CM Luxury Pty Ltd v Menzies Civil Australia Pty Ltd
[2023] WASC 340
•7 SEPTEMBER 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: CM LUXURY PTY LTD -v- MENZIES CIVIL AUSTRALIA PTY LTD [2023] WASC 340
CORAM: SEAWARD J
HEARD: 10 MAY 2023
DELIVERED : 7 SEPTEMBER 2023
FILE NO/S: COR 228 of 2022
BETWEEN: CM LUXURY PTY LTD
Plaintiff
AND
MENZIES CIVIL AUSTRALIA PTY LTD
Defendant
Catchwords:
Application to set aside a statutory demand - Where the statutory demand states that the debt arises from a contract - Where there is a genuine dispute about the existence of the alleged debt - Where the defendant admitted there was no signed contract - Where it was later claimed the debt arises upon a quantum meruit, or alternatively an inferred contract - Whether incorrectly stating the legal basis for the debt in the statutory demand is a defect - Whether there is substantial injustice if the statutory demand is not set aside - Where the accompanying affidavit fails to properly verify the debt - Whether some other reason to set aside the statutory demand exists
Legislation:
Corporations Act 2001 (Cth) ss 459E, 459G, 459H, 459J
Corporations Regulations 2001 (Cth)
Supreme Court (Corporations) (WA) Rules 2004
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | WCJ Zappia |
| Defendant | : | M Holler |
Solicitors:
| Plaintiff | : | Minter Ellison |
| Defendant | : | Lavan |
Case(s) referred to in decision(s):
ACN 114 733 569 Ltd v Income2Wealth Pty Ltd [2023] QSC 73
AMD Resources Ltd v TRS Management Pty Ltd [2021] VSC 202
Australian Securities and Investment Commission v Edwards [2005] NSWSC 831
CA Associates Pty Ltd v Fini Group Pty Ltd [2020] WASCA 31
Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [No 2] [2018] WASCA 111
Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2001] WASCA 299
Edwards v Australian Securities and Investment Commission [2009] NSWCA 424
Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452
Harbours Board (SA) v South Australia Gas Co (1934) 51 CLR 485
LSI Australia v LSI Holdings [2007] NSWSC 1406
Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Re MHC Pathology Pty Ltd [2020] VSC 789
Re Simmoll Pty Ltd [2021] VSC 693
Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 444
Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226
SEAWARD J:
The plaintiff applies by originating application under s 459G of the Corporations Act 2001 (Cth) dated 23 December 2022 to set aside the statutory demand dated 5 December 2022 issued by the defendant to the plaintiff. The amount of the debt claimed in the statutory demand is $1,302,973.70.
For the reasons set out below, I consider it appropriate to set aside the statutory demand.
Background
The plaintiff's application was accompanied by the affidavit of Hartono Susanto Halim, affirmed 22 December 2022.
In his affidavit, Mr Halim deposes that he is a director of Ascapia Capital Pte Ltd (Ascapia Capital), being a licenced registered fund management company based in Singapore. Ascapia Capital manages various investment companies which undertake Ascapia Capital's investment activities. Mr Halim deposes that he has been a director of Ascapia Capital for approximately five years. Mr Halim also deposes that he fulfills the responsibilities of a fund manager at Ascapia Capital for companies under the management of Ascapia Capital and one of those companies is the plaintiff, CM Luxury Pty Ltd. Mr Halim is also a director of the plaintiff.
Mr Halim deposes that the plaintiff was incorporated for the sole purpose of developing a private recreational club at 1201 Mooliabeenee Road, Bindoon, Western Australia (Project) and that since its incorporation, the plaintiff's activities have related to the development of the Project which Mr Halim has managed together with Wesley Widjaja, who is also a director of Ascapia Capital. Until 18 November 2022, Mr Widjaja was also a director of the plaintiff.
Mr Halim's affidavit attaches a copy of the statutory demand dated 5 December 2022 and the verifying affidavit of Daniel Richard Bulley dated 5 December 2022 (First Bulley affidavit).
The statutory demand is in the required Form 509H and in par 1 the debt is stated as follows:
The Company owes MENZIES CIVIL AUSTRALIA PTY LTD (ACN 610 994 575) c/o Danpalo Group Pty Ltd Suite 1, 1 Tully Road, East Perth in the State of Western Australia ('the Creditor') the amount of $1,302,973.70 being the amount of the debt described in the Schedule.
The schedule goes on to describe the debt as follows:
Description of the Debt
Outstanding contractual debt due and payable by the Company to the Creditor with respect to two (2) unpaid payment claims and associated tax invoices issued in relation to construction works performed pursuant to the Contract between the parties dated 12 November 2021.
Date
Description
Amount (incl GST
30 September 2022
Invoice #0928 for Payment Claim #11 amount
$649,935.13
31 October 2022
Invoice #0934 for Payment Claim #12 amount
$653,038.57
Total Amount Outstanding
$1,302,973.70
The First Bulley affidavit is in the required Form 7, however in the tram lines on the cover page, and in the attestation clause it states that the affidavit has been 'SWORN/AFFIRMED by DANIEL RICHARD BULLEY'. That is, it is not clear whether the affidavit was sworn or affirmed.
Mr Bulley filed a second affidavit affirmed 23 January 2023 (Second Bulley affidavit) in which he deposes that he affirmed the First Bulley affidavit and omitted to strike out the word 'sworn'.
In the First Bulley affidavit, Mr Bulley deposes that he is authorised by the defendant creditor to make this affidavit of its behalf, and deposes that he was the person who, on behalf of the creditor, had dealings with the plaintiff. Mr Bulley also deposes that he is a director of the defendant company. The manner in which Mr Bulley goes on to verify the debt in question is relevant to the resolution of this matter, and therefore I have set out those paragraphs in full:
4 The Creditor and Debtor Company entered into an AS2124‑1992 contract dated 12 November 2021 for the civil works construction of Club Moolia race track in Bindoon. Annexed to the affidavit and marked 'DB-1' is a copy of the contract dated 12 November 2021.
5 The Creditor commenced the works in or around November 2021. Pursuant to Clause 42.1 of the Contract, the Creditor progressively made payment claims. The Superintendent assessed these claims and the Creditor received payment with respect to those claims within 14 days following the Superintendent's assessment. However some of these payments were received late by the Creditor.
6 In or around September 2022, the Creditor submitted its Payment Claim #11 in the amount of $649,935.13 (incl GST). Annexed to this affidavit and marked 'DB-2' is a copy of Payment Claim #11.
7 On 1 November 2022, the Superintendent certified these costs and on 2 November 2022, issued Payment Certificate #11 to the Debtor Company, which enclosed an invoice (INV #0928) dated 30 September 2022, amounting to the sum of $649,935.13 (incl GST). Annexed to this affidavit and marked 'DB-3' is a copy of Payment Certificate #11 and INV #0928).
8 Pursuant to Payment Certificate #11, this amount was due and payable to the Creditor by 15 November 2022.
9 In or around October 2022, the Creditor submitted its Payment Claim #12 in the amount of $653,038.57 (incl GST). Annexed to this affidavit and marked 'DB-4' is a copy of Payment Claim #12.
10 On 18 November 2022, the Superintendent certified these costs and issued Payment Certificate #12 to the Debtor Company, which enclosed an invoice (INV #0934) dated 31 October 2022, amounting to the sum of $653,038.57 (incl GST) (Annexed to this affidavit and marked 'DB-5' is a copy of Payment Certificate #12 and INV #0934).
11 Pursuant to Payment Certificate #12, this amount was due and payable by 2 December 2022.
Mr Bulley goes on to depose that the plaintiff has not paid the amounts in par 7 and par 10 of the affidavit, or any amount, to the defendant and that the total debt remains outstanding. Mr Bulley deposes that the debt referred to in par 3 and par 12 of the affidavit is due and payable by the plaintiff and that he believes that there is no genuine dispute about the existence or amount of the debt.
The remainder of Mr Halim's affidavit is directed to the Project. For present purposes, it is sufficient to note that the effect of Mr Halim's affidavit is that his belief is that whilst negotiations occurred between representatives of the plaintiff and the defendant in relation to entering into the contract referred to in the First Bulley affidavit, the contract was never signed on behalf of the plaintiff and the terms were never agreed by the plaintiff. Mr Halim deposes that the plaintiff was waiting on the defendant to finalise certain matters and approvals. Mr Halim also deposes that no notice to proceed was ever issued by the plaintiff in accordance with cl 2A of the General Conditions of the purported contract. For this reason, Mr Halim deposes that the plaintiff disputes the existence of the debt.
Mr Halim then goes on to depose that in or around mid‑November 2021, the defendant accessed the Project site to undertake preliminary works on the site. Since then, the defendant has been conducting various works on the Project site and the plaintiff has been making periodic payments to the defendant.
Mr Halim deposes that as at the date of affirming the affidavit, the works which the defendant has been conducting on the Project site are not complete.
Mr Halim then goes on to depose that if a contract does exist (which he maintains it does not) then he believes the plaintiff has a number of offsetting claims, being:
(a)a sum of approximately $250,000, being an amount of $1,200 per day from the date of practical completion given the works are not concluded (that is, a liquidated damages claim);
(b)an amount of $198,754.33 after taking into account the re‑issued Payment Certificate #11 which provides for a reduced payment to the defendant pursuant to that certificate; and
(c)an amount of $278,595.33, taking into account Payment certificate #13 which provides for a credit in this amount to the plaintiff.
On the basis of Mr Halim's affidavit, a clear issue between the parties was whether the contract referred to in the First Bulley affidavit existed at all.
In the Second Bulley affidavit, Mr Bulley also attaches screen shots associated with the DocuSign programme and deposes that he signed the contract on or around 12 November 2021. Mr Bulley also deposes to various payments made by the plaintiff to the defendant as follows:
9The Plaintiff paid various amounts to the Defendant for works performed between the period of February 2022 to October 2022. Annexed to this affidavit and marked 'DB-2' is a copy of a NAB bank transaction report of the Defendant.
10 These payments related to the payment of Superintendent certified progress claims and invoices on the project and each narration would reflect the progress claim or invoice which was being paid by the Plaintiff. For example, the payment of $185,678.47 made to the Defendant by the Plaintiff on 30 March 2022 with the narration 'Menzies0847Claim3 CM Luxury Pty' was in relation to Progress Claim 3.
The plaintiff also relies on the affidavit of Madelyn Joy Balinski, affirmed 14 February 2023. Ms Balinski is a solicitor employed by the firm of solicitors representing the plaintiff. In that affidavit Ms Balinski deposes to some matters concerning the purported execution of the contract and the operation of the programme DocuSign in the context of the present facts. Ms Balinski also provides an updated calculation of the plaintiff's claim for liquidated damages.
It is helpful for considering the issues raised by this application to briefly record how the various submissions unfolded.
In the plaintiff's original outline of submissions dated 14 February 2023, the plaintiff relied on the following four grounds as the basis of its application to set aside the statutory demand:
(a)there is a genuine dispute about the existence of the alleged debt on the ground that there is a genuine dispute as to whether the purported contract was a contract between the plaintiff and the defendant;
(b) in the alternative to Ground 1, if the purported contract was a contract between the plaintiff and the defendant, there is a genuine dispute about the existence of the alleged debt on the ground that a notice to proceed was never issued by the plaintiff to the defendant;
(c) in the alternative to Grounds 1 and 2, if the purported contract was a contract between the plaintiff and the defendant, there is a genuine dispute about the amount of the alleged debt on the ground that Payment Certificate 11 was reissued in a reduced amount;
(d) in the alternative to Grounds 1 and 2 (but further to Ground 3), if the purported contract was a contract between the plaintiff and the defendant, the plaintiff has offsetting claims arising from:
(i) a Payment Certificate 13; and
(ii) liquidated damages pursuant to the purported contact.
As can be seen, the focus of the plaintiff's case at this point in time was that there was a genuine dispute as to whether a contract existed; whether a notice to proceed was ever issued pursuant to the contract and the offsetting claims.
In the defendant's outline of submissions in opposition dated 10 March 2023 the defendant responded by accepting that there was not in fact a signed contract (although the defendant had signed the contract) and instead submitted that the debt arises upon a quantum meruit of the type referred to in Edwards v Australian Securities and Investment Commission[1] or alternatively the debt arose from an implied or inferred contract. The defendant submitted that the genuine dispute for the purpose of s 459H of the Corporations Act was not whether a signed contract existed or not, but rather whether there was a genuine dispute as to payment owing for the Superintendent certified debts in payment certificates #11 and #12. The defendant also accepted the offsetting claims made by the plaintiff except for the liquidated damages claim (which does not apply if there was no contract) and therefore accepted that the statutory demand should be reduced to $825,624.04.
[1] Edwards v Australian Securities and Investment Commission [2009] NSWCA 424.
The plaintiff then filed reply submissions dated 29 March 2023. In these, the plaintiff noted that the defendant's claim that the source of the debt was a quantum meruit or an inferred contract was not referred to in the statutory demand or the First Bulley affidavit. Accordingly, to the extent this was now the asserted basis of the debt, the plaintiff submitted that the statutory demand ought to be set aside under s 459J(1) of the Corporations Act for the following additional reasons:
(a)there is a defect in the demand because the demand describes the legal basis of the debt claimed as a contractual debt, which is not now the defendant's position, and there is a substantial injustice to the plaintiff in all the circumstances; and/or
(b)the First Bulley affidavit fails to properly verify the debt now claimed and this constitutes some other reason to set aside the statutory demand.
The application was originally listed for hearing on 8 May 2023, but it shortly became apparent that counsel for the defendant had not been provided with a copy of the plaintiff's submissions in reply. The hearing was then adjourned to 10 May 2023. At the hearing counsel for the defendant confirmed that the defendant's case was that the source of the debt was a quantum meruit and not an express or inferred contract.[2] For completeness, it was not in dispute that a claim upon a quantum meruit could constitute a debt.[3]
[2] ts 8 May 2023, 5 - 6.
[3] ts 10 May 2023 20-21; see also Edwards v Australian Securities and Investment Commission [2009] NSWCA 424 [3], [81], [88].
Legal principles
Provisions regarding statutory demands are contained in the Corporations Act. Relevantly, s 459E concerns the statutory demand itself, and relevantly provides:
(1) A person may serve on a company a demand relating to:
(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum…
(2) The demand:
(a) if it relates to a single debt – must specify the debt and its amount; and
...
(e) must be in the prescribed form (if any);
…
(3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a) verifies that the debt, or the total amounts of the debts, is due and payable by the company; and
(b) complies with the rules.
The prescribed form for a statutory demand is Form 509H, which is found in Sch 2 of the Corporations Regulations 2001 (Cth). Rule 5.2 of the Supreme Court (Corporations) (WA) Rules 2004 (Corporations Rules) provides that the accompanying affidavit must be in accordance with Form 7 and state the matters mentioned in that Form.
There is no dispute here that the statutory demand concerns a single debt, which is not a judgment debt and which is above the statutory minimum.
It is also uncontroversial that a presumption of insolvency arises if a company fails to comply with a statutory demand.[4]
[4] s 459C(2)(a) Corporations Act.
Section 459G provides that a company may apply to the court for an order setting aside a statutory demand. Such an application must be made within the statutory period (which is 21 days in the present case) and must be supported by an affidavit and both must be served on the person who issued the statutory demand. There is no dispute that the application to set aside the statutory demand was made within the required 21 day period.
Section 459H deals with offsetting claims, and provides that where (on an application to set aside a statutory demand) the court is satisfied either or both (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; and (b) that the company has an offsetting claim, then the court must calculate the substantiated amount of the demand. If that substantiated amount is greater than the statutory minimum, the court may make an order varying the demand.
The legal principles regarding what is required to constitute a 'genuine dispute' as to the existence of a debt for the purposes of s 459H(1)(a) are well established and are summarised in the decision of CA Associates Pty Ltd v Fini Group Pty Ltd[5] as follows:
1.The court's function is to determine whether there is a genuine dispute; the court is not expected to undertake an extended inquiry or attempt to weigh the merits of the dispute. It is not part of the court's function to resolve the dispute.
2. It suffices if there is a 'plausible contention' requiring 'further investigation' - something that may be equated to the criterion of whether there is a 'serious question to be tried'.
3. However, the applicant must establish that: (a) the dispute is bona fide and truly exists in fact; and (b) the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived.
[5] CA Associates Pty Ltd v Fini Group Pty Ltd [2020] WASCA 31 [35] (footnotes omitted).
It is not in dispute that if I am satisfied that the statutory demand should not be set aside, that it is appropriate for the court to make an order varying the demand so that it is instead for the amount of $825,624.04 to take into account the accepted offsetting claims. The amount of the offsetting claims has been calculated to exclude the previously claimed liquidated damages claim, which falls away given the lack of a contract.
Section 459J provides the following two additional bases for a court to set aside a statutory demand:
(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
However, s 459J(2) provides that except as provided in subsection (1), the court must not set aside a statutory demand merely because of a defect.
The term defect is defined in s 9 of the Corporations Act as follows:
defect, in relation to statutory demand, includes:
(a)an irregularity; and
(b)a misstatement of an amount or total; and
(c)a misdescription of debt or other matter; and
(d)a misdescription of a person or entity.
The effect of the definition is that the reference to a defect in s 459J is intended to refer to all defects, regardless of scale and significance.[6]
[6] Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226, 237 ‑ 238; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 444, 450; Re MHC Pathology Pty Ltd [2020] VSC 789 [65].
The authorities also establish that an alleged defect in the statutory demand itself falls within s 459J(1)(a), and therefore requires there be substantial injustice unless the demand is set aside.[7] Whether a substantial injustice will arise depends on the nature of the particular defect and the surrounding circumstances.[8]
[7] Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 444, 450.
[8] Re MHC Pathology Pty Ltd [2020] VSC 789 [66]; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 444, 447.
An alleged deficiency in the accompanying affidavit may fall within s 459J(1)(b) where there is no requirement of substantial injustice, but rather there must be some other reason to set aside the statutory demand.[9]
[9] Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 444, 452; AMD Resources Ltd v TRS Management Pty Ltd [2021] VSC 202 [17]; ACN 114 733 569 Ltd v Income2Wealth Pty Ltd [2023] QSC 73 [78].
Disposition
In light of the basis upon which the parties put their respective cases, resolution of the application requires consideration of the following issues:
(a)should the statutory demand be set aside pursuant to s 459J(1)(a) or s 459J(1)(b) of the Corporations Act; and
(b)is there a genuine dispute about the existence or amount of the debt.
Defect in statutory demand
Parties' submissions
The plaintiff submits that the statutory demand contains a defect as the demand is vague and ambiguous, if not materially misleading, because the legal basis of the debt claimed in the statutory demand is stated as being the contract dated 12 November 2021, when that is not now the case, and the claim is instead that the legal basis of the debt is on a quantum meruit.
In support of this submission the plaintiff relies on the authority of Re Simmoll Pty Ltd.[10] This decision concerned an application to set aside a statutory demand where (amongst other issues) the statutory demand claimed a debt said to be owing in respect of monies paid under certain specified invoices from the Fix Stage pursuant to a Major Domestic Building Contract, where the works were said to be paid for in full but not performed. Hetyey AsJ held as follows:[11]
It follows that a statutory demand and, by extension, its accompanying affidavit, must put the debtor company on notice in an unambiguous way of the matters the legislation requires, including: the nature of the debt; a statement that the debt is due and payable; and an explanation of how the amount claimed is composed or calculated. Although a debtor company can be presumed to have some familiarity with the relevant subject matter of the statutory demand, it is not obliged to speculate upon what it is that the creditor demands.
[10] Re Simmoll Pty Ltd [2021] VSC 693.
[11] Re Simmoll Pty Ltd [2021] VSC 693 [29] (footnotes omitted).
Hetyey AsJ went on to hold that:[12]
At the same time, whilst a failure to specify in the demand the precise legal basis of the debt claimed may constitute a defect, it will not necessarily be causative of substantial injustice sufficient to justify its setting aside.
[12] Re Simmoll Pty Ltd [2021] VSC 693 [29].
On the facts of that case, Hetyey AsJ set aside the statutory demand pursuant to s 459J(1)(a) on the basis that it was vague and ambiguous because it failed to explain to a reasonable person in the position of the director of the plaintiff creditor the general nature of the alleged debt in order for that person to ascertain whether there is a genuine dispute about the debt or an offsetting claim.[13] One reason given by Hetyey AsJ for the statutory demand being vague and ambiguous was because the legal basis of the debt claimed in that case was unclear.[14]
[13] Re Simmoll Pty Ltd [2021] VSC 693 [30].
[14] Re Simmoll Pty Ltd [2021] VSC 693 [30].
The defendant submits that when regard is had to the statutory text, there is no requirement in s 459E or Form 509H for the legal basis of the debt to be stated. All that is required is that the statutory demand must 'specify the debt' and 'describe' the debt and that there is no requirement in the text or the form to state the legal nature of the debt.[15]
[15] ts 10 May 2023, 37 - 38.
In support of this submission, the defendant relies on the Court of Appeal authority of Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [No 2][16] where the court held as follows in relation to the requirement to describe the debt or debts the subject of a statutory demand:
In our view, s 459E of the Act requires that a statutory demand identify the debt or debts in a manner that enables a person in the position of the debtor company to identify the debt or debts with a sufficient degree of precision to assess whether there is a genuine dispute as to existence or amount of the debt or debts, or any offsetting claim. That requirement emerges from the text of s 459E(1), (2) and (3) and the text of s 459G, s 459H and s 459J, having regard to the context in which, and purpose for which, the statutory demand process exists.
[16] Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [No 2] [2018] WASCA 111 [92].
The defendant also relies on the text Assaf's Winding Up in Insolvency,[17] where the learned author notes as follows:
The courts have not laid down rules to be mechanically applied to determine whether a debt is specified for the purposes of s 459E(2) instead suggesting that whether a demand sufficiently specifies the debt is a question of fact in each case.
…
On the meaning of the word 'specify' in this context, there is little authority. In Jarena Pty Ltd v Sholl Nicholson Pty Ltd, Heerey J was of the view that to specify a debt means to at least indicate the nature of the debt, for example, for goods sold and delivered or work and labour done.
[17] Farid Assaf SC, Assaf's Winding Up in Insolvency (3rd Ed, 2001) 4.4 (footnotes omitted).
The defendant submits that the statutory demand refers to the source of the debt being in relation to construction works performed and then goes on to specify the particular payment certificates. The defendant also submits that the plaintiff in this case had no difficulty in understanding that the debts the subject of the statutory demand were those arising from unpaid payment certificates 11 and 12.[18]
Resolution
[18] ts 10 May 2023, 38 - 39.
Section 459E(2)(a) provides that the statutory demand must 'specify the debt'. Form 509H requires the creditor to 'describe' the debt claimed. I do not consider it is necessary for the purpose of the present case to form a concluded view as to whether s 459E and Form 509H require the precise legal nature of the claimed debt to be specified in the statutory demand in each case. This is because I am of the view that, in any event, the reference to 'specify' in s 459E(2)(a) must mean that the specification used is accurate and not misleading. To read the term 'specify' in any other way would be nonsensical.
This interpretation is supported by the fact that a failure to comply with a statutory demand results in a presumption of insolvency. Such serious consequences are consistent with a requirement that the specification used is accurate and not misleading.
The authorities also provide that a statutory demand must identify the debt or debts in a manner that enables a person in the position of the debtor company to identify the debt or debts with a sufficient degree of precision to assess whether there is a genuine dispute as to existence or amount of the debt or debts, or any offsetting claim.[19] This purpose is potentially frustrated if the specification of the debt is inaccurate or misleading.
[19] See Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [No 2] [2018] WASCA 111 [92]; Re Simmoll Pty Ltd [2021] VSC 693 [29]; LSI Australia v LSI Holdings [2007] NSWSC 1406 [54].
Therefore, I consider that if a debt is specified in the statutory demand in a manner which is inaccurate or misleading, then it will constitute a defect for the purposes of s 459J in that it is a misdescription of debt.
In this case, the description of the debt is materially inaccurate and misleading. The statutory demand describes the debt as being an outstanding contractual debt and states that the contract between the parties is dated 21 November 2021. Whilst the statutory demand does refer to the underlying nature of the works performed pursuant to the alleged contract (being construction works) and the two unpaid payment certificates, each are referred to as being concerned with work performed under the purported contract. The fact that the defendant did not appreciate that a contract did not exist and that only the defendant had signed the draft contract,[20] is not to the point. It is one thing to describe the debt in general terms by reference to the work performed without a reference to the legal nature of the debt, but it is another to include additional inaccurate and misleading information about the legal source of that debt. By including this additional inaccurate and misleading information, the statutory demand contains a defect.
[20] ts 10 May 2023, 44.
However, pursuant to s 459J(1)(a) and s 459J(2), such a defect alone is insufficient to set aside the statutory demand. It is also necessary for there to be substantial injustice unless the statutory demand is set aside.
The defendant submits that there is no substantial injustice (or any injustice) as the plaintiff is familiar with the history of the Project; the work undertaken; the letter of intent and the past history of payment certificates, and therefore understood what the statutory demand related to, and what it needed to respond to.[21] Therefore, a person in the position of the plaintiff would not be misled and the plaintiff was not mislead.[22] In these circumstances, the defendant submits that precises legal basis of the debt is 'a mere technical point'.[23] The defendant relies on those authorities which provide that disputes involving statutory demands are to be resolved on the basis of the commercial justice of the matter, rather than on the basis of technical difficulties.[24]
[21] ts 10 May 2023, 42, 53.
[22] ts 10 May 2023, 42 - 43.
[23] ts 10 May 2023, 44.
[24] Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226, 237 – 238; ACN 114 733 569 Ltd v Income2Wealth Pty Ltd [2023] QSC 73 [78].
The defendant also made oral submissions which were critical of the evidence put on by the plaintiff in support of the application.[25] In particular, the defendant drew attention to par 5 of the First Bulley affidavit where Mr Bulley deposed:
The Creditor commenced the works in or around November 2021. Pursuant to Clause 42.1 of the Contract, the Creditor progressively made payment claims. The Superintendent assessed these claims and the Creditor received payment with respect to those claims within 14 days following the Superintendent's assessment. However, some of these payments were received late by the Creditor.
[25] ts 10 May 2023, 44.
The defendant submitted that the plaintiff must be taken to accept this paragraph as it has not put on evidence challenging that paragraph, including evidence relating to the works being defective.[26] The defendant also submitted that the plaintiff has not made a submission as to what evidence it would have put on had it known the basis of the claim was a quantum meruit,[27] and therefore there is no evidence of any substantial injustice in terms of the ability of the plaintiff to respond to the statutory demand.[28]
[26] ts 10 May 2023, 42 - 45, 53.
[27] ts 10 May 2023, 53.
[28] ts 10 May 2023, 48 - 49, 52 - 53.
I do not accept the defendant's submissions. To the contrary, the importance of an accurate description of the debt in the statutory demand, and the injustice that can result if this does not occur, is demonstrated by the manner in which the parties' respective submissions unfolded. When faced with the statutory demand, the affidavit evidence filed by the plaintiff, and their original submissions, were concerned with establishing that there was a genuine dispute as to whether a contract (and therefore a debt) existed at all. The plaintiff's affidavit evidence and submissions did not refer to a claim upon a quantum meruit (or any of the matters that may be relevant to a quantum meruit claim, including the reasonableness of the claimed amount). This is unsurprising as it is not referred to in the statutory demand and a claim in restitution based on a quantum meruit cannot co‑exist with a claim based on an existing contract.[29] In the present case a person in the position of the plaintiff would have no knowledge based on the wording in the statutory demand that the alleged basis of the debt was in fact on a quantum meruit. As outlined by Hetyey AsJ in Re Simmoll, a plaintiff should not be expected to guess what the demand relates to or the source of the obligation to pay.[30] This is what has occurred in this case.
[29] See Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, 256; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 [105].
[30] Re Simmoll Pty Ltd [2021] VSC 693 [34].
To the extent the defendant makes submissions regarding the content and adequacy of the plaintiff's affidavit evidence, I note that the plaintiff must apply to set aside the statutory demand within 21 days. In the decision of Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund[31] and the line of authorities which follow,[32] a question arises as to the extent to which a plaintiff seeking to have a statutory demand set aside is restricted to grounds/reasons which are supported by affidavit evidence filed within the statutory period; or which are raised expressly or by necessary inference, or by a reasonably available inference, from the supporting affidavit. To the extent that a plaintiff is so limited, the importance of the specification used in the statutory demand being accurate and not misleading assumes an even greater significance.
[31] Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452.
[32] See Farid Assaf SC, Assaf's Windup Up in Insolvency (3rd Ed, 2001) 5.42 ‑ 5.43 and 5.47 ‑ 5.48 and the authorities referred to therein.
For completeness, I note that a potential failure to comply with the Graywinter principle does not arise in the present case, as the First Halim affidavit clearly raises an evidentiary basis for a submission that a genuine dispute exists regarding whether a contract exists at all and therefore whether the debt exists at all. Further, the defendant's submissions accept this to be correct and now put forward the quantum meruit claim. The resulting submission that the statutory demand and the affidavit are defective is therefore, in my view, an open submission to make from both the affidavit material filed within the 21‑day statutory period and the defendant's submissions.
Therefore, in all the circumstances, I am of the view that the inaccurate and misleading nature of the specification of the debt in the statutory demand is a defect in the statutory demand. I am also satisfied that it is not 'merely a defect' for the purposes of s 459J(2), and that a substantial injustice will arise in this case unless the statutory demand is set aside.
Some other reason - affidavit
Parties' submissions
The plaintiff submits that further (or in the alternative) given the defendant's case that the basis of the debt is a quantum meruit, the supporting affidavit served with the statutory demand (being the First Bulley affidavit) fails to properly verify the debt; does not comply with the Corporations Rules, and consequently the statutory demand should be set aside under s 459J(1)(b) of the Corporations Act.
Again, the plaintiff relies on the authority of Re Simmoll where Hetyey AsJ held as follows in relation to the affidavit in support of the statutory demand:[33]
The authorities make clear that a failure by a creditor to properly verify matters required by the prescribed form of affidavit found in Form 7 of the Corporations Rules may constitute 'some other reason' to set aside the statutory demand under s 459J(1)(b) of the Corporations Act. The absence of a specific reference to the nature of the debt in the affidavit may warrant the setting aside of the statutory demand under s 459J(1)(b) of the legislation, although it is not necessary for the deponent of the affidavit to set out every element of the cause of action upon which the demand is founded. Similarly, where the subject words of the affidavit are ambiguous, the affidavit may not provide the requisite verification of the debt claimed in the statutory demand pursuant to s 459E(3) of the Corporations Act and the demand is susceptible to being set aside under s 459J(1)(b).
[33] Re Simmoll Pty Ltd [2021] VSC 693 [37] (footnotes omitted).
Hetyey AsJ held that the affidavit in support did not substantially comply with the relevant form and did not provide the necessary verification of the debt claimed in the statutory demand as required by s 459E(3)(a) of the Corporations Act. One reason relied upon by Hetyey AsJ was that the affidavit did not clearly state the nature of the debt or refer to the source of the obligation on the plaintiff creditor to make payment.[34]
[34] Re Simmoll Pty Ltd [2021] VSC 693 [39].
The plaintiff also relies on the decision of AMD Resources Ltd v TRS Management Pty Ltd[35] where Randall AsJ held (after conducting a review of the relevant authorities):
16 By operation of r 5.2 and s 459E(3), it is a statutory requirement to state the nature of the debt or debts relied upon. Referring to an invoice or referring to the statutory demand itself does not satisfy the requirement. One would expect a short description such as: 'for accounting services at the request of the debtor company during the period X to Y' or something similar.
…
18 For reasons which I will set out, I have determined that I ought to follow Reeves J in Aromas Cafe Toowoomba Pty Ltd v Aromas Tea & Coffee Merchants Pty Ltd ('Aromas Cafe') and determine that the defect in the affidavit accompanying statutory demand by not specifying the nature of the debt relied upon does in this proceeding constitute 'some other reason'. The affidavit does not verify the nature of the debt as required by s 459E(3)(a) of the Act. It is therefore a substantive defect in the affidavit.
…
[35] AMD Resources Ltd v TRS Management Pty Ltd [2021] VSC 202 (footnotes omitted).
The plaintiff submits that the First Bulley affidavit does not clearly set out the nature of the debt or refer to the source of the obligation on the plaintiff to make payment. The plaintiff submits that the First Bulley affidavit is 'devoid of the requisite detail evidencing the now asserted basis upon which the claimed debt was incurred and is due and payable'. The plaintiff submits that the First Bulley affidavit does not verify the legal source of the debt as a quantum meruit and does not address or verify the reasonableness of the amounts claimed.
In response, the defendant submits that regard should be had to the precise requirements of s 459E(3) of the Corporations Act, and r 5.1 and r 5.2 of the Corporations Rules. Those rules require the affidavit to verify the debt and to be in accordance with Form 7 of the Corporations Rules. However, r 1.7(1) of the Corporations Rules also provides that:
It is sufficient compliance with these rules in relation to a document that is required to be in accordance with a form in schedule 1 if the document is substantially in accordance with the form required or has only such variations as the nature of the case requires.
The defendant submits that there is nothing in the wording of s 459E(3) of the Corporations Act, r 5.1, r 5.2 or Form 7 of the Corporations Rules which requires the affidavit to state the legal nature of the debt.[36] The defendant also submits that the affidavit and the statutory demand must be read together. In addition to there being no reference to a requirement to state the legal nature of the debt, Form 509H, par 2 states that:
Attached is the affidavit of (insert name of deponent of the affidavit), dated (insert date of affidavit), verifying that the amount is due and payable by the company.
[36] ts 10 May 2023, 39 - 40.
The defendant submits that all that is required to be verified is that the amount is due and payable.[37] The defendant submits that the First Bulley affidavit does this (or at least substantially does this), and the plaintiff is not mislead in anyway.[38]
Resolution
[37] ts 10 May 2023, 41.
[38] ts 10 May 2023, 42.
Section 459E(3) provides (relevantly) that a statutory demand must be accompanied by an affidavit that (a) verifies that the debt is due and payable; and (b) complies with the rules. Rule 5.2 of the Corporations Rules provides that the accompanying affidavit must be in accordance with Form 7 and state the matters mentioned in that Form. Paragraph 1 of the affidavit contained in Form 7 requires the deponent to:
state nature of debt, or debts, ensuring that what is stated corresponds with the description of the debt, or debts, to be given in the proposed statutory demand with which this affidavit is to be served on the debtor company.
Again, I do not consider it is necessary for the purpose of the present case to form a concluded view as to whether s 459E and Form 7 require the deponent to state the precise legal nature of the claimed debt in the verifying affidavit in each case. This is because I am of the view that, in any event, the reference to 'state nature of the debt' in Form 7 must mean state accurately and not in a misleading manner. To read the term 'state' in any other way would be nonsensical. The fact that r 1.7 provides that substantial compliance when completing the form is sufficient does not alter my conclusion. The question in the present case is not whether there has been substantial compliance with the form. This is not a case in which the deponent has failed to include information which is required by the form (eg to state the source of the deponent's knowledge or to depose that there is no genuine dispute about the existence or amount of the debt).[39] Rather, the question is whether what has been included is inaccurate or misleading.
[39] See for example Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2001] WASCA 299.
For the same reasons as set out above in relation to the statutory demand, I am of the view that the First Bulley affidavit is inaccurate and misleading in so far as it states the nature of the debt. The First Bulley affidavit does this by reference to a contract entered into by the plaintiff and the defendant dated 12 November 2021 and then attaches the contract. Reference is made to commencing works and then payment claims being made pursuant to cl 42.1 of the contract. Details of payment certificates 11 and 12 are then provided and copies annexed. There is no reference made to the nature of the debt being upon a quantum meruit.
In addition to being inaccurate and misleading, I am of the view that the affidavit fails to properly verify the debt the subject of the statutory demand. A debt on a quantum meruit is different to a debt based on a claim in contract. A claim on a quantum meruit is a claim in restitution for reasonable remuneration or compensation for a benefit actually or constructively accepted.[40] It is therefore necessary to establish the reasonableness of the remuneration sought. This is to be contrasted with a debt based in contract, where it will be the contract that specifies the amount payable, and it is not usually necessary to also demonstrate reasonableness of the sum.
[40] See Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, 263.
The First Bulley affidavit does not provide any information verifying the reasonableness of the amount claimed for the work performed. The affidavit refers to payment certificates 11 and 12 that have been issued by the superintendent and which have not been paid. However, the payment certificate process is one required under the contract.
In Mann v Paterson Constructions Pty Ltd,[41] Nettle, Gordon, and Edelman JJ,[42] and also Gageler J,[43] confirmed that a reasonable remuneration is a question of fact, and reasonable remuneration is usually measured as the market value of the services rendered.[44] There is no evidence in the First Bulley affidavit as to the market value of the construction services provided.
[41] Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560.
[42] Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560 [203].
[43] Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560 [92].
[44] See also Harbours Board (SA) v South Australia Gas Co (1934) 51 CLR 485, 499, 501.
The defendant relies on the decision of Edwards[45] where Barrett J held that the reasonableness of the amount claimed for the work performed may be established by evidence of an agreement as to a process for determining the reasonable amount to be paid by a party. In Edwards, Barrett J held that the plaintiff had demonstrated on the balance of probabilities that such an agreement existed in that case.[46]
[45] First instance: Australian Securities and Investment Commission v Edwards [2005] NSWSC 831; on appeal: Edwards v Australian Securities and Investment Commission [2009] NSWCA 424.
[46] Australian Securities and Investment Commission v Edwards [2005] NSWSC 831 [84] - [86].
The defendant says that the same position applies in the present case.[47] The defendant relies on the par 5 of the First Bulley affidavit in which Mr Bulley deposes that the defendant commenced works in or around November 2021; that pursuant to cl 42.1 of the contract, the defendant progressively made payment claims; the superintendent assessed these claims and the defendant received payment with respect to those claims within 14 days following the superintendent's assessment (although some were late). This, combined with the reference to payment certificates 11 and 12, is relied on by the defendant to submit that it is open to the court to infer that a course of conduct has been established whereby 10 previous payment certificates were issued by the superintendent and the plaintiff paid those payment certificates.[48] The defendant says that this establishes an agreed process whereby the payment certificates constitute a reasonable amount. The defendant also relies on the lack of affidavit evidence from the plaintiff challenging the process (including the previous progress payments) or the quality of the work.[49]
[47] ts 10 May 2023, 51.
[48] ts 10 May 2023, 42 - 45.
[49] ts 10 May 2023, 48 - 49.
I do not consider the affidavit sufficiently verifies the debt now claimed by the defendant. The affidavit is clearly drafted so as to verify a contractual debt. There is a reference to the purported contract and the payment certificates which Mr Bulley deposes were issued pursuant to cl 42.1 of the purported contract. Given the change in the position of the defendant, this is unsurprising.
However, those same facts are insufficient to verify a debt on a quantum meruit. There is no description of the nature of the debt being a quantum meruit; there is no description of the source of the obligation to pay; there is no description of the details of the work the subject of the payment certificates; and there is no explanation of why or how the defendant says that the amount claimed in the payment certificates is reasonable payment for the work performed. I do not consider that the limited reference to the past payment certificates in the First Bulley affidavit are sufficient for me to draw an inference that an established course of conduct had been agreed between the parties in relation to the payment by the plaintiff of the payment certificates. There is no description or explanation of precisely what occurred in relation to each of the previous payment certificates; the basis upon which the superintendent carried out his function; or the basis upon which the plaintiff paid those past payment certificates. The only evidence is by reference to a contract which the defendant now accepts was not binding on the parties.
The present case is therefore different to the situation in Edwards where Barrett J made his decision following a full trial, where all evidence concerning the claim was heard and all factual controversies were resolved. This not the case here.
The importance of accurately stating the nature of the debt in the affidavit, and verifying the debt, and the difficulties which arise when this is not done, are again demonstrated by the manner in which the parties' respective submissions unfolded which are detailed above and not repeated here. The plaintiff was put in a position where the precise nature of the debt verified in the affidavit was inaccurate and misleading and the true basis of the debt claimed was not clarified until after written submissions were filed. This had (and has) significant consequences for the plaintiff. Further, there is no verification of an essential element of the alleged debt, being the reasonableness of the payment sought for the works performed.
Therefore, in all the circumstances I am of the view that the inaccurate and misleading nature of the description of the debt in the First Bulley affidavit, combined with the failure of the First Bulley affidavit to verify the reasonableness of the money claimed upon a quantum meruit, constitute 'some other reason' why the statutory demand should be set aside pursuant to s 459J(1)(b) of the Corporations Act.
Genuine dispute
In light of my conclusion that the statutory demand should be set aside pursuant to s 459J(1)(a) and s 459J(1)(b), it is not necessary to consider each of the original grounds advanced by the plaintiff.
However, as the defendant's submissions emphasised that there was no genuine dispute in relation to the existence or amount of a debt to which the demand relates, it is appropriate that I make the following brief comments in relation to this issue.
The question of whether there is a genuine dispute about the existence or amount of a debt to which the demand relates is a separate and distinct basis upon which a statutory demand may set aside from the bases set out in s 459J(1) of the Corporations Act. It is not necessary for the plaintiff to establish both a genuine dispute and the existence of the criteria in s 459J(1)(a) or s 459J(1)(b).
It is clear from the manner in which the submissions unfolded that the defendant accepts that no signed contract exists. In the context of a claimed contractual debt, this would ordinarily be sufficient in my view to constitute a genuine dispute about the existence or amount of a debt to which the demand relates for the purposes of s 459H(1)(a) of the Corporations Act.
However, in the present case the defendant does not accept that the concession regarding the existence of the contract means that there is a genuine dispute as to whether the amount of money referred to in the payment certificates is due and payable. The defendant says that the correct question is not whether a genuine dispute exists as to the existence of the contract, but rather whether a genuine dispute exists as to whether payments are owed for the work in payment certificates 11 and 12, which the defendant says does not turn on whether there is a signed contract and instead turns on the quantum meruit claim.[50] The defendant submits that when regard is had to the affidavit evidence filed by both parties, there is no such genuine dispute.[51]
[50] ts 10 May 2023, 50.
[51] ts 10 May 2023, 48.
The difficulty with the defendant's submissions in this regard is that they are all premised on the quantum meruit claim. As I have outlined above, there are difficulties and deficiencies with both the statutory demand and the defendant's affidavit evidence verifying the quantum meruit claim. I consider that the plaintiff's evidence in support of its application to set aside the statutory demand (including in so far as it concerns whether there is a genuine dispute) must be understood in light of those deficiencies and the claim it (reasonably) thought it was facing. In these circumstances, and given my conclusion that the statutory demand should be set aside pursuant to s 459J(1)(a) and s 459J(1)(b) of the Corporations Act (and the reasons for reaching that conclusion), the question of whether there is a genuine dispute as to whether the amount of money referred to in the payment certificates is due and payable upon a quantum meruit does not arise for consideration.
Conclusion
In all the circumstances I order that that the statutory demand dated 5 December 2022 issued by the defendant to the plaintiff be set aside. I will hear further from the parties in relation to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AA
Associate to the Judge
7 SEPTEMBER 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: CM LUXURY PTY LTD -v- MENZIES CIVIL AUSTRALIA PTY LTD [2023] WASC 340 (S)
CORAM: SEAWARD J
HEARD: ON THE PAPERS
DELIVERED : 10 OCTOBER 2023
FILE NO/S: COR 228 of 2022
BETWEEN: CM LUXURY PTY LTD
Plaintiff
AND
MENZIES CIVIL AUSTRALIA PTY LTD
Defendant
Catchwords:
Costs - Indemnity costs - Whether the defendant's case was based on an 'obvious and irremediable weakness' - Whether the defendant's case was commenced or maintained in circumstances where the defendant should have known it had no chances of success - Where the plaintiff will be entitled to recover their costs in any event
Legislation:
Corporations Act 2001 (Cth) ss 459G, 459H, 459J
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | E Fearis |
| Defendant | : | M Holler |
Solicitors:
| Plaintiff | : | Minter Ellison |
| Defendant | : | Lavan |
Case(s) referred to in decision(s):
CM Luxury Pty Ltd v Menzies Civil Australia Pty Ltd [2023] WASC 340
Re Simmoll Pty Ltd [2021] VSC 693
Rectangular Pty Ltd v atf The Marco Cardaci Testamentary Trust [2023] WASC 13 (S)
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)
SEAWARD J:
Introduction
In this matter, the plaintiff applied by originating application under s 459G of the Corporations Act 2001 (Cth) dated 23 December 2022 to set aside the statutory demand dated 5 December 2022 issued by the defendant to the plaintiff. The amount of the debt claimed in the statutory demand was $1,302,973.70.
On 7 September 2023, I published my reasons for granting the plaintiff's application and setting aside the statutory demand: CM Luxury Pty Ltd v Menzies Civil Australia Pty Ltd[52] (Primary Reasons).
[52] CM Luxury Pty Ltd v Menzies Civil Australia Pty Ltd [2023] WASC 340.
At the delivery of my Primary Reasons, the plaintiff sought programming orders to file short written submissions in support of its application for an indemnity costs order, and to provide the court with some additional documents in support of that application. Whilst counsel for the defendant was prepared to argue the questions of costs at the delivery of my reasons, there was no objection to this course of action. I therefore made orders to facilitate this approach. The parties also submitted that the question of costs could be determined on the papers.
These reasons should be read together with my Primary Reasons, and I adopt the same defined terms. In my Primary Reasons, I concluded that the statutory demand should be set aside for the following two reasons:
(a)The inaccurate and misleading nature of the specification of the debt in the statutory demand is a defect in the statutory demand for the purposes of s 459J(1)(a) of the Corporations Act. Further, it is not 'merely a defect' for the purposes of s 459J(2), and that a substantial injustice would arise in this case unless the statutory demand is set aside.
(b)The inaccurate and misleading nature of the description of the debt in the First Bulley affidavit, combined with the failure of the First Bulley affidavit to verify the reasonableness of the money claimed upon a quantum meruit, constitute 'some other reason' why the statutory demand should be set aside pursuant to s 459J(1)(b) of the Corporations Act.
Position of the parties
The plaintiff seeks an order that the defendant pay all of the plaintiff's costs of the proceedings, including reserved costs, to be agreed or taxed so that the plaintiff is completely indemnified by the defendant for its costs except insofar they are of an unreasonable amount or have been unreasonably incurred. There is no application for an order that the costs be taxed without regard to the limits contained in the relevant scale of costs.
The plaintiff's application is supported by three pieces of correspondence. The first is a letter from the plaintiff's solicitors to the defendant's solicitors, dated 20 December 2022 (First Letter). This letter was sent after the statutory demand had been issued, but prior to the plaintiff's application to set aside the statutory demand being filed. In that letter, the plaintiff's solicitors state that there is a genuine dispute as to whether the contract was entered into by the parties. The plaintiff's solicitors note that the contract attached to the verifying affidavit is only signed by the defendant, and they are instructed that the contract was not agreed between the parties as there were certain key items still being negotiated (including provision of water to the site). In those circumstances, the First Letter says that there is no contractual right pursuant to cl 42.1 of the purported contract.
The First Letter goes on to raise other matters including that in the alternative there is a genuine dispute about the precise amount claimed and/or an offsetting claim to this extent. Documents in support of the alternative matters are then attached. Finally, the First Letter invites the defendant to withdraw the statutory demand, failing which the plaintiff will file an application to set aside the statutory demand and if successful will seek indemnity costs.
The second is a letter in reply from the solicitors for the defendant, dated 22 December 2022 (Second Letter). In that letter, the defendant's solicitors reject the contentions raised in the First Letter and says they are devoid of any credibility. The letter concludes by stating that the defendant will not withdraw the statutory demand and will defend any court action. There are no documents attached to the letter.
The third is a letter from the plaintiff's solicitors to the defendant's solicitors dated 14 March 2023 (Third Letter). This letter was sent after the plaintiff had filed its submissions in this application, raising many of the same points as in the First Letter, and after the defendant had filed its submissions in reply in which the defendant accepted that no written contract existed, and instead based its case on a quantum meruit or an implied or inferred contract. In the Third Letter, the plaintiff's solicitors cite the authority of Re Simmoll Pty Ltd[53] in support of the assertion that it was not open to the defendant to (in effect) amend the basis on which the debt is alleged to arise, and that the defendant's defence of the application is untenable. The plaintiff's solicitors then put forward a Calderbank offer by which they offer that the matter be settled on the basis that the statutory demand be set aside and the defendant pay the plaintiff's costs, fixed in the sum of $12,000. The letter outlines that if the offer is not accepted (and the plaintiff's application is successful) the plaintiff will seek indemnity costs. There was no response to this letter.
[53] Re Simmoll Pty Ltd [2021] VSC 693.
The plaintiff submits that indemnity costs is the appropriate costs order for the following reasons:
(a)The plaintiff pointed out the 'obvious and irremediable weakness' in the defendant's position in the First Letter (being the dispute as to the existence of a contract) but the defendant chose not to withdraw the statutory demand. That the weakness was 'obvious and irremediable' is evident, the plaintiff submits, from the fact that the defendant later abandoned reliance on the claimed contractual debt and instead ran a case based on a quantum meruit. Further, the plaintiff submits that the First Letter put the defendant on notice of a genuine dispute that was likely to clear the 'low hurdle' associated with the 'genuine dispute' ground contained in s 459H(1)(a) of the Corporations Act. Had the statutory demand been withdrawn at this point, the proceedings would not have been commenced and the associated legal costs incurred.
(b)Given the defendant's change in position from a contractual debt to a quantum meruit, Mr Halim's affidavit, Ms Balinski's affidavit and the plaintiff's primary written submissions and the reply submissions (to the extent they concern an implied or inferred contract) essentially became irrelevant, resulting in costs unnecessarily incurred.
(c)Once the defendant had abandoned its position as to reliance on a contractual debt, the plaintiff again pointed out to the defendant an 'obvious and irremediable weakness' in its position in the Third Letter (being the defective nature of the statutory demand and the First Bulley affidavit) but the defendant did not withdraw the statutory demand. The fact that the weakness was 'obvious' is, the plaintiff submits, apparent from the fact that the Primary Reasons were consistent with the plaintiff's position and involved a complete rejection of the defendant's submissions.
(d)The First Letter and the Third Letter constituted 'fair warning' to the defendant and foreshadowed an application for indemnity costs. The defendant should have appreciated the grounds raised in the Third Letter, and the high probability of the plaintiff's success on these grounds. I understand that the plaintiff is not directly invoking the Calderbank principles, but instead rely on the Third Letter as part of a series of correspondence whereby the defendant was advised of the weaknesses in their case, and yet it persisted in defending the application.
The defendant opposes the application and says that the appropriate order is that the defendant pay the plaintiff's costs to be taxed if not agreed on a party‑party basis for the following reasons:
(a)The defendant's case was not hopeless and persistent with wilful disregard of clearly established law.
(b)The case concerned arguable issues of statutory construction and application (concerning any requirement to state the legal nature of a debt in the statutory demand) and also the related exercise of judicial discretion as to the questions of whether any 'substantial injustice' arose for the purposes of s 459J(1)(a) and whether there was 'some other reason' why the statutory demand should be set aside for the purposes of s 459J(1)(b) of the Corporations Act.
(c)The plaintiff has not demonstrated that some part of the costs will not be recovered without an indemnity costs order.
The defendant also says that in these circumstances the plaintiff should also pay the defendant's costs of the indemnity costs application.
Following the receipt of the defendant's submissions, the plaintiff filed short additional submissions attaching a draft bill of costs which demonstrate that the costs incurred by the plaintiff are greater than the maximum taxed costs permitted under the relevant scale.
Legal principles
The principles regarding indemnity costs are not in contest and are detailed in the decisions of Swansdale Pty Ltd v Whitcrest Pty Ltd[54] and Rectangular Pty Ltd v atf The Marco Cardaci Testamentary Trust.[55] I have not repeated those principles in these reasons.
[54] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10].
[55] Rectangular Pty Ltd v atf The Marco Cardaci Testamentary Trust [2023] WASC 13 (S) [18] ‑ [24].
Disposition
In all the circumstances I am not satisfied that this is an appropriate case for the award of indemnity costs. I have reached this conclusion for the following reasons.
First, whilst the defendant was unsuccessful in its defence of the plaintiff's application, to the extent it is submitted that the defendant's case was based on an 'obvious and irremediable weakness', I must not assess the defendant's conduct without the benefit of hindsight.
The First Letter clearly identified the plaintiff's contention that no contract existed. However, whilst that letter attached documents relevant to the dispute as to the precise amount alleged to be owed/offsetting claim, it was not until the plaintiff filed its various affidavits in support of the application that evidence underpinning the claim that no contract existed was supplied to the defendant. It is unfortunate that the defendant did not seek to engage in more meaningful conferral following the First Letter, in an attempt to ascertain the basis upon which the plaintiff said that no contract was ever entered into. However, ultimately, it was not until the affidavits were filed that the defendant received a complete explanation as to why the plaintiff says that a contract did not exist and documents/evidence supporting that claim. The First Letter must be considered in the context of an arrangement that had been, it appears, in place for 10 previous payment certificates.
Secondly, I accept that the plaintiff raised (in the First and Third Letters) the legal issues contained in its submissions prior to those submissions being filed, thus providing the defendant with an opportunity to consider its position. However, I do not consider that the defendant's case can be described as being one of 'obvious and irremediable weakness' or commenced or maintained in circumstances where the defendant, properly advised, should have known that it had no chance of success.
The two key questions arising in the application were whether the statutory demand (and in turn verifying affidavit) is required to specify the legal nature of the debt; and what happens if the specified basis is no longer relied on. The issue of the offsetting claims was accepted by the defendant. The plaintiff referred to other first instance authority in support of its submission that the statutory demand must state the legal basis of the debt claimed (and the verifying affidavit must support that legal basis). However, no party referred the court to any appellate court decision in this regard. Further, my decision was ultimately not based on this proposition (which I considered I did not need to determine in the context of this matter) and was instead based on the inaccurate and misleading nature of the documents (given the change in the underlying basis for the debt following the receipt of the plaintiff's affidavit evidence). Again, no party referred to any appellate court authority precisely addressing this issue. The case run by the defendant was that, as a matter of statutory construction, the statutory demand contained all information that it required. In these circumstances, I do not consider it can be said that the defendant's case was so hopeless as to justify an award of indemnity costs.
Thirdly, I accept that the change by the defendant of the basis upon which the debt was claimed lead to costs being wasted by the plaintiff. However, as the plaintiff has been successful in the overall proceedings, these costs are able to be claimed by the plaintiff (that is, this is not a case where the defendant was successful, but the plaintiff incurred costs thrown away by reason of the defendant's conduct).
I am therefore not satisfied in all the circumstances that the conduct of the defendant in defending the application is such that it warrants the court's mark of disapproval by imposing an indemnity costs order. Rather, the appropriate order is that the costs be taxed on a party‑party basis.
Orders
I therefore make the following orders:
1.The defendant pay the plaintiff's costs of the application to be taxed if not agreed on a party-party basis.
2.There be no order as to the costs of the application for special costs orders.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AA
Associate to the Judge
10 OCTOBER 2023
3
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