Clear Interiors Pty Ltd v Sinergia Construction Project Management Pty Ltd - [2017] SASC 79

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Civil)
CLEAR INTERIORS PTY LTD v SINERGIA CONSTRUCTION PROJECT MANAGEMENT PTY LTD
[2017] SASC 79
Judgment of Judge Roder a Master of the Supreme Court
2 June 2017
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY
PROFESSIONS AND TRADES - BUILDERS - LICENCES AND REGISTRATION - OTHER MATTERS
Application for winding up. Defendant allowed to oppose the application for winding up.
Corporations Act 2001 ; Building Work Contractors Act 1995 ; Builders Licensing Act 1986 , referred to.
Sinergia Construction Project Management Pty Ltd v Clear Interiors Pty Ltd [2016] FCA 1256; Accordent v RMBL Investments (2009) 105 SASR 62; Aussie Vic Plant Hire Ltd v Esanda Finance Corp Ltd (2008) 232 CLR 314; Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179; Braams Group Pty Ltd v Miric (2002) 44 ACSR 124; Nunkuwarrin Yunti of SA Inc v A L Seeley Constructions Pty Ltd (1998) 72 SASR 21; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459; Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410; Lepresto v Sam [2000] SASC 31; Consolidated Constructions Pty Ltd v The Satellite Group (Harold Park) Pty Ltd [2000] NSWSC 1235; Arrow Asset Management Pty Ltd v Sportsworld Group Plc [1999] NSWSC 1207; Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2003] NSWSC 96; Commonwealth Broadcasting Corp Pty Ltd v Pacific Mobile Phones Pty Ltd (2008) 219 FLR 422; Ewen Stuart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2) [2011] NSWSC 113; Effem Foods Ltd v Nicholls [2004] NSWCA 332; Guest v The Nominal Defendant [2006] NSWCA 77; Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 719, considered.

CLEAR INTERIORS PTY LTD v SINERGIA CONSTRUCTION PROJECT MANAGEMENT PTY LTD
[2017] SASC 79
Background

The plaintiff has issued proceedings for the winding up of the defendant.
The plaintiff relies on a statutory demand issued under s 459E(2) of the Corporations Act 2001 (“the Act”).
For a summary of the background to the matter, I borrow from the judgment of Charlesworth J in Sinergia Construction Project Management Pty Ltd v Clear Interiors Pty Ltd[1]. The plaintiff operated a joinery business. In March 2016 it completed works for the fit-out of a store in The Colonnades Shopping Centre. The plaintiff issued an invoice in the amount of $37,779.50 addressed to the defendant. On 27 May 2016 the plaintiff issued the statutory demand, relying on the debt allegedly established by the invoice.
[1] [2016] FCA 1256.
The defendant made an application in the Federal Court to set aside the statutory demand. The basis was that the alleged debt was not owed by the defendant, but by the store. The defendant denied any contractual relationship with the plaintiff.
The defendant was represented in that application by its sole director – Mr Struck – who had been given leave to represent it.
Charlesworth J dismissed the defendant’s application. Her Honour found that there was no genuine dispute as to the existence and enforceability of the plaintiff’s rights in contract against the defendant.
The defendant now applies by FDN 11 for an order under s 459S of the Act that it have leave to oppose the application for winding up on grounds on which it could have, but did not, rely on in the application heard by Charlesworth J. Section 459S, which is contained in Part 5.4 of the Act, is in these terms:
(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.
Part 5.4 is a legislative code dealing with the winding up of companies on the basis of insolvency. A presumption of insolvency exists because of the defendant’s failure to comply with the statutory demand[2] and the dismissal of its application to set that demand aside.
[2] Section 459C(2).
The policy of the scheme effected by Part 5.4 of the Act includes:[3]
·the speedy resolution of an application for winding up; and
·the determination of issues relating to the existence of a disputed debt by way of application to set aside a statutory demand.
[3] Accordent v RMBL Investments (2009) 105 SASR 62 at [24] et seq – see also Aussie Vic Plant Hire Ltd v EsandaFinance Corp Ltd (2008) 232 CLR 314 at [17]-[18]; Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179 at [38]-[39] and Braams Group Pty Ltd v Miric (2002) 44 ACSR 124 at [14].
The grounds which the defendant now seeks to assert are those advanced in the Notice of Appearance,[4] namely:
1.   The defendant does not owe the debt in respect of which the plaintiff issued the statutory demand that it now relies upon in this winding up application.
2.   The alleged debt related to building work undertaken by the plaintiff in March 2016.
3.   On 27 January 2017, the defendant became aware that the plaintiff was not granted a building work contractor licence until 25 August 2016.
4. Section 6(2) of the Building Work Contractors Act 1995 (SA) provides that a person required to be licensed as a building work contractor is not entitled to any fee for work as a building work contractor unless the person was authorised to perform the work under a licence (or in other circumstances not here applicable).
5.   It follows the plaintiff was not entitled to charge a fee for the work to which the alleged debt relates.
6.   The defendant owes no other debts and is solvent.
[4]    FDN 11.
I observe that ground 6 cannot be a basis for an application under s 459S – solvency is not a matter that can be raised in an application to set aside a statutory demand. Solvency is always available as a ground of opposition to an application for winding up, but in at least two cases[5] there are conditions. Neither of those conditions appear to arise here.
[5] Sections 595P(2) and 462(4).
The basis for grounds 1-5 is that the plaintiff was not at the relevant times a licensed building work contractor. That is not in dispute.
Section 6 of the Building Work Contractors Act 1995 (“BWCA”) provides:
6—Obligation of building work contractors to be licensed
(1)     A person must not—
(a)     carry on business as a building work contractor except as authorised by a licence under this Part; or
(b)     advertise or otherwise hold himself or herself out as being entitled to carry on business as a building work contractor unless authorised to carry on business as such a contractor by a licence under this Part.
Maximum penalty:
(a)     for an offence committed by a natural person—
(i)    for a first or second offence—$50 000; or
(ii)for a third or subsequent offence—$50 000 or 12 months imprisonment or both; or
(b)     for an offence committed by a body corporate—$250 000.
(2)A person required by this Act to be licensed as a building work contractor is not entitled to any fee, other consideration or compensation under or in relation to a contract with another on whose behalf the person performed work as a building work contractor unless—
(a)     the person was authorised to perform the work under a licence; or
(b)     a court hearing proceedings for recovery of the fee, other consideration or compensation is satisfied that the person's failure to be so authorised resulted from inadvertence only.
The debt alleged to be owing in the statutory demand is:
Description of the Debt Amount of the Debt
Balance outstanding for joinery and shopfitting

work for new shop called Wok and Dumpling

Shop at Colonnades Centre, Noarlunga SA,

work completed in March 2016. $37,779.50
The statutory demand was accompanied by an affidavit of a director of the plaintiff verifying that that debt was due. In support, two tax invoices were annexed.
The defendant argues that s 6(2)(a) of the BWCA prevents the plaintiff from recovering the amounts sought.
In Nunkuwarrin Yunti of SA Inc v A L Seeley Constructions Pty Ltd[6] the Full Court held that s 39 of the Builders Licensing Act 1986 (“the BLA”) - a forerunner of the BWCA – did not declare the contract with an unlicensed builder to be invalid, but removed the contractual right of an unlicensed builder to be paid. The Full Court held that that did not prevent an unlicensed builder from recovering on a quantum meruit claim – because that was not a claim under the contract.
[6] (1998) 72 SASR 21.
Section 6(2)(a) of the BWCA is expressed in slightly different terms to s 39 of the BLA. Section 39 prevented recovery of “any fee or other consideration”. Section 6(2)(a) forbids recovery of any “any fee, other consideration or compensation under or in relation to a contract”. It may be arguable that that prevents recovery on a quantum meruit. That argument was not relied on before me. The parties proceeded on the assumption that an unlicensed builder would be entitled to recover on a quantum meruit claim. In those circumstances, it is unnecessary for me to express an opinion on the point.
Section 465C of the Act
FDN11 also seeks leave, pursuant to s 465C of the Act, for the defendant to oppose the application for winding up on the grounds advanced in the Notice of Appearance. That leave is required because Rule 2.9 of the Corporations Rules requires that the Notice of Appearance and any affidavit be filed at least 3 days before the hearing. The first hearing of the application to wind up the defendant was on 24 January 2017. The Notice of Appearance with an affidavit of the defendant’s solicitor were filed on 3 February 2017 and an affidavit of Mr Struck was filed on 17 February 2017.
Mr McCabe submitted that:
·the defendant’s solicitors were not instructed until shortly before the expiry of the relevant time period; and
·no prejudice has been identified.
I add to that that it appears to me for reasons that will appear later, there is sufficient merit in the ground sought to be advanced that consideration of it should not be denied because of a late filing.[7] I did not understand Mr Heinrich to argue against a grant of leave under s 465C. To the extent that it is necessary, I think that it is appropriate to grant leave under s 465C.
[7] Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459, 476-477.
The arguments
On the application for an order under s 459S, Mr McCabe accepted that he had to establish both a real dispute as to liability and that it was reasonable for the defendant to have not raised the ground in the application to set aside the statutory demand.
As to the dispute, he asserted that it is “hard to think of a more cogent ground of dispute” than that the plaintiff is prohibited by statute from recovering the sum in question.
As to “reasonableness”, Mr McCabe for the defendant submitted that the plaintiff had engaged in conduct that constituted a criminal offence. He said that that was a relevant consideration in deciding whether the defendant had acted “reasonably”. It was said that it was reasonable that it had not occurred to the defendant that the plaintiff had engaged in criminal conduct. In written submissions Mr McCabe directed my attention to authorities concerning a presumption against criminality. Mr McCabe also sought to argue by analogy to equitable principles where delay has not been allowed to be raised by a party guilty of fraud.
Finally, Mr McCabe argued that if the plaintiff sought to rely on a quantum meruit claim:
1. that was not the debt referred to in the statutory demand; and
2. being unliquidated, it could not be a “debt” in any case.
Mr Heinrich, for the plaintiff, denied that the debt asserted was a “fee, other consideration or compensation under or in relation to” the contract between the parties that Charlesworth J had found existed. Instead, he said, that the debt arose by reason of work done. In argument, it was described as arising on a quantum meruit.
Mr Heinrich submitted that:
·the defendant would need - and had not sought - leave to defend on the ground that there is a genuine dispute about a quantum meruit claim or on the ground that the claimed debt is unliquidated;
·nothing in the plaintiff’s invoices or the affidavit in support asserted any debt in contract. Rather, the claim was for a debt arising because work had been done. That is consistent with a claim in quantum meruit;
·the defendant did not seek to dispute a quantum meruit “debt” before Charlesworth J;
·no basis was put forward by the defendant and no authority was referred to that a claim based on a quantum meruit is not a claim for a debt;
·the defendant should have been aware that the plaintiff was in breach of a contractual obligation to provide the defendant with details of its (non‑existent) licence; and
·the defendant has provided insufficient evidence as to its solvency.
In reply Mr McCabe made an oral application to include in the application by FDN11 an application for leave – if necessary – to oppose winding up based on a quantum meruit claim on the ground that “the quantum of the debt is disputed”. Mr McCabe made that application without having had an opportunity to consider the precise wording of that oral application. From the context of the argument I understand him to mean that the ground is that any claim in quantum meruit is disputed because:
·such claim was not the subject of the statutory demand;
·such claim was not a “debt” for the purposes of the statutory demand because it was unliquidated; and
·in any event there is a dispute about the amount of any such debt.
Mr McCabe did not concede that such leave was necessary. The application was made out of an abundance of caution.
The evidence does not make out the third such basis for dispute. I would not allow leave to amend on that ground. The other bases appear to me to be matters of law. I have indicated to the parties that I will not make orders based on the other two grounds without hearing from the plaintiff.
Conclusion
In my opinion for the following reasons there is, at the very least, a genuinely arguable dispute as to the defendant’s liability to pay the debt. I further consider that that dispute is raised fairly by the Notice of Appearance.
Genuine dispute and adequacy of Notice of Appearance
I agree with Mr McCabe’s first proposition - it is “hard to think of a more cogent ground of dispute” than that the plaintiff is prohibited by statute from recovering the sum in question. It is clear from the Notice of Appearance that the defendant seeks to oppose winding up on that ground.
Mr Heinrich says that the plaintiff is entitled to claim, has not restricted itself from claiming – and in fact has claimed - the “debt” on a different basis and so s 6 of the BWCA, which is relied on by the defendant, is irrelevant.
I do not have to decide that. I have to decide whether there is a real dispute. It is clear to me that there is such a dispute – and that it is raised by grounds 1-5 of the Notice of Appearance.
I consider that there is a real dispute because:
·The parties have argued about the characterisation of the demand. The defendant says that the demand is for a debt due under the contract. I think that the defendant’s characterisation is clearly arguable. The language of contract appears throughout the documents relating to the demand[8]. If the defendant’s characterisation is correct, s 6 of the BWCA appears to provide a complete defence.
·The question of the existence of a contract was the subject of the dispute before Charlesworth J. Her Honour concluded that:
“It is enough that the defendant [in this case the plaintiff] has established that it has a present right in contract to sue the plaintiff [in this case the defendant] personally for the sum specified in the statutory demand and that there is no genuine dispute as to the existence and enforceability of that contractual right of against the plaintiff.”
[8] For example, “debt”, “creditor”, “indebted”, “invoices”, “sum due”, “tax invoice”, “C.O.D.”, “terms of payment”, “variations”.
That may not – as Mr Heinrich submitted - be a finding that the plaintiff’s only rights against the defendant are in contract, but it may add some colour to the defendant’s characterisation.
The plaintiff argued before me that the demand should be understood as being (or at least including) a demand for a debt that was not due under the contract – that is, a debt for work done (being liable to paid by reason of a quantum meruit). The plaintiff may be right. However, the defendant pointed to what appears to me to be a powerful reason why that argument may not be right. The argument is that such an entitlement is not a “debt” for the purposes of Part 5.4 of the Act. It is, correctly, said that there is no definition of “debt” in the Act. The generally understood definition of debt is a certain amount[9] currently due.[10] It appears that there may be some circumstances in which an unliquidated claim could be a “debt”[11] but this does not appear to be one. The fact that there was a contract price for the work does not necessarily mean that that amount is the amount “due” on a quantum meruit – at most, it would be a “starting point”.[12] In my opinion it would be only in very unusual circumstances that a sum claimed on a quantum meruit could support a statutory demand.[13] The reasoning of Windeyer J in Consolidated Constructions Pty Ltd v The Satellite Group (Harold Park) Pty Ltd[14] appears to me to be powerful. The argument proceeds that the statutory demand in question should not be construed as claiming something that is not a “debt”. I further note that if the plaintiff is a “contingent” or “prospective” creditor, it has no standing to apply for the winding up of the defendant, not yet having obtained the leave of the Court.[15]
[9] Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 at [15].
[10] See the qualifying words “due and payable” in s 495E(1).
[11] Assaf, Statutory Demands and Winding Up in Insolvency, 2^nd Ed, [2.29].
[12] Lepresto v Sam [2000] SASC 31.
[13] Arrow Asset Management Pty Ltd v Sportsworld Group Plc [1999] NSWSC 1207.
[14] [2000] NSWSC 1235.
[15] Section 459P(2)(a).
It is not for me to go further than to say that I think there is a real genuine dispute.
In my opinion those arguments do not go beyond the grounds advanced in the Notice of Appearance. I reject Mr Heinrich’s submission that some of those arguments raise new grounds not asserted in that Notice. The basis of the proposed opposition is that the plaintiff did not have the necessary licence and so could not charge a fee under the contract. That ground itself is clearly arguable. In response to that argument the plaintiff says that it is proceeding (and always had been entitled to proceed) on a different basis – that it has an entitlement independent of contract. That is, I think, a counter argument. The defendant is entitled to say why that counter argument is, on its case, wrong. The defendant then says that if the counter argument is wrong, its argument as to the proposed basis of opposition cannot be defeated. The defendant’s argument does not, in my opinion, set up a “new” - or “different” - ground of opposition.
Amendment

While I have concluded that the grounds advanced by the defendant are within the Notice of Appearance, I consider that – in the event that the matter goes further - I should hear from the plaintiff why the oral application to amend in the manner I have indicated should not be allowed. The point arose for the first time from the plaintiff’s written submissions dated 24 April 2017. The hearing of the application was on 26 April 2017.
Section 459S(2)
That is not the end of the matter. Section 459S(2) of the Act provides that I must not grant leave unless I am satisfied that the ground is “material to proving that the company is solvent”. Neither party addressed me on that point, although Mr Heinrich made many criticisms about the evidence as to solvency.
Were I determining a claim that the defendant is solvent – or arguably solvent – those criticisms would succeed. The defendant has not put forward the “fullest and best” evidence of solvency.[16] The evidence as to solvency in this case is - and only is – Mr Struck’s deposition at paragraph 14 of his affidavit filed in these proceedings:[17]
Apart from the Alleged Debt (which I deny is a debt due and owed by the defendant company), the defendant company has no debts due or owing.
[16] Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2003] NSWSC 96 at [4].
[17] FDN 9.
In many cases that would be insufficient. However, if it is taken at its face value – and there was no application to cross-examine – it might suffice. As White J said in Commonwealth Broadcasting Corp Pty Ltd v Pacific Mobile Phones Pty Ltd:[18]
It would be oppressive if a small, viable company, with no creditors, in the circumstances in which this application has been brought, were required to expend significant sums to employ an external accountant to analyse its books and records to rebut the presumption of insolvency.
[18] (2008) 219 FLR 422 at [27].
I turn to s 459S(2). The question is whether the ground (that the debt is not due because of the provisions of the BWCA) material to proving that the defendant is solvent? I accept that it is. In Ewen Stuart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2)[19]White J[20] said:
In short, the existence or non-existence of the plaintiff’s debt is not material to proving that the company is solvent where the company claims it is solvent, even if it owes the debt. It does not follow that all questions of a company’s solvency are to be advanced to the stage at which leave is sought under s 459S, so that the company must then establish by the fullest and best evidence that it is solvent if it does not owe the disputed debt. A finding of the existence or non-existence of the debt will be pivotal to a decision on solvency at the s 459S stage, if the company might be found to be solvent if the debt does not exist. That would establish materiality for the purposes of s 459S(2).
I am satisfied that the question whether the defendant owes the debt claimed by the plaintiff is pivotal in this sense. If it does not owe the debt, it might be found to be insolvent.[21] It follows that the conditions for the exercise of the discretion under s 459S are satisfied.
[19] [2011] NSWSC 113 at [48]-[49].
[20] Of the New South Wales Supreme Court.
[21] The media neutral version of the judgement says “solvent”. That is clearly an error.
I take the same view in this case.
Discretion
The defendant seeks the exercise of a discretion that it be excused from complying with the policies behind Part 5.4 of the Act. The authorities establish that I must be satisfied that the defendant’s failure to raise the ground in question at the time of the application before Charlesworth J was “reasonable”.
The explanation for the failure is that the defendant did not know, at the time of the proceedings before Charlesworth J, that the plaintiff did not hold the appropriate licence. Further, the defendant could not be expected to have had any suspicion about that, because the defendant was entitled to rely on the presumption that the plaintiff had not acted in a way that was criminal. That argument relies on s 6(1) of the BWCA. In support of the “presumption” against criminality, Mr McCabe relied on the well-established proposition that in evaluating competing hypotheses in civil cases, there is a presumption against criminality.[22]
[22] Effem Foods Ltd v Nicholls [2004] NSWCA 332 at [26]; Guest v The Nominal Defendant [2006] NSWCA 77 at [121].
That explanation is not entirely satisfactory. It is not suggested that, if he had searched at the relevant time, Mr Struck would not have discovered the true facts of the matter. Further, Mr Struck is himself a builder. He must be taken to know that builders are required to be licenced. The contract to which Charlesworth J found that the defendant was a party required that the plaintiff provide evidence of all necessary licence. The plaintiff did not comply with that. I should say that, at that stage, the defendant denied being a party to the relevant contract.
In my view, the subjective reality that the company could not have relied on the ground before Charlesworth J (because it was unaware of the existence of the relevant fact) is relevant to the exercise of the discretion[23]. In the exercise of the discretion I take into account the scheme behind Part 5.4 of the Act and have attempted to consider all of the material and the submissions put before me.
[23] Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 719 at [9].
I am not convinced by Mr McCabe’s submission about “criminality”. I am not, at this point, evaluating “competing hypotheses”. There is no contrary hypothesis. I do not think that a builder who wishes to dispute a claim made by another builder ought not reasonably to enquire whether that other builder had the appropriate licence.
I think that there is some force in Mr Heinrich’s submission about the terms of the contract, although I note that at the relevant time the defendant disputed being a party to the contract. I also take into account the fact that the company was not legally represented on the application to set the demand aside. I take into account, too, that the argument before Charlesworth J proceeded only on the contract point.
The plaintiff did not assert before Charlesworth J any basis other than contract on which it was entitled to make the demand. I do not say that the plaintiff was obliged to assert every basis on which it was entitled, but I take the failure to do so into consideration given the respective abilities of the parties to have dealt with the matter at the s 459G stage. At that time, the plaintiff knew that it was not licensed – the defendant did not.
I also take into account the apparent strength of the ground.
In the exercise of the discretion, I consider that the defendant should be allowed to oppose the application for winding up on grounds 1-5 in the Notice of Appearance.
Insolvency
Ground 6 in the Notice of Appearance is the “defence” that it is solvent. As I have said, leave cannot be given under s 459S to defend on that ground. That is because such leave is not necessary. A company may oppose an application for winding up on the basis that it is solvent, but must put forward the fullest and best evidence available. As I have said, such evidence was provided. However, only FDN11 was before me. On that basis the defendant may still opt to oppose the winding up on that ground – but must put forward its fullest and best evidence on that ground.
Further submissions
I will hear the plaintiff as to the oral application for amendment made by Mr McCabe and both parties as to the appropriate orders in light of these reasons.
The six month period expires soon. The parties may wish to address on that. If a position on that point can be agreed I will make the necessary order in chambers.