Plus 55 Village Management P/L v Parisi Homes P/L

Corporations Act 2001 (Cth) Building Construction Industry Security of Payment Act 1999 LEGISLATION CITED : Home Building Act 1989 Home Building Regulations (1997)

Max Cooper & Sons (Builders) Pty Ltd v M & E Booth Pty Ltd (2003) NSWSC 929 Demir Pty Limited v Graf Plumbing Pty Limited (2004) NSWSC 553 CASES CITED : Greenaways Australia Pty Ltd v CBC Management Pty Ltd (2004) NSWSC 1186 Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd (2005) NSWSC 284 Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785, 12 ACLC 669

Plus 55 Village Management Pty Limited PARTIES : v Parisi Homes Pty Limited

Plaintiff: I D Roche COUNSEL : Defendant: D Baran

Plaintiff: SOLICITORS : Defendant: Hancock Alldis & Roskov

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

1712/05 Plus 55 Village Management Pty Limited v Parisi Homes Pty Limited JUDGMENT 1 HIS HONOUR: This is a claim under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The statutory demand was issued by the defendant and served on the plaintiff on 7 or 8 February 2005. It claimed a debt of $323,353.39 said to be owing under unpaid invoices dated 31 August 2004. 2 The defendant is a builder. It carried out construction work for the plaintiff in building what the plaintiff described as a complex of apartments at Lavington, near Albury. This complex of apartments was constructed as an aged-care development. It has been described in some parts of the evidence as a hostel. The contract was not reduced to writing and no documents were signed by either of the parties. A specification, apparently prepared for or by a previous developer for the same site, was provided to the defendant, but its terms are not of any assistance in deciding any of the issues between the parties. 3 The plaintiff says that on 21 July 2003, an oral agreement was made between Mr James of the plaintiff and Mr Zoljalali, a director of the defendant, in which it was agreed that the defendant would construct the works for a lump sum price of $1,200,000 with no changes. The plaintiff, through its counsel, says there were some subsequent variations to that agreement to bring the agreed price to a figure of just short of $1.3 million. 4 It is the defendant's contention that it was entitled to be paid for the work it did on the basis of cost plus fifteen percent. It is clear from correspondence from the defendant of 9 June 2005 that by that date a dispute had emerged between the parties as to the basis upon which the defendant was entitled to be paid. The plaintiff has paid the defendant a sum of $1,331,951.49, which it says is more than the lump sum payable to the defendant. 5 By the invoice of 31 August 2004, referred to in the statutory demand, the defendant claimed a further amount said to be due of $335,850.59. On 11 November 2004, the defendant made a payment claim against the plaintiff under the Building Construction Industry Security of Payment Act 1999 claiming the sum of $335,855.59. 6 In its payment schedule, made under the Act, the plaintiff made numerous contentions, many of them in the alternative, which included the following:

(a) that the Home Building Act 1989 applied to the works and as the contract was not in writing, the defendant was precluded by section 10 of that Act from enforcing any contractual remedy in respect of the works;

(b) that no contract of insurance was taken out in accordance with s 92 of the Act, and that accordingly the defendant was not entitled to enforce any contractual claim or recover any money on a quantum meruit basis, in the absence of there having been any determination by a court or tribunal under s 91(1)(a) of the Act, that it is just and equitable that the defendant, despite the absence of the required contract of insurance, be entitled to recover money in respect of that work on a quantum meruit basis; and

(c) That the contract was for a lump sum of $1.2 million or, alternatively, $1,250,000 or, alternatively, $1,320,000 or, alternatively, $1,375,000 in respect of which it had already paid $1,331,951.49. 7 The reason for the last two alternative claims was to do with the addition of GST to the asserted lump sum contract price of either $1,200,000 or $1,250,000. Other claims were also made in the payment schedule as to the basis upon which the plaintiff was entitled to charge, those claims being as alternatives to the contention that the contract was for a lump sum. 8 In due course the matter was referred to adjudication under the Building and Construction Industry (Security of Payment) Act. On 17 January 2005 the defendant obtained an adjudication in its favour in an amount of $323,353.39. That is the amount claimed in the statutory demand. The certificate of adjudication was filed as a judgment in the District Court on or about 3 February 2005. 9 Meanwhile, on 2 February 2005, proceedings were commenced by the plaintiff in the Consumer Claims Tribunal. It is not entirely clear from the evidence what was precisely the claim made in the Tribunal, but on 15 March 2005, the Tribunal held that it did not have jurisdiction to entertain the application. It appears from the order of the Tribunal that the application which it determined it did not have jurisdiction to hear was one seeking relief from a claim for payment of a sum of $326,001.59 and any interest which may be owing on that sum, and a claim for payment in the amount of $16,665.85. An appeal from the decision of the Tribunal has been made to this Court and has not been determined. 10 Whether or not the Tribunal has jurisdiction to determine the claim, it is clear that the plaintiff is entitled, in an appropriate forum, to litigate the question of whether it was liable to pay the amount which the adjudicator determined was payable. 11 Part 3 of the Building and Construction Industry Security of Payment Act provides a summary procedure for determining what payments should be made on an interim basis, but it does not preclude the right of the parties to a building contract to have their rights and liabilities under that contract determined in accordance with the usual civil procedures. Thus, sub-sections 32(2) and (3) of that Act provide, inter alia, for restitution to be ordered by a court or tribunal hearing the matter arising under a construction contract, of any amount paid in accordance with Pt 3 of that Act. 12 It follows that whilst a party against whom a certificate requiring it to pay money has been issued, and against whom a judgment is entered in accordance with Pt 3 of that Act, is undoubtedly indebted to the other party to the contract who has obtained the certificate, nonetheless, if such a person has a genuine claim that it is not, in truth, indebted for the amount certified, it can maintain that claim as an offsetting claim under s 459H(1)(b) of the Corporations Act: see Max Cooper & Sons (Builders) Pty Ltd v M & E Booth Pty Ltd (2003) NSWSC 929; Demir Pty Limited v Graf Plumbing Pty Limited (2004) NSWSC 553; Greenaways Australia Pty Ltd v CBC Management Pty Ltd (2004) NSWSC 1186; and Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd (2005) NSWSC 284. 13 I turn then to the first ground of the plaintiff's claim, based on s 10 of the Home Building Act, that it is not indebted to the defendant and, hence, has a restitutionary claim. Section 10 provides that a person who contracts to do any residential building work, and who was contracted under an agreement to which the requirements of s 7 apply, and which is not in writing, is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract. Sub-section (6)(1) provides that s 7 applies to a contract under which the holder of a licence undertakes to do any residential building work. Section 7 requires a contract to be in writing and it is not in dispute that the contract in this case was not in writing. Hence, the question is whether the contract in question was one to do residential building work within the meaning of the Act. 14 "Residential building work" is defined to mean, inter alia, any work involved in the construction of a dwelling, but does not include work that is declared by the Regulations to be excluded by the definition. A "dwelling" means a building or portion of a building that is designed, constructed or adapted for use as a dwelling, but does not include buildings declared by the Regulations to be excluded from the definition. On the face of it, the work which the defendant contracted to construct is residential building work, unless it is a building work that is excluded by the Regulations from the definitions of "residential building work" or "dwelling". 15 It was not submitted that the work was excluded from the definition of "residential building work": see Home Building Regulations (1997) Regulation 8. However, it was submitted that the works were excluded from the definition of "dwelling" pursuant to Regulation 6. Paragraph (d) of that Regulation provides that there is to be excluded from the definition of "dwelling" "accommodation (other than self-contained units) specially designed for the aged, disabled or children". 16 There is no doubt the accommodation was specially designed for the aged. Therefore, the question of whether it is excluded from the definition of "dwelling" turns on whether the works to be constructed are, or include, self-contained units. The specification which was given to the defendant described the project as a "proposed aged care hostel facility", but there is nothing in it, at least nothing to which my attention has been drawn, which otherwise assists in determining whether the work to be constructed comprised or included self-contained units. 17 In a letter written by Mr Smith of the plaintiff to Mr Zoljalali dated 17 July 2003, the project was described as a hostel project involving initially the construction of twenty-four resident units and one carer/manager unit on a single storey. Mr Smith said that the designer had been appointed to explore the opportunity of building an additional ten to sixteen units and carer, sleep-over and managers' units. Mr Smith asserted in his letter of 17 July that the project did not require home owner's warranty insurance as it fell outside the parameters at that time. However, the reason for that view was not explained in the correspondence. 18 On the material before me, it appears that there is a genuine issue to be decided at an appropriate time and place as to whether the project does involve the construction of self-contained units and, hence, falls within the definition of a "dwelling". If it does, then the effect of s 10 of the Act would be to preclude the defendant from enforcing as a contractual debt, what it claims to be monies owing to it under the contract. It may well be, having regard to the differences between ss 10 and 94 of that Act, that the defendant would, nonetheless, be entitled to maintain an action on a quantum meruit basis. But whether or not the defendant on a quantum meruit would be entitled to more than has already been paid to it, is not a matter which can be presently determined. Whether it can or it cannot, if s 10 of the Home Building Act applies, the defendant would not be entitled to the contractual debt which appears to be the basis of the amount certified by the adjudicator. 19 It was submitted for the defendant that it was the plaintiff itself who represented to it that the Home Building Act did not apply to this construction. Accordingly, it was submitted that the plaintiff could not bona fide raise a dispute based upon alleged non-compliance with the Act, when that non-compliance, assuming it to exist, was induced by the plaintiff's own representations. 20 However, the fact that a claim is unmeritorious does not mean that it is not a genuine claim, within the meaning of "offsetting claims" in section 459H of the Corporations Act. Sections 459G and 459H are concerned with the existence of debts owed by or to a company, rather than the wider question as to whether it is meritorious for a company to maintain or resist a claim. 21 The representations made by the plaintiff may well throw up further issues at a later hearing but that, I think, only indicates the existence of a triable issue in relation to the contractual debt, having regard to the plaintiff's invocation of s 10. 22 The next ground upon which the plaintiff maintained that it was not liable for the debt which was the subject of the adjudication certificate and, hence, had a right to seek relief in respect of it in subsequent proceedings, was based on ss 92 and 94 of the Home Building Act. Section 92 requires a person carrying out residential building work under a contract to have a contract of insurance that complies with the Act in force in relation to the work. 23 It seems clear from the statutory declaration of Mr Zoljalali, which was before the adjudicator, and from the terms of the defendant's adjudication application which dealt with the plaintiff's payment schedule, that no such insurance was in place. 24 Section 92 is found in Part 6 of the Home Building Act. Regulation 75 provides that a retirement village is exempt from the requirements of Pt 6 of the Act in respect of residential building work which a contractor contracts to do on behalf of the developer. However, that exemption does not apply to a retirement village that is subject to a strata scheme. It was submitted for the plaintiff that Regulation 75 of the Home Building Regulations was inapplicable. 25 A development consent in relation to the property was granted by the Albury City Council on about 29 August 2000. It appears from the terms of that consent that the property was the subject of a strata subdivision. Hence, if Regulation 75 were applicable, then, prima facie, it appears that the retirement village exclusion would be applicable. In any event, it is not clear to me that Regulation 75 was in force at the date of the contract. 26 It follows, having regard to my finding that there was a triable issue in relation to whether this was residential building work, that there is a triable issue that section 92 had to be complied with. If it did, then it was not complied with. Notwithstanding that non-compliance, the defendant might, nonetheless, be entitled to recover money in respect of the work which it did on a quantum meruit basis. But it would only be so entitled if a court or tribunal considered it just and equitable. 27 As I have previously said, it is not possible to say on the present application that it would be entitled to an amount which was the subject of the adjudicator's certificate, or indeed any amount in excess of that which has already been paid to it. 28 For these reasons, I consider that the plaintiff's contentions under the Home Building Act do give rise to a genuine claim which can be relied upon by it in answer to the statutory demand. I will, nonetheless turn to the other ground upon which the plaintiff also relied, namely, that this was a contract for a lump sum. 29 It was submitted for the defendant that when Mr James' evidence of his conversation with Mr Zoljalali is considered against contemporaneous documents and against the contentions made by the plaintiff in its payment schedule, that it was clear that the dispute which the plaintiff seeks to raise is not a genuine one. The approach to such questions on an application such as this is set out by McLelland CJ in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785, 12 ACLC 669, where his Honour said (at 787): "It is, however, necessary to consider the meaning of the expression "genuine dispute'' where it occurs in s 450H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried'' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be'' not having "sufficient prima facie plausibility to merit further investigation as to [its] truth'' (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of facts unsupported by evidence'': cf South Australia v Wall (1980) 24 SASR 189 at 194. 30 I was taken to a number of documents which, the defendant contended, indicated that there was no plausible basis on which to accept Mr James' evidence that there was an oral agreement for a fixed lump sum. On the same day as the asserted conversation with Mr Zoljalali, Mr Zoljalali wrote to the plaintiff saying that the indicated cost to build the project would be in the order of $1,250,000, but this would need to be confirmed following a site visit and further local investigation. Mr Zoljalali in his statutory declaration gives a very different account from Mr James of the conversations and the basis for contracting. 31 Counsel for the defendant also referred to a quantity surveyor's estimate for the cost of the works, which came to a total of in excess of $1,680,000. It is not clear to me from that estimate whether it includes costs of carrying out work which had already been completed at the time of the discussions on 21 July. Counsel referred also to an e-mail from Mr Smith of the plaintiff to Mr Zoljalali of 3 March 2004, in which it is clear that the plaintiff described the claims paid to that date as comprising amounts which were apparently cost items plus further payments for a builder's margin and GST. 32 Reference was also made to a pie chart which was the subject of discussion between the parties. It was sent by Mr Zoljalali to Mr James on 17 September 2003. The chart draws a distinction between what was called a formal arrangement, being apparently a formal basis for making payments to be presented to financiers, and what was described as "our arrangement", which included a sum for construction costs of $1,250,000. That sum was said to be "the estimated actuals inclusive of fifteen percent overheads". 33 It is not clear to me, however, in relation to that charge, that the figure of $1,250,000, said to be inclusive of overheads, should be capable of being subject to variation. It is not clear to me that that document is necessarily inconsistent with the plaintiff's contention that the construction work was to be carried out for a lump sum as distinct from a cost plus basis. 34 In the end, it seems to me that all of these matters which were relied upon by the defendant, go to show that there is a genuine triable issue between the parties as to what were precisely the terms of the building contract. It is clear that if Mr James' evidence in paragraph 7 of his affidavit were accepted, that would provide a proper basis for a finding that the plaintiff was not indebted to the defendant in the amount certified by the adjudicator. 35 It is not the task of the court on a hearing such as this to embark upon an inquiry as to the credit of a witness whose evidence is relied on as giving rise to the dispute. For this reason also, I think that there is a genuine dispute as to whether the plaintiff is liable for the amount which the adjudicator certified. Hence, there is a genuine claim which is the subject of an offsetting claim under s 459H. 36 The application was made under s 459G. I think the better approach is that the dispute under the contract gives rise to an offsetting claim under s 459H. I say that because finding that there is a dispute under the contract which is genuine, does not mean that there is a genuine dispute that the plaintiff is liable under the judgment. 37 There is no prejudice to the defendant in making an order pursuant to s 459H(3), rather than pursuant to s 459G, setting aside the statutory demand. Pursuant to that sub-section, I order that the statutory demand be set aside. 38 I order the defendant pay the plaintiff's costs of the proceedings. The exhibits may be returned after twenty-eight days.

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