Torrens Aloha P/L v San Modern Painting P/L

INTRODUCTION 1 Statutory demands these days rarely generate novel issues. This case generates two issues which if not novel, are still open to argument. The first is whether a builder or subcontractor can ground a statutory demand, insofar as requiring a liquidated present indebtedness, upon a claimed debt for completed work when allegedly still subject to defects requiring rectification. Those defects had earlier been rectified, but further defects were allegedly found, after the statutory demand. The law treats lump sum contracts as compatible with an obligation to pay by instalments. Can that law be called in aid, in support of a statutory demand so based? Or the law applicable where a party has received a substantial part of the benefit he or she might reasonably expect from the contract? 2 The second issue is reconciling the relatively low hurdle of genuineness for admitting an unliquidated offsetting claim (based on delayed completion), with the need to quantify it so it is set at its genuine level. For if not so capable of being quantified, it must be set at a nominal $1. Each of these issues throw up the extent to which the Court at this early quasi interlocutory stage, may decide genuineness questions by construing the contract grounding the claimed debt. 3 The Plaintiff developer seeks to set aside the Defendant painter's statutory demand. It is for monies said to be owing under a subcontract for painting work. The principal matter left to determine concerns the quantum to be attributed, if any, to an offsetting claim advanced by the Plaintiff. The major item of the offsetting claim pertains to liquidated damages said to be applicable by reason of the painter's delay. The Defendant denies that the contract or any implied term of it allows for such damages and contends that the genuine level of any such damage is unascertainable. The Plaintiff however contends that its offsetting claim renders the statutory demand below the prescribed amount ($2,000) for the purpose of the formula in s459H of the Corporations Law. There is also a more frontal attack. It is based on the contention that work subject to claimed post demand identified defects is not completed and therefore no amount could be due and owing at all. This is in circumstances where the Plaintiff claims the work was subject to outstanding defects and any entitlement to payment depended on its satisfactory completion. The Defendant's response is that it could not genuinely be disputed that any outstanding defects notified by the date of the statutory demand had been attended to. Further, that the Defendant is entitled to rely on the principles applicable to entitlement to progress payments as creating a debt due and owing at the date of the statutory demand. 4 Thus the principal constituent of that offsetting claim is an amount, up to 16 October 2000, of $84,000 based on an alleged date for completion of 5 July 2000; see Balog affidavit 16 October 2000, para 33; it was calculated at $69,000 as of 19 September 2000. The rate was $1,000 per day, taken from cl 15.1 of the subcontract under the heading "liquidated damages"; see para 27 below. The Defendant denies its applicability for reasons later set out. 5 That amount of $84,000 relies upon the Plaintiff's construction of the relevant contract for the painting of a block of residential apartments being the subcontract between the Plaintiff and the Defendant dated, when last executed, 26 May 2000; see Balog affidavit at page 10. The issue turns on whether liquidated damages of $1,000 per day applies by reason of the Defendant having, as the Plaintiff claims, failed to complete the contract by the date of 5 July 2000 so as, in terms of the contract, to trigger the liquidated damages clause in clause 15.1 of that contract, in the circumstances that occurred. If the Plaintiff succeeds in that contention, it is common ground that the statutory demand must be set aside. If the Plaintiff fails in that contention it seeks to fall back on the contention, advanced at this hearing for the first time, that, though no time for completion be fixed by the contract (as asserted by the Defendant and denied by the Plaintiff), nonetheless the general law will fix a reasonable time. The Plaintiff asserts that reasonable time was some time after the 5 July 2000 and before 12 September 2000 when the Defendant ceased to be on the site. 6 The Plaintiff's contention is then that the $1,000 per day should be extrapolated from the liquidated damages clause producing a figure which would completely offset the statutory demand amount left after agreed offsets totalling $46,625, (see para 8(10) below for their calculation). That would leave an amount of $54,967 out of the original statutory demand amount of $101,594. 7 The Plaintiff contends that, at the least, this contention rises to the level of a genuine claim (by way of counter-claim or cross-demand) that sufficiently satisfies the requirement that it be not merely fictitious or colourable; see Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No. 2) (1994) 12 ACLC 490 at 493. The Plaintiff then contends that it should be quantified at $1,000 per day yielding $84,000. The Defendant disputes both propositions.