In the matter of Rockwall Homes Pty Limited

[2017] NSWSC 223

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Rockwall Homes Pty Limited [2017] NSWSC 223
Hearing dates:	21 February 2017
Decision date:	10 March 2017
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order that the Creditor’s Statutory Demand dated 8 August 2016 be set aside. The Defendant to pay the Plaintiff’s costs of the proceedings, as agreed or as assessed.
Catchwords:	CORPORATIONS – Winding up – Application to set aside creditor’s statutory demand under Corporations Act 2001 (Cth) s 459G – whether a genuine dispute is established – whether demand was served on the correct company – where debt said to arise under the Building and Construction Industry Security of Payment Act 1999 (NSW) s 14(4) – whether such a deemed debt is genuinely disputable where there is dispute as to the identity of the underlying debtor.
Legislation Cited:	- Building and Construction Industry Security of Payment Act 2009 (NSW), ss 7, 13–15 - Business Names Registration Act 2011 (Cth) - Corporations Act 2001 (Cth), Pt 5.4, ss 128–129, 459G–459H - Evidence Act 1995 (NSW), s 136 - Home Building Act 1989 (NSW)
Cases Cited:	- Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284 - CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 - Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 - Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 - Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 - Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306; 167 FLR 106 - Grave v Blazevic Holdings Pty Ltd t/as Kross Building Services [2010] NSWCA 324; (2010) 79 NSWLR 132 - Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) FCR 452 - Homeward Bound Export Cherry Project Pty Ltd v Farm Working Hands Pty Ltd [2012] NSWCA 447 - Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 - Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 - Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 - Re Australian Institute of Fitness (Vic & Tas) Pty Ltd [2016] NSWSC 1143 - Re Douglas Aerospace Pty Ltd [2015] NSWSC 167 - Re Geitonia Pty Ltd [2016] NSWSC 1243 - Re J Group Constructions Pty Ltd [2015] NSWSC 1607; (2015) 303 FLR 139 - Re Tetbury Pty Ltd [2017] NSWSC 37 - Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 - Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 - Vimblue Pty Ltd v Toweel t/as Carpenters Core Building [2009] NSWSC 494
Category:	Principal judgment
Parties:	Rockwall Homes Pty Limited (Plaintiff) Diligent Tiling Pty Ltd (Defendant)
Representation:	Counsel: L Do (Plaintiff) A G Martin (Defendant)   Solicitors: Ai Legal (Plaintiff) Bond Lawyers (Defendant)
File Number(s):	2016/259661

Judgment

1. By Originating Process filed on 29 August 2016, the Plaintiff, Rockwall Homes Pty Limited (“RHPL”) applies to set aside a creditor’s statutory demand dated 8 August 2016 (“Demand”) issued by Diligent Tiling Pty Ltd (“Diligent Tiling”) pursuant to s 459G of the Corporations Act 2001 (Cth).

2. The Demand claims an amount of $53,227.32, which is described in a schedule as comprising four invoiced amounts. The first invoiced amount relates to an invoice in the amount of $19,449.32 in respect of a project at Arnold Avenue, Kellyville, less an amount of $5,000 paid on 30 September 2015, for a balance of $14,449.32. The second relates to an invoice in the amount of $25,278, in respect of a project at Oakes Road, Winston Hills, less a payment of $3,000 on 30 October 2015, for a balance of $22,278. The third relates to an invoice in the amount of $14,080 in respect of a project at Belford Avenue, Kellyville. The fourth relates to an invoice of $2,420 in relation to a project at Robin Street, Carlingford.

3. The Demand is supported by an affidavit of Ms Nadia Haddad, who is there described as the bookkeeper for Diligent Tiling, and has since become the director of that entity. Ms Haddad’s affidavit refers to the total amount owing on the four projects of $61,777.32, less an amount of $8,550 paid to date, leaving a balance unpaid of $53,227.32. That affidavit annexes a table recording the history of the invoices, including paid amounts, and copies of the relevant invoices. Ms Haddad also deposes that the total of the amount of the debts claimed is due and payable by RHPL and she believes that there is no genuine dispute about the existence or amount of any of the debts.

The affidavit evidence in the proceedings

4. RHPL relies on the affidavit of its director, Mr Mehcur, dated 25 August 2016 in support of the application to set aside the Demand. That affidavit does not take issue with the fact that Diligent Tiling undertook the work for which it issued the relevant invoices or, it appears, with the amount claimed in respect of those invoices. However, Mr Mehcur’s evidence is that RHPL had not engaged the services of Diligent Tiling; RHPL was not the builder in respect of the four projects as to which invoices had been issued by Diligent Tiling; and that Mr Mehcur believed that:

“[Diligent Tiling] has confused [RHPL] with another entity of a similar name Rockwall Constructions Pty Limited ACN 150 979 990 [RCPL] which is the builder of the above mentioned projects.”

While Mr Mehcur’s affidavit plainly did not lead evidence of those matters in admissible form, that affidavit was sufficient to raise a dispute as to whether the amount claimed in the Demand is due by RHPL as distinct from RCPL.

5. Diligent Tiling relies on the further affidavit of Ms Haddad dated 21 September 2016. Ms Haddad there gives evidence of having been secretary of Diligent Tiling since its incorporation and its director since 1 May 2016. Her evidence is that Diligent Tiling provides floor and wall tiling services directly to customers and is also a subcontractor (Haddad 21.9.16 [4]) and that Diligent Tiling performed tiling work for RCPL from 2011, generally communicating with Mr Norman Haddad, who is not related to her or her husband (Haddad 21.9.16 [7]). She gives evidence of a critical, but disputed, conversation with Mr Mehcur in mid-2014, after she was advised that Mr Mehcur and Mr Norman Haddad were “having problems”; she refers to Mr Norman Haddad’s advice to her husband not to do work for Mr Mehcur because RCPL may close; and her evidence is that Mr Mehcur advised her that:

“If you have any concerns use Rockwall Homes and you can direct your invoices to Rockwall Homes and just direct everything to my email and Rockwall Homes’ email.”

6. Ms Haddad also refers to the receipt by Diligent Tiling of plans and other documentation from mid-2014 that had the name “Rockwall Homes”. That documentation did not refer to the full corporate name of RHPL and leaves open the question whether that name was being used to refer to RHPL or, as RHPL contends, as an unregistered business name for RCPL. Ms Haddad also refers to email communications with Mr Mehcur between 2014 and April 2016, many of which are exhibited to her affidavit. Those emails are also equivocal, since the email address used was generally “rockwall.com.au” and did not make clear whether it referred to RHPL or RCPL, and the business titles of signatories also referred to “Rockwall Homes” without indicating whether that was a reference to RHPL or RCPL. Those emails establish that Diligent Tiling undertook work for RCPL or RHPL, which is common ground between the parties, but leave open room for dispute as to which of those entities was the party to those dealings. \Ms Haddad also refers to other documents, including certificates of waterproofing issued to RHPL rather than RCPL, that might support a conclusion at a hearing on the merits that Diligent Tiling was dealing with RHPL rather than RCPL. Ms Haddad acknowledges that, during this period, she also issued some invoices to RCPL but claims that:

“[T]his was done because some of the work the subject of the contracts with [RCPL] was ongoing work which had not been completed by that time.” (Haddad 21.9.16 [13])

7. Ms Haddad refers to a payment claim made by Diligent Tiling’s solicitors, on its behalf, to “Rockwall Homes” on 14 December 2015 under s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”). That payment claim was itself ambiguous as to the entity to which it was directed, referring to “Rockwall Homes” rather than to RHPL by its corporate title.

8. Ms Haddad also refers to a subsequent conversation with Mr Mehcur, at some time after mid-December 2015, in which she claims Mr Mehcur said that, inter alia:

“You didn’t need to get a solicitor involved, I promised you Rock[w]all Homes will pay you.”

Ms Haddad’s account of that conversation is also disputed. Even if it were not, the reference to “Rockwall Homes” in that conversation again leaves open the possibility that it referred to an unregistered business name used by RCPL rather than to the corporate entity RHPL. Other aspects of that conversation, which have something of a self-serving character about them, are consistent with the change in contracting entity from RCPL to RHPL on which Diligent Tiling relies. Ms Haddad’s evidence is that Diligent Tiling subsequently received some small payments from RHPL. The observation that those payments were from RHPL was admitted with a limiting order, under s 136 of the Evidence Act 1995 (NSW), that it reflected Ms Haddad’s understanding and no other evidence was led to support that observation.

9. Ms Haddad also leads evidence that:

“I was never made aware by [Mr Mehcur] or anyone associated that [RHPL] disputed the existence of the debt asserted by [Diligent Tiling]. I was similarly never made aware that [RHPL] was the wrong company to be the subject of the defendant’s invoices. In my own mind, I have always been very careful to distinguish [RHPL] from [RCPL].”

However, the issue which arises in this case is whether there is a genuine dispute as to whether RHPL was in fact and in law the contracting entity with Diligent Tiling, not whether Ms Haddad was previously on notice of that matter, or whether there had been any lack of care on her part in seeking to avoid the unfortunate outcome that the Demand was served on an entity, RHPL, which can establish a genuine dispute as to whether it owes the relevant debts.

10. RHPL in turn relies on Mr Mehcur’s further affidavit dated 5 October 2016. Mr Mehcur’s evidence is that he is a director of RHPL and has been employed by it since 22 November 2012 and that he has also been employed as a “Project Director” of RCPL since May 2015. Mr Mehcur’s evidence is that RHPL was not approved for a builder’s licence until May 2014 and was not approved for home warranty insurance until 8 January 2015 and, he claims, was unable to engage in any contracts requiring home warranty insurance prior to that date. Mr Mehcur gives evidence, by way of assertion, that the first time RHPL was engaged as a builder was on 28 August 2015 (Mehcur [11]–[13]). Little may turn on that evidence, for present purposes, where the invoices in issue are dated late September and October 2015.

11. Mr Mehcur denies the conversation with Ms Haddad, to which I referred in paragraph 5 above, in which she attributes to him an offer that Diligent Tiling should use “Rockwall Homes” and to send invoices to it. Mr Mehcur also denies that RHPL, as distinct from RCPL, sent plans or documentation to Diligent Tiling and refers to plans which he claims, in evidence admitted with a limitation under s 136 of the Evidence Act only as evidence of his understanding, were prepared for RCPL. Mr Mehcur’s evidence is that a staff member who had corresponded with Ms Haddad was an employee of RCPL, and her email bears the signature of “Rockwall Homes” because she works “inside a display home where all marketing material for [RCPL] bears the name and logo of Rockwall Homes” and that all staff members working for RCPL have business cards and email signatures bearing the name “Rockwall Homes” which has been RCPL’s business practice since May 2011 (Mehcur 5.10.16 [22]–[23]). Mr Mehcur in turn leads evidence, also of a somewhat self-serving character, of a conversation with his solicitor in which he speculated why Diligent Tiling would issue a Demand to RHPL rather than to RCPL, to the effect that Mr Norman Haddad had “told them to do that because of [RCPL’s] problems”.

12. Mr Mehcur also refers to a telephone conversation with Ms Haddad in late August 2016, again of a somewhat self-serving character, to the effect that:

Mr Mehcur:

“Why have you put the Statutory Demand in the name of Rockwall Homes. That’s the wrong company, why did you do that?”

Ms Haddad:

“Everyone knows Rockwall Constructions has no money. I just want to get paid and I don’t care who pays me?”

Mr Mehcur:

“Of course you want to get paid but Rockwall Homes is the wrong company. The jobs you worked on are all Rockwall Constructions’ jobs. Rockwall Homes has nothing to do with them … .”

13. Mr Mehcur’s evidence, supported by bank statements that are in evidence, is that payments to Diligent Tiling were made from RCPL’s bank account. Mr Mehcur’s evidence, admitted with a limitation under s 136 of the Evidence Act as submission only, is also that RHPL was not the builder of the several homes on which Diligent Tiling worked.

14. By her further affidavit dated 24 October 2016, Ms Haddad accepted that she was not familiar with RHPL’s internal management, but gave evidence that she relied on the statement which she attributes to Mr Mehcur that he wanted, or would at least permit, Diligent Tiling to invoice “Rockwall Homes”. That conversation is, as I noted above, in dispute, and the other evidence to which I have referred above does not seem to me to be capable of excluding a genuine dispute as to whether that conversation occurred, or as to whether invoices were issued to RHPL rather than RCPL. Ms Haddad also repeats her observation that she was careful to distinguish work which Diligent Tiling did, as engaged by Mr Haddad, for RCPL, and work which it did for RHPL as engaged by Mr Mehcur. However, that proposition turns on an assumption, that is also in dispute, that Mr Mehcur was always acting for RHPL rather than RCPL in dealing with Diligent Tiling.

Whether a genuine dispute is established as to whether RHPL (rather than RCPL) owes the debts claimed in the Demand

15. In written submissions, Mr Do, who appears for RHPL, submits that there is a genuine dispute about the existence of the debt claimed against RHPL in the Demand on the basis that RHPL did not engage the services of Diligent Tiling, did not accept any benefit from Diligent Tiling, does not owe any debt to Diligent Tiling and was not the correct entity to be served with the Demand. Mr Do refers to case law summarising the principles applicable to a genuine dispute under s 459H(1)(a) of the Corporations Act, including Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]–[22] and Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 at [8]. The principles applicable to determining whether a genuine dispute is established are well-known, although not always easy to apply to the facts of particular cases, and I have drawn below on my summary of those principles in Re Tetbury Pty Ltd [2017] NSWSC 37.

16. Section 459H(1)(a) of the Corporations Act provides that a creditor’s statutory demand may be set aside when the Court is satisfied that there is a genuine dispute about the existence or amount of a debt to which that demand relates. The test for a “genuine dispute” has been variously formulated as requiring that the dispute is not “plainly vexatious or frivolous” or “may have some substance” or involves “a plausible contention requiring investigation” and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a “genuine dispute” must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at [16], Barrett J summarised the principle as follows:

“[T]he task faced by the company challenging a statutory demand on the genuine dispute grounds 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 s 459G 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 the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.”

17. In Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44], Young AJA (with whom Hoeben JA and Ward J agreed) similarly noted that the question for a primary judge, in determining an application to set aside a statutory demand under s 459H(1)(a), is:

“[t]o determine whether there was a genuine dispute, that is one in which a plausible contention has been raised by the company on which the statutory demand was served.”

18. In Ligon 158 Pty Ltd v Huber above at [8], Barrett AJA (with whom McColl and Meagher JJA agreed) in turn referred to Re Wollongong Coal Ltd above at [9]–[22] and summarised the relevant principles as follows:

“(1)   A dispute is “genuine” if it is not “plainly vexatious or frivolous” or “may have some substance” or “involves a plausible contention requiring investigation”. A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are “real and not spurious, hypothetical, illusory or misconceived” and which demonstrate the dispute’s “objective existence” and “prima facie plausibility”.

(2)   The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section.

(3)   The 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. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted.

(4)   The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute, the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine.” [citations omitted]

19. In submissions, Mr Do accepts that Diligent Tiling provided services to RCPL from at least 2011 until May or July 2014, and accepts that Diligent Tiling ceased to deal with Mr Norman Haddad, and presumably commenced to deal with Mr Mehcur, from May or July 2014. He identifies, however, the issue as being whether Diligent Tiling continued to provide services to RCPL through Mr Mehcur as an employee for RCPL or whether, from that point in time, it began providing services to RHPL. He emphasises that the only purchase order in evidence was issued by RCPL rather than RHPL and that that purchase order relates to one of the debts claimed in the Demand. He also emphasises that RCPL rather than RHPL had previously paid Diligent Tiling, to the extent that it has been paid, and there is no evidence that RHPL has previously made any payment to Diligent Tiling. He also points out that the evidence indicates that RCPL is the insured builder for the purposes of the Home Building Act 1989 (NSW) in respect of the projects on which Diligent Tiling worked, and that seems to me to be a relevant matter, although it is of course possible that RHPL undertook hose projects without the requisite insurance cover.

19. Mr Do also submits that, where there is a dispute between Ms Haddad and Mr Mehcur as to the conversation by which he is alleged to have requested her to direct invoices to RHPL, then a plausible contention requiring further investigation exists. Mr Do points to Mr Mehcur’s evidence that RCPL’s business practice has been to use the name “Rockwall Homes”, albeit it was not a registered business name for the purposes of s 19 of the Business Names Registration Act 2011 (Cth). Mr Do rightly accepts that the evidence does not prove that RHPL was not the correct debtor, but also rightly points out that the Court is required to determine, in an application of this kind, “whether there is a genuine dispute and not to determine the merits of that dispute”: Eyota Pty Ltd v Hanave Pty Ltd above.

20. Mr Martin, who appears for Diligent Tiling, in turn seeks to exclude a genuine dispute, by referring to the correspondence where the name “Rockwall Homes” is used. However, that correspondence has the difficulty that that term is abbreviated in a manner that leaves open the possibility that it is used as a business name for RCPL rather than as a reference to RHPL. Mr Martin also points out that it appears that subcontractors on at least one of the sites thought they were dealing with RHPL so far as they issued warranty documentation to RHPL. While I accept that proposition, it does not seem to me of a nature that is capable of excluding a genuine dispute arising from the other evidence to which I have referred above. Mr Martin submits that RHPL’s claim that the term “Rockwall Homes” was used to refer to the business of RCPL is “not satisfactory”, where RHPL was heavily involved with Diligent Tiling. I cannot accept that submission, which would require the Court to determine the merits of the underlying dispute between the parties, without a merits trial or cross-examination of the witnesses, rather than to determine only whether a genuine dispute is established so as to require that the Demand be set aside, leaving it open to the parties to pursue their claims in a merits hearing. Mr Martin also refers to ss 128 and 129 of the Corporations Act, which allow a third party to make certain assumptions in dealing with a company. None of those assumptions seem to me to assist Diligent Tiling, unless it is first established that it was dealing with RHPL rather than RCPL, since they are directed to the status of dealings with a company, not to the identification of the particular company that is party to those dealings.

21. It seems to me that several matters to which I have referred above support the existence of a genuine dispute arising from the question whether RHPL or RCPL owes the debt claimed in the Demand, putting aside the operation of the SOPA to which I will refer below. The conversation on which Ms Haddad relies may have occurred, but it is disputed by Mr Mehcur, and that dispute cannot be determined in a summary application of this kind, typically undertaken, and undertaken here, without cross-examination. Each of the invoices attached to the Demand were addressed to ““Rockwall Homes Attn: Marley” rather than to “Rockwall Homes Pty Limited”. Although the reference to “Marley” was plainly a reference to Mr Mehcur, the use of the term “Rockwall Homes” leaves open the possibility that that term was used as an unregistered business name of RCPL, as RHPL contends. The correspondence, including the invoices issued by Diligent Tiling and even the demand issued by its solicitor under s 13 of the SOPA, is not capable of excluding a genuine dispute as to whether the contracting entity was RCPL, because reference is generally made to “Rockwall Homes” rather than to RHPL by its full corporate name. Mr Mehcur’s evidence that that term was being used by RCPL as an unregistered business name finds some support in evidence that Mr Norman Haddad, who appears to have been primarily or exclusively associated with RCPL, referred to himself as “Site Supervisor Rockwall Homes” in signing emails.

22. There is also further evidence that supports the possibility that Diligent Tiling was dealing with RCPL rather than RHPL, at least to the point that a serious question warranting further inquiry is established. That evidence includes that Ms Haddad’s affidavit in support of the Demand attached a purchase order issued by RCPL rather than by RHPL in respect of the first invoice, for a debt now claimed against RHPL. As I have noted above, there is evidence that payments to Diligent Tiling were generally made by RCPL rather than RHPL. While Mr Martin points out that that does not exclude the possibility that those payments were made by RCPL on RHPL’s behalf, pursuant to a loan or other arrangement between those entities, it also does not establish that matter. The possibility, attributed by Mr Mehcur to Ms Haddad in the conversation to which I referred above, that Diligent Tiling is pursuing RHPL rather than RCPL for the debts because of concerns as to the financial position of the latter is not wholly implausible.

23. It seems to me that, putting aside the operation of the SOPA to which I refer below, these matters are sufficient to raise a dispute as to whether RHPL, rather than RCPL, is liable for the debts claimed in the Demand that is not “plainly vexatious or frivolous” or “may have some substance” or involves “a plausible contention requiring investigation”. It may be that, in a hearing on the merits, a court will ultimately determine that RHPL rather than RCPL was the contracting entity and accept Ms Haddad’s evidence in preference to Mr Mehcur’s evidence in that regard. This judgment does not prevent Diligent Tiling pursing a claim against RHPL, or indeed against both RHPL and RCPL, on the basis that it appears to be common ground that one or other of them is liable to Diligent Tiling.

Diligent Tiling’s reliance on the SOPA

25. Mr Martin initially put Diligent Tiling’s primary case in his written submissions on the basis that its claim was made under the SOPA, that RHPL had not responded to that claim by lodging a payment schedule and that s 15(1) of the SOPA applied to make the relevant debt indisputable. Mr Do submits, in reply, that the respondent to a payment claim, for the purposes of s 15 of the SOPA, can only be a person who is party to “the construction contract concerned”, for the purposes of s 13 of the SOPA, rather than a stranger to that contract. As I will note below, Mr Martin ultimately did not press the submission based on s 15 of the SOPA, and relied on the alternative submission that the evidence established that the debtor was RHPL rather than RCPL, to the extent that there was no genuine dispute or serious question to be tried as to that matter. I have addressed that alternative submission above.

26. Sections 13–15 of the SOPA, which are relevant to this issue, provide that:

“13    Payment claims

(1)    A person referred to in section 8(1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.

(2)    A payment claim:

(a)    must identify the construction work (or related goods and services) to which the progress payment relates, and

(b)    must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount), and

(c)    if the construction contract is connected with an exempt residential construction contract, must state that it is made under this Act. …

(4)    A payment claim may be served only within:

(a)    the period determined by or in accordance with the terms of the construction contract, or

(b)    the period of 12 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied),

whichever is the later. …

14    Payment schedules

(1)    A person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant.

(2)    A payment schedule:

(a)    must identify the payment claim to which it relates, and

(b)    must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount).

(3)    If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment.

(4)    If:

(a)    a claimant serves a payment claim on a respondent, and

(b)    the respondent does not provide a payment schedule to the claimant:

(i)    within the time required by the relevant construction contract, or

(ii)    within 10 business days after the payment claim is served,

whichever time expires earlier, the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.

15    Consequences of not paying claimant where no payment schedule

(1)    This section applies if the respondent:

(a) becomes liable to pay the claimed amount to the claimant under section 14(4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section, and

(b)   fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates.

(2)   In those circumstances, the claimant:

(a)   may:

(i)   recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction, or

(ii)   make an adjudication application under section 17(1)(b) in relation to the payment claim, and

(b)   may serve notice on the respondent of the claimant’s intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract.

(3)   A notice referred to in subsection (2) (b) must state that it is made under this Act.

(4)   If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt:

(a)   judgment in favour of the claimant is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection (1), and

(b)   the respondent is not, in those proceedings, entitled:

(i)   to bring any cross-claim against the claimant, or

(ii)   to raise any defence in relation to matters arising under the construction contract.

27. It is common ground that, on or around 14 December 2015, Diligent Tiling’s solicitor issued a payment claim that was expressly made under s 13 of the SOPA, although I also pointed out above that that payment claim was made to “Rockwall Homes” rather than being specifically addressed to RHPL. It appears to be common ground that the payment claim complied with the requirements of s 14 of the SOPA, so far as it identified the construction work to which the payment claim related, by reference to each of the invoices; indicated the amount of the progress claim that Diligent Tiling claimed was due; and was not referrable to an exempt construction contract for the purposes of s 7 of the SOPA, since the work was not done for a party residing in the premises. It appears also to be common ground that s 15 of the SOPA was capable of application in that situation, with effect that the unpaid portion of the claimed amount became recoverable as a debt due by “Rockwall Homes”, notwithstanding that, by contrast with several other cases in this area, there was no subsequent adjudication and no judgment debt arose.

28. Mr Martin refers to Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284, where a plaintiff had failed to serve a payment schedule in response to a payment claim, as is the case here. Palmer J held that a proceeding for the winding up of a corporation under Pt 5.4 of the Corporations Act was not a proceeding for the recovery of a debt, and that ss 15(2) and (4) of the SOPA did not prevent a company served with a creditor’s statutory demand from raising a genuine dispute for the purposes of setting aside that demand under s 459G of the Corporations Act. That decision was doubted by the Court of Appeal of the Supreme Court of Western Australia in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91, but subsequently approved by Brereton J in Re Douglas Aerospace Pty Ltd [2015] NSWSC 167. His Honour there observed at [76]–[77] that:

“Unlike its predecessors, Aldoga [Aluminium Pty Ltd v De Silva Starr Pty Ltd above] was a case in which there had been no adjudication and no filing of the certificate as a judgment; the demand was issued in reliance upon the statutory liability created by s 14(4). The case reinforces that the question for a court considering an application under ss 459G and 459H in this context is simply whether there is a genuine dispute or an offsetting claim within the definition. Palmer J concluded that, at least in the context of a debt arising under s 14(4), it remained open to raise a “genuine dispute” as well as an “offsetting claim”, on the basis that there was no difference. With great respect, the difference lies in the fact that some debts are not capable of genuine dispute — because they are judgment debts or conclusive debts — but may still be amenable to an offsetting claim. It is difficult to see how a debt arising under s 14(4), which creates a statutory liability upon the failure to provide a payment schedule, could be the subject of a genuine dispute, if the conditions in s 15(1) are satisfied, regardless of any underlying dispute. As it seems to me, the only way in which a “genuine dispute“ could be raised in respect of such a debt would be by disputing whether the circumstances referred to in s 15(1) existed.

His Honour’s decision was the subject of criticism in Diploma, on the basis that the view that a winding up proceeding is not a proceeding “to recover the unpaid amount from the respondent as a debt due to the claimant, in any court of competent jurisdiction” within s 15(2)(a)(i), is inconsistent with the decision of the High Court in [Deputy Commissioner of Taxation v] Broadbeach Properties Pty Ltd [2008] HCA 47; (2008) 237 CLR 473]. However, the context is different. In Broadbeach, the High Court said that the phrase “may be recovered” in Taxation Administration Act, ss 14ZZM and 14ZZR, applied to the statutory demand procedure. In s 15, the relatively common formula “to recover the unpaid amount … as a debt due … in [a] court of competent jurisdiction” is used. To my mind, such a reference is plainly to a court in which debt recovery proceedings may be brought, not to the Companies Court. This is made all the clearer by s 15(4), which would make no sense in the context of winding up proceedings. In my respectful view, the criticism of this aspect of the decision is misconceived. The important consequence is that the strictures of s 15(4)(b)(i), excluding cross-claims, would not operate in relation to s 459G demands, even if, as I think, it would not be open to dispute the debt itself on grounds connected with the construction contract — not because of s 15(4)(b)(ii), but because once the conditions in s 15(1) are satisfied, the liability is indisputable.”

29. It is not necessary to resolve any difference of view between Diploma Constructions (WA) Pty Ltd v KPA Architects Pty Ltd above and Re Douglas Aerospace Pty Ltd above in this case, although it seems to me that Brereton J’s reasoning has substantial force. It is also not necessary to address the subsequent observations of Robb J in Re J Group Constructions Pty Ltd [2015] NSWSC 1607; (2015) 303 FLR 139, which leave open the question of the extent to which the principles referred to by the High Court of Australia in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd above are capable of applying in respect of claims arising under the SOPA.

30. As Mr Martin ultimately appears to have accepted, these principles do not assist Diligent Tiling, because the SOPA is only capable of applying where a payment claim is served upon the party to the construction contract and does not exclude a dispute as to whether that requirement is satisfied. In Grave v Blazevic Holdings Pty Ltd t/as Kross Building Services [2010] NSWCA 324; (2010) 79 NSWLR 132, the Court of Appeal held, in a somewhat similar situation, that a defendant’s claim that a contract was not with him, but with a company associated with him, was an “arguable defence” for the purposes of setting aside a default judgment, and was not excluded by s 15 of the SOPA, since it denied the existence of the relevant contract as between the plaintiff and the defendant. That result is consistent with the reasoning of Brereton J in Re Douglas Aerospace Pty Ltd above, so far as his Honour left open (at [77]) the possibility that a genuine dispute would be established where there was an issue as to whether the conditions of s 15 of the SOPA had been satisfied. That result also accords with good sense, since it is scarcely conceivable that the legislative intent would have been to create a situation where a third party, who had no connection with a construction contract, could become liable under a debt that was not open to dispute, when it received a payment demand under the SOPA relating to a contract of which it had no knowledge, and with which it had no connection, and did not respond to it.

31. In further submissions made, by leave, in respect of Grave v Blazevic Holdings Pty Ltd above, Mr Martin fairly accepted that that case was binding authority for the proposition that it was always open to a party to allege, by way of defence, or a fortiori as a ground of genuine dispute for the purposes of s 459H of the Corporations Act, that it is not a party to a construction contract. Mr Martin contended that the Demand should still be set aside, because the dispute for which RHPL contends is not genuine, which in turn directed attention to whether there was a genuine issue as to whether RHPL was, as a matter of fact or law, party to the relevant contract. I have addressed that question above.

RHPL’s further contention that the amount claimed in the Demand is not a debt

32. Mr Do also advanced a further submission that the amounts claimed in the Demand are not a “debt” as there is no agreed price or pricing mechanism to calculate the sums claimed in the invoices and the Demand does not refer to any agreement or payment terms supporting the claim for payment. Mr Do refers to the consideration of this issue by Barrett J in Vimblue Pty Ltd v Toweel t/as Carpenters Core Building [2009] NSWSC 494 at [14]–[20].

33. Mr Martin responds that this issue is not raised by Mr Mehcur’s first affidavit in support of the application to set aside the Demand filed within the 21 day period specified under s 459G of the Corporations Act and is not open to RHPL, by reason of the “Graywinter” principle. I have drawn on my observations as to that principle in Re Geitonia Pty Ltd [2016] NSWSC 1243 in the following account of that principle. That principle is derived from the decision in Graywinter Properties Pty Ltd v Gas and Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 at 459, where Sundberg J noted that the requirement of s 459G(3) of the Corporations Act, that there be an affidavit supporting the application to set aside a statutory demand, required more than a mere assertion of a dispute or a statement that the debt was disputed, and required that an affidavit disclose “material facts” showing there was a genuine dispute between the parties. The balance of authority establishes that the Graywinter principle raises a fact-specific inquiry as to whether the affidavit in support of an application to set aside a creditor’s statutory demand in fact supports that application, and the initial affidavit will sufficiently raise a relevant ground of dispute if that ground is raised by a necessary or reasonably available inference, including from documents exhibited to that affidavit: Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 at [36]; Infratel Networks Pty Ltd v Gundry’s Telco and Rigging Pty Ltd above at [27]ff.

32. In Homeward Bound Export Cherry Project Pty Ltd v Farm Working Hands Pty Ltd [2012] NSWCA 447 at [5], Allsop P (Macfarlan JA agreeing) observed that:

“It is well established that the only grounds of opposition which may be relied on in an application to set aside a statutory demand are those identified in the affidavit supporting that application filed within the 21 day period under s 459G of the Corporations Act or which may necessarily or reasonably be drawn from documents relied on in those affidavits [citations omitted].”

The Court of Appeal also there referred to the decision of the Western Australian Court of Appeal in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306; 167 FLR 106, which it considered was consistent with that summary of the relevant principle.

35. In Re Australian Institute of Fitness (Vic & Tas) Pty Ltd [2016] NSWSC 1143 at [41], Barrett AJA summarised that principle as follows:

“The principle associated with Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [above] confines a s 459G applicant to grounds revealed by the supporting affidavit. The ground relied on must be evident from the affidavit, even if only from an annexure which reveals it. A mere reference to some other application having been made, albeit in proceedings between the same parties, does not reveal anything about the content of other documents filed in connection with the other proceedings. …”

36. It seems to me that, having regard to the fact–specific inquiry that is required by Graywinter and the cases which have applied it, Mr Mehcur’s first affidavit filed within the 21 day period under s 459G of the Corporations Act identified the basis on which the Demand was challenged, namely that RHPL was not the contracting entity. That affidavit did not raise expressly, or impliedly, any question as to the basis on which the amount was claimed or the quantification of that claim. It seems to me that it is not open to RHPL to rely on this matter for the purposes of an application to set aside the Demand. In any event, it is not necessary for it to do so, given the conclusions that I have reached on other grounds.

Orders and costs

37. I have held above that a genuine dispute in respect of the debts claimed in the Demand is established, by reason of the dispute as to whether the relevant debts were owed by RCPL or RHPL. I order that:

1.   The Creditor’s Statutory Demand for payment of Debt dated 8 August 2016 issued by the Defendant is 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: 10 March 2017