M & H Leigh Building Pty Ltd v Chary - [2005] SASC 3

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
M & H LEIGH BUILDING PTY LTD v CHARY & ANOR
Decision of Judge Lunn a Master of the Supreme Court
17 January 2005
CORPORATIONS - WINDING UP
Statutory demand - application under Corporations Act 2001 to set aside on disputes about debt - held worker's lien lodged by defendants for same debt did not bar them proceeding on the statutory demand - held plaintiff had not discharged onus on it to show quantum of matters in dispute either reduced the debt to below the statutory minimum or justified a variation of the amount of the demand except as conceded by the defendants - application dismissed.

M & H LEIGH BUILDING PTY LTD v CHARY & ANOR
[2005] SASC 3
Civil

JUDGE LUNN. The plaintiff is a company, which is the registered proprietor of land at 26-28 Leigh Street Adelaide (“the land”). The plaintiff employed the defendants, trading as “Ceilings 2000 Construction”, to do gyprock work on the land as part of a major renovation project. A dispute has arisen about what, if any, balance is owing to the defendants by the plaintiff for this work.
On 24 September 2004 the defendants served a statutory demand under s 459E of the Corporations Act 2001 (“the Act”), dated 23 September 2004, on the plaintiff claiming a debt of $35,292.00 (“the first demand”). On 7 October 2004 the defendants served another statutory demand under s 459E, dated 6 October 2004 on the plaintiff claiming a further debt of $94,850.00 (“the second demand”). On 8 October 2004, the defendants lodged a workers’ lien on the title to the land claiming a lien for $115,879.00. On 22 October 20004 they commenced District Court action 1679/04 against the plaintiff seeking enforcement of the lien. No defence has yet been filed in that action, but it was acknowledged before me that the claim to the lien was disputed.
On 13 October 2004 the plaintiff instituted these proceedings seeking that the first and second statutory demands be set aside. It was supported by an affidavit of Mr Ginos, a director of the plaintiff, which was filed within the time allowed under s 459G(2) of the Act. On 1 December 2004 each of the defendants filed affidavits. On 9 December the plaintiff filed an affidavit of Ronald Mueller, its building supervisor.
At the outset of the hearing before me counsel for the defendants took objection to the admissibility of various parts of the affidavits of Ginos and Mueller. I reserve my ruling on their admissibility. In view of the other conclusions which I have reached I need not rule on their admissibility. Even if they are fully admissible, the defendants’ position is not prejudiced.
The dispute between the parties has all the hallmarks of a classic building dispute. There are numerous discrete, although related, issues of which some may well be trivial. This building dispute will need to be resolved in other proceedings. I do not intend to comment on it other than is necessary to decide whether the statutory demands should be set aside. Although a number of issues were raised in the course of argument, it is only necessary for me to rule upon three of them in order to dispose of the summons.
Effect of a Concurrent Claim for a Workers’ Lien on Statutory Demands
Section 459E(2) provides:
“The demand: …..
(c)must require the company to pay the amount of the debt …… or to secure or compound for that amount or total to the creditor’s reasonable satisfaction, within 21 days after the demand is served on the company …”
The plaintiff’s counsel submitted that the defendants’ workers’ lien secured the debt for the purposes of s 459E(2). I do not accept this. Even if it did secure the debt, it does not affect the validity of the prior statutory demands, but it could be a point raised in answer to any application to wind up the plaintiff based on the statutory demand.
I was not referred to, and cannot find, any authority on what is meant in s 459E(2)(c) to the company securing the debt “to the creditor’s reasonable satisfaction”. If the test of the creditor’s satisfaction is subjective, the defendants have not been prepared to confine themselves to recourse to the worker’s lien to satisfy the debt. If the test be objective, there is no evidence as to whether, if the lien was enforced, there would be any moneys available after sale of the land and the payment of the mortgages registered on the title in priority to the lien, which would make any moneys available for the satisfaction of the lien. I do not find that the lien was taken by the defendants to their reasonable satisfaction to the exclusion of other remedies available to them to obtain payment of the debts.
Furthermore, s 459E(2)(c) requires “the company to …… secure …..” the debt. This implies the security emanates from some act of the company, such as the granting of a mortgage or the like. Under the Worker’s Liens Act, the lien here arises purely by operation of law and without anything being done by the plaintiff which is necessary for its creation. Accordingly, it is not the type of security envisaged by s 459E(2)(c).
Section 459E(1)(b) of the Act allows a secured creditor of a company to apply for its winding up based on non-compliance with a statutory demand. Thus the provision of security for the debt by a company does not preclude the creditor from pursuing a concurrent remedy of winding up proceedings unless there is something in the terms of the security which bars this course being pursued. There is nothing under the Worker’s Liens Act which would bar recovery of a debt by other means.
Whether There is a Genuine Dispute?
The plaintiff’s affidavit raises a number of issues of alleged overcharging, incompetence of the defendants’ workmen and supervision, work necessary to rectify previous mistakes and other matters. It is not necessary to go into detail. The plaintiff contends that by reason of these matters, there is a genuine dispute about the whole of it’s alleged liability to the defendants, which was the subject of the first and second demands. To succeed the plaintiff has to show that the dispute is bona fide and truly exists in fact, and that the grounds for alleging its existence are real and not spurious, hypothetical or misconceived: Southern Titanium NL v Bell Potter Corporate Financial Ltd, Full Court, 2 April 2004, 233 LSJS 266 at [18]. Other similar formulations of the test are set out in “Civil Procedure South Australia” Volume 2, paragraph [20,925]. However, here there is not merely one dispute, but numerous disputes. Although the plaintiff’s counsel referred to “dispute” in the singular, what he really meant was the totality of numerous different disputes all arising out of the same building work. It is quite possible the plaintiff will succeed in some of these disputes, but not all of them.
The plaintiff’s counsel put his case on the basis that the matters raised in the plaintiff’s affidavit went to how much was properly payable by the plaintiff to the defendants for the work in question. This is not strictly correct. In some instances, the matters raised probably are grounds of offsetting claims, eg the alleged inability of the plaintiff to recover costs of rectification of gyprock work caused by defaults of other subcontractors by reason of the defendants not having supplied sufficient detail about the repair work which they did. However, in the end result it makes no difference whether an item in question operates to disentitle the defendants to remuneration or to raise an offsetting claim.
The plaintiff’s evidence about the matters giving rise to the disputes is vague, generalised and nebulous. It does not descend into proper particularity. Of importance is that it nowhere seeks to quantify in monetary terms either the resultant reduction in price or the amount of an offsetting claim. If the plaintiff’s allegations are taken at their highest, there is no evidence to show that in their totality they would eliminate the balance of the defendants’ claim over what has already been paid, or at least reduce it to below the statutory minimum for a statutory demand. There is merely a generalised and unsubstantiated allegation, unsupported by evidence, that the allegations of breaches and defaults by the defendants would have this effect. I simply do not know.
One way in which the plaintiff could have adduced evidence of the quantum of the items in dispute was by obtaining an independent report from a building estimator and quantity surveyor. (This would only relate to items where there was no agreement as to their value). The plaintiff did start to go down this path. It retained Costs Management Partnership who are apparently building estimators. Exhibited to the affidavit of Ginos was a fax of 30 September 2004 from Costs Management Partnership to which was attached a draft estimate for the costs of plasterboard partitionings and ceilings on the land. However, as I pointed out in the course of the argument, even if this hearsay evidence was admissible, it had no real evidentiary weight. It was only expressed to be a draft and it did not identify what instructions had been given to Costs Management Partnership on which it had based its calculations or identified the work to which it related. An affidavit from Costs Management Partnership identifying the work as that referred to in the contract between the plaintiff and the defendants, and giving an estimate of its proper costs, might have been of considerable significance in this application.
The onus is on the plaintiff to show that there are genuine disputes on sufficient items which, if successful, would reduce the defendants’ claims to below the statutory minimum: Moyall Investment Services Pty Ltd v White (1993) 12 ACSR 320 at 324. It has not done so. I reject the contention of the plaintiff’s counsel that once the plaintiff raises proper grounds to challenge its liability to the defendants, it can then put the defendants to proof of the quantum of their claim. In this jurisdiction under s 45G of the Act the boot is on the other foot. No proper ground for setting aside either statutory demand on the basis of a genuine dispute of the debts has been established by the plaintiff on the balance of probabilities.
Prior to the hearing, the defendants conceded that the first demand was overstated by $1.00 and the second demand by $30,061.00. As this was declared before the hearing of the application, it does not provide a basis to set aside the demand: Equus Corp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25ASCR 675; re Ad-A-Cab Holdings Pty Ltd [1997] 2QdR 115. Where the Court finds that the amount of the debt in the statutory demand has been overstated, but not by an amount which reduces it to below the statutory minimum, it can vary the demand and declare that it had effect as varied under s 459H(4) of the Act. Although I cannot find any authority on the point, I consider that there is the same onus on the plaintiff to establish an amount by which the demand should be varied as there is to establish that the demand should be set aside. Accordingly, as I have found above, the plaintiff has not discharged that onus at all, and thus there is no proper basis to vary the amounts of either demand except in the amounts conceded by the defendants. In the circumstances it is proper to declare that the first demand, so varied, has had effect from when it served on the plaintiff.
I will hear counsel on the date on which the second demand, as varied, is to have effect.
I make the following orders:
ORDERS:
1The Statutory Demand dated 23 September 2004 be varied in the following terms:
1.1by varying the figure in paragraph 1 from “$35,292.31” to “$35,291.31”;
1.2by varying the figure under the amount of the debts in the schedule from :”$35,292.31:” to “$35,291.31”; and
1.3by varying the total in the schedule from “$35,292.31” to “$35,291.31”.
2The Statutory Demand dated 23 September 2004 as so varied be declared to have effect as so varied from 24 September 2004.
3The Statutory Demand dated 6 October 2004 be varied in the following terms:
3.1by varying the figure in paragraph 1 from “$94,850.62” to “$64,888.37”; and
3.2by varying the following figures in the schedule:
3.2.1“($39,620.90”) after “1138” to “($18,455.13)”;
3.2.2“($20,549.76”) after “1139” to “($11,753.28)”;
3.2.3under the amount of the debts from “$94,850.62” to “$64,789.77”; and
3.2.4at the total from “$94,850.62” to “$64,789.77”.
4Otherwise, the plaintiff’s application is dismissed