Global Paving Pty Ltd v TJM Operations Pty Ltd
[2011] VSC 190
•6 May 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST - E
No. S CI 2011 00706
IN THE MATTER of GLOBAL PAVING PTY LTD (ACN 138 667 464)
B E T W E E N
| GLOBAL PAVING PTY LTD (ACN 138 667 464) | Plaintiff |
| v | |
| TJM OPERATIONS PTY LTD (ACN 122 164 041) | Defendant |
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JUDGE: | GARDINER As J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 April 2011 | |
DATE OF JUDGMENT: | 6 May 2011 | |
CASE MAY BE CITED AS: | Global Paving Pty Ltd v TJM Operations Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 190 | |
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CORPORATIONS – internal administration – winding up – statutory demand – plaintiff’s application to set aside statutory demand served by the defendant – Corporations Act 2001 (Cth) ss459G, 459J – whether genuine dispute and offsetting claim in respect of construction contract – whether defects in statutory demand are source of substantial injustice –whether the demand should be set aside for want of provision of particulars.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Kohn | Berry Family Law |
| For the Defendant | Mr N. Jones | ComLaw |
HIS HONOUR:
The plaintiff (“Global”) by an originating process filed 17 February 2011 makes application pursuant to section 459G of the Corporations Act (“the Act”) to set aside a statutory demand dated 31 January 2011 which was served on it by the defendant (“TJM”).
The demand was served on Global on 2 February 2011 by post at its registered office. It was accompanied by an affidavit of Michael De Luca dated 31 January 2011. The demand claims that Global owes TJM a debt of $19,942.48 for goods and services provided for the period October to November 2010.
Global relies on affidavits of Frank Del Giuidice sworn 17 February 2011 and Michael Lipshutz sworn 15 April 2011.
TJM relies on two affidavits, both by Michael De Luca sworn 23 March 2011 and 20 April 2011. The latter affidavit was filed and served outside the time prescribed by the order of Efthim AsJ by his order of 2 March 2011, however, Mr Kohn counsel for Global did not oppose that affidavit being received in evidence.
Global contends that it has a genuine dispute and offsetting claims in respect of the debt the subject of the demand. In addition, it contends that the demand is defective by reason that the ACN number for Global in the statutory demand is incorrect. It also submits that the demand should be set aside for “some other reason” within the meaning of s 459J of the Act by reason that it is not possible, by reference to the documents attached to the demand, to ascertain how the amount claimed is arrived at.
Global is a paving contractor and was engaged by HL Cuthbert & Sons (Vic) Pty Ltd (“HLC”) to lay a concrete floor at a building site at Pakenham. Global’s contract with HLC required that the concrete which was laid had to conform with specifications compiled by a construction consultant, Ancon Beton and provided to HLC by the owner of the project, Bunnings Group Pty Ltd as part of the conditions of the construction contract. Global’s contract with HLC also required that before any concrete work commenced the mixture was to be tested and approved by Ancon Beton.
In about September 2010, Global requested TJM to supply the concrete to carry out the works at the Pakenham site and provided TJM with a copy of the specifications that were required to be complied with.
The concrete pour took place over two days on 4 and 5 October 2010.
Global says that on the first day of the pour, the concrete complied with the specifications. However, on the second day the concrete supplied was said to be “grittier”. The specifications required that the concrete floor was to have a burnished finish. However, when that finish was applied to the concrete laid on the second day, some 75% of it was unacceptable by reason that when the polishing machine passed over the surface, a scratched finish resulted because particles were abraded from the surface of the slab and were caught under the blades of the polisher. It is contended by Global that this was caused by the concrete mix provided by TJM not meeting the specifications.
Global says that it requested TJM to inspect the concrete which had been laid but that TJM failed or refused to take any action to rectify the problems which had arisen. Subsequently, Global met with Bunnings and the head contractor, HLC, in respect of the rectification of the finish to the concrete. It was agreed a test would be carried out over a small area of the concrete surface to determine if the slab could be rectified. It was agreed that if it could not, it would have to be re‑laid.
Global contends that a consultant, Hanlay Industrial Group, conducted tests on the concrete as a result of which it was determined that the entire slab had to be re‑laid. Global claims that the cost of re‑laying the slab was $20,403 and it has paid for these works to be carried out.
By reason of these matters, Global says that it has a genuine dispute in respect of the alleged debt to TJM, as the concrete provided was not in compliance with the agreement between them. In addition, it says that it has an offsetting claim against TJM, which arises by reason of the cost incurred by it to rectify the slab. The offsetting claim is said to comprise an invoice for $12,100 from Hanlay Industrial Group for $12,100 for concrete polishing works. In addition, HLC deducted monies which were otherwise payable to Global in the sum of $8,303 by reason of the problems with the job. The variation invoice which was issued by HLC details that amount as consisting of labour and material costs incurred to “increase the burnish of the first stage of concrete due to the diamond grind of the second stage”. The actual tasks charged for were in respect of supervision of the rectification works as detailed in the invoice.
TJM says that all the concrete provided for the works was of the same consistency and in accordance with the specifications. It says that the directions as to the concrete mix were given by Mr Del Giuidice and that any variation in the different mixtures of the concrete was within permissible tolerances. Further, TJM says that the failure to comply with the required quality of finish was not related to the concrete mix supplied by TJM, rather was due to the incorrect operation of the polishing machine used by Global to finish the works.
TJM says that a report from the consultant, Ancon Beton, of 1 December 2010 indicates that the concrete supplied met the required standards. TJM contends that in any event, by clause 7 of the agreement between TJM and Global, Global agreed that if a dispute arose between Global and TJM, Global would still be required to pay the amount owing to TJM. That amount would be held by TJM until the determination of the dispute. In the same way, it says that Global cannot raise an offsetting claim as a basis for refusing to pay the debt even if there is a dispute. TJM submits that Global’s case relies on the unsubstantiated assertion that the concrete supplied by TJM was not in accordance with the specifications required by the proprietor, Bunnings. It contends there is no evidence that the concrete was not in accordance with the specifications, rather that it was.
TJM says that Global did not make any complaint to it or make any demand for loss or damage until after the service of the statutory demand in February 2011. In addition, on 15 December 2010 Global, without signalling a complaint, made a substantial payment to TJM of $28,889.60; by that date, the need for the alleged rectification works was apparent to it and this is supported by the fact that one of the invoices forming part of the alleged offsetting claim from Hanlay Industrial Group is dated 10 November 2010. It says that the complaints that Global now makes are not plausible because if it had a genuine dispute as to the amount owed to TJM, it would not have paid TJM the amount it did in December 2010.
In substance, TJM’s major criticism of Global’s case is that it consists of unsubstantiated assertions that Global, as the concrete supplier, did not comply with the requirements of their agreement. This is coupled with the submissions concerning the “pay now – litigate later” terms of clause 7 of TJM’s conditions of supply and the implausibility of Global’s position arising by the fact of December payment.
Mr De Luca’s affidavit of 23 March 2011 exhibits correspondence passing from the solicitors for TJM to Global’s solicitors. In a letter of 21 March 2011, which is an open letter, TJM’s solicitors offer to withdraw the statutory demand on the basis that the costs of the present proceeding be paid by the unsuccessful party in the Magistrates’ Court proceedings commenced by Global against TJM in February 2011. The Magistrates’ Court proceeding referred to agitates Global’s offsetting claim. The Magistrates’ Court proceeding has yet to be assigned a hearing date.
Obviously, the offer made in that letter was not accepted and this proceeding proceeded to trial. That offer may have relevance when I come to determine the question of costs.
Relevant Legal Principles
The principles to be applied when considering applications to set aside statutory demands under Section 459G of the Act have been the subject of numerous authorities. In the decision of TR Administration Pty Ltd v Frank Marchetti & Sons,[1] the Court of Appeal of the Supreme Court of Victoria collected and considered the cases dealing with those principles.
[1](2008) 66 ACSR 67
At paragraph [56] and following of the judgment, Dodds-Streeton AJ stated:
[56]The Court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
[57]No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the ‘ultimate question’ of the existence of the debt should not be compromised.
…
[60]In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (‘Spencer’), the Full Federal Court cited a variety of different formulations of the principles applicable to determining the existence of a genuine dispute or off-setting claim. Their Honours considered the different articulations helpful, but warned that they should not become a substitute for the words of the statute.
[61]As recognised by Heerey J in Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd, any tendency to ‘trawl through a myriad of judgments’ and plethora of formulations is equally to be avoided.
[62]The Full Federal Court in Spencer concluded that:
In our view a genuine dispute required that the dispute be bona fide and truly exist in fact.
The grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.”
At paragraph [64] Dodds-Streeton AJ quoted from the decision of McClelland CJ in Equity in Eyota Pty Ltd v Hanave Pty Ltd[2] where his Honour stated:
It is, however, necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 45OH [sic]. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sorts of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for an extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a general dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth… or “a patently feeble legal argument or assertion of facts unsupported by evidence…
But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute.
...
These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.
[2](1994) 12 ACSR 785 at 787.
Dodds-Streeton AJ also quoted from the decision of Thomas J in Re Morris Catering (Aust) Pty Ltd[3] where his Honour stated:
There is little doubt that Div 3 ... prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court's examination are the ascertainment of whether there is a ``genuine dispute'’ and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).
[3](1994) 12 ACSR 785 at 787.
Dodds-Streeton AJ went on to state:
[66]In the present case, the appellant stressed the formulation of ‘a patently feeble legal argument or an assertion of facts unsupported by evidence’ set out in[the decision of the Full Court of the Supreme Court of South Australia] South Australia v Wall.
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[69]Cox J stated that, bearing in mind the policy, there was good reason for giving the words ‘genuine dispute’ a plain and uncomplicated meaning as a safeguard against allowing a colourable and insincere denial of liability to frustrate the goal of the provisions.
[70][Cox J rejected the view that any objective appraisal of the dispute was appropriate. His Honour stated that while ‘a patently feeble legal argument or an assertion of facts unsupported by evidence would more readily disincline the Court to consider the dispute to be a genuine one, so far as the employer is concerned’, the merits were otherwise not relevant. Only a dispute which was frivolous or ‘one made without adequate inquiry and consideration’ would run the risk of not being considered genuine.”
[71]As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.
Barrett J of the Supreme Court of New South Wales, in Solarite Airconditioning Pty Ltd v York International (Aust) Pty Ltd[4] observed:
…[t]he task faced by a company challenging a statutory demand on the “genuine dispute” ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of a company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seem stronger [Emphasis added].
[4][2002] NSWSC 411
The use of statutory demands in the context of construction contracts was the subject of consideration by Young J of the Supreme Court of New South Wales in John Holland Construction & Engineering Pty Ltd v. Kilkpatrick Green Pty Ltd[5]. In that case, the creditor claimed approximately $1 million based on 3 invoices. At first instance, the application was heard by a Master who considered that there was no adequate material before him to substantiate the claim that the dispute was genuine. Young J stated:[6]
Prior to the amendments to the Corporations Law by the Corporations Reform Act No 210 of 1992, the way in which the Companies Court approach to disputed debt applications was relatively clear, though it was sometimes difficult to work out cases that were on the boundary line. The clear principle was that the Companies Court was not to be the place where litigation was to be conducted about disputed trading debts. The Companies List is designed to wind up insolvent companies in the public interest, not as a way of getting a dispute between companies in the marketplace on before a Court quickly. Generally speaking, if it could be seen from the conduct of the parties that there was an honest dispute between them, then they would be expected to have that dispute resolved in the normal channels, that is, in litigation in the Common Law Division or the District Court or before an arbitrator, and not in the Companies List.
…
The important thing to realise is that the basic attitude that the Companies Court is not to be the court which deals with disputed debts remains the principle.
There will be various types of commercial relationships that will produce debts between traders. Sometimes the debt is very easy to compute, such as the situation where there are a limited number of buying and selling transactions between the parties to the dispute. However, on the other end of the scale can be large construction contracts where it is sometimes difficult, at least in the short term, to work out just what is owing by one party to the other.”
[5](1994) 14 ACSR 250
[6](1994) 14 ACSR 250 at 251
And at page 253 of the judgment:
There may be cases, and indeed it may be even the majority of cases, where the court will look not only to an assertion of a dispute, but some sort of material short of proof which backs up the claim that is made that the amount is disputed. It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say that it did not owe a debt.
On the other hand, if proof of a claim is required then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court. What more than assertion is required is something that may differ from case to case… [S]o long as the claim is not fictitious or merely colourable and is genuinely believed to exist one can ordinarily take that as sufficient. That is something more than mere assertion… [I]n a sizeable construction case, where the contemporaneous correspondence between the parties shows that there is a disputing of the figures, then one can say, without looking at the figures or without looking at the evidence that backs up the figures, that there is a genuine dispute between the company and the respondent about the amount of the debt. A similar thing can be said about any offsetting claim.
…
It would seem to me that in the present case, where the proprietor has asserted that a particular amount only is the value of the work, and that amount is put forward by the contractor to the sub-contractor, then even if there is nothing before the court to show how the amount is made up, there is a genuine dispute between the contractor and the sub-contractor as to the amount of all sums over and above that admitted value of the work.”
At page 254:
It may be that I am doing a disservice to this court in approaching the matter in this mathematical way. It may be that it is far more appropriate in the instant sort of case for the court to just take a broad brush approach. Thus the court might just say that because this is not a debt collecting court, where there is a construction case of this nature, the demand should be set aside under s 459J(1)(b) whenever it can be seen from the correspondence that there are honestly held views on either side which have brought a dispute between the parties. Thus, the matter can be dealt with in the ordinary way in which construction disputes are dealt with without the time and expense that is involved in running this sort of litigation ahead of that dispute. If I were to do that in the instant case, I would come to the same result.
In my view, the approach taken by Young J in John Holland Construction is appropriate for application in this instance. The issues which arise from the evidence filed by the parties in this case are incapable of resolution in the context of an application under Section 459G of the Act. The evidence filed by the parties in this application is of the kind that one would expect to find filed in a contested application if the matter was to proceed by way of a trial by affidavit (where there would be0 an opportunity for the parties to cross-examine the deponents to the affidavits). In addition, the procedure under s. 459G is not apt for determination in my view of the legal effect of clause 7 of TJM’s terms of supply.
In coming to this view, I accept that there are aspects of the Global’s case which are convincingly addressed by TJM in its affidavit evidence filed in opposition to the application. However, I consider that the dispute and the cross claims raised are plausible, genuine and warrant further investigation. The position being contended by Global is not, in my view, to adopt the words of Barrett J in the Solarite case, “as being so devoid of substance that no further investigation is warranted” nor is it “spurious, hypothetical, illusory or misconceived”.[7]
[7]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464
Some of the authorities dealing with this type of application characterize the appropriate approach to be taken as being akin to the test to be applied when considering whether there should be leave to defend in a summary judgment application[8]. If I consider hypothetically that the matter was the subject of an application for summary judgment, the subject matter of the alleged dispute and offsetting claims are that Global would almost certainly be given leave to defend.
[8]See Rohalo Pharmaceutical Pty Ltd v R.P. Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347
Further, my task in this application is to ascertain whether there are genuine disputes in respect of the debt the subject of demand, not to express any opinion which may embarrass any other Court subsequently considering the matter.[9] As Robson J stated in Rhagodia Pty Ltd v National Australia Bank Ltd[10]:
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond the perception of genuineness (or lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple – to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offseting claim (and not the likely result of it).”
[9] Spacorp Australia Pty Ltd v. Myer Stores Ltd (2001) 19 ACLC 1270 at [3]-[4]
[10][2008] VSC 195
I do not consider that it is open to me to find that Global’s alleged dispute and offsetting claim have been, to use the expression of McPherson JA in JJMR Pty Ltd v LG International Corp,[11] “manufactured or got up simply for the purpose of defeating the demand made against the company.”
[11][2003] QCA 519.
As to the submission by Global that the statutory demand is defective by reason of the appearance of an incorrect ACN number, I reject that submission. It has not resulted in any confusion or given rise to any inability on the part of Global to make the present application. Re Scandon; Scandon Pty Ltd v Powermate (Australia) Pty Ltd[12] contains a discussion concerning the absence of an ACN for the creditor. It was held not to amount to a defect which would constitute substantial injustice under section 459J(1)(b). Here there is an error in the ACN for Global and it could not be plausibly argued that any injustice has ensued.
[12](1996) 14 ACLC 124
Similarly, I reject Global’s submission that the demand should be set aside for “some other reason” under s 459J because of want of provision of particulars; in no sense has Global at the end of the day been embarrassed in its ability to make the present application. While the exact amount of the demand is not susceptible of calculation from the face of the demand, this has not been the source of any injustice in these circumstances.
I will order that the statutory demand dated 31 January 2011 and served on Global by TJM be set aside. I will hear the parties on the question of costs.
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