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Supreme Court of Victoria |
Last Updated: 31 May 2010
AT MELBOURNE
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JUDGE:
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WHERE HELD:
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Melbourne
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DATE OF HEARING:
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DATE OF JUDGMENT:
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CASE MAY BE CITED AS:
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Catchwords: CORPORATIONS – Statutory demand - Appeal from Order of Associate Judge varying statutory demand – Whether genuine dispute or offsetting claim established – whether ground raised in supporting affidavit – Appeal dismissed - ss 459G(1), 459H Corporations Act 2001.
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APPEARANCES:
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Counsel
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Solicitors
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For the Plaintiff
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Ian G Hone
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For the Defendant
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Seoud Solicitors
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Introduction and summary
1 This is an appeal from an order of an Associate Judge varying a statutory demand made by Duo Services Pty Ltd (“Duo”) on Phoenix International Group Pty Ltd (“Phoenix”).
2 The statutory demand is for the amount of $149,660.81. The affidavit accompanying the statutory demand was sworn by Dominic Portaro, a director of Duo. Mr Portaro deposes that a debt is owed by Phoenix for plumbing works at 64 Riversdale Road, Hawthorn in the sum of $147,293.61 and plumbing works to 420 Sherrard Street, Black Hill in the sum of $2,367.20 making a total of $149,660.81.
3 Phoenix applied to set aside the statutory demand under s 459G of the Corporations Act 2001 (Cth).
4 On 30 April 2010, the Associate Judge ordered that:
(1) the demand is varied to claim $14,545.27;(2) it is declared that the demand to have effect, as so varied, as from when the demand was served on Phoenix; and
(3) Duo pay 50% of Phoenix’s costs.
5 It is from these orders that Phoenix appeals.
6 On 7 May 2010, I ordered that the time for compliance with the statutory demand be extended to the hearing and determination of the appeal or further order.
7 For the reasons set out below, I am satisfied that:
(a) there is a genuine dispute between Duo and Phoenix about the existence or amount of all but $14,545.27 of the debt; and(b) Phoenix has not established that it has an offsetting claim.
8 I dismiss the appeal.
9 There are four issues that I must decide:
(a) whether there is a genuine dispute about the existence or amount of the debt;
(b) whether Phoenix has an offsetting claim;
(c) whether the demand should be set aside in any event because it has been served in a building case context; and
(d) whether evidence as to Phoenix’s right to a retention sum raises a new ground and is out of time.
The evidence
10 The application to set aside the statutory demand was supported by the affidavit of Tanya Danijela Belaj, a director and business administrator of Phoenix, of 14 December 2009. Phoenix also relies on further affidavits of Ms Belaj of 10 March 2010 and 14 May 2010.
11 Duo relies on the affidavits of Dominic Portaro of 12 February 2010 and Omar Sharif Seoud of 12 May 2010.
Evidence as to genuine dispute
12 Gantley Pty Ltd (“Gantley”) is a developer and engaged Phoenix, as builder, to perform works at the property at 64-66 Riversdale Road, Hawthorn (“the Hawthorn Project”). Phoenix engaged Duo to perform plumbing and drainage works at the Hawthorn Project. The contract price for the works to be performed by Duo was $281,125.90 (including GST).
13 Duo and Phoenix agree that certain variations were approved. These variations were:
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Variation 1 |
Shower bases |
$6,688.36 |
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Variation 3 |
Trough |
694.00 |
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Variation 4 |
Toilet suite (basement) |
176.00 |
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Variation 13 |
Downpipes, stormwater drains and rain heads |
24,139.50 |
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Variation 14 |
3 no fire boxes |
1,377.60 |
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Variation 15 |
20 Rheem dual element HWS |
17,136.00 |
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TOTAL: |
$50,211.46 |
14 In respect of variation 13, Phoenix says that the works are not completed. There is no evidence of the percentage completion of those particular works.
15 Other claims for variations by Duo are disputed by Phoenix. Ms Belaj says that in respect of these items, instructions were given directly to Duo by Ms Sophie Cotroneo on behalf of the developer Gantley. Ms Belaj has also deposed that Phoenix was not consulted about these variations.
16 Phoenix claims that it is also entitled to a retention sum of 5% of the amount certified for payment. There is some evidence of this in a February 2009 table of calculations exhibited to Ms Belaj’s first affidavit. In her second affidavit, she deposes that industry practice is such that retention sums are standard in the building industry. She said that in this case Phoenix initially withheld a retention sum of 10% but when Duo objected to that, the percentage was reduced to 5%. Further, although Duo disputes Phoenix’s entitlement to withhold retention moneys, it deducted $23,304 as a retention sum from the amount it claimed from Phoenix in the statutory demand.
17 As noted in the introduction, part of the amount included in the statutory demand was said to be for plumbing works to 420 Sherrard Street, Black Hill. On the hearing of the appeal, Mr Black of counsel, on behalf of Duo, accepted that there was a genuine dispute in relation to that part of the sum included in the statutory demand.
Evidence as to offsetting claim
18 Phoenix says that it has two offsetting claims for:
(a) delay; and(b) a costs order.
Claim for delay
19 Ms Belaj’s evidence is that Duo wrongfully suspended the works which caused delay.
20 Mr Portaro, on behalf of Duo, disputes this. His evidence is that Duo was told by Mr Steven Phillips, the project manager for Phoenix, not to install the remaining sanitary ware (which, on his evidence, was the only remaining work to be done by Duo).
21 Ms Belaj has deposed that Duo’s conduct caused a delay of at least 30 days. She said that this exposed Phoenix to a claim by Gantley of $1,200 per day (total of $36,000). She also says that Duo’s delay caused other trades to be delayed in completion of their works and claims a further ten days at $1,200 a day. This makes the total offsetting claim for delay $48,000. Ms Belaj says that if Gantley is successful in making a claim against Phoenix for delay, Phoenix is entitled to be indemnified by Duo, to the extent that it caused or contributed to such delay. Ms Belaj goes further and says that it is not a prerequisite to a successful claim by Phoenix against Duo for delay, that Phoenix must itself be liable to Gantley for delay.
22 In a Phoenix Account Summary dated 1 December 2008 exhibited to Ms Belaj’s first affidavit, reference is made to Duo causing delays with applicable penalties said to be $2,100 a day (rather than $1,200 a day). In a Phoenix Account Summary dated 6 February 2009, no reference is made to any delay claim.
23 Exhibited to Ms Belaj’s second affidavit is what she describes as a liquidated damages claim by Gantley. The document is entitled “Certificate of Moneys Due to the Principal Issued pursuant to Clause 37.2(b)AS4000-1997”. It is dated 13 February 2009 and records a certification that $366,000 is due from Phoenix to Gantley for liquidated damages (calculated at the rate of $1,200 a day for 305 days). Exhibited to Ms Belaj’s third affidavit are two letters of 13 February 2009 from Gantley to Phoenix. Enclosed with the first letter is the 13 February 2009 certificate. Enclosed with the second letter is a payment schedule which relates to a payment claim by Phoenix on Gantley. That document records that Gantley proposes to pay no amount to Duo. One of the reasons given for non-payment is that Gantley says it is entitled to set off liquidated damages of $1,200 a day from the date of practical completion (which date is not specified).
24 In her third affidavit, Ms Belaj gave evidence in respect of proceedings which have been brought in the County Court of Victoria by Phoenix against Gantley and other defendants. The writ is dated 2 March 2009. Those proceedings include a claim by Phoenix against Gantley for payment in respect of the Hawthorn Project. On 1 May 2009, His Honour Judge Shelton ordered that Phoenix provide the sum of $9,000 by way of security for costs in respect of its proceedings against Gantley. In respect of these proceedings, Ms Belaj’s evidence of 14 May 2010 was that although the proceedings are stayed, Phoenix’s “present intention” is to provide the security so that the proceedings can continue. She deposed that it was anticipated that:
(a) funds for payment of the security “will be available within the next week or so”; and(b) Gantley will file a defence and counterclaim in which it will be seeking liquidated damages for delay against Phoenix.
25 Ms Belaj says that if that happened, Phoenix would seek to join Duo to the proceeding as a third party, and would seek to be indemnified by it. She then exhibits to her affidavit the two letters of 13 February 2009 and their enclosures which are described above.
26 Phoenix made a claim against Gantley pursuant to the Building and Construction Industry Security of Payment Act 2002. That claim was in large part upheld by the adjudicator appointed under that Act. Included was a claim by Phoenix for prolongation (delay) costs to be paid by Gantley. Gantley appealed to this Court. In Gantley Pty Ltd and ors v Phoenix International Group Pty Ltd and anor,[1] Vickery J held that the payment claim had not been properly drawn and allowed the appeal. His Honour went on to state in respect of the prolongation claim, that in any event the adjudicator rejected the claim because he was unable to link the claim by Phoenix against Gantley to the scheduled sum for liquidated damages of $1,200 a day payable by Phoenix to Gantley in the event of delay caused by Phoenix. His Honour stated that as there was no other basis upon which the claim could be assessed, it was rejected in its entirety by the adjudicator as His Honour said it should have been. On this basis, it appears that the Supreme Court proceeding sheds no light on whether, as a matter of substance, Gantley is liable to Phoenix for prolongation costs, nor conversely, whether Phoenix is liable to Gantley for delay.
27 Ms Belaj’s evidence is that as a result of the judgment in the Supreme Court proceeding, “it would be more prudent financially to continue with” the County Court proceedings (being the proceedings that I have referred to above).
28 Mr Cook of counsel submitted on behalf of Phoenix that there has been no real delay in payment of the security for costs in the County Court proceeding, because it is only since Vickery J’s decision in the Supreme Court on 31 March 2010 that a decision to proceed with the County Court action needed to be made. He submitted this on the basis that until His Honour’s orders in this Court, it was thought by Phoenix that the application pursuant to the Building and Construction Industry Security of Payment Act 2002 would result in orders against Gantley for a substantial payment to be made to Phoenix. It is not necessary for me to make a finding as to whether there has been delay or not.
29 Phoenix also submitted that it has an offsetting claim in respect of a costs order made in its favour in this matter on 27 January 2010. There is no evidence of the amount of those costs (although in written submissions, counsel for Phoenix presumed them to be in the range of $4,000 to $5,000).
Genuine dispute and offsetting claim
30 Section 459G(1) of the Corporations Act provides that a company may apply to the Court for an order setting aside the statutory demand served on the company. Section 459H of the Corporations Act provides that where there is a genuine dispute about the existence or amount of the debt, or if the company has an offsetting claim, then the Court must calculate the substantiated amount. This is the admitted amount of the debt less any offset amount. If the calculation results in an amount less than the statutory minimum, then the Court must set aside the demand. If the amount is more than the statutory minimum, then the Court may vary the demand.
31 In TR Administration Pty Ltd v Frank Marchetti and Sons Pty Ltd,[2] Dodds-Streeton JA said:[3]
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 ‘alternate question’ of the existence of the debt should not be compromised.
32 Her Honour also said:[4]
As the terms of s 459H of the Corporations Act 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.
33 Her Honour quoted with approval the following statement of the Full Federal Court from Spencer Constructions Pty Ltd v GAM Aldredge Pty Ltd:[5]
In our view a genuine dispute requires that:
34 Mr Black also relied on Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation,[6] Royal Premiere Pty Ltd v Taleski[7] and Macleary Nominees Pty Ltd v Belle Property East Pty Ltd[8] which are to similar effect.
Statutory demands in building cases
35 Mr Cook submitted that in building cases, it is only where a claim for payment is based on a certificate requiring payment in any circumstances that it is appropriate for a statutory demand to be served. Counsel relied upon the decision of Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Greene Pty Ltd[9] as authority for the proposition that the statutory demand procedure is not appropriate in general for building disputes. His Honour stated:[10]
... that the basic attitude that the Company’s Court is not to be the court which deals with disputed debts remains the principle.There will be various types of commercial relationships that will produce debts between traders. Sometimes the debt is very easy to compute, such as the situation where there are a limited number of buying and selling transactions between the parties to the dispute. However, on the other end of the scale can be large construction contracts where it is sometimes difficult, at least in the short term, to work out just what is owing by one party to the other.
36 Having made the calculation required by s 459H of the Corporations Law and determining that no amount could be substantiated, His Honour stated:[11]
It may be that I am doing a disservice to this court in approaching the matter in this mathematical way. It may be that it is far more appropriate in this instant sort of case for the court to just take a broad brush approach. Thus the court might just say that because this is not a debt collecting court, where there is a construction case of this nature, the demand should be set aside under s 459J(1)(b) whenever it can be seen from the correspondence that there are honestly held views on either side which have brought a dispute between the parties. Thus, the matter can be dealt with in the ordinary way in which construction disputes are dealt with without the time and expense that is involved in running this sort of litigation ahead of that dispute. If I were to do that in the instant case, I would come to the same result.
37 I do not understand His Honour to be suggesting that if the legislative prerequisites for setting aside a statutory demand are not satisfied, that the demand must in any event be set aside, simply because it has been served in a building or construction case context.
Is the retention sum claim out of time?
38 There is also an issue as to whether Ms Belaj’s evidence as to Phoenix’s right to a retention sum raises a new ground and is out of time. In Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund,[12] Sunberg J considered what an affidavit in support of an application to set aside a statutory demand must contain, if it is to satisfy the requirements of s 459G. His Honour held that it was unnecessary for the affidavit served with the application, to detail in admissible form all the evidence, but it must disclose facts showing there is a genuine dispute between the parties. His Honour noted that an affidavit exhibiting correspondence which shows a dispute may be sufficient, and that the applicant can supplement the material in the initial affidavit by further affidavits.
Decision
39 On the hearing of the appeal, the parties agreed that part of the debt is undisputed but disagreed as to the amount that is undisputed.
40 Mr Black submitted that in addition to the variations totalling $50,211.46 (set out above), variation 9 for sinks for $8,280.40 had also been admitted, as it was included in a calculation prepared by Phoenix of the balance approved for payment in December 2008. However, in a later document prepared by Phoenix of the balance approved for payment, that item is said to be awaiting approval. I am satisfied that there is a genuine dispute as to that variation.
41 Mr Black also submitted that all of the variations should be allowed on the basis that Phoenix had included them in its claim against Gantley in the County Court proceedings. However, I am satisfied on the evidence before me, that Phoenix has satisfied the low threshold test for establishing a genuine dispute in respect of Duo’s entitlement to be paid for variations, other than those totalling $50,211.46 set out above.
42 It was also submitted on behalf of Duo that it was open to me to calculate the amount which was undisputed, on the basis that 82% of the work was completed. Phoenix does not accept that. Its evidence is that 75% of the works were completed. I accept that there is a genuine dispute about whether the percentage complete is more than 75%.
43 Ms Belaj’s first affidavit exhibited a February 2009 calculation by Phoenix in which a 5% retention sum was deducted from the balance said to be outstanding. I am satisfied that this was sufficient to satisfy the requirements of s 459G, and that this evidence could be supplemented in her later affidavits.
44 Mr Black submitted that there was no basis for a retention sum to be deducted from the amount owing. He points to the fact that the written contract between Duo and Phoenix does not provide for it, and that there is no expert evidence as to industry practice regarding retention sums. However, on the evidence, I am also satisfied that there is a genuine dispute about the entitlement of Duo to claim the amount that Phoenix says it is entitled to withhold as a 5% retention sum. That amount should be excluded from the calculation of the undisputed part of the debt.
45 Although Counsel for Phoenix submitted that I should take into account a notation that the variation for storm water works ($24,139.50) had not been completed, there is no evidence that Phoenix disputes payment of that amount. Rather, that sum was included in its own calculation of the balance approved for payment in February 2009. As such, I do not accept that this amount should be excluded from the calculation of the undisputed part of the debt.
46 For these reasons, I find that the amount of the debt that is not disputed is $14,545.27, calculated as follows:
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Contract figure (including GST) |
$281,125.90 |
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Variations admitted |
50,211.46 |
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Plus GST on variations |
5,021.15 |
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TOTAL: |
$336,358.51 |
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75% of works complete figure certified for payment |
$252,268.89 |
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Less 5% retention |
$12,613.44 |
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Less amount paid |
225,110.18 |
237,723.62 |
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BALANCE DUE: |
$14,545.27 |
47 Most of the argument on the appeal focussed on whether there was a genuine offsetting claim. It was submitted on behalf of Phoenix that it had an offsetting claim for a costs order which counsel estimated at $4,000 to $5,000. There is no evidence in that regard.
48 The costs order was made in this proceeding on 20 January 2010. There may be a question as to whether such a claim can be taken into account, as it did not exist at the time the application was made to set aside the demand. However, that point was not argued before me.
49 There being no evidence of the quantum that may be payable in respect of the costs order, no amount should be allowed by way of offset.
50 The second offsetting claim (in an amount of $48,000) is said to arise because if Gantley is successful in making a claim against Phoenix, it will be seeking recompense from Duo. Counsel did not press the claim that Ms Belaj had raised to the effect that Phoenix may succeed in a claim against Duo even if Gantley is not successful against Phoenix.
51 It is not necessary for Phoenix in this proceeding to establish fully its offsetting claim. Something less than that is required. However, in my opinion, it has not met the low threshold required. There is a lack of sufficient factual particularity in respect of the asserted offset claim. Only an extract from the contract between Gantley and Phoenix is in evidence. The allegation by Ms Belaj is that Duo has caused 48 days’ delay. However, her evidence does not specify when that delay is said to have occurred or how it caused delay to completion of the project.
52 The evidence discloses that the only assertions of a claim by Gantley against Phoenix for liquidated damages are contained in the certificate of moneys and payment schedule documents of 13 February 2009. There is no evidence of:
(a) any correspondence or other form of communication from Gantley to Phoenix since February 2009 in respect of any claim for damages; or
(b) Gantley bringing any claim for liquidated damages – Ms Belaj simply asserts that Phoenix presently intends to pay the amount of security for costs in the County Court proceeding with funds she anticipates will be available within a week or so; she said that this is expected to lead to a counterclaim by Gantley against Phoenix; if that happens, Ms Belaj says Phoenix will seek to join Duo as a third party to the litigation.
53 Further, it is far from clear that even if Gantley did bring a claim for liquidated damages in the future against Phoenix successfully, that this would lead to a successful claim by Phoenix against Duo. There is insufficient evidence as to whether any delay by Duo was the cause of a delay for which Gantley could claim.
54 Any claim for offset by Phoenix against Duo is hypothetical rather than real. As such, Phoenix has not established that it has an offsetting claim for the purposes of s 459H of the Corporations Act.
55 Mr Cook submitted that Duo had only issued the statutory demand with a view to putting undue commercial pressure on Phoenix to pay accounts not properly due. He also referred to the statutory demand being served in “dodgy circumstances”. For the reasons set out above, I do not accept this submission and am satisfied that the amount of $14,545.27 is payable by Phoenix to Duo.
56 I dismiss the appeal.
[1] [2010] VSC 106 (31 March 2010).
[3] Ibid at [56] – [57].
[4] Ibid at [71].
[5] [1997] FCA 681; (1997) 76 FCR 452, 464.
[9] (1994) 14 ACSR 250.
[10] Ibid at 251.
[11] Ibid at 254.
[12] [1996] FCA 822; (1996) 21 ACSR 581.
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