OXBARA Pty Limited ACN 001 987 837 & STELLAVERRE Pty Limited ACN 002 397 113 v Geotech Pty Limited ACN 005 541 177
[2002] ACTSC 116
OXBARA PTY LIMITED ACN 001 987 837 & STELLAVERRE PTY LIMITED ACN 002 397 113 v GEOTECH PTY LIMITED ACN 005 541 177 [2002] ACTSC 116 (22 November 2002)
CATCHWORDS
CORPORATIONS – statutory demand – application to set aside – whether genuine dispute – claim that s 25 of the Building and Construction Industry Security of Payment Act 1999 (NSW) meant that there was no genuine dispute – Held s 25 did not affect the matter and demand set aside.
The Constitution, s 109
Corporations Act 2001, s. 459H, 459J
Building and Construction Industry Security of Payment Act 1999(NSW), ss 15, 16 & 25
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Jemzone Pty Ltd v Trytan Pty Ltd [2002] NSWSC 395, (2002) 42 ACSR 42
Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd [1997] FCA 681
Tooma v Eaton [2002] NSWSC 514
No. SC 192 of 2002
Coram: Master T. Connolly
Supreme Court of the ACT
Date: 22 November 2002
IN THE SUPREME COURT OF THE )
) No. SC 192 of 2002
AUSTRALIAN CAPITAL TERRITORY )
BETWEEN:OXBARA PTY LIMITED ACN 001 987 837
First Plaintiff
AND:STELLAVERRE PTY LIMITED ACN 002 397 113
Second Plaintiff
AND: GEOTECH PTY LIMITED ACN 005 541 177
Defendant
ORDER
Coram: Master T. Connolly
Date: 22 November 2002
Place: Canberra
THE COURT ORDERS THAT:
The statutory demand of 20 March 2002 be set aside
Costs reserved
This is an application pursuant to sections 459H and 459J of the Corporations Act 2001 to set aside a statutory demand. The statutory demand on the two plaintiff companies was dated 20 March 2002 and sought payment of a claimed debt in the sum of $216,847.00 being the amount an Adjudicator appointed pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) had determined to be payable. There is no dispute that the application to set aside the statutory demand was brought promptly, and is properly determinable by me in this application.
The matter arises from a construction contract involving the reconstruction of certain sections of the Alpine Way at Thredbo in New South Wales following the disastrous landslide there some years ago. The first plaintiff was successful in a bid for an expression of interest with the New South Wales Department of Public Works and Services to install ground anchors and horizontal drainage along Alpine Way. In this original bid the first plaintiff nominated the defendant as a subcontractor in the proposed works. Mr Rye, a director of the first and second plaintiff, said in his affidavit of 11 April 2002 that it emerged that the scope of the works was greater than originally thought, and in particular that the subcontractor defendant Geotech would in fact be responsible for the greater part of the total value of the contract. The first and second plaintiffs entered into a contract with the Department, and work proceeded from January 2001.
Mr Rye says that work proceeded on the contract until May 2001. He says that
“during the term of the contract works, there were several requests made by the defendant for assistance, labour, materials and equipment from the first plaintiff which were in turn provided by the first plaintiff on the basis that they would be dealt with as “backcharges”: when the contract was completed and payments finalised. Backcharges was the term used to denote any amounts payable or refundable to the first plaintiff from the amounts due to the defendant arising out of the contract works. The defendant was advised of the amounts of most of these backcharges as they arose.”
Mr Rye says that upon completion of the works the first plaintiff provided to the defendant a schedule of backcharges in the total sum of $546,883.31, and that this amount was withheld from progress payments, including the final payment, due to the defendant under the contract. He says that the defendant accepted $282,260.83 of this amount as being properly payable, but that the balance of $264,622.48 remained in dispute. Mr Rye says that he attempted to resolve the dispute with meetings with the defendant, but was unsuccessful.
Mr Noonan, director of the defendant, says that on 31 October 2001 he sent an invoice to the plaintiffs claiming the sum of $264,622.48, being final payment for the contract works. The invoice identified the original contract price of $3,142,216, some additional sums by way of variations, identified the sum of $282,260.83 as a back charge to be offset from this sum, and allowed for the previously paid sum of $2,643,109.36. The invoice had printed below the total to be paid of $264,622.48 the words “This invoice is issued under the Building and Construction Industry Security of Payments Act 1999”.
Mr Rye says that on 10 December 2001 he became aware that the defendant had made an application for an adjudication of the dispute pursuant to the Building and Construction Industry Security of Payments Act 1999 (NSW). On 12 December 2001 the plaintiff’s received a fax from Mr William Taylor, a construction consultant, indicating that he had been appointed an Adjudicator for the dispute. On 14 December 2001 he advised the parties that submissions may be delivered to his home office at his Sydney address. He did not advise the parties as to the timing of submissions.
Mr Rye says in his affidavit that
“On or about 18 December 2001 I had discussions with Mr Bede Noonan, a representative of the defendant, concerning suspension of the adjudication process to allow the parties time to attempt settlement of the matters in dispute. Mr Noonan agreed with this approach. I proceeded to send a facsimile to Mr Taylor requesting that the adjudication process be suspended to allow negotiations.”
The fax is in evidence before me, and it states
“Today at 3.15 pm Phil Rye for Oxbra and Stellaverra proposed to Bede Noonan for Geotech that the adjudication process be suspended and that Phil and Bede with their site people meet to discuss the back charges to Geotech and make a settlement agreement. Bede agreed to the proposal subject to a check with his solicitor. The meeting was set for not before 10 January 02 at a place to be fixed.”
On 19 December 2001 Mr Taylor sent a facsimile to the parties saying:
“I refer to the facsimile received from the Respondent on 18 December 2001 proposing a suspension of the adjudication process to allow settlement negotiations. The Act requires that I make my determination within ten days of my acceptance of the adjudication application. As such I am now considering the parties submissions in anticipation of making my determination. Please advise me by 5pm today whether the parties agree to extend the time for my determination.”
Mr Rye says the he understood the effect of his conversation with Mr Noonan to be that the entire adjudication process would be adjourned to allow settlement to be explored. Mr Noonan says that he told Mr Rye that the adjudication itself would not be suspended, but that the determination would be. The effect of this is that, although Mr Rye thought that the adjudication was suspended, the adjudicator thought that it was not, and so he went ahead and made his determination, in the absence of any submission from the present plaintiff’s, who thought the process was suspended pending talks. The adjudicator agreed only to delay the issue of his determination. Not surprisingly in the absence of any contrary submissions, he found generally in favour of the present defendant, and in particular he noted in his reasons that the present plaintiffs contended in their payments schedule that back charges were to be taken into account, but said
“The Respondent’s submissions are unsupported by evidence. For this reasons I accept back charges only to the extent as admitted by the Claimant.”
The defendants admitted some backcharges in their submission to the adjudicator, resulting in his finding of a debt due in the sum of $216,847.
Mr Rye says that the plaintiff’s received the determination by the adjudicator on 11 February 2002, after discussions had taken place between the parties. Mr Rye says in his affidavit:
“Despite the determination made by the Adjudicator, in my belief it is clear that there is a substantive dispute between the parties concerning the backcharges discussed below. The Adjudicator did not properly request written submissions or documentation from the first and second plaintiffs, nor did he take into account material that the first and second plaintiffs could have provided in support of the claim for backcharges. I feel that there has been a denial of natural justice in the manner in which the adjudication process was conducted, and I believe that the Adjudicators Determination is the result of a flawed process.”
The defendant argues that no genuine dispute for the purposes of the Corporations Act 2001 can exist because the consequence of an adjudication determination pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) is that there is a debt due and payable. The effect of this provision, says the defendant, is that the debt cannot be challenged by way of an application to set aside a statutory demand. The plaintiff’s dispute that the matter was properly dealt with under this act, but it is most convenient to deal with this question on the basis that the adjudication was properly brought.
The purpose of the Act is set out in s 3, where it is said that (1)
“The object of this Act is to ensure that any person who carries out construction work (or who supplies related goods and services) under a construction contract is entitled to receive, and is able to recover, specified progress payments in relation to the carrying out of such work and the supplying of such goods and services”.
Part 2 of the Act creates a right to progress payments, either in accordance with the contract or, if there is no formula in the contract, in accordance with a statutory scheme. It provides in Part 3 for a procedure to recover progress payments by way of the making of a claim, and a response by way of a payment schedule. If there is no response by way of a payment schedule, or if a conceded sum after a payment schedule is provided is not paid, the Act provides in ss 15 and 16 respectively that the claimant
“may recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction.” (s15 (2)(a), s16(2)(a).
The Act also creates the important right that the unpaid subcontractor may serve notice that it will suspend work.
Division 2 of Part 3 of the Act provides for adjudication. Section 20 provides that a respondent to an adjudication may lodge with the adjudicator a response to the application for adjudication within a strict time period, being 5 days after the application was received, or two days after the appointment of the adjudicator, whichever is the latter. The adjudicator must make his or her determination within 10 days of appointment, or such later time as is agreed between the parties.
Once the adjudicator publishes his or her determination, the respondent, if ordered to make a payment, must pursuant to s 23 of the Act either make the payment to the claimant, or give security for that payment
“pending the final determination of the matters in dispute between them.”
The consequence of failing to make the payment or to provide the security is, pursuant to s 25(2)(a), that the claimant
“may recover the unpaid, or unsecured, portion of the adjudicated amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction”.
It will be noted that this is the same relief as is provided in sections 15 and 16.
The defendant’s argument that s25(2) creates a debt that can not be called into question by way of an application to set aside a statutory demand based on the debt is contrary to the holding of Master Macready of the New South Wales Supreme Court in Tooma v Eaton [2002] NSWSC 514. In that case a claim had been brought under the Act and no payment schedule had been provided, so that the claimed amount became a debt due and payable pursuant to s 15(2). The claimant proceeded to recover the debt by way of the issue of a statutory demand.
Master Macready there held that the fact that the Act created the debt did not prevent a party disputing the debt by way of an application to set aside the statutory demand, saying
“s32 makes it clear that the parties retain their rights arising under the contract and apart from the Act. That section provides:
32. Effect of Part on civil proceedings
(1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract:
(a) may have under the contract, or
(b) may have under part 2 in respect of the contract, or
(c) may have apart from this Act in respect of anything done or omitted to be done under the contract.
(2) Nothing done under of for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3)
(3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal;
(a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and
(b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings.
Therefore, even if it were the case that the plaintiff were not entitled to dispute the payment claim under the provisions of the Act, that would not affect their entitlement in law to assert a genuine dispute under s 459G.”
With respect it seems to me that Master Macready is entirely correct in his application of the law. Mr Shaw sought to distinguish Tooma v Eaton with this case on the basis that Tooma was concerned with a debt arising under s15, being for failure to respond to a claim with a payment schedule, whereas this matter involved a debt due following an adjudication proceeding. While this is so, the language used in the Act at s15 and s25 is identical, in creating a right to the claimant to
“recover…as a debt due to the claimant, in any court of competent jurisdiction.”
It seems to me that s 32 of the NSW Act makes it clear that an adjudicators decision is not exempt from normal civil law remedies and so is not a conclusive answer to an application to set aside a statutory demand. Even absent a savings provision such as s 32 there would of be a real question as to whether a state law could remove a remedy provided by a law of the Commonwealth (The Constitution, s 109)
It follows that I am not satisfied that the mere fact that an adjudication determination was published denies the presence of a genuine dispute. The adjudicator in his reasons says that the reason that he did not accept the backcharges was that they were not supported by evidence. I accept that this is because the plaintiff’s believed that they were entering into settlement talks, and they had not made a submission to the adjudicator, in the mistaken view that they had achieved consent to suspend the entire adjudication process.
I should add that, if I were wrong, along with Master Macready, in my understanding of the effect of section 32 of the Act, I would in any event have significant reservations as to whether there in fact had been a proper application of the Act. In Jemzone Pty Ltd v Trytan Pty Ltd [2002] NSWSC 395, (2002) 42 ACSR 42 Austin J set aside a statutory demand where the demand had been based on the failure of a respondent to provide a payment schedule following the making of a claim pursuant to the Act. The dispute arose from what Austin J described as a document headed “Final Account” following the building of a motel. His Honour suggested (at [38]) that the mechanisms in the Act relate to progress payments, and so are inapplicable in relation to a final accounting. I am satisfied that the debt in issue in this case also arises from a final account after completion of the job, rather than a progress payment.
More significantly for present purposes, His Honour said at [45]
“Section 13(2)(c) requires the payment claim to state that it is made under the Act. The document in question states: “This invoice is subject to the Building and Construction Industry Security of Payment Act 1999 No 46”. This is not a statement that the document is a payment claim made under the Act. I do not accept the submission by the plaintiff that a payment claim should expressly draw the recipient’s attention to the Act and the provisions concerning the issuing of a payment schedule. Section 13(2) makes no such requirement. Since, however, the issuing of a proper payment claim has the serious consequences for the recipient of requiring full payment regardless of any genuine dispute or offsetting claim, unless a payment schedule is lodged within time, it must be clear on the face of the document that it purports to be a payment claim made under the Act. The defect on the face of the document is not overcome by evidence that the recipient was not misled. The requirement was not satisfied in the present case.”
The invoice that in this matter is said to have commenced the adjudication process was not described on its face as a payment claim, and so did not satisfy the requirements of s 13(2), and indeed it bore the same form of words as that found unacceptable by Austin J. It seems to me that I ought to follow His Honour, and so I am on this basis also satisfied that the plaintiffs have a genuine dispute, as the statutory demand is based on a flawed process.
There is considerable evidence before me to establish that the plaintiff companies have, in their assertion that there are backcharges payable by the defendant to the plaintiff, established the basis for the setting aside of the statutory demand on the basis that there is a genuine dispute. The relevant test is well set out in Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd [1997] FCA 681, where the Full Court adopted, inter alia, the explanation of genuine dispute given by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 where His Honour said at 787
“In my opinion [the] expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises 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 and probable in itself, it may be ‘ not having; sufficient prima facie plausibility to merit further investigation as to its truth’ or ‘a patently feeble legal argument or an assertion of facts unsupported by evidence.”
The plaintiffs’ in this application have set out the affidavit material of Mr Rye, as well as an affidavit and extensive documentation from Mr Flynn, the site administrator of the plaintiff, which satisfies me that the plaintiff does have a genuine dispute in respect of the disputed backcharges. These were never considered by the adjudicator because he did not have the benefit of submissions from the plaintiff companies. Counsel for the defendant conceded that, but for the claimed effect of the NSW Act, there would be a genuine dispute in the sense that the builders were in conflict as to the appropriate level of backcharges.
The backcharges in dispute, which I find to be a genuine dispute, are in the sum of $264,622.48. This exceeds the amount in the statutory demand of $216,847, so it follows that the appropriate order, pursuant to s 459H, is that the statutory demand should be set aside.
I will hear the parties as to costs.
I certify that the preceding twenty seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master, Mr T Connolly
Associate:
Date: 22 November 2002
Counsel for the Plaintiff: Mr B Meagher
Solicitor for the Plaintiff: Mallesons Stephen Jacques
Counsel for the Defendant: Mr J Shaw
Solicitor for the: Dickson Fisher Macansh by their Canberra
Agents: Wood Fussell
Date of hearing: 24 October 2002
Date of judgment: 22 November 2002
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