Supreme Court of Queensland
Last Updated: 11 March 2016
SUPREME COURT OF QUEENSLAND
ABC Constructions No 1 Pty Ltd v Bonelli Constructions Pty Ltd  QSC 35
ABC CONSTRUCTIONS NO 1 PTY LTD
ACN 166 899 458
BONELLI CONSTRUCTIONS PTY LTD
ACN 168 287 689
SC No 1712 of 2016
Supreme Court at Brisbane
4 March 2016
23 February 2016
CORPORATIONS – GENERALLY – CORPORATIONS LEGISLATION – where application was brought under s 459G of the Corporations Act 2001 (Cth) – where the applicant seeks to set aside a statutory demand for payment pursuant to s 459H of the Corporations Act 2001 (Cth) – where the relevant contract was a building contract – where the statutory demand relates to outstanding progress payment claims – where it was alleged there were discrepancies between progress payment claims – where it was disputed that delay charges could be claimed – where it was disputed that the contract had been validly terminated – where it was disputed that certain breaches of the contract occurred – whether there is a genuine dispute about the existence or amount of the debt that is the subject of the demand.
Corporations Act 2001 (Cth), s 459G, s 459H
Re Rhagodia Pty Ltd (2008) 67 ACSR 367;  VSC 295, considered
Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd  VSCA 176, cited
Welldog Pty Ltd v World Oil Tools Inc  QSC 180, cited
K N Wilson QC for the applicant
N H Ferrett for the respondent
Australian Property Lawyers for the applicant
Romans & Romans for the respondent
 The applicant applies to set aside the respondent’s statutory demand served on 27 January 2016. The application is brought pursuant to section 459G of the Corporations Act 2001 (Cth) (the “Act”).
 At issue is whether there is a genuine dispute about the existence or amount of the debt that is the subject of the demand, and as to whether there is a genuine off-setting claim.
 In or around March 2015, the parties entered into a building contract for the development of ‘Jacaranda Gardens’ at 61-67 Caboolture River Road, Morayfield (the “contract”). Under the contract, the applicant was ‘the Principal’ and the respondent was ‘the Contractor’.
 On or around 30 September 2015, Kris Webb was assigned to the role of ‘Superintendent’.
 On 14 January 2016, the applicant issued a Principal’s Notice to Show Cause to the respondent. This notice annexed a schedule that alleged the respondent had breached Clauses 39.2(d), 29.1, 12, 14.1, 37.1 and 38 of the contract.
 On 22 January 2016, the applicant sent a letter to the respondent that stated:
“TAKE NOTICE that as the Contractor has failed to show reasonable cause why the Principal should not exercise a right referred to in clause 39.4 of the General Conditions of Contract by the time and date required by the Principal’s Notice dated 14 January 2016, the Principal hereby terminates the Contract.”
 On 27 January 2016, the respondent sent a letter to the applicant in which it was claimed the aforementioned termination was invalid. The statutory demand was served the same day.
 Under Clause 38 of the contract, the respondent was required to, by the twenty fifth day of each month, submit: progress claims in relation to the payment of monies due and payable to workers of the contractor and of the sub-contractors, and sub-contractors; and documentary evidence of those claims. These claims were calculated to the twentieth day of that month.
 Clause 37 states, “each progress claim shall be given in writing to the Superintendent [as defined by Clause 1] and shall include details of the value of WUC [‘work under the contract’, as defined by Clause 1] done and may include details of other moneys then due to the Contractor pursuant to the provisions of the Contract”.
 The respondent was required to use the materials and/or standards of workmanship outlined in Clause 29.1 of the contract. Clause 39.2(d) of the contract listed, without exclusion, substantial breaches. Under this clause, where there is no ‘construction program’ [as defined by Clause 1], failing to proceed with due expedition and without delay would amount to a substantial breach.
 Clause 12 required, amongst other things, the respondent take measures to protect people and property. Similarly, Clause 14.1 obliged the respondent to take care of the works.
 The statutory demand relates to a sum of money said to be owing as a consequence of a payment claim made by the respondent on 20 November 2015.
 The applicant claims the debt the subject of the statutory demand is genuinely in dispute. The respondent failed to submit documentary evidence supporting its progress claim; the debt has been the subject of a Principal’s Notice to Show Cause with a subsequent termination of the building contract by the applicant; and there are differences between separate progress claims issued by the respondent, which are each dated 20 November 2015.
 The applicant also contends that under the contract the respondent has a right to claim delay costs subject to a specified procedure, which had not been followed by the respondent. The applicant expressly disputed the right of the respondent to make any claim for delay costs prior to service of the statutory demand.
 Finally, the applicant claims the statutory demand was issued in circumstances where there was a pre-existing dispute between the parties resulting in a termination of the contract by the applicant.
 The applicant submits there is a genuine dispute between the parties regarding a number of matters under the contract. There is also a substantial claim for damages by way of rectification costs.
 First, the respondent, in breach of Clause 38 of the contract, failed to submit documentary evidence supporting its progress claims. Second, it is unclear whether the contract was validly terminated. Third, there are discrepancies between the progress claim upon which the demand is based, and other versions of it. Fourth, there are issues regarding delay costs claimed under the contract. Fifth, there are disputes as to whether works were completed in a timely and workmanlike manner and as to whether it was agreed how delay costs would be paid. Sixth, if there was no agreement to pay delay costs, there was no basis upon which a former director could have approved payment.
 The respondent submits payment was not conditional on documentary evidence being submitted. The right to payment on the progress claim survived termination. Further, the respondent submits there cannot be any dispute regarding delay charges because they were accepted and approved by a former director of the applicant.
 The respondent submits the applicant failed to identify the amount said to be in dispute, and, as a consequence, section 459H of the Act cannot be engaged. Even if the applicant did so, it is submitted by the respondent:
“... there is no material disclosing the basis upon which the applicant can argue it should be able to avoid its acts of certifying the payments or, alternatively, its own failure to issue a retention certificate within the requisite time.”
 Section 459G of the Act provides:
“(1) [Application to set aside statutory demand] A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) [Time limit on application] An application may only be made within 21 days after the demand is so served.
(3) [Requirements for effective application] An application is made in accordance with this section only if, within those 21 days:
(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.”
 Section 459H of the Act provides:
“(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.
(2) The Court must calculate the substantiated amount of the demand in accordance with the formula: admitted total – offsetting total.
‘admitted total’ means:
(a) the admitted amount of the debt; or
(b) the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
‘offsetting total’ means:
(a) if the Court is satisfied that the company has only one offsetting claim--the amount of that claim; or
(b) if the Court is satisfied that the company has 2 or more offsetting claims--the total of the amounts of those claims; or
(c) otherwise--a nil amount.
(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a) varying the demand as specified in the order; and
(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5) In this section:
‘admitted amount’, in relation to a debt, means:
(a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt--a nil amount; or
(b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt--so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c) otherwise--the amount of the debt.
‘offsetting claim’ means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
‘respondent’ means the person who served the demand on the company.”
 In Welldog Pty Ltd v World Oil Tools Inc, Daubney J referred to a useful summary of the applicable principles for determining whether there is a genuine dispute as to the existence of a debt or whether there is an off-setting claim, set out at  –  in Rhagodia Pty Ltd v National Australia Bank Ltd, noting that they have been approved by the Victorian Court of Appeal in Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd.
“ In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) said:
 The court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
 No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised.
 Dodds-Streeton JA further said:
 As the terms of s 459H of the Corporations Act 2001 and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.
 In Eyota, McClelland CJ of the Supreme Court of New South Wales said:
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 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), or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall.
But if it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 3:
These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.
 In Re Morris Catering (Aust) Pty Ltd, Thomas J said:
There is little doubt that Div 3 ... prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court’s examination are the ascertainment of whether there is a “genuine dispute” and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is 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.
The essential task is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).
I respectfully agree with those statements.”
(Footnotes and citations omitted)
 There is no doubt the applicant and respondent are in dispute in relation to the terms of their contractual relationship and as to the entitlement to payment of sums claimed to have been incurred by the respondent pursuant to that relationship. However, the issue for determination on the present application is not that there is dispute. The issue is whether the debt the subject of the statutory demand is genuinely in dispute.
 A determination of that issue requires a consideration of the cogency and plausibility of the applicant’s claims. That being the test, the relevant enquiry is not as to the correctness of either party’s contentions as to the effects of the contractual provisions in dispute. It may well be the respondent is ultimately successful in its contentions that the claimed disputes do not deny it from an entitlement to the amount of the progress claim on the basis that the contractual arrangements allow for a consideration of those issues in a final determination of the contractual amounts. However, that possibility does not prevent a finding that there is a genuine dispute as to the existence of the debt the subject of the statutory demand.
 Having considered the basis for the claimed dispute, the contemporaneous documentation and the surrounding circumstances, I am satisfied there is a genuine dispute as to the existence of the debt that is the subject of the statutory demand.
 The contentions advanced by the applicant are not so devoid of substance as to lack sufficient cogency to support a finding of a genuine dispute. The applicant’s claims are not spurious, hypothetical, illusory or misconceived.
 The progress payment forming the basis of the debt the subject of the statutory demand contained within it items that are inconsistent with the surrounding documentation. Those inconsistencies, are significant.
 There is also a clear dispute as to the entitlement to be paid for delay costs. That dispute was raised before service of the statutory demand, a factor supportive of its genuineness. The fact that a former director of the applicant company may have purported to approve payment of the claim does not affect the genuineness of the claimed dispute, as it includes the respondent’s entitlement to payment of those sums at all.
 The applicant has established there is a genuine dispute between it and the respondent about the existence or amount of the debt the subject of the statutory demand. This conclusion renders it unnecessary to determine whether the applicant has established it has a genuine off-setting claim.
 The statutory demand should be set aside.
 The applicant seeks payment of its costs of the application on an indemnity basis. The applicant contends that having regard to the findings as to the genuineness of the dispute, an offer by the applicant on 22 February 2016 seeking to resolve the matter on the basis that the statutory demand be set aside and proceeded to be commenced with costs, being costs in the proceeding, was a reasonable and genuine offer which ought, in the circumstances, to have been accepted by the respondent. The applicant contends that the failure to do so was so unreasonable as to justify an order for indemnity costs.
 Indemnity costs are normally to be awarded in circumstances where the conduct of a party has been so unreasonable or so not in accord with the objects of the Rules as to justify an order requiring that they pay costs on the indemnity basis. The failure of the respondent to accept the applicant’s offer does not fall into the category of such unreasonable behaviour as to justify an award of indemnity costs. The respondent was entitled to contend that the statutory demand ought not be set aside. They ultimately failed, and in those circumstances they ought to be ordered to pay the costs of the application, but only on the standard basis.
 The respondent’s statutory demand dated 21 January 2016 be set aside.
 The respondent pay the applicant’s costs of the application, to be assessed on the standard basis.
  QSC 180 at - .
 (2008) 67 ACSR 367;  VSC 295 at –.
  VSCA 176 at .
 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452;  FCA 681.