Plaintiff v Defendants

1 By its originating process dated 8 December 2020, the plaintiff, Sceam Construction Pty Ltd, seeks orders setting aside a statutory demand dated 1 July 2020 ('Statutory Demand') served on it by the defendants, James Clyne and Nyree Clyne.

2 In support of its application, the plaintiff relies on:

(a) the affidavit of Matthew Charles Allen affirmed 7 December 2020 ('Allen Affidavit'). Mr Allen is a director of the plaintiff;

(b) the affidavit of Benjamin Howard affirmed 22 February 2021 ('Howard Affidavit'). Mr Howard is an employee of the plaintiff and a former director of the plaintiff;

(c) written outline of submissions dated 26 March 2021 prepared by the plaintiff's counsel, Mr Tim Greenway ('Plaintiff's Outline'); and

(d) supplementary outline of submissions dated 11 May 2021 prepared by Mr Greenway ('Plaintiff's Supplementary Outline').

3 In opposition to the application, the defendants rely on:

(a) the affidavit of James Clyne, the first defendant, sworn 12 February 2021 ('Clyne Affidavit');

(b) written outline of submissions dated 26 March 2021 prepared by the defendants' counsel, Mr Daniel Harrison ('Defendants' Outline'); and

(c) supplementary outline of submissions dated 11 May 2021 prepared by Mr Harrison ('Defendants' Supplementary Outline').

4 In addition, both parties relied on the oral submissions made by their respective counsel at the hearing on 4 May 2021.

5 The application is said to be made under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) ('Act').[1] Nonetheless, it was apparent from the Plaintiff's Outline and its oral submissions that the ground relied upon as a basis for setting aside the Statutory Demand was that found in s 459H(1)(a) of the Act, namely a genuine dispute as to the existence or amount of the debt. No reference was made to the ground in s 459H(1)(b) of the Act, being an offsetting claim, or to that found in s 459J of the Act, being a defect in the Statutory Demand or there being some other reason to set it aside.

6 For the reasons which follow, I do not consider that the plaintiff has established that it has a genuine dispute in relation to the debt which is the subject of the Statutory Demand. It follows that the proceeding should be dismissed.

7 Section 459G of the Act provides as follows:

459G Company may apply

(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.

(2) An application may only be made within the statutory period after the demand is so served.

(3) An application is made in accordance with this section only if, within that period:

(a) an affidavit supporting the application is filed with the Court; and

(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

8 The term 'statutory period' is defined in s 9 of the Act as:

(a) if a period longer than 21 days is prescribed - the prescribed period; or

(b) otherwise - 21 days.

9 It is common ground in this case that at the time the Statutory Demand was served, the statutory period was six months.

10 Section 459H of the Act relevantly provides as follows:

459H Determination of application where there is a dispute or offsetting claim

(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:

(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(b) that the company has an offsetting claim.

11 Section 459J of the Act provides as follows:

459J Setting aside demand on other grounds

(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b) there is some other reason why the demand should be set aside.

(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

12 The Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq)[2] has summarised the principles applicable in applications to set aside statutory demands as follows (citations omitted):

[47] The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.

[48] In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a 'plausible contention requiring investigation' of the existence of either a dispute as to the debt or an offsetting claim. It is therefore 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. Further, the determination of the 'ultimate question' of the existence of the debt at a substantive hearing should not be compromised.

[49] The court is required to determine whether the dispute or offsetting claim is 'genuine'. It has been said that the criterion of a 'genuine' dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.

[50] The court is not required to accept uncritically 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, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.

[51] Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd involved a demand for payment of a debt alleged to be due under a contract for the supply of goods. The applicant relied on four matters, each of which had the potential to affect the respondent's entitlement to be paid the entire amount of the debt. Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute. He relevantly stated:

The [applicant] will fail in [the] task [of establishing a genuine dispute] only if ... the contentions upon which it seeks to rely ... are so devoid of substance that no further investigation is warranted. Once the [applicant] 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 the [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.

13 The parties did not appear to be in dispute as to the applicable principles.

14 I further note that in Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[3] Dodds-Streeton J considered the approach and standard to be applied when dealing with applications to set aside statutory demands:

While it is not a very exacting standard, on the other hand mere, assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which 'bears on whether or not the asserted dispute or off-setting claim is genuine'. Indeed, that is its necessary function.

The plaintiff's evidence in support of the application

15 The Allen Affidavit exhibits a copy of the Statutory Demand and the affidavit of Mr Clyne affirmed 1 July 2020 which accompanied the Statutory Demand ('Accompanying Affidavit').[4]

16 The Statutory Demand claims the amount of $109,514.23 (including GST) ('Debt') being the total of the amounts of the debt described in the Schedule to the Statutory Demand. The Schedule to the Statutory Demand describes the debt as 'Amount certified as due and owing to the Creditors in the ABIC Form SW-30 Certificate of Amount Payable certified by Sibling Architecture dated 16 June 2020' ('Debt Description').

17 The Accompanying Affidavit states that the Debt is due and payable and that Mr Clyne believes that there is no genuine dispute about the existence or amount of the Debt.

18 At paragraph 7 of his affidavit and referring to the Statutory Demand, Mr Allen states as follows:

I believe Sceam is not indebted to the defendant for the debt and the amount compromising the Debt claimed for the following reasons:

(a) The defendants have relied upon their Architects advice and subject to what he believes the disputed defects and incomplete works are.

(b) The defendants have been told from the day we started construction on site that the Architectural drawings from the Architect, you cannot construct this renovation to those drawings as we are continuously encountering designs flaws on a daily basis.

(c) The design intent from the Architect did not work and the Architectural drawings ended up being more of a guide, than working drawings to construct and build the alterations and additions.

19 Mr Allen deposes that the plaintiff commenced demolition work at the defendants' property in late October 2017 and commenced construction in mid-November 2017.[5] He then goes into some detail as to why he said additional works were needed due to problems with the architectural drawings and refers to five major problems which caused engineering difficulties, additional costs, and a longer time to build.[6]

20 Mr Allen refers to defects brought to the plaintiff's attention by the defendants.[7] Mr Allen deposes that the plaintiff disagrees with all of the alleged defects, and that if everything was a defect he would not have achieved a certificate of final inspection.[8] He says that he and Mr Howard have disputed the debt and that he has done so since he 'received the amount from the Architect and Lawyers of $109,514.23'.[9] Mr Allen says that he has tried to resolve the dispute by mediation but the defendants refused,[10] and that he also went to the DBDRV and was given a certificate of conciliation that the dispute was not suitable.[11] He also says that he has submitted an application to VCAT and paid the filing fee, and is awaiting a hearing date.[12] He says that he has disputed with the defendants' lawyers that 'their clients claim is invalid and disputed'.[13]

21 Mr Allen concludes his affidavit by stating that on 'the basis of the matters raised' in the Allen Affidavit, he 'believe[s] there exist[s] a genuine dispute regarding the amounts claimed by' the defendants in the Statutory Demand.[14]

22 The plaintiff also relies on the Howard Affidavit, but since this is said to be made in reply to the Clyne Affidavit, it is more convenient to summarise its content when discussing the evidence relied upon by the defendants.

23 It is apparent on the face of the Allen Affidavit that it has been prepared by Mr Allen. That is an observation, not a criticism. The Allen Affidavit exhibits a number of documents, most of which are not referred to in the body of the affidavit itself.[15] It is convenient here to re-produce the list of exhibits to the Allen Affidavit and the descriptions given to them, that list being part of the 'certificate identifying exhibit'.

Statutory Demand dated 1 July 2020 together with Affidavit accompanying Statutory Demand

Company Extract for Sceam Construction obtained from the records maintained by ASIC dated 14 November 2020

Dispute letter regarding mediation as per Building Contract: ABIC SW-2008 H Vic Simple Works Contract for Housing in Victoria

Building Contract: ABIC SW-2008 H Vic Simple Works Contract for Housing in Victoria, signed copy

Certificate of conciliation certificate form DOMESTIC BUILDING RESOLUTION VICTORIA

Email correspondence stating there is a genuine dispute

The defendants' evidence in opposition to the application

24 By way of background, the Clyne Affidavit states the following. Where necessary, I have also set out Mr Howard's responses to this:

(a) Mr Clyne has known Mr Allen and Mr Howard as friends for approximately 15 years and that the plaintiff was a client of his accounting firm until 2018.[16] Mr Howard agrees with this;[17]

(b) the defendants entered into a Simple Works Contract for Housing in Victoria with the plaintiff on 17 July 2017 ('Contract') to conduct renovation building works at their home in Canning Street, North Carlton ('Property').[18] Mr Howard agrees with this.[19] Mr Clyne exhibits a full copy of the Contract to his affidavit;[20]

(c) Sibling Architecture was appointed as the Architect under the Contract.[21] Mr Howard agrees with this;[22]

(d) the works under the Contract ('Building Works') commenced on or about 1 September 2017. The contract price was $749,769.74 (incl GST). Subsequently a number of variations to the Building Works were agreed between the parties and the agreed total contract price, including the variations, were increased to $816,425.21 (incl GST) ('Agreed Contract Price').[23] Mr Howard agrees with the initial contract price and that it increased to the amount stated by Mr Clyne, but disagrees that this was the final price as there are other variations not included in that figure;[24]

(e) between 1 September 2017 and 18 July 2017, the defendants paid the plaintiff a total of $719,395.55 of the Agreed Contract Price.[25] Mr Howard assumes this to be correct;[26]

(f) in or around March 2018, Mr Clyne became aware that the plaintiff was not paying its third-party contractors who were required to complete works under the Contract. The defendants paid a further $146,374.41 (incl GST) directly to the contractors, to ensure that the Building Works would continue and to mitigate their loss ('Contractual Overpayments').[27] Mr Howard disagrees with this, as he says that the sub-contractors were still servicing the project;[28]

(g) on 29 March 2019, the defendants' solicitors, Burch + Co Lawyers ('BCL'), issued a letter of demand on their behalf to the plaintiff, seeking compensation for the amount of the Contractual Overpayments and also for incomplete works at the Property ('First LOD').[29] No response was received to this.[30] Mr Howard acknowledges that the First LOD was received, but disagrees with its contents and says he believes he did respond to it;[31]

(h) on 7 November 2019, Mr Clyne sent an email to Mr Allen and Mr Howard directly to seek to resolve the outstanding amounts owed to the defendants ('November Email').[32] No response was received to this.[33] Mr Howard acknowledges receipt of the November Email, disagrees with what it states regarding outstanding amounts, and believes he did respond to it;[34]

(i) Mr Clyne met with Mr Howard and Mr Allen on 13 January 2020 at the Property. The three of them walked through the Property and Mr Clyne pointed out items and things that they had not finished. He went through a spreadsheet with them that he had created of the defects in the plaintiff's work and the Contractual Overpayments. They discussed the items in the spreadsheet and Mr Howard wrote down in a note book some items which Mr Howard and Mr Allen agreed the plaintiff owed the defendants for, Mr Howard saying words to the effect that the plaintiff owed them for these items. Mr Clyne took a photo of Mr Howard's list, which shows a total of $68,175. Mr Clyne says this is a mathematical error and the true total of all the amounts listed is $70,371. Mr Clyne says that while Mr Howard and Mr Allen agreed that this amount was owing to the defendants by the plaintiff ('Alleged Agreement'), Mr Howard and Mr Allen refused to commit to a timeframe for paying them anything.[35] Mr Howard says that the meeting took place, there was disagreement about what were defects, and he wrote items in a note book with amounts next to them that were discussed but not agreed. He says that nothing was agreed to, it was a 'back-and-forth discussion with the client';[36]

(j) on 26 February 2020, Mr Clyne sent an email to Mr Howard and Mr Allen regarding the issues with the Building Works and his ongoing frustrations, and told them he was engaging lawyers.[37] Mr Howard says he received this email and telephoned Mr Clyne to see what was going on;[38]

(k) on 26 February 2020, BCL sent a further letter of demand for compensation for the amounts of Contractual Overpayments and incomplete works at the Property ('Second LOD').[39] Mr Howard says that he received this letter and telephoned BCL about it;[40] and

(l) on 27 February 2020, Mr Clyne received an email from Mr Howard referring to the difficult financial position that the plaintiff was in and which stated that it was not in a position to repay the Contractual Overpayments.[41] In part, the email stated:[42]

So all in all Jim, assuming that you are just going to keep going legal, there is nothing for us to do, and just fight the costs.

I hope that we can work something out before, but that's up to you.

If its the money that we owe you, what ever that amount we agree on is, it will take time, as we have none, we are 150k short of paying back the guy we borrowed the money off at 25%.

So that what we need to try and do, or we are fucked.

Anyway Jim, this is upsetting, and disappointing that you have decided to do this knowing our financial position, and there is nothing that we can do about it atm.

(m) in response to this paragraph of the Clyne Affidavit, Mr Howard deposes that:[43]

I did write this email and I am okay with it, we never said that no money was not owed, we just had not come to an agreement as the amount was disputed and so were the alleged defects, and so called in complete works. The client had proceeded to get lawyers involved so everything changed and the Client turned this into a legal dispute by his own doing.

(n) also on 27 February 2020, Mr Clyne received an email from Mr Allen confirming that he had received the Second LOD and confirming that the plaintiff had no money.[44] Mr Howard says that he is unaware of this email.[45]

25 Mr Clyne deposes that on 1 April 2020, BCL issued a notice of default to the plaintiff in accordance with clause Q1(1) of the Contract ('NOD').[46]

26 Mr Clyne further deposes that between then and 17 April 2020, Mr Howard corresponded with BCL in regard to remedying the defaults and incomplete works.[47]

27 Mr Clyne states that the plaintiff did not remedy its default under the Contract, and on 20 April 2020 BCL issued a notice of termination which set out the procedure upon termination under the Contract ('NOT').[48] In response, Mr Howard said that after the certificate of final inspection, they went back to the Property and attended to 'any defects that were defects'. He also says that the NOT was not done correctly under the Contract and did not follow the termination procedure correctly.[49]

28 Mr Clyne then states the following in respect of the procedure followed after that time. Again, where appropriate I have set out Mr Howard's responses:

(a) on 1 May 2020, Sibling Architecture prepared a 'certificate of amount payable and list of defects and outstanding items determination' in accordance with the Contract and NOT ('Initial Determination');[50]

(b) on 5 May 2020, BCL sent an email to the plaintiff, confirming that it was open to the plaintiff to comment on the Initial Determination;[51]

(c) on 26 May 2020, the plaintiff raised its concerns with the Initial Determination with BCL by providing comments about itemised costs in response to the Initial Determination ('Plaintiff's Response').[52] The Plaintiff's Response indicates that the plaintiff either recorded its agreement to costs or stated that it disagreed with the Architect's determination, without providing any basis for taking such a position.[53] I note that in addition to this, in the Plaintiff's Response in some instances the plaintiff disagrees with the factual basis of the Initial Determination in respect of works done and at times provides what appear to be alternative cost estimates;

(d) Mr Howard says that the plaintiff disputed the Initial Determination as it disagreed with everything on costs, defects and incomplete works, and it disputed the NOT;[54]

(e) on 16 June 2020, Sibling Architecture sent an email to the plaintiff, BCL and the defendants, attaching:[55]

(i) a copy of the ABIC Form SW-30 certificate of amount payable totalling $109,541.23, together with a list of defects and outstanding items ('Final Debt Determination');[56] and

(ii) a copy of its commentary to the Final Debt Determination which detailed the changes it had made based on the Plaintiff's Response.

29 Mr Howard deposes that he disputed the Final Debt Determination and the debt of $109,541.23.[57]

30 Mr Clyne deposes that on 19 June 2020, BCL issued a demand for payment of $109,514.23, being the total amount payable under the Final Debt Determination. The plaintiff did not respond to that letter or pay the amount owing. BCL issued the Statutory Demand for the Debt (which is the same amount as the Final Debt Determination), following which BCL received two emails from Mr Allen and Mr Howard alleging that there was a genuine dispute but not stating what the basis of that dispute was.[58]

(a) the plaintiff emailed the defendants on 27 August 2020 asking whether they agreed to solve the dispute by mediation, and waited 20 working days as per the Contract and received no response;

(b) the Architect was also the superintendent for the defendants, was one-sided and did not help the plaintiff, meaning that the plaintiff had no chance of going through the mediation process;

(c) the Architect and BCL have not abided by the Contract and made a false and disputed determination. The plaintiff is entitled to mediation under the Contract but it was rejected; and

(d) the plaintiff submitted an application to VCAT to resolve the dispute and the directions hearing is on 11 March 2021.

32 The plaintiff's primary submission is that there is a genuine dispute as to the existence of the Debt, as the amount claimed is only a 'debt' if the provisions of the Contract have been complied with. The plaintiff contends that they have not.

33 The plaintiff's argument goes this way: for the Architect's Final Debt Determination to constitute a debt that is due and payable pursuant to clause Q10.1 of the Contract, it must have been issued following the process set out in clause Q9 which sets out the procedure for the architect to produce a certificate of amount payable. By clause Q9.1 of the Contract, the process in clause Q9 only arises if the Contract has been terminated in accordance with its terms; in this instance, in accordance with clause Q1.2. For the Contract to have been validly terminated, the NOT must be valid which in turn requires that the NOD, issued pursuant to clause Q1.1, also be valid.

34 The plaintiff contends that the NOD is not valid, such that the NOT and the termination are not valid, leading to the Architect's Final Debt Determination not having been made in accordance with the Contract, so that the Debt is not due and payable.

35 It is convenient at this point to set out the contractual provisions relied upon by the plaintiff. These are all drawn from Exhibit JC-1.

If the contractor fails to meet a substantial obligation under this contract, the owner may give the contractor a written notice requiring the contractor to remedy the default within 10 working days. The notice must specify the default, and state that it is given under this clause.

If the default is not remedied, or the contractor fails to show reasonable cause why it cannot be remedied within 10 working days, or such additional days as agreed with the architect, the owner may terminate the engagement of the contractor by giving the contractor a written notice of termination.

Where the engagement of the contractor has been terminated under clause Q1 or Q2, the architect must promptly make a written assessment of the cost to the owner of completing the works and issue to the contract and to the owner a copy of that assessment. For this purpose, the cost to the owner of completing the works excludes any amount paid by the owner under clause Q7. That assessment is to be reflected in the certificate made under clause Q9.

(d) Clause Q9.1 of the Contract relevantly provided that:

Where the engagement of the contractor has been terminated under clause Q1 or Q2, and the assessment required under clause Q8 has been made, the architect must promptly prepare a certificate as to the amount payable, including GST, by one party to the other and issue it to the contractor and to the owner.

(e) Clause Q10 relevantly provided that upon receiving the certificate in clause Q9.1 of the Contract from the architect, the party to be paid must deliver it for payment and that the amount stated as owing must be paid within the period shown in item 10 of schedule 1 after delivery of the certificate (in this instance, 7 calendar days).

36 Therefore, the plaintiff's argument rests on the validity of the termination of the Contract, which in turn rests on the validity of the NOD.

37 The plaintiff submits that the required content of a default notice will depend upon the particular terms of the clause and the factual context in which the notice is issued,[60] and that while no particular form of notice is required, the notice must 'direct the party's attention as to what is amiss'.[61]

38 The plaintiff also submits that if a contract stipulates that a default notice is to specify the details of the particular default, those details must be sufficiently given so that the party who is in default can understand the thing in respect of which complaint is made, without being left to 'winkle out an alleged default from an equivocal, vague or imprecise notice'.[62] The plaintiff relies on the following statement by Moffitt J in Re Stewardson Stubbs & Collett Pty Ltd:[63]

The question still remains, however, whether the notice 'specifies the default' ... A default can be specified in two ways; one is by directing attention to the provision in the contract in respect of which default is made. The other is by giving particulars of the manner in which a breach has occurred. In order to specify the default I think at least the former must be pointed out. But each case will depend on its own circumstances as to whether in order to specify the default there must be added some particulars such as will identify the particular breach alleged.

39 In this instance, the NOD drawn by BCL provided as follows:[64]

We refer to our letter to Sceam dated 26 February 2020. Our Letter provided Sceam with a final opportunity to remedy its failure to meet substantial obligations it owes to the Clynes under the Building Contract.

Formal Notice of Default: Q1(1) of the Building Contract

Sceam has failed to remedy its default of the Building Contract.

Accordingly, the Clynes now provide Sceam with this written notice in accordance with clause Q1(1) of the Building Contract requiring Sceam to remedy the defaults set out in James Clyne's email of 7 November 2019 and our letters dated 26 February 2020 and 29 March 2019 (Defaults).

In accordance with clause Q1(1) of the Building Contract, Sceam has 10 working days from the date of this letter to remedy the Defaults.

If Sceam fails to remedy the Defaults by 15 April 2020, the Clynes will exercise their right to terminate the Building Contract in accordance with clause Q1(2).

40 The plaintiff submits that the NOD required it to remedy the defaults as set out in the First LOD, the November Email, and the Second LOD. This requires, according to the plaintiff, an examination of the content of each of those documents.

41 The First LOD sought payment of the sum of $148,725.05 and set out the manner by which that amount had been calculated, mainly referable to incomplete building works and defects. It did not require rectification of defects and/or incomplete works. It was said in the First LOD that the defendants had been left with no alternative but to consider the plaintiff's failure to attend at the Property and complete the Building Works as an expression of its intention to abandon the Contract, and that the defendants required compensation for the costs, loss and damage they have suffered arising from the plaintiff's rescission of the Contract.[65]

42 The November Email required payment of $141,185.05 or made a proposal for repayment by way of loan and a part-payment to a sub-contractor. It contemplated that the plaintiff would pay for the alleged incomplete and/or defective works and not return to the Property.[66]

43 The Second LOD demanded payment of $133,840.71 (excl GST) by no later than 4pm on 11 March 2020. The sum was calculated as the Contract Price Overpayment in the amount of $49,344.10 (excl GST), the incomplete and defective works payment of $45,300 (excl GST), and payment in compensation of $39,196.61 for loss of time/pain and suffering, and legal fees resulting from the plaintiff's breach of the Contract. The Second LOD made similar statements about the plaintiff's abandonment of the Contract and the defendants' entitlement to compensation for loss and damage.[67]

44 The plaintiff contends that the NOD was ambiguous and contradictory, as it required the plaintiff to pay a different amount to that previously notified. It is said that the NOD did not state with particularity the contractual provision relied upon and the relevant defaults of such a provision. Further, in the Second LOD amounts are claimed for legal fees, project management and pain and suffering, and there are no contractual provisions granting the defendants a right to claim these amounts.

45 The plaintiff submits that a reasonable recipient, with knowledge of the terms of the Contract and taking into account the surrounding circumstances, would not understand what defaults had been alleged against them.[68] The plaintiff also submits that none of the matters raised in the NOD constitute breaches of a 'substantial obligation', and the defendants had not exercised relevant contractual rights available to them.[69]

46 The plaintiff also submits that the correspondence between the parties after service of the NOD demonstrates that the NOD cannot be relied upon to terminate the Contract. The correspondence relied upon in this respect is an email from BCL to Mr Howard and Mr Allen dated 7 April 2020 ('7 April Email') and emails from BCL to Mr Howard dated 14 April 2020 ('14 April Email') and 17 April 2020.[70]

47 After service of the NOD, Mr Howard contacted BCL to discuss it. On 7 April 2020, BCL sent the 7 April Email, which stated as follows:

As promised, this is how you remedy the current breaches of the building contract:

1. Current Breach of clauses A2 and M1 - Complete the works set out in the attached list; and
2. Current Breach of clause G4 - pay $49,344.10 (the Contract Price Overpayment) to the following bank account ...

Sceam has until 4:00pm on 15 April to carry out the above remediation.

48 Mr Howard replied on the same day, saying that 'we disagree with most of the information on your email ... and are more than willing to complete the works. We also disagree with the cost of moneys owed that's in the spreadsheet.'

49 On 7 April 2020, BCL replied to Mr Howard's email as follows:

The items on the list are the outstanding works requiring completion. They are either completed or they are not. If you haven't completed the works, then they are incomplete. If you can provide evidence of completion, please do so. In the absence of such evidence, the works remains incomplete.

The $49,344.10 is the total of payments that the Clynes have had to pay to your subcontractors that you did not pay. ...

It is over to you to provide a pathway to how you intend to remedy your default. You have until 4:00pm 15 April 2020 to do so.

50 On 10 April 2020, Mr Howard replied and provided the plaintiff's 23 item response to the list of alleged incomplete or defective works.

51 On 14 April 2020, BCL sent an email to Mr Howard, as follows:

Thanks for your useful email last week. It was really useful to narrow down how things can be resolved here. How does this sound for a fair way to get clarity for everyone?

1. Given that he is the one to determine practical completion, we get the architect to review the attached list and give his view. James and Nyree will agree to whatever the architect says needs to be completed.
2. You agree to reimburse James and Nyree for any payments that they can prove were made to Contractors for Sceam work?

If you agree to the above, James and Nyree will agree to withdraw the Default Notice.

Look forward to hearing from you.

52 On 17 April 2020, BCL sent an email to Mr Howard which stated:

The Clyne's offer is sensible and very fair to you. That offer will only remain open for acceptance until 3:00pm today.

For clarity, Nyree and James have offered to withdraw the Notice of Default if you:

1. agree to complete works determined by the Architect as being required for practical completion; and
2. reimburse James and Nyree for any payments that they can prove were made to Contractors for Sceam work.

In the event that the offer is not accepted, James and Nyree will be left with no choice but to issue a Notice of Termination of the Building Contract.

53 In respect of the 7 April Email, the plaintiff submits that:

(a) it constitutes a material departure from the NOD, and so must be read to vary and/or supersede the earlier notice. This is because the 7 April Email:

(i) unequivocally stated what was required to remedy the alleged breaches of the Contract;

(ii) attached an additional and finalised list of works that were required to be rectified or completed;

(iii) required payment of the sum of $49,344.10 (incl GST); and

(iv) did not require payment for Incomplete and Defective Works or an additional payment in compensation.

(b) Despite these 'material' alterations, the 7 April Email maintained the original deadline in the NOD of 15 April 2020.

54 In respect of the 14 April Email, the plaintiff submits that:

(a) by the 14 April email, the requirements for the plaintiff to comply with the NOD were changed. The architect would determine what works needed to be completed and it is not clear whether the works would be completed by the plaintiff or an amount fixed in relation to them, and the defendants would provide proof of payments made to contractors. No time frame is provided for compliance with this email; and

(b) when read together, the chain of emails (the 14 April Email and 17 April email) sets out an alternative method of complying with the NOD and unilaterally imposes a deadline for compliance of 3.00 pm on 17 April 2020.

Validity of termination and issuing of Final Debt Determination

55 The NOT was issued on 20 April 2020. The plaintiff submits that the Contract requires a notice of default to provide ten working days for the remedy of the alleged breaches and that having exercised the contractual right to termination, the defendants were bound by the contractual terms.

56 The plaintiff submits that it is arguable that the 7 April Email and/or the 14 April Email constitute a written default notice under clause Q1.1. It is said that such a conclusion is partly acknowledged in the defendants' conduct to extend compliance from 15 to 17 April 2020.

57 It follows, according to the plaintiff, that there is a prima facie case that the NOT was premature. Ten working days from 7 April 2020 would be 23 April 2020 (Friday 10 April and Monday 13 April being public holidays) and ten working days from 14 April 2020 would be 28 April 2020.

58 As the architect's contractual power to make a written assessment under clause Q8.1 and a certificate under clause Q9.1 are conditioned on the Contract's termination, an invalid termination in turn means that the written assessment and the certificate have not been issued in accordance with the Contract, such that no debt exists.

59 The plaintiff submits that the disputes are better ventilated at a substantive trial in the domestic building list at VCAT and that such a proceeding is currently on foot, having been commenced on or around 17 November 2020.

60 The following submissions were included in the Defendants' Outline.

61 The defendants say that the Debt is the amount independently adjudicated as owing to them under the Contract entered into between the plaintiff and the defendants. In this regard, the defendants say that:

(a) the architect was appointed under the Contract and conducted the assessment and certification process in accordance with the Contract;

(b) the plaintiff had the opportunity to make submissions on and did make submissions prior to the architect issuing the Final Debt Determination; and

(c) the commencement of a proceeding in VCAT some five months after service of the Statutory Demand does not assist the plaintiff, as it is merely a 'bootstraps' proceeding.[71] Further, there is no evidence before the Court as to what the VCAT proceeding is about and what claims the plaintiff makes in that proceeding: the only evidence is a receipt for payment of a filing fee.[72]

62 The defendants submit that there is no genuine dispute about the Debt. In this regard, the defendants say that:

(a) there was no response to the First LOD and the Second LOD;

(b) the plaintiff made admissions about the debt at the meeting on 13 January 2020, which were made in writing by Mr Howard; and

(c) no response was received to the letter of demand sent on 19 June 2020 after the Final Debt Determination was issued.

63 It is said that the plaintiff's failure to respond to these demands speaks volumes as to the lack of genuineness of its recent complaints of a dispute. The defendants contend that this is especially so in light of the earlier proceeding where the failure to make timely responses to its creditor's complaint were critical in this Court finding that it had not raised a genuine dispute.[73]

64 The defendants contend that the alleged dispute is a latter-day invention which is inconsistent with the plaintiff's conduct at the time any true dispute might have arisen. They say that the plaintiff's only substantive response at the relevant times was to admit, via the 27 February 2020 email referred to in paragraph 24(k) above, that it had significant financial difficulties.

65 The defendants say that taken at its highest, the plaintiff's application is 'a merely spurious claim, bluster or assertion' and 'merely fanciful'.[74] The plaintiff does not depose to matters which constitute a plausible contention requiring further investigation.

66 In his oral submissions, counsel for the defendants submitted that the plaintiff's submission constituted a 'fantastically crafted argument but it is utterly, utterly devoid of any substance'.[75] Mr Harrison submitted that there was not a scintilla of evidence supporting the submission that there was a genuine dispute as to whether the Contract had been validly terminated such that the Final Debt Determination was not a certificate under the Contract that created the Debt. It was described as a 'manufactured argument unsupported by any evidence.'[76]

67 The defendants submitted that there is no evidence that the plaintiff, Mr Allen or Mr Howard were in anyway unclear or misled or did not know what they had to do in respect of the NOD. Rather, the evidence is that the plaintiff engaged with the process and knew full well what it had to do, and that it relied on an inability to pay the defendants as a response. The architect provided his Initial Determination, which the plaintiff responded to with the Plaintiff's Response, following which the architect varied his assessment and came to the final number, issuing the Final Debt Determination.

68 The defendants also submit that if I was somehow persuaded that there was a genuine dispute, then rather than accede to the plaintiff's application I should vary the amount of the Statutory Demand to what the defendants contend is the admitted total, being the amount set out in Mr Howard's note as referred to in paragraph 24(i) above.

69 In this regard, the defendants submit that what Mr Howard says in his affidavit about the 13 January meeting and Mr Howard's note as referred to in paragraph 24(i) is nothing that would raise a genuine dispute. The Howard Affidavit states as follows, in respect of the 13 January meeting:

1. The meeting did take place on that date, the defendant stating a defect when it is not a defect, that's what we did discuss.
2. I did write items in a note book, with amounts next to these items they were discussed nothing was agreed to by either parties.
3. Nothing was agreed to, this was a back-and-forth discussion with the client.

70 The defendants say that paragraph 13 of the Howard Affidavit is meaningless as it is not understandable. They also submit that the evidence in paragraphs 13 to 15 of the Howard Affidavit does not rise above the level of mere assertion. Mr Howard does not explain what the purpose of these notes was. Rather, it is a bare denial raised months and months after the meeting took place. Accordingly, the defendants say, Mr Clyne's evidence should be preferred and this constitutes evidence of an admission that the amounts set out in Mr Howard's note are owing.

71 The defendants also submit that the plaintiff did not address any factors under s 459J of the Act.

72 In reply, the plaintiff submitted that the fact that there is no evidence of confusion on behalf of the plaintiff, Mr Allen or Mr Howard as to the NOD does not advance the case at this stage, given that this is akin to an interlocutory injunction analysis. It was said that this was something that is properly put at the substantive fight, which is where the defendants' submission may have some legs.[77]

73 The plaintiff also submitted that the proposition that the debt in the Statutory Demand could be varied falls foul of the same defect, in that the debt in the Statutory Demand arises pursuant to the architect's certificate under the Contract and there is no way that can be ameliorated by relying on what is said to be an agreed or admitted amount.[78] In any event, the plaintiff does not accept that there is an admission of an amount and submits that the Howard Affidavit is more than a bare denial. The plaintiff submits that this is not something the Court is in a position to resolve at this stage but rather is a matter for a substantive hearing.[79]

74 The plaintiff submits that Mr Howard does give evidence about the NOT, stating at paragraph 24 of his affidavit that the NOT was not done correctly and the defendants did not follow the termination procedure correctly. It is said by the plaintiff that the genesis of the dispute is the dispute over the alleged defects which continued into various documents.[80]

75 At the conclusion of the parties' oral submissions, and in particular the submission made by the plaintiff's counsel as summarised in paragraph 74 above, I asked Mr Greenway for some clarification. I indicated that my understanding, based on the Plaintiff's Outline and Mr Greenway's oral submissions, was that the dispute relied upon for the purposes of setting aside the Statutory Demand on the grounds of there being a genuine dispute was whether or not the Contract had been terminated in accordance with its terms and therefore whether the Final Debt Determination which created the Debt was valid. Mr Greenway confirmed that this was the dispute relied upon by the plaintiff for its application to set aside the Statut[81]y Demand. 81

76 I then asked Mr Greenway where that dispute was raised in the Allen Affidavit. Mr Greenway referred to paragraph 18 of that affidavit and said that Mr Allen does not expressly say it in connecting it to the termination but says it in terms of the underlying defects that are disputed. I then said that a dispute about the defects is not the dispute relied upon by the plaintiff. Mr Greenway agreed with this but contended that it was the anterior step that is required for the plaintiff's primary submissions in that the dispute as to what defective incomplete works is the subject of the NOD. After further discussion, I repeated my understanding of the plaintiff's submission and asked where that was raised in the Allen Affidavit. Mr Greenway responded that it was not raised there in as many terms because it is in essence a legal submission that is based on the underlying dispute which is defective or incomplete works.[82]

77 On this basis, I then asked both parties whether, in light of the plaintiff's submissions that there was a genuine dispute as to the existence of the debt because of the validity of the certificate, the plaintiff's application fell foul of the Graywinter principle. Both counsel then made brief submissions about that, which I will refer to below after I explain this principle.[83]

78 After indicating that I would reserve my judgment and concluding the hearing, I had my Associate send an email to the parties on 4 May 2021 in the following terms:

Could each party please provide a short written submission, of no more than 5 pages, dealing with the Graywinter principle (see Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452; 21 ACSR 581) in respect of this case. Her Honour is conscious that she raised this issue at the end of the hearing and that she would be assisted by the parties having an opportunity to address this 'on notice'. These submissions should be confined to this issue and based on the evidence as already filed.

79 The supplementary submissions were to be filed and served by 4.00 pm on 11 May 2021. Both parties did so.

Description of the Graywinter principle and consideration of relevant authorities

80 Relevantly, an application to set aside a statutory demand is made in accordance with s 459G of the Act if, within the statutory period, 'an affidavit supporting the application is filed with the Court' ('Statutory Period Affidavit') and a copy of the application and a copy of the Statutory Period Affidavit are served on the person who served the statutory demand on the company.[84]

81 For the Court to have jurisdiction to set aside a statutory demand, the Statutory Period Affidavit must meet the minimum requirements for the purposes of s 459G. Those minimum requirements are that:[85]

(a) the affidavit must state material facts which show there is a genuine dispute;

(b) the affidavit may read like a pleading and need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute;

(c) neither a mere assertion that there is a genuine dispute nor a bare claim that the debt is disputed is sufficient.

82 This is what has become known as the Graywinter principle.

83 In this instance, the Statutory Demand was served on 1 July 2020.[86] It is not disputed that the only affidavit relied upon by the plaintiff which was filed and served within the statutory period was the Allen Affidavit, which means that this is the only affidavit the timing of which satisfies the requirements for a Statutory Period Affidavit. As noted earlier in this judgment, the statutory period applicable at the time the Statutory Demand was served was 6 months.

84 In this instance, it is appropriate to survey the approach to the application of the Graywinter principle which has emerged from the authorities. In this regard, Gardiner AsJ recently summarised that approach in 133 Walsh Street Pty Ltd v BMF Pty Ltd,[87] and I gratefully adopt his Honour's survey of the authorities, which is set out below (citations omitted):[88]

1. In Hansmar Investments Pty Ltd v Perpetual Trustee Co Limited, White J of the Supreme Court of New South Wales expressed the view that the grounds of the application to set aside the demand must be raised by the supporting affidavit and whether they are raised expressly, or by necessary inference, or by a reasonably available inference, provided they are raised, the requirements of s 459G will be satisfied.
2. In POS Media Online Limited v B Family Pty Ltd, Austin J of the Supreme Court of New South Wales stated that if a relevant document (such as an agreement) was annexed to the affidavit in support of the application, a ground obvious on the face of the document would be 'raised' even though it is not mentioned or suggested in the text of the affidavit.
3. In Callite Pty Ltd v Adams, Santow J considered an application to set aside a statutory demand served on a company by its former solicitors for legal fees. The basis of the application was that there had been failure to comply with the relevant legislative requirements regarding disclosure of legal costs. The affidavit in support attached the relevant invoices but the affidavit in support itself said nothing about this ground. Santow J held that it was obvious from a review of the attached invoices that they lacked the prescribed statutory formulations and this provided a sufficient basis to enable legal conclusions to be drawn.
4. In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd, Barrett J, as he then was, agreed with the analysis of White J in Hansmar Investments and concluded that in an earlier decision of his in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd, he was too strict in his approach. Barrett J also agreed with the observations made by the Full Court of the Supreme Court of Western Australia in Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd which held that a supporting affidavit is required to 'reveal' the ground relied upon to set aside the statutory demand. Barrett J considered that a ground is 'raised ... if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed documents, the content of which "reveals" it.'

24. In Canon Australia Pty Ltd v Yong Bros Pty Ltd, Brereton J stated:

In my opinion, the supporting affidavit required by the Corporations Act s 459G(3), is sufficient if it contains or annexes evidence from which the ground relied upon to impugn the demand can be made good. ...

Where the grounds depend on arguments based on the face of a document, it must be sufficient that the affidavit annexes the relevant document or documents. In this view I am fortified by the observations of Austin J in POS Medial Online Ltd v B Family Pty Ltd; ... of White J in Hansmar Investments Pty Ltd v Perpetual Trustee Co Limited and of Barrett J in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd ...

1. In NA Investment Holdings Pty Ltd v Perpetual Nominees Limited, the New South Wales Court of Appeal considered circumstances where the affidavit in support attached a facility agreement upon which the debtor company wished to advance a particular construction. Neither the body of the affidavit nor any exhibit to it made reference to the construction for which the debtor company contended. Lindgren AJA stated:

I accept that there was nothing in the affidavit of exhibits to alert [the creditor] to the particular construction to be advanced by the Company. Indeed, the affidavit was directed to an offsetting claim and was therefore apt to put [the creditor] 'off the scent'. None the less, as noted above, the very clause on which the statutory demand depended contained the limitation of liability subclause.

In my respectful opinion, [the creditor's] submission confuses the concept of 'support' with natural justice considerations which will attend the court's hearing and determination of the application to set aside. Whatever may be the outer limits of the concept of 'supporting' in s 459G(3), in my view the requirement is met where, as here, the only issue sought to be raised by the company is one of construction within the four corners of the provision on which the statutory demand depends, and the document in question, albeit with other documents, is put into evidence by the affidavit filed and served within the 21 day period.

1. The Court of Appeal in this State has had occasion to give consideration to the application of the Graywinter principle. In Malec the Court appears to have adopted the requirement of the provision of 'fair notice' to the respondent in the supporting affidavit. In that case, the respondent had supplied fuel to the applicant on a running account for over four years and ultimately served the applicant with a statutory demand for unpaid amounts owed for fuel. The applicant's supporting affidavit to set aside the demand alleged that the respondent overcharged the applicant on a very specific ground and precisely quantified the alleged offsetting claim. After expiration of the 21 day period prescribed by s 459G of the Act, the applicant filed an affidavit alleging overcharging on a different ground and for a larger amount. The question of the Graywinter principle was engaged in the context of whether the applicant could raise the dispute in respect of the overcharging on the different ground raised after the 21 days had elapsed. After a consideration of a number of authorities dealing with the application of the principle, the Court concluded its analysis by referring to the decision in Re Australia Zhongfu Oil Gas Resources Pty Ltd ('Zhongfu'), in which Brereton J reviewed and discussed the judgments of Barrett J in Elm Financial Services Pty Ltd v MacDougal and Saferack and the judgment of Campbell J in Tuta Health Care Pty Ltd v Nipa Asia Pty Ltd. In Zhongfu Brereton J observed:

[I]t will be sufficient if the material facts on which the applicant intends to rely to support the genuine dispute are discernible from the supporting affidavit and/or the annexures and exhibits to it. Nonetheless, while explicit reference to the ground or necessary implication may not be necessary, it remains important that the affidavit convey some fair notice to the [respondent] of the case that is to be made.

1. In concluding that the applicant in Malec was not permitted to raise the offsetting claim mentioned in the second affidavit, the Court appears to have adopted the requirement to 'convey some fair notice' to the person that served the demand by concluding that:

...there was nothing in the First Affidavit that was capable of conveying to [the respondent] that [the applicant] would seek to raise a genuine dispute or an offsetting claim based on the fuel decanted from the tankard by [the applicant's] drivers as distinct from a genuine dispute or an offsetting claim based on the impossibility of [the respondent's] drivers having filled the tankard by more than its safe fill capacity on any particular day.

1. In Malec, the Court of Appeal also held that 'the Graywinter principle is not satisfied simply because the ground relied upon in the supporting affidavit and the ground sought to be raised in an affidavit filed after the expiration of the 21 day period deal with the same broad issue'. In Malec, the Court of Appeal held that the applicant had 'confined the area of controversy to the overfilling ground in respect of specified instances and limited its offsetting claim to the amount of $415,063'. The applicant's 'general allegations were made in the context of, and in support of, a very specific ground for raising a genuine dispute or an offsetting claim, namely, the 'overfilling' ground'.
2. In GoConnect Ltd v Sino Strategic International Ltd (In Liq) ('GoConnect'), the Court of Appeal again had occasion to consider the application of the Graywinter principle. In GoConnect in its 21 day affidavit the applicant raised a dispute that the loan money which was allegedly owed pursuant to the demand was not repayable as the applicant had a discretion when to repay. The applicant later sought to raise an argument after the prescribed 21 day period that the loan facility agreement contained oral terms or that the conduct of the parties with respect to the agreement gave rise to an estoppel binding upon the respondent that would prevent it from enforcing the loan facility agreement. In concluding that this argument was not properly raised, the Court of Appeal stated that (citations omitted):

....The supporting affidavit must 'fairly alert' the respondent to the nature of the case made in support of the application to set aside the statutory demand. It 'must fairly notify the respondent of the evidentiary basis for a submission that the statutory demand should be set aside on the particular ground upon which the applicant seeks to rely'. It will be sufficient if the material facts on which the applicant intends to rely to support the genuine dispute are 'discernible from the supporting affidavit and/or the annexures and exhibits to it'.

GoConnect's contention that the loan money was not repayable as it had a discretion when to repay was fairly notified in the Wong [21 day] affidavit. However, no other contention was notified.

It is true that Wong exhibited the Basedow affidavit to his affidavit. GoConnect says that the additional contentions that it now wishes to advance can be seen in the correspondence exhibited to that affidavit. We disagree. That correspondence is innocent of any material that would have put Sino on notice of these additional contentions. In his letter to Basedow dated 21 July 2015, Li said: [extract edited]

Also, we refer you to Clause 6 of the Loan Facility Agreement dated 20 October 2003...

To date, repayments of the loan have only been made at the discretion of GCN board of directors, rather than on demand by SSI. The agreement has been operated by both companies in this manner since inception...

In our opinion, this letter does no more than state the effect of clause 6 and the way it has been implemented. It does not fairly give notice that GoConnect contends that the loan facility agreement contained oral terms or that the conduct of the parties with respect to the agreement gives rise to an estoppel binding upon Sino that would prevent it from enforcing it.

Even if we are wrong about this, the correspondence must be read in the context of the contents of the Wong affidavit. As set out at [13] to [14] above, that affidavit explicitly confines the basis of the genuine dispute to the terms of the loan facility agreement.

85 Following this survey of the authorities, Gardiner AsJ concluded that:[89]

1. When applying the Graywinter principle, Courts regard grounds are being 'raised' when they are evident on the face of a document annexed to an affidavit even if not referenced in the affidavit itself. Nonetheless, the Court of Appeal in this state considers that the 21 day affidavit is required to provide 'fair notice' or to 'fairly alert' the opposing party to the grounds on which an applicant to set aside a statutory demand relies. The test of 'fair notice' to the defendant by way of the 21 day affidavit prevents an applicant from changing its position if it seeks to raise a new claim which was not evident or available from inference in the 21 day affidavit or its exhibits.
2. An applicant to set aside a statutory demand will not infringe the Graywinter principle if it fairly alerts or gives fair notice to the creditor of the nature of the dispute or offsetting claim (or 'some other reason under s 459J') which it ultimately seeks to agitate in the application in its 21 day affidavit. The applicant may supplement the evidence in relation to such a ground but if such supplementary evidence is not referable to a ground of which fair notice was given in the 21 day affidavit, the Graywinter principle will be infringed and that dispute or claim or 'some other reason' will not be permitted to be agitated in the application. The question as to whether the principle is infringed will involve an analysis of the evidence which is filed and require an assessment of the character of the ground which the respondent creditor contends offends the Graywinter principle. If, on an objective analysis, such an exercise results in a conclusion that what is sought to be agitated departs from what was raised in the 21 day affidavit, that ground will not be permitted to be agitated in the application.

86 In their supplementary outlines, both parties referred to a number of the cases mentioned in 133 Walsh Street. The parties do not appear to disagree over the principles to be applied.

Plaintiff's submissions in respect of the Graywinter principle

87 In his oral submissions, Mr Greenway submitted that the Graywinter principle was not offended as the major component in the NOD was the defects and incomplete works, which are clearly raised in the Allen Affidavit, and that his submissions were based on an extrapolation of those matters. It was said that the plaintiff contests that the NOD is invalid because it denies that there are defects, and what that means legally is that they do not form something that is capable of being expressed in the default notice.[90]

88 The plaintiff's position on the Graywinter principle was set out more fully in the Plaintiff's Supplementary Outline.

89 In essence, the plaintiff submits that the evidentiary basis for its submissions as to why the Statutory Demand should be set aside are to be found in the Allen Affidavit, as supplemented by the Clyne Affidavit and the Howard Affidavit, such that the jurisdictional requirements of s 459G are satisfied.

90 The plaintiff relies on the following paragraphs in the Allen Affidavit:

[7(a)] The defendants have relied upon their Architects [sic] advice and subject to what he believes the disputed defects and incomplete works are.

[18] All defects that have been brought to Sceams [sic] attention, we disagree with as the Architect has stated everything is defect. If everything was a defect, I would not have achieved Certificate of Final Inspection.

[23] I have disputed the debt from the day we received the amount from the Architect and Lawyers of $109,514.23.

[27] The Client has engaged Lawyers to represent them, I have disputed with the Lawyers that their clients claim is invalid and disputed.

91 The plaintiff submits that expressed as a legal conclusion, the Allen Affidavit denies that the plaintiff is in breach of the Contract and says that the certificate (ie the Final Debt Determination) is invalid. Its position was that the Building Works were complete. It is also said that the amounts comprising the Final Debt Determination are plainly disputed.

92 The plaintiff submits that to advance an argument of legal construction, the supporting affidavit must exhibit the document giving rise to the genuine dispute and the relevant interpretation. It is said that the Contract is exhibit MA-4 to the Allen Affidavit and was supplemented by exhibit JC-1 to the Clyne Affidavit.

93 In the Plaintiff's Supplementary Outline, reliance is placed on an email from Mr Allen to BCL sent on 1 July 2020 in response to the Statutory Demand where he said 'There is a genuine dispute here, we have disputed this all the way along on previous correspondence'. It is said that Mr Allen's reference to 'on previous correspondence' is to be read in the context of an ongoing dispute and draws attention to an existing body of correspondence known to the parties. The Plaintiff's Supplementary Outline then states that the 'relevant dispute is to be found within exhibit JC-10.'

94 The plaintiff refers to paragraph 22 of the Allen Affidavit, which states that 'Ben Howard, director at the time and still currently employed at Sceam Construction at the time of this Build has also disputed this debt', and says that this is supplemented by the Howard Affidavit, as follows:

1. Agree they did issue a Notice of Termination, this was not done correctly to the building contract from Birch + Co Lawyers, they did not follow the termination procedure correctly.
2. Sibling Archictecture, did prepare a Certificate of Amount Payable and List of Defects & Outstanding Items, we disputed all of this including the Contract and Notice of Termination.

95 It is submitted that Mr Howard's dispute about the termination procedure was foreshadowed in the Allen Affidavit and in the Clyne Affidavit.

96 In the Plaintiff's Supplementary Outline, it is said that in argument (presumably at the hearing), there were three contractual challenges to the certificate:

(a) the NOD did not comply with clause Q1 as it was ambiguous and unclear;

(b) the defective/incomplete works comprising the certificate did not constitute breaches of a 'substantial obligation' and therefore the Contract had been terminated unlawfully (resulting in the certificate also being invalid); and

(c) the Contract was terminated prematurely as further correspondence had altered the requirements of the NOD and the contractually allotted time had not elapsed.

97 The plaintiff says that each of these arguments or conclusions would be inadmissible in an affidavit,[91] but the evidentiary basis for each submission is to be found in the Allen Affidavit as supplemented by the Clyne Affidavit and Howard Affidavit. Therefore, according to the plaintiff, the jurisdictional requirements of s 459G of the Act are satisfied.

Defendants' submissions in respect of the Graywinter principle

98 In oral submissions at the hearing. Mr Harrison responded to my query about the application of the Graywinter principle by saying that the principle is not engaged as there is no evidence put forward in the Howard Affidavit that would fall foul of it.[92]

99 In the Defendants' Supplementary Outline, it is submitted that the only affidavit on behalf of the plaintiff that was filed and served within the statutory period was the Allen Affidavit. The defendants submit that the explanation given by Mr Allen for why there is no debt owing is at paragraph 7 where he sets out complaints about the architect and the architect's plans, and then a series of assertions in paragraphs 9-21 about various building problems encountered. The defendants describe the 'high point' of the plaintiff's case as being in paragraph 23 of the Allen Affidavit where Mr Allen states 'I have disputed the debt from the day we received the amount from the Architect and Lawyers of $109,514.23'.

100 The defendants submit that this bald statement does not rise above the level of a mere assertion or a bare claim within the meaning of Graywinter. The balance of the Allen Affidavit does not depose to material facts which show that there is a genuine dispute.

101 The defendants go so far as to submit that the Allen Affidavit, the only one filed within the statutory period, is so barren as to say that it did not file and serve an affidavit sufficient to enliven the jurisdiction of the Court under s 459G of the Act, ie it does not constitute a Statutory Period Affidavit.

102 It is said that critically, there is no evidence within the statutory period of a complaint about any notice served by the defendants. The only mention of any alleged defect in the procedure is contained in the Howard Affidavit, which is not a Statutory Period Affidavit.

103 The defendants contend that nothing in the Howard Affidavit can raise a new ground of dispute, such that any claim of a defect in the termination procedure cannot be raised by the Howard Affidavit. In any event, say the defendants, the Howard affidavit otherwise contains little more than bare denials and bare assertions and adds nothing to the plaintiff's case.

104 In light of the way the case was run at the hearing, in particular the dispute relied upon by the plaintiff as grounds to set aside the Statutory Demand, it is both necessary and convenient for me to consider the Graywinter principle first. This is because it goes to the Court's jurisdiction to entertain the plaintiff's application, as put.

105 It is helpful to re-state here the case as put by the plaintiff. The plaintiff says that the Statutory Demand should be set aside as there is a genuine dispute as to the existence of the Debt on the grounds that for the Debt to be a debt due and payable under the Contract, it must arise through the issuing of a certificate by the architect under the Contract. Here, it is said that the certificate is invalid as one can only be issued following a valid termination of the Contract, and the termination of the Contract was invalid as the NOD was defective and/or the NOT was issued prematurely. In other words, the dispute relied upon in this case is a dispute about the validity of the termination of the Contract and the certificate issued by the architect. So much can be discerned from the plaintiff's submission as set out above, particularly at paragraph 96 above. For convenience, I will refer to this as the Validity Dispute.

106 The key question is whether the Allen Affidavit fairly alerts or provides fair notice to the defendants of the grounds on which the application relies. Here, the ground relied upon is the Validity Dispute.

107 In my view, the Allen Affidavit does not provide fair notice or fairly alert the defendants of the Validity Dispute.

108 It is tolerably clear from the Allen Affidavit that the plaintiff disputes the alleged defective works and Contractual Overpayments. It is also clear from the Allen Affidavit that the plaintiff disputed the alleged defective works and Contractual Overpayments at various times when these were raised in the parties' dealings. For convenience, I will refer to this as the Defects/Overpayments Dispute.

109 However, the Defects/Overpayments Dispute is not the dispute relied upon by the plaintiff as the ground upon which the Statutory Demand should be set aside. For completeness, I note that for the Defects/Overpayments Dispute to be grounds for setting aside the Statutory Demand, evidence is required that it is a genuine dispute, but I am not here considering whether that dispute is genuine. This is because that is not the dispute relied upon.

110 I accept the defendants' submission as to the character of the statement in the Allen Affidavit at paragraph 23: it is a bare denial of the Debt and a bare assertion about the existence of a dispute about the Debt.

111 I do not accept the plaintiff's submission that the evidentiary foundation for the Validity Dispute has been laid in the Allen Affidavit, for the following reasons:

(a) The statement in paragraph 23 of the Allen Affidavit is, without more, merely a bare denial of the Debt and a bare assertion about the existence of a dispute over it. Here, there is no more;

(b) The statements made about there being no defects and no Contractual Overpayments, and the explanations given for that position by Mr Allen, go to the Defects/Overpayments Dispute alone, and not to the Validity Dispute; and

(c) I reject the submission that the statement in the Allen Affidavit that Mr Howard also disputed the Debt in any way foreshadows or raises the Validity Dispute. Other than references to the Defects/Overpayments Dispute, the Allen Affidavit says nothing about the basis upon which Mr Howard disputed the Debt.

112 For the same reasons, I do not accept that the Clyne Affidavit supplements the Allen Affidavit in any relevant sense.

113 Nor do I accept that the Validity Dispute is raised by way of inference from matters deposed to in the Allen Affidavit or by inference from the exhibits to that affidavit, for the following reasons:

(a) I do not accept the plaintiff's submission that the Defects/Overpayments Dispute is anterior to the Validity Dispute. As expressed by the plaintiff in the Plaintiff's Supplementary Outline, the Validity Dispute rests on the validity of the NOD, which is challenged not on the grounds that there were no defects or contractual overpayments but on the grounds that it was ambiguous or unclear. It also rests on the termination of the Contract, which is challenged on that basis and on the basis that the requisite time had not elapsed before the NOT was served;

(b) Even if the Defects/Overpayments Dispute is anterior to the Validity Dispute, that does not constitute fair notice of the Validity Dispute. Put simply, it is a different dispute, in the same way that the dispute raised in the Statutory Period Affidavit in Malec (overcharging on a specific ground) was different to the overcharging on a different ground raised in the subsequent affidavit. True it is that the ground relied upon was a dispute, but that was not enough, as it was a different dispute. In the language used by the Court of Appeal in Malec, there is nothing in the Allen Affidavit 'that was capable of conveying to' the defendants that the plaintiff 'would seek to raise a genuine dispute' based on the Validity Dispute or validity grounds 'as distinct from a genuine dispute' based on the Defects/Overpayments Dispute.[93] If a further example was needed, in my view the situation here is very similar to that which pertained in GoConnect Ltd v Sino Strategic International Ltd (In Liq). In that case, the Court of Appeal did not allow the company to rely on a different dispute to that raised in the Statutory Period Affidavit.[94]

(c) Even if it could be said that the Defects/Overpayments Dispute as raised in the Allen Affidavit and the Validity Dispute as referred to in the Howard Affidavit could be said to be the same broad issue, it is clear from Malec that this is not sufficient to satisfy the Graywinter principle.[95] Here, I do not even accept that the same broad issue is raised;

(d) The exhibits to the Allen Affidavit do not assist the plaintiff. The plaintiff's contentions about the Validity Dispute rely on certain clauses in the Contract and an analysis of those in light of the NOD, the NOT and the Final Debt Determination (ie the certificate). Exhibit MA-4 to the Allen Affidavit is described in the manner set out in paragraph 23 above. That document is not the full contract: rather, it is part of the Contract, comprising a cover page stating the contract price, parties and site; signed notices; table of contents; signed checklist; other signed pages; and completed and signed schedules. It does not contain the contractual terms and conditions. Mr Greenway's submissions as to the Validity Dispute, both in the Plaintiff's Outline and in oral submissions, involved a detailed examination of a number of the terms of the Contract. It is telling that all of the references were to the Contract as exhibited at JC-1 to the Clyne Affidavit and none of the relevant clauses were contained in exhibit MA-4 to the Allen Affidavit. It simply cannot be said that the extracts exhibited by Mr Allen constitute a 'relevant document' which means that a 'ground obvious on the face of the document' has been raised, even though that ground is not mentioned or suggested in the text of th[96]affidavit.96 It is far too long a bow to draw to say that the document exhibited at MA-4 leads to the full Contract as exhibited at JC-1 and therefore it has been raised by the Allen Affidavit;

(e) In the same vein, the correspondence relied upon in the Allen Affidavit as evidence of the plaintiff disputing the Debt, being exhibit MA-7,[97] does nothing more than say there is a dispute. It says nothing about the content of the dispute. Even if the plaintiff's submission as to Mr Allen's reference to 'on previous correspondence' means that attention is drawn to all the correspondence between the parties to 1 July 2020 about the alleged dispute (a submission which, for similar reasons to those outlined in the previous paragraph, I do not accept), I do not accept the submission that the relevant dispute is to be found within exhibit JC-10 to the Clyne Affidavit. That exhibit contains emails between BCL and Mr Allen and/or Mr Howard between 1 and 17 April 2020. That correspondence deals with aspects of the Defects/Overpayments Dispute: it disputes the defects and the Contractual Overpayments in the context of the NOD having just been issued. Nowhere does it mention or touch upon matters which could conceivably be said to raise the Validity Dispute, either directly or by inference; and

(f) Nor does exhibit MA-3 assist the plaintiff. It is a letter from the plaintiff to the first defendant dated 27 August 2020 referring to the 'building dispute' and asking whether the first defendant consents to mediation of it. There is no detail at all given in that letter in respect of the nature of the dispute which could be said to raise the Validity Dispute.

114 I do not accept the plaintiff's apparent excuse for not directly raising the Validity Dispute in the Allen Affidavit, which is that the Validity Dispute is a series of legal conclusions or arguments which would not be admissible in an affidavit.[98] It is not to the point that the nature of the Validity Dispute rests on a legal analysis of the contractual provisions. So much could be said of any number of disputes. What is required is notice of the material facts to be relied upon to show that there is a genuine dispute,[99] and here there is no notice of the material facts going to the Validity Dispute. There is no controversy raised about the NOD or the NOT, or the validity of the Final Debt Determination (as distinct from a disagreement about the defects and contractual overpayments constituting the amounts in the Final Debt Determination). The Allen Affidavit does not convey, directly or by inference, 'a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds in ss 459H and 459J' of the Act.[100] The Allen Affidavit exhibits the Statutory Demand, which as set out above refers to the certificate (i.e. the Final Debt Determination) in the Debt Description. That reference to the certificate could hardly be said to clearly delineate the area of controversy.

115 For completeness, I should point out that I do not agree with Mr Harrison's oral submission described at paragraph 98 above. The Graywinter principle arises here because the ground for setting aside the Statutory Demand relied upon by the Plaintiff, being the Validity Dispute, is not raised by the Allen Affidavit. That is the touchstone for assessing the Court's jurisdiction, not whether there is a subsequent affidavit which may seek to raise such matters.

116 In conclusion, therefore, the plaintiff cannot rely on the Validity Dispute as a ground for setting aside the Statutory Demand, as it has not met the jurisdictional requirement for the Statutory Period Affidavit. The Allen Affidavit does not raise, directly or indirectly, expressly or inferentially, the Validity Dispute as a basis for setting aside the Statutory Demand. There is no other dispute relied upon by the plaintiff as grounds for setting aside the Statutory Demand.

Is the Validity Dispute a genuine dispute and therefore a ground for setting aside the Statutory Demand?

117 Given the conclusion expressed in the previous paragraph, it is not necessary for me to answer this question.

118 However, in light of the way the case was run at the hearing, it is appropriate for me to make some brief remarks about it.

119 I do not accept that there is a genuine dispute in the form of the Validity Dispute. I accept the defendants' submissions that this is a latter-day invention based on legal arguments made by the plaintiff's lawyers. There is, as I have noted above, simply no evidence of any contemporaneous correspondence where the validity of the NOD, the NOT and the certificate have been raised. This is distinct from the Defects/Overpayments Dispute: I accept that the plaintiff has raised this dispute in the contemporaneous correspondence and that there is nothing to indicate that it is not bona fide. There may be a genuine dispute about the defects, and there may be a plausible contention requiring investigation that the plaintiff has not accepted the defects or made the admissions relied upon by the defendants constituting the Alleged Agreement. But that is not a possibility I need consider, as it is not the dispute relied upon by the plaintiff as the grounds for setting aside the Statutory Demand.

120 I do not consider the commencement of the VCAT proceeding as evidence of there being a genuine dispute between the parties in the form of the Validity Dispute. There is no evidence before me as to what the VCAT proceeding is about - the only evidence is that one has been commenced and a filing fee paid. At most, there is evidence via the statement in the Howard Affidavit that the plaintiff submitted an application to VCAT to resolve the dispute. This begs the question, however: what dispute? The Defects/Overpayments Dispute? The Validity Dispute? The Howard Affidavit refers to the certificate as a 'false and disputed determination' and the inference arising from paragraph 29 of that affidavit is that the Final Debt Determination was disputed on the basis of the Defects/Overpayments Dispute.

121 There is simply no contemporaneous evidence that the NOD was disputed on any grounds other than disagreement about the defects and Contractual Overpayments. There is nothing to indicate that the plaintiff did not understand the NOD or was somehow mislead by it. There is nothing to indicate that the plaintiff was confused by the timing for compliance with the NOD by the 7 April Email or the 14 April Email.

122 Further, there is no evidence to suggest that the plaintiff challenged the NOT at the time it was issued or shortly thereafter. For example, there is no evidence that the plaintiff disputed the termination of the Contract by the defendants. Similarly, there is no evidence that the plaintiff challenged the process undertaken by the architect in issuing the Initial Determination as distinct from disputing the content of it. Indeed, rather than challenging the process or the defendants' ability to have invoked it, the plaintiff participated in it and provided the Plaintiff's Response to the architect.

123 For completeness, I would not accede to the defendants' alternative submission that if the application is not rejected, the Statutory Demand be upheld in a reduced amount due to the Alleged Agreement. I do not accept the defendants' submission that there was a specific amount admitted as owing. True it is that the plaintiff's protests focused on its (in)ability to pay, but the evidence as to an agreed amount is equivocal.

124 For the reasons set out above, the proceeding will be dismissed.

125 The proceeding will be listed on 4 June 2021 for the making of final orders, including as to costs. The parties are requested to confer in that regard and, if a consensus is reached as to the form of such orders, to provide my Chambers with an agreed form of orders.

[1] Plaintiff's Originating Process dated 8 December 2020.

[2] [2015] VSCA 330, [47]-[51] ('Malec').

[3] [2006] VSC 508 [48].

[4] Exhibit MA-1 to the Allen Affidavit. The Statutory Demand defines the defendants as the Creditors.

[6] Allen Affidavit, [9]-[17], [21].

[11] Allen Affidavit, [25]. While not defined in the Allen Affidavit, it is evident from Exhibit MA-5 to the Allen Affidavit that the DBDRV is Domestic Building Dispute Resolution Victoria.

[15] Exhibits MA-1 and MA-2 are the only exhibits referred to in the body of the Allen Affidavit.

[20] Exhibit JC-1 to the Clyne Affidavit.

[29] Exhibit JC-2 to the Clyne Affidavit.

[32] Exhibit JC-3 to the Clyne Affidavit.

[37] Clyne Affidavit, [26]; Exhibit JC-5 to the Clyne Affidavit..

[39] Exhibit JC-6 to the Clyne Affidavit.

[42] Clyne Affidavit, [19]; Exhibit CJ-7 to the Clyne Affidavit.

[46] Clyne Affidavit, [22]; Exhibit JC-9 to the Clyne Affidavit.

[47] Clyne Affidavit, [23]; Exhibit JC-10 to the Clyne Affidavit.

[48] Clyne Affidavit, [24]-[25]; Exhibit JC-11 to the Clyne Affidavit.

[50] Clyne Affidavit, [26]; Exhibit JC-12 to the Clyne Affidavit.

[52] Exhibit JC-14 to the Clyne Affidavit.

[56] Exhibit JC-15 to the Clyne Affidavit.

[58] Clyne Affidavit, [30]-[32]; Exhibit JC-18 to the Clyne Affidavit.

[60] Relying on The Truffle Group Performance Pty Ltd v The Sydney Opera House Trust [2006] NSWSC 460, [29]-[32].

[61] Relying on Diploma Construction Pty Ltd v Marula Pty Ltd [2009] WASCA 229 at [68]- [77] ('Diploma Construction'); Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303, [135] and following.

[68] Relying on Aura Enterprises Pty Ltd v Frontline Retail Pty Ltd [2006] NSWSC 902, [38]-[41].

[69] These were in relation to the direct payment of sub-contractors, defects, and incomplete works.

[70] These emails are exhibited to the Clyne Affidavit at Exhibit JC-10.

[71] As that expression is used in cases such as Lanciana v Alderuccio [2020] VSCA 152, [35], [41]; Talacko v Talacko [2015] VSC 287 [188]-[189].

[72] Exhibit MA-6 to the Allen Affidavit.

[73] In this regard, the defendants rely on the outcome of an earlier proceeding in which the plaintiff unsuccessfully sought to set aside a statutory demand issued by another creditor: see Sceam Constructions Pty Ltd v B.T. Windows Pty Ltd [2018] VSC 769, [74]-[75] ('Sceam v BT Windows').

[74] TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70, [71].

[78] Transcript, 4 May 2021, 26.28 - 27.2.

[81] Transcript, 4 May 2021, 27.31 - 28.9.

[82] Transcript, 4 May 2021, 28.10 - 29.9.

[83] Transcript, 4 May 2021, 29.21 - 32.4.

[84] Section 459G(3) of the Act.

[85] Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 ('Graywinter Properties'); referred to in Malec, [53].

[87] [2020] VSC 650 ('133 Walsh Street').

[88] 133 Walsh Street, [20]-[29]. In 133 Walsh Street, his Honour refers to the affidavit required by s 459H(3)(a) of the Act as the '21 day affidavit'. This is what I have referred to as the Statutory Period Affidavit.

[89] 133 Walsh Street, [30]-[31].

[90] Transcript, 4 May 2021, 29.28 - 30.11.

[91] Relying on NA Investments Pty Ltd v Perpetual Nominees Ltd [2010] NSWCA 210; (2010) 79 ACSR 544, [90]; POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147. [26]-[43].

[94] [2016] VSCA 315; See 133 Walsh Street, [29].

[96] See 133 Walsh Street, [21]; POS Media Online Limited v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533.

[97] See paragraph 93 above for a description of the content of that exhibit.

[98] In particular, see the submission summarised at paragraphs 96 and 97 above.

[99] Malec, [57]; referring to Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419.

[100] Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560, [7].