Mintoo Property Developers Pty Ltd v Multiboard Australia Pty Ltd
[2012] VSC 61
•29 February 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2011 06047
| MINTOO PROPERTY DEVELOPERS PTY LTD (ACN 146 745 306) | Plaintiff |
| v | |
| MULTIBOARD AUSTRALIA PTY LTD (ACN 145 212 193) | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 February 2012 | |
DATE OF JUDGMENT: | 29 February 2012 | |
CASE MAY BE CITED AS: | Mintoo Property Developers Pty Ltd v Multiboard Australia Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 61 | |
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CORPORATIONS – Setting aside a statutory demand – Genuine dispute about the existence of debt - Offsetting claim – Corporations Act 2001 (Cth), s 459G
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M W Sanger | John V Hayes & Co |
| For the Defendant | Mr P M Bornstein | Chadwicks |
HIS HONOUR:
By an originating process filed 11 November 2011, the plaintiff, Mintoo Property Developers Pty Ltd (“Mintoo”) makes application to set aside a statutory demand dated 24 October 2011 served on it by the defendant, Multiboard Australia Pty Ltd (“Multiboard”). The application is made pursuant to s 459G of the Corporations Act 2001 (Cth) (“the Act”).[1]
[1]All references to section numbers are to the Corporations Act 2001 unless otherwise indicated.
In support of its application Mintoo relies on the affidavit of Francesco Mosca sworn 10 November 2011. Multiboard relies on an affidavit of Karl Vrecko sworn 28 November 2011 in opposition to the application. The demand was served at the registered office of Mintoo on 24 October 2011. No issue arises in respect of the timely filing and service of the application.
The demand claims payment for goods supplied and delivered by Multiboard to Mintoo in the period 29 June 2011 to 22 July 2011. The schedule to the demand identifies four invoices which total the amount demanded. Copies of those invoices are appended to the statutory demand. The demand was accompanied by an affidavit of Romana Vrecko who alleges that Mintoo is indebted to Multiboard in the amount demanded.
Save for one invoice for a quantity of a product called iLine, Multiboard’s claim is for unpaid invoices for the supply of products which are not the subject of Mintoo’s alleged offsetting claim which is discussed below. Those items include products called “Butyl Fome Tape” and “eXRes”. Mr Bornstein, counsel for Multiboard, says that, save for the amount mentioned, Mintoo raises no dispute in respect of the goods which are the subject of the statutory demand and that Mintoo’s position is more properly characterised as raising an alleged offsetting claim.
Legal Principles to be Applied
The approach to be taken in the consideration of applications under s 459G of the Act has been the subject of numerous authorities. In the decision of the Court of Appeal in TR Administration v Frank Marchetti & Sons Pty Ltd.[2] Dodds-Streeton JA made reference to the statement by McLelland CJ in Eyota Pty Ltd v Hanave Pty Ltd,[3] one of the earliest authorities considering the issue, where His Honour stated:[4]
It is, however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s 450H (sic). In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sorts of considerations as the ‘serious question to be tried’ criterion which arise on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit ‘however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be’ not having ‘sufficient prima facie plausibility to merit further investigation as to [its] truth …’.
[2](2008) 66 ACSR 67 (“Marchetti”).
[3](1994) 12 ACSR 785.
[4](1994) 12 ACSR 785, 787 (citation omitted).
Her Honour made similar observations as a member of the Trial Division of this Court in Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[5] where she observed at [49]:
The dispute or offsetting claim should, as has been recognised, have some objective existence, and the [plaintiff] bears the onus of establishing the genuineness of the dispute or offsetting claim.
[5][2006] VSC 508.
In the decision of the Full Court of the Federal Court of Australia in Spencer Constructions Pty Ltd v G&M Aldridge,[6] it was observed that: [7]
For a genuine dispute to exist, it must be ‘a bona fide and truly existing fact’, and the grounds for alleging its existence must be ‘real and not spurious, hypothetical or misconceived.’ The dispute should have sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile.
[6](1997) 76 FCR 452 (“Spencer”).
[7]Spencer (1997) 76 FCR 452, 454.
In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Pty Ltd (No. 2),[8] Barrett J observed:
Once the [plaintiff] 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.
[8][2003] NSWSC 896, [18].
In JJMMR Pty Ltd v LG International Corporation,[9] the Court of Appeal of the Supreme Court of Queensland described the task of the Court as being to decide whether there is a dispute or offsetting claim “such as would warrant subsequent adjudication”.
[9][2003] QCA 519.
In Yoogalu Pty Ltd v Intentia Australia Pty Ltd,[10] Barrett J observed:[11]
“[The Court’s] sole function is to determine whether or not the state of account between the parties is (as to the particular matters referred to in s 459H(1)) so clear cut and uncontroversial that non payment of the sum demanded by the defendant should, entirely of itself and without further enquiry, mean that the plaintiff must, in a subsequent winding up proceeding, be regarded as insolvent unless it can itself affirmatively prove its solvency.”
[10][2006] NSWSC 278 (“Yoogalu”).
[11]Yoogalu [2006] NSWSC 278, [32].
Mintoo’s affidavit evidence
Mr Mosca is the sole director and the secretary of Mintoo. Although he states at the beginning of the affidavit that he makes the affidavit from information and belief, often he does not depose to the source of his evidence. Mr Mosca’s affidavit was the subject of detailed criticism by Mr Bornstein, who submitted that much of the affidavit was hearsay, on occasion hearsay on hearsay and consisted of much unsubstantiated assertion. He submitted that Mr Mosca does not explain why those directly involved in the subject transaction giving rise to the alleged dispute and offsetting claim (in particular Mr Freddi, Mintoo’s construction manager) did not swear affidavits supporting Mr Mosca’s version of events. I shall return to this issue later in these reasons.
Mr Mosca’s affidavit contends that the inclusion in the demand of a claim for $550 for legal costs amounts to a defect, as Multiboard has no entitlement to claim any such costs. Mintoo says that the demand should be set aside or modified as a result of this wrongful inclusion. In Multiboard’s written submissions, Multiboard accepts that the demand should be varied by a reduction in that sum.
Mintoo is the developer of a property at Bell Street, Coburg (“the project”) where it has completed the building of 13 apartments. Multiboard manufactures a wall lining board product known as iLine, which is a glass fibre reinforced recycled wood fibre and magnesium cement-based lining board. iLine is slightly more expensive than plasterboard and is said by Multiboard to be suitable for use as a fire and acoustically rated internal wall material; it is lightweight but exceptionally strong and suitable for use in high traffic and high impact areas. iLine has a seven year warranty from purchase date to be free from manufacturing and material defects and to be resistant to cracking.
In November 2010, Mintoo, represented by Mr Freddi, a registered building practitioner, and Mintoo’s construction manager, met with a Mr Shipton, who was the sales representative of Multiboard, to discuss the use of iLine as an alternative to plasterboard. Mr Shipton represented to Mintoo at that discussion that iLine was suitable and a better alternative to plasterboard but it must be used with another Multiboard product, iCore, as the cavity liner in order to meet the standards of the fire and insulation guarantee. iCore is said to have water resistant properties giving it an advantage over plasterboard, which is not waterproof.
Mr Mosca says that one of the reasons for using the new product was speed and ease of construction. The method adopted, light frame construction, allowed the erection of framing prior to installation of the roof, enabling Mintoo to achieve a fire rating without using plaster products which deteriorate when wet. Mr Freddi informed Mr Mosca that he and Mr Shipton discussed the comparative merits of iLine against plasterboard and a price was negotiated in January 2011. On 24 January 2011, Multiboard sent Mintoo a quote which included iLine and iCore as well as eXline and eXres for external use and certain other products. That quotation was accepted and Mintoo began receiving products in response to purchase orders commencing in or about April 2011.
Mr Mosca deposes that Mintoo commenced installation of iLine as per manufacturer’s instructions through a plasterer, Campbell Ryan of CGR Plastering.
Mr Mosca deposes that he has been informed by Mr Freddi and believes that the board was installed as per Multiboard’s instructions, however, he says, the iLine product failed as a plasterboard substitute. He states that almost without exception every joint has cracked within about four to six weeks of installation. As a result of this, on 29 August 2011, Mr Freddi met Karl Vrecko of Multiboard at the project to show Mr Vrecko the cracking and discuss the issue. Mr Vrecko stated that the product had not been installed in accordance with the installation manual, making various assertions that fibreglass tape was used instead of paper tape, that here was insufficient back blocking, that there was movement in the frame and that the walls were not straight.
Mr Mosca does not accept these criticisms of the installation and says that the stronger fibre glass tape was used as a last resort to try and prevent further cracking after the recommended paper tape was used and Multiboard’s product failed. Mr Mosca states that Mr Freddi has informed him that Mr Vrecko was a regular visitor at the project and never commented on the mode of installation.
Mr Mosca deposes that on or about 29 August 2011, Mr Freddi met with the plasterer, Mr Ryan, at the project to discuss the issue of the cracking joints. At that meeting they concluded that cracking was occurring at junctions of Multiboard to plasterboard and Multiboard to Multiboard joins in all walls except the first level corridor. Mr Mosca says that Mr Freddi advised him that an architect, Mr Norris, stated that the cracking may be the result of a batch issue with the Multiboard and moisture retention in the iLine product during its manufacture.
Mr Freddi authorised Mr Ryan to carry out rectification works on 29 August 2011. The cracked joints were re‑taped, stopped and caulked. However, some of the joints cracked again and certain walls have required a third taping and stop up. To date, the rectification costs total $6,760 plus GST. That amount is comprised of $4,160 for re‑taping and three coats of plaster to all joints and $2,600 for five days’ labour at a rate of $65 an hour for re‑taping of joints for the third time where required. Mintoo has not made any claim on Multiboard prior to service of the demand to honour the warranty on the goods.
Mr Mosca’s affidavit exhibits an email of 30 August 2011 in which Mr Freddi writes to Mr Vrecko. The email states:
Dear Karl,
Further to my discussion with you yesterday, I have had serious discussions with others which are ongoing. I suggest you review the following and present us with some authoritative technical opinion as soon as possible to help diagnose what the problem might be. At present, the problem appears to relate to the board itself though this is by no means definitive as yet.
Regards,
Jason.
That email appears to be followed by the preceding email in the chain, which was from Mr Freddi to Mr Ryan at CJR Plaster, the subject heading of which was “re Multiboard at 7 Bell Street, Coburg”.
At the hearing of this matter, Mr Bornstein remarked that the preceding email appears to be incomplete. This might be so but it appears to contemporaneously document a record of a site meeting on 29 August 2011 which Mr Freddi and Mr Ryan attended and at which they discussed the cracking issue. There has been no response to the request by Mr Freddi in the email of 30 August 2011 for Mr Vrecko to provide an “authoritative technical opinion”. In his affidavit, Mr Mosca states that Multiboard, through Mr Vrecko, was aware of the dispute between the parties as early as late August 2011, prior to the swearing by Romana Vrecko of her affidavit accompanying the demand.
Despite the problem with the cracking in the joints, Mintoo has handed over the project and set aside a fund on the assumption that there will possibly be problems which emerge in the future resulting in call-backs to patch and paint at the project during the period of the builder’s warranty. It is said that each of the future repair alternatives will constitute an offsetting claim well in excess of the amount of statutory demand (which is only for $10,987). The alternatives available to Mintoo in respect of future claims include wallpapering over the cracked walls in respect of which Mintoo has already purchased 260 rolls of wall paper at a cost of $16,640 in anticipation of any problems that might arise in the future. The wallpaper costs $80 per roll to install, amounting to a total cost of $39,520. The second alternative is to affix plasterboard over the Multiboard, re‑stop and re‑paint entire walls, the cost of which is estimated to be in the vicinity of $150,000 over the whole project. The first alternative will only mask and not remedy ongoing cracking at the joints.
Mr Mosca’s affidavit puts it no higher than it being a possibility that there will be future claims. The project has been handed over and it is not said that there are presently claims against Mintoo which will require rectification.
The authorities make it clear that in order for an offsetting claim to be established, s 459H(1) requires the establishment of a genuine claim that the company has against the creditor. In Collier Nominees Pty Ltd v Consolidated Constructions Pty Ltd,[12] Santow J observed:[13]
[12]Collier Nominees Pty Ltd v Consolidated Constructions Pty Ltd (Unreported, Supreme Court of New South Wales, Santow J, 3 July 1998) (“Collier Nominees”)
[13]Collier Nominees (Unreported, Supreme Court of New South Wales, Santow J, 3 July 1998), 13 (emphasis in original).
It is thus necessary to determine whether the plaintiff presently has … not will have … offsetting claims against the Defendant, including by way of the broader notional cross-demand … .
Santow J referred to the decision of Master McLaughlin in Advance Ship Design Pty Ltd v DJ Ryan t/a Davies Collison Cave,[14] where the Master stated:[15]
It seems to me that the true situation and indeed the explanation of the problem which confronted Young J in Classic Ceramic Importers is that the offsetting claim must be one which the plaintiff presently has. The mere fact that the plaintiff has filed process does not mean that the plaintiff has a claim in that amount. The claim must be one which exists at the present time, and it must be one which, if the Plaintiff is able to prove the factual matters alleged in the pleading and the statement of claim filed in the Equity Division, would result in the plaintiff being presently entitled to the damages claimed.
[14](1995) 16 ACSR 129 (“Advance”).
[15]Advance(1995) 16 ACSR 129, [40] (citations omitted).
In Mr Mosca’s affidavit, he asserts that Mintoo also has a TPA claim in damages for rectification and associated loss against Multiboard for representation of suitability of product. Such damages, it is said, will be well in excess of the amount claimed by Multiboard. However, there is no evidentiary quantification of such a claim as required.[16]
[16]Sewmail (Australia) Pty Ltd v Booby Traps Pty Ltd (1997) 23 ACSR 339, 342-3.
Multiboard’s affidavit evidence
Mr Vrecko, who is the chief executive officer of Multiboard, deposes that when the board was purchased by Mintoo the installation requirements were provided to Mintoo. He says that Multiboard is used by many builders as it has the benefit of being fire resistant and has high acoustic properties. It is guaranteed for a period of seven years provided that the purchaser complies with the installation requirements. He denies that the board was installed according to the manufacturer’s instructions.
Mr Vrecko says that he attended the Bell Street property shortly after the Multiboard was delivered at a time by which one section of the construction had been completed. He met Mr Ryan, the plasterer, and he states that he immediately became concerned about the installation as it was clear that Mr Ryan was not installing the board in accordance with the instruction manual. He states that Mr Ryan was using self-adhesive fibreglass tape over the board which did not comply with the installation instructions and which would not give the necessary protection to prevent damage to the boards. He then details in his affidavit the relevant steps which have not been adhered to. He observed that Mr Ryan was not installing the board in compliance with the installation instructions by using self‑adhesive fibreglass. He states that Mr Ryan states that if there was a problem he would wear that risk. He makes other observations in his affidavit about Mr Ryan not complying with the installation instructions. He states that he advised Mr Ryan he should follow the instruction manual and left the site. Additional material was ordered but no payments have been received.
Mr Vrecko agrees in his affidavit that he was requested to attend the project as Mr Freddi stated and there was some cracking on the installed boards. He states that he met him at the site and advised him that the cracking had occurred as a result of faulty installation. He told Mr Freddi that he had warned Mr Ryan that he was installing the board contrary to the specified instructions and that as a result some of the boards had cracked. Mr Vrecko denies that he was a regular visitor to the Bell Street site. He states that he attended on a number of occasions, including one when he met with Mr Shipton, he observed that Mr Ryan was repairing some areas using the recommended paper tape. He says that the wall systems, especially in internal cupboards, had not been properly installed and it was apparent that a number of shortcuts had been used in the installation of the board.
He states that as he had not received any payment or advice from Mintoo, he instructed Multiboard’s solicitors to pursue the outstanding amounts. He states that the defects in the board installed by Mintoo were the result of Mintoo’s installer failing to use the recommended paper tape and using self‑adhesive fibreglass tape, failing to block joining the board and failing to install the wall systems properly, using shortcuts in the installation.
As I have observed above, Multiboard criticises the quality of the evidence put forward by Mintoo on the basis that much of Mr Mosca’s affidavit is hearsay or hearsay upon hearsay. It also says that the absence of any affidavit from Mr Freddi or Mr Ryan should give rise to the drawing of an inference that whatever evidence they would have given would not have assisted Mintoo’s case. It states that as such Mintoo has not supported its assertion of an offsetting claim with admissible evidence and has not sought to answer the matters deposed to by Mr Vrecko by way of an affidavit in reply, despite having the ample opportunity to do so. As such, it says the Court cannot be satisfied that Mintoo has an offsetting claim as provided for in s 459H(1)(b).
In Mibor Investments v CBA,[17] Hayne J (sitting as a single judge of the Supreme Court of Victoria) stated: [18]
[17](1993) 11 ACSR 362 (“Mibor”).
[18]Mibor (1993) 11 ACSR 362, 368 (citation omitted).
The bank contended that some of the evidence relied on by the applicants (especially the solicitor’s affidavits filed on behalf of Mideb) were inadmissible because the deponent stated facts based on information and belief. It was submitted that the application was not an interlocutory application and reference was made to Licul v Corney (1976) 50 ALJR 439.
The question whether an application is interlocutory for the purposes of Rule 43.03(2) is to be decided according to whether the order made determination of the application would be interlocutory for the purposes of appeal (example: see Cowie v State Electricity Commission of Victoria [1964] VR 788 at 789). It is to be determined according to whether the application will decide the rights of the parties or is:
Made for the purpose of keeping things in status quo until the rights can be decided, or for the purpose of obtaining some direction of the Court as to how the cause is to be conducted, as to what is to be done in the progress of the cause for the purpose of enabling the Court ultimately to decide upon the rights of the parties. …
In my view this application is an interlocutory proceeding. Unlike the question in Cowie’s case (which was whether a statutory authority had immunity from suit in a particular case because of a failure to give notice under the Statute of Limitations Act) the present proceeding determines only whether a demand may stand or not. If the demand stands, the consequences are serious but there is no final determination of any rights. All that follows from the demand not being set aside is that the company will have a further perhaps short period of time within which it must meet the demand, or face a conclusion that it is to be presumed insolvent (unless it proves to the contrary). No order can be made under s 459G which finally determines the rights of the parties.
The Victorian Court of Appeal in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Limited,[19] concluded that an order dismissing an application to set aside a statutory demand is interlocutory. The Court (Maxwell P, Chernov, Nettle, Ashley and Neave JJA) agreed with the view expressed by Hayne J in Mibor Investments that a proceeding under s 459G is interlocutory in nature. Three members of the Court however went on to express a view that an order setting aside a statutory demand is a final order. When the matter was considered by the High Court the matter was not addressed.[20] On an application of these authorities, the application is interlocutory in character and evidence based on information and belief is admissible provided that it is properly adduced.
[19](2007) 63 ASCR 300.
[20]See Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Limited (2008) 65 ACSR 249, [7]-[8].
If Mr Mosca’s affidavit is purged of unsubstantiated assertions and hearsay where the source the of the information is not disclosed, there still remains some evidence that there is cracking occurring on the material supplied by Multiboard at the project which has required rectification and the cost of the rectification required thus far is quantified. Mr Vrecko would have it that this has occurred by reason of non‑compliance with its installation specifications but it is not my function to decide the position in that regard in this application. I do not consider that the absence of affidavits from Mr Ryan and Mr Freddi ought result in a rejection, in this type of application, of Mr Mosca’s evidence by the drawing of adverse inferences that their evidence would not have assisted Mintoo’s case.
Conclusion
I agree with many of Mr Bornstein’s criticisms of Mintoo’s affidavit evidence, but when stripped of its objectionable elements, I consider that the affidavit of Mr Mosca passes the relatively low threshold of establishing an offsetting claim, but one limited to $6,760 for the amount of the rectification works which have already been carried out as a result of the cracked joints which occasioned the need for taping and re‑plastering. The other claims mentioned in Mr Mosca’s affidavit are speculative, do not presently exist and do not, on the basis of the reasoning of Santow J in Collier Nominees referred to above, give rise to an offsetting claim properly so-called. This is tested by the fact that Mintoo could not at the date of the hearing of this application have commenced a conventional inter partes claim “in anticipation of any problems that may arise in the future” which gave rise to a claim of $39,520 “if realised”.[21]
[21]See affidavit of Francesco Mosca sworn 10 November 2011, [34].
My task in these types of applications is to ascertain whether there are genuine disputes or offsetting claims in respect of the debt the subject of demand, not to express any opinion which may embarrass any other Court subsequently considering the matter.[22] The authorities indicate that it is not my role to express a view that one party or another is more than likely to ultimately succeed if the matter is litigated in inter partes proceedings. My task is confined to concluding as to whether the matters raised give rise to a genuine offsetting claim. Robson J observed in Rhagodia Pty Ltd v National Australia Bank Ltd,:[23]
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond the perception of genuineness (or lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple – to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (and not the likely result of it).
[22] Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270 at [3]-[4].
[23][2008] VSC 195, [93] citing Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601, 605.
I am not persuaded that the matters put by Mintoo in respect of its alleged offsetting claim are not bona fide, nor do I consider them to be spurious, hypothetical, illusory or misconceived.
In the circumstances, I will order that the statutory demand dated 24 October 2011 which was served on the plaintiff by the defendant be varied by deducting the $550 for legal costs which were claimed in the demand and allowing as an offsetting claim Mintoo’s claim for $6760, which has been referred to. I will order that the demand be varied to be an effective demand for $3677.59 which is calculated as follows:
$ 10,987.59 $ -550.00 $ -6,760.00 $ 3,677.59
I declare that the demand is to have had effect, as so varied, as from when the demand was served on the plaintiff.
I will hear the parties on the question of costs.
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