Meales Concrete Pumping Pty Ltd v Probuild Constructions (Aust) Pty Ltd
[2015] VSC 594
•26 October 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 6856
IN THE MATTER of MEALES CONCRETE PUMPING PTY LTD (ACN 103 969 900)
BETWEEN:
| MEALES CONCRETE PUMPING PTY LTD (ACN 103 969 900) | Plaintiff |
| v | |
| PROBUILD CONSTRUCTIONS (AUST) PTY LTD (ACN 095 250 945) | Defendant |
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JUDGE: | Randall AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 April 2015 |
DATE OF JUDGMENT: | 26 October 2015 |
CASE MAY BE CITED AS: | Meales Concrete Pumping Pty Ltd v Probuild Constructions (Aust) Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2015] VSC 594 |
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CORPORATIONS – Section 459G of the Corporations Act 2001 (Cth) – Setting aside statutory demand – Meaning of ‘debt’
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Dunne, Solicitor | John Dunne & Associates |
| For the Defendant | Mr P Agardy | HWL Ebsworth Lawyers |
HIS HONOUR:
This is an application by the plaintiff, Meales Concrete Pumping Pty Ltd (‘Meales’), pursuant to s 459G of the Corporations Act 2001 (Cth) (‘the Act’) to set aside a statutory demand dated 12 December 2014.
That statutory demand sets out:
1.The company owes [the creditor] … the amount of $4,400,000 being the total of the amount of the debts described in the Schedule.
The schedule describes the debts as follows:
Debts totalling $4,400,000 due and owing by the Company to the Creditor pursuant to the Parent Company Guarantee dated 31 July 2014 provided by the Company to the Creditor in relation to obligations owed by Superstructures Pty Ltd … to the Creditor pursuant to the Subcontract Agreement between the Creditor as Head Contractor, Wu International Investments Pty Ltd … as principal and Superstructures Pty Ltd … as Subcontractor dated 10 June 2014 and as demanded from the Company pursuant to notices of demand served on the Company and dated 22 September 2014 and 1 October 2014.
The affidavit accompanying the statutory demand describes the debt in the same words as set out in the schedule to the statutory demand.
The issue for determination is whether the amount set out in the statutory demand is a ‘debt’ as that word is used in s 459E of the Act.
Background
The defendant, Probuild Constructions (Aust) Pty Ltd (‘Probuild’) was the head contractor under a construction subcontract agreement for a project in Chatswood, New South Wales. Superstructures Pty Ltd (‘Superstructures’) was the subcontractor. Meales guaranteed the performance of Superstructures under the construction subcontract agreement.
The guarantee dated 31 July 2014 contains the following provisions:
2.In this deed, unless the contrary intention appears, capitalised words and expressions have the same meaning as they have in the Subcontract, save for the following words and expressions which have the meanings indicated:
(a)…
(b)Obligations means all the obligations and liabilities of the Subcontractor to the Principal and the Head Contractor (whether liquidated or not whether contingent or presently accrued due and whether relating to the payment of money or the performance or omission of any act or thing) that are now in existence, or may thereafter come into existence, pursuant to the Subcontract.
(c)…
3.The Guarantor unconditionally and irrevocably guarantees to the Principal and the Head Contractor the Subcontractor’s due and punctual performance by the Subcontractor of all the obligations.
4.If the Subcontractor does not perform an obligation (other than the payment of a monetary Obligation to which clause 5 applies), the Guarantor must commence to perform and diligently pursue the Obligation or procure the diligent performance of that obligation within 5 business days of receipt of a written demand from the Principal or the Head Contractor. …
5.If the Subcontractor does not pay any monetary Obligation when due, the Guarantor must within 5 business days of receipt of a written demand from the Principal or the Head Contractor pay the amount to the Principal or the Head Contractor (as the case may be).
…
7.The Guarantor, as separate and additional liability, must as a Principal debtor pay to the Principal and the Head Contractor on demand the amount of all loss, damage, costs, charge and expense (including legal expenses on a full indemnity basis) connected with or arising out of the failure by the Subcontractor or the Guarantor to pay the monetary Obligation or any enforcement of this deed.
The subcontract relevantly contains the following provisions:
9.1 Purpose
Security, retention monies and performance undertakings are for the purpose of ensuring the due and proper performance of the subcontract and as a means of allocating risk, pending the resolution of Claims or Disputes in favour of the Head Contractor.
9.2 Provision of Security
The Subcontractor must provide security in the amount stated in Annexure Part A in accordance with this clause 9.
9.3 Form of Security
(a)The security must be in the form of cash, unless permitted by the Head Contractor in its discretion to be an unconditional undertaking given by a trading bank with registered offices in Australia.
(b)The Head Contractor shall have discretion to approve or disapprove of the form of an unconditional undertaking and the financial institution or insurance company giving it. The unconditional undertaking in the form of Annexure Part D is approved.
(c)If the security is not transferable by delivery, it shall be accompanied by an executed transfer or such other documentation as is necessary to effect a transfer of the security. The cost (including all stamp duty or other taxes) of and incidental to the transfer and retransfer, shall be borne by the Subcontractor.
9.4 Time for provision of security
(a)Security must be provided within 5 business days of the date of this Subcontract.
(b)If the Subcontractor fails to comply with clause 9.4(a), the Head Contractor may in its absolute discretion:
(i)Retain cash retention in relation to the Subcontract works until the unconditional undertaking is provided; and
(ii)In addition to or in the alternative of, the retention of cash under clause 9.4(b)(i), withhold payment of any money that may otherwise be due to the Subcontractor, including in relation to any preliminary works.
(c)The Subcontractor acknowledges that it has no right to make any Claim for payment under the Subcontract, including in relation to any preliminary works, until it has provided the unconditional undertaking.
(d)If the Head Contractor:
(i)Retains any cash retention under clause 9.4(b)(i); and
(ii)The Subcontractor subsequently provides the unconditional undertaking, the Head Contractor shall release the cash retention subject to any deduction permitted under the Subcontract.
…
9.6 Conversion of Security and Recourse to Retention Monies
Subject to s 67J of the Queensland Building Services Authority Act 1991 (Qld) (where that legislation applies), the Head Contractor may have recourse to security, retention monies or both and may convert into monies security that does not consist of money where:
(a)The Head Contractor has become entitled to exercise a right under this Subcontract in respect of the security, retention monies or both;
(b)In order to satisfy any entitlements that the Head Contractor may have to a debt or to damages from the Subcontractor; or
(c)If a Head Contract is in effect, where recourse is had to security under the Head Contract in respect of an act or omission of the Subcontractor.
…
9.9 Release of security and retention monies
(a)If the Subcontractor has provided security, retention monies or both, then the Head Contractor shall, provided there is then no unresolved claim for breach of the Subcontract by the Subcontractor, release them within 10 business days after the latter of:
(i)The issue by the Head Contractor to the Subcontractor of a Final Certificate; and
(ii)The final release of security under the Head Contract.
(b) …
9.10 Holding of an interest on cash security and retention monies
The Head Contractor shall own any interest earned on the cash security or retention monies. Cash security, security converted to cash or retention monies are not held by the Head Contractor on trust.
Pursuant to clause 2.1 the Subcontract sum was calculated as a fixed lump sum of $10,600,000 excluding GST.
Pursuant to clause 9.2 the amount of security was set out as ‘… if in Queensland, 2.5% of the Subcontract sum, otherwise, if nothing stated, 5% of the Subcontract sum’.
A further clause of the subcontract dealt with the provision of security on an insolvency event:
52.12 Insolvency
…
(b) If the Head Contractor has a reasonable concern that:
(i) an event or matter referred to in clause 52.12(a) might be imminent or likely to occur to the Subcontractor;
(ii) the Subcontractor might be financially unable to proceed with the Subcontract in accordance with the Subcontractor’s obligations under the Subcontract.
(iii) (Financial Concern).
(iv) the Head Contractor may give the Subcontractor a Show Cause Notice pursuant to clause 52.3.
…
Probuild did not require security to be provided within five business days of the execution of the Subcontract. However, Show Cause Notices dated 17 and 30 September 2014 were served. The first notice required provision of security of $1,500,000 and, the second, required provision of further security of $2,900,000, totalling $4,400,000.
Subsequently, on 9 October 2014 the creditors of Superstructures resolved that it be wound up and a liquidator appointed.
On 22 September 2014, Probuild served a Notice of Default and Demand under clause 5 of the Deed of Guarantee dated 29 July 2014 (‘Guarantee’). The demand provided:
B. Now take notice that:
The Subcontractor has:
(a)Not remedied the financial concern by 5pm on 19 September 2014 by the provision of additional security in the amount of $1,500,000 as required pursuant to clause 52.12(b) of the Subcontract; and
(b)Not paid a monetary obligation when due.
The demand then set out:
C. And take further notice that:
1.The Head Contractor HEREBY DEMANDS that the Guarantor pay the monetary Obligation.
2.Under clause 6 of the Guarantee, as a covenant separate and distinct from that contained in clause 3 of the Guarantee, the Guarantor irrevocably and unconditionally has agreed to indemnify the Head Contractor against any loss, damage, cost, charge and expenses which the Head Contractor may now or in the future suffer or incur consequent on or arising directly or indirectly out of any breach, non-observance, act or omission by the Subcontractor of any Obligations.
…
On 1 October 2014, Probuild served a further Notice of Default and Demand (‘Demand’). That Demand was in similar terms to that dated 22 September 2014 save to the extent of the additional amount set out. It provided:
…
3.The Subcontractor was notified by the Head Contractor of a Financial Concern under the Subcontract on 30 September 2014 and was required to remedy the Financial Concern by 30 September 2014, by providing additional security to the Head Contractor of $2.9M.
4. The Subcontractor has not remedied the Financial Concerns.
5.The Head Contractor HEREBY DEMANDS that the Guarantor, within 5 Business Days of receipt of this demand, pay the monetary Obligation to the Head Contractor, by paying some $2.9M to the Head Contractor (in addition to the sum of $1.5M demanded by the Head Contractor from the Guarantor under the Notice of Default and Demand to the Guarantor dated 22 September 2014).
…
On or about 22 September 2014 Probuild took over the remaining work to be carried out by Superstructures.
Submissions of the plaintiff
The plaintiff relies upon the distinction between guarantee obligations referred to in Beerens v BlueScope Distribution Pty Ltd[1] where the Court of Appeal adopted the distinction drawn by Lord Reid in Moschi v Lep Air Services.[2] The distinction was made between two types of guarantee. The first, was where the guarantor agreed to pay a sum which the principal debtor failed to pay. The second, was where the guarantor agreed more broadly to carry out the contract of the principal debtor which the principal debtor had failed to carry out. It was submitted that the guarantee in this particular instance fell into the second category.
[1][2012] VSCA 209.
[2][1973] AC 331 (‘Moschi’).
The plaintiff submits that Probuild’s claim sounds in damages. The plaintiff submitted that Sunbird Plaza Pty Ltd v Maloney[3] was apposite and contended that the:
Subject of the guarantee is the performance of some other obligation (other than payment of money) then the person having the benefit of the guarantee may upon default sue the guarantor for damages for breach of contract.
[3][1988] HCA 11 (‘Sunbird Plaza’).
The plaintiff submits that Probuild’s claim is for damages not for debt. The plaintiff concedes that:
…Under a contract, a person promises to pay a specific or readily calculable sum which does not depend upon an assessment, albeit that the sum is payable as liquidated damages for breach of contract, the person’s contractual liability is properly characterised as giving rise to a debt in that sum.[4]
[4]Hansmar Investments v Perpetual Trustee Company Ltd [2007] NSWSC 1003 (‘Hansmar Investments’), [56].
However, the plaintiff contends that in this circumstance assessment or calculation is required which can only occur after the building is completed. The plaintiff refers to clause 52.6 of the Subcontract which specifies that when work taken out of the hands of the Subcontractor pursuant to clause 52.4 is completed, the Head Contractor shall estimate the costs incurred and losses suffered by the Head Contractor in completing the work and shall issue a certificate pursuant to the clause certifying various matters and in particular subclause (c):
If the estimated costs incurred in losses suffered by the Head Contractor are greater than the estimated amount which would have been paid to the Subcontractor if the work had been completed by the Subcontractor, the difference shall be a debt due from the Subcontractor to the Head Contractor.
The plaintiff contends that the works have not been completed, no such certificate has been issued, and accordingly, the time for assessment of loss has not arisen.
Submissions of the defendant
The primary position of the defendant is that the plaintiff has misconceived the nature of the claim made in the statutory demand. The claim is not for damages, but for ‘security promised under the agreement and underwritten by Meales in the Guarantee’.
The defendant submits that:
·Under clause 5 of the Guarantee Meales must pay ‘any monetary obligation when due’ within five days of a written demand. Any debt owed by Superstructures to Probuild which is not paid must be paid by Meales.
·The word ‘debt’ in s 459E of the Act bears its ordinary meaning of a liability or obligation to pay: Commonwealth Bank of Australia v Garuda Aviation Pty Ltd [2013] WASC 61, [31].
·Under the agreement Superstructures was liable to provide security to Probuild. That payment was in the nature of security. It was not payment of damages.
·When the work has been completed there will be an adjustment on completion. But that does not mean that security is not payable.
·The position is analogous to a tenant who is liable to pay a bond. When the lease expires the tenant might be entitled to recover all or part of the bond paid. But the tenant remains liable to pay the bond in the first place.
Consideration
Section 459E of the Act relevantly states:
459E Creditor may serve statutory demand on company
(1) 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
(b)2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.
The first iteration of s 459E appeared in s 346(2) of the Companies (Victoria) Code (‘Companies Code’). The section produced a significant amount of litigation due to inconsistent interpretations by successive case law. Some courts held that if there was an overstatement of the sum in the demand, the demand could be set aside. Others, in accordance with English case law, held that an overstatement of the sum did not invalidate the demand.
In an attempt to overcome the difficulties associated with s 364(2) of the Companies Code and its immediate predecessors, the legislature adopted the recommendations of the Harmer Report into Insolvency.[5]
[5]Australian Law Reform Commission, General Insolvency Inquiry, Report No 45 (1988).
The Corporate Law Reform Act 1992 (Cth) inserted Divisions 2 and 3 of Part 5.4 into the Corporations Law which were ultimately carried over in the successor legislation, the Corporations Act 2001 (Cth), which is current today.
In Scolaro’s Concrete Construction Pty Ltd v Schiavello Commercial Interiors (Vic) Pty Ltd,[6] Sheppard J commented on the structure and operation of Part 5.4 as follows:
Obviously enough, the policy of the legislature is to bring about a situation which a company owing money to creditors could not unduly delay matters by putting on colourable defences to liquidated claims in courts of ordinary jurisdictions. Unless the debtor demonstrated that there was a genuine dispute about the claim, the inevitable result would be a prima facie conclusion of insolvency if the amount were not paid. The public interest is served by these provisions because they tend to bring about a situation in which insolvent companies are either discouraged or prevented from continuing to trade.
[6](1996) 62 FCR 319.
Unfortunately, none of the Harmer Report, Second Reading Speech or Explanatory Memorandum of the Corporate Law Reform Bill 1992 (Cth) provides any guidance on what constitutes a ‘debt’ for the purposes of a statutory demand.
Definition of the term ‘debt’
The term ‘debt’ is not defined in the Act.
In the context of the Act, ‘debt’ is said to have its ordinary and natural meaning unless the context suggests otherwise.[7]
[7]Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64.
In Commonwealth Bank of Australia v Garuda Aviation Pty Ltd Newnes JA (with whom McLure P and Pullin JA agreed) affirmed that ‘debt’ in s 459E of the Act bore its ordinary meaning:
In Hawkins v Bank of China (1992) 26 NSWLR 562, in considering the meaning of the word ‘debt’ in s 556 of the Companies (NSW) Code (cf Corporations Act, s 592), Gleason CJ observed that the word ‘debt’ is not a word of precise and inflexible deration and wherever it appeared in s 556 it ought to be applied in a practical and common sense fashion, consistent with the context and the statutory purpose (at 572). In the Corporations Act it generally bears it[s] ordinary meaning of ‘a liability or obligation to pay or render something’: Hawkins (at 572); see also Fryer v Powell (2001) 159 FLR 433 at [61]–[63]. I consider it bears that meaning in s 459E. See also Edwards v Australian Securities and Investments Commission (2009) 235 FLR 207, 209 [2]–[5] where Campbell JA relied on the same authorities for the purposes of construing the term ‘debt’ under s 558G of the Corporations Act.[8]
[8](2013) 45 WAR 92, [31].
In HL Diagnostics Pty Ltd v Psycadian Ltd, cited by Gardiner AsJ in Leemon Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd,[9] Master Newnes (as he then was) held that ‘debt’ in the Act bore its common law meaning:
There is no definition of ‘debt’ in the Corporations Act, but there is authority for the proposition that the term bears its common law meaning: Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64. It is clear that at common law a debt is distinct from a liability in damages or some other unliquidated obligation: Commonwealth Bank of Australia v Butterell (supra), Jelin Pty Ltd v Johnson (1987) 5 ACLC 463. The essence of a debt at common law is an obligation of one person to pay a certain, or liquidated, sum to another: Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567. That is, the characteristic of a debt is that it is a liquidated sum of money which is immediately payable or which, by reason of a present obligation, will become payable in the future: Re European Life Assurance Society (1869) LR 9 Eq 122 at 127; Webb v Stenton (1883) 11 QBD 518 at 526; Re Australia and New Zealand Savings Bank Ltd [1972] VR 690 at 692. In Rothwells Ltd v Nommack (No 100) Pty Ltd (1990) 2 Qd R 85 (at 86) McPherson J described a debt, for the purposes of a statutory demand, as a liquidated sum in money presently due, owing and payable by one person, called the debtor, to another person called the creditor.
In Hawkins v Bank of China (1992) 26 NSWLR 562, in considering the meaning of the word ‘debt’ in s 556 of the Corporations Law, Gleeson CJ observed (at 572) that the word ‘debt’ is not a word of precise and inflexible denotation and, wherever it appeared in s 556, it ought to be applied in a practical and commonsense fashion, consistent with the context and the statutory purpose. That observation appears to me, with respect, to be equally applicable to s 459E of the Corporations Act. See also Bank of Australasia v Hall (1907) 4 CLR 1514, where O'Connor J (at 1535) said:
Where an ambiguity arises as to whether the legislature has used a general expression in its narrow or in its wider sense, the Court will place that meaning upon the expression which will most effectually carry out the object of the section. In such cases it becomes necessary to examine the context, the subject matter and the object and purpose of the enactment as disclosed by its provisions.[10]
[9][2012] VSC 642.
[10][2005] WASC 234, [27]–[28].
In Re Elgar Heights Pty Ltd (No 1), Ormiston J considered the meaning of the word ‘debt’ in the context of s 364(2)(a) of the Companies (Victoria) Code (the predecessor of s 459E of the Act):
It is first necessary to determine what class of debt can properly be made the subject of a statutory demand. Apart from one passage there has been little judicial examination of what debts may be so used or the reasons for giving a wider or a narrower meaning to the words in the paragraph …
The most that can be induced from these cases is that a debt which is sufficient to support a statutory demand must be either presently or immediately due or, possibly, presently or immediately payable. They say very little as to what is the meaning of the word ‘debt’, nor do they give much assistance in determining the meaning of the word ‘due’ …
As words commonly used by lawyers and businessmen, ‘debt’ and ‘due’ have provided continuing problems for the courts over the years in a variety of contexts. It is obvious that the word ‘debt’ does not appear directly in par (a) of s364(2), but the expression, ‘is indebted in a sum’, connotes the existence of a ‘debt’, more especially because failure to pay the sum so demanded pursuant to the paragraph leads to an inference that the company is unable to pay its ‘debts’. In a different but related context the words ‘debt’ and ‘indebted’ were held to have a like meaning by Sir George Jessel MR in Re Stockton Malleable Iron Co (1875) 2 Ch D 101, at p. 103.
The best known discussion of these problems of definition is that by Sir George Mellish LJ in Ex parte Kemp; In Re Fastnedge (1874) LR 9 Ch App 383, at pp. 387-8: ‘Now, the words ‘debt due to him’ are certainly words which are capable of a wide or a narrow construction. I think that prima facie, and if there be nothing in the context to give them a different construction, they would include all sums certain which any person is legally liable to pay, whether such sums had become actually payable or not. On the other hand, there can be no doubt that the word ‘due’ is constantly used in the sense of ‘payable’, and if it is used in that sense, then no debts which had not actually become payable when the act of bankruptcy was committed would be included. Lastly, the expression ‘debts due’ is sometimes used in bankruptcy proceedings to include all demands which can be proved against a bankrupt's estate, although some of them may not be strictly debts at all.[11]
[11][1985] VR 657, 662–4.
Assaf in Statutory Demands and Winding up in Insolvency states:
In a narrow sense, ‘debt’ refers only to money demands, fixed, liquidated, and payable at the material date. In a wider sense, a debt includes all sums which any person is legally liable to pay, whether such sums have become actually payable or not. The qualifying words ‘due and payable’ in s 459E(1) suggest that the legislature intended the word ‘debt’ to connote the former, narrow definition and it is this definition which is now accepted as correct.[12]
[12]Farid Assaf, Statutory Demands and Winding up in Insolvency (2012, LexisNexis Butterworths, 2nd ed) 52–3 (citations omitted).
However, Assaf goes on to cite an example of a ‘crystallised’ right to money reserved under a contract:
‘Crystallised’ right to money reserved under contract
Under some contracts, particularly in relation to sales of land, the effect of termination is to crystallise a party’s right to be paid particular amounts as distinct from claiming unliquidated damages for breach of contract. In Binshell Pty Ltd v Broadway Australia Pty Ltd, a vendor of real property issued a statutory demand against the purchaser, seeking payment of a stipulated amount in a conveyancing contract. Barrett J found that the amount claimed by the vendor was correctly described as a debt due and payable as opposed to a claim for damages.[13]
[13]Ibid 66 (citation omitted).
A useful consideration of ‘debt’ is set out in Timberland Property Holdings Pty Ltd v Abercrombie & Fitch Australia Pty Ltd, Associate Justice McCready said:
There have been a number of cases that deal with the word debt in the context of demands under the Corporations Law (Cth) and its predecessors. As I said in Reinsurance Australia Corporation v Odyssey [2000] NSWSC 1118, the first of these is Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85 ; (1988) 6 ACLC 1199. That was a decision of McPherson J of the Supreme Court of Queensland who was considering a notice under s 364 of the Companies (Queensland) Code. That provision required that there must be a ‘creditor to whom the company is indebted in a sum exceeding $1,000 then due …’ His Honour took the word ‘indebted’ to mean a liquidated sum in money presently due owing and payable by one person called the debtor to another person called the creditor. After dealing with some of the facts, his Honour went on deal with what was a debt at common law, which would support an action in debt or indebitatis assumpsit. He indicated that there were three ways in which a debt could arise. They were:
1. By judgment;
2. By deed under seal; and
3. As quid pro quo for a consideration that was executed.
The factual circumstances related to a promise to pay a sum to a third party. His Honour found that the arrangements did not give rise to a debt, which he saw as importantly different from a claim for breach of contract.[14]
[14][2012] NSWSC 379 (‘Timberland Property Holdings’), [28]–[29].
Associate Justice McCready then looked at First Line Distribution Pty Ltd v Paul Whiley[15] and Hansmar Investments. In Hansmar Investments the plaintiff applicant under s 459G had been required to pay a specific sum pursuant to clause 9.3 of a contract of sale between the parties. At [55] White J said:
In my view, where, under a contract, a person promises to pay a specific or readily calculable sum which does not depend upon an assessment, albeit that the sum is payable as liquidated damages for breach of contract, the person’s contractual liability is properly characterised as giving rise to a debt in that sum.
[15](1995) 18 ACSR 185.
Associate Justice McCready then referred to Vimblue Pty Ltd v Toweel t/as Carpenters Core Building.[16] In that case Barrett J said:
[16][2009] NSWFC 494.
It may be noted that McPherson J referred to a ‘liquidated sum’, not a ‘liquidated demand’. The nature of a ‘liquidated sum’ was explained by Knox CJ and Starke J in Spain v Union Steamship Co of New Zealand Ltd … (1923) 32 CLR 138 at 142 by quoting from the then current edition of Odgers on Pleading:
Whenever the amount to which the plaintiff is entitled … can be ascertained by calculation or fixed by any scale of charges or positive data it is … liquidated.
There was reference in Spain’s case to Stephenson v Weir (1879) 4 LR Ir 369. It was held in that case that a common count claim for work done was a ‘liquidated demand’. Palles CB said at 372:
[D]emands for work and labour on a quantum meruit, or for goods sold, although the price was not fixed by contract, are clearly ‘liquidated demands’; … when the value of the work or the goods as the case may be, is ascertained, that value determines and therefore liquidates the claim.
This statement identifies the distinction between ‘liquidated claim’ or ‘liquidated demand’ and ‘liquidated sum’. A process of valuation or assessment or the application of some standard of measurement is necessary to cause the latter to emerge from or be distilled from the former.
The process by which a claim is translated into a right to a liquidated sum was described by Cohen J in Re Ahearn; Ex parte Palmer (1906) 6 SR (NSW) 576, a case concerning an unliquidated claim. His Honour said at 577:
For failure to meet his contracts he was liable in damages, and, so long as it rested in damages, the liability was not a liquidated sum; before it could become so, it would have to be assessed either under the Stock Exchange rules, or by the ordinary tribunals, or by agreement between the parties, for the parties may meet and agree upon an amount which one shall be deemed to owe the other. There is no special virtue in having the amount assessed by a Court or a domestic tribunal, for an assessment between the parties is equally efficacious for the purpose of constituting the amount a liquidated sum.[17]
[17]Ibid [14]–[17].
Associate Justice McCready determined that the amount payable pursuant to a deed between the parties, which fixed the amount to be paid, was a
‘liquidated sum’ and not a ‘liquidated claim’ or ‘liquidated demand’ since there is a mechanism to determine the amount. As a result the plaintiffs are liable for a debt and not just liquidated damages.[18]
[18]Timberland Property Holdings [2012] NSWSC 379, [35].
The difficulty in this matter is that the primary obligation of Superstructures was to provide security rather than pay a monetary sum to discharge a ‘debt’. Read alone, clause 3 of the Guarantee imposes upon the plaintiff a primary obligation to Guarantee the ‘due and punctual performance by the subcontractor of all the obligations.’ I doubt that the legislature had in mind the provision of security when formulating the framework to deem insolvency for the purposes of a winding up application. Notwithstanding that observation, the parties to the Subcontract agreed to a mechanism for the provision of security. That is, pursuant to clause 9.3 the security was required to be in the form of cash unless otherwise permitted by the Head Contractor.
Although the Subcontract is silent on the matter, I have no reservation in determining that the defendant was entitled to appropriate the sum provided as cash security to the contract by negotiating the same into an appropriate account. The parties agreed at 9.10 of the Subcontract that the Head Contractor would own any interest earned on the cash security. The parties contemplated payment into an account to be appropriated to the Subcontract and to be held in accordance with the provisions thereof. It is of note that the parties to the Subcontract expressly excluded the concept of the cash security being held on trust by the Head Contractor: clause 9.10.
Accordingly, the parties have agreed as to a mechanism for the calculation of a specific sum by reference to clause 9 and the schedule. The parties agreed to the provision of the cash security (payment) within a specified time of providing the show cause notice.
Although clause 3 of the Guarantee is a ‘make good’ clause, clause 5 of the Guarantee is specific in relation to the requirement to perform a financial obligation being the provision of the cash security.
In Timberland Property Holdings Associate Justice McCready also considered the maxim to which the plaintiffs had referred in that case of ‘generalia specialibus non derogant’, or ‘general things or words do not derogate from special things or words’.[19] I adopt Associate Justice McCready’s observations referring to Purcell v Electricity Commission of New South Wales where Mason ACJ, Wilson, Brennan and Dawson JJ clarified that ‘the maxim only applies where there are two inconsistent provisions which cannot be reconciled as a matter of ordinary interpretation’.[20] There is no inconsistency or difficulty in reconciling clauses 3 and 4 as opposed to 5 of the Guarantee. Clause 5 does not detract from, or is not contrary to, the make good provisions of 3 and 4. It specifically deals with a monetary obligation when due.
[19]Ibid [23].
[20][1985] HCA 54, [24].
Contrary to what the plaintiff submitted in relation to Sunbird Plaza I note that Mason CJ questioned the decision in Moschi[21] where it had been posited that the action against a guarantor should properly be claimed only as a claim in damages. In Sunbird Plaza Mason CJ rejected that view and said:
It may be that as a matter of history the view that the guarantor has an obligation ‘to see to it’ that the debtor performs his obligation explains why the guarantor is not entitled to notice of the debtor's default and why the creditor's cause of action arises on that default. But the view certainly does not accord with the nature of the guarantor's obligation as it is understood today. Rarely do guarantors have control of, or a capacity to influence, the principal debtor such that they would willingly assume an obligation to ensure that he performs his primary obligation. It is fictitious and quite unrealistic to suggest that this version of the guarantor's undertaking, rather than a promise to ‘answer for’ the debt or default of the debtor, is the true nature of the guarantor's obligation. And it may be doubted whether that view takes sufficient account of what has been said over the years in the long line of cases on s 4 of the Statute of Frauds.
The fact that at common law the creditor sued the guarantor in special assumpsit gives some support to the view that the guarantor's cause of action is for damages for breach of contract. However, the modern view that the guarantor promises to answer for the debtor's debt or default has led to the practice of suing the guarantor for the money sum which the debtor has failed to pay, a practice which may well have been adopted on the introduction of the Judicature Acts.[22]
[21][1973] AC 331.
[22][1988] HCA 11, 255–6.
Conclusion
Accordingly, I determine that the amount claimed in the statutory demand was a ‘debt’ for the purposes of s 459E of the Act. The amount was ascertainable and calculated by agreement between the parties to the Subcontract by reference to clause 9.2 and Annexure Part A to the Subcontract. The amount was payable within 10 business days of the show cause notices served on 17 and 30 September 2014. The amount became payable by Meales within five days of the demands dated 22 September and 1 October 2014. The time for payment expired prior to the service of the statutory demand.
This determination may seem unjust when it is almost axiomatic that there will be an adjustment upon completion of the works. It might be that Meales has an ‘offsetting claim’ arising out of the same transaction to which the statutory demand relates. However, the offsetting claim was not prosecuted and, in any event, the Graywinter[23] affidavit did not set out any mechanism for the ascertainment or calculation of the offsetting claim.
[23]Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1997) 70 FCR 452.
Order
The proceeding is dismissed. The plaintiff pay the defendant’s costs, including reserved costs, on a standard basis.
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