In the matter of HWC Contracting Pty Ltd

[2021] NSWSC 1243

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of HWC Contracting Pty Ltd [2021] NSWSC 1243

Hearing dates:

3 September 2021

Date of orders:

3 September 2021

Decision date:

03 September 2021

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

The creditor’s statutory demand be set aside with costs on the ordinary basis.

Catchwords:

CORPORATIONS — Winding up — Statutory demand — Genuine dispute about existence or amount of debt — Where parties advanced competing interpretations as to the operation of clauses in the subcontract between them.

Legislation Cited:

- Corporations Act 2001 (Cth), s 459H.

Cases Cited:

- Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344

- CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100; [2003] NSWSC 728

- Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60

- Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330

- Re Panel Tech Industries v Australian Skyreach Equipment (No 2) [2003] NSWSC 896

- Re Malosi Group Pty Ltd [2021] NSWSC 633

- Re Matrix Group Co Pty Ltd [2021] NSWSC 1042

- Re Scahill and Co Pty Limited [2016] NSWSC 712

- Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680

- Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772

- Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; (1997) 147 ALR 444; (1997) 24 ACSR 353; [1997] FCA 681

Category:

Principal judgment

Parties:

HWC Contracting Pty Limited (Plaintiff)
Five Star Scaffolding Pty Limited (Defendant)

Representation:

Counsel:
P Folino-Gallo (Plaintiff)
S C Fisher (Defendant)

Solicitors:
Harrington Lawyers (Plaintiff)
Francom Legal (Defendant)

File Number(s):

2021/197113

Judgment – ex tempore (Revised 6 September 2021)

1. By Originating Process filed on 9 July 2021, the plaintiff, HWC Contracting Pty Ltd ("HWC") in turn applied to set aside a creditor’s statutory demand dated 18 June 2021 (“Demand”) issued by Five Star Scaffolding Pty Ltd (“Five Star”) and sought costs of that application. By that Demand, Five Star had claimed payment in the amount of $238,338.02, being the amount of a debt described in a schedule to the Demand. That amount comprised 17 tax invoices, commencing as invoice number 7128 and concluding as invoice 8901, which together total $238,338.02 being the amount claimed in the Demand. The Demand was verified by an affidavit dated 18 June 2021 of Mr Michael Eskaros, the sales manager of Five Star, and Mr Eskaros there indicated that he believed there was no genuine dispute about the existence or the amount of the debt.

Applicable principles

2. It will be desirable, first, if I set out the applicable principles, because they will cast considerable light upon the issues raised by the application to set aside the Demand. Although HWC raised, in submissions, three bases on which the Demand might be set aside, namely whether there is a genuine dispute about the existence or amount claimed, an offsetting claim, or some other reason, it is only necessary to deal with the first of those matters, that is, whether there is a genuine dispute as to the existence or amount claimed in the Demand. The Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Corporations Act 2001 (Cth) where there is a genuine dispute about the existence or amount of the debt to which a creditor's statutory demand relates. The applicable principles have been summarised in many cases although I have drawn, for the purposes of this judgment, on my summaries in Re Matrix Group Co Pty Ltd [2021] NSWSC 1042 at [12]ff and again in Re Malosi Group Pty Ltd [2021] NSWSC 633 at [16]ff.

3. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; (1997) 147 ALR 444; (1997) 24 ACSR 353; [1997] FCA 681, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. The Courts have repeatedly recognised that the threshold to establish a genuine dispute is not high and, in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J observed that:

“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 sort 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 the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.”

4. The Court of Appeal in turn summarised the case law, albeit in the context of dealing with offsetting claims, in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344. I then summarised those principles in Re Wollongong Coal Pty Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], in observations which were then approved by Barrett JA in the Court of Appeal in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8]. I there noted that the principles applicable in an application to set aside a creditor's statutory demand were analogous to those which underpin an application for an interlocutory injunction or summary judgment; the task of the applicant seeking to establish a genuine dispute was not a difficult or demanding one; and that the Court merely determines the existence of such a dispute in an application of this kind. The Court of Appeal adopted a similar approach in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60 and, importantly for this case, emphasised that the Court would not generally determine questions of construction, in seeking to determine whether a genuine dispute existed, and emphasised that to do so may cause embarrassment for a judge who is subsequently asked to determine such questions, on their merits, in substantive proceedings.

5. With that background, it seems to me clear, from the affidavit evidence and the submissions, that a genuine dispute is here established as to the amount claimed in the Demand, and indeed that is self-evident from the efforts which the parties have devoted to agitating that dispute in the affidavit evidence and submissions to which I now turn.

Affidavit evidence

6. HWC relies on the affidavit of its director, Mr Fabrizio dated 9 July 2021, which notes that HWC was engaged by an associated company, Heworth Constructions Pty Ltd, in respect of a building project in Bondi Junction, and HWC in turn subcontracted Five Star to undertake the scaffolding component of that project. Mr Fabrizio annexes a copy of that subcontract, and I have been taken to aspects of that subcontract in the evidence and in submissions. Mr Fabrizio's evidence is that, between August 2019 and July 2021, Five Star supplied scaffolding services in accordance with the subcontract to HWC for the Oxford Street project. Mr Fabrizio annexes a reconciliation, on which HWC relies, of invoices issued by Five Star and paid by HWC, although that reconciliation is in small print and very difficult to read, and contends that HWC was not, as at the date of the Demand, indebted to Five Star on the basis of that reconciliation.

7. Mr Fabrizio in turn sets out, in paragraph 13 of his affidavit, several challenges to the amount claimed by Five Star in the Demand, which may be summarised in a smaller category of issues than those indicated by the number of subparagraphs. The first issue is that, in respect of the invoices generally, HWC contends that Five Star had been overpaid by an amount totalling $132,900, which HWC treats as a credit against the invoices. The second issue, in respect of several claims by Five Star for extra hire time and consequential payments, is that Five Star was not able to claim such payments by reason of cl 11 of the Subcontract, which relevantly contains provision that Five Star would be entitled to an extension to the date for completion in certain circumstances; would not be entitled to any extension of time for any other reason, event or circumstance; and would have no claim for any additional or increased costs whatsoever including any delay and/or disruption costs. There is a dispute as to the effect of that clause and another provision in the Subcontract, to which I will refer in dealing with Five Star's evidence below.

8. Next, Mr Fabrizio contends that certain invoices were not payable, because they were claims for a retention, which was not liable to be released under cl 14.2 of the Subcontract until the final claim is payable and a deed of release has been signed by Five Star. Clause 14.2 of the Subcontract, to which the affidavit refers, indicates that the amount of the retention will be released upon payment of final claim and signing of a deed of release.

9. Mr Fabrizio in turn addresses further invoices, where there appear to be some specific disputes, for example whether variations were rejected, and then a range of combination of earlier claims involving the overpayment and the asserted inability to recover retentions, where a deed of release had not been provided by Five Star, with the result that HWC contends that no amount is due to Five Star. Mr Fabrizio there claims that Five Star had not provided a deed of release signed by it. Although that evidence was admitted only with a limiting order under s 136 of the Evidence Act 1995 (NSW) as identifying HWC’s claim, given its form, it does not appear that Five Star contends to the contrary.

10. By his affidavit dated 30 July 2021, Mr Eskaros responds to Mr Fabrizio's affidavit, with a response indicating disagreement with Mr Fabrizio's evidence as to the basis on which payment was not made, extending over more than two pages. It might be noted that, as a matter of first impression, the fact that Mr Eskaros leads two pages of closely reasoned evidence as to why the position taken by HWC in rejecting the invoices is wrong, might suggest that there is in fact a genuine dispute as to that matter, rather than the contrary. Mr Eskaros notes, for example, a claim that cl 42 of the Scope of Works: Scaffold Package, displaces the application of cl 11 of the Subcontract, to which I referred above. Clause 42 of that Scope of Works in turn provides that a weekly extra overcharge, if any, is to be applied on the date after the expiry of the hire duration, on a specified basis. It seems to me plainly arguable that cl 42, being a specific provision, does authorise a charge that might otherwise be excluded under cl 11 of the Subcontract, in so far as it is a charge for hire rate, rather than a charge for delay. However, it also seems to me that notwithstanding the valiant effort of Mr Fisher who appeared for Five Star to treat that as something other than a construction question, the question whether one clause prevails over, or excludes the other, within the Subcontract, is plainly a question of construction of the kind which the Court of Appeal has emphasised that Courts should not determine in applications of this kind. That issue arises, for example, in respect of each of paragraphs 8-10, 16 and 18 of Mr Eskaros' affidavit, in turn responding to paragraphs 13(a)-(c) and 13(i) of Mr Fabrizio's affidavit.

11. Next, Mr Eskaros indicates his disagreement with the proposition that the retention was not payable, because a deed of release had not been provided, but that disagreement is put on the basis that he says the retention is due and payable, without addressing the question of the absence of the deed of release. Again, it appears there is a dispute as to that matter, and there is nothing in the way in which the parties address it that suggest that there is any lack of genuineness in that dispute.

12. Next, Mr Eskaros advances the proposition, which may be correct but is plainly not self-evident, that certain work is not contract work for the purpose of the Subcontract, and is properly a matter of a variation, and advances the claim that invoices issued by Five Star contained a notation that claims were made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”). It is not entirely clear what is said to follow from that proposition, where no application for an adjudication appears to have been made; no adjudication determination appears to have been made; and, plainly enough, no such determination was entered as a judgment debt, which might support a claim under the Demand as to which a genuine dispute could not be raised. Several paragraphs, for example, paragraphs 12, 13, 14 and 15 of Mr Eskaros's affidavit are of a similar character, raising a debate as to what is or is not within the scope of the contract work.

13. Mr Eskaros in turn sets out, in paragraph 20 of his affidavit, a tabulation of the outstanding amounts, involving claims of an extra hire scaffold, the retention, and specific invoices claims, which total the amount of $328,855.25, which is further adjusted to derive the amount claimed in the Demand. Mr Fisher submits that this is in the nature of a running account; while that may be, the fact that a claim has the character of a running account does not mean it is not capable of being genuinely disputed, for the purposes of an application to set aside creditor’s statutory demand. In paragraph 28 of his affidavit, Mr Fabrizio in turn addresses the suggested reconciliation of the amount claimed in the Demand and the amount referred to in the Plaintiff’s reconciliation referred to in Mr Fabrizio’s affidavit.

14. By his affidavit dated 6 August 2021 in reply, Mr Fabrizio in turn addresses aspects of Mr Eskaros's affidavit, but I need not address that evidence in reply, where it largely engages with the dispute as to which the witnesses have joined issue in the affidavit evidence in chief.

The parties’ submissions and determination

15. With this background, I have had the benefit of detailed submissions in chief by Mr Folino-Gallo, who appears for HWC, which address the relevant authority as to establishing a genuine dispute. Those submissions anticipated that Five Star would rely on a suggested settlement agreement, and anticipated that Five Star may have relied on that matter, although it is not apparent that Five Star place any weight on that in its submissions at the hearing. They also address the basis for HWC’s challenge to the alleged debt, in respect of unpaid invoices, and refer to Mr Fabrizio's account of the dispute as to those matters in the affidavit evidence. They address a cross-claim, which is suggested to give rise to an offsetting claim, which it is not necessary for me to address given the conclusions which I have reached on other grounds. Mr Folino-Gallo, in oral submissions, in turn points to the several disputes raised in Mr Fabrizio's affidavit, by category, to which I have referred above, and submits that this is a case where there is a genuine dispute between the parties, which is a matter for determination not in a summary proceeding of this kind, but in substantive proceedings between parties.

16. In Five Star's written submissions, Mr Fisher in turn refers to the applicable case law, and does not seem to me to take issue with Mr Folino Gallo's account of that case law. He then submits that nothing in Mr Fabrizio's affidavit “reaches the threshold of asserting a genuine dispute about the statutory demand debt." He takes issue with the form of that affidavit, and submits that it does not set out grounds which enable the Court to conclude that there is a genuine dispute about the debt the subject of the Demand. I referred above to the basis on which it seems to me that the evidence led by both parties indicates that there is an issue between the parties as to the several aspects of that dispute, including at least the issues of the suggested overpayment, whether the variations claimed were or were not within the scope of the work, and the entitlement to a retention sum prior to the return of a deed of release.

17. In these circumstances, it seems to me that the case law requires that the Demand be set aside. That case law recognises, as I have noted above, that where a genuine dispute exists, the Court should not seek to determine its merit, or which party has the stronger case, in a summary application of this kind. It may be that, ultimately, aspects of the dispute would be determined in Five Star's favour in substantive proceedings, but that is not the question which I am entitled to determine in this application. The effect of setting aside a creditor's statutory demand in these circumstances is not, of course, to prevent Five Star recovering the amounts claimed, whether by taking the adjudication process available under the SOPA, or by proceedings in a court of appropriate jurisdiction, but instead has the result that any claims will be determined on their merits in that matter, rather than by the summary process that the Act provides for debts that are not disputed debts, by the issue of a creditor's statutory demand.

Costs

18. In its Originating Process, HWC sought an order for costs on an indemnity basis. Mr Folino-Gallo indicated that he was instructed to press that order but put no detailed submissions in support of it. Mr Fisher responded that the matter did not rise to the level in which an order for indemnity costs should be made. I recognise that there are cases where indemnity costs have been allowed, where a creditor's statutory demand is issued and it is evident that the debt is disputed or where a creditor's statutory demand is pursued after it becomes apparent that it would be set aside on the evidence: CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100; [2003] NSWSC 728; Soudan Lane Pty Ltd v Green Bradshaw t/as Specific Coast Digital [2007] NSWSC 772 at [4]-[5]; Re Scahill v Co Pty Ltd [2016] NSWSC 712.

19. Mr Folino-Gallo did not seek to develop submissions to establish that it was evident that a genuine dispute would be established, either when the Demand was issued, or at some later point. Where a case of that kind has not been developed, Mr Fisher has not responded to it. In those circumstances, it does not seem to me that the Court is in a position to find that the requirements for an order for indemnity costs are established in this case, and I will order costs on the ordinary basis.

Orders

20. For these reasons, I make the following orders:

1. The creditor's statutory demand issued by Five Star Scaffolding Pty Ltd to HWC Contracting Pty Ltd dated 18 June 2021 be set aside.

2. The Defendant pay the Plaintiff's costs of the proceedings as agreed or as assessed.

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Decision last updated: 14 October 2021