Plaintiff v Defendant

1. This is an application pursuant to ss 459G and 459H of the Corporations Act 2001 (Cth) ('Corporations Act') to set aside a statutory demand on the basis that there is a genuine dispute and/or offsetting claim in respect of the debt the subject of the demand, or alternatively, that it should be set aside for 'some other reason' under s 459J on the basis that it was served in an abuse of process.
2. The plaintiff and the defendant are parties to a contract by which the plaintiff engaged the defendant to undertake joinery works for a residential development project for $650,000 plus GST ('Subcontract').[1] All sums referred to in this ruling are exclusive of GST.
3. The demanded debt is said to arise from a term in the Subcontract requiring the plaintiff to pay the sum of $32,500 upon the plaintiff's approval of shop drawings. Attachment 3 of the Subcontract outlines the scope of works, and includes a breakdown of contract rates in Part 4 ('Contract Rates Breakdown'). In this section, there is an entry for 'shop drawings' priced at $32,500, the payment terms of which state: '$32,500 - Upon shop drawings approval'.[2]
4. It is not in dispute that the plaintiff approved the shop drawings on 18 December 2023.[3] On 19 December 2023, the defendant issued an invoice for $32,500 for the shop drawings.[4] The invoice states that it is a payment claim made under the Building and Construction Industry Security of Payment Act 2002 (Vic) ('SOP Act'). It is also not in dispute that in response, the plaintiff issued a payment schedule dated 19 December 2023, which identified that the plaintiff approved the defendant's payment claim in full ('December Payment Schedule').[5] The December Payment Schedule states that it is 'in accordance with SOP Act'.
5. The plaintiff did not make payment pursuant to the December Payment Schedule, and the defendant did not undertake any further work pursuant to the Subcontract.
6. On about 14 February 2024, the plaintiff received the statutory demand dated 5 February 2024 which is the subject of this proceeding. However, no affidavit in support was served with the demand, and the demand was withdrawn by the defendant on 5 March 2024.[6]
7. On 4 March 2024, the plaintiff terminated the Subcontract pursuant to its contractual right to terminate at will.[7]
8. Also on 4 March 2024, the plaintiff issued a second payment schedule ('March Payment Schedule'). The March Payment Schedule refers to the $32,500 payable pursuant to the December Payment Schedule, but provides that the 'Total Approved Amount' is '$(24,500.00)'. It states:[8]

The amount that was previously certified was for a 5% amount being the amount to cover for both shop drawings & deposit. The shop drawings amount assessed is $8,000.00 +GST, as the only approved amount.

1. On or about 12 March 2024, the defendant served the statutory demand dated 5 February 2024 on the plaintiff together with a supporting affidavit dated 8 February 2024.[9]
2. The debt is described in the schedule to the demand as:

A debt that arose in consideration of shop drawings the creditor completed for the debtor company pursuant to a construction contract dated 2 October 2023, and subsequently issued payment claim and tax invoice INV-0210 in the amount of $35,750.00.[10]

1. The plaintiff contends that the statutory demand should be set aside under s 459H of the Corporations Act because there is a genuine dispute as to whether the $32,500 payment was intended to be in the nature of a deposit. The plaintiff says that it is entitled to have the Subcontract rectified to reflect the parties' intention that the payment is a deposit. The plaintiff says that it has offsetting claims under the Australian Consumer Law against the defendant for misleading and deceptive conduct in representing that the shop drawings payment is not a deposit and is payable irrespective of whether any materials have been bought and paid for. The plaintiff also makes an offsetting claim in respect of the costs of responding to the statutory demand and this proceeding. Finally, the plaintiff contends that the demand was issued in an abuse of process, as at the time it was served, the defendant had received the March Payment Schedule, and was aware of the genuine dispute. The plaintiff submits that because of this, the demand ought to be set aside for 'some other reason' pursuant to s 459J(1)(b) of the Corporations Act.
2. In support of its application, the plaintiff relies upon the affidavits of its sole director, Theodore Abel Kerlidis, which were filed on 2 April 2024 and 21 June 2024 (referred to as 'Kerlidis 1' and 'Kerlidis 2' respectively), and its written submissions filed on 21 June 2024, 10 July 2024, and 24 July 2024.
3. The defendant says that there can be no genuine dispute in respect of the debt, as the shop drawings invoice was a valid payment claim under the SOP Act, to which the December Payment Schedule responded. The defendant submits that s 17(2) of the SOP Act applies, such that the plaintiff's failure to make payment of the scheduled amount set out in the December Payment Schedule by 30 January 2024 gives rise to a debt due to the defendant. The defendant submits that statutory demands for debts validly arising under the SOP Act may not be set aside on the ground that the debt is genuinely disputed. Rather, they may only be set aside where there are genuine offsetting claims. The defendant submits that the plaintiff's evidence is insufficient to establish a genuine offsetting claim.
4. In reply, the plaintiff submits that it is not open to the defendant to argue that the demanded debt is a statutory debt under the SOP Act, as the description of the debt in the statutory demand does not refer to the debt arising under the SOP Act. Alternatively, the plaintiff submits that there is a genuine dispute as to whether the shop drawings invoice was a valid payment claim under the terms of the Subcontract and the SOP Act, such that a debt does not arise under the SOP Act. The defendant submits that the plaintiff is 'Graywinter estopped' from raising a genuine dispute as to whether the shop drawings invoice was a valid payment claim, as this issue is not addressed in the plaintiff's affidavit in support of its application, Kerlidis 1.[11]
5. Regardless of the SOP Act, the defendant says that any dispute as to the existence or the amount of the debt is not genuine, as it is inconsistent with the plaintiff's conduct in issuing the December Payment Schedule, and because the plaintiff failed to contend that the debt was not due and payable in response to the defendant's requests for payment. In the alternative to the defendant's position that there can't be, or there is no, genuine, dispute with respect to the whole of the demanded debt, the defendant submits that there is no genuine dispute with respect to the $8,000 owing as set out in the March Payment Schedule.
6. The defendant relies upon the affidavits of its sole director and secretary, Nicholas McNamara, which were filed on 28 May 2024 and 17 July 2024, and its written submissions filed on 1 July 2024, 18 July 2024, and 22 July 2024.[12]

1. In the context of applications to set aside statutory demands for debts arising in connection with the SOP Act, the courts have found that where an application to set aside a statutory demand based on a debt validly arises under the SOP Act (or its interstate equivalents, which are in like terms), there can be no genuine dispute as to the existence of the debt raised under s 459H of the Corporations Act.[13] The grounds for setting aside a demand for an SOP Act debt are limited to offsetting claims.
2. In Re J Build Developments Pt Ltd,[14] Hetyey AsJ summarised the process associated with recovery of progress payments under the SOP Act, saying:[15]

In broad terms, the SOP Act provides a relatively expedient process for the recovery of valid 'progress payments' by persons who carry out work or supply goods and services in the construction industry.[16] It does so by granting contractors a statutory entitlement to recover 'progress payments' for work done or goods or services supplied through an established procedure.[17] The procedure involves the making of a progress claim by the contractor claiming payment ('the claimant'), the provision of a payment schedule by the person receiving the payment claim ('the respondent') which must identify any aspect of the claimed amount which is disputed, the referral of any disputed claim to an adjudicator for determination, the payment of the amount of the progress payment as adjudicated and the recovery of the progress payment in the event of a failure to pay.[18]

1. Section 17 of the SOP Act addresses where a debt arises under the SOP Act pursuant to a payment schedule that has been issued in response to a payment claim. As provided for in subsection (1), relevantly, s 17 applies if:[19]

(a) a claimant serves a valid payment claim on a respondent; and

(b) the respondent provides a payment schedule to the claimant within the time required by the relevant construction contract, or within 10 business days after the payment claim is served (whichever time expires earlier); and

(c) the payment schedule indicates a scheduled amount that the respondent proposes to pay to the claimant; and

(d) the respondent fails to pay the whole or any part of the scheduled amount to the claimant on or before the due date for the progress payment to which the payment claim relates.

1. Section 17(2)(a)(i) provides that in those circumstances, as set out in subsection (1), the claimant may:[20]

recover the unpaid portion of the scheduled amount from the respondent, as a debt due to the claimant in any court of competent jurisdiction...

1. Subsection 17(4) provides that if proceedings are commenced to recover the unpaid scheduled amount, judgment is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection 17(1). Further, it provides that in the debt recovery proceedings, the respondent is not entitled to bring any cross-claim or raise any defence in relation to matters arising under the construction of the contract.[21]
2. In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd,[22] the New South Wales Supreme Court noted that the inability to raise a genuine dispute in relation to a judgment debt obtained under the SOP Act applies 'equally to a debt that arises, as here, because the payment claim is accepted by the issue of a payment schedule or is not disputed within the period allowed by the SOP Act.'[23]
3. If there is a genuine dispute as to whether a debt arises under the SOP Act, the demand may be set aside. For example, a demand will be set aside where there is a genuine dispute as to whether the creditor's payment claim was validly issued under the SOP Act.[24] Absent this, a statutory demand may only be set aside in respect of a SOP Act debt if the company satisfies the Court that there is a genuine offsetting claim. For example, a cross-claim for damages for breach of contract, or recovery by way of restitution of amounts already allegedly overpaid.[25]

1. If the defendant's demand claims a debt due under the SOP Act, then under the authorities referred to above, the demand will only be able to be set aside on the basis that there is (a) a genuine dispute as to whether the defendant's payment claim was validly issued under the SOP Act; or (b) a genuine offsetting claim. Provided the debt validly arises under the SOP Act, the plaintiff will not be permitted to contend that it is genuinely disputed.
2. The need for a statutory demand to identify in an unambiguous way the nature of the debt demanded has been considered by courts on many occasions in the context of applications to set aside a demand under s 459J(1)(a) of the Corporations Act. That is, on the basis that the failure to properly describe the debt is a defect in the demand that causes substantial injustice. In Re Three Pillars Lynbrook Pty Ltd, Matthews AsJ (as her Honour then was) summarised that:

A statutory demand will contain a defect where the impugned statutory demand is so vague or ambiguous such that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree to enable the director to assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim. A statutory demand is required to unambiguously put the debtor company on notice of the matters required by the legislation, including the nature of the debt, a statement that the debt is due and payable, and an explanation as to how the amount claimed is composed or calculated.[26]

1. As Hetyey AsJ said in Re Simmoll Pty Ltd ('Re Simmoll'):[27]

Although a debtor company can be presumed to have some familiarity with relevant subject matter of the statutory demand, it is not obliged to speculate upon what it is that the creditor demands...whilst a failure to specify in a demand the precise legal basis of the debt claimed may constitute a defect, it will not necessarily be causative of substantial injustice sufficient to justify its setting aside.[28]

1. Where such a defect is found, the company may suffer the substantial injustice of having the presumption of insolvency raised against it because the company would have been placed in a position of not having understood the true claims asserted against it.[29]
2. In CM Luxury Pty Ltd v Menzies Civil Australia Pty Ltd ('CM Luxury'),[30] the Western Australian Supreme Court considered a statutory demand for a debt described as arising out of a building contract. However, in the defendant's outline of submissions opposing the application to set aside the statutory demand, the defendant accepted that there was no signed contract, and instead submitted that the debt arose upon a quantum meruit.[31] In response to this, the plaintiff submitted that the statutory demand ought to be set aside under s 459J(1) of the Corporations Act for the additional reason that there was a defect in the demand, because the demand described the legal basis of the debt as a contractual debt, which was not the basis of the debt now relied upon by the defendant. It was argued that there was substantial injustice to the plaintiff, or alternatively, the plaintiff sought that the demand be set aside on the grounds that the supporting affidavit failed to properly verify the debt now claimed.[32]
3. Seaward J found that if a debt is specified in the statutory demand in a manner which is inaccurate or misleading, then it will constitute a defect for the purposes of s 459J, in that it is a misdescription of the debt.[33] Her Honour found that even though the demand refers to the underlying nature of the work performed which was said to form the basis of the quantum meruit claim, the statutory demand was defective because it included inaccurate and misleading information about the legal basis of that debt.[34] Her Honour found that the defect caused substantial injustice, saying:

...the importance of an accurate description of the debt in the statutory demand, and the injustice that can result if this does not occur, is demonstrated by the manner in which the parties' respective submissions unfolded. When faced with the statutory demand, the affidavit evidence filed by the plaintiff, and their original submissions, were concerned with establishing that there was a genuine dispute as to whether a contract (and therefore a debt) existed at all. The plaintiff's affidavit evidence and submissions did not refer to a claim upon a quantum meruit (or any of the matters that may be relevant to a quantum meruit claim, including the reasonableness of the claimed amount). This is unsurprising as it is not referred to in the statutory demand and a claim in restitution based on a quantum meruit cannot co-exist with a claim based on an existing contract. In the present case a person in the position of the plaintiff would have no knowledge based on the wording in the statutory demand that the alleged basis of the debt was in fact on a quantum meruit. As outlined by Hetyey AsJ in Re Simmoll, a plaintiff should not be expected to guess what the demand relates to or the source of the obligation to pay. This is what has occurred in this case.[35]

1. Her Honour also found that, having regard to the restrictions on the plaintiff under the principles set out in Graywinter,[36] and the line of authorities that follow it, 'the importance of the specification used in the statutory demand being accurate and not misleading assumes even greater significance'.[37]
2. Here, the defendant's demand refers to the debt being for shop drawings completed 'pursuant to a construction contract dated 2 October 2023, and subsequently issued payment claim and tax invoice INV-0210 in the amount of $35,750.00'.[38]
3. The plaintiff submits that the failure to describe the debt as being due under the SOP Act in a clear and unambiguous manner, gives grounds to set aside the demand pursuant to s 459J(1)(a) of the Corporations Act, as the description of the debt was so vague that it did not enable the plaintiff to make an assessment as to whether there was a genuine dispute as to the existence or the amount of the debt.[39]
4. The defendant says that the demand is in respect of a SOP Act debt because the requirements of s 17(1) of the SOP Act have been met, in that the shop drawings invoice was a valid payment claim, to which the December Payment Schedule responded indicating a scheduled amount due to the defendant, which was due to be paid pursuant to the terms of the Subcontract by 30 January 2024.[40] As the 'scheduled amount' was not paid by 30 January 2024, the defendant says s 17(2) of the SOP Act applies, giving rise to a debt due to the defendant for the scheduled amount, being the debt set out in the statutory demand.
5. The defendant submits that the fact that the demand refers to the 'payment claim and tax invoice', and that the tax invoice itself states that it is a payment claim made under the SOP Act makes it sufficiently clear that the debt demanded is due under the SOP Act.[41]
6. I disagree. The legal basis on which the defendant says that a debt is due under the SOP Act is the failure to pay the scheduled amount set out in the December Payment Schedule. However, the statutory demand makes no reference to the December Payment Schedule, a 'scheduled amount' or the SOP Act. Rather, it refers to the unpaid invoice and payment claim issued pursuant to the Subcontract.
7. It would be unfair to the plaintiff for the defendant to be permitted to oppose the application to set aside the statutory demand on the basis that the debt is a statutory debt, where this was not expressly stated in the demand. The failure to identify that the debt was a statutory debt had the consequence that the plaintiff's director was not in a position to consider whether it genuinely disputed that this was a statutory debt. The defendant's assertion that the plaintiff is 'Graywinter estopped' from arguing that there is a genuine dispute as to whether there was a valid payment claim under the SOP Act only serves to highlight both the unfairness, and the need for a demand to accurately describe the basis of the debt claimed.
8. The plaintiff is in a similar position to the plaintiff in CM Luxury, in that the description of the debt fails to accurately state the nature of the debt relied now upon by the defendant.[42] Although, unlike CM Luxury, here the defendant maintains that irrespective of the SOP Act, the debt is due and payable on the basis set out in the statutory demand, that is, pursuant to the Subcontract and the unpaid shop drawings invoice. There is no suggestion that the demand is defective in its description of the debt as due under the Subcontract, the unpaid payment claim, and the shop drawings invoice.
9. In my view, in the context of the summary procedure for setting aside statutory demands and the requirements upon the defendant to identify in an unambiguous way the nature of the debt claimed, it is not open for the defendant to argue that the debt is due and payable pursuant to a payment schedule and a statute that are not mentioned in the demand.
10. Therefore, it is not necessary for me to consider whether the demanded debt is due under the SOP Act. It is also not necessary for me to consider the plaintiff's reply argument that there is a genuine dispute as to whether the payment claim was validly issued under the Subcontract and SOP Act; or the defendant's arguments that the plaintiff is 'Graywinter estopped' from raising this argument in reply.
11. As a consequence, this application will be considered on the basis of the debt as described in the statutory demand, and the plaintiff may contend that the demand ought to be set aside by reason of a genuine dispute, and is not limited to offsetting claims.

C Is there a genuine dispute or offsetting claim?

1. The principles concerning what constitutes a genuine dispute as to the existence or the amount of a demanded debt within the meaning of s 459H of the Corporations Act are well settled. The principles are summarised in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq),[43] and were recently restated in MSA Renex Corp Pty Ltd v Create Environment Pty Ltd.[44]
2. The Western Australian Supreme Court of Appeal reduced these principles to the following three propositions in CA & Associates Pty Ltd v Fini Group Pty Ltd:[45]
   1. The court's function is to determine whether there is a genuine dispute; the court is not expected to undertake an extended inquiry or attempt to weigh the merits of the dispute. It is not part of the court's function to resolve the dispute.
   2. It suffices if there is a 'plausible contention' requiring 'further investigation' - something that may be equated to the criterion of whether there is a 'serious question to be tried'.
   3. However, the applicant must establish that: (a) the dispute is bona fide and truly exists in fact; and (b) the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived.
3. As referred to in Re Simmoll,[46] these principles equally apply to the consideration of whether a statutory demand ought to be set aside for a genuine dispute, or whether a statutory demand ought to be set aside on the basis of an offsetting claim. In the case of an offsetting claim, the following additional principles also apply:[47]

(a) a genuine offsetting claim 'means a claim on a cause of action advanced in good faith, for an amount claimed in good faith'. In this context, '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;

(b) there must be some evidence to indicate the nature of the offsetting claim and the way in which it is calculated, including any loss which is said to arise;

(c) however, it is not necessary to particularise the offsetting claim to the last 'dollar and cent'. The evidence need only be sufficient for the Court to make an estimate of the amount of the offsetting claim, which must be capable of being quantified in monetary terms.

1. The offsetting claim must be in respect of a cause of action which has already accrued and presently exists at the time the s 459G application is made, and cannot relate to a cause of action which is not presently in existence.[48]

C.2 Is there a genuine dispute or offsetting claim re the payment being a deposit?

1. The plaintiff argued that there was a genuine dispute as to the existence or amount of the debt demanded. The plaintiff claims that the shop drawings payment was intended to be in the nature of a deposit to enable the defendant to purchase materials, and that therefore the defendant was not entitled to the shop drawings payment in circumstances where no materials were purchased, no other work was undertaken on the project and the Subcontract was terminated. The plaintiff contends that there is a genuine dispute as to the interpretation of the Subcontract with respect to the defendant's entitlement to the shop drawings payment.
2. As I understand the plaintiff's case, the same factual circumstance is relied upon by the plaintiff to give rise to an offsetting claim. Paragraph 16 of Kerlidis 2 addresses the plaintiff's offsetting claims, and states:

If [the defendant] had in the ordinary course commenced Court proceedings against [the plaintiff] to recover the alleged indebtedness, I would have instructed [the plaintiff's] lawyers to seek rectification of the agreement with [the plaintiff] to properly record that the initial payment was by way of deposit, with no amount specific to the drawings, in line with the Contract Quote. I believe that [the plaintiff] would have strong prospects that it would make out such a defence. I would have also instructed the lawyers to bring an Australian Consumer Law claim against [the defendant] for misrepresenting the true nature of the shop drawing claim and seeking to maintain that the sum of $35,750 is a sum due and payable as a whole from [the plaintiff] irrespective of whether any materials have been brought and paid for, work performed, or the like.[49]

1. It is apparent that the offsetting claim raised by the plaintiff for rectification of the Subcontract, and also pursuant to the Australian Consumer Law claim arise from the plaintiff's contention that the shop drawings payment was agreed to be in the nature of a deposit.
2. Whether the plaintiff's grounds for setting aside the statutory demand are considered as genuine disputes, or offsetting claims, the factual basis is the same. It is therefore convenient to consider whether the plaintiff's contention as to the nature of the parties' agreement gives rise to a genuine dispute and/or an offsetting claim. This was also the manner in which the defendant's counsel responded to the plaintiff's arguments. The defendant's counsel submitted that there was no genuine dispute as to the existence or the amount of the debt and, further, that the plaintiff had not established a genuine offsetting claim through its contention as to the true nature of the parties' agreement and associated right to rectification.[50]
3. I accept that the evidence of the communications between the parties gives rise to a genuine and reasonably arguable dispute between the parties as to whether the shop drawings payment was intended to be in the nature of a deposit for the purpose of purchasing materials.
4. The plaintiff has articulated the basis of its arguments in this regard by reference to the conduct of the parties prior to entry into the Subcontract. The plaintiff relies upon the following evidence from Mr Kerlidis as to the dealings between Mr McNamara on behalf of the defendant and Mr Karama, who at the time was employed by the plaintiff as a contract manager:[51]

During the contract negotiations, Mr McNamara raised with [the plaintiff's contract manager] that it would be difficult to get credit with suppliers and that in order to be able to order materials to start the works, he would need a payment in the nature of a security deposit to assist him with ordering materials...

Mr Karama and I discussed how such a payment could be facilitated. Mr Karama informed me that he had discussed with Mr McNamara, recording in the contract a payment for shop drawings of circa $35,000 to enable a deposit to be paid.[52]

1. The plaintiff points to the correspondence from the defendant at the time it issued the shop drawings invoice which states:

Once this invoice is paid I will be able to order up the materials to get us started. We will face challenges as discussed when getting credit for this job given the issues in the background with payments not being made in the past. I intend to use the shop drawing payment to get us started and from there on all going well we can get some work done and put in another claim and keep pushing forward that way.[53]

1. This correspondence is consistent with the plaintiff's contention that the parties had agreed that the shop drawings payment would be in the nature of a deposit to enable the defendant to purchase materials.
2. The ordinary meaning of a deposit is that it is payable at a particular time, but may be the subject of future clawback. This is consistent with the plaintiff's conduct in issuing the December Payment Schedule which provides for the payment to be made in full.
3. The contention that the payment was to be in the nature of a deposit is consistent with the evidence that (a) no separate cost was attributed to the shop drawings in the defendant's quotes;[54] and (b) the plaintiff's evidence that the value of the shop drawings is far less than the $32,500 claimed, whether by reference to the plaintiff's assessment of value set out in the March Payment Schedule of $8,000, or the estimate provided by Mr Kerlidis based on his experience.[55]
4. It is also consistent with the plaintiff's construction of clause 46 of the Subcontract. On the plaintiff's construction, clause 46 provides for shop drawings to be at the defendant's cost. Clause 46 states:[56]

The Subcontractor must prepare and obtain at its own cost, shop drawings of the Works as required by the Subcontract Documents or as Directed by the Contractor.

1. However, as noted earlier, the Contract Rates Breakdown appears to show a separate price for the shop drawings of $32,500, payable upon their approval. The Contract Rates Breakdown is reproduced below:[57]

Payment terms (as per PART A - SCHEDULE OF ITEMS TO GENERAL CONDITIONS OF SUBCONTRACT)

1. Refer to "PART A - SCHEDULE OF ITEMS TO GENERAL CONDITIONS OF SUBCONTRAC") [sic]

1. To the extent that there is an inconsistency between clause 46 and the Contract Rates Breakdown, the plaintiff relies upon clause 1 of the Subcontract Formal Instrument. This clause lists the documents that comprise the Subcontract in order of precedence, with the Standard Conditions of Subcontract taking precedence over the remaining annexures. Clause 1 states:[58]

The Subcontractor and the Contractor agree that the agreement between them comprises the following documents set out in order of precedence: (a) This Subcontract Formal Instrument; (b) Project Requirements (but only on the basis set out in Item 9 of Part A); (c) Standard Conditions of Subcontract (inclusive of Parts A-H); (d) Specifications; (e) Plans; (f) Scope of Works; and (g) Subcontract Program (collectively, the 'Agreement').

1. The plaintiff argues that having regard to the terms of clause 1, clause 46, which is contained in the Standard Conditions of Subcontract, takes precedence over the Contract Rates Breakdown provided for in Part 4 of Attachment 3, such that the Contract Rates Breakdown may be ignored to the extent that it provides a price for the shop drawings.
2. In my view, the plaintiff's construction of clause 46 of the Subcontract is reasonably arguable and consistent with the plaintiff's contention that the shop drawings payment was intended to be in the nature of a deposit.
3. The defendant contends that Part 4 of Attachment 3 to the Subcontract is clear in its requirement that $32,500 be paid upon approval of the shop drawings, and makes no mention of a deposit. The defendant says that the $32,500 amount for shop drawings can be reconciled with the requirement in clause 46 of the Subcontract that the defendant must prepare and obtain the shop drawings at its own cost. It points to the last six words of the clause, where it states 'or as Directed by the Contractor',[59] and contends that this permitted the plaintiff to direct that it would pay for the shop drawings, which it has done so by way of the Contract Rates Breakdown.
4. I do not accept the defendant's argument that the claim for rectification of the Subcontract is not arguable by reason of a lack of common intention. The plaintiff has referred to written correspondence from the defendant which is consistent with the contention that the shop drawings payment was intended to be in the nature of a deposit to enable the purchase of materials. The defendant's arguments against rectification and with respect to how the Subcontract ought to be interpreted may ultimately succeed at a trial on the merits, but I do not think they demonstrate that the plaintiff's contentions are spurious, hypothetical, illusory or misconceived, such that the low bar of genuine dispute is not satisfied.
5. Further, in my view, the plaintiff's conduct in failing to dispute that the debt was due and payable in January 2024 does not demonstrate that the dispute is not genuine. Rather, this conduct can be reconciled as being consistent with the plaintiff's view that the payment was intended to be in the nature of a deposit, as at that point, the Subcontract had not been terminated.
6. It is common ground that the works (other than the shop drawings) were never completed and the Subcontract was terminated. The defendant does not dispute that it did not purchase any materials for the purpose of undertaking the works contemplated by the Subcontract. I am satisfied that there is a plausible contention that in those circumstances, the defendant may not be entitled to the full amount of the shop drawings payment.
7. The plaintiff's conduct in issuing the March Payment Schedule concurrently with its notice of termination of the Subcontract is also consistent with its contention that the shop drawings payment was intended to be in the nature of a deposit. This is because the March Payment Schedule was issued at a point in time when it could be expected that no further work would be performed by the defendant pursuant to the Subcontract. On its face, the March Payment Schedule identifies that the $32,500 amount under the December Payment Schedule was payable, but that it was subject to a clawback in the amount of $24,500 from the defendant. It reflects that the plaintiff values the work undertaken in respect of the shop drawings in the amount of $8,000. This can be seen from:[60]

(a) item 7 of the March Payment Schedule, which refers to the amount payable pursuant to the December Payment Schedule, being $32,500.00;

(b) the 'Total Approved Amount' and the 'current payment due' (item 8) of the March Payment Schedule, which both provide the figure '$(24,500.00)'. I infer that the brackets are intended to indicate a negative number, such that the plaintiff has assessed that the defendant owes an amount of $24,500. This could only be the case if the plaintiff was indebted to the defendant in respect of the scheduled amount set out in the December Payment Schedule of $32,500;

(c) item 4 of the March Payment Schedule, which refers to the 'total completed and stored to date' as $8,000, being the value of the shop drawings; and

(d) the explanation set out on page 1 of the March Payment Schedule which states:[61]

The amount that was previously certified was for a 5% amount being the amount to cover for both shop drawings & deposit. The shop drawings amount assessed is $8,000.00 +GST, as the only approved amount.

1. The plaintiff's director gives evidence that the March Payment Schedule certified the amount of $8,000 for payment of the shop drawings.[62]
2. There is a dispute between the parties as to whether the plaintiff is permitted under the Subcontract to issue the March Payment Schedule which, in effect, contends that a lesser amount is owed than that set out in the December Payment Schedule.
3. The plaintiff submitted that it was permitted to issue the March Payment Schedule pursuant to clauses 29 and 118 of the Subcontract.
4. Clause 29 provides that:[63]

The [plaintiff] may, without limiting any other right which it may have under the Agreement or at law, at any time and from time to time, deduct from moneys otherwise due, or which may become due, to the [defendant], whether such amounts are included in a Payment Schedule or not: ... ; and

Failure by the [plaintiff, as Contractor] to set out in a Payment Schedule or otherwise an amount which the [plaintiff] is entitled to retain, deduct, withhold or set-off from the amount which would otherwise be payable to the [defendant, as Subcontractor] by the [plaintiff] will not prejudice ... the [plaintiff's] ability or power to set out in a subsequent Payment Schedule an amount which the [plaintiff] is entitled to retain, deduct, withhold or set-off ...

1. The defendant submits that pursuant to clause 112 of the Subcontract, payment schedules may only be issued in response to payment claims. Relevantly, clause 112 provides:[65]

Within 10 business days of the time for making Payment Claims listed in Item 8 of Part A, the [plaintiff] will assess the claim and shall issue a payment schedule ('Payment Schedule') which: (a) identifies the Payment Claim to which it relates; [and] (b) states the amount of the payment (if any) that the [plaintiff] proposes to make and/or that the [defendant] is required to make to the [plaintiff] ('scheduled amount')...

1. I accept that it is arguable that clauses 29 and 118 provide the plaintiff with the right to raise offsetting claims with respect to its liability pursuant to the December Payment Schedule, which it has done by issuing the March Payment Schedule. The defendant's position is also arguable, having regard to the terms of clause 112 of the Subcontract, which provides that payment schedules respond to payment claims. Further, the defendant argues that these rights do not survive the plaintiff's termination of the Subcontract. However, having found that the plaintiff's position is genuine and arguable, I will say no more on the merits of the parties' respective arguments.
2. I am therefore satisfied that there is a plausible contention that, in those circumstances, the demanded debt is genuinely disputed or alternatively, the plaintiff has a genuine offsetting claim by reason of the parties' intention that the shop drawings payment be in the nature of a deposit.
3. The defendant contends that if the Court is satisfied that the debt is genuinely disputed, the Court should find that the $8,000 referred to in the March Payment Schedule is not the subject of genuine dispute.
4. The plaintiff contends that the genuine dispute is in respect of the existence of the debt, such that the demand ought to be set aside in its entirety, and that the $8,000 referred to in the March Payment Schedule is also genuinely disputed. In support of this argument, the plaintiff relies upon the following evidence from Mr Kerlidis:[66]

From my experience, I consider the cost of the shop drawings would have been no more than $2,200 (inclusive of GST). To avoid any dispute however, and to avoid McNamara alleging it was left out of pocket, I decided to make an allowance of $8,000 (plus GST) for the drawings, which is why that sum appears in the second version of the Subcontractor Payment Schedule[.]

1. As I understand it, the plaintiff's submission is that the March Payment Schedule was in the nature of a 'without prejudice' offer to resolve its dispute with the defendant, such that a failure on the part of the defendant to accept the $8,000 offer would not prejudice the plaintiff's rights to later claim that a lesser amount (in the nature of $2,200) is due and owing. I do not accept that there is an evidential basis for this submission. The March Payment Schedule was not sent as an offer, nor was it sent subject to any reservation of rights. The covering email simply states: 'See attached payment schedule for the shop drawings, for your attention'.[67] Whilst Mr Kerlidis may ascribe the value of no more than $2,200 to the shop drawings, this is not the value attributed to them in the March Payment Schedule.
2. I do not accept that there is a genuine dispute with respect to the $8,000 set out in the March Payment Schedule. The schedule was purportedly issued pursuant to the SOP Act and the Subcontract, in the same manner as the December Payment Schedule. On its terms, it acknowledges that the amount of $8,000 is owing to the defendant in respect of the shop drawings. In his first affidavit, the plaintiff's director gives evidence that the March Payment Schedule certified the amount of $8,000 for payment of the shop drawings.[68] It was not until Mr Kerlidis swore Kerlidis 2 that the plaintiff disputed that it was due and owing.
3. The plaintiff's case is that it was entitled to issue the March Payment Schedule under the terms of the Subcontract. The consequence of this is that the sum provided for in the March Payment Schedule is due and payable under the terms of the Subcontract. For these reasons, I am not satisfied that there is a genuine dispute with respect to the $8,000 referred to in the March Payment Schedule.

C.3 Is there a genuine offsetting claim for costs?

1. The plaintiff contends that it has an offsetting claim in relation to legal costs relating to receipt of the statutory demand and this proceeding. The plaintiff says that its costs are 'significantly greater than $8,000'.[69] The plaintiff's counsel accepted that the asserted offsetting claim for legal costs had not been quantified and tacitly accepted that this was not sufficient for the purposes of the exercise required of the Court by s 459H(2) of the Corporations Act in calculating the 'substantiated amount'.[70]
2. The plaintiff has not pointed to any contractual or other entitlement to payment of its costs, rather, the offsetting claim appears to be based upon the expectation that the Court may exercise its discretion to make a costs order in the plaintiff's favour in this proceeding. The suggestion that the plaintiff has an offsetting claim in respect of costs that might be awarded to it in connection with its application under s 459G is unusual. In order to be a valid offsetting claim, it must be in respect of a cause of action which has already accrued and exists at the time the s 459G application is made.[71] I am not satisfied that a claim for costs of the s 459G application already accrued or existed at the time this proceeding was commenced. Rather, it is contingent upon a costs order being made.
3. Further, and in any event, the evidence is such that I cannot estimate the quantum of the plaintiff's asserted offsetting claim for costs. In this regard, I am in a similar position to Randall AsJ in Re Ad Astra Institute Pty Ltd.[72] Therefore, even if I were satisfied that the plaintiff's legal costs constituted a genuine offsetting claim, I cannot ascribe any value to them for the purpose of calculating the 'substantiated amount' required by s 459H(2) of the Corporations Act.
4. I therefore do not accept that the plaintiff has a genuine offsetting claim for its legal costs.

1. I do not consider that the demand was an abuse of process. The demand was issued in respect of an invoice to which the plaintiff responded with the December Payment Schedule, which, on its face admitted that the demanded debt was due and payable within 30 days of the end of the month in which the payment claim was made.[73] Whilst the March Payment Schedule identifies that the amount owing to the defendant is disputed, I have found that there is a genuine dispute as to whether the plaintiff was at liberty to issue the March Payment Schedule under the terms of the Subcontract. At the time the demand was issued, the plaintiff had not articulated its contractual basis for issuing the March Payment Schedule. In light of this, and the finding that $8,000 of the demanded debt is not genuinely disputed, I do not consider that the defendant's service of the statutory demand following receipt of the March Payment Schedule demonstrates that it was served in an abuse of process.
2. It therefore follows that I am not satisfied that there is a basis for setting the demand aside for 'some other reason' under s 459J(1)(b) of the Corporations Act.

1. Where a company has applied to have a statutory demand set aside, the Court must calculate the 'substantial amount' of the demand in accordance with the formula prescribed in s 459H(2). This formula being:

1. 'Admitted total' is defined to mean the 'admitted amount' of the debt, which in turn is defined to mean

(a) if the Court is satisfied that there is a genuine dispute between the company and the respondent as to the existence of the debt - a nil amount; or

(b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt - so much of that amount as the Court is satisfied is not the subject of such a dispute; or

1. As set out above, I am not satisfied that $8,000 of the demanded debt is genuinely disputed. Therefore the admitted total, and substantiated amount, is $8,000.
2. Under s 459H(4) of the Corporations Act, as the substantiated amount is greater than the statutory minimum, it is open to me to vary the demand such that the debt due and payable is $8,000 and declare the demand to have effect, as varied, from when the demand was served on the plaintiff. I consider that it is appropriate to do so.

1. As set out in Part B above, given that I have found that the statutory demand does not demand a debt due under the SOP Act, it is not necessary for me to consider if there is a genuine dispute as to whether the defendant's payment claim was validly issued under the SOP Act, and nor is it necessary for me to consider whether the plaintiff is 'Graywinter estopped' from raising this argument in reply.
2. Whilst it is not necessary for me to decide these issues, in deference to counsel's submissions, I will address them briefly.
3. If I am wrong, and the demand does claim a debt due under the SOP Act, I would have found that Kerlidis 1 supported the plaintiff's contention that there is a genuine dispute as to whether the shop drawings invoice was a validly issued payment claim. This is because the ground is available by way of inference from the dispute outlined in paragraph 28(a) of Kerlidis 1 'regarding the Subcontract, the works and the amount of Money owed to [the defendant]'.[74] Further, the evidence relied upon by the plaintiff to make these arguments is limited to materials exhibited to Kerlidis 1, namely, the Subcontract and the shop drawings invoice. The arguments raised concern the construction of the contract. As noted by the Court of Appeal in Sceam Construction Pty Ltd v Clyne,[75] where the dispute is based purely on the construction of a written agreement between the parties, the support requirement may be satisfied by exhibiting the agreement without more.[76]
4. However, I would not have accepted that the plaintiff genuinely disputed that the shop drawings invoice was not a validly issued payment claim. This is because the argument is inconsistent with the plaintiff's conduct in issuing the December Payment Schedule, the plaintiff's argument that the payment was intended to be in the nature of a deposit, and the March Payment Schedule issued by the plaintiff.
5. In my view, the issue of a payment schedule in response to a payment claim, even if that payment claim was issued prematurely or without evidence of satisfaction of the payment claim preconditions set out in the Subcontract, calls into question the genuineness of any dispute later raised as to the validity of that payment claim.
6. Here, the plaintiff's email of 19 December 2023, to which the December Payment Schedule was attached, states that it is 'in response to your December 2023 claim'.[77] It was sent a matter of hours after the shop drawings invoice was received by the plaintiff. The December Payment Schedule itself states that it was issued by the plaintiff under the Subcontract and 'in accordance with SOP Act'. No concerns are raised in the December Payment Schedule as to the entitlement of the defendant to issue a payment claim for the amount claimed, or the defendant's entitlement to the amount claimed. The terms of the December Payment Schedule are clear - it provides that that the plaintiff approves the payment claim in full.
7. The plaintiff's arguments that the payment claim was premature or invalid are also inconsistent with the plaintiff's primary case that the shop drawings payment was intended to be in the nature of a deposit. The plain and ordinary meaning of 'deposit' is that it is payable in full, usually at the commencement of a contract, but may be the subject of clawback at a later date. Issuing the December Payment Schedule is entirely consistent with the payment being in the nature of a deposit payable by the plaintiff. Further, the terms of the March Payment Schedule also accept that the $32,500 set out in the December Payment Schedule is due and owing, but in effect, identifies an offsetting claim in the amount of $24,500.[78]
8. Regardless of whether or not the plaintiff has a genuine dispute as to whether the shop drawings invoice is a valid payment claim, for the reasons addressed in Part C above, I remain satisfied that there is a genuine dispute as to whether the shop drawings payment was intended to be in the nature of a deposit. Thus, in circumstances where no work other than the preparation of the shop drawings has been undertaken, no materials have been purchased by the defendant, and the Subcontract has been terminated, I am satisfied that there is a genuine dispute as to whether the defendant is entitled to the full amount of the shop drawings payment ($32,500) or alternatively, I am satisfied that there is a genuine dispute as to whether the defendant is only entitled to the lesser amount set out in the March Payment Schedule ($8,000). Or put another way, I am satisfied that the plaintiff has a genuine offsetting claim quantified by reference to the March Payment Schedule in the amount of $24,500.

1. Pursuant to s 459H of the Corporations Act, I will:

(a) make an order varying the demand so that it relates to an amount of $8,000 plus GST; and

(b) declare the demand to have effect, as so varied, from the date on which the demand was served on the company.

1. I direct counsel to confer in person, via telephone or audio visual means, as to the appropriate order as to costs, and thereafter provide consent or competing minutes of order to my Chambers by no later than 4 pm on 14 November 2024. In the event of disagreement, the matter will be listed for a short hearing on 18 November 2024 at 9:30 am to enable the parties to make brief oral submissions.

[1] Subcontract formal instrument contract dated 27 September 2023 ('Subcontract'), Exhibit TK-1 to Affidavit of Theodore Abel Kerlidis filed on 2 April 2024, 30-78 ('Kerlidis 1').

[2] Subcontract, Part 4 of Attachment 3, Exhibit TK-1 to Kerlidis 1 (n 1), 75. See also paragraph [56] below.

[3] Kerlidis 1 (n 1), [20].

[4] Email from the defendant dated 19 December 2023, Exhibit TK-1 to Kerlidis 1 (n 1), 81-3.

[5] December Payment Schedule dated 19 December 2023, Exhibit TK-1 to Kerlidis 1 (n 1), 84-5 ('December Payment Schedule').

[6] Kerlidis 1 (n 1), [8]-[10].

[7] Subcontract, cl 136, Exhibit TK-1 to Kerlidis 1 (n 1), 45; Kerlidis 1 (n 1), [26]; Affidavit of Theodore Abel Kerlidis filed on 21 June 2024, [17]-[18] ('Kerlidis 2').

[8] March Payment Schedule dated 4 March 2024, Exhibit TK-1 to Kerlidis 1 (n 1), 89 ('March Payment Schedule').

[9] Kerlidis 1 (n 1), [11].

[10] Exhibit TK-1 to Kerlidis 1 (n 1), 18. Note this figure is the amount of $32,500 inclusive of Goods and Services Tax.

[11] Defendant's submissions in reply filed on 18 July 2024, [3] ('Defendant's reply submissions'), referring to Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 ('Graywinter').

[12] The defendant did not read paragraphs 8, 9 and 26 of Affidavit of Nicholas McNamara filed on 28 May 2024. See Transcript dated 18 July 2024, 2, 69 ('Transcript').

[13] See Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91; Re Douglas Aerospace Pty Ltd [2015] NSWSC 167, [91] (Brereton J) ('Re Douglas'); Re J Build Developments Pty Ltd [2022] VSC 434, [37] (Hetyey AsJ) ('Re J Build Developments'); at first instance, Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2018] NSWSC 1647, [58] (Parker J) ('Grandview - Parker J'), and on appeal, Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60; (2019) 99 NSWLR 397, 399-400 [4]-[5] (Bell P) ('Grandview - Appeal').

[14] Re J Build Developments (n 13).

[16] See ss 1, 3 of the Building and Construction Industry Security of Payment Act 2002 (Vic) ('SOP Act').

[22] Grandview - Parker J (n 13).

[23] Ibid, [10]-[11], which was upheld on appeal in Grandview - Appeal (n 13).

[24] See, for example, Re J Build Developments (n 13), [47]; Diako Builders Pty Ltd v Compfam Pty Ltd [2021] VCC 784, [25] (Woodward J); MKA Bowen v Carelli Constructions [2019] VSC 436, [42] (Digby J); 133 Walsh Street Pty Ltd v BMF Pty Ltd [2020] VSC 650, [37] (Gardiner AsJ); and Re Life Springs Pty Ltd [2022] VSC 406, [59]-[62] (Gardiner AsJ).

[25] Re Douglas (n 13), [93]; Grandview-Parker J (n 13), [12]-[13]; Re J Group Constructions Pty Ltd [2015] NSWSC 1607; (2015) 303 FLR 139, [101], [103] (Robb J).

[26] Re Three Pillars Lynbrook Pty Ltd [2022] VSC 540, [96] (Matthews AsJ) (citations omitted).

[27] [2021] VSC 693 ('Re Simmoll').

[29] Farid Assaf, Assaf's Winding Up In Insolvency (LexisNexis Australia, 3rd Edition 2021), [8.21] ('Assaf's Winding Up in Insolvency').

[30] [2023] WASC 340 (Seaward J) ('CM Luxury').

[33] Ibid, [52]. The term 'defect' is defined in s 9 of the Corporations Act 2001 (Cth) to include a misdescription of the debt.

[36] Graywinter (n 11).

[37] CM Luxury (n 30), [59].

[38] Creditor's statutory demand for payment of debt dated 5 February 2024, Exhibit TK-1 to Kerlidis 1 (n 1), 9.

[39] Plaintiff's submissions in reply filed on 10 July 2024, [10]-[16].

[40] Clause 113 of the Subcontract provides that the plaintiff will pay the scheduled amount in the payment schedule within 30 days of the end of the month in which the payment claim was made.

[41] Defendant's reply submissions (n 11), [6].

[42] CM Luxury (n 30).

[43] [2015] VSCA 330, [47]-[51].

[44] [2021] VSCA 178, [28].

[45] [2020] WASCA 31, [35] (Buss P and Vaughan JA) (citations omitted).

[46] Re Simmoll (n 27).

[48] Assaf's Winding Up in Insolvency (n 29), [7.19], citing, inter alia Advance Ship Design Pty Ltd v DJ Ryan t/as Davis Collison Cave (1995) 16 ACSR 129 at 139.

[49] Kerlidis 2 (n 7), [16].

[50] Transcript (n 12), 85.

[53] Email from the defendant to the plaintiff dated 19 December 2023, Exhibit TK-1 to Kerlidis 1 (n 1), 81; Kerlidis 1 (n 1), [22].

[54] Kerlidis 2 (n 7), [8]-[11].

[56] Subcontract, cl 46, Exhibit TK-1 to Kerlidis 1 (n 1), 35.

[57] Subcontract, Part 4 of Attachment 3, Exhibit TK-1 to Kerlidis 1 (n 1), 75.

[58] Subcontract, cl 1, Exhibit TK-1 to Kerlidis 1 (n 1), 30.

[60] March Payment Schedule (n 8).

[62] Kerlidis 1 (n 1), [26].

[63] Subcontract, cl 29, Exhibit TK-1 to Kerlidis 1 (n 1), 33.

[66] Kerlidis 2 (n 7), [15].

[67] Email from the plaintiff dated 4 March 2024, Exhibit TK-1 to Kerlidis 1 (n 1), 88.

[68] Kerlidis 1 (n 1), [26].

[69] Kerlidis 2 (n 7), [16]-[20].

[70] Transcript (n 12), 62:12.

[71] Assaf's Winding Up in Insolvency (n 29), [7.19].

[72] [2018] VSC 563, [44]-[62].

[73] Subcontract, cl 113, Exhibit TK-1 to Kerlidis 1 (n 1), 42.

[74] Kerlidis 1 (n 1), [28(a)].

[75] [2021] VSCA 270.

[77] Email from the plaintiff dated 19 December 2023, Exhibit NM-2 to the Affidavit of Nicholas McNamara filed on 17 July 2024, 5.

[78] March Payment Schedule (n 8), item 8. See paragraph 64(b) above.