Hotncold Pty Ltd v Hawk Construction Services Pty Ltd
[2006] WASCA 45
•21 MARCH 2006
HOTNCOLD PTY LTD -v- HAWK CONSTRUCTION SERVICES PTY LTD [2006] WASCA 45
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASCA 45 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | FUL:155/2004 | 6 DECEMBER 2005 | |
| Coram: | STEYTLER P MCLURE JA MURRAY AJA | 21/03/06 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| B | |||
| PDF Version |
| Parties: | HOTNCOLD PTY LTD HAWK CONSTRUCTION SERVICES PTY LTD |
Catchwords: | Corporations Act 2001 (Cth) Statutory demand Whether retention sum under building contract due and payable Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 459E, s 459G, s 459H, s 459J |
Case References: | Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Financial Solutions A'asia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306 NT Resorts Pty Ltd v Deputy Commissioner of Taxation) (1998) 153 ALR 359 Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (In Liq) (2004) 185 FLR 130 Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : HOTNCOLD PTY LTD -v- HAWK CONSTRUCTION SERVICES PTY LTD [2006] WASCA 45 CORAM : STEYTLER P
- MCLURE JA
MURRAY AJA
- Appellant
AND
HAWK CONSTRUCTION SERVICES PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : COMMISSIONER ZILKO SC
Citation : HAWK CONSTRUCTION SERVICES PTY LTD v HOTNCOLD PTY LTD [2004] WASC 202
File No : COR 169 of 2004
(Page 2)
Catchwords:
Corporations Act 2001 (Cth) - Statutory demand - Whether retention sum under building contract due and payable - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 459E, s 459G, s 459H, s 459J
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant : Mr A Metaxas
Respondent : Mr A R Beech
Solicitors:
Appellant : Benari & Co
Respondent : Minter Ellison
Case(s) referred to in judgment(s):
Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Financial Solutions A'asia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306
NT Resorts Pty Ltd v Deputy Commissioner of Taxation) (1998) 153 ALR 359
Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452
(Page 3)
Case(s) also cited:
John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250
Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (In Liq) (2004) 185 FLR 130
Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294
(Page 4)
1 STEYTLER P: I have had the advantage of reading the judgment of McLure JA. I agree with her, for the reasons which she has given, that the appeal should be dismissed.
2 MCLURE JA: The appellant appeals from the decision of Commissioner Zilko SC setting aside the appellant's statutory demand under s 459H of the Corporations Act 2001 (Cth) ("the Act").
3 Under a contract in writing between the appellant, Hotncold Pty Ltd, and the respondent, Hawk Construction Services Pty Ltd, made in April 2002 ("the contract"), the appellant agreed to supply and install air-conditioning and ventilation ("works") in commercial premises at Wangara ("the premises"). The premises were owned by Desmar Holdings Pty Ltd ("owner"). The works were to be in accordance with identified drawings and specifications of CA & MJ Lommers ("Lommers").
4 The contract provides for a defects liability period of 12 months and a retention fund of 5 per cent of the contract value, half of which was to be released at practical completion and the balance of 2.5 per cent to be released at the end of the defects liability period in accordance with the respondent's standard conditions. Standard conditions 1, 6 and 6a provide:
1. The Subcontractor will carry out the work in a proper and workmanlike manner using good and proper materials in accordance with the construction documents and directions given by the Builder and all statutory and municipal requirements.
6. The Builder shall be entitled to withhold part payment if the work is incomplete or defective and until rectified.
6a A cash retention unless stated in the Head Contract shall be 10 per cent of the contract value, which will be held until completion of the maintenance period and/or to the satisfaction of Hawk Construction's/Client.
5 The defects liability period expired about 1 September 2003. Prior to the expiration of that period, the tenant of the premises, Australian Envelopes, complained of problems with the operation of the air-conditioning in the building. The balance of the retention fund in the sum of $5810.75 was not paid at the end of the defects liability period or thereafter. In May 2004 the appellant issued a statutory demand under
(Page 5)
- s 459E of the Act. The Commissioner set aside the demand under s 459H of the Act.
6 There are two grounds of appeal. The first is in substance that the Commissioner erred in finding that there was a genuine dispute as to the existence or amount of the debt due because:
(a) there was no evidence that the appellant's breach of contract was the cause of the tenant's complaints;
(b) the contract did not excuse the respondent from paying the debt, being the balance of the retention fund;
(c) the respondent was acting arbitrarily or capriciously.
7 The second ground is that the Commissioner erred in failing to find that the respondent had not adduced evidence that would enable the Court to determine the substantiated amount for the purposes of s 459H(2) of the Act.
Statutory framework
8 Section 459E identifies when a creditor may serve a statutory demand. Section 459E(1) relevantly provides:
"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; or
… "
9 Thus a debt must be due and payable to be the subject of a statutory demand under the Act.
10 Section 459G gives the company the power to apply to a court for an order setting aside a statutory demand under specified circumstances. Section 459H concerns the determination of the application where there is a genuine dispute or offsetting claim. It materially provides:
"(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(Page 6)
- (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim."
11 Subsection (2) of s 459H requires the Court to calculate the substantiated amount of the demand in accordance with the formula "Admitted total" less "Offsetting total". Admitted total is relevantly defined as the admitted amount of the debt (s 459H(2)).
12 Admitted amount is defined in s 459H(5) to mean:
"(a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt–a nil amount; or
(b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt–so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c) otherwise–the amount of the debt."
14 If the substantiated amount (that is, the amount not in dispute) is less than the statutory minimum, the Court must set aside the demand (s 459H(3)). If the substantiated amount is at least as great as the statutory minimum, the Court may make an order varying the demand (s 459H(4)).
15 Thus, if the Court is satisfied that there is a genuine dispute or an offsetting claim it must calculate the substantiated amount: s 459H(2). However, s 459H is subject to s 459J. Section 459J(1) provides:
"[O]n an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(Page 7)
- (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."
16 The trend of authority (see NT Resorts Pty Ltd v Deputy Commissioner of Taxation (1998) 153 ALR 359 at 364 - 365 per Finkelstein J) supports the proposition that there are four mutually exclusive grounds for setting aside a statutory demand, being the existence of:
1. a genuine dispute as to the existence or amount of the debt (s 459H(1)(a));
2. an offsetting claim (s 459H(1)(b));
3. a defect in the demand (s 459J(1)(a)); or
4. some other reason (s 459J(1)(b)).
Evidence and reasons
17 By letter dated 30 July 2003 from the tenant to the owner, the tenant advised that it was experiencing balancing problems with the air-conditioning system. The relevant issues they raised for resolution were first, a suggestion that sensors had been placed in wrong positions allowing cold air from the ceiling vents to affect the temperature, second, overheating in the computer room and third, the dump vents in specified rooms did not appear to be functioning correctly. The respondent forwarded the tenant's letter to the appellant seeking its comment. The appellant by letter dated 6 August 2003 responded as follows:
"We have attended [the] site a number of times in order to rectify issues raised by the client. We have spoken with the consultant again today regarding technical approach to resolution. If you permit we shall follow the consultant's advice and liaise with him as to progress and results. This will commence with logging of space temperatures and checking of the control program. The consultant with this information can then instruct us as to his preferred next step. We understand the consultant will also be investigating the computer room."
18 I understand the consultant to be a reference to Lommers. The appellant's uncontradicted evidence is that it received no further
(Page 8)
- instructions from the respondent or Lommers. The next communication of substance is a facsimile dated 9 June 2004 (that is, after service of the statutory demand) from Lommers to the appellant advising that the respondent was not willing to release the retention and that Lommers had agreed to act as a mediator. Nothing was said about the cause or nature of any problems at the premises.
19 In a letter dated 16 June 2004 from the tenant to the owner, the tenant advised:
"We continue to have variations in temperature and although Hotncold have been back many times to try and rectify the problem we have as yet not come to a satisfactory conclusion.
Australian Envelopes detailed the balance problems we were experiencing in a letter to you in July last year … Following the logging of space temperatures and checking of the control program we have to date had no written communication detailing the outcome of those tests. In fact since the system was installed we have had no written communication as to the reason/causes for the temperature variations we have experienced.
We have recently received a call from Chris at Hotncold wanting to further discuss any outstanding issues."
20 The appellant adduced evidence to the effect that it had not received any notice of or instruction relating to any defect with the works performed by it under the contract. It also tendered inspection reports by three experts who answered in the affirmative each of the following questions:
1. Are the air-conditioning sensor locations as per design?
2. Is the computer room air-conditioning as per design?
3. Are dump vents (VAV diffusers) installed as per design?
4. Have Hotncold completed the items above as per design?
21 No expert was asked to comment on the nature and cause of the problems being experienced by the tenant or whether they were attributable to defects in Lommers' design or in the appellant's performance of its contractual obligations.
(Page 9)
22 The Commissioner set aside the statutory demand on two grounds. First he concluded that there was some material which, although falling short of proof, supported the respondent's contention that the amount was genuinely disputed. In reaching that conclusion he relied on the two letters from the tenant in July 2003 and June 2004 and the appellant's letter of 6 August 2003 in which, according to the Commissioner, there appeared to be a concession on the appellant's part that the problems being experienced by the tenant might arguably fall within the parameters of the defendant's contractual responsibility.
23 The second ground for setting aside the statutory demand depended on the construction of cl 6 and 6a. The Commissioner concluded that cl 6a must be read in the context of cl 6 so that "the retention sum can be retained until the plaintiff is satisfied that the work has been satisfactorily completed and/or rectified". He also concluded that the respondent must act reasonably, based on all the information available to it, in reaching a state of satisfaction or dissatisfaction as to the defendant's work. That is, the respondent could not act arbitrarily or capriciously. He continued (at [10]):
" … it seems to me that the tenant's correspondence does entitle the [respondent] to reasonably conclude that the air-conditioning work was not carried out in accordance with the [appellant's] obligations under the agreement. If the [respondent] is not satisfied with the work and has acted reasonably in reaching that decision, it follows from cls 6 and 6a that there is no debt which is presently due and payable to the [appellant]. Of course, there can be no serious dispute that the retention sum is owing by the [respondent] to the [appellant] and will continue to be owing until the matters relating to the air-conditioning system have been finally resolved."
24 The Commissioner concluded that because there was a genuine dispute as to whether the debt was presently due and payable it fell within s 459H(1)(a) of the Act. However, differing judicial views have been expressed as to which category applies. It cannot be within s 459H(1)(a) unless that can be read as referring to a debt of the class that can be included in a demand, that is, a debt presently due and payable: NT Resorts (supra) at 367. Finkelstein J in that case inclined to the view that where a debt was arguably not due and payable the appropriate ground was s 459J(1)(b) not s 459H, although the genuine dispute test would apply by way of analogy. Bryson J in Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300 concluded that the
(Page 10)
- inclusion of debts not due for payment at the date of the statutory demand was a defect within s 459J(1)(a). However, neither party in this case contended the Commissioner erred in deciding the application under s 459H(1)(a) of the Act.
Ground 1
25 The appellant contends there was no evidence that the appellant's breach of contract was the cause of the problems the subject of the tenant's complaints. The Commissioner drew two different conclusions on the evidence. First, the Commissioner regarded the appellant's letter of 6 August 2003 as containing a concession that the problems being experienced by the tenant might arguably fall within the parameters of the appellant's contractual responsibility. This conclusion is not challenged. The Commissioner also concluded that the tenant's correspondence of July 2003 and June 2004 entitled the respondent to reasonably conclude that the air-conditioning work was not carried out in accordance with the defendant's obligations under the agreement. In my view that conclusion is not reasonably open on the evidence. In particular, there is no positive evidence that the problems in the air-conditioning at the premises were caused by the appellant's failure to comply with its contractual obligations. On the other hand, there is no evidence that excludes the possibility that the problems were so caused. The evidence that the appellant complied with Lommers' drawings and specifications does not of itself exclude the possibility of faulty equipment or workmanship for which the appellant is contractually liable. The evidence goes no further than establishing that fault (breach) by the contractor is a possibility.
26 Whether or not the respondent can lawfully retain the balance of the retention fund after the expiration of the defects liability period in those circumstance, depends upon the proper construction of the contract. The Commissioner construed cl 6 and cl 6a together to mean that the retention sum could be retained until the respondent was satisfied that the work had been satisfactorily completed and/or rectified. Neither party to the appeal challenged the correctness of that construction. However, they differ as to its intended scope. The appellant interprets the Commissioner's construction as permitting the continued retention of the money only if the respondent is satisfied (on reasonable grounds) that the appellant has failed to comply with its contractual obligations. The evidence falls short of establishing that.
27 The respondent contends that the Commissioner's construction permits the continued retention of the funds where the subject matter of
(Page 11)
- the works (the air-conditioning system) is defective and requires rectification. On this construction, the existence of the defects rather than the appellant's legal responsibility for the defects enlivens the retention power. If this construction is fairly arguable, the appellant must fail on ground 1.
28 However, it is unnecessary to determine whether the respondent's construction is arguable because it goes further than necessary. Under cl 6a, the retention can be held until the satisfaction of the respondent or its client. Thus, it entitles the respondent to retain the funds until it reaches a state of satisfaction. It does not in terms permit continued retention provided the respondent is relevantly satisfied. The question then is satisfaction about what. An alternative and arguable construction is that the balance of the retention fund can be held until the respondent is satisfied that the works are complete and free from defects for which the appellant is liable. The respondent's evidence is that he is not so satisfied and such failure could not be characterised as arbitrary or capricious. Framed in this way, there is evidence giving rise to an arguable claim by the respondent to retain the moneys.
29 In considering whether there was a genuine dispute in this case, the Commissioner applied the test formulated by the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464. That test is to the effect that a genuine dispute requires that:
(a) The dispute is bona fide and truly exists in fact;
(b) The grounds alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.
30 There have been other formulations such as, there is a genuine dispute if it is plainly not frivolous or vexatious or if there is a serious question to be tried: Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. These various tests are satisfied in this case. Only if the appellant's construction was unarguably correct would it be necessary to consider whether the absence of positive evidence of the appellant's breach is fatal to the respondent's application. That would require consideration of Financial Solutions A'asia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306. I would dismiss ground 1.
Ground 2
31 The appellant's written submissions on this ground are to the effect that the respondent offered no evidence as to the substantiated amount "so
(Page 12)
- that even if there was a genuine dispute it went nowhere as a basis to set aside the demand". As far as I am able to glean from the appellant's oral submissions, the argument is that the retention fund is a debt which is owing (as found by the Commissioner), in which event the onus was on the respondent to adduce the necessary evidence to establish an offsetting claim. It seems to me the argument may be premised on the proposition that s 459H(2)(a) does not apply, when (as here) the relevant dispute relates to whether the debt is due and payable because there is no dispute about the existence or amount of the debt owing. However, if the appellant is correct, s 459J (not s 459H(2)) applies: NT Resorts (supra) at 367.
32 On the other hand, if debt in s 459H(1)(a) means a debt that can be included in a statutory demand (one that is due and payable), the dispute can only be as to the existence of the debt, in which case the admitted amount and thus the substantiated amount is nil and, on the facts, no offsetting claim arises. The retention fund is by way of security for the respondent. The relevant dispute in this case is whether the entire debt is presently due and payable not whether the respondent has a present claim to a particular amount.
33 It is the case that, if s 459H applies, the Commissioner did not make an express finding as to the substantiated amount as required under s 459H(2). However, as previously noted, if s 459H(2) does apply, it can only be because there was a genuine dispute as to the existence of the debt in which event there is a nil substantiated amount and the demand must be set aside as was done in this case. The omission does not affect the outcome. If s 459J(1)(b) is the appropriate provision in a case where the dispute relates to whether the debt is presently due and payable, s 459H(2) does not apply. I would dismiss ground 2.
34 For these reasons, I would dismiss the appeal.
35 MURRAY AJA: I too would dismiss this appeal and I have nothing to add to the reasons of McLure JA.
2
9
1