Newlinx Pty Ltd v John R Keith (NSW) Pty Ltd

[2014] NSWLC 30

Local Court

New South Wales

Medium Neutral Citation:	Newlinx Pty Ltd v John R Keith (NSW) Pty Ltd [2014] NSWLC 30
Hearing dates:	20 August 2014; 3 November 2014
Decision date:	15 December 2014
Jurisdiction:	Civil
Before:	O’Brien DCM
Decision:	(1) Verdict for the defendant (2) I will hear the parties on the question of costs.
Catchwords:	CIVIL – Building and Construction Industry Security of Payments Act - whether payment claim made in accordance with Act - need for strict observance with requirements of Act - assignment - effect of s 553C Corporations Act 2001 (Cth)
Legislation Cited:	Bankruptcy Act 1966 (Cth), s 66 Building and Construction Industry Security of Payments Act 1999, ss 3, 13, 14, 15, 16 Conveyancing Act 1919, s 12 Corporations Act 2001 (Cth), s 553C
Cases Cited:	Brodyn Pty Ltd v Dasein Constructions Pty Ltd [2004] NSWSC 1230 Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1 Chase Oyster Bay Pty Ltd v Hamo Industries Pty Limited [2010] NSWCA 190 Gye v McIntyre [1991] 171 CLR 609 Hazard Systems Pty Ltd v Car-Tech Services Pty Ltd (in liquidation) [2013] NSWCA 314 Independent Civil Contractors Pty Ltd v JGE Earthmoving Pty Ltd [2007] NSWSC 132 Parkview Qld Pty Ltd v Fortia Funds Management Ltd [2009] NSWSC 1065
Category:	Principal judgment
Parties:	Newlinx Pty Ltd (plaintiff) John R Keith (NSW) Pty Ltd (defendant)
Representation:	Counsel: Mr Lynch SC (for the plaintiff) Mr Lloyd (for the defendant)   Solicitors: Terry-Whitall & Associates (for the plaintiff) Bartier Perry (for the defendant)
File Number(s):	2014/131680

Judgment

Introduction

1. The plaintiff commenced proceedings against the defendant by the filing of a Statement of Claim in the General Division of the Downing Centre Local Court on 1 May 2014. On 30 May 2014 the defendant filed a Defence to that Statement of Claim denying liability. Thereafter, the plaintiff filed a Notice of Motion seeking summary judgment. That motion could not be reached when it initially came before the court and was then adjourned for hearing until 20 August 2014. Prior to the 20 August 2014 the parties, sensibly in my view, determined that rather than contest the motion, they would use the time allocated to them on 20 August to ventilate the entire claim, the evidence in both the motion and the substantive proceedings being identical. Accordingly, that is what happened and on 20 August the substantive hearing commenced and the Notice of Motion was dismissed with no order as to costs. The hearing did not conclude on 20 August and was adjourned part heard before me until 3 November 2014. Following my hearing comprehensive submissions from the parties on that day, the matter was adjourned until today for decision. In the course of the hearing Mr Lynch SC appeared for the plaintiff and Mr Lloyd of Counsel for the defendant.

2. At the commencement of the hearing on 20 August, Mr Lynch indicated that the evidence to be relied upon in his case were the affidavits of Daniel Matthew Simic sworn 9 June and 25 June 2014, the affidavit of Prashant Arora sworn 28 May 2014 and letters from Nicols and Brien and Terry-Whitall & Associates to the defendant’s solicitors Bartier Perry dated 1 and 11 July 2014 respectively. The evidence relied upon by the defendant comprised the affidavits of John Robert Keith sworn 28 May 2014 and 14 August 2014 along with the affidavit of Vivien Botsikas sworn 25 June 2014.

Background

3. The dispute between the parties arises out of the purported assignment to the plaintiff of certain rights concerning construction and building work undertaken at the Campbelltown Macarthur Hospital during 2013. The defendant John R Keith (NSW) Pty Limited (“JRK”) describes itself as a major hydraulic services contractor primarily specialising in plumbing works, drainage and civil engineering. In mid-2013 JRK reached an agreement with a company called Daro Pty Limited (“Daro”) for the provision of sub contract hydraulic, sewer, stormwater, trade waste and civil drainage services at the hospital site. The work commenced in mid-June and Daro continued to undertake work on the site until on or about 21 August 2013. On that day, Daro abandoned the site and according to the defendant repudiated the contract. Two days later on 23 August 2013, Daro was placed into liquidation. Daro’s liquidator is Mr Steve Nicols of Nicols and Brien.

4. On 31 July 2013, prior to its liquidation and while the contract was still on foot between it and JRK, Daro submitted to JRK what it contends to be a payment claim pursuant to the Building and Construction Industry Security of Payments Act 1999 (“the Act”). It is in respect of that claim, which is in the sum of $63,343.20 (excluding GST), with which this piece of litigation is primarily concerned. On 24 January 2014 it is suggested that Daro (in liquidation) assigned its rights in respect of this sum, said to be due by JRK, to the plaintiff Newlinx Pty Ltd (“Newlinx”). Thereafter, Newlinx commenced these proceedings.

5. At the commencement of the hearing and in accordance with the Local Court’s Practice Note Civ 1, the parties provided me with a Statement of Agreed Facts and Issues. This document clearly sets out the relevant factual matrix and identifies the issues that are required to be determined, and for convenience is reproduced hereunder:

Statement of Agreed Facts and Agreed Issues

(Facts asserted by the plaintiff but not admitted by the defendant)

Agreed Facts

1.    John R Keith (NSW) P/L (“JR Keith P/L”) engaged Daro Pty Ltd, to perform construction works at a project in Campbelltown for a contract price of $426,950 (excl. GST) (the “Project”).

2.    Daro commenced work on the Project on 14 June 2013.

3.    On 23 July 2013, Daro provided a breakdown of its proposed “Progress Claim 2” to JR Keith P/L for a total of $63,398.10 (excl. GST)

4.    On 29 July 2013, JR Keith P/L

(1)    provided to Daro a payment schedule for the proposed Progress Claim 2 for a total of $63,343.20 (excl. GST) and

(2)    invited a tax invoice for that amount (excl. GST)

5.    On 31 July 2014, Daro submitted a tax invoice for Progress Claim 2 for the amount of $63,343.20 (exc. GST) (the “Debt”).

6.    JR Keith P/L did not then or thereafter pay the tax invoice in full or at all.

7.    On 23 August 2013, a liquidator was appointed to Daro.

8.    On or about 2 September 2013 Daro (in liq) asserted that JR Keith was indebted to it in the sum of $187,227.98. On or about 4 September 2013 JR Keith denied it was so indebted or indebted at all and asserted that under the contract and the common law it had a right a set-off arising out of Daro’s work on the Project that exceeds $187,227.98.

9.    On or about

24 January 2014, or alternatively

1 July 2014,

Daro purportedly assigned its rights to the Debt to the plaintiff.

10.    On or about

2 April 2014,

28 May 2014, or alternatively

11 July 2014

Notice of the purported assignment(s) in 9 above was given to JR Keith P/L.

11. As at each of the dates in 9 and 10 above, JR Keith P/L had not sought to have any debt or claim admitted to proof in the winding up of Daro.

12. The plaintiff otherwise relies upon evidence in

(1)    the affidavits of Daniel Matthew Simic, sworn 9 June 2014 and 25 June 2014,

(2)    affidavit of Prashant Arora made 28 May 2014,

(3)    the correspondence from the liquidator of Daro to JR Keith P/L dated 1 July 2014 and the letter from the solicitors for Newlinx to the solicitors for J R Keith P/L dated 11 July 2014,

13. The defendant otherwise relies upon the evidence in the affidavits of:

(1)    John Robert Keith made 28 May 2014,

(2)    Vivien Botsikas made 25 June 2014,

(3)    John Robert Keith made 14 August 2014.

Issues in dispute

14. For the purposes of the Building and Construction Industry Security of Payment Act 1999 (“SOPA”), what was the legal consequence of JR Keith P/L issuing a “payment schedule” (the document in 4(1) above).

15. Was the Daro document in 5 above a ‘payment claim’ for the purposes of SOPA?

16.   Considered successively was one or other of the assignments and notices referred to in 9 and 10 above effective to assign the Debt at law or in equity?

17. Does section 553C of the Corporations Act 2001 (Cth) operate to deprive Newlinx P/L of any entitlement it may have to enforce the Debt?

6. Although articulated as 4 issues by the parties, there are in my assessment three essential issues for determination being;

1. Did Daro make a payment claim within the meaning of the Act?

2. Was there a valid assignment by Daro to Newlinx?

3. What is the effect of s 553C of the Corporations Act 2001 (Cth) upon the parties’ dealings?

Issue 1 – Did Daro make a payment claim within the meaning of the Act?

7. It is firstly relevant to note that the plaintiff’s Statement of Claim identifies the document of 31 July 2013 as being the payment claim upon which it relies as being a payment claim within the meaning of the Act (par 9 of the Statement of Claim) and goes on to assert that its provision to the defendant on that day, gave rise to a requirement that the defendant provide a payment schedule, and further that because it did not do so, the defendant became liable to payment of the amount claimed (par 10 of the Statement of Claim). This pleading, of which no amendment was sought, states clearly the case articulated by the plaintiff which is to be met by the defendant and consistent with authority defines one of the issues for determination.

8. Part 3 of the Act is titled “Procedure for recovering progress payments” and provides a regime whereby a subcontractor can make a claim for a progress payment from a head building contractor in circumstances where, if certain steps are not taken within strict time limits, then the party who has been served with the payment claim becomes liable to make payment and is precluded from raising a defence or bringing a cross claim in respect thereof.

9. The relevant sections of the Act operating at the time are set out below;

Part 3 – Procedure for recovering progress payments

Division 1 – Payment claims and payment schedules

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) must state that it is made under this Act.

(3) The claimed amount may include any amount:

(a) that the respondent is liable to pay the claimant under section 27 (2A), or

(b) that is held under the construction contract by the respondent and that the claimant claims is due for release.

(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.

(5) A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract.

(6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.

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.

16 Consequences of not paying claimant in accordance with payment schedule

(1) This section applies if:

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

(b) the respondent provides 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, and

(c) the payment schedule indicates a scheduled amount that the respondent proposes to pay to the claimant, and

(d) the respondent fails to pay the whole or any part of the scheduled amount to the claimant 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 scheduled 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) (a) (ii) 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 scheduled 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.

10. The object of the Act is set out in section 3 (1) and (2), which provide:

3 Object of Act

(1) The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.

(2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments.

11. In Brodyn Pty Ltd v Dasein Constructions Pty Ltd [2004] NSWSC 1230 Young CJ in Equity observed at [85]:

It is clear that the mischief addressed by the Act was to assist subcontractors and others who depended on cash flow for their continued existence. The Act was to alter the effect of delays in adjudicating claims between head contractors and subcontractors by compelling the payment of monies to the subcontractors in advance of settling the real dispute so that the subcontractor would have cash flow so that his business could continue.

His Honour then went on to observe at [87] that:

It only intends to operate when the head contractor and the subcontractor are going concerns. Once the subcontractor ceased to be a going concern, it no longer needs cash flow and the mischief to be covered by the Act is not present in that situation.

My Lloyd for the defendant placed considerable emphasis upon these comments by Young CJ in Equity in his submissions to me.

12. In Chase Oyster Bay Pty Ltd v Hamo Industries Pty Limited [2010] NSWCA 190, the Court of Appeal dealt with a number of issues principally relating to the adjudication provisions of the Act which are contained in section 17 and following. In the course of his judgment, McDougall J said:

207 The Security of Payment Act operates to alter, in a fundamental way, the incidence of the risk of insolvency during the life of a construction contract. As Keane JA said, of the not dissimilar Queensland statute, the Building and Construction Industry Payments Act 2004 (Qld), in RJ Neller Building P/L v Ainsworth [2008] QCA 397 at [40], the statute “seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder’s... inability to repay could be expected to eventuate”. It followed, his Honour said, that the risk of inability to repay, in the event of successful action by the other party, must be regarded as one that the legislature has assigned to that other party. The same is true of the regime established by the Security of Payment Act.

208 Further, the Security of Payment Act operates in a way that has been described as “rough and ready” or, less kindly, as “Draconian”. It imposes a mandatory regime regardless of the parties’ contract: s 34. It provides extremely abbreviated time frames for the exchange of payment claims, payment schedules, adjudication applications and adjudication responses. It provides a very limited time for adjudicators to make their decisions on what, experience shows, are often extremely complex claims involving very substantial volumes of documents (see, for example, my decision in Laing O’Rourke Australia Construction v H&M Engineering and Construction [2010] NSWSC 818 at [8]).

209 The Security of Payment Act gives very valuable, and commercially important, advantages to builders and subcontractors. At each stage of the regime for enforcement of the statutory right to progress payments, the Security of Payment Act lays down clear specifications of time and other requirements to be observed. It is not difficult to understand that the availability of those rights should depend on strict observance of the statutory requirements that are involved in their creation.

Whilst his Honour in the above extract was dealing with the adjudication provisions of the Act, it seems to me that his remarks concerning the need for strict observance with the requirements of the legislation have equal application to the provisions relating to payment claims and payment schedules, being those with which these proceedings are concerned. Indeed the use by his Honour of the words “at each stage of the regime” would support this conclusion.

13. The plaintiff’s submission going to Issue 1 is essentially that:

1. On 23 July 2013, Daro issued progress claim no. 2 in respect of the work that it had undertaken for JRK. It was forwarded under cover of an email which included the words “Darren please find attached progress claim No. 2 break up as discussed for your review prior to issue of invoice”. The attachment to the email was headed “Costing Sheet” and appears to include the identification of the work undertaken. Although not part of the plaintiff’s submission, it is to be observed that nowhere either in the covering email or in the document headed Costing Sheet forwarded on 23 July 2013, is it asserted that their forwarding constitutes a claim made pursuant to the Act.

2. On 29 July 2013, JRK forwarded to Daro a document titled “Payment Schedule – Daro Pty Ltd Campbelltown Hospital Inground Hydraulic Services”. The covering email from the defendant included the words “Please forward Tax Invoice ASAP”.

3. On 31 July 2013 in compliance with JRK’s request, and in accordance with the payment schedule submitted by JRK on 29 July 2013, Daro forwarded a tax invoice to JRK in the sum of $63,343.20. The tax invoice did not include a break-up of the work undertaken, but did purport to be subject to the Act.

4. The plaintiff says that the effect of sections 13, 14, 15 and/or 16 of the Act is that in the circumstances that have arisen, the defendant has failed to pay in accordance with a payment schedule and is accordingly liable to pay the amount claimed in the tax invoice.

14. The defendant's submission going to Issue 1 is essentially that:

1. The payment claim relied upon by the plaintiff in its pleadings, being the tax invoice of 31 July 2013, does not strictly comply with section 13 of the Act in that it does not identify the construction work to which it relates and is accordingly a nullity.

2. In that regard it relies upon the comments of McDougall J in Parkview Qld Pty Ltd v Fortia Funds Management Ltd [2009] NSWSC 1065 and by inference those of Palmer J in Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1 to the effect that “a payment claim can be treated as a nullity if it does not on its face reasonably purport to comply with s 13(2)(a)”, that is to identify the construction work to which the progress payment relates. In this case, the tax invoice simply states– “Supply labour and materials for contract works at Campbelltown Hospital $63,343.20”, although it is expressed to be subject to the Act. The defendant says that this is not sufficient for compliance with s 13(2)(a). It is of course to be observed that the words of s 13(2)(a) are mandatory that is, for the claim to be made within the terms of the Act it must identify the construction work.

15. In reply to the defendant's submissions, Mr Lynch argues that the document issued on 23 July 2013 and described as “Progress Claim No. 2” was a sufficient payment claim within the meaning of the Act, because it allowed the defendant to issue a payment schedule in respect of it, and further or in the alternative, that in respect of the tax invoice of 31 July 2013 (which Mr Lynch describes as a subsequent payment claim), no payment schedule was issued. As I apprehend this submission he contends that JRK has become liable to pay the sum of $63,343.20 by reason of either s 16(2)(a) or s 14(4)(b) of the Act. I note in this regard that the payment claim “pleaded” is said to be dated 31 July 2013. Mr Lynch says that it is not open to JRK to complain in respect of deficiencies in the tax invoice dated 31 July 2013 in circumstances where it requested its issue at the time that it provided its payment schedule on 29 July 2013. He says that at the time JRK issued its payment schedule on 29 July 2013 it represented to Daro that in the event of a tax invoice for that amount being issued, then it would be paid, and that as a consequence, it is not now open to JRK to assert that no payment claim was properly made.

16. In addition, Mr Lynch says that an estoppel has arisen by virtue of the defendant’s letter of 29 July 2014 attaching a payment schedule and requesting a tax invoice. He argues that there is either an estoppel by conduct, convention or representation, and that the defendant by preparing a payment schedule and requesting a tax invoice cannot now be seen to suggest that no payment claim was legitimately made by the forwarding of the tax invoice on 31 July 2013.

17. It seems to me that the submissions advanced by the plaintiff and summarised above depend on one or other of the documents dated 23 July or 31 July 2013 being payment claims within the meaning of the Act, to which JRK was required to respond in the manner that the Act prescribes. Alternatively if I were to accept the estoppel argument (which is not pleaded by the plaintiff in its Statement of Claim), I would accept that the progress claim No. 2 of 23 July 2013 was a payment claim within the meaning of the Act, that the payment schedule of 29 July 2013 responded within the meaning of the Act and that the tax invoice of 31 July 2013 was a document reflecting the parties' agreed position from which they are now estopped from departing. If all of those factors could be found, then subject to any issue concerning the pleadings, I may have concluded the estoppel argument favourably for the plaintiff. I have however concluded after much thought in respect of the alternative arguments advanced by the plaintiff, that the document(s) relied upon by it were not payment claims as prescribed by the legislation and that accordingly no claim pursuant to the Act was ever properly made.

18. For a payment claim to be made, the provisions of s 13(2) of the Act must be complied with. As noted earlier in these reasons, this legislative provision is mandatory. For the section to be satisfied I would be required to conclude, in respect of the 23 July 2013 document that: a) the work was identified; AND b) the amount claimed was indicated; AND c) that it is identified as a claim made under the Act. While the document of 23 July 2103 satisfies a) and b), nowhere on its face does it purport to be a claim made under the Act. In my view this is fatal to the plaintiff’s reliance upon the 23 July 2013 document as a payment claim, and as described in Parkview Qld Pty Ltd v Fortia Funds Management Ltd (above), the claim is a nullity.

19. Similarly the document issued by Daro on 31 July 2013 fails to fully comply with the terms of s 13 as it does not on its face identify the work undertaken and to which the claim is said to relate. The end result of this conclusion is that in my view, no payment claim within the meaning of the Act was ever properly made by Daro. Given the strict requirements of the Act, I do not believe that the issue by the defendant of what it describes as a payment schedule can cure this underlying defect that is apparent in the plaintiff’s case. There was in reality nothing for the defendant to respond to, as the claim was itself a nullity. While the documents of 23 July 2013 and 31 July 2013 could if viewed together be regarded as complying with the mandatory provisions of s 13(2), there is no warrant in the Act to allow a payment claim to be viewed in this piecemeal and haphazard way.

20. The conclusion I have reached will mean that the proceedings brought under the Act will be dismissed. I would observe that such an outcome appears to be entirely consistent with the intended purpose of the legislation to which Young CJ in Equity referred in the extracts from Brodyn Pty Ltd v Dasein Constructions Pty Ltd (above) that have been set out at [11] hereof.

21. The resolution of the matter in this way means that it is not necessary for me to consider the remaining two issues identified by the parties. Given however that both Mr Lynch and Mr Lloyd spent a considerable amount of time and effort addressing me on those issues I propose to make some short comments in relation to them, and to indicate my view in respect of the arguments advanced.

Issue 2 – Was there a valid assignment from Daro to Newlinx?

22. It is the plaintiff’s case that Daro’s claim against JRK was assigned to it by Daro’s liquidator following an exchange of correspondence between it and the liquidator as follows:

1. On 21 January 2014 the plaintiff offered to the liquidator that it would pay $3,000.00 in consideration of the liquidator assigning the book debts and rights of Daro as against JRK and a company called Anderson Street Banksmeadow Pty Limited. Further conditions attached to the proposed assignment concerning retention of funds recovered in pursuing the claims and issues relating to costs. The assignment was to be absolute and complete.

2. On 24 January 2014 Daro’s liquidator wrote to the plaintiff confirming acceptance of the plaintiff’s offer save that the plaintiff was not to be entitled to commence proceedings in the name of Daro or its official liquidator. The liquidator indicated that if those conditions were acceptable then funds in the sum of $3,000.00 were to be deposited into a specified account.

3. On 28 January 2014 the plaintiff deposited funds in the sum of $3,000.00 into the account specified by the liquidator.

4. On 2 April 2014 Newlinx provided notice to the defendant of the assignment by the hand delivery of a letter of the same date to the office of JRK at 91 Hutchinson Street, St Peters.

23. For there to be a valid assignment s 12 of the Conveyancing Act 1919 requires that:

1. The assignment be absolute, and

2. That it be in writing, and

3. That it not purport to be by way of charge only, and

4. That it be of a debt or other legal chose in action, and

5. That express notice in writing be given to any debtor.

24. It is the plaintiff’s claim that each of these requirements have been satisfied in the circumstances of this case. The plaintiff contends that there was an offer made for an assignment, that there was a counter offer made by the liquidator and that the counter offer was accepted by the conduct of the plaintiff on 28 January at which time there was a concluded agreement reached assigning Daro’s debt. The plaintiff further submits that notice of that assignment was given by the hand delivery of correspondence by Newlinx to the defendant on 2 April 2014. The plaintiff suggests that in the event that the court were not satisfied that appropriate notice was given at that point, then there are further incidents of notice being provided which would satisfy the requirements of the Conveyancing Act.

25. On the other hand the defendant submits firstly that there was no debt in existence at the time of the assignment (for reasons associated with the application of s.553C of the Corporations Act, being a matter to which I will shortly return), that the agreement was not absolute and that the language of contingency contained within the correspondence passing between the plaintiff and Daro’s liquidator was inconsistent with an absolute assignment and that for these reasons (being associated with the assignment) the plaintiff was not entitled to bring the claim that it did. Reliance was placed upon Hazard Systems Pty Ltd v Car-Tech Services Pty Ltd (in liquidation) [2013] NSWCA 314, to support this submission. In that case the Court of Appeal was considering a single document that represented the concluded agreement between the parties. In this case, the parties’ agreement is to be construed by reference to both the correspondence between them and the actual act of payment. The factual matrix here is readily distinguishable from that in Hazard Systems and I do not regard what was there said as precluding my finding that a valid assignment took place.

26. I am not persuaded by the defendant’s argument in respect of the assignment and am satisfied that Daro’s debt was properly assigned to the plaintiff for the reasons advanced by Mr Lynch. I am also satisfied that the correspondence on 2 April 2014 was sufficient notice of that assignment to the defendant. The letter of 2 April 2014 provided notice of the assignment in unequivocal terms, and in a way that made the plaintiff’s acquisition of Daro’s alleged claim against it clear.

Issue 3 – What is the effect of s 553C of the Corporations Act 2001 (Cth) upon the parties' dealing?

27. Section 553C of the Corporations Act 2001 is in the following terms:-

Insolvent companies--mutual credit and set-off

(1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:

(a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and

(b) the sum due from the one party is to be set off against any sum due from the other party; and

(c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.

JRK says that it has a set off against the plaintiff for an amount that is greater than the amount that the plaintiff claims as a consequence of defective work being undertaken by Daro at the hospital site. The plaintiff does not dispute, that if section 553C is properly engaged in this case, that such a set off exists and that the amount of that set off exceeds the amount claimed by it in these proceedings. The issue between the parties is whether section 553C is in fact engaged.

28. The defendant says that the section is engaged, and that it has application to the facts of this case. It says there were mutual dealings between an insolvent company (Daro) and a person who wanted to have a debt or claim admitted against it (JRK). In this regard it is to be noted that not until half way through the first day of the case did JRK take any steps in this regard, at which time it lodged an informal proof of debt with the liquidator to have a debt or claim admitted against Daro. It was this late change of position by JRK that necessitated the matter being adjourned when it was initially listed before the court on 20 August 2014, with a consequent order that the defendant pay the plaintiff’s costs of the day.

29. The defendant says that the operation of s 553C “just happens” and there is no need for the section to be enlivened in the way contended for by Mr Lynch. In support of this submission the defendant relied on what the High Court said in Gye v McIntyre [1991] 171 CLR 609. That was a case dealing with s 86 of the Bankruptcy Act which is a piece of legislation in similar terms to s 553C of the Corporations Act. The High Court there described s 86 as follows (at [15]):

The section is self executing in the sense that its operation is automatic and not dependent upon “the option of either party”.

The defendant also directed the Court to the comments of Barrett J in Independent Civil Contractors Pty Ltd v JGE Earthmoving Pty Ltd [2007] NSWSC 132 at [18] where His Honour remarked, following a reference to Gye v McIntrye (above) that:

This reasoning in bankruptcy cases is equally applicable to a case involving s. 553C of the Corporations Act.

The defendant says that given the mutuality of dealings and the set off, any existing debt owed by Daro to JRK was extinguished prior to any assignment and that there was in fact nothing for Daro to assign to the plaintiff.

30. Mr Lynch argues that the section has no operation in the circumstances of this case for a number of reasons. Firstly he says that the debts are not mutual as the debts in this case arise under the Act and pursuant to the Act there is no capacity to cross claim or lodge a defence. Given my finding that there was no such claim made under the Act I am not persuaded by this submission. Mr Lynch also submits that the section does not apply to the plaintiff as the plaintiff is not an insolvent company. He said that the statute (being the Corporations Act) should be applied and interpreted according to its terms. He notes that in the cases relied upon in support of the contentions put by the defendant, the section was only enlivened because the insolvent company had been joined as a party. He observes correctly that in this instance Daro has not been joined. He says that the mechanism for engaging the section where there has been an assignment such as has occurred here is the joining of the insolvent company to the subject proceedings following a grant of leave to do so having been made by the Supreme Court.

31. While it is not necessary for me to finally determine Issue 3 given my earlier findings in respect of Issue 1 (and I specifically decline to do so), I am inclined to prefer the position advanced by Mr Lynch, being in effect that s 553C would not be properly engaged unless and until the insolvent company (Daro) was by leave of the Supreme Court joined to the proceedings. This has not occurred and without such a circumstance it is difficult to see how the balance of any account as due between the parties and as required to be identified pursuant to s 553C(1)(c) could be readily ascertained.

32. Orders

The orders of the Court will be:

1. Verdict for the defendant.

2. I will hear the parties on the question of costs.

Deputy Chief Magistrate C O’Brien

Downing Centre Local Court

15 December 2014

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Decision last updated: 09 December 2015