National Hire Trading v Dynabuilt [2006] NSWSC 499 | Case summary

1054/06 NATIONAL HIRE TRADING PTY LTD V DYNABUILT PTY LTD JUDGMENT (Ex tempore; revised 22 May 2006) 1 HIS HONOUR: By an originating process filed on 11 January 2006 the plaintiff seeks an order for the winding up of the defendant company in insolvency. The plaintiff relies on a statutory demand dated 1 December 2005 relating to a judgment debt in the Local Court entered on 27 October 2005 in proceeding No 8082/05 in the sum of $33,599.44. 2 The defendant has filed a notice of appearance, indicating that leave will be sought under s 459S of the Corporations Act to challenge the existence and amount of the debt claimed in the statutory demand on the ground that there is a genuine dispute about the whole of the amount claimed and on the ground that the plaintiff is not a creditor of the defendant. 3 In order to obtain leave under s 459S a defendant must, generally speaking, prove three matters. First, that there is a genuine dispute as to the amount or existence of the debt such as could have been raised if an application had been made under s 459G to set aside the demand. Secondly, the defendant must prove that the amount or existence of the debt claimed in the statutory demand is material to its insolvency. Thirdly, the defendant must show that it has a reasonable excuse as to why it did not bring an application within time under s 459G in relation to the amount or existence of the debt claimed in the statutory demand: see Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179. Genuine Dispute 4 The defendant company carried on business as a building project manager for a development at 110 Clareville Avenue, Sandringham. The defendant hired an electric pump from the plaintiff for use on the site. The claim in the statutory demand appears to relate to three invoices in respect of which proceedings were taken in the Local Court and judgment was entered. 5 The first invoice, No 578493, is for a total amount of $5,267.98. It appears on the face of the invoice that part of that amount comprised a payment for "damage waiver". I was informed from the bar table that the defendant disputes this amount to the limited extent of hire for one of the days of hire for which the invoice was raised. The disputed amount is said to be in the order of $200 to $300, but there is no evidence before me as to that dispute. 6 The second invoice, No 578492, is for the amount of $5,989.06. Again, part of the amount charged is for "damage waiver". It appears from the evidence that there is a dispute about part of the invoice, namely a labour charge of $550 (inclusive of GST). 7 The third invoice, No 611132, is an invoice essentially for costs of repair, comprising labour, damage and transport items in the total sum of $30,197.42. The defendant's submission is that the whole of this invoice relates to the supply and hire of the pump and the plaintiff's claims for damages in respect of its use. There is evidence before me that the pump was noisy and that hay bales and a roof were placed around it to dampen the noise. It appears that this led to overheating of the pump and some damage to it. 8 In the defendant's submission, the issue is whether the placement of hay bales and the roof was done at the direction of the plaintiff. The plaintiff's contention is that people on the site were told "not to put the roof back on, as this would cause the pump to overheat" (see the correspondence annexed to the affidavit of Mr Bachir at p 39). On the other hand, the defendant claims that a person called Mark Snook employed by the plaintiff recommended that hay bales and a roof be placed around the pump to reduce the noise and the defendant acted on Mr Snook's recommendations. The defendant also says that the plaintiff's representatives regularly attended the site and checked and maintained the equipment, which involved the removing the hay bales and replacing them. 9 As I have mentioned, part of the charges in the first two invoices were for damage waiver. A clause in the hire agreement conditions provided that if a damage waiver fee were paid the company, that is to say the plaintiff, would be responsible for the cost of repairs or the cost of replacement of the hired goods caused by damage to them during the hire period. However, by way of exception to that proposition, the damage waiver fee clause stated that the clause would not apply to costs for damage which in any way related to or arose out of a number of things including "disregard for instructions given to the hirer by the company in respect of the proper use of the hired goods". 10 In the defendant's submission the issue between the parties reflected in the Local Court proceedings and the statutory demand was whether the placing of hay bales and a roof around the pump to reduce noise was done on the instructions of the plaintiff, or contrary to those instructions. 11 The dispute so identified would relate to the whole of the third invoice and $550 out of the second invoice but not any part of the first invoice. There is said to be another minor dispute in relation to the first invoice, of which there is no evidence. 12 The defendant has paid the sum of $10,417.72, as acknowledged in the statutory demand. That would be almost enough, but not quite enough, to meet the whole of the first invoice, and the second invoice except for the disputed amount of $550. Therefore, there is a shortfall of roughly $290. 13 It seems to me, on the proper and fair basis that the Paliflex case suggests should be adopted, that there is some evidence of a genuine dispute in relation to all but a small amount of the subject matter of the statutory demand. In the circumstances, the first of the three considerations to be taken into account for the granting of leave under s 459S is satisfied. Amount in Dispute is Material to Solvency 14 Mr Bachir's evidence, which was not relevantly challenged, is that the defendant has carried on only one job to date, namely the job at Sandringham to which I have referred. His evidence is to the effect that the job has been completed and that the company has paid its debts. In paras 25 to 27 of his affidavit he deposes to the company's financial condition, annexing a copy of the company's cash book and income statement and balance sheet prepared by the company's accountant. The cash amount at bank, according to the balance sheet as at 10 February 2006, namely $9,934.59, corresponds with the total shown in the cash book as at that date. The balance sheet shows no current or other liabilities as at 10 February 2006 except for GST of $1,113. 21. The company therefore has a cash surplus on hand as at that date. Even allowing for the amount of approximately $290 in respect of which there may not be a genuine dispute, it seems to me plain that if this evidence is accepted as adequate, the ground for challenging the statutory demand is material to proving that the company is solvent. This is a clear case which does not raise the kinds of problems addressed by the Court of Appeal in Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661. Here, if the amount demanded by the plaintiff is payable, the company is insolvent because the amount demanded is well in excess of the company's available assets and there is no current cash flow, whereas if the amount demanded is not payable, then the company is obviously solvent. 15 It was submitted by the plaintiff that the court should hold that the evidence of solvency is insufficient having regard to what was said by the Court of Appeal in Expile Limited v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711 especially at 718 and following. I have given consideration to the Court of Appeal's observations but in my opinion the evidence, though rather sparse, is adequate in the present case. The cash book correlates to the balance sheet and the entries in the cash book include the payment made to the plaintiff in response to the Local Court proceedings. It is true that the evidence relates only to the period to 10 February 2006 but Mr Bachir says that the defendant has carried out only one job which has been completed and that the company has had no other work since the completion of that job, and therefore no further income until its next job, which has not yet commenced. He made those statements in an affidavit dated 5 April 2006. In my view, on balance, in a straightforward case where the company's finances are far from complicated, the evidence is sufficient. Reasonable Excuse 16 The third consideration relates to the circumstances explaining why the defendant company did not bring an application within time. The situation is, as I have said, that the Local Court judgment was entered on 27 October 2005. Part payment was made on 8 November 2005, leaving a balance claimed under the judgment which was the subject of the statutory demand dated 1 December 2005. Mr Bachir has given quite lengthy and intricate evidence about the circumstances which, he says, explain his failure to respond to the statutory demand. Essentially his evidence is that the document was received at premises shared by him with another business and the document was wrongly taken by someone in that other business. Therefore, he says, he did not become aware of the statutory demand, and indeed became aware of the winding up proceedings only when he arrived home from overseas and received a letter from Oceanic Mercantile in February 2006. I accept this evidence. 17 The defendant responded to the originating process by filing a notice of appearance on 2 March 2006 and the evidence upon which the defendant now relies was prepared only in April and May 2006. An application has been made to set aside the judgment in the Local Court, but the application was made only on 1 May 2006 and is returnable in the Local Court on 8 June 2006. 18 What seems to emerge is an unsatisfactory attention to the proper administration of the defendant company. The defendant says that there was a combination of bad luck, bad timing and some mismanagement deposed to in Mr Bachir's affidavit. I would say that the level of mismanagement was rather more substantial than that submission suggests. Nevertheless, the present position is that an application has been made to the Local Court and if it succeeds, then the foundation for the statutory demand will be taken away. If the outcome is that the subject matter of the statutory demand is not a debt owing, then the defendant will be solvent, and without any further evidence other than evidence of an updating kind, the current winding up proceeding will be dismissed. 19 It seems to me, given those circumstances, that the appropriate course is to grant the defendant leave under s 459S and to adjourn the proceedings for a sufficient time to allow the application to set aside the Local Court judgment to be heard and determined. The defendant's counsel frankly acknowledges that if the application to set aside the Local Court judgment fails, then on the evidence before the court now the proper conclusion will be that the company is insolvent, the presumption of insolvency has not been rebutted and winding up should follow. 20 Therefore, my orders are: 1. Under s 459S(1) leave be granted to the defendant to oppose the plaintiff's application for winding up in insolvency on the grounds that are the subject of the defendant's application in the Local Court to set aside the judgment in matter number 8082/05. 2. Adjourn the winding up proceeding to 9.30 am on 22 June 2006 before me. 3. Costs of today reserved. **********

National Hire Trading v Dynabuilt

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