Sceam Constructions Pty Ltd v Clyne [2021] VSCA 270

1 James and Nyree Clyne ('the Clynes') engaged Sceam Construction Pty Ltd ('Sceam') to carry out renovation works at their home under the terms of a standard form 'Simple Works Contract'. The project did not go smoothly. Ultimately, the Clynes served a statutory demand under the Corporations Act 2001 (Cth) on Sceam for $109,514.23. The debt is described as an amount due and owing having been certified by the architects for the project. Before the time for compliance with the demand expired, Sceam applied to the Court to set the demand aside. The Corporations Act specifies a period within which such an application must be made and requires the application to be supported by an affidavit within that period.

2 A director of Sceam, Matthew Charles Allen, affirmed an affidavit which was filed with the application to set aside the demand. In summary, Mr Allen deposed that he believed there was a genuine dispute about the debt because the Clynes had relied on their architects as to what the defects and incomplete works were and there were design flaws in the architectural drawings, which were more of a guide than working drawings to construct and build the alterations. Mr Allen deposed that the Clynes had been told about the problems with the architectural drawings from the day construction started. He stated that he disagreed with the defects identified by the architects and that he had disputed the debt from the day he received the architect's certificate. He made reference to the claim being 'invalid and disputed'. He exhibited various documents to his affidavit, including some, but not all, pages of the contract between Sceam and the Clynes.

3 The argument Sceam advanced on the application to set the demand aside was that the amount claimed was not a debt because the Clynes had not complied with the terms of the contract relating to the issuing of various notices. The argument relied upon a series of linked contentions:

(a) the notice of default was ambiguous;

(b) there had not been a breach of a substantial obligation upon which a notice of default could be based; thus the notice was invalid;

(c) in any event, the requirements of the notice of default had been altered such that the contractually allotted time to make good the default had not elapsed by the time a notice of termination was served;

(d) as a consequence of (a), (b) and/or (c), the notice of termination that was served was premature, with the consequence that the architect's certificate upon which the demand was based was invalid; and

(e) as a consequence of the foregoing propositions, the debt was not due and payable.

4 The Associate Judge observed that the dispute relied upon was a dispute about the validity of the termination of the contract, which in turn affected the validity of the certificate issued by the architect. Her Honour concluded that this dispute had not been raised in Mr Allen's affidavit; nor had the relevant provisions of the contract been exhibited to his affidavit. As a consequence, her Honour dismissed the application to set aside the demand.

5 Sceam seeks leave to appeal on four proposed grounds:

Ground 1: The learned primary judge misapplied the so-called Graywinter principle by applying a 'fair notice' requirement to the affidavit filed pursuant to s 459G(3)(a) of the [Corporations Act].

Ground 2: The learned primary judge erred in determining that the Graywinter principle prevented [Sceam] from advancing a genuine dispute on the ground that the alleged 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).

Ground 3: The learned primary judge erred in determining that the Graywinter principle prevented [Sceam] from advancing a genuine dispute on the ground that the Contract had been terminated prematurely (resulting in the certificate also being invalid).

Ground 4: The learned primary judge erred in determining that there was no genuine dispute in the form of the Validity Dispute.

6 For the reasons which follow, we grant leave to appeal on proposed ground 1 but otherwise refuse leave. We dismiss the appeal.

7 Sceam applied under ss 459G and 459H of the Corporations Act to set aside the statutory demand.[1] Central to the success or failure of Sceam's appeal is whether the affidavit by Mr Allen was sufficient to support the application to set aside the statutory demand. Before considering that affidavit, it is convenient to consider the relevant legislative provisions and case law.

8 Section 459G of the Corporations Act provides:

(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.

9 In this case, the relevant statutory period is 6 months.[2]

10 Among other things, s 459H of the Corporations Act provides for a statutory demand to be set aside where the Court is satisfied that there is a genuine dispute between the company and the creditor about the existence or amount of the debt to which the demand relates. The meaning of genuine dispute is well settled. For present purposes, it suffices to say that there must be a plausible contention requiring investigation and, while a fully evidenced claim is not necessary, more than bluster or mere assertion is required.[3]

11 A number of authorities have considered the meaning and effect of s 459G(2) and (3) of the Corporations Act. The applicant contends that the Victorian authorities have diverged from the more recent New South Wales authorities, and that the New South Wales approach is to be preferred; on that basis, by proposed ground 1 the applicant says that the Associate Judge erred in applying a 'fair notice' requirement in relation to the Allen affidavit. Given the nature of proposed ground 1, it is necessary to canvas in some detail the case law concerning s 459G(3) and the way in which the authorities have developed since Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund.[4]

12 In Graywinter, Sundberg J held that if an affidavit filed with the application does not satisfy the minimum requirements of s 459G(3), the court will not have jurisdiction to set aside the demand. He described the minimum requirements of a supporting affidavit as follows:

(a) the affidavit 'must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute';[5]

(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;[6] and

(c) neither a mere assertion that there is a genuine dispute nor a bare claim that the debt is disputed is sufficient.[7]

13 Sundberg J held that, where the supporting affidavit did not meet the minimum requirements, the absence of jurisdiction could not be overcome by the filing of a supplementary affidavit after the expiration of the statutory period. On the other hand, if the supporting affidavit met the minimum requirements, it could be supplemented by affidavits filed outside that period. This was because, while the supporting affidavit did not have to deploy the evidence, at the hearing only admissible evidence could be relied upon.[8]

14 Graywinter has been cited repeatedly in cases concerning whether the statutory period affidavit meets the requirements of s 459G.

15 In Elm Financial Services Pty Ltd v MacDougal,[9] Barrett J stated that Graywinter meant that the applicant's supporting affidavit must 'fairly alert' the respondent to the nature of the case the applicant will seek to make in applying to have the statutory demand set aside. His Honour stated that 'the content of the affidavit must convey, even if it be by necessary 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'. Barrett J observed that this process of delineation may not be extended after the statutory period, although it is open to the applicant to supplement the supporting affidavit by way of additional evidence relevant to the area of controversy within the period.[10]

16 In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd,[11] Barrett J reviewed some of the authorities including his judgment in Elm. He concluded that his observation in Elm to the effect that the ground of challenge to a statutory demand must be raised expressly in, or appear by necessary inference from, the supporting affidavit, was 'too strict'.[12] Barrett J observed that the correct approach was to treat a ground as having been raised within the statutory period 'if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed document the content of which "reveals" it'.[13]

17 In Re UGL Process Solutions Pty Ltd,[14] Black J referred to some of the authorities and concluded that 'the strictness of the Graywinter principle has been qualified at least to the extent that the initial affidavit will sufficiently raise a dispute if that ground is raised by a necessary or reasonably available inference, including from documents exhibited to the initial affidavit'.[15]

18 In Re Australia Zhongfu Oil Gas Resources Pty Ltd,[16] Brereton J reviewed the authorities and concluded:

[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.[17]

19 Turning to the Victorian authorities, we observe that this Court has on several occasions referred to the need for a supporting affidavit 'to notify' or alert the creditor of the basis of the ground on which the debtor seeks to have the statutory demand set aside.

20 In Malec, Scotts Agencies Pty Ltd supplied fuel to Malec Holdings Pty Ltd, which operated a transport company. There was a running account. Scotts served a statutory demand on Malec for unpaid fuel. Malec applied to set the demand aside. In the affidavit filed with the application, Mr Malec deposed that the company had been charged for fuel where there was no evidence fuel had been delivered. He stated that he 'suspected gross overcharging, duplication of invoices and incorrect debt calculations' by Scotts. Exhibited to the affidavit was a report by an accountant which Mr Malec understood showed overcharging by approximately $415,000. Mr Malec believed that amount should be offset against the amount claimed by Scotts, which would leave a balance owing of about $108,000. The basis for the alleged overcharging was a claim that on specified days, Scotts had charged for fuel in excess of the capacity of Malec's tankards.

21 In a subsequent affidavit filed outside the statutory period, Mr Malec deposed that Malec had automated reports that among other things showed the time each of its trucks was fuelled and how much fuel was put into the vehicle from the tankard. He exhibited reports which showed what fuel Malec had used and a table which took this information and compared it with what Scotts had charged Malec. On this basis, Malec claimed that the whole of the demand should be set aside as the amount charged by Scotts for fuel delivered was far in excess of the quantity of fuel that Malec had used.

22 This Court reviewed the authorities, including Graywinter, Elm, Saferack, UGL and Zhongfu.[18] The Court held that the first affidavit raised the issue of overcharging on the ground that Scotts charged for fuel which it could not have delivered on specific days where the total fuel allegedly delivered exceeded the safe fill capacity of the tankard. The Court held that the later affidavit raised a separate issue of overcharging on the basis of fuel used by Malec. The Court concluded:

[T]here was nothing in the First Affidavit that was capable of conveying to Scotts that Malec would seek to raise a genuine dispute or an offsetting claim based on the fuel decanted from the tankard by Malec's drivers as distinct from a genuine dispute or an offsetting claim based on the impossibility of Scotts's drivers having filled the tankard by more than its safe fill capacity on any particular day.[19]

24 In the later decision of GoConnect Ltd v Sino Strategic International Ltd (in liq),[20] this Court considered whether an affidavit filed outside the statutory period could be relied upon. In that case, Sino Strategic International Ltd had lent money to GoConnect Ltd. Following the appointment of a liquidator to Sino, it served a statutory demand for the loan debt. GoConnect sought to set the demand aside. The affidavit filed with the application stated that there was a genuine dispute as the loan was payable only when GoConnect chose to pay it.

25 Supplementary affidavits filed outside the statutory period stated that the loan facility agreement contained oral terms; the loan agreement was ambiguous justifying the introduction of parol evidence; and the conduct of the parties since the inception of the loan gave rise to an estoppel preventing Sino from demanding its repayment. The Associate Judge at first instance refused to admit the later affidavits into evidence and dismissed the application to set aside the demand. This Court refused leave to appeal and held that the later affidavits could not be relied upon. The Court stated:

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'.[21]

26 The Court held that the affidavit filed within the statutory period did not notify Sino of any contention other than that the loan was only repayable when it chose to pay it. The matters to which the subsequent affidavits went were not raised. While one of the clauses in the loan agreement had been referred to in the first affidavit, the Court held that:

GoConnect's contention that the loan money was not repayable as it had a discretion when to repay was fairly notified in the [initial] affidavit. However, no other contention was notified.[22]

27 Some correspondence between the parties was also exhibited to the initial affidavit filed in support of GoConnect's application to set the demand aside. In part, the correspondence read:

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...

28 GoConnect sought to argue that the additional contentions it wished to advance could be seen in that correspondence. This Court rejected that argument and stated:

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.[23]

29 The Court went on to hold that even if wrong about that conclusion, the correspondence had to be read in the context of the whole of the initial affidavit, with that affidavit explicitly confining the basis of the genuine dispute to the terms of the loan facility agreement.[24]

30 From time to time, other intermediate appellate courts have had occasion to consider what is required for an affidavit to satisfy the requirement that it support the application to set aside a statutory demand.

31 In Financial Solutions Australasia Pty Ltd v Predella Pty Ltd,[25] the Western Australian Court of Appeal had before it a statutory demand for a debt that had purportedly been assigned to the creditor (Financial Solutions Australia Pty Ltd). Predella Pty Ltd applied to set aside the demand. The deponent of the affidavit filed in support of the application stated that Predella had not seen the deed of assignment but had a genuine belief that the deed may be void and of no legal force or effect. Predella sought discovery of the deed of assignment and the loan documents.

32 The deed of assignment wrongly described the two loans and there was an obvious question as to whether the assignment to Financial Solutions was permitted under the terms of the loan agreements.[26] Financial Solutions submitted that these deficiencies could not be relied upon by Predella because the original affidavit filed with the application to set the demand aside did not satisfy the requirement for a supporting affidavit. It argued that the affidavit did not sufficiently raise a genuine dispute that (a) there was no valid loan assignment or that (b) the creditor was not a permitted assignee. Parker J (with whom Anderson and Scott JJ agreed) concluded that the affidavit sufficiently outlined the material facts on which the applicant intended to rely to show a genuine dispute.[27] Parker J then made some observations about Graywinter in the following terms:

It is necessary to bear in mind also that Sundberg J was dealing with a very different factual situation. Apt as his observations were in my respectful view to the circumstances with which he was concerned, and extremely helpful as his views have proved to be, there is reason to hesitate and hold back from an acceptance of the apparent effect of the submission for Financial Solutions that the concluding paragraph of the passages cited earlier from Sundberg J's reasons in Graywinter reveal a settled and universal principle, which must be satisfied by an affidavit before it can be accepted as 'supporting the application' within the meaning of s459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires.

In the position in which Predella was placed it can be accepted, applying the views of Young J in John Holland Construction, that the affidavit went beyond mere assertion that it did not owe Financial Solutions the money demanded, and backed up that claim by disclosing a commercially and legally credible basis on which it disputed that it was obliged to pay the money to Financial Solutions as claimed in the statutory demand. As Young J observed, what more than assertion is required is something that may differ from case to case.[28]

33 In the New South Wales Court of Appeal decision of NA Investment Holdings Pty Ltd v Perpetual Nominees Ltd,[29] the relevant facility agreement was exhibited to the initial affidavit filed with the application to set aside the statutory demand. The debtor sought to rely on a construction argument. The nature of the argument had not been set out in the supporting affidavit. Lindgren AJA (with whom Beazley and Handley JJA agreed) stated:

I accept that there was nothing in the affidavit or 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.[30]

34 In the subsequent case of Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd,[31] the New South Wales Court of Appeal again considered the issue. Young AJA (with whom Hoeben JA and Ward J agreed) stated that:

[T]he vital question was whether, expressly or by reasonably available inference, the grounds of challenge of the statutory demand were sufficiently identified in the affidavit.[32]

One does not merely check the boxes to see if certain form has been observed, but looks to see whether the affidavit supports the claim by expressly or impliedly identifying the real dispute.

I might observe here also, that it is of considerable concern that many of the hearings of cases in this type of matter spend time considering piles of decided cases discussing nuances in the different terminology used by judges throughout Australia who basically are saying the same thing. This approach defeats the whole purpose of the Act, which is to enable the court to dispose of this sort of dispute in a short, summary way.[33]

36 Most recently the issue was considered by the New South Wales Court of Appeal in Ziegler atf Doris Gayst Testamentary Trust v Cenric Group Pty Ltd.[34] Gleeson JA (with whom Meagher and McCallum JJA agreed) referred to the first paragraph of the passage in Infratel set out above_._ In dealing with a submission about what was required for a supporting affidavit, Gleeson JA drew on Lindgren AJA's judgment in NA Investment Holdings. His Honour said this:

Ms Ziegler's third complaint confused the concept of 'support' (as in an affidavit in support) with natural justice considerations. In NA Investment Holdings Pty Limited v Perpetual Nominees Ltd, Lindgren AJA (Beazley and Handley JJA agreeing) said that there is no requirement that the party seeking to set aside a statutory demand draw to the attention of the defendant the particular issue on which reliance will be sought to be placed, observing that such a submission confused the concept of 'support' in the requirement for an affidavit in support with natural justice considerations.

Insofar as Ms Ziegler relied on statements in some authorities, such as by Barrett J in Elm Financial Services Pty Ltd v MacDougal and in Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd, that the Graywinter principle requires that the affidavit in support of the application 'must fairly alert the claimant to the nature of the case the company will seek to make in seeking to have the statutory demand set aside', subsequent authority takes a less strict view of the scope of the so-called 'Graywinter principle' and accepts that the requirement in s 459G(3)(a) is satisfied if the ground is raised expressly, by necessary inference, or by a reasonably available inference ... .

Nor is there a requirement that the supporting affidavit contain submissions or arguments as to the legal basis of the asserted offsetting claim. That is not the function of an affidavit, as Lindgren AJA correctly observed in NA Investments Pty Ltd v Perpetual Nominees Ltd.[35]

37 Further, some of the authorities have also cautioned against using the phrase, 'Graywinter principle', noting the potential for distraction from the terms of the statute; that subsequent authorities have modified it; and that the rule by reference to which Sundberg J reasoned had subsequently been repealed.[36]

38 Standing back from all that has been written in the authorities, it is important to bear firmly in mind that what is critical is the language in the legislation. It requires an affidavit supporting the application to be filed with the Court within the statutory period. In the context of a claim to set aside the statutory demand on the basis that there is a genuine dispute as to the existence or amount of the demand, pursuant to s 459H(1)(a), the affidavit must support the application by providing the basis for establishing that there is a genuine dispute. Establishing the genuineness of the dispute requires material showing, or from which it can be inferred, that there is a real dispute. Most commonly this will be done by the deponent describing the dispute. That description will delineate the scope of the dispute which may be relied upon to set the demand aside. Where the dispute is based purely on the construction of a written agreement between the parties, the support requirement may be satisfied by exhibiting the agreement without more. But, for example and without being prescriptive, if something beyond the written terms is to be relied upon, then it is highly likely that this will need to be raised in the affidavit and more than mere assertion will be necessary. Ultimately, what is required to satisfy the support requirement must be assessed in the context of the particular application that is made.

39 In our opinion, while various forms of language are used in the authorities, their effect is the same. Whether the terms 'fair notice' or 'fairly alert' are used or whether it is said that the ground must be raised 'expressly, by necessary inference or by a reasonably available inference', the outcome turns on whether the affidavit supports the application. In their context, we do not understand the Victorian authorities referred to above to have used the terms 'fair notice' and 'fairly alert' in a procedural fairness sense. Rather, in substance and properly understood, those phrases have been used as a shorthand for the lengthier phrase 'expressly, by necessary inference or reasonably available inference'. That phrase requires that the grounds for resisting the statutory demand appear in the affidavit. The phrases 'fair notice' and fairly alert' convey the same requirement. And in several of the cases using that terminology, the Court has used both phrases, in a context indicating that it considered that they conveyed the same requirement.[37] The language of 'fair notice' or 'fairly alerts' has been directed towards the need for the affidavit to show that there is a real dispute, so as to properly be regarded as an affidavit that supports the application to set aside the statutory demand.

40 Further, in our view the language of 'fair notice' and 'fairly alert' describes one of the key purposes of the affidavit required to be filed and served under s 459G(3). That this is a key purpose of the section is supported by the extrinsic materials. Section 459G was introduced into the precursor to the Act by the Corporate Law Reform Bill 1992. The Explanatory Memorandum to that Bill records that s 459G was introduced as one of a suite of provisions to implement the recommendations of the 'Harmer Report' in connection with the setting aside of statutory demands.[38] In relation to the affidavit requirement, the Harmer Report said as follows:

Proposal. In DP 32 (para 118) the Commission proposed that any person (including the company) seeking to oppose an application for a winding up order based upon an allegation of insolvency should have to file and serve on the applicant notice of the grounds of opposition verified by affidavit. This was to ensure that a person opposing a winding up order put forward the basis of the opposition within an appropriate time.

Recommendation. The Commission recommends that a person who has not, within the prescribed time, filed and served on the applicant notice of the grounds of opposition (verified by affidavit), should not, without leave of the court, be entitled to oppose an application for a winding up order. Further, where the application for winding up is based upon non-compliance with a statutory demand, limits should be placed upon the right of a company to dispute the demand.[39]

41 Thus we do not think it constitutes an error to describe the affidavit requirement in s 459G(3) as directed to 'fairly notifying' or 'fairly alerting' the person who filed the statutory demand to the ground(s) on which the applicant will seek to have the statutory demand set aside. That is not to suggest that the language of 'fair notice' is concerned with matters of procedural fairness.

42 However, given that the language of 'fair notice' is not used in the statute itself, and is susceptible to misinterpretation, we consider that it would be preferable to avoid use of that language in the future. In a similar vein, while the shorthand phrase 'Graywinter principle' is convenient in some senses, it may be preferable to avoid its use, given that the authorities have developed since Graywinter was decided. It is more appropriate to use the language of the statute and to consider whether the statutory period affidavit 'supports' the application. If it does, then that affidavit may be supplemented by evidence filed outside the statutory period. If it does not, then there is no jurisdiction to consider material filed beyond that period.

43 Finally, we note that Graywinter itself concerned an affidavit that did not state any material facts to show that there was a genuine dispute; it contained mere assertions, and thus was not an affidavit 'in support' of the application. However, in other cases a supporting affidavit has been filed that does identify a genuine dispute on a particular basis, but the party seeking to set aside the statutory demand later seeks to rely on a different genuine dispute, identified in an affidavit filed outside the statutory time period. It is clear from the authorities that an affidavit filed within time that does not identify the dispute later sought to be relied upon is not a 'supporting affidavit' in so far as the different genuine dispute is concerned, and that the party concerned is not permitted to rely on that different genuine dispute if it was not identified in the supporting affidavit filed within the statutory time period.[40] That is, the particular 'genuine dispute' on which an applicant seeks to rely must be identified in the supporting affidavit filed within time; it is not sufficient to identify one genuine dispute in the supporting affidavit, and then to identify a different genuine dispute in later affidavits filed out of time and at the hearing of the application.

The affidavit of Mr Allen and other affidavits filed outside the statutory period

44 As noted previously, an affidavit of Mr Allen was filed with the application to set aside the demand. Critical to the decision of the Associate Judge and to the application for leave to appeal before this Court is whether that affidavit supported the application to set aside the demand on the basis that there was a genuine dispute. It is necessary to consider that affidavit in some detail. Mr Allen deposed:

7. I believe Sceam is not indebted to the [Clynes] for the debt and the amount [comprising] the Debt claimed for the following reasons:

1. The [Clynes] have relied upon their Architects advice and subject to what he believes the disputed defects and incomplete works are.

2. The [Clynes] 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.

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

45 In his affidavit, Mr Allen went on to set out what he saw as problems with the project that had started when construction began in November 2017. For example, he deposed:

15. Fifth problem encountered, due to the incorrect measurements from the Architectural documentation, installing the framework first floor we had to construct it to as built dimensions as the dimensions on the drawings did not work.

17. Due to the defective design of the structure from the Architect, this is why we encountered so many engineering problems and had to change engineering and come up with [new] solutions, to make the structure be able to be built.

18. All defects that have been brought to Sceam[']s 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.

A copy of the certificate of final inspection was exhibited to Mr Allen's affidavit.

47 Mr Allen described his experience as a builder and in the building industry and was critical of the architectural documents. He next deposed that:

22. Ben Howard, a director at the time and still currently employed at Sceam Construction at the time of this Build has also disputed this debt.

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

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

48 Mr Allen stated that he had tried to resolve the dispute by mediation and he referred to other action that he had taken to resolve matters, including by seeking conciliation and by making application to the Victorian Civil and Administrative Tribunal. Mr Allen noted that he was waiting for a hearing date for that matter. Mr Allen concluded his affidavit by deposing that on the basis of the matters raised in his affidavit, he believed there existed a genuine dispute regarding the amount claimed by the Clynes.

49 As noted above, the contract was a standard form contract. Mr Allen exhibited the coversheet, table of contents, pages containing statutory notices and a warning and the completed schedules to the contract. He did not include the pages containing the terms and conditions of the contract. He did not mention the letter of demand the solicitors for the Clynes had served on Sceam, the subsequent notice of default, or the notice of termination. Nor did he exhibit those documents to his affidavit.

50 Mr Allen exhibited the statutory demand and the certificate of final inspection that Sceam had obtained. He also exhibited emails sent by him and Mr Howard in response to the statutory demand. Mr Howard's email read:

Thanks ford [the Clynes' solicitor], I'm a little unsure what you want us to do, we do not owe that money, so we are not going to pay it.

Mr Allen's email stated:

There is a genuine dispute here, we have disputed this all the way along on previous correspondence.

However, the 'previous correspondence' referred to in Mr Allen's email was not exhibited.

51 Mr Clyne affirmed an affidavit in response to Mr Allen's affidavit. Mr Clyne's affidavit was filed outside the statutory time for setting aside a statutory demand. Among other things, Mr Clyne exhibited a full copy of the contract, more of the correspondence between the parties, the letter of demand, notice of default, notice of termination, initial assessment by the architect, Sceam's responses to it, the architect's review of Sceam's responses and architect's final certificate of the amount payable (upon which the statutory demand was based).

52 In response to Mr Clyne's affidavit, an affidavit made by Mr Howard was filed by Sceam. This affidavit was also filed outside the statutory period for filing an affidavit in support of the application to set the statutory demand aside. Mr Howard responded to each paragraph of Mr Clyne's affidavit, doing little more than agreeing or disagreeing with each paragraph. In responding to the paragraphs about the notices of default, and termination, Mr Howard agreed they had received the notice of default, said that they had returned to the property to attend to any defects and agreed that the notice of termination had been issued. In respect of that notice, he deposed that 'this was not done correctly to the building contract from Birch + Co Lawyers [the solicitors for the Clynes], they did not follow the termination procedure correctly.' Mr Howard stated that he disputed the initial determination of the architect and the certificate issued by the architect.

53 Towards the end of the hearing before the Associate Judge, her Honour sought clarification from counsel for Sceam in relation to the dispute relied upon by it to establish that there was a genuine dispute about the debt. Counsel confirmed that the dispute relied upon was whether or not the contract had been terminated in accordance with its terms and therefore whether the architect's certificate which created the debt was valid. The Associate Judge asked whether that dispute had been raised in Mr Allen's affidavit, which was the only affidavit filed within the statutory period. Argument ensued and, following the conclusion of the hearing, the Associate Judge asked the parties to file written submissions on the point.

54 In her Reasons, the Associate Judge considered the relevant statutory provisions, particularly s 459G, the requirements for the statutory period affidavit and Graywinter. The Associate Judge stated that the key question before her was whether Mr Allen's affidavit 'fairly alerts or provides fair notice to [the Clynes] of the grounds on which the application relies.'[42] She came to the conclusion that it did not.

55 The Associate Judge used some shorthand terms in her Reasons. It is convenient to set some of them out at this point:

Contractual Overpayments: the $146,374.41 the Clynes claimed they had paid directly to sub-contractors, to ensure that the Building Works would continue and to mitigate their loss.

Defects/Overpayments Dispute: the dispute by Sceam in relation to the alleged defective works and Contractual Overpayments.

Validity Dispute: dispute about the validity of the termination of the contract and the certificate issued by the architect.

56 Her Honour noted that, at the hearing before her, the ground relied upon by Sceam as the genuine dispute was the Validity Dispute.[43] She concluded that Mr Allen's affidavit did not provide fair notice or fairly alert the Clynes of that dispute.[44] Her Honour found that it was clear from Mr Allen's affidavit that Sceam raised the Defects/Overpayments Dispute; but that was not the dispute relied upon at the hearing.[45] Consequently, the Associate Judge did not consider whether that dispute was genuine.[46]

57 The Associate Judge accepted the Clynes' submission that the statement in para [23] of Mr Allen's affidavit was a bare denial of the debt and a bare assertion about the existence of a dispute about the debt.[47] She did not accept that the Validity Dispute had been raised by way of inference from Mr Allen's affidavit or by inference from the exhibits to it.[48] Her Honour noted that there was no controversy raised in Mr Allen's affidavit about the notice of default or the notice of termination or the validity of the architect's certificate.[49] Exhibiting the statutory demand did not take the matter any further.[50]

58 The Associate Judge concluded that Sceam could not rely on the Validity Dispute as a ground for setting aside the statutory demand because it had not met the jurisdictional requirement for the statutory period affidavit.[51]

59 Although not necessary for her decision, her Honour went on to consider in brief terms whether, if the Validity Dispute had been raised in Mr Allen's affidavit, it was a genuine dispute that would have been a ground for setting aside the statutory demand.[52] She concluded that the dispute was not genuine, noting that there was no contemporaneous correspondence where the validity of the notices of default, termination and architect's certificate had been raised.[53]

60 The Associate Judge dismissed the application to set the demand aside.

Proposed Ground 1: Did the Associate Judge misapply s 549G(3)(a) of the Corporations Act?

61 Sceam submits that the Associate Judge misapplied s 459G(3)(a) of the Corporations Act. Relying on Ziegler, Sceam submits that the Associate Judge misdescribed or put a gloss on the requirements of the section by applying a test of 'fair notice'.

62 For the reasons set out above, it does not matter that this language was used. That language fairly reflects one of the purposes of s 459G, and is a shorthand way of identifying the requirement that an affidavit in support must identify expressly, or by necessary or reasonable inference, the grounds on which the statutory demand should be set aside. However, as we noted above, we consider it would be preferable to avoid this language in the future.

63 Ultimately what is important is whether Mr Allen's affidavit supported the application by raising, as a genuine dispute, the validity of the termination of the contract and the consequential validity of the architect's certificate upon which the debt claimed in the statutory demand was based. As will be seen from what follows in relation to proposed grounds 2 and 3, in our opinion the Associate Judge applied the correct legislative test. Her Honour was alive to the need to look not only to the statements in Mr Allen's affidavit but also to the exhibits to that affidavit as well.[54] She was alert to the need to consider not only explicit references to the relevant dispute but also to inferences that might be drawn from the material.[55] As her Honour pointed out, neither the affidavit itself, nor the exhibits to it, went to the validity of the termination or architect's certificate.

Proposed Grounds 2 and 3: Did s 459G(3) Corporations Act prevent Sceam from advancing arguments that:

(a) there was no breach of a substantial obligation under the contract such that the contract had been terminated unlawfully; and

(b) the contract had been terminated prematurely resulting in the certificate also being invalid?

64 Sceam accepted that it could not dispute the debt on the basis that the content of the architect's certificate was incorrect or flawed. It could only attack the certificate (and consequentially the debt claimed in the demand) if the certificate did not comply with the terms of the contract.[56] Sceam sought to do this. It says that because Mr Allen exhibited extracts from the contract (but, as noted above, not its terms) to his affidavit, it could then supplement this evidence and rely on the full copy of the contract that was exhibited to Mr Clyne's subsequent affidavit.

65 There was additional information in, and correspondence exhibited to, Mr Clyne's affidavit. The paragraphs that follow summarise that evidence. It is necessary to include this to understand Sceam's arguments.

66 The contract provided that the architect would administer the contract on behalf of the Clynes and, as their agent, would give instructions to Sceam. The contract also provided that in acting as certifier, the architect was to act independently and not as agent of the Clynes.

67 In about March 2018, the Clynes claimed to have paid directly to Sceam's subcontractors over $145,000 (which, as noted above, the Associate Judge referred to as 'the Contractual Overpayments'). In about March 2019, the Clynes' solicitors sent a letter of demand seeking payment of $148,725.05 in respect of the payments to subcontractors and incomplete and defective works. Later that year in November, Mr Clyne contacted Mr Allen and Mr Howard with a proposal for resolution.

68 In mid-January 2020, Mr Clyne met with Mr Allen and Mr Howard at the property with Mr Clyne pointing out items that had not been finished. Mr Howard wrote down a list of items with a dollar amount next to each item.

69 On 26 February 2020, Mr Clyne sent an email to Mr Allen and Mr Howard expressing his ongoing frustrations and telling them that they would receive a letter from his lawyers. The solicitors' letter of the same date demanded payment of $133,840.71 by 11 March 2020. On 27 February 2020, Mr Howard sent an email to Mr Clyne stating that whatever the amount they agreed on, Sceam had no money to pay. Mr Allen also sent an email to Mr Clyne stating that Sceam had no money.

70 On 1 April 2020, the Clynes issued a formal notice of default under cl Q1.1 of the contract. That clause provides:

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.

72 Following service of the notice of default, there were email exchanges between the Clynes' solicitors and Mr Howard. In that correspondence, the solicitors set out what in their view Sceam needed to do to remedy the matters raised in the default notice - complete the works that were set out in a list provided to Mr Howard and pay $49,344.10 by 15 April 2020. The list was not in evidence. Mr Howard responded stating that he disagreed with 'most of the information' in the email from the Clynes' solicitors; Sceam was more than willing to complete the works and he disagreed with the amount claimed. In a subsequent email, Mr Howard disputed that the Clynes had paid subcontractors. Mr Howard also provided 23 numbered responses which appear to be in respect of each item of works in the list. Some of the responses are in the form of saying 'happy to get this done'. Others state 'first I have heard about it, it's out of defect period'. Other responses are to the effect that the Clynes did not want the work done or that the item was a variation. Further emails followed, but without any resolution of the issues.

73 On 20 April 2020, more than 10 working days after the issue of the notice of default, the Clynes issued a formal notice of termination under cl Q1.2 of the contract.

74 On 1 May 2020, the architect emailed the parties noting that the contract was being terminated and cl Q8 had been triggered. Clause Q8 provides:

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 contractor 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.

75 Pursuant to cl Q8, the architect prepared an assessment of the cost to the Clynes to complete the renovations and a certificate that $124,945.08 was due and owing to the Clynes. The assessment included a list of defects and outstanding items.

76 The architect sent the assessment, including a list of defects, to the Clynes, Mr Allen and Mr Howard for their review. During May 2020, Sceam provided comments on the defects list in the assessment, accepting some items and disagreeing with others. On 16 June 2020, the architect provided its response to Sceam's comments, accepting some of those comments and rejecting others.

77 On 16 June 2020, the architect issued a certificate of the amount payable under cl Q9 for the amount of $109,514.23. Clause Q9 set out the procedure for the architect to follow to calculate the amount payable. Clause Q10 then imposed the obligation on Sceam to pay the Clynes the amount specified in the certificate.

78 On 19 June 2020, the Clynes' solicitor sent a letter of demand to Sceam requiring payment of $109,514.23 by 26 June 2020. No payment was made.

79 On 1 July 2020, the statutory demand for $109,514.23 was sent by registered mail to Sceam. The description of the debt in the schedule to the statutory demand reads:

Amount certified as due and owing to the Creditors in the ABIC Form SW-30 Certificate of Amount Payable certified by [the architect] dated 16 June 2020.

The statutory demand was accompanied by an affidavit of Mr Clyne who deposed that the debt was due and payable and that he believed there was no genuine dispute about the existence or amount of the debt.

80 On 1 July 2020, a copy of the demand was also sent by email to Mr Allen and Mr Howard. Each responded that day as described in para [49] above, essentially denying the debt and asserting there was a genuine dispute that had been disputed 'all the way along on previous correspondence'.

(a) the notice of default did not comply with cl 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 notice of default and the contractually allotted time had not elapsed.

82 As to proposition (a), above, Sceam contended that the notice of default was ambiguous because it referred to three earlier pieces of correspondence that set out different amounts said to be payable by Sceam and because neither the notice nor the correspondence made clear what was required to fix the alleged default, which was a contractual requirement in relation to a notice of default under cl Q1.

83 As to proposition (b), above, Sceam claimed that the major component of the notice of default was the defects and incomplete works which, on Sceam's case, were clearly raised as a dispute in Mr Allen's affidavit. Sceam contends that the Associate Judge did not address these issues. A notice of default under clause Q1 could be issued only if the contractor 'failed to meet a substantial obligation', and Sceam said that in no way could it be said in this case that incomplete works or defects would be a 'substantial obligation' justifying termination. Sceam says that in substance the genuine dispute was whether it was in breach of a 'substantial obligation' under the contract.

84 Sceam says that in those circumstances it was open to it to assert that the notice of default had been issued unlawfully. The consequence of this, so the argument ran, was the termination of the contract for failure to remedy the notice of default was also in dispute. Termination of the contract was a pre-condition of the certificate. If there was no right to terminate, then the certificate was invalid. This, Sceam contends, raised a genuine dispute about the debt which relied on the certificate having been given in compliance with the terms of the contract. Sceam submitted that the Associate Judge had accepted that Mr Allen's affidavit disputed the alleged defective works and payments to the subcontractors and she ought to have allowed consideration of this dispute.

85 Sceam referred to the paragraphs in Mr Allen's affidavit set out in para [46] in which he stated that Sceam disagreed with all the defects that had been brought to its attention. Sceam also referred to the paragraphs set out in para [47], in which Mr Allen stated that he had 'disputed with the Lawyers' for the Clynes that the claim was 'invalid and disputed' and that Mr Howard had disputed the debt. Sceam's position was that it had completed the works; to that end it relied on the certificate of final inspection exhibited to Mr Allen's affidavit. Sceam submits that these aspects of Mr Allen's affidavit were sufficient to enable it to argue that there was no breach of a substantial obligation, such that the notice of default was invalid and the contract had been terminated prematurely. It followed, so Sceam asserts, that it could supplement that material and rely on the affidavit of Mr Howard in which he stated that the notice of termination was 'not done correctly to the building contract ... they did not follow the termination procedure correctly'.

86 Little attention was placed on that part of the architect's certificate which related to the moneys claimed to have been paid by the Clynes to subcontractors. In relation to this point, Sceam contends that if it is arguable that the dispute about defects undermines the validity of the termination, then it is arguable that this results in the certificate failing wholesale with the effect that the demand should be set aside. Counsel for Sceam emphasised that the issue is only whether there is a genuine dispute that requires further investigation.

87 As to proposition (c), above, Sceam relied on the email exhibited to Mr Allen's affidavit in which he said that 'we have disputed this all the way along on previous correspondence'. Sceam submits that the Associate Judge was wrong to conclude that this did nothing more than say that there is a dispute. Sceam contends that it is more than a bare denial because it refers to the previous correspondence, which was known to the parties. Sceam says that having raised the issue in Mr Allen's affidavit it was entitled to rely on the correspondence exhibited to Mr Clyne's affidavit. It contends that the legal conclusion to be drawn from that correspondence is that the time for compliance with the notice of default was extended, such that the notice of termination on 20 April 2020 was premature.

88 The starting point is to consider whether Mr Allen's affidavit raised as a basis for setting aside the demand an attack on the notice of default, because that is the linchpin that would arguably bring down the termination and the architect's certificate. It did not.

89 Neither the notice of default nor the terms of the contract were referred to, let alone described, in the affidavit. Nor were they exhibited to the affidavit. While Mr Allen's affidavit stated that he 'disagreed' with the asserted defects, nowhere in Mr Allen's affidavit did he raise any issue about whether the defects were a breach of a 'substantial obligation' within the meaning of the contract. He did not describe them in any way that would have enabled a legal argument to be mounted that the defects did not constitute a breach of a substantial obligation. All that he did was make a number of assertions about five 'problems' (all of which were directed to the design of the works and did not refer to any defects), record that he 'disagreed' with all defects brought to Sceam's attention and state that he had disputed the debt from day one.

90 The reference in the correspondence exhibited to his affidavit, asserting that Sceam had disputed this 'all the way along on previous correspondence', takes matters no further. Again, this correspondence does not go beyond mere assertion (and the 'previous correspondence' to which reference was made was not itself exhibited). In this case, the sole reference to 'previous correspondence' without elaboration was not sufficient to provide a platform for supplementation through affidavits filed outside the statutory period.

91 In essence, all that Mr Allen did in his affidavit and the exhibited correspondence was repeat the language of the statute by saying that there was a dispute about the defects and that that dispute was genuine. Mr Allen did not identify a dispute about the process that had been followed which led to the termination and the architect's certificate, on which Sceam sought to rely before the Associate Judge. Nor did he exhibit any documents from which such a dispute could be inferred. In order for an inference - directed to the identification of the real or genuine dispute - to be reasonably available, there must be a solid foundation from which such inference can be drawn. Although Ziegler and NA Investment Holdings provide some support for the proposition that the inference itself need not be stated if it is derived from documents, the relevant documents, in order to support the application, must be exhibited to the statutory period affidavit. As pointed out, almost the entire documentary foundation for the suggested inferences is absent. There is nothing from which the suggested inferences can properly be drawn. The consequence is fatal.

92 Further, even if it were sufficient to rely on a dispute about the defects to underpin an argument about the validity of the termination and the certificate, Mr Allen did not provide any information about the 'dispute' beyond mere bluster. To say that there is a genuine dispute about the defects, with nothing more, only leaves one with the unanswered question: 'Why does he say that?' Mr Allen simply did not identify expressly, by necessary or reasonably available inference by what he said or from the documents exhibited to his affidavit anything upon which a legal argument could be mounted to establish the dispute that Sceam sought to rely upon. To use the language of the statute, the affidavit simply did not 'support' the application to set aside the statutory demand on the basis that the architect's certificate was invalid because the contract had not been terminated in accordance with its terms.

93 Finally, we note that the certificate of final inspection exhibited to Mr Allen's affidavit does not advance Sceam's case. As counsel for Sceam accepted, the certificate of final inspection was not an assessment of whether there were any defects in the project. Rather, as counsel explained, that certificate was concerned with whether there has been compliance with the building permit.

94 Similarly, there was nothing in Mr Allen's affidavit, or exhibited to it, that supported expressly, or by necessary or reasonably available inference, an argument that the time to comply with the notice of default had been altered with the effect that the termination was premature. Nor was there anything in the affidavit to suggest that the scope of the notice of default was ambiguous.

95 We would refuse leave to appeal on these grounds.

Proposed ground 4: Was there a genuine dispute about the validity of the notice of default, termination and consequent validity of the architect's certificate?

96 Having rejected proposed grounds 2 and 3 it is not necessary to consider proposed ground 4. We would refuse leave to appeal in relation to that proposed ground.

97 We grant leave to appeal in relation to proposed ground 1 and otherwise refuse leave to appeal. We dismiss the appeal.

[1] The application also referred to s 459J of the Corporations Act but no reliance is placed on that provision by Sceam.

[2] Corporations Act s 9 definition of 'statutory period' and Corporations Regulations 2001 (Cth) reg 5.4.01AA, which provided for a temporary increase to the statutory period from 21 days to 6 months. The regulation commenced operation on 25 March 2020 and is now repealed: reg 5.4.01AA(3).

[3] Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 ('Malec').

[4] (1996) 70 FCR 452; [1996] FCA 822 ('Graywinter').

[9] [2004] NSWSC 560 ('Elm').

[11] [2007] NSWSC 1143 ('Saferack').

[14] [2012] NSWSC 1256 ('UGL').

[16] [2012] NSWSC 1208 ('Zhongfu').

[18] Malec [2015] VSCA 330, [53]-[65].

[20] [2016] VSCA 315 ('GoConnect').

[25] (2002) 26 WAR 306; [2002] WASCA 51.

[28] Ibid 316-7 [34]-[35] (emphasis added).

[29] [2010] NSWCA 210.

[30] Ibid [85]-[86] (emphasis added).

[31] [2012] NSWCA 365 ('Infratel').

[32] Ibid [32], approving what Ward J had said in Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343.

[34] [2020] NSWCA 85 ('Ziegler').

[35] Ibid [47]-[49] (emphasis added) (citations omitted).

[36] Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60; (2019) 99 NSWLR 397, 407-8 [40]; [2019] NSWCA 60; Ibid [48].

[37] See, eg, Malec [2015] VSCA 330, [59]; GoConnect [2016] VSCA 315, [40].

[38] Explanatory Memorandum, Corporate Law Reform Bill (Cth) [685].

[39] Law Reform Commission, General Insolvency Inquiry (Report No 45, 1988) 76 [118] ('Harmer Report').

[40] See, eg, Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419, [29]; Malec [2015] VSCA 330, [57]; GoConnect [2016] VSCA 315, [40]; Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd [2017] VSCA 51.

[41] Sceam Construction Pty Ltd v Clyne [2021] VSC 296 ('Reasons_')._

[56] Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2013) 41 VR 636; [2013] VSCA 179.