Re Advanced Controls Pty Ltd
[2018] VSC 639
•24 October 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2018 02314
IN THE MATTER of Advanced Controls Pty Ltd (ACN 005 434 515)
| GORDON MCKAY PTY LTD (ACN 005 147 160) | Plaintiff |
| v | |
| ADVANCED CONTROLS PTY LTD (ACN 005 434 515) | Defendant |
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JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 24 October 2018 |
DATE OF RULING: | 24 October 2018 |
CASE MAY BE CITED AS: | Re Advanced Controls Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2018] VSC 639 Revised 14 March 2019 |
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CORPORATIONS – Application for winding up in insolvency – Application by supporting creditor to be substituted as plaintiff – Whether genuine dispute about debt – Whether Court should order winding up if supporting creditor not substituted – Corporations Act 2001 (Cth), s 465B – Building and Construction Industry Security of Payment Act 2002 (Vic) – Tokich Holdings v Shearton Constructions (2004) 185 FLR 130 – Re C2C Investments Pty Limited [2012] NSWSC 1443.
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APPEARANCES: | Counsel | Solicitors |
| For the Defendant | Mr D Harrison | Mahons with Yuncken & Yuncken Lawyers |
| For Nilsen (Vic) Pty Ltd, supporting creditor | Mr P Miller | Piper Alderman |
MATTHEWS JR:
This is an application by Nilsen (Vic) Pty Ltd pursuant to an interlocutory process filed 29 August 2018 to be substituted as plaintiff in the originating process filed 19 June 2018. By the originating process, the plaintiff sought orders that the defendant company, Advanced Controls Pty Ltd, be wound up in insolvency. The plaintiff’s debt has been resolved and the plaintiff has withdrawn from the proceeding. Nilsen’s application for substitution as plaintiff is made under s 465B(1) of the Corporations Act 2001 (Cth) (‘the Act’).
At the conclusion of the hearing, I delivered my ruling and made orders, and indicated that brief written reasons would be provided in the next day or two. These are those reasons.
The following affidavits have been filed in relation to the application:
(a) affidavit of Greg Naughton sworn 29 August 2018. Mr Naughton is a commercial manager of Nilsen;
(b) second affidavit of Greg Naughton sworn 25 September 2018;
(c) affidavit of Antony Victor Clencie sworn 12 September 2018. Mr Clencie is the director of Advanced Controls; and
(d) second affidavit of Mr Clencie sworn 10 October 2018.
Nilsen contends that it is a creditor of Advanced Controls in the amount of $195,942.06 excluding GST (‘Alleged Debt’). The Alleged Debt is said to arise as a result from the non-payment of an invoice issued on 19 January 2018 by Nilsen to Advanced Controls (‘Invoice’). That invoice was in the sum of $199,970.89, however an adjustment of $4,028.83 was subsequently made in July 2018. Nilsen says that the Alleged Debt is for variations owing pursuant to a building contract entered into by it and Advanced Controls in 2016 (‘Building Contract’). The variations are said to be the following:
(a) $76,670.00 for extension of time related matters;
(b) $19,697.00 for an additional cable ladder; and
(c) $99,575.00 for removal of redundant cables and equipment.
Nilsen says that these are variations to the contract and that it is entitled to be paid for them. Nilsen also says that the Invoice was a payment claim issued under the Building and Construction Industry Security of Payment Act 2002 (Vic) (‘Security of Payments Act’).
Advanced Controls opposes Nilsen’s application for substitution as creditor in this proceeding. In summary, it says that no moneys are owing to Nilsen, and at the very least there is a genuine dispute as to whether any moneys are owed. Advanced Controls disputes that any of these three items were variations to the Building Contract. It says that it did not agree to any variation in respect of these matters and it also says that it did not instruct Nilsen to undertake that work. In relation to the extension of time claim, Advanced Control says that Nilsen does not explain what these were, the timing or how the Advanced Controls is responsible for the particular days of delay. Advanced Controls also disputes that the Security of Payment Act applies to this particular invoice. I will return to this.
Both parties provided written outlines of submissions all of which have been taken into account. It is clear from those outlines that while the parties have referred to different cases, they do not disagree as to the principles that are to apply in relation to an application of this type. In summary, in order to substitute as plaintiff under s 465B(1), Nilsen must show that it was a creditor at the time the plaintiff filed the winding up application. That application was filed on 19 June 2018 and so Nilsen must have been a creditor as at that date for it to qualify under the provision relied upon.
The case law is clear that as a matter of discretion, where the debt is genuinely disputed the Court will usually not entertain the application for substitution: Tokich Holdings v Sheraton Constructions.[1] As Black J said in Re C2C Investments Pty Limited (omitting citations):[2]
It is well established that the Court should decline to permit substitution if it finds that the applicant’s alleged debt is the subject of a bona fide dispute upon substantial grounds: … to show there is a bona fide dispute about the debt claimed by the applicant for substitution, the onus is on the company to show that there are clear and persuasive grounds or substantial grounds for the dispute … the standard of satisfaction as to a disputed debt has often been expressed, for the purposes of s 465B of the Corporations Act, as to whether a “genuine dispute” as to the debt existed, and noted that term may well have been borrowed from s 459H of the Corporations Act which deals with the standard of satisfaction in relation to a disputed debt in the context of an application to set aside a statutory demand served on a company.
[1](2004) 185 FLR 130, [68] (‘Tokich’).
[2][2012] NSWSC 1443, [22].
Both Mr Naughton and Mr Clencie have exhibited copies of the Building Contract and copies of correspondence between the parties both before and after the Invoice was issued. It is clear from that correspondence that prior to the Invoice being issued, claims had been made by Nilsen in respect of its alleged entitlement to the claimed amounts and that those claims were disputed by Advanced Controls. Without rehearsing the detail of the correspondence, it is clear that the parties were in disagreement as to whether or not the amounts claimed were variations to the Building Contract, were matters within the original scope of works, or were matters in respect of which Nilsen was entitled to payment.
Be that as it may, Nilsen relies on the regime set out in the Security of Payments Act to contend that payment claims made under that Act which have not been disputed in accordance with that Act are then not susceptible to being a genuine dispute within the meaning referred to in paragraph 8 above.
In summary, under s 14(1) of the Security of Payments Act, a person who claims to be entitled to a progress payment may serve a payment claim on the person who is or may be liable to make the payment. Under s 15(1), a person on whom a payment claim is served may reply to the claim by providing a payment schedule to the claimant within 10 business days or within another time as required by the contract. Under s 16(4)(b), if a claimant commences proceedings to recover the unpaid portion of the claimed amount from the respondent, the respondent is not in those proceedings entitled to bring any cross claim against the claimant, or to raise any defence in relation to matters under the construction contract.
Courts have considered the equivalent legislation in other states in the context of an application to set aside a statutory demand. In summary, upon the failure to provide a payment schedule in response to a payment claim, the Security of Payments Act is seen as creating a statutory liability for the payment claim. These authorities are summarised in paragraphs 27 to 29 of Nilsen’s written outline, and there is no need for me to repeat them here.[3] In summary, Nilsen submits that the upshot of this legislation is that if a payment claim is validly served and the respondent fails to serve a payment schedule, there can be no genuine dispute as to the existence of the debt due to the operation of s 16(4) of the Security of Payments Act.
[3]The authorities referred to were Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91, [61]; In the matter of Douglas Aerospace Pty Ltd [2015] NSWSC 167, [76]; SP Builders Pty Ltd [2015] VSC 680, [25].
I accept that that is an accurate summary of the authorities. Counsel for Advanced Controls also stated that this was an accurate summary of those authorities.
However, this does not deal with the situation where there is a genuine dispute as to whether the Security of Payments Act applies at all in relation to the amounts claimed. Advanced Controls says that at its highest if Nilsen’s claim was a payment claim within the meaning of the Security of Payments Act then it might constitute a debt for the purposes of that Act. However, it says that there is a genuine dispute about whether Nilsen’s claim is a payment claim and thus whether it falls within the Security of Payments Act.
Advanced Controls points to s 10(3) which provides that an ‘excluded amount’ must not be taken into account in calculating the amount of a progress payment to which a person it entitled in respect of the Building Contract. Section 14(3)(b) states that the claimed amount in the progress payment must not include any excluded amount. Section 10B(2) relevantly provides that:
The excluded amounts are:
(a)any amount that relates to a variation of the construction contract that is not a claimable variation …
(b)any amount (other than a claimable variation) claimed under the construction contract for compensation due to the happening of an event including any amount relating to …
…
(ii)time-related costs.
Advanced Controls contends that this means that unless Nilsen can satisfy the Court that its claim or part thereof is a claimable variation, its claim is an excluded amount which, by operation of s 14(3), must be excluded from a claimed amount in a progress claim.
Section 10A defines what a claimable variation is. Section 10A(2) defines the first class of variation, which does not apply in this instance. Section 10A(3) defines a second class of variation as being one where:
(a)the work has been carried out or the goods and services have been supplied under the construction contract; and
(b)the person for whom the work has been carried out or the goods and services supplied or a person acting for that person under the construction contract requested or directed the carrying out of the work or the supply of the goods and services; and
(c)the parties to the construction contract do not agree as to one or more of the following:
(i)that the doing of the work or the supply of goods and services constitutes a variation to the contract …
Advanced Controls says that Nilsen’s claim does not fall under the second class of variation because the work was not carried out nor the goods and services supplied under the Building Contract and Advanced Controls did not request or direct the carrying out of the work or the supply of the goods and services.
It seems to me that the first aspect of this, whether the work was carried out or the goods and services supplied under the Building Contract, is likely to be able to be made out by Nilsen. I do not understand how Advanced Controls puts its argument in respect of this particular requirement. If it rejects the removal of redundant cables and the supply of the additional cable ladder because they were within the scope of original works, which is one of the suggestions made in the correspondence, then I do not see how it can be contended that they were not works under the Building Contract. Both parties’ counsel indicated that they thought s 10A(3)(a) was a little unclear, however Mr Miller stated that it was likely to mean that there needed to be some nexus between the work which was the subject of the alleged variation and the contract. This seems a reasonable proposition, however it is not necessary for me to determine this, as it was the requirement in s 10A(3)(b) that was the real contest between the parties.
A review of the correspondence reveals that there is a real dispute between the parties as to whether or not Advanced Controls requested or directed the carrying out of this work or the supply of these goods and services. This is the subject of quite extensive correspondence between the parties, and upon reviewing that correspondence, I do not see how that can be resolved without such matters being dealt with at a trial. There is no clear answer to this, particularly since the emails relied upon do not unequivocally establish a request or a direction for the work to be carried out, and I consider it to be a bona fide dispute upon substantial grounds. Since both elements in s 10A(3)(a) and (b) are required for it to be a claimable variation,[4] there is clearly a genuine dispute as to whether the amounts claimed are ‘claimable’ within the meaning of the Security of Payments Act.
[4]It seems beyond doubt that s10A(3)(c) is met in this case, and counsel for Advanced Controls confirmed this.
Further, Advanced Controls argues that one of the variations claimed in Nilsen’s invoice, being the extension of time claim, is an excluded amount because it is a time-related cost under s 10B(2). Nilsen submitted that this section of the Security of Payments Act prohibits liquidated damages due to time-related matters being included in a payment claim under that Act, but counsel informed the Court he had not been able to locate any authorities interpreting the phrase ‘time-related costs’ under it. Counsel for Advanced Controls submitted that there was no basis for interpreting the section so narrowly and confirmed that he had not found any authorities on it either. Again, in my view there is a bona fide dispute on substantial grounds as to whether or not the extension of time claim made by Nilsen in the Invoice is an excluded amount and therefore whether it can properly be the subject of a progress claim under the Security of Payments Act.
For these reasons, I do not consider that the Security of Payments Act operates here such that it can be said that there is no genuine dispute, as there is a bona fide dispute on substantial grounds as to whether or not that Act even applies in the first place. It is a dispute which cannot be resolved in a summary procedure such as this one. Further, based on my review of the Building Contract and the correspondence, there is a bona fide dispute on substantial grounds as to whether the additional cable ladder and the removal of redundant cables were within the scope of works covered by the Building Contract and therefore not variations at all.
For these reasons, I will not order the substitution of Nilsen as plaintiff in the proceeding.
Nilsen submits that even if its substitution is not permitted, then the Court retains a discretion to order the winding up of Advanced Controls and that it should do so, since the presumption of insolvency has not been rebutted and there is no evidence of the company’s solvency. Nilsen relies on ACP Syme Magazines Pty Limited v Tri Automotive Components Pty Limited[5] in this regard.
[5](1997) 23 ACSR 530.
In my view, the position set out in Tokich is to be preferred. In that case, Justice White stated:[6]
The preponderance of authority is that a company may not be wound up on the application of a person claiming to be a creditor whose debt is disputed unless that dispute is resolved. Otherwise the applicant will not establish its standing to apply for the company’s winding up. Because the winding up jurisdiction should not be used to resolve disputed questions of debt, it may be an abuse of process for an alleged creditor, whose debt is disputed, to apply to wind up the company.
…
However desirable it might be for the Court to wind up a company which is insolvent and whose continued trading might adversely affect the public with whom it deals, the Court has no power to order its winding up if the applicant for winding up has no standing to bring the application. To refuse a winding-up order where a company is insolvent on the application of a person without standing is not to favour the company over the public interest … It is rather to recognise the jurisdictional limits upon the power to order the winding up a company [sic]
[6]Tokich (2004) 185 FLR 130, [72], [78].
Therefore, I will not order the winding up of Advanced Controls on that basis.
There being no other applicant or person wishing to substitute, the appropriate course is then to dismiss the winding up application.
For these reasons, I made orders dismissing the applications for substitution by Nilsen as plaintiff and for winding up Advanced Controls, and as to costs.
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