Plaintiff v Defendant

Repayment of the amount of $2,380,562.25 paid to the Company, pursuant to the terminated Major Supply Agreement No. SC 1458004 for the supply and delivery of camp accommodation units for the Roma Hub and Pipelines Project, made on or about 28 October 2011 between the Creditor and the Company.

2 The demand was accompanied by an affidavit of Dale Morrison sworn 21 June 2012. Mr Morrison deposes that he is the Chief Financial Officer of MacDow and that the debt is owed by Leemon by reason of the default under and termination of an agreement made on or about 28 October 2011 for the supply and delivery of accommodation units for the Roma Hub and Pipelines Project in Queensland.

3 On 13 July 2012, Leemon made application pursuant to s 459G, s 459H and/or s 459J of the Corporations Act 2001 (Cth) ("the Act") to set aside the demand. Paragraph (a) of the originating process contends:

The statutory demand contains defects, or alternatively is a nullity, in that:

(i) the statutory demand was not dated;

(ii) it is unknown whether the statutory demand was signed before or after the time when the affidavit in support of Dale John Morrison was affirmed on 21 June 2012;

(iii) it is unknown whether Dale John Morrison was authorised to sign the statutory demand;

(iv) the description of the debt in the schedule of the statutory demand differs from that referred to in paragraph 1 of the purported affidavit in support of Dale John Morrison asserted to have been affirmed on 21 June 2012; and

(v) at the date of the statutory demand and now there was and is no debt due and payable of the description contained in the Schedule of the statutory demand or at all;

4 In paragraph (b) of the originating process it states,:

The purported affidavit in support of the statutory demand of Dale John Morrison asserted to have been affirmed on 21 June 2012:

(i) contained no legible name, or the designation, of the person who witnessed the affirmation of Dale John Morrison;

(ii) was not signed on each page by the person who is asserted to have witnessed the affirmation of Dale John Morrison.

5 As well as the matters mentioned in paragraphs 3 and 4, the originating process states that Leemon relies on the facts stated in the supporting affidavit of Tommy Vassos sworn 12 July 2012. That affidavit contends that Leemon has genuine disputes and offsetting claims in regard of the McDow demand. The originating process seeks orders that the statutory demand be set aside and that MacDow pay Leemon's costs of the application.

6 Leemon's application was supported by affidavits of Mr Vassos sworn 12 July 2012, 13 August 2012 and 3 September 2012. MacDow relied on affidavits of Dale Morrison sworn 31 July 2012 and Daniel Foxwell sworn 22 August 2012 in opposition to the application. Both parties filed written submissions.

7 Although Leemon, as noted above, sought to impeach the demand by reference to the defects described in paragraph 3(i) to (iv) above, the application was ultimately concerned with a consideration of whether, at the date of the service of the statutory demand, there was a debt of the type mentioned in section 459E of the Act due and payable of the description contained in the schedule to the statutory demand and whether Leemon had genuine disputes and/or offsetting claims available to it which should result in the demand being set aside.

8 The principles to be applied when considering applications to set aside statutory demands under Section 459G of the Act have been the subject of numerous authorities. In the decision of TR Administration Pty Ltd v Frank Marchetti & Sons,[1] the Court of Appeal of the Supreme Court of Victoria collected and considered the cases dealing with those principles.

9 At paragraph 56 and following of the judgment, Dodds-Streeton JA stated:

The Court, in the context of an application to set aside a statutory demand, mustb determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.

No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the 'ultimate question' of the existence of the debt should not be compromised.

On appeal, the sole question is usually whether the primary judge erred in determining that there was, or was not, a genuine dispute or off-setting claim. That is, of course, a different question from whether the debt exists.

[3] The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.

[4] 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.

In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd, the Full Federal Court cited a variety of different formulations of the principles applicable to determining the existence of a genuine dispute or off-setting claim. Their Honours considered the different articulations helpful, but warned that they should not become a substitute for the words of the statute.

As recognised by Heerey J in Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd, any tendency to 'trawl through a myriad of judgments' and plethora of formulations is equally to be avoided.

The Full Federal Court in Spencer concluded that:

• The dispute be bona fide and truly exist in fact.
• The grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived. [2]

10 At paragraph 64, Dodds-Streeton JA quoted from the decision of McClelland CJ in Equity in Eyota Pty Ltd v Hanare Pty Ltd[3] where his Honour stated:

It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs in s 45OH [sic]. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sorts of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction or for an extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a general dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be" not having "sufficient prima facie plausibility to merit further investigation as to [its] truth... or "a patently feeble legal argument or assertion of facts unsupported by evidence.

But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute.

These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.[4]

11 From paragraph 65, Dodds-Streeton JA said:[5]

In Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said:

There is little doubt that Div 3 ... prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. 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. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

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).

In the present case, the appellant stressed the formulation of 'a patently feeble legal argument or an assertion of facts unsupported by evidence' set out in [the decision of the Full Court of the Supreme Court of South Australia] South Australia v Wall.

Cox J stated that, bearing in mind the policy, there was good reason for giving the words 'genuine dispute' a plain and uncomplicated meaning as a safeguard against allowing a colourable and insincere denial of liability to frustrate the goal of the provisions.

Cox J rejected the view that any objective appraisal of the dispute was appropriate. His Honour stated that while 'a patently feeble legal argument or an assertion of facts unsupported by evidence would more readily disincline the Court to consider the dispute to be a genuine one, so far as the employer is concerned', the merits were otherwise not relevant. Only a dispute which was frivolous or 'one made without adequate inquiry and consideration' would run the risk of not being considered genuine."

12 At paragraphs 71 and 72, Dodds-Streeton AJ, stated:[6]

As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something 'between mere assertion and the proof that would be necessary in a court of law' may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.

Barrett J of the Supreme Court of New South Wales in Solarite Airconditioning Pty Ltd v York International (Aust) Pty Ltd stated:

...[t]he task faced by a company challenging a statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of a company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seem stronger [Emphasis added]."

13 The use of statutory demands in the context of significant construction contracts was the subject of comment by Young J (as he then was) of the Supreme Court of New South Wales in John Holland Construction & Engineering Pty Ltd v Kilkpatrick Green Pty Ltd.[7] In that case, the creditor claimed approximately $1 million based on 3 invoices. At first instance it was found that there was no adequate material before the Court to substantiate the claim that the dispute was genuine. On appeal, Young J stated:[8]

Prior to the amendments to the Corporations Law by the Corporations Reform Act No 210 of 1992, the way in which the Companies Court approached disputed debt applications was relatively clear, though it was sometimes difficult to work out cases that were on the boundary line. The clear principle was that the Companies Court was not to be the place where litigation was to be conducted about disputed trading debts. The Companies List is designed to wind up insolvent companies in the public interest, not as a way of getting a dispute between companies in the marketplace on before a Court quickly. Generally speaking, if it could be seen from the conduct of the parties that there was an honest dispute between them, then they would be expected to have that dispute resolved in the normal channels, that is, in litigation in the Common Law Division or the District Court or before an arbitrator, and not in the Companies List.

The important thing to realise is that the basic attitude that the Companies Court is not to be the court which deals with disputed debts remains the principle.

There will be various types of commercial relationships that will produce debts between traders. Sometimes the debt is very easy to compute, such as the situation where there are a limited number of buying and selling transactions between the parties to the dispute. However, on the other end of the scale can be large construction contracts where it is sometimes difficult, at least in the short term, to work out just what is owing by one party to the other."

There may be cases, and indeed it may be even the majority of cases, where the court will look not only to an assertion of a dispute, but some sort of material short of proof which backs up the claim that is made that the amount is disputed. It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say that it did not owe a debt.

On the other hand, if proof of a claim is required then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court. What more than assertion is required is something that may differ from case to case... [S]o long as the claim is not fictitious or merely colourable and is genuinely believed to exist one can ordinarily take that as sufficient. That is something more than mere assertion... [I]n a sizeable construction case, where the contemporaneous correspondence between the parties shows that there is a disputing of the figures, then one can say, without looking at the figures or without looking at the evidence that backs up the figures, that there is a genuine dispute between the company and the respondent about the amount of the debt. A similar thing can be said about any offsetting claim.

It would seem to me that in the present case, where the proprietor has asserted that a particular amount only is the value of the work, and that amount is put forward by the contractor to the sub-contractor, then even if there is nothing before the court to show how the amount is made up, there is a genuine dispute between the contractor and the sub-contractor as to the amount of all sums over and above that admitted value of the work."

"It may be that I am doing a disservice to this court in approaching the matter in this mathematical way. 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. If I were to do that in the instant case, I would come to the same result."

16 My task in this application is to ascertain whether there are genuine disputes or offsetting claims in respect of the debt the subject of demand, not to express any opinion which may embarrass any other Court subsequently considering the matter.[11] As Thomas J stated in Re Morris Catering (Aust) Pty Ltd:[12]

It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond the perception of genuineness (or lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

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 offset claim (and not the likely result of it).

17 As to the technical defects alleged by Leemon, there is the absence of the date on the demand, whether the demand was signed before or after the time when the affidavit in support of it was affirmed, whether Mr Morrison was authorised to sign the statutory demand and the criticism of the description of the debt in the schedule to the statutory demand were, in the end, only faintly pressed by Leemon and were, in my view, not sustainable by reason that they were overwhelmed by MacDow's affidavit evidence. I also consider that the same situation applied to the alleged shortcomings in the affidavit of Mr Morrison which accompanied the demand.[13]

18 Leemon imports modular home units which are built in China pursuant to its specifications. The units are typically constructed for mining companies, construction sites, indigenous housing groups and caravan parks.

19 MacDow is an engineering, construction and building maintenance contractor for substantial building projects. In October 2011, Leemon and MacDow entered into an agreement entitled Major Supply Agreement ("the MSA") for Leemon to supply and deliver 106 accommodation units for a pipeline project at Roma in North-West Queensland. That project was being undertaken by Fluor (Aust) Pty Ltd and the accommodation units were to be used for housing 400 personnel to be accommodated while works, including construction of a hub compressor site and associated pipelines at Roma, were carried out.

20 The major supply agreement is a lengthy document which sets out detailed specifications of the works to be carried out. It will be necessary below to refer to the terms of that agreement in some detail and the subsequent communications which passed between the parties.

21 Mr Vassos, in his second affidavit, states that prior to the time he was shown Exhibit DJM-2 to Mr Morrison's affidavit (which is a copy of the MSA), he had never seen the schedule to it. He states that it was not attached to the MSA when he signed it in late 2011 and it was never shown to him. In his affidavit, Mr Foxwell states that on 28 October 2011 he attended a meeting where both Mr Vassos and he signed the MSA between MacDow and Leemon with a Mr Bob Doherty and Mr Tony Igo witnessing the signing the MSA respectively. Mr Foxwell states that immediately after signing the document he handed Mr Vassos a copy of the MSA which included the relevant segments of the Contract Project Schedule setting out the timelines of the MSA. A copy of the document was also emailed to Mr Vassos on 1 November 2011. I consider that it has been established that the schedule formed part of the MSA (although Mr Vassos may not have noticed it) and that this proceeding should be determined on that basis.

22 The MSA is an elaborate commercial instrument. The recitals state:

1. MacDow desires to engage the Supplier to supply the goods as described in Appendix B.
2. This Major Supply Agreement forms a binding Agreement between MacDow and the supplier for the supply of Goods, subject to the following terms and conditions (the "Agreement").

23 Under the heading "Operative Provisions" it provides:

The Supplier hereby undertakes to supply the Goods in accordance with and subject to the following documents which comprise the Agreement (the "Documents"):

(a) this Instrument of Agreement;

(b) the Major Supply Agreement Terms and Conditions;

(c) the Schedule to the Major Supply Agreement Terms and Conditions;

(d) appendix A - Delivery Schedule;

(e) appendix B - Goods to be provided;

(f) appendix C - Price Payment Schedule and Variation rates;

(g) appendix D - Specifications, Standards, Drawings, Vendor Data (including Supplier Data Requirements list) (SDRL) and code;

(h) appendix E - Form of Performance Security;

(i) appendix F - Inspection Release Form;

(j) appendix G - release and discharge form.

24 Under the heading "the goods", a description is provided of the accommodation units which are the subject of more comprehensive description in appendices B and D.

25 Under the heading "the Price", the terms provide that MacDow shall pay to Leemon the price as referred to in the Schedule and particularised in appendix C.

26 The terms and conditions provide relevantly for the present context:

10.2 Unless otherwise accepted by MacDow, the Guarantee shall be in the form as prescribed in appendix E issued by a bank or surety acceptable to MacDow. The costs of obtaining such Guarantee shall be borne by the Supplier. No payment shall be made to the Supplier by MacDow unless Guarantees acceptable to MacDow have been received by MacDow.

...

14.1 The property in any Goods shall pass to MacDow upon delivery at the Delivery Point, unless, and to the extent, payment therefore (whether in whole or in part) is made prior to delivery, when it shall pass to MacDow once such payment has been made. Where progress or instalment payments are made, the Property and the Goods in respect of which a progress or instalment payment is made, shall pass to MacDow once such payment has been made.

...

21.1 The Supplier shall carry out the Agreement with diligence and due expedition at all times. The supplier shall commence work under the Agreement promptly upon receipt of MacDow's written notice to commence the work and continue the work until Completion.

...

29.1 MacDow shall be entitled to terminate the Agreement forthwith by giving notice to the Supplier at any time if:

(a) ...

(b) the Supplier commits a breach of any of its obligations under the Agreement. In the case of a default referred to in clause 29.1(b), other than a default in respect to on-site safety, in which case MacDow may terminate the agreement without notice, MacDow shall not be entitled to terminate the agreement, unless it has served on the Supplier a notice advising of the breach, and allowing the Supplier not less than seven days in which to remedy the breach or otherwise show good cause why MacDow should not terminate the Agreement, and the Supplier fails to do so.

29.2 Upon termination for breach, the Supplier shall be liable for all damages, loss, costs and expense which may be suffered or incurred by MacDow arising out of such determination and shall indemnify MacDow against all liabilities, damages, costs and other compensation awarded against or paid by MacDow in connection with any third party claims and all legal expenses and costs incurred by MacDow in defence or settlement of any such claims, arising out of, or as a result of, or in connection with, such termination. MacDow's only liability to the Supplier, subject to MacDow's right of set-off, shall be to make payment of (or allow as credit) the Price of all goods delivered or handed over to MacDow in accordance with the agreement.

27 The schedule to the MSA contains various headings dealing with certain important provisions. Mr Tony Igo is identified as being MacDow's representative and Mr Tom Vassos, Leemon's. In the segment dealing with date for delivery, reference is made to a more full description in appendix A. In the section devoted to extended warranty periods, the performance sureties are noted as being 5% of the price.

28 The payment terms provided for MacDow to pay 30% of the total price of the order "(Upon BG)", BG being a reference to a bank guarantee.[14]

29 Appendix A, to which reference was made in the Date for Delivery segment of the schedule, sets out the timelines for various stages of the project being undertaken by MacDow for Fluor. On the second page of that document under the heading Camp Establishment, the various timelines for the construction of the accommodation complex are provided for. The finish date for completion of the camp complex is noted as being 9 February 2012.

30 Mr Foxwell's affidavit exhibits[15] email correspondence passing between the parties in November 2011. In a spreadsheet in the beginning that exhibit, those communications are summarised. The significant ones for present purposes (with emphasis added) are as follows:[16]

Invoices received, could you please send over the schedule of rates as discussed with regard to the ADG works. And could you please deliver a Bank Guarantee to cover the advance payment.

Working on schedule tomorrow as the guys are quite advanced now and will finalise in Sydney tomorrow. Could you please process initial deposit invoices for ADG?

With regards to Bank Guarantee will take a couple of weeks to get. Please can you check with Tony to see if you can withhold 5% unit we submit the guarantee. I don't want to hold up the factory in their production as they need to order longer leadtime items. Call me if you have a problem.

I have spoken with Tony and he's okay with that. I will enter the invoices into the system.

Christian what is the deal with the camp supply order? Have we amended that now.

Yes, we've just changed the ABN number in our contract (handwriting and initialling on it) and have their invoice revised. They want to use Leemon Company now for their transactions. I'm having ANH process the down payment now.

Tony - I understand there was some late changes with the preferred supplier of the camp which I assume was for a better deal.

Accounts have now received the first invoices from Amoveo for the camp supplier. The invoices are from Amoveo but quote two different ABNs on the supply agreements one of which doesn't agree with the invoice.

One ABN is for Leemon Pty Ltd and one is for Modular Solutions Wise Move Pty Ltd - neither invoice is for "Amoveo Trading".

The paperwork looks a bit dodgy and has to be corrected before it will be paid. Shane will give the paperwork to Alan to review with you.

Who are we dealing with? Have we done the due diligence on the supplier who is operating under multiple names?

(The communications on 17 November 2011 involved a change in the contracting entity to Leemon and have no relevance for present purposes).

Just got a call from Christian he was chasing Bank Guarantee I thought we decided you retain 5% until I issue you Bank Guarantee. The hold up as been I am securing against a property I own, will be another week, already paid factory deposit to commence units. Stretching me a little as don't have overdraft always used cash. Please advise.

All we require is a letter/notice from the bank you have selected stating that a bank guarantee has been requested and is due to be raised (this shouldn't be hard to get). Once this has been received we can process.

I am the Accountant for Leemon Pty Ltd trading as Amoveo, I have spoken to the BOQ to arrange a bank guarantee, and as you would be aware they take two weeks to complete.

I can provide a letter from Bob Mucci, bank manager confirming this.

Hoping this will be sufficient to have our funds released tomorrow.

If you can send me over that letter that would be grand.

Letter as requested. Please confirm if this meets your requirements.

Hi Anh, please see attached letter from bank of Amoveo. Please forward to our accounts for their reference.

Hi Tom, the bank guarantee needs to cover the entire sum of the advanced payment. I have no idea what the $379,600 [is for], please ensure that the Bank Guarantee will cover the full amount of the advance payment.

Hi Dan - I couldn't reach your number. Anyway the amount you wanted is $2,278,050. Also we did not send the letter Amoveo sent us to accounts. They processed it without the bank letter.

(MacDow paid Leemon the advance payment of 30% of the contract price (less 5% retention) in the amount of $2,380,562.25. It is that sum which is now the subject of MacDow's statutory demand).

31 On 25 January 2012, Mr Sofranovski of Leemon wrote to Mr Igo of MacDow. After detailing progress he states:

Please accept my apology in this instance however manufacture of the panels is with a contractor and we have been amidst the carnival time here in China. I further note that we had to return door entry panels due to 25mm oversize which has not assisted in this instance. Please be assured that the balance of the rooms will not be affected by this delay. Should you have any questions please contact me immediately.

32 The remainder of the spreadsheet is given over to a chronicle of communications concerning the progress of the project. It is clear that Leemon was attempting to obtain an alternative supplier to Modulus, the contractor who was to build the units for Leemon but which was not meeting timelines. It transpires that the bank guarantees to cover the down payment of 30% of the contract price and the guarantee to secure the performance sureties were never provided. Indeed, if it had been, there would have been no cause to serve the statutory demand as MacDow would have called up the guarantee.

33 It seems quite clear from the contemporary correspondence passing between the parties that Mr Vassos was well aware of the obligation to provide the bank guarantees to cover the 30% down payment and the performance sureties required under paragraph 10.1 but these were never provided. The only accommodation that MacDow made in this regard was to deduct 5% retention from the advance payment, resulting in the payment to Leemon of $2,380,562.25 which is, as I have said, the subject of the present demand.

34 Mr Vassos' affidavit of 12 July 2012 exhibits further correspondence in May 2012. On 21 May 2012, Mr Abbott of MacDow wrote to Mr Vassos requesting, among other things, "Copies of the required Bank Guarantees (30% contract value and 5% contract value)". After posing several other queries, Mr Abbott states:[17]

The remaining units are required on site immediately - the site has been prepared to receive them now.

35 On 23 May 2012, Mr Sofranovski, the general manager of Leemon, wrote to Mr Mills and Mr Abbott at MacDow (and circulated that email to Mr Vassos). Under the heading "Copies of the required Bank Guarantees (30% contract value and 5% contract value)", Mr Sofranovski states:

This was not processed as we were awaiting Modulus to forward their Bank Guarantee which formed part of ours. This has been requested on numerous occasions to Modulus and was never completed. 5% of the payments was retained by MacDow on moneys paid out to Amoveo.

36 On 27 May 2012, Mr Mills of MacDow wrote to Mr Sofranovski and Mr Vassos stating:

Bobby, as it stands Amoveo has not met any of its contractual obligations, and yet you have been paid $3 million. You indicate you will try to get our money back thereby reducing the overall cost to MacDow.

Firstly, what happens to the residual amount that you current have in your

bank account (i.e. the money taken from us but not paid out?) When can we expect to receive that. Can I pick it up Monday?

Secondly, what pain is Amoveo prepared to take in this new deal which sees us simply contracting with another for what MacDow contracted to you to do. Why wouldn't MacDow simply come after Amoveo and its directors for you [sic] misleading and deceptive conduct to date.

I am sure you realise how serious this is? So far I have not seen anything that indicates Amoveo is going to do anything about what MacDow is owed.

Please advise so we may consider further. It is our intention to bottom out our intentions Monday. Answers to the above will be instrumental in that decision.

Regards, Geoff.

37 On 28 May 2012, Mr Mills again wrote to Mr Sofranovski (circulating that email to Mr Vassos) stating:

Bobby,

I have not had a response to my last email. Simply put:

Is Amoveo going to return any of the moneys paid to it by MacDow or alternatively provide the Bank Guarantees for the 5% performance surety and 35% [sic] advance payment, that it is contractually obligated to provide?

Is Amoveo going to provide the units it is contracted to MacDow to provide (which might be through Starhouse). As it stands it appears Amoveo intends to retain the moneys paid to it by MacDow and expects MacDow to be prepared to enter into another separate contract with Starhouse where MacDow is to be liable for the full cost of that contract. This cannot be a realistic expectation by Amoveo. Please explain? MacDow is not responsible for moneys that Amoveo has paid to its sub-suppliers or expenses Amoveo might incur in dealing with this matter due to its own default.

I am under considerable pressure to bring this matter to a conclusion today. If I do not here [sic] from you with positive news this morning I shall take steps to protect MacDow's interests to the fullest extent possible.

Regards, Geoff.

38 Shortly afterwards, on that same day, 28 May 2012, Mr Sofranovski responded to Mr Mills' email of Sunday, 27 May 2012. In response to the question and observation in Mr Mills' email, "I am sure you realise how serious this is? So far I have not seen anything that indicates Amoveo is going to do anything about what MacDow is owed", Mr Sofranovski stated:

As per discussion with Tom on Friday afternoon the entire matter has been sent to our legal team who is assessing the current situation between Amoveo and Modulus. In the eight years of trading, Amoveo has never had a situation like this ever occur and have been taken for a ride throughout this whole ordeal. A meeting also took place between the directors of Amoveo and Modulus in an attempt to see if a resolution could be worked in place whether Modulus Group would assist in the shipping of the units and covering the financial aspect which in talks at the moment.

Geoff, I hope the above answers show the amount of thought and works put behind this proposal and that we do understand the seriousness of MacDow's possible proceedings against Amoveo. We are trying to offer the possible solution in conjunction with both the Starhouse Group as well as the Samuel Group to complete the project at hand and offer any assistance we can to MacDow along the way as well as the future.

39 On 28 May 2012, MacDow served a notice on Leemon pursuant to clause 29 of the Major Supply Agreement. The notice required Leemon to remedy breaches of the MSA or otherwise show cause why MacDow should not terminate the MSA. The breaches are specified in the notice. The first breaches involve material departure from the date for delivery without reasonable cause or MacDow's approval. The particulars provided under that breach referred to the date for delivery as being 9 February 2012 and the assertion there had been a failure to comply with this. In addition, it is contended that Leemon failed to carry out its obligations under the MSA with diligence and due expedition. Thirdly, it is stated that Leemon failed to provide a performance surety for 5% of the price within 28 days as required by clause 10.1 of the MSA and failed to provide a surety or a bank guarantee for 30% of the price as required by Item 13 of the Schedule to the MSA. MacDow states that after the elapse of seven days of the giving of this notice if Leemon failed to remedy the breaches, MacDow may exercise its right to terminate the MSA under clause 29.

40 The notice appended a schedule which was a table which summarised emails passing between the parties between 11 December 2011 and 12 May 2012. Among the significant emails are the following:

The following three items have now become critical and need your urgent attention. A response by 12.00 noon 12 December 2011 would be highly appreciated.

3. Accommodation Units-progress reports. Christian Tumaru had been communicating with Robbie for sending a status report with some progress photos (so that we can update Fluor on the progress). Your urgent response is expected on this, you would appreciate that this is the only way we can keep Fluor advised that everything is going to....

1. Can you please confirm that a load out will happen of 25 buildings from China before 31 January 2011. If so, could you send us a bill of lading or shipping document so that we can show Fluor and keep them happy.

A similar request was made in respect of screw piers.

41 On 29 May 2012, Mr Mills again wrote to Mr Sofranovski stating:

We would remind Amoveo of its contractual obligations to MacDow.

Your comments regarding Starhouse and Samuel Group (SSG) amount to no more than putting us in touch with another contractor that might be able to assist MacDow in securing units if you are not able to do so. Shouldn't Amoveo be considering this option directly with SSG since it is Amoveo that has contracted with MacDow to provide and deliver units and are now in default of that obligation (as well as other obligations).

You appear to be advising me Amoveo does not have an alternative supplier and are therefore unable to meet any of its commitments under our Supply Agreement. Is that correct?

Hopefully Amoveo will be able to honour its contractual obligations to MacDow and rectify the current breaches and defaults we complain of. We await in earnest as to your advice regarding these issues.

42 On 29 May 2012, Mr Sofranovski responded to Mr Mills. He stated:

We understand that we have been put on notice and have seven days to respond to all legal remedies as per "notice pursuant to clause 29 of the major supply agreements".

This has now been passed on to our legal team and we will respond accordingly within the said time period indicated by MacDow.

43 On 30 May 2012, Mr Mills wrote to Mr Sofranovski. He stated:

MacDow requires that Amoveo performs its obligations in accordance with the Major Supply Agreement. So far Amoveo has materially departed from the date for the delivery without reasonable cause or MacDow's approval, failed to carry out its obligations under the MSA with due diligence, failed to provide performance surety for 5% of the price and failed to provide surety or a bank guarantee for 30% of the price.

44 Mr Sofranovski then goes on to outline proposals involving alternative suppliers. On 31 May 2012, Mr Sofranovski wrote to Mr Mills. He stated:

We understand that Amoveo has to perform all its obligations in accordance with the Major Supply Agreement for supply and delivery of accommodation units. As mentioned in past correspondence the non-supply of units as per production schedules were due to misleading information from our supplier which in turn has caused Amoveo not to be able to meet the dates as previously stated. This information has been passed on to our legal team and we understand that Amoveo is still required to respond to MacDow's notice under clause 29 of the MSA.

Amoveo's problems with its sub-suppliers is a matter for it and does not excuse performance of Amoveo's obligations under the Major Supply Agreement and I would draw your attention in particular to clause 31.1 of the MSA in that regard.

The units you appear to be offering as a substitute by Samual/Starhouse Group are not to specification and have not been accepted by our client.

Additionally the time frame proposed for delivery is not acceptable nor are the conditions concerning purchase as advised to us by you.

You also appear to be expecting MacDow to pay additional moneys that are clearly to Amoveo's account. This is also not acceptable. In short, what you are proposing is not acceptable to MacDow.

We await your response to MacDow's clause 29 notice. MacDow reserves all its rights.

Regard, Geoff.

46 On 4 June 2012 Mr Bell, the solicitor for Leemon, wrote to MacDow in response to the notice pursuant to clause 29 of the MSA. In paragraph I of that letter, it was contended that in respect of the completion date, MacDow had acknowledged and accepted that the completion date would be delayed past 9 February 2012. As regards paragraph 5(iv) of the notice which raised a failure to provide the guarantee for 30% of the price is required by item 13 of the schedule to the MSA, Mr Bell stated:

Denied.

As per email correspondence from Daniel Foxwell, organisation of a "bank guarantee" for 30% was to be obtained through the sub-supplier which was continuously requested. As per particular III, a 5% retention was made by MacDow of the invoice paid out to Amoveo and no further action or requests were made by the MacDow group in relation to item 13 of the schedule to the MSA.

47 On 7 June 2012, MacDow issued a Notice of Termination upon expiry of the notice it had served on 28 May 2012.

48 Mr Clarke, counsel for the plaintiff, submitted that the MSA contained no requirement to provide a bank guarantee to secure the part payment. I do not accept that submission. As will be seen from the schedule to the agreement which provides for it and the communications extracted above whereby MacDow pressed Leemon to provide the guarantees, Leemon's representatives implicitly accepted that it was a requirement to provide such guarantees without demur. To my mind, any doubt about Leemon's knowledge of the obligation to provide the guarantees under the terms of the MSA is overwhelmed by the communications which ensued after the agreement was entered into.

49 In my view, the failure to provide such guarantees entitled MacDow to serve the notice pursuant to cl 29 of the MSA on 28 May 2012 and to terminate the agreement upon expiry of that notice.

50 Further, the terms of the MSA made provision for delivery of the units on 9 February 2012. As I have said, I do not accept Mr Vassos's evidence that the schedule was not incorporated into the MSA. I accept the evidence of Mr Foxwell that Mr Vassos was provided with a hard copy of the MSA which included the relevant schedule on 28 October 2011 and he was subsequently provided with an email version of it on 1 November 2011.

51 The communications above demonstrate that MacDow was on Leemon's case early in the piece in respect of non-compliance with this term of the MSA, which was a critical one. Leemon's response to those complaints was to apologise and describe a quest on its part to identify an alternative supplier to Modulus, the contractor engaged to produce the units by Leemon who had failed to do so. None of the communications revealed disagreement or surprise with the complaint by MacDow regarding compliance with the time lines of the MSA.

52 In its written submissions, Leemon contends that between 18 November 2011 and 7 June 2012 Leemon sought to perform its obligations to supply the required accommodation units by the time the relevant site was ready for them (expected to be in August 2012), but Macdow refused in June 2012 to accept such performance. Leemon says in performance of the MSA it expended $1,260,270 upon the proposed manufacture of the accommodation units, expended moneys upon design works and expended other moneys specified in Mr Vassos's affidavit, all totalling $2,329,412.59. Leemon says that during the period November 2011 to June 2012 it expended almost all of its resources in meeting the requirements of Macdow in the expectation of a very substantial profit of more than $2.2 million. It says that having regard to these matters, the sum of $2,380,562.25 is not and was not at the date of the demand of debt due and payable to the defendant "on a more than plausible basis".

53 I reject these submissions. The fact that Leemon was seeking to perform its obligations to supply the units by the time the relevant site was ready is not to the point. It was in breach of the MSA by reason of failure to provide the guarantee and, just as significantly, to deliver the accommodation units by the time contracted and Macdow was entitled to serve the notice of breach and terminate the MSA in June 2012. Further, the fact that Leemon expended funds upon the manufacture of the units is not to the point. The fact that those funds were expended in an attempt to comply with its obligations under the MSA is not relevant in my view as to whether it has performed its obligation under the MSA. The fact it expended almost all of its resources in the expectation of a substantial profit is also not at all to the point.

54 At the end of the day, the MSA is a contract for the delivery of goods by a specified date. Leemon failed to comply with the terms of the MSA in regard to the delivery of the units.

55 Mr Clarke also submitted that the claim made in the demand is not a "debt" properly so called within the meaning of s 459G of the Act and therefore cannot be the subject of a statutory demand. Mr Clarke says in his written submissions that repayment of a payment made under the MSA is only claimable by way of a claim in unjust enrichment where there has been, among other things, payment made upon a consideration that has totally failed. He contends that this cause of action cannot be characterised as a debt due and payable which can be subject of a statutory demand. I do not agree with that submission. The concept of what can constitute a "debt" within the meaning of s 459E of the Act was considered by Master Newnes in HL Diagnostics Pty Ltd v Psycadian Pty Ltd.[18] A statutory demand had been served on the plaintiff in respect of several separate alleged debts. One of those debts was the sum of $100,000 which was said to have been overpaid to the plaintiff for a parcel of shares. The plaintiff accordingly received $100,000 as money had and received for no valuable consideration. The plaintiff contended in its application to set aside the demand that the claim for $100,000 was not a debt within the meaning of s 459E on the basis that it was a restitutionary claim. At paragraphs 27 to 31 of the judgment, Master Newnes surveyed the authorities on the concept of the meaning of the word debt within s 459E. He stated:

There is no definition of "debt" in the Corporations Act, but there is authority for the proposition that the term bears its common law meaning: Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64. It is clear that at common law a debt is distinct from a liability in damages or some other unliquidated obligation: Commonwealth Bank of Australia v Butterell (supra), Jelini Pty Ltd v Johnson (1987) 5ACLC 463. The essence of a debt at common law is an obligation of one person to pay a certain, or liquidated, sum to another: Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560 at 567. That is, the characteristic of a debt is that it is a liquidated sum of money which is immediately payable or which, by reason of a present obligation, will become payable in the future: In Re European Life Assurance Society (1869) LR 9 Eq 122 at 127; Webb v Stenton (1883) 11 QBD 518 at 526; Re Australia and New Zealand Savings Bank Ltd [1972] VicRp 79; [1972] VR 690 at 692. In Rothwells Ltd v Nommack (No 100) Pty Ltd (1990) 2 Qd R 85 (at 86) McPherson J described a debt, for the purposes of a statutory demand, as a liquidated sum in money presently due, owing and payable by one person, called the debtor, to another person called the creditor.

In Hawkins v Bank of China (1992) 26 NSWLR 562, in considering the meaning of the word "debt" in s 556 of the Corporations Law, Gleeson CJ observed (at 572) that the word "debt" is not a word of precise and inflexible denotation and, wherever it appeared in s 556, it ought to be applied in a practical and commonsense fashion, consistent with the context and the statutory purpose. That observation appears to me, with respect, to be equally applicable to s 459E of the Corporations Act. See also Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514, where O'Connor J (at 1535) said:

Where an ambiguity arises as to whether the legislature has used a general expression in its narrow or in its wider sense, the Court will place that meaning upon the expression which will most effectually carry out the object of the section. In such cases it becomes necessary to examine the context, the subject matter and the object and purpose of the enactment as disclosed by its provisions.

In Fibrosa Spolka Akcyhna v Fairbairn Lawson Combe Barbow Ltd [1942] UKHL 4; [1943] AC 32 at 63, the House of Lords described the right of recovery upon a total failure of consideration as follows:

The gist of the action is a debt or obligation implied, or more accurately, imposed, by law in much the same way as the law enforces as a debt the obligation to pay a statutory or customary impost.

The right in Australia to recover payment made for a consideration which has failed or by mistake is now more accurately expressed in the language of restitution, based upon concepts of unjust enrichment: Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (19988) 164 CLR 662 at 673; Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 at 375; David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353; Roxborough v Rothmans Pall Mall Ltd (2001) 208 CLR 516. While it is the case that a claim for restitution is different from a claim for debt under contract, the emphasis in the former being on the position of the beneficiary rather than the loss sustained by the claimant, in my view, having regard to the present context and statutory purpose, the differences are not material. I do not consider that for the purposes of s 459E anything turns on the precise nature of the right available to the claimant to recover a sum of money, so long as the sum of money has the characteristics of a debt and is due and payable to the claimant.

In my view, a liability of the plaintiff to pay to the defendant money as the result of an overpayment made by the defendant to the plaintiff would be a debt within the meaning of s 459E(1) of the Corporations Act.

56 Mr Clarke submitted that there had been no failure of consideration by reason that between 28 October 2011 and 21 June 2012, Leemon obtained the design of the 106 accommodation units, assisted with the construction of the foundations for them, and then supplied and performed other associated works. He says for this reason it cannot be contended there has been a total failure of consideration.

57 The MSA required delivery of a specified number of 106 accommodation units and it is common ground that not a single unit has been delivered. The fact that Leemon embarked on the process of attempting to perform its obligations under the MSA and expended moneys in that process is not in my view provision of consideration in the relevant sense. Macdow has received nothing in material terms for the payment it made. This submission also ignores the requirement to have completed the accommodation units in February. It says that in its performance of the MSA, Leemon expended $1,260,270 upon the proposed manufacture of the accommodation units, expended moneys upon design works and expended other moneys as specified in sub-paragraph 10(d)(ii) of the Vassos affidavit of 12 July 2012, all totalling $2,329,412.59. In addition, it says during that period Leemon expended almost all of its resources in meeting the requirements of MacDow in the expectation of a very substantial profit of $2.2 million.

58 I consider that MacDow was entitled to serve the termination notice which was not complied with. It is not to the point that Leemon has expended some or all of the funds provided to it by MacDow as a part payment in an attempt to perform its obligations under that contract. It is also beside the point that Leemon has difficulties with its own contractors in performing obligations they may have had to Leemon. I consider that on application of the authorities referred to by Master Newnes in HL Diagnostics which are referred to above, that the claim made by MacDow in the demand meets the characterisation of a debt within the meaning of s 459E being a claim based on total failure of consideration.

59 Leemon contends in its submissions that if the Court finds that the debt claimed in the demand is a debt which is due and payable, then it has offsetting claims available to it. Leemon says that in its performance of the MSA it expended $1,260,270 upon the proposed manufacture of the accommodation units, expended moneys upon design works and expended other moneys as specified in Mr Vassos' affidavit of 12 July 2012. Those sums are said to total $2,329,412.59. For reasons which I have touched on above in respect of the argument concerning total failure of consideration, I do not consider an offsetting claim of the type is available to Leemon. The MSA was a contract for the supply of goods which MacDow, in my view, validly terminated for the reasons stated above. I do not consider that Leemon can have a claim against MacDow for its attempts to perform the agreement. Clause 29.2 of the MSA which is extracted above, provides that MacDow's only liability under the MSA is for goods delivered. No units were delivered.

60 As for the claims allegedly owing under the design agreement mentioned in paragraphs 16 to 19 of Mr Vassos' affidavit of 12 July 2012, any alleged breach on the part of MacDow was in respect of a contract with Amoveo Pty Ltd, not Leemon, and cannot give rise to an offsetting claim. The moneys said to be owing with regard to the footing system which are the subject of paragraphs 20 to 26 inclusive of Mr Vassos' affidavit likewise in my view do not give rise to an offsetting claim. As Mr Vassos says at paragraph [20] of his affidavit, there are no moneys currently claimed to the suppliers with whom Leemon has contracted in regard to the footing system. No such claim presently exists.

61 In paragraph 12 of Mr Vassos' affidavit of 12 July 2012, he asserts that if the MSA was ongoing and completed by late August 2012 the company would have received funds totalling more than $10,300,000 with regard to the agreement and other associated works. He states that as a result he believes that the company would have received a gross profit of more than about $2.2 million, "although again I may be marginally incorrect about this in the absence of the company accountant". That claim, in my view, is not developed upon mere assertion. I agree with Mr Archibald of counsel for MacDow that the evidence of the claim is so vague, speculative and conclusionary as to be inadmissible or of no weight.

62 In the circumstances, I consider that Leemon has no offsetting claims available to it which should result in reduction of the amount demanded or the demand being set aside in total.

63 For the reasons expressed above, I consider that MacDow was entitled to serve a demand in respect of the debt claimed in the demand. It had the character of a debt within the meaning of s 459E of the Act. While the MSA is an elaborate document, at the end of the day, when the evidence is distilled to a succinct form, it was a contract for the supply of goods which contained provisions requiring completion by a specified date and certain other terms, including the provision of guarantees to secure the part-payment by MacDow. The terms of the MSA and the communications which passed between the parties subsequent to the formation of that agreement result, in my view, that Leemon has not established it has a genuine dispute in respect of the debt claimed in the demand.

64 I do not consider that the case is of the type the subject of consideration by Young J (as he then was) in John Holland. In that case, as his Honour observed, if it could be seen from the conduct of the parties that there was an honest dispute between them, then that dispute should be resolved in the ordinary courts and not by service of a statutory demand. This was not a case involving a disagreement about the value of work done or things of that sort. It is to be remembered the Leemon bears the onus of establishing on an application of the relevant tests that it has a genuine dispute and/or an offsetting claim in respect of the debt claimed and the demand. I consider that on a consideration of the evidence and an application of the authorities extracted above, that the disputes and offsetting claims raised are not genuine.

65 I will order that the plaintiff's application be dismissed and that the plaintiff pay the defendant's costs, including reserved costs.

[1] [2008] VSCA 70; (2008) 66 ACSR 67 ("TR Administration").

[3] (1994) 12 ACSR 785 (citations omitted).

[5] TR Administration [2008] VSCA 70; (2008) 66 ACSR 67, [65]-[66], [69]-[70] (citation omitted).

[6] Ibid [71]-[82] (citations omitted).

[7] (1994) 14 ACSR 250 ("John Holland").

[11] Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270, [3]-[4]

[12] (1993) 11 ASCR 601, 605.

[13] See affidavit of Dale John Morrison sworn 31 July 2012.

[18] [2005] WASC 234.