PDR Pty Ltd v Cottesloe Constructions Pty Ltd

[2000] WASCA 62

PDR PTY LTD -v- COTTESLOE CONSTRUCTIONS PTY LTD [2000] WASCA 62

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2000] WASCA 62
Court:	THE FULL COURT (WA)	Published:	14/03/2000
Case No:	FUL:156/1999	Heard:	8 MARCH 2000
Coram:	MURRAY J STEYTLER J	Delivered:	8/03/00
No of pages:	8	Judgment Part:	1 of 1
Result:	Leave to appeal granted Appeal allowed Statutory demand set aside
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Parties:	PDR PTY LTD COTTESLOE CONSTRUCTIONS PTY LTD
Catchwords:	Corporations Practice and procedure Application to set aside statutory demand on ground of disputed debt "Cost plus" building contract Demand by builder resisted by request for information to support claim Genuine dispute as to existence and amount of debt found Turns on own facts
Legislation:	Corporations Law s 459H
Case References:	John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062 WA v Bond Corporation (1991) 5 WAR 40 Australian Coal & Shale Employees' Federation v Commonwealth (1953) 94 CLR 621 Warren v Coombs (1979-1980) 142 CLR 531

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : PDR PTY LTD -v- COTTESLOE CONSTRUCTIONS PTY LTD [2000] WASCA 62 CORAM : MURRAY J

STEYTLER J

HEARD : 8 MARCH 2000 DELIVERED : 8 MARCH 2000 PUBLISHED : 14 MARCH 2000 FILE NO/S : FUL 156 of 1999 BETWEEN : PDR PTY LTD

Applicant

AND

COTTESLOE CONSTRUCTIONS PTY LTD
Respondent

Catchwords:

Corporations - Practice and procedure - Application to set aside statutory demand on ground of disputed debt - "Cost plus" building contract - Demand by builder resisted by request for information to support claim - Genuine dispute as to existence and amount of debt found - Turns on own facts

Legislation:

Corporations Law s 459H

(Page 2)

Result:

Leave to appeal granted

Appeal allowed
Statutory demand set aside

Representation:

Counsel:

Applicant : Mr P G Clifford
Respondent : Mr R D Farrell

Solicitors:

Applicant : Hollingdales
Respondent : A C Thorpe

Case(s) referred to in judgment(s):

John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716
Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062
WA v Bond Corporation (1991) 5 WAR 40

Case(s) also cited:

Australian Coal & Shale Employees' Federation v Commonwealth (1953) 94 CLR 621
Warren v Coombs (1979-1980) 142 CLR 531

(Page 3)

1 JUDGMENT OF THE COURT: This was an application for leave to appeal against an interlocutory decision of a Master of this Court by which he declined to set aside a statutory demand issued by the respondent against the applicant pursuant to the provisions of the Corporations Law. The statutory demand was for the payment of the sum of $88,757.43 and pursuant to s 459H(4) of the Corporations Law the learned Master, having found a reduced substantiated amount within the meaning of the section, varied the statutory demand by reducing it by the sum of $11,000. That process need not be further mentioned.

2 The time for complying with the statutory demand was then extended and at a directions hearing held by the learned Master in respect of the application for leave to appeal, the time for compliance with the demand was again extended until 7 days after the determination of the appeal. At that time also, the learned Master ordered that the motion for leave to appeal should be heard together with the appeal, the draft notice of appeal standing as the notice of appeal in the proceedings.

3 When the matter came on before us, we were both of the view that the application for leave should be granted, the appeal allowed and the statutory demand set aside. We so ordered and made an order as to the costs of the proceedings. These are our reasons for making the substantive orders to which we have referred above.

4 The grounds upon which the court will grant leave to appeal from an interlocutory order are well established. The discretion is a broad one, but generally speaking it must be shown that the decision at first instance is wrong or at least attended with sufficient doubt to justify the grant of leave. In addition, it must generally be shown that substantial injustice would be done by leaving the decision unreversed: WA v Bond Corporation (1991) 5 WAR 40, 54 - 57, to refer to but one authority for the above propositions. In our opinion these tests were met in this case. We concluded that the learned Master fell into error in the decision he made, the effect of which was to leave in place the statutory demand in relation to a substantial amount with the consequential impact upon the appellant pursuant to the provisions of the Corporations Law. In other words we were satisfied that substantial injustice would be occasioned by leaving the decision at first instance intact.

5 The application made to the learned Master was to set aside the statutory demand upon the ground, expressed in terms of the Law, s 459H(1), "that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand

(Page 4)

relates". It has long been recognised that by that terminology the section makes the point that the legislation is primarily concerned with grounding the winding up process in respect of insolvent companies, a matter of public interest. Such proceedings may not be brought in reliance upon indebtedness of the company which is bona fide disputed, provided the dispute is based on grounds of substance. In cases where there is a bona fide dispute which cannot be resolved by negotiation, it is to be litigated by an action brought in the ordinary way.

6 So where a statutory demand is resisted by a company on the ground that there is a genuine dispute as to the company's indebtedness, the court will not seek to determine as a matter of fact and law whether the sum demanded was in truth owing, but in the summary process provided for the hearing and determination of the application to set aside the demand, it will confine itself to the question whether a real dispute exists rather than attempt to determine the merits of the respective positions of the disputants. In Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062 at 1066, Hayne J, having considered the terms of s 459H and its place in the statutory scheme, said that:

"at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute."

7 The learned Master rightly so directed himself in this case and added the observation, again with respect correctly, that the need for the court to be satisfied that there is a genuine dispute placed an onus upon the applicant for an order setting aside the statutory demand to do more than merely assert that the obligation to pay the amount in the statutory demand is not admitted. The facts which show that there is a dispute of substance must be revealed, but the applicant need not go further and persuade the court of the correctness of its position.

8 As will appear, this was a substantial building contract and before the learned Master and before this Court the applicant relied in that context upon the decision of Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716. At 718 his Honour reminded himself that he had previously expressed the view that:

(Page 5)

"So long as the claim [of the applicant to set aside the statutory demand] is not fictitious or merely colourable and is genuinely believed to exist one can ordinarily take that as sufficient. That is something more than mere assertion."

His Honour continued that if that was thought to go too far, he was satisfied that:

"in a sizeable construction case, where the contemporaneous correspondence between the parties shows that there is a disputing of the figures, then one can say, without looking at the figures, or without looking at the evidence that backs up the figures, that there is a genuine dispute between the company and the respondent about the amount of the debt."

9 The relevant facts are that in late 1998 the applicant and the respondent made an oral agreement for the respondent to renovate premises at the marina at Hillarys which were to be used for a licensed restaurant, bar and nightclub to be called "The Craic" (no doubt the Gaelic term for a convivial gathering). A director of the applicant prepared a handwritten document described as a "budget" which suggested that the total expenditure would be in the order of $178,500. The learned Master found this to be an estimate of the total cost and we think that is correct. The agreement was entirely oral.

10 As it was performed there were agreed variations to the work. During the course of the performance of the contract the applicant paid three sums totalling $175,000, effectively by way of progress payments. It was accepted that the contract was a "cost plus" agreement under which the respondent would be remunerated for the agreed work properly carried out at a reasonable cost, to which would be added a profit margin of 12 per cent. It is suggested that towards the end of the performance of the contract the principal of the respondent assured one of the applicant's directors that the final cost would be close to budget. He expressed some confidence that it would not exceed $200,000.

11 The work having been completed, in May 1999 the respondent presented the applicant with what is described as a "spreadsheet", but is really a list of amounts paid to nominated persons and corporations totalling $240,300, to which is added the 12 per cent margin and from which is deducted the sums already paid to arrive at a final balance said to be owing of $93,541. There appears to have been some adjustment subsequently because the amount for which the statutory demand was made on 26 July 1999 was $88,757.43, a sum again supported by a

(Page 6)

schedule which simply sets out a series of payments to nominated individuals and entities classified as being for materials or labour. That schedule results in what is described as a total cost of the work, to which is added the 12 per cent margin and from which is deducted the payments made on account. In the meantime it seems there was discussion between the principals of the parties, and the respondent provided to the applicant a bundle of copies of original invoices, accounts and timesheets in support of the summary documents to which we have referred.

12 In addition there was some significant correspondence between the parties' solicitors. On 22 June 1999, prior to the issue of the statutory demand, the applicant's position was put in a letter which asserted that although a number of requests had been made of the respondent it had failed to provide "detailed invoices and documents in relation to the extra costs" to substantiate the expenditure involved. On 29 June the respondent's solicitors, as we understand it, provided a bundle of invoices, accounts and timesheets and a summary document described as a "costing review". On 30 June the applicant's solicitors asked for explanation of the basis upon which the respondent claimed to be entitled to the additional expenditure mentioned, particulars of the variations made to the work as it was performed, and a request for further explanation as to how the cost review document was to be interpreted. This letter closed with the following paragraph:

"Until such time as your client identifies clearly the basis upon which it makes its claim against our client we are unable to advise our client properly in relation to that claim. Therefore, would you please provide us with your response to this facsimile at your earliest possible convenience."

13 Nothing further appears to have occurred until the service of the statutory demand dated 26 July 1999. A further exchange of correspondence between the solicitors ensued. On 3 August 1999 the applicant's solicitors informed the respondent's solicitors that they had employed an expert to consider the respondent's claim. They said that that expert, later identified as a builder and arbitrator, a Mr Saunders, had advised that the respondent's invoices, accounts and timesheets were substantially lacking in detail and did not provide the necessary information in some instances to identify the address to which they related, the work to which they related, the quotations referred to in some of the documents and the work being performed for the time recorded. There was a reference to the fact that some of the invoices apparently

(Page 7)

related to the purchase of tradespersons' tools which, without more information, would not appear to be recoverable.

14 So the applicant was asserting that it was unable to determine to what extent, if at all, it was obliged pursuant to the contract to make any extra payment because it was unable to satisfy itself that the claim related to expenditure reasonably incurred in carrying out work which was part of the agreement between the parties and properly performed. Until it was put in the position to be able to be so satisfied, the applicant took the view that it was entitled to dispute its obligation to pay. On the other hand the position of the respondent was that it had made its claim, in its view properly, that the applicant had not identified any particular areas in respect of which it disputed the obligation to pay and that it was insufficient for the applicant merely to assert that a dispute existed without identifying the nature of that dispute and properly particularising it.

15 That view found favour with the learned Master who, having found the facts to be as we have related them, accepted that in the case of a cost plus building contract such as this a term would be implied, if not expressly agreed, that the obligation to make payments under the contract was conditional upon the builder providing invoices and detailed accounts to justify and substantiate the expenditure, if so required. However, the Master went on to hold that he was not satisfied that there was a genuine dispute between the parties as to the existence or amount of the debt alleged in the statutory demand. As to the position of the applicant he said:

"If it disputes a particular item, it must do so on the basis that the cost was not properly incurred or the amount in the circumstances was unreasonable. It might also be able to refuse to make payment on the basis that proper accounts had not been provided so that it was not able to satisfy itself that the costs were reasonable and proper. But taken in the overall, the evidence led by the applicant in this case gives no indication at all of what, if anything, is in dispute between the parties."

The learned Master considered that in those circumstances the applicant had provided nothing more than a mere assertion that the amount in the statutory demand was not admitted.

16 In our respectful view the conclusion expressed in those terms is incorrect. If it was right it would place the applicant in an impossible position. There is no doubt, we think, that the applicant established that it

(Page 8)

was genuinely disputing the amount claimed, which was for a substantially greater sum than that which it asserts it was led to expect would be the final cost. It sought an explanation and substantiation of the additional claim. It received primary documents and a summary from which it was unable, it asserted, to understand that the amount claimed represented expenditure reasonably made for work properly carried out. There is nothing to suggest that the applicant's expression of that view was not genuine and no such finding was made by the Master.

17 In those circumstances it seems to us, with respect, that there was ample evidence which compelled the conclusion that there was a genuine dispute between the parties about the existence and amount of the debt to which the demand related. The applicant was only required to establish that it genuinely disputed that it owed the respondent any sum until that amount was properly substantiated. It was not necessary for the applicant to show, as it could not until it obtained the necessary additional information, that it did not in fact owe additional sums of money. For those reasons, at the conclusion of the hearing of this matter, we made the substantive orders to which we have referred.