory demands in question were served on each of Liveris Nominees Pty Ltd ('Liveris') and Civitas Properties Pty Ltd ('Civitas') by Horder Enterprises Pty Ltd ('Horder'). The same debt was claimed in both statutory demands. It relates to numerous variation claims that are said to be due and payable under a building contract entered into between Liveris and Civitas (as a joint venture) and Horder.
Statutory Provisions and legal Principles 2 Section 459G of the Act allows a company that is served with a statutory demand to apply to a court to set aside that statutory demand. Section 459H of the Act relevantly provides that : (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. 3 The expression 'genuine dispute' has been judicially considered on numerous occasions in the past. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1977) 76 FCR 452, the Full Court of this Court held that it requires that "the dispute be bona fide and truly existing in fact", and "the grounds for alleging the existence of [the] dispute are real and not spurious, hypothetical, illusory or misconceived" (see at 464). To similar effect in Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601, Thomas J said (at 605): The specified limits of the court's examination are the ascertainment of whether there is a 'genuine dispute' and whether there is a 'genuine claim'. It is often possible to discern the spurious, and to identify mere bluster or assertion … . The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it). 4 It is important to note that in assessing whether or not there is a genuine dispute, the Court should "not embark upon an enquiry as to the credit of a witness, or a deponent whose evidence is relied on as giving rise to the dispute": see Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 (at 787). Indeed, in Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89 at [4], Brooking and Charles JJA said: We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes. 5 In relation to an offsetting claim, the Court must determine whether it is "arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful": see Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001]NSWSC 743 and Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2004] QSC 308; [2005] 1 QdR 12.
FACTUAL BACKGROUND 6 In 2007, Liveris and Civitas entered into a joint venture ('the LNC joint venture' or 'LNC') to construct an office and residential apartment building at 22 Harry Chan Avenue in Darwin. On or about 12 October 2007, the LNC joint venture entered into a contract with Horder to build the building ('the contract'). The contract included the Australian Standard General Conditions of Contract (AS2124 - 1992) ('the general conditions') and a number of special conditions. Horder took possession of the site in or about November 2007 and by early 2009, it had completed most of the construction work on the building. Mr Hill was appointed as superintendent under the general conditions from the outset until April 2008. Thereafter, he was replaced in that role by Mr Toms. 7 During the course of construction, Horder submitted progress claims to the superintendent on a monthly basis as provided for in cl 42 of the general conditions. It also undertook work on numerous variations to the building works in accordance with cl 40 of the general conditions. That clause sets out the procedure that was to be followed when the superintendent directed Horder to undertake such variations. 8 From about late January 2009, the LNC joint venture became concerned that Horder was not paying its subcontractors. Thereafter, until late March 2009, a series of discussions ensued which variously included Mr Liveris and others, on behalf of the LNC joint venture and Mr Horder, on behalf of Horder and representatives of the subcontractors. In the meantime, Horder continued to undertake the building works under the contract and to submit progress claims to the superintendent. The last of these progress claims, number 18, was submitted on or about 2 April 2009. It was accompanied by a statutory declaration which was said to comply with cl 43(b) of the general conditions. It stated: As at the date of signing this Statutory Declaration all payment obligations to employees and subcontractors of Horder Constructions Pty Ltd have been met as they fall due for payment. All of the progress claims prior to progress claim number 18 were paid by the LNC joint venture in accordance with the terms of the contract. However, the LNC joint venture did not pay progress claim number 18, which included Horder's variation claims up to 2 April 2009, relying on this provision of cl 43(c) of the general conditions. 9 Clauses 43(b) and 43(c) of the general conditions provide: (b) not earlier than 14 days after the Contractor has made each claim for payment under Clause 42.1, and before the Principal makes that payment to the Contractor, the Contractor shall give to the Superintendent a statutory declaration by the Contractor or, where the Contractor is a corporation, by a representative of the Contractor who is in a position to know the facts declared, that all subcontractors have been paid all moneys due and payable to them in respect of work under the Contract. (c) If the Contractor fails - (i) deleted as not relevant (ii) to comply with Clause 43(b), notwithstanding Clause 42.1, the Principal may withhold payment of moneys due to the Contractor until the statutory declaration or documentary evidence (as the case may be) is received by the Superintendent. 10 By late March 2009, the discussions between the parties came to an end without any resolution. On 31 March 2009, Horder issued a notice to show cause to the LNC joint venture under cl 44.7 of the general conditions. That clause provided as follows: 44.7 Default of the Principal If the Principal commits a substantial breach of contract and the Contractor considers that damages may not be an adequate remedy, the Contractor may give the Principal a written notice to show cause. Substantial breaches include but are not limited to - (a) failing to make a payment, in breach of Clause 42.1; (b) failure by the Superintendent to either issue a Certificate of Practical Completion or give the Contractor, in writing, the reasons for not issuing the Certificate within 14 days of receipt of a request by the Contractor to issue the Certificate, in breach of Clause 42.5; (c) failing to produce evidence of insurance, in breach of Clause 21.1; (d) failing to give the Contractor possession of sufficient of the Site, in breach of Clause 27.1, but only if the failure continues for longer than the period stated in the Annexure; and/or (e) failing to lodge security in breach of Clause 5. 11 Horder's notice to show cause stated, in part, that the notice was based on a substantial breach/s of the contract by LNC, specifically: (a) that the Principals have failed to pay the Contractor amounts owing under the Contract for additional work and/or variations which have been agreed and approved by the Superintendent. Attached is a Schedule identifying the unpaid amounts totalling $171,973.15 approved by the Superintendent which remain outstanding. (b) At a meeting on Saturday 28 March 2009 representatives of the Principals indicated to representative of the Contractor that payments of amount presently outstanding under the Contract would not be paid and only future claims by the Contractor would be considered for payment. 12 On 6 April 2009, the LNC joint venture responded by serving a notice to show cause on Horder relying upon cl 44.2 of the general conditions. This is the corresponding clause to cl 44.7, in the event of a default by Horder. It provides as follows: 44.2 Default by the Contractor If the Contractor commits a substantial breach of contract and the Principal considers that damages may not be an adequate remedy, the Principal may give the Contractor a written notice to show cause. Substantial breaches include but are not limited to - (a) suspension of work, in breach of Clause 33.1; (b) failing to proceed with due expedition and without delay, in breach of Clause 33.1; (c) failing to lodge security in breach of Clause 5; (d) failing to use the materials or standards of workmanship required by the Contract, in breach of Clause 30.1; (e) failing to comply with a direction of the Superintendent under Clause 30.3, in breach of Clause 23; (f) failing to provide evidence of insurance, in breach of Clause 21.1; and/or (g) in respect of Clause 43, knowingly providing a statutory declaration or documentary evidence which contains a statement that is untrue. 13 LNC's notice to show cause alleged that Horder had committed substantial breaches of the contract in that: (a) Horder has consistently failed to comply with its obligations under clause 43(b) of the Contract in that it has failed to provide any statutory declarations to the superintendent under the Contract ("the Superintendent") in accordance with the timeframes stipulated in that clause; (b) Horder was knowingly provided statutory declarations under clause 43 containing inaccurate statements, in that Horder has, in making payment claims under the Contract, declared that all subcontractors have been paid all monies due and payable to them in respect of works under the Contract where this has not been the case; and (c) Horder has otherwise breached the Contract by providing false declarations to the foregoing effect. 14 In the days immediately following the serving of these notices, a large amount of correspondence passed between LNC and its solicitors Clayton Utz, and Horder. Eventually, on 9 April 2009, Horder served a notice on LNC that it intended to suspend all works under the contract. This notice was served under cl 44.9 of the general conditions. On 16 April 2009, Clayton Utz, acting on behalf of LNC, gave notice to Horder that LNC had exercised its powers under cl 44.4(a) of the general conditions and taken over the works effective from 9 am on Thursday 16 April 2009. At the same time, LNC gave notice that on the completion of the works, an accounting would be conducted in accordance with cl 44.6 of the general conditions to determine what monies were owed by LNC to Horder, or vice versa. 15 Clauses 44.4 and 44.6 of the general conditions provide: 44.4 Rights of the Principal If by the time specified in a notice under Clause 44.2 the contractor fails to show reasonable clause why the Principal should not exercise a right referred to in Clause 44.4, the Principal may by notice in writing to the Contractor - (a) take out of the hands of the Contractor the whole or part of the work remaining to be completed; or (b) terminate the Contract. Upon giving a notice under Clause 44.2, the Principal may suspend payments to the Contractor until the earlier of - (i) the date upon which the Contractor shows reasonable cause; (ii) the date upon which the Principal takes action under Clause 44.4(a) or (b); or (iii) the date which is 7 days after the last day for sowing cause in the notice under Clause 44.2 If the Principal exercises the right under Clause 44.4(a), the Contractor shall not be entitled to any further payment in respect of the work taken out of the hands of the Contractor unless a payment becomes due to the Contractor under Clause 44.6. 44.6 Adjustment on Completion of the Work Taken Out of the Hands of the Contractor When work taken out of the hands of the Contractor under Clause 44.4(a) is completed the Superintendent shall ascertain the cost incurred by the Principal in completing the work and shall issue a certificate to the Principal and the Contractor certifying the amount of that cost. If the cost incurred by the Principal is greater than the amount which would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due from the Contractor to the Principal. If the cost incurred by the Principal is less than the amount that would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due to the Contractor from the Principal. The Principal shall keep records of the cost in a similar manner to that prescribed in Clause 41. If the Contractor is indebted to the Principal, the Principal may retain Constructional Plant or other things taken under Clause 44.5 until the debt is satisfied. If after reasonable notice, the Contractor fails to pay the debt, the Principal may sell the Constructional Plant or other things and apply the proceeds to the satisfaction of the debt and the costs of sale. Any excess shall be paid to the Contractor. 16 On 20 April 2009, Horder caused the two statutory demands to be served, one on each of Liveris and Civitas. Both statutory demands were in identical terms. They listed out some 47 variation claims numbered between 1 and 69 that were said to have been approved by the superintendent on various dates between 7 January 2009 and 2 April 2009, amounting to a total of $1,307,582.45 inclusive of GST. From this amount, total payments of $890,250.13 were deducted, leaving an amount, said to be due and payable, of $417,332.32. In submissions before me, Mr Watts, on behalf of Horder, stated that Horder conceded that an amount of $12,077.00 should be deducted from this amount. 17 After it took over the works on 16 April 2009, LNC negotiated a contract with another builder to complete the works under the contract. This contract has since been entered into for the sum of $1,384,000.00.
IS THERE A GENUINE DISPUTE? 18 Ms Kelly SC, on behalf of the LNC joint venture, submitted that there is a genuine dispute in relation to the debt claimed in the statutory demands in at least two respects. In summary, they are as follows: · Horder is in breach of its obligations under cl 43(b) of the general conditions to provide the superintendent with a statutory declaration that all subcontractors have been paid all monies due and payable to them in respect of the works done under the contract. Accordingly, under cl 43(c) of the general conditions LNC may withhold payment of any monies due to Horder. · Further, since LNC had given notice to Horder under cl 44.4(a) of the general conditions and taken over the works, all payments due to Horder are suspended and no further payments are due, except under cl 44.6 of the general conditions following an accounting upon completion of the works under the contract by LNC. 19 As well, or in the alternative, Ms Kelly submitted that the LNC joint venture had an offsetting claim for the costs of completing the works under the contract pursuant to cl 44.6 of the general conditions and a claim for liquidated damages in accordance with cl 35.6 of the general conditions. 20 Mr Watts, on behalf of Horder, submitted that there was no genuine dispute about any of the variation claims because they had all been "irrevocably approved" by the superintendent under the terms of the contract. He submitted that cl 43(c) of the general conditions did not apply to allow the LNC joint venture to suspend payments and, even if it did, that right was removed once the LNC joint venture activated the default provisions under cl 44.4 of the contract. Mr Watts submitted that the superintendent had admitted that $236,551.75 was due and payable to Horder and LNC had manufactured a dispute to avoid payment because it was not in a financial position to make payment. As to the offsetting claims, Mr Watts submitted that LNC's right to claim liquidated damages under cl 35.6 of the general conditions had been expressly deleted by special condition 5. Further he submitted that any offsetting claim for completion costs under cl 44.6 was, at best, contingent and unknown, such that it could not be raised as an offsetting claim at this stage. 21 In response, to the allegation that LNC was unable to pay the monies said to be due and payable to Horder, Ms Kelly relied upon a letter from the Commonwealth Bank dated 19May 2009in the following terms: The Commonwealth Bank of Australia confirms as at today the Liveris Civitas Joint Venture has cash at bank and existing finance facilities totalling $1,190,000 for the purpose of completion of the construction works for the "Civitas Building" at 22 Harry Chan Avenue Darwin. As to the deletion of general condition 35.6 by special condition 5, Ms Kelly submitted that appeared to be an error and it was cl 36 that was intended to be deleted. She stated that, if necessary, LNC would be seeking an order for rectification of the contract to this effect in due course.
CONSIDERATION 22 As the authorities I have referred to above make clear, I should be particularly circumspect about expressing any views about the strength or validity of the claims or counter-claims made by the parties. All I am required to do is to identify whether the claims and counter-claims represent a dispute, or disputes, that are not spurious or fanciful. Taking that approach, I consider that there is a genuine dispute between the parties about the existence of the debt, in at least the following respects: a) the construction and application of cl 43(b) and cl 43(c) of the general conditions of the contract, particularly in relation to the LNC joint venture's right to suspend payments under cl 43(c). If LNC was entitled under cl 43(c) to suspend any payment claims made under clause 42 of the general conditions, this arguably applied to any variation payments approved under cl 40, at the time the statutory demands were made on 16 April 2009, such that no debt was then due and payable; b) the construction of cl 44.4 of the general conditions of the contract, particularly in relation to LNC's rights to suspend payments, due to Horder and the interaction between this clause and cl 43(c). I consider LNC was arguably able to suspend any payments due under both cl 44.4 and cl 43(c) at the time the statutory demands were made, such that no debt was then due and payable. . 23 Furthermore, I consider that the LNC joint venture has an arguable offsetting claim, for at least the costs of completing the building, under cl 44.6 of the general conditions, which claim, on the evidence before me, could arguably exceed the reduced amount claimed in the statutory demands of $405,255.32. However, in view of the terms of special condition 5, which on its face, appears to delete cl 35.6 of the contract and thereby remove LNC's right to liquidated damages under the contract, I do not consider I can find that the LNC joint venture currently has an arguable offsetting claim for liquidated damages under the contract. This claim may arise if LNC is to seek rectification of contract, but there is no evidence before me to show that there is an arguable basis for such a claim. 24 For these reasons, I am satisfied that there is both a genuine dispute about the existence of the whole of the debt to which the statutory demand relates; and that Liveris and Civitas have an offsetting claim against Horder which could exceed the amount claimed in the statutory demand. I therefore order under s 459H that the two statutory demands served by Horder under s 459E of the Act, be set aside. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.
Associate: Dated: 12 June 2009 Counsel for the First and Second Plaintiffs: Ms J Kelly SC
Solicitor for the First and Second Plaintiffs: Clayton Utz
Counsel for the Defendant: Mr M Watts
Solicitor for the Defendant: Mr Anthony D Buckland
Liveris Nominees Pty Ltd
Horder Enterprises Pty Ltd