Re Building Engineering Pty Ltd

[2020] VSC 727

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2019 02209

IN THE MATTER of BUILDING ENGINEERING PTY LTD (ACN 103 839 514)

BUILDING ENGINEERING PTY LTD (ACN 103 839 514)	Plaintiff
v
METWELD STEEL PTY LTD (ABN 79 007 370 283)	Defendant

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JUDGE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	15 October 2019
DATE OF JUDGMENT:	6 November 2020
CASE MAY BE CITED AS:	Re Building Engineering Pty Ltd
MEDIUM NEUTRAL CITATION:	[2020] VSC 727

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CORPORATIONS – Corporations Act 2001 (Cth), ss 459G, 459H and 459J – Application to set aside a statutory demand – Claims by subcontractor under several construction contracts –Interpretation of provisions in contract relating to variations open to argument – Genuine dispute established for some invoices but alleged disputes in respect to other invoices not established – Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330.

CORPORATIONS – Application to set aside a statutory demand – 21 day affidavit annexed document with narrative describing grounds of alleged disputes and claims – Whether defendant ‘fairly notified’ of grounds – Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 21 ACSR 581.

CORPORATIONS – Application to set aside a statutory demand – Admissibility of evidence – Plaintiff’s director’s evidence predominantly hearsay – Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601 applied.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms R V Howe	KHQ Lawyers
For the Defendant	Mr P Bingham	Falcone & Adams

HIS HONOUR:

Introduction

1. By an originating process filed 20 May 2019, the plaintiff, Building Engineering Pty Ltd (ACN 103 839 514) (‘Building Engineering’), makes an application under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) (‘the Act’) to set aside a statutory demand dated 29 April 2019 (‘the Demand’) which was served on it by the defendant, Metweld Steel Pty Ltd (ACN 007 370 283) (‘Metweld’).

1. The Demand was accompanied by an affidavit of a director of Metweld, Mr Christopher Stockwell, sworn 29 April 2019 which is in compliance with s 459E(3) of the Act. The application has been made within the time prescribed by s 459G(2) of the Act as applied at that time.

1. Building Engineering contends that is has disputes of various kinds in respect of 58 invoices issued under several construction contracts.  The Demand claims that Building Engineering is indebted to Metweld for a total of $184,166.06.  The schedule to the Demand sets out 58 invoice numbers, original invoice amounts and alleged amounts still owing with sub-headings dividing the list into four groups by reference to several construction projects being: ‘MFB Glen Iris’ comprising 10 invoices, ‘Monash Hospital’ comprising one invoice, ‘Pakenham Health Hub’ comprising two invoices and ‘West Gippsland Arts Centre’ comprising 45 invoices.

1. Building Engineering relies on the affidavits of Mr Tamay Basel, a director of Building Engineering, sworn 20 May 2019 (‘Basel May affidavit’) and 9 August 2019 (‘Basel August affidavit’).  The Basel May affidavit is the only affidavit filed within the 21 day period after the service of the Demand and on occasion in these reasons it will alternatively be referred to as the 21 day affidavit.  Mr Bingham, counsel for Metweld, formally opposed the grant of leave to receive into evidence a further affidavit of Mr Basel sworn 4 October 2019 (‘Basel October affidavit’).  However, by reason that Metweld was able to deal with that affidavit in the time available I granted leave to Building Engineering to rely upon it despite its late service.

1. Metweld opposes the application and relies on the affidavits of Mr Stockwell sworn 10 September 2019 (‘Stockwell September affidavit’) and 11 October 2019 (‘Stockwell October affidavit’) and the affidavit of Mr Mathew Behsmann, a site manager previously employed by Building Engineering, affirmed 11 October 2019 (‘Behsmann affidavit’).

Legal principles

1. The principles to be applied in applications to set aside statutory demands are now well settled and were recently collected by me in a decision relating to a complex construction dispute in 133 Walsh Street v BMF Pty Ltd.[1]  Of those authorities referred to, the Court of Appeal in this State in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq)[2] (‘Malec’) succinctly summarised the principles applicable in applications to set aside statutory demands as follows (citations omitted):

The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim.  The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task.  It is not necessary for the applicant to advance a fully evidenced claim.  Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.

In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute.  This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim.  It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another.  Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.

The court is required to determine whether the dispute or offsetting claim is ‘genuine’.  It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived.  It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion.  It must also have sufficient factual particularity to exclude the merely fanciful or futile.  A rigorous curial approach is essential to the effective operation of the statutory scheme.

The court is not required to accept uncritically every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth.  The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim.  Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.[3]

[1][2020] VSC 650 (‘Walsh Street’).

[2][2015] VSCA 330.

[3]Ibid [47]-[51].

1. As to the purpose of tendering evidence in these types of applications, the Court of Appeal in the Supreme Court of Queensland in JJMR Pty Ltd v LG International Corp[4] observed that such purpose is (citations omitted):

…notwithstanding what might on one reading be drawn from s 459H(1)(b) and (5) of the Corporations Act, not to establish the facts necessary to constitute a counter or cross claim, but to establish the existence of a genuine claim to be able to counter the demand. Of course to do so, facts will have to be established. But the objective is not to secure adjudication of what if any amount is owing, but to establish a genuine cross or counter or offsetting claim such as would warrant subsequent adjudication.[5]

[4][2003] QCA 591.

[5]Ibid [4].

1. The question of hearsay and admissibility in regard to Building Engineering’s evidence tendered in this case was the subject of submissions in this application.  The Court of Appeal of the Supreme Court of New South Wales stated in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd:[6]

An affidavit constitutes written evidence and thus, subject to certain exceptions, must comply with the rules of evidence as to form and relevance. Relevance for the purposes of an application under s 459H is governed by the terms of the section and the particular matters raised by the application: see the Evidence Act 1995, s 55.

Accordingly, there must be evidence that satisfies the court that there is “a serious question to be tried”, or “an issue deserving of a hearing”, or a “plausible contention requiring investigation” of the existence of either a dispute as to the debt or an offsetting claim. It is apparent, therefore, that evidence sufficient to satisfy this test, given the time period in which the affidavit must be filed, cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable.

Having regard to the test that applies in determining whether the evidence is sufficient for the purposes of setting aside the demand, which is discussed below, the hearsay rule will not apply with the same strictness as is required in a fully contested hearing of a principal dispute. Rather, as in the case of an interlocutory proceedings [sic], hearsay evidence may be admissible provided evidence of the source of the hearsay is adduced: see the Evidence Act, s 75.

Regardless whether proceedings to set aside a statutory demand are characterised as final or interlocutory, the issue in such proceedings is not whether a debt to which the statutory demand relates is owed. The issue is whether there is a genuine dispute about whether a debt is owed or whether there is an offsetting claim. Thus in Tokich Holdings Pty Ltd v SheratonConstructions (NSW) Pty Ltd (In liq) [2004] NSWSC 527; (2004) 185 FLR 130 at [21]–[22], White J explained that evidence which may be inadmissible as hearsay or opinion to establish a fact relevant to indebtedness would not on that account be inadmissible to establish a fact relevant to whether there was genuine dispute about indebtedness.[7]

[6](2013) 85 NSWLR 601 (‘Britten-Norman’).

[7]Britten-Norman [35]-[38].

1. And later in the judgment, the Court observed:

It is also to be borne in mind that the procedure for challenging a statutory demand is intended to be an essentially summary one. This was adverted to by this court in Infratel Networks v Gundry’s Telco & Rigging at [32], where Young AJA observed, at [41]:

“[41] … that it is of considerable concern that many of the hearings of cases in this type of matter spend time considering piles of decided cases discussing nuances in the different terminology used by judges throughout Australia who basically are saying the same thing. This approach defeats the whole purpose of the Act, which is to enable the court to dispose of this sort of dispute in a short, summary way.”

Thus, even though the courts may allow evidence to be supplemented beyond what is raised in the initial affidavit containing the grounds upon which the application is made, care must be taken not to elevate the requirements of the evidence necessary to establish that there is a basis to set aside a statutory demand beyond what we have stated it to be. For example, it would set too high a standard to require that the evidence “prove” the facts that raise the ground in the initial affidavit. Whether in the initial affidavit, or by a combination of that evidence and other evidence filed or adduced at the hearing, a party seeking to set aside a statutory demand must establish that there was a plausible contention requiring investigation…[8]

[8]Britten-Norman [54]-[55]. See also Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212, [39]. The Court of Appeal of the Supreme Court of New South Wales in that case, at footnote 9, stated “By force of s 75, the hearsay rule in s 59 does not apply to evidence in an interlocutory proceeding if the party who adduces the evidence also adduces evidence of its source. On the basis that the character of a proceeding as interlocutory is derived from the nature of the relief sought… s 75 will permit the adducing of hearsay evidence in a s 459G proceeding if, as recent appellate authority tends to indicate, the order determining the proceeding is properly regarded as interlocutory: MNWA Pty Ltd v Deputy Commissioner of Taxation (2016) 250 FCR 381; 117 ACSR 446; [2016] FCAFC 154; ... However, as the primary judge noted in his first judgment (Re Creata) the matter should be regarded as not fully settled...”. I note the provisions in the Evidence Act 2008 (Vic) are identical to that of the New South Wales act cited by the Court of Appeal.

1. In Panel Tech Industries v Australian Skyreach (No 2)[9] Barratt J observed:

Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.[10]

[9][2003] NSWSC 896 (‘Panel Tech Industries’).

[10]Ibid [18].

1. In Spacorp Australia Pty Ltd v Myer Stores Ltd,[11] the Court of Appeal in this State observed:

The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.

We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.[12]

[11](2001) 19 ACLC 1270.

[12]Ibid [3]-[4].

1. In Solarite Air Conditioning Pty Ltd v York International Aust Pty Ltd,[13] Barrett J considered that a company will only fail to have a demand set aside on the genuine dispute ground if it is found that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted.[14]

   [13][2002] NSWSC 411.

   [14]Ibid [23].

1. In general, in anything other than quite uncomplicated contractual disputes, particularly construction disputes which can quickly assume complexity in terms of their factual and legal issues, the authorities indicate the statutory demand regime is not apt for determination of the issues between the parties.  It is to be remembered that the purpose of the statutory demand regime is to provide a mechanism for presumptions of insolvency to arise where the position of the parties in terms of the indebtedness is clear, can be readily ascertained and not be the subject of more than straightforward analysis.

1. As I observed in Walsh Street, in the context of building and construction disputes where there are honestly held views on either side that there is a genuine dispute,[15] the approach has been taken that it is more appropriate for the dispute to be litigated by way of conventional trial.  As Palmer J observed in Club Marconi of Bossley Park v AVR Services NSW Pty Ltd[16] in the context of the use of statutory demands in construction cases (citations omitted):

   [15]John Holland Construction Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250, 254 (‘John Holland Construction’).

   [16][2002] NSWSC 584.

This case has all of the hallmarks of a classic building and construction dispute. The contract was complex; the building works to be carried out were extensive; the value of the contract was somewhat in excess of $8 million. The parties have exchanged correspondence through their solicitors which has set out their competing contentions. In those circumstances, it is particularly difficult for a creditor to claim successfully that there is no genuine dispute sufficient to warrant the setting aside of a Statutory Demand.

A number of authorities show that the threshold that an alleged debtor has to cross in establishing the genuineness of a dispute for the purposes of s459H is a low one.  I would refer in this regard to the decision of Barrett J in Process Machinery Australia Pty Ltd v ACN 057 260 590, in which his Honour collects many of the cases dealing with the question.  His Honour refers to a submission that a Court should, in the case of a complex building contract, take at face value the fact that there is a clear difference of opinion between the parties which should be resolved in an appropriate way before a Court can safely allow non-compliance with a Statutory Demand to operate to provide prima facie grounds for the making of a winding-up order. His Honour expressed himself as having considerable sympathy with that view.

In that regard, Barrett J referred to what was said by Young J, as the Chief Judge in Equity then was, in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd.  In that case Young J, referring to a dispute arising under a building contract, said at 254:

It may be that it is far more appropriate in the instant sort of case for the court to just take a broad brush approach. Thus the court might just say that because this is not a debt collecting court, where there is a construction case of this nature, the demand should be set aside under s459J(1)(b) whenever it can be seen from the correspondence that there are honestly held views on either side which have brought a dispute between the parties. Thus, the matter can be dealt with in the ordinary way in which construction disputes are dealt with without the time and expense that is involved in running this sort of litigation ahead of that dispute.

With respect, I agree with the views of Young CJ in Eq and Barrett J as to this general approach to disputes arising under building contracts.  It accords with what I have described as a low threshold which an alleged debtor has to cross in order to satisfy the Court that there is a genuine dispute: see eg per Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia, and per McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd.  The Federal Court applies the same essential standard.  For example, in Rohalo Pharmaceuticals Pty Ltd v R P Scherer SpA & Pharmagel SpA, Lindgren J regards the standard to be met in demonstrating a genuine dispute as no more onerous than that which a debtor would confront if it were seeking to meet an application by the creditor for summary judgment.

I do not suggest that there can be no dispute arising under a construction or building contract which does not surmount that low threshold. There obviously will be cases in which the Court can see clearly and without a protracted enquiry that a contention by a debtor that there is a genuine dispute under a building contract is unfounded.  Such a case was W & F Lechner Pty Ltd v Drummond & Rosen Pty Ltd.

However, this case is one in which there is, at the very least, a serious question to be tried as to what was agreed between the parties on 31 August 2001 and as to whether or not that agreement had any effect upon the building contract or was merely a temporary arrangement pending resolution of disputes, in order to afford the Defendant some financial relief.  There is a serious question as to whether the amount referred to in the agreement was inclusive of GST or exclusive of GST. There is a serious question as to what is the cost of any rectification works for which the Defendant may be liable.[17]

[17]Ibid [16]-[21].

1. In an application to set aside a statutory demand, the approach which has been taken in cases where resolution of the construction of a contractual provision is required, is that the Court will generally not proceed to determine such issues.[18]  This approach was approved of by the Court of Appeal of the Supreme Court of New South Wales in Infratel Networks Pty Ltd v Grundy’s Telco & Rigging Pty Ltd.[19]  As I observed in Walsh Street, where the question of construction is a simple one and one not requiring resolution of factual issues the Court may be inclined to proceed to decide the issue of construction, but that is not the ‘ordinary’ position.[20]

   [18]See Trecomax Pty Ltd v Prentice (2004) 50 ACSR 314.

   [19](2012) 297 ALR 372.

   [20]See also Hobash Holdings Pty Ltd [2012] NSWSC 1501, [22].

1. The issue of the application of the Graywinter principle arose several times in the course of counsel’s submissions in this matter and it is appropriate to describe that principle as it has evolved since the decision of Sundberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund.[21]  Again, reference was made by me at length in Walsh Street[22] to the so-called principle, culminating with what might be described as a summary of its operation.  As I stated there:

An applicant to set aside a statutory demand will not infringe the Graywinter principle if it fairly alerts or gives fair notice to the creditor of the nature of the dispute or offsetting claim (or ‘some other reason under s 459J’) which it ultimately seeks to agitate in the application in its 21 day affidavit. The applicant may supplement the evidence in relation to such a ground but if such supplementary evidence is not referable to a ground of which fair notice was given in the 21 day affidavit, the Graywinter principle will be infringed and that dispute or claim or ‘some other reason’ will not be permitted to be agitated in the application.  The question as to whether the principle is infringed will involve an analysis of the evidence which is filed and require an assessment of the character of the ground which the respondent creditor contends offends the Graywinter principle.  If, on an objective analysis, such an exercise results in a conclusion that what is sought to be agitated departs from what was raised in the 21 day affidavit, that ground will not be permitted to be agitated in the application.[23]

[21](1996) 21 ACSR 581.

[22]Walsh Street (n 1) [19]-[31].

[23]Ibid [31].

Building Engineering’s evidence in support of the application

1. Building Engineering is a construction company.  The invoices detailed in the schedule to the Demand relate to four of Building Engineering’s projects at the West Gippsland Arts Centre, the MFB Glen Iris site, Monash Hospital and Pakenham Health Hub.  Building Engineering subcontracted aspects of the projects to Metweld.

1. Mr Basel deposes in his May affidavit that the project at West Gippsland Arts Centre (‘Arts Centre project’) is governed by a subcontract dated 9 March 2017 (‘Arts Centre contract’) with Building Engineering as builder and Metweld as subcontractor.  He focuses on particular clauses and paragraphs in the Schedule in the Arts Centre contract, more particularly clauses 3.1 and 3.2 and schedules 1(h) and 1(i) in basing his contention that there are genuine disputes in relation to the amounts claimed by Metweld in respect of the Arts Centre project.

1. Clause 3.1 provides

[Building Engineering] may at its absolute discretion and at any time from time to time by notice to [Metweld] in writing, notify [Metweld] that the Works are to be varied and provide details of such Variation (Variation Notification). A Variation Notification under this clause will expressly state that it is a Variation Notification issued under this clause of the [Arts Centre contract] and may include a drawing, instruction or direction which demonstrates or explains the variation to the Works.

1. Clause 3.2 provides

If [Metweld] considers that any drawing, instruction or direction issued by [Building Engineering] which does not expressly state that it is a Variation Notification will or give rise to [sic] a Variation, it must notify [Building Engineering] in writing within five business (5) [sic] days of issue of the drawing, instruction or direction that [Metweld] considers it a Variation. If [Metweld] fails to provide such notification, but nevertheless proceeds to carry the work [sic] which is the subject of the drawing, instruction or direction, it is not entitled to any claim to the Contract Sum or to make any claim for payment under this [Arts Centre contract] or to any extension of time to Date for Practical Completion or otherwise at law.

1. By reason of the necessity to consider the contentions as to the operation of the above subclauses, I consider that it is appropriate, in order to provide context, to set out the balance of clause 3 of the contracts (which are identical in their terms).

3.3 Where [Building Engineering] issues a Variation Notification, the following provisions apply:

(a)[Metweld] must carry out the variation (unless [Building Engineering] determines that another person will carry out the work which is the subject of the variation, in which case, [Metweld] will permit such other person to carry out that work);

(b)[Metweld] must provide [Building Engineering] with an estimate of the cost and impact on the Date for Practical Completion of such variation and obtain [Building Engineering]’s consent in writing to the estimate prior to proceeding with the variation, unless the variation works are of an urgent nature, in which case [Building Engineering] may instruct [Metweld] to proceed immediately. If [Building Engineering] issues such an instruction, [Metweld] must provide [Building Engineering] with details of the impact on the cost and Date for Practical Completion as soon as possible thereafter.

3.4 Unless otherwise directed by [Building Engineering], [Metweld] must notify [Building Engineering] of full details of its reasonable claim for adjustment to the Subcontract Sum for a Variation within five (5) days of the issue of a Variation Notification, and the actual additional cost or saving in respect of the Variation shall be as agreed between [Building Engineering] and [Metweld]. If no agreement is reached between [Building Engineering] and [Metweld] and within such period as [Building Engineering] may allow any additional cost or saving in respect of the Variation will be determined by [Building Engineering] applying reasonable rates

3.5the Subcontract Sum will be increased or decreased as the case may be, by the additional cost or savings of the Variation as determined by [Building Engineering] acting reasonably, provided that [Metweld] complies with its obligations relating to any extension of time to the Date for Practical Completion and clause 3;

3.6 the Date for Practical Completion will be adjusted in accordance with the terms of this Subcontract in relation to any extension of time and clause 3, to reflect a fair period determined by [Building Engineering] acting reasonably, provided that [Metweld] complies with its obligations relating to any extension of time to the Date for Practical Completion and clause 3.

3.7 [Metweld] must provide any details and measurements to assist in the valuation of a Variation as and when requested by [Building Engineering].

1. Schedule 1(h) provides

Retention: Five (5) per cent cash of the Contract Sum. [Building Engineering] will be entitled to withhold the amount of ten (10) per cent from each progress claim made by [Metweld] in accordance with the Arts Centre contract until the required retention amount of five (5) per cent of the Contract Sum is reached.

1. Schedule 1(i) provides

(i)        After the Date of Practical Completion of the Head Contract,

(ii)50% of the retention amount will be released to [Metweld] after the issue of the Certificate of Practical Completion under the head contract and subject to the completion of all of the following conditions by [Metweld]

(1) The receipt and approval of Maintenance Manuals and As-Builds Drawings by [Building Engineering]; and

(2)       The agreement of the final Subcontract value: and

(3)The receipt of a final Tax Invoice for the Works by [Building Engineering]; and

(4)The receipt of all relevant warranties and compliance certificates by the [Building Engineering]; and

(5)The rectification by [Metweld] to the satisfaction of [Building Engineering] of all defects notified by [Building Engineering] to [Metweld].

1. The project which relates to a Metropolitan Fire Brigade station, MFB Glen Iris (‘MFB project’), is the subject of a subcontract dated 27 February 2019 (‘MFB contract’), again with Building Engineering as builder and Metweld as subcontractor.  Mr Basel refers to clauses 1(h) and 1(i) of the schedule to the MFB contract, which are in the same terms as that extracted above for the Arts Centre contract.  In addition, he makes specific reference to paragraph 1(j) of the schedule to the MFB contract[24] which provides

Final release of Retention: At expiration of twelve months from the Date for Completion of the Works under the Subcontract or at the expiration of the Defects Liability Period as detailed in the Head Contract or within ten (business days) from the date [Metweld] has rectified all notified defects and the issue of a final certificate under the Head Contract, whichever is the later.

[24]This is a verbatim extract, but it will be seen that it makes no express provision for the release of the retained sum. Clause 1(j) in the Arts Centre contract differs in its terms as to the period of time from the Date of Practical Completion. In the Arts Centre contract the period specified is 24 months compared to 12 months in the MFB Glen Iris contract and Pakenham Health Hub contract.

1. The project at Pakenham Health Hub (‘Health Hub project’) is the subject of a subcontract dated 25 November 2016 (‘Health Hub contract’), again with Building Engineering as builder and Metweld as subcontractor.  The contract contains clauses in the same terms as that for the Arts Centre and MFB projects for retention sums and Variation Notifications.

1. Building Engineering engaged Metweld to work on the project at Monash Hospital in around August 2018.  No written subcontract exists for these works.

1. Mr Basel deposes in the 21 day affidavit that, based on his enquiries with Mr David Waters, the contract administrator employed by Building Engineering, a genuine dispute exists in regard to the invoices the subject of the Demand.  In an annexure to his affidavit, titled Annexure 1, Mr Basel provides a table detailing the invoices the subject of the Demand along with a brief narration for each invoice which purports to describe the basis of the genuine dispute for that invoice.

1. At the hearing of this matter counsel for Building Engineering, Ms Howe, tabled an annotated version of that annexure.  There would appear, by reference to the narration in Annexure 1, to be five bases of genuine dispute. Counsel’s annotations made reference to what she contended was the evidence that supported Building Engineering’s contention that there were genuine disputes in respect of the invoices.  Those categories are

(a)   invoices for which payment had been made in full or for which payment was made by 2 August 2019;[25]

[25]Invoices 4440, 4441, 4442, 4443, 4448, 4449, 4471 and 4473 with invoice 4438 paid 2 August 2019.

(b)  that the amount claimed in respect of the invoice had been paid save for the retention amount;[26]

[26]Invoices 4219, 4233, 4267, 4281, 4288, 4318, 4430, 4345, 4126 and 4149.

(c)   a variation notification had not been received by Building Engineering within five days of the direction being issued and by operation of clause 3.2 of the contract in question, no entitlement to payment to Metweld arises;[27]

(d)  the work the subject of the invoice was covered by the original contract sum and notification of the claimed variation was not received within the time required in clause 3.2;[28] and

(e)   various reasons for dispute concerning specific invoices.[29] Such grounds for dispute included value of work overclaimed, backcharges deducted from the amount claimed in invoice, provision of a gantry by Building Engineering for which an amount was deducted from invoices and an assertion involving an invoice in respect of which a payment schedule under the Building and Construction Industry Security of Payment Act (‘SOP Act’) had been issued by Building Engineering.

[27]Invoices 4222, 4352, 4353, 4355, 4356, 4357, 4358, 4359, 4360, 4373, 4375, 4376, 4416, 4417, 4418, 4419, 4446, 4472, 4480, 4481, 4482, 4512 and 4544.

[28]Invoices 4351, 4361, 4378, 4379, 4380, 4381, 4382, 4383, 4384, 4385, 4386 and 4387.

[29]Invoices 4392, 4509, 4510 and 4444.

1. For the purposes of this proceeding, I shall adopt the above lettering designations and refer to Category A to Category E respectively.

1. In the Basel August affidavit Mr Basel seeks to augment the various grounds of dispute he contends are raised in his May affidavit. 

1. He contends in respect of Category A detailed at paragraph 28(a) above that invoices 4440, 4441, 4442, 4443, 4448, 4449, 4471 and 4473 have been paid and makes reference to the exhibit bundle[30] which he contends supports his position in that regard.

   [30]Consisting of remittance advices, see Basel August affidavit, [29] and Exhibit to the Basel August affidavit, 43-44.

1. As to Category B, a contention that there had been payment save for retention under clause 1(h) of the schedule to the Arts Centre contract, Mr Basel deposed that invoices 4219, 4233, 4267, 4281, 4288, 4318, 4330 and 4345 have been paid less the retention sum.  He makes reference to clause 1(i) of the schedules which provides that 50 per cent of the retention money will be released to Metweld after the issue of the Certificate of Practical Completion, subject to satisfaction of the conditions in 1(i)(ii) set out at paragraph 23 above.  He contends that at the time of his affidavit, Metweld has not complied with all of those conditions and that when it does so, 50 per cent of the retention money will be paid and the remaining 50 per cent will be paid at the time specified in clause 1(j) of the schedule extracted above at paragraph 24.

1. I note that he does not specify which of the conditions have not been complied with by Metweld in respect of those invoices.

1. Mr Basel contends that invoices 4126 and 4149 (which, by reference to Annexure 1, relate to the Health Hub project) have been paid less the retention amount referred to in clause 1(h) to the schedule to the Health Hub contract.  He makes reference to clause 1(i) of the schedule to the Health Hub contract providing for release of 50 per cent of the retention money to Metweld after the issue of the Certificate of Practical Completion and subject to compliance with the conditions set out in clause 1(i)(ii)(1)-(5) set out at paragraph 23 above.  He asserts that Metweld has not complied with all of those conditions and upon performance of those conditions, 50 per cent of the retention money will be paid with the remaining 50 per cent being paid at the time specified at clause 1(j) of the schedule.  I note that again, he does not specify in what respect the conditions referred to have not been satisfied.

1. As to Category C, that relating to a dispute arising by reason of there being no timely notification of a claimed variation within the five business days of the relevant direction being issued, Mr Basel deposes that late notification of a variation claim by a subcontractor can cause a loss to a contractor in the position of Building Engineering as it may be prevented under the relevant head contract from recovering the cost of the variation from the head contractor.  He annexes a schedule, which he identifies as Annexure B, to his affidavit listing those invoices.[31] 

   [31]See Exhibit to Basel August affidavit, 5-39. There is no Annexure A in the evidence filed.

1. In a column to Annexure B, the date upon which Building Engineering contends that it received the relevant instruction from the head contractor appears.  Mr Basel contends that from his experience the process which occurs in relation to these instructions is that they are provided by Building Engineering to the relevant subcontractor on or around the day which Building Engineering receives them.  He states that he is informed by Mr Waters and believes that to the best of his knowledge this process occurred in respect of the projects to which those invoices appearing in the annexure related.  He states that the fourth column of Annexure B identifies the date on which the relevant invoice was subsequently received from Metweld and that this was the only form of ‘variation notification’ received from Metweld.  He identifies a number of invoices which in each instance the claimed work and/or notification occurred more than five business days after the variation notification.  These are as follows:

(a)   Invoice 4352 - dated 13 March 2018 and refers to work on 22 October 2017;

(b)  Invoice 4353 - dated 13 March 2018 and refers to ‘drafting on 28 September 2017’;

(c)   Invoice 4355 - dated 13 March 2018 and refers to work done on 22 September 2017;

(d)  Invoice 4356 - dated 13 March 2018 and refers to work done on 25 October 2017;

(e)   Invoice 4357 - dated 13 March 2018 and refers to work done on 24 November 2017;

(f)    Invoice 4358 - dated 13 March 2018 and refers to work done on 1 December 2017;

(g)  Invoice 4359 - dated 13 March 2018 and refers to work done on 2 November 2017 and 18 January 2018;

(h)  Invoice 4360 - dated 13 March 2018 and refers to work done on 15 December 2017;

(i)     Invoice 4373 - dated 3 April 2018 and refers to work done on 31 August 2017;

(j)     Invoice 4419 - dated 22 May 2018 and refers to "as per letter to Izad dated 8 August 2017";

(k)  Invoice 4480 - dated 28 August 2018 and refers to receipt of the relevant notification on 15 May 2018;

(l)     Invoice 4481 - dated 28 August 2018 and refers to receipt of the relevant notification on 1 August 2018; and

(m)             Invoice 4544 - dated 7 December 2018 and refers to crane hire and riggers on 5 June 2018, 18 June 2018 and 21 June 2018.

1. As to the invoices which Annexure B identifies as ‘No Directive Provided’, Mr Basel deposes that Building Engineering does not have a record of having issued a directive to Metweld to undertake the work the subject of the invoice.  There are 21 invoices described in the annexure as falling into this classification.[32]  Mr Basel deposes that in respect to the invoices not already referred to in paragraph 36 above, based on the date of the invoice and the description of the work, he believes that any verbal instruction or direction received by Metweld would have been provided considerably earlier than the five business days prior to the issuing of those invoices.  He does not elaborate further on why he has formed that belief.

   [32]They are not specifically identified in the body of the affidavit but by reference to Annexure B they are invoices 4222, 4351, 4352, 4356, 4359, 4361, 4373, 4376, 4378, 4379, 4380, 4381, 4382, 4383, 4384, 4385, 4386, 4387, 4419, 4482 and 4544. 

1. Mr Basel then moves to the category described as ‘work the subject of invoice covered by original contract sum. Notification of claim of variation not received in time’, identified as Category D at paragraph 28 above.  He states the invoices relate to claims for additional drafting and refer to an ‘attached Notice of Change’.  He states that he is informed by Mr Waters and believes that no such notice was attached to the invoices when they were provided to Building Engineering.  He contends that the scope of works of the Arts Centre contract provides that the subcontract sum to be paid to Metweld included all shop drawings and ‘As Installed’ drawings.  Mr Basel asserts that the sums claimed in those invoices are covered by the subcontract sum in the Arts Centre contract and are not able to be claimed as variations.  Further, he states that all the invoices relating to drafting costs are dated 13 March 2019 (invoice 4361)[33] or 3 April 2018 (invoices 4378, 4379, 4380, 4381, 4832, 4383, 4384, 4385, 4386 and 4387).  Mr Basel states that he is informed by Mr Waters and believes that to the best of his knowledge no drafting directions were issued to Metweld in the five business days before 13 March 2019 or 3 April 2018.  He contends that if the drafting changes do constitute variations, notification was not received within five business days of the relevant direction.

   [33]The invoice exhibited to the Basel August affidavit is dated 13 March 2018 rather than 13 March 2019 as deposed by Mr Basel. Invoice 4351, which also relates to additional drafting costs, is not referred to by Mr Basel, presumably by inadvertence.

1. As to Category E, Mr Basel states in respect of invoice 4392 dated 20 April 2018, which sought payment of $40,000 plus GST for ‘fabrication and installation of structural steel works as per Quote no. 3741’ that Building Engineering issued a payment schedule in respect of this invoice disputing $20,000 of the invoice being overclaimed. That payment schedule issued under the SOP Act has not been the subject of adjudication.[34]

   [34]Payment schedule is at pp 40-41 of the Exhibits to Basel August affidavit.

1. Invoice 4444 sought payment of $580 plus GST totalling $638.  Mr Basel states that Building Engineering issued a payment schedule (dated 19 June 2018) in respect of this invoice disputing the entire amount.[35]  That payment schedule has not been the subject of adjudication.

   [35]At p 42 of the Exhibits to the Basel August affidavit.

1. Invoice 4509 claims $4,064.01 as owing.  That invoice was issued in the amount of $8,096 but Mr Basel deposes that amounts of $2,128.01 and $1,936 were deducted by Building Engineering when paying the invoice by reason that the works undertaken by Metweld which were the subject of that invoice was defective.[36]  He states that Building Engineering rectified the deficiencies and deducted the costs of rectification from the amount to be paid for that invoice.  Building Engineering issued a payment schedule in respect of that invoice[37] but that payment schedule has not been the subject of adjudication.  There is no elaboration as to the nature of the defect or how the costs of rectification are made up or calculated.

   [36]In the Basel October affidavit, Mr Basel changes his position concerning this. See paragraph 60 below.

   [37]See the Exhibit to the Basel August affidavit, 1-2.

1. Invoice 4510 claims the amount of $6,384 remains outstanding.  That invoice was issued in the amount of $20,812.  Mr Basel deposes that an amount of $6,384 was deducted by Building Engineering when paying the invoice because the parties had agreed that Metweld would use a gantry provided by Building Engineering for the cost of that gantry by way of deduction in the amount payable by Building Engineering by Metweld.  Mr Basel states that he is told by Mr Waters and believes that this agreement was oral and entered into between ‘representatives of [Building Engineering] and [Metweld] on site on and around the date the gantry was used’.  A payment schedule was issued in respect of the invoice[38] and has not been the subject of adjudication.

   [38]See pp 3-4 of the Exhibits to the Basel August affidavit.

Evidence filed on behalf of Metweld

1. In his September affidavit, Mr Stockwell, a director of Metweld, responds to the Basel May and August affidavits.  Mr Stockwell states that Mr Basel rarely attended the Arts Centre site and then only at the end of the project.  He states that he only met Mr Basel once on site and Mr Waters only attended three or four times during the course of the project.  He never met Mr Waters on site.  Neither Mr Basel or Mr Waters attended the Health Hub site and accordingly Mr Stockwell contends that they had no direct knowledge of the matters deposed to by Mr Basel in respect of that site.  He makes reference to a discrepancy in Annexure 1 to the Basel May affidavit contending that it is not accurate and gives by way of example invoice 4512, said to be for $5,984 plus GST whereas that invoice was for $5,440 plus GST.  As to the allegation in the Basel August affidavit in respect of invoice 4509, referred to in paragraph 41 above, in which Building Engineering made deductions because of allegedly defective work, Mr Stockwell says that there was no defective work in respect of the matters the subject of that invoice that were rectified by Building Engineering.  Mr Stockwell says that it is not clear what the alleged defects were in Metweld’s work or what the cost of such rectifications was.  Mr Stockwell says that Metweld has received no payment schedule dated 26 October 2018.

1. As to Mr Basel’s allegations in respect of invoice 4510, Mr Stockwell states that the matters referred to in paragraph 42 above are untrue.  He states that it was originally agreed that a crawler crane would be used for installation of 1200WB beams to the seating area,[39] however Building Engineering’s engineers advised it that a crawler crane was not permitted on the scaffolding.  He states that Metweld was not notified of this problem until just prior to installation so in order not to delay installation Building Engineering agreed to provide a gantry.  He states that the agreement reached was that Metweld would cover the cost of the gantry to the extent of the cost of a crawler crane in the sum of $350 per day for three days and any deduction or back charge should be no more than $1,050.

   [39]Annexure 1 indicates that this invoice relates to the Arts Centre project.

1. Mr Stockwell deposes that the only payment schedules received by Metweld from Building Engineering during the course of all projects were a document described as ‘Claim number 1’ dated 31 May 2017, which is not in issue in these proceedings, and a document referred to as ‘Claim number 13’ dated 20 April 2018.  Mr Stockwell asserts that the document alleged to constitute the payment schedule ‘is clearly ineffective as a payment schedule’.

1. Mr Stockwell then moves on to consider Mr Basel’s evidence in the Basel August affidavit relating to retention monies.  He denies that Metweld has not complied with the conditions set out in clause 1(i)(ii)(1)-(5) of the schedules to the Health Hub contract and Arts Centre contract.  In this regard, he states that Mr Basel does not identify what conditions it is alleged have not been complied with and that no complaint has previously been made by Building Engineering in this regard.  Mr Stockwell states that all conditions have been complied with.  He says that if the assertion is that there are no Maintenance Manuals or As-Building drawings, in respect to structural steelworks there are no Maintenance Manuals or As-Building drawings other than shop drawings which have been supplied to Building Engineering.  He states that a Deed of Warranty for the Arts Centre project was provided to Jake Lewis of Building Engineering on 16 November 2018 and acknowledged by him that same day.  A copy of the deed is exhibited to his affidavit.

1. Mr Stockwell states the only invoices of Metweld queried by Building Engineering during the course of the project were those queried by Mr Lewis, a contract administrator of Building Engineering, by an email dated 7 December 2018.  That email related to invoices 4319, 4373, 4376 and 4419.  Invoice 4319 was ‘reconstructed’ into 4352 to 4360 (with some alterations) and is not an issue in this proceeding.  The issue concerning invoices 4373, 4376 and 4419 were not those which are now raised by Building Engineering and the response of Metweld to the queries raised by Building Engineering were not challenged.

1. As to the issue of late notification raised by Mr Basel in the Basel August affidavit, Mr Stockwell says that the contracts do not provide for any ‘directions’ as is referred to in Mr Basel’s August affidavit.  Mr Basel had there referred to genuine disputes arising because notification of a claim of variation was not given within five business days within it being issued.  Mr Stockwell says the reference to variation notification is even more misconceived, in so far as it seems to assume that a variation notification would be given by Metweld and that is not so.

1. Mr Stockwell says that in each case referred to by Building Engineering, notification was given as soon as it was able to by Metweld, it was given within five days of Metweld considering it a variation and all of these building works were authorised by Building Engineering.

1. Mr Stockwell says that during the course of the Arts Centre project there were significant delays in receiving responses to what he describes as ‘requests for instructions (RFIs)’.  He states that even when responses were received from Building Engineering, its architects or engineers, those responses resulted in further RFIs. In some cases responses were received more than 180 days after requested.  He exhibits a copy of the RFI register and states that when responses were finally received they lead to additional steel and installation costs which could not possibly be quantified within five days.

1. Mr Stockwell says that the engineer originally appointed by Building Engineering only visited the site approximately five times during the Arts Centre project which is inadequate for proper ‘prosecution’ of the work on a refurbishment of this size. Supervision of the project was ultimately taken over by a second engineer.  Mr Stockwell says that an invoice in respect to variations was raised on 24 November 2017.  Metweld was requested by Mr Lewis of Building Engineering to split this invoice into separate invoices which are some of the invoices dated 13 March 2018.

1. Mr Stockwell says that to the extent Building Engineering asserts that it has paid invoice 4473 for Monash Hospital, it follows that it has not paid invoice 4354 (not raised in this proceeding) as Metweld applied the amount Building Engineering claims should be applied to invoice 4473 to pay invoice 4354, namely $520 plus GST.

1. Mr Stockwell states that invoice 4222 was provided within five days of verbal instruction received from Izad Samsudin and Matthew Behsmann, employees of Building Engineering. Invoice 4351 resulted from verbal notification from Mr Samsudin requesting a ‘re-scan’.  Mr Samsudin was advised concurrently that a re-scan would need to be conducted and would give rise to a variation therefore notification was provided within five days of verbal instruction received from Mr Samsudin.

1. Mr Stockwell then moved on to consider the issue of drafting costs referred to in the Basel August affidavit.  He exhibits a copy of the invoices and Notices of Change.  The Notices of Change were attached when the invoices were provided to Building Engineering.  He states that Metweld produced all shop drawings and as-installed drawings as required by the Scope of Works.  The Arts Centre contract lists all architectural and structural drawings which form part of the contract sum.  However, any change to those structural and architectural drawings are not included in the Subcontract value as that expression is defined in the contract.  All the drafting related invoices related to work done by a third party drafting contractor at the specific request of Building Engineering as a result of changes to the work required by Building Engineering pursuant to what is described as Architect’s Advice or in response to Requests for Information. By way of example he exhibits a copy of emails passing between Building Engineering, its engineers and Metweld which resulted in invoice 4380.

1. Mr Stockwell states, that in relation to most if not all of the drafting invoices, that Grant Bennett and Fred Dalleau, who, while it is not clear, from the context seem to be the persons who conducted the drafting work, told him and he believes that the work was done at the specific request of Building Engineering made directly to the third party drafting contractor and that the third party drafting contractor advised Building Engineering at the time of receiving the further instructions and Architects Advices that changes to shop drawings would constitute variations.

1. Mr Stockwell addresses the evidence in the Basel August affidavit in respect of what are described as ‘overclaimed payments’.  He states that in respect of invoice 4392, which sought payment for ‘fabrication and installation of structural steel works as per Quote no. 3741’, that the payment schedule referred to by Mr Basel was received on 9 May 2018 in respect of the claim made on 20 April 2018.  Mr Stockwell states that to assert that the invoice is ‘overclaimed’ is ‘to assert nothing’.  It does not provide any reason for the failure to pay nor does it sufficiently describe the dispute to apprise Metweld to the case it would need to meet in an adjudication of that schedule.

1. Mr Stockwell states that no meaningful basis for that assertion has ever been provided and Metweld cannot respond other than to say that the work claimed in the invoice, and the value in the invoice, has been done by Metweld and Building Engineering has had the advantage of that work.  Mr Stockwell refers to the Basel August affidavit where it states that late notification of a variation claim by a subcontractor ‘can cause loss for [Building Engineering]’ but does not assert that loss has occurred in this case.[40]  Mr Stockwell states that inference must be drawn that Building Engineering has charged the head contractor for Metweld’s work but is simply refusing to pay Metweld for that work.

   [40]Basel August affidavit, [17].

1. As to invoice 4444 referred to in the Basel August affidavit, Mr Stockwell says that no payment schedule in regard to that invoice was ever received by Metweld.  No dispute has been raised in respect of invoice 4444 nor has any basis for doing so ever been notified to Metweld. In addition, Pat McMahon of Building Engineering claimed he never received the invoices dates 19 June 2018, including invoice 4444 which were then re-emailed to him on 11 January 2019. Mr Stockwell states that it is unclear how Mr McMahon can issue a payment schedule on 19 June 2018 to dispute an invoice of 19 June 2018 which he says had not been received at that time.

1. Mr Stockwell concludes his affidavit stating that Building Engineering still owes Metweld $183,486.26 less the amount of $1,050 in respect of the costs of the gantry.  He states that Building Engineering has ignored many requests by Metweld for payment of the outstanding amounts.

Affidavit in reply of Mr Basel

1. In his October affidavit, Mr Basel responds to Mr Stockwell’s September affidavit.  He states that in relation to Mr Stockwell’s evidence as to his attendance at the Arts Centre and Health Hubs projects, that he attended both sites on ‘dozens of occasions’ throughout the course of the projects.  He states that he also took part in regular project review meetings with the project management team which provided updates on the progress of the projects.  He states that he is informed by Mr Waters and believes that this is ‘the same position’ in respect of Mr Waters’ attendances.  As to Mr Stockwell’s evidence in respect to invoice 4512 he accepts that this is an error in the annexure and that the correct figure is $5,440 plus GST, being $5,984.  He notes that Mr Stockwell does not refer to any other inaccuracies.  As to Mr Stockwell’s evidence in respect of the amount deducted from invoice 4509 as a result of defective works on Metweld’s part which Mr Basel says was rectified by Building Engineering, he accepts that the Basel August affidavit incorrectly deposed that the amounts of $2,128.01 and $1,936 were deducted in this matter.  An amount of only $1,936 was deducted for defects. $2,128 was deducted for gantry issues to which reference has been made.

1. The $1,936 deducted in the payment schedule appears as ‘Item 11410-17014308 BC for EF Packing EQ’.  Mr Basel says this is a summary reference to a backcharge being applied for packing (i.e. rectification work) which Building Engineering’s cladding subcontractor needed to apply to the steelwork installed by Metweld to create a straight wall to apply the cladding.  This cost was charged to Building Engineering, who deducted it from the amount paid to Metweld.  It will be recalled that in Annexure 1 the reference to invoice 4509 referred only, in the narrative, to ‘Back-charges deducted’ without any particularisation as to the actual nature of the dispute.

1. Mr Basel refers to Mr Stockwell’s affidavit which he says acknowledges an agreement for Building Engineering to deduct the cost of the gantry equivalent to the cost that the crawler crane would have incurred.  From his knowledge, training and experience he estimates that a crawler crane capable of lifting the relevant steel would cost as follows:

(a)   Delivery of crane to site - $300;

(b)  Hire costs of crawler crane (per day) - $1,500;

(c)   Driver of crawler crane (per day) - $700;

(d)  Spotter to assist the crane operator (per day) - $700; and

(e)   Removal of crane from site - $300.

Total - $9,300

1. Mr Basel states that Building Engineering deducted an amount of $8,512 including GST in respect of this agreement.  In his earlier affidavit Mr Basel had deposed that $6,384 was deducted from 4510 in respect of the gantry.  He says this is correct, but $2,128 was also deducted from invoice 4509 in respect of the gantry.  These amounts are shown (exclusive of GST) in the payment schedules and appear in the exhibit to the Basel August affidavit.[41]

   [41]Exhibit to Basel August affidavit, 1-4.

1. As to the assertion by Mr Stockwell that the payment referred to in the Basel August affidavit is ‘clearly ineffective as a payment schedule’, Mr Basel says no detail is given to support this.  As to Mr Stockwell’s evidence in respect of retention money withheld because of the failure on Metweld’s part to comply with clauses 1(i)(ii)(1) to (5) of the schedules to the Arts Centre and Health Hub contracts, he says he is informed by Mr Waters and believes, that Metweld has not provided As-Built drawings (as required by clause l(i)(ii)(l)) and the parties have not agreed the final subcontract value (as required by clause l(i)(ii)(2)).

1. Mr Basel refers to Mr Stockwell’s evidence that there were no ‘Maintenance Manuals or As-Building drawings’ in respect of structural steelworks.  Mr Basel states that it is correct that there are no maintenance manuals in respect of structural steelworks, but As-Built or As-Installed drawings are required and form part of the contract scope of works.  He states that once those requirements are complied with, Building Engineering will pay the relevant retention money.

1. Mr Basel responds to Mr Stockwell’s evidence regarding the procedure for notifications for variations.  Mr Basel repeats the evidence in his August affidavit where he deposed that the invoices were the only manner of variation notification received from Metweld.  Mr Basel says that since swearing the August affidavit, Building Engineering conducted further searches and located a variation notification received by Building Engineering from Metweld dated 8 August 2017.  To the best of Building Engineering’s knowledge, this is the only notification of variation of this type (i.e. not in the form of an invoice) issued by Metweld.

1. Mr Basel addresses Mr Stockwell’s evidence that there were insufficient visits to project sites, and notes that at no time did Metweld state that additional site visits were required.  Further, the lead consultant on the project, architect Rob Smith, attended the site every week.

1. As to Mr Stockwell stating that the amount paid in respect of invoice 4473 (being $792) was applied to invoice 4354 (being $520 plus GST), he states that no explanation is given as to what Metweld has done with the excess $220.  As to Mr Stockwell’s evidence whereby he refers to verbal instructions given by Mr Samsudin and Mr Behsmann, he states that neither of them are any longer employed by Building Engineering.

1. As to the evidence of Mr Stockwell in relation to the additional scanning in order for Metweld to properly complete the shop drawings, Mr Basel says that he is informed by Mr Waters that the shop drawings were part of the original scope of works and therefore proper completion of them and any work required to complete that condition is not a variation.

1. Mr Basel then moves to Mr Stockwell’s evidence in relation to the Notices of Change and states that these are notices issued by Metweld’s third party drafting contractor to Metweld.  Mr Basel refers to his August affidavit where it states that the subcontract value to be paid to Metweld included ‘all shop drawings and as installed drawings’.  He states that Building Engineering did not provide directions to Metweld’s drafting contractor as asserted by Mr Stockwell.

1. Mr Basel refers to Mr Stockwell’s evidence in relation to the payment schedule issued in respect of invoice 4392 where it is stated that the payment schedule does not provide sufficient information for Metweld to know the case it would have to meet in an adjudication under the SOP Act. Mr Basel says by way of comment that Metweld could have raised the insufficiency of the schedule as part of such adjudication but chose not to do so.

1. As to Mr Stockwell’s evidence in relation to invoice 4444 and that no payment schedule had ever been received by Metweld, Mr Basel states that he is informed by Mr Waters and believes that Building Engineering’s system records that a payment schedule was issued to Metweld.  That payment schedule is exhibited to the Basel August affidavit[42] and describes the reason for the scheduled amount being less as ‘OVERCLAIM – Exceeding PO’s Issued’.  He states that the Mr McMahon referred to by Mr Stockwell is no longer employed by Building Engineering.

   [42]Exhibit to the Basel August Affidavit, 40-41.

Further evidence of Metweld

1. Shortly before the hearing of this matter, Matthew Behsmann swore an affidavit which was filed on behalf of Metweld.  It will be recalled that Mr Behsmann is referred to earlier as being employed as a site manager of Building Engineering.  He deposes that he was engaged at the Arts Centre project and the Health Hub project.

1. Mr Behsmann states that throughout the projects, he had continuing conversations with Mr Stockwell.  He states that Mr Stockwell informed him of the substance of his evidence together with that of Mr Basel in relation to a number of matters.  As to the issues raised regarding invoice 4509, Mr Behsmann states his belief that no defective work was carried out by Metweld and that Building Engineering is obliged to pay Metweld the full cost of the invoice.  Mr Behsmann states that the packing undertaken by the cladding contractor was required to make the cladding work properly, not to straighten the steel structure.  This was a design issue and not an issue with the steel structure and was not a cost that should have been passed on by Building Engineering to Metweld.

1. As to the matter of site visits, Mr Behsmann agrees with Mr Stockwell’s evidence in that regard[43] and disagrees with Mr Basel’s evidence[44].  Mr Behsmann states he does not recall Mr Basel ever attending the Health Hub site and that he only attended the Arts Centre site on a couple of occasions towards the end of the project.  Mr Behsmann states that there are site diaries of Building Engineering that recorded anyone who attended those sites that will substantiate the details as to such site visits by Mr Basel and Mr Waters.

   [43]See Stockwell September affidavit, [7].

   [44]See Basel August affidavit, [5].

1. Mr Behsmann supports Mr Stockwell’s statement regarding Building Engineering’s engineer only visiting the Arts Centre project approximately five times.  He states that during the course of the Arts Centre project he was informed by Building Engineering’s client, Tristan Hennesy (project manager of Baw Baw Shire Council), that he had allocated 20 visits for his engineer.  For whatever reason, the engineer attended the project only twice over a 12 month period and a new engineer was retained.  Mr Behsmann recalls that both Mr Stockwell and Building Engineering’s client were very unhappy and complained to him and other representatives of Building Engineering about there being insufficient visits and that Building Engineering’s client took minutes of meetings at which he recorded his dissatisfaction.  Mr Behsmann states that he was also unhappy and complained to Building Engineering’s immediate project team about the engineer not attending and the additional work being created for him and others as a consequence.  Further, he recalls that the architect Mr Smith attended the site once every fortnight.

1. In respect of invoice 4222, Mr Behsmann states that he recalls giving the verbal instruction to Mr Stockwell for what he describes as ‘push/pull propping’ for a façade wall that needed to be replaced prior to the removal of a roof during demolition in response to an engineer preparing a temporary propping plan.

1. As to Mr Stockwell’s evidence in regard to the need for a re-scan which would give rise to a variation, Mr Behsmann states that the additional scanning came as a result of a discussion between Mr Samsudin, himself and the architect Mr Smith, the substance of which was to the effect that a second scan ought to be undertaken to check for any discrepancies.  He considers that the subsequent scan (or ‘re-scan’) constituted a variation and it is his belief that Building Engineering is obliged to pay Metweld the cost of this scan.  He disagrees with Mr Basel’s evidence on this issue.

1. Mr Behsmann states that he agrees with Mr Stockwell’s evidence in regard to the additional drafting invoices and that Mr Basel’s statement is untrue.  He deposes that Building Engineering representatives, including himself on many occasions, contacted Mr Bennett and Mr Dalleau seeking changes, and it was his belief that any changes would constitute variations and that Building Engineering was obliged to pay Metweld the cost of those changes.

1. Mr Stockwell also swore a further affidavit in response to the Basel October affidavit. Mr Stockwell states that Mr Basel’s allegations that he attended the Arts Centre project and Health Hub project ‘dozens of times’ are untrue.  Mr Stockwell relies on his September affidavit in regard to this fact.

1. As to the matter of alleged defective work by Metweld and corresponding deduction from invoice 4509, Mr Stockwell says that any packing that was required was not as a consequence of the steelwork carried out by Metweld.  Mr Stockwell otherwise relies on the evidence on this issue as deposed in his September affidavit.

1. As to the matter of the provision of a gantry by Building Engineering and the corresponding cost deduction, as corrected in the Basel October affidavit as being applied to invoices 4509 and 4510, Mr Stockwell says Mr Basel’s evidence is untrue and exhibits a price sheet of the company Metweld hires crawler cranes from showing the cost of such hire to be $350 a day.  Mr Stockwell says that Metweld would have delivered the crane without incurring costs and would not have retained a driver or spotter as Metweld employees hold the necessary license and qualifications respectively.  Mr Stockwell reaffirms that no payment schedules were ever received by Metweld from Building Engineering in respect of invoices 4509 and 4510.

1. As to Mr Basel’s evidence that only one notification of variation was received by Metweld and dated 8 August 2017, Mr Stockwell says this is irrelevant to this application. Mr Stockwell further states that he advised Messrs Samsudin and Behsmann ‘about half a dozen times’ that an engineer retained by Building Engineering needed to attend the Arts Centre project site and that he recalled Mr Smith, the architect, attending the site about once a fortnight.

1. In regard to invoice 4473 and the amount applied to invoice 4354, Mr Stockwell says the amounts for the two invoices were each $720 plus GST and so no excess $220 is to be accounted for.  Copies of the invoices are exhibited to Mr Stockwell’s affidavit.[45]  On the issue of the additional scan undertaken and Mr Basel’s evidence that Metweld undertook this work in order to properly complete the shop drawings and as such no variation arises, Mr Stockwell says that this is untrue and relies on his evidence on this point in the Stockwell September affidavit.

   [45]Exhibit CWS-11 to the Stockwell October affidavit.

1. Mr Stockwell says that Mr Basel’s evidence that Building Engineering did not provide directions to Metweld’s drafting contractor is untrue.  In response to Mr Basel’s evidence that Metweld had been able to raise issues as to the alleged insufficiency of the payment scheduled issued in relation to invoice 4392, Mr Stockwell notes that Mr Basel does not assert that the payment schedule provides sufficient information and that Mr Basel therefore accepts that Building Engineering has not sufficiently particularised its grounds.

1. Mr Stockwell says that Building Engineering has not asserted any loss and as such must have been paid by the owner for the work undertaken by Metweld.

Building Engineering’s submissions

1. In her written submissions, Ms Howe, counsel for Building Engineering, contends that it is indisputable that Building Engineering has an arguable case and has met the requisite threshold for a finding that there is genuine disputes in respect of the debts claims in the Demand.  In this regard she makes reference to the relevant case law which has been outlined above, including Malec[46] and Panel Tech Industries.[47]  In her oral submissions, Ms Howe contended that except in extreme circumstances it is not appropriate for the Court to engage in an enquiry as to the credit of the deponent of a 21 day affidavit.  She submitted that while the onus is on Building Engineering to establish a genuine dispute, that is was only required to evidence those assertions to the extent necessary for that task and that it was not necessary for Building Engineering to propound a fully evidenced claim – what was required is the demonstration of a plausible contention requiring investigation and this did not require evidence on each and every element that an applicant would have to prove regarding an indebtedness at a trial of a proceeding.  Nor was it necessary or appropriate for the Court to engage in an in-depth fact finding exercise.

   [46](n 2).

   [47](n 9).

1. In her oral submissions, Ms Howe acknowledged that the Graywinter principle would preclude an application from relying on grounds to set aside a statutory demand other than those articulated in the 21 day affidavit which fairly alert a respondent to the nature of the case being made in support of an application.  Ms Howe contended that it is sufficient that a ground is raised by inference or is ascertainable from the affidavit.  In the present context she submitted that Annexure 1 to Mr Basel’s 21 day affidavit, being the Basel May affidavit, is sufficient for the purposes of supporting the application to raise the grounds of dispute described in the annexure.  I took this to be a submission that the narrative appearing in the column of Annexure 1 to the 21 day affidavit headed ‘Basis of genuine dispute’ suffices to ‘raise’ the dispute described.

1. She referred to the decision of White J in Hansmar Investments Pty Ltd v Perpetual trustee Company Ltd[48] in support of her contention that a 21 day affidavit

may read like a pleading… Thus, a supporting affidavit may raise a ground of dispute in a form which is inadmissible to prove the facts giving rise to the dispute, and those facts may be proved in a later affidavit filed and served outside the 21-day period. However, there is no requirement in s 459G that the supporting affidavit read like a pleading.[49]

[48](2007) 61 ACSR 321.

[49]Ibid [27].

1. In respect of the criticisms levied by Mr Bingham in respect of portions of Mr Basel’s affidavits being hearsay and hearsay on hearsay, Ms Howe made reference to the decision of the New South Wales Court of Appeal in Britten-Norman.[50]

   [50](n 6).

1. As will be outlined below, Mr Bingham contended that neither Mr Basel nor Mr Waters had direct knowledge of the matters deposed to.  Ms Howe contended applications to set aside statutory demands involved only the requirement on the part of Building Engineering to establish a plausible contention requiring investigation.  Ms Howe contends that in any event, in the Basel October affidavit[51] Mr Basel rejected Mr Stockwell’s evidence that Mr Basel and Mr Waters rarely attended the Arts Centre site and only towards the end of the project and that he only met Mr Basel once on site.  Mr Basel’s evidence is that he attended the sites on ‘dozens of occasions through the project’ and that he took part in regular review projects with the project management team which provided updates on the progress of the projects and that he was informed by Mr Waters and believes that this is the same position as to Mr Waters’ attendances.

   [51]Basel October affidavit, [5].

1. Ms Howe submitted that having regard to the standard that Building Engineering is required to meet there is a genuine dispute.  The Court can be satisfied that Mr Basel does have direct knowledge of the matters to which he deposes and to when he does so on information and belief in which case, she submitted, he sets out the source and grounds of that belief.  Further, Ms Howe submitted Mr Basel is the director of Building Engineering and was appointed to that position in 2003.  He deposes as to his authority to make the affidavit on behalf of Building Engineering and that ‘the following facts are within my own knowledge except where otherwise stated’.

1. In her oral submissions, Ms Howe made reference to the 21 day affidavit[52] in which Mr Basel deposed that he had made enquiries of Mr Waters in respect of the invoices claimed in the Demand and that the final column in Annexure 1 describes the basis on which Building Engineering says a genuine dispute exists in respect of the debts claimed in the Demand.  Ms Howe contends that the narrative appearing in that column raises, directly or by available inference, the genuine dispute mentioned and as such the disputes identified are capable of being agitated in this application.  Ms Howe, in addressing Metweld’s submission that Building Engineering must adduce evidence to prove the facts that raise the ground, submits this does not reflect the actual standard required to be met as described in Britten-Norman.[53]

   [52]See Basel May affidavit [18] and Annexure 1.

   [53]Britten-Norman (n 6) 613.

Category A – Invoices paid in full

1. Ms Howe turned to the several grounds of dispute.  The first of those related to the invoices which Building Engineering contends have been paid, described as category A in paragraph 28 above. She refers to the evidence of Mr Basel in the Basel August affidavit where he deposes that the invoices have been paid and exhibits remittance advices.[54]  The remittance advice for the month of October 2018 stated that invoice 4473 in the sum of $792 was paid on 1 October 2018, with the balance of the invoices to which reference has been made, totalling $12,760, being paid on 1 February 2019,[55] which predated Metweld’s Demand.  Mr Stockwell makes no reference to this issue.

   [54]Basel August affidavit, [29].

   [55]Invoices 4440, 4441, 4442, 4443, 4448, 4449, three invoices numbered 4471 which appear to total $1628 appear. Invoice 4473, which related to the Monash Hospital project, was the subject of a separate remittance advice.

Category B – Retention sums

1. Ms Howe then turned to Category B of dispute, which involved the contention that the subject invoices had been paid, save for retention amounts.  She contended that there is a genuine dispute in respect of 10 invoices.[56]  Six of those invoices concern the Arts Centre project, two concern the MFB project and two concern the Health Hub project.  The Arts Centre, MFB Glen Iris and Health Hub contracts, she contended, contained provisions which permitted Building Engineering to retain a percentage of Metweld’s progress claims.  Those contracts also provided, she said, for this pool of funds to be dispersed to Metweld upon the issue of a certificate of practical completion and subject to compliance with five conditions in clause 1(i)(ii) to the schedule.[57]  In her oral submissions, Ms Howe contended that by reason of non-compliance with the conditions, in particular the receipt and approval of Maintenance Manuals and As-Built drawings by Building Engineering[58] and the absence of an agreed final subcontract value, the monies claimed by Metweld under these invoices are still the subject of retention and are not due and payable.  She submits that once those conditions had been satisfied, Building Engineering would disperse the retained monies.[59]

   [56]Invoices numbered 4219, 4233, 4267, 4281, 4288, 4318, 4330, 4345, 4126 and 4149.

   [57]See paragraph 23 above.

   [58]See Basel October affidavit, [13]-[15].

   [59]See Basel August affidavit, [10] and [15] and Basel October affidavit, [15].

1. Ms Howe contended that the evidence is that the 10 invoices have been paid less the sum permitted to be retained by the contracts and that the evidence of Mr Basel is that Metweld has not complied with all those conditions.  Ms Howe contends that in any event the evidence of Mr Basel is that the retained sums will be dispersed in accordance with the terms of the contracts once the conditions are satisfied.

1. In response to Mr Bingham’s submission that the retention argument was not available by reason of the application of the Graywinter principle,[60] Ms Howe contended that the 21 day affidavit of Mr Basel exhibits the contract and refers to the relevant clauses in the text of the affidavit, more particularly the clauses relating to retention and Annexure 1 refers to those provisions.

   [60]See paragraph 116 below.

Category C – Clauses 3.1 and 3.2

1. Ms Howe submits that a genuine dispute exists in respect of 23 invoices[61] because Metweld did not provide notification to Building Engineering that Metweld considered drawings, instructions or directions  issued by Building Engineering to be a variation within five business days of the issue of the drawing, instruction or direction as required by clause 3.2 of the Arts Centre contract.[62]  She contended that upon this construction the obligation to give notice arises on the occurrence of the issue of the drawing, instruction or direction.  Ms Howe submitted that the provision operated in such a way that if no such notice is given, but the work is nonetheless carried out, Metweld is not entitled to make any claim in respect of those works.  She made reference to the Basel August affidavit which details the dates in which the invoices the subject of this ground were raised, that is, when Metweld gave the notification; Mr Basel contends that the invoices identified occurred more than five business days after the direction or instruction was issued.[63]  Annexure B to the Basel August affidavit sets out these dates in spreadsheet form.

   [61]Invoices 4222, 4352, 4353, 4355, 4356, 4357, 4358, 4359, 4360, 4373, 4375, 4376, 4416, 4417, 4418, 4419, 4446, 4472, 4480, 4481, 4482, 4512 and 4544.

   [62]Extracted at paragraph 20 above.

   [63]Basel August affidavit [22(a)]-[22(m)], set out at paragraph 36 above.

Category C – Clauses 3.1 and 3.2

1. Building Engineering contends that a genuine dispute exists in relation to the construction of clause 3.2 in the Arts Centre contract, Health Hub contract and MFB contract.[117]

   [117]This dispute involves invoices 4222, 4352, 4353, 4354, 4355, 4356, 4357, 4358, 4359, 4360, 4374, 4419, 4480, 4481 and 4544.

1. Annexure B of the Basel August affidavit, which is a spreadsheet of a number of the invoices issued by Metweld and the subject of the Demand, Building Engineering contends that certain Architecture Advices and other directions were ‘received from client’ on specified dates.[118]  I understand the client to be the head contractor in this context.  The annexure states that Metweld’s invoices generated in respect of those directions were all issued in March, April, May, June, August and October of 2018, well after Building Engineering had received the respective directives from the head contractor[119].  Mr Basel’s evidence is that, from his experience, these instructions are passed on to the relevant subcontractor ‘on or around the day which Building Engineering receives them…’ from the head contractor and he supports his evidence by reference to being informed by Mr Waters in that regard that this process occurred in respect of the projects to which these invoices related.  His evidence is that the invoices were the only form of ‘variation notification’ from Metweld, his point being that they were issued well outside the five day period specified in clause 3.2.

   [118]This position applies in respect of invoices 4353, 4355, 4357, 4358, 4359, 4360, 4375, 4416, 4417, 4418, 4446, 4472, 4480, 4481, 4512.

   [119]Although the invoices 4481 and 4512 were issued within the month of Building Engineering receiving the direction from the head contractor.

1. Annexure B identifies, in most but not all cases, the date when Building Engineering contends it received a direction to perform works and by reason of Mr Basel’s evidence the date on or about which it would have passed on a direction to perform the works to Metweld.  The Annexure also identifies the date on which Metweld subsequently invoiced the work the subject of that direction.  The invoices, Building Engineering says, are the only notification variation received by it from Metweld.  They post-date the date on or about which it is contended such directions would have been communicated to Metweld in most cases by several months.  In some cases, the narrative of the invoice itself states that the works were performed some months prior to the date of the invoice.  As such, Building Engineering contends that insofar as the invoices constitute notices of variation on the part of Metweld, they were notified to Building Engineering well outside the five day period provided for in clause 3.2.

1. With the balance of the invoices,[120] Building Engineering contends there were no directions from it in respect of the works and Metweld has not put into evidence any directions that it received to the works carried out in respect of those invoices.  In certain of the invoices there are references to architectural advices, some mentioning dates and some not.

   [120]Invoices 4222, 4352, 4356, 4373, 4376, 4419, 4482 and 4544.

1. As against this, Metweld’s evidence is that in each case, notification was provided ‘as soon as it was able to by Metweld and … within five days of Metweld considering it [to be] a variation’ and that ‘all of these building works were authorised by Building Engineering’.  Mr Stockwell states that there were delays in receiving responses to RFIs which, when responded to, prompted further RFIs and that on occasion the ultimate response was received more than 180 days after the initial request.  He asserts that because of this it was not practicably possible to react within the five days required in clause 3.2.

1. Mr Stockwell’s position appears to be that Metweld responded within five days of it forming the view that the work required constituted a variation.

1. This alleged dispute is based on competing contentions as to how these provisions in the respective contracts should be construed. Building Engineering contends that clause 3.2 operates independently of clause 3.1 and requires Metweld to provide a variation notification to it within five business days of Building Engineering issuing a drawing, instruction or direction which gives rise to a variation and if Metweld does not do so, it has no entitlement to charge an amount in addition to the subcontract sum.  Building Engineering contends in respect of the invoices the subject of this ground that Metweld has not issued valid variation notifications within the time period prescribed in clause 3.2.  Building Engineering says that the time begins to run from the occurrence of the issue of the drawing, instruction or direction and refers to the evidence detailed as to the relevant dates on which the invoices which are the subject of this ground of dispute were issued and when Metweld provided the notification.

1. Ms Howe contended that this was a preferable construction of clause 3.2 to that propounded by Metweld which she said amounted to a contention that it was only when Metweld subjectively considered the relevant event to give rise to a direction that the requirement to issue a notification variation arose.  Ms Howe submitted that clause 3.2 operates independently of clause 3.1 in circumstances where, absent a formal Variation Notification of the type described in clause 3.1, the subcontractor considers that a drawing, instruction or direction communicated to the subcontractor departs from the scope of work contemplated by the contract between them, and allows the subcontractor, within the five business day period from the date of issue, i.e. communication, of the relevant drawing or direction, to notify the builder that it considers the drawing, instruction or direction to be a Variation.

1. On Ms Howe’s construction, clause 3.2 stands alone and operates in circumstances where there is no variation notification issued by Building Engineering, but a party in Metweld’s circumstances considers, on receiving a drawing, instruction or direction from a builder, in this case Building Engineering, a necessity for notification under clause 3.2 arises and if no such notice is provided then there is no entitlement to claim in excess of the subcontract sum.

1. Metweld contends that clause 3.2 operates so that the time period for the obligation to provide a Variation Notification commences to run when Metweld subjectively considers a drawing, instruction or direction to give rise to a Variation. Metweld contended that clause 3.2 should be read as operating together with clause 3.1.

1. Metweld’s submits that clause 3.2 has no operation in these circumstances by reason that no variation notifications were issued by Building Engineering under clause 3.1 and so clause 3.2 is therefore not engaged.

1. The manner in which Ms Howe’s construction of clauses 3.1 and 3.2 may operate is perhaps exemplified by circumstances where, in the course of the project, the subcontractor is required by the builder to perform a certain task in connection to the project and the subcontractor takes the view that it involves additional work not contemplated by the scope of works.  In such circumstances, the subcontractor can seek to protect its position by notifying the builder that the subject works constitute a variation.  If the subcontractor does not do so it cannot charge any extra monies for the works done and is required to be satisfied by what it is paid under the subcontract sum.  Further, it cannot claim any extension of time for completion of the works so to avoid a claim for liquidated damages.  Clause 3.1 on the other hand, on its face, performs different ‘work’.  It requires the builder to notify the subcontractor in formal terms by a document titled ‘Variation Notification’ and expressly state in the body of that notification that it is issued under this clause of the subcontract.  This to be distinguished from the situation in clause 3.2 where no such formal Variation Notification is issued, but the subcontractor takes the view that it will give rise to a Variation and prejudice its position vis a vis it will involve additional cost for which it is entitled to be reimbursed.

1. The basis for this argument is perhaps supported by the subclauses of clause 3 which follow.  Clause 3.3 requires the subcontractor to carry out the Variation, but in such circumstances must provide the builder with an estimate of the cost and obtain the agreement of the builder prior to proceeding with the works.  Clause 3.4 is associated with clause 3.3 and provides a mechanism for the adjustment of the subcontract sum within five days of the issue of the Variation Notification notified under clause 3.1.  If there was no agreement in that regard, the builder may fix the amount of any additional cost of that variation (or deduction as the case may be).  Clause 3.5 provides for the adjustment of the subcontract sum as a consequence and clause 3.6 provides for adjustment of the Date of Completion subsequent to a Variation.

1. I consider that the construction of clause 3.2 which Ms Howe presses is open and arguable, is not susceptible of resolution in this application and warrants further investigation.  As such, I consider there to be a genuine dispute that the invoices issued by Metweld outside the time period mentioned in clause 3.2 are not payable by operation of clause 3.2.  It may well be that a Court or Tribunal considering the operation of clause 3 in a conventional inter partes setting ultimately takes a different view but for present purposes I consider that the issue gives rise to a plausible contention requiring further investigation, which is the Court’s function in the present context.

1. The effect of this conclusion is that there should be a variation in the amount of the Demand in the sum of $73,259.50.

Category D – Drafting charges

1. This category involves 12 invoices[121] issued by Metweld in relation to the Arts Centre project claiming sums for what is described as ‘Additional drafting as per attached Notice of Change - Variation’.[122]  On the reverse side of the invoices which are exhibited,[123] there is a document headed ‘Notice of Change – Variation to original contract’ issued by JBD Group (who by reference to its letterhead are apparently involved in ‘structural detailing for steel, concrete and timber, laser scanning and 3D modelling’).  Each is addressed to Mr Stockwell notifying Metweld of variations to the Arts Centre contract, some by reference to numbered Architecture’s Advices and describing in summary form what extra time would be involved in the various tasks required. All of the JBD Group Notices of Change describe the nature of the variation as ‘revision to steelwork’.  The involvement of JBD Group is unclear and is not explained in the evidence or submissions but it appears that JBD Group was involved in a contractual relationship with Metweld and as a result of revised drawings it had received, additional work was required.  Metweld, it appears although it is not clear, was required to arrange for additional drafting consequent on the works the subject of the notice of change and each of the invoices are charges for the additional drafting.  Metweld sought to pass on the costs of that additional drafting to Building Engineering.  Save for two invoices which are dated 13 March 2018, all the invoices are dated 3 April 2018.

   [121]Invoices 4351, 4361, 4378, 4379, 4380, 4381, 4382, 4383, 4384, 4385, 4386, 4387.

   [122]See Exhibit CWS-5 to the Stockwell September affidavit. Invoices 4351 and 4361 appear as exhibits to the Basel August affidavit at pages 5 and 15 respectively without any attached notices of change.

   [123]Again, except for invoices 4351 and 4361 as noted above.

1. Building Engineering contends that a dispute arises in respect of these invoices by reason that Metweld is not entitled to charge additional drafting costs as the Arts Centre contract scope of works and subcontract sum already included all shop drawings and as-installed drawings and so the additional drafting cannot be the subject of a variation.  Furthermore, Building Engineering states no drafting directions were issued to Metweld in the five business days preceding 13 March 2018 or 3 April 2018 when the earlier two invoices were issued.  As a result, Building Engineering contends that if the drafting changes are able to be charged as variations they were not notified within the five business days of the relevant direction as clause 3.2 requires.

1. The evidence of Metweld is that notices of change, to which reference has been made, were attached on the occasion that the invoices were issued to Building Engineering. Metweld had produced all shop drawings and As-Installed drawings required by the scope of works and for which allowance was made as part of the subcontract sum.  The invoices are for changes to the architectural drawings and were not included as part of the subcontract sum.  The evidence of Mr Stockwell is that drafting work was performed by a third party drafting contractor at the request of Building Engineering. Mr Stockwell deposes that Messrs Bennett and Dalleau informed him and he believes that the work was done at the specific request of Building Engineering.  The requests were made directly to the third party drafting contractor who advised Building Engineering at the time of receiving further instructions, including the architect’s advices, that the change to shop drawings were variations.  Mr Stockwell’s evidence in that regard is supported by the evidence of Mr Behsmann, the former employee of Building Engineering, who stated that Building Engineering, by its representatives, including himself on many occasions, contacted Messrs Bennet and Dalleau seeking changes.  Mr Behsmann stated that it was his belief that any changes would constitute variations and Building Engineering would be obliged to pay for the costs of those changes.

1. In his evidence in reply, Mr Basel deposed that Building Engineering did not provide directions to Metweld’s drafting contractor as deposed to by Mr Stockwell.

1. It has to be said that the evidence in respect of this ground of dispute is unclear and unsatisfactory.  For example the evidence in regard to the ‘chain of command’ in respect of the transactions which are the subject of these invoices is not explained and is unclear by reference to the exhibited documentation.  It is said that Building Engineering had a direct involvement in engaging the persons who performed the additional drafting work but it appears the parties are at odds in their evidence concerning this.

1. In my view, there are factual controversies which arise which cannot be resolved in an application of this type.  The evidence clearly conflicts but the task of the Court is to consider whether Building Engineering has established a genuine dispute on the evidence and I consider it has.  I consider that Building Engineering has satisfied the relatively low threshold that is required to meet; there is no feature of its evidence which is inherently implausible or is apparently spurious.  The invoices, save for two of them, were generated on one date, 3 April 2018, and was said to be for additional drafting work occasioned by notices of change issued some months before.  The Court  in an application to set aside a statutory demand cannot resolve the issue as to whether the additional drafting work constituted variations in the scope of work in the Arts Centre contract and this will need to be resolved by conventional inter partes litigation.  Further, it is arguable that clause 3.2 requires variations to be notified to Building Engineering by Metweld within the five business day period stipulated by the clause and on the face of it, if the JBD Group notices of change operated in some way to notify Metweld of a variation requiring notification to Building Engineering under clause 3.2, the invoices consequent on such variations were issued months later. Again, this question will require resolution in the appropriate Court or Tribunal.

1. By reason of the foregoing analysis, I consider that a genuine dispute has been established for the additional drafting charges.  This results in a variation of the Demand in the sum of $18,471.75.

Category E – Miscellaneous

1. As the evidence reveals, the invoices in this category give rise to a range of alleged disputes and it is appropriate to consider each in turn.

Invoice 4392

1. In Annexure 1, the narration describes the dispute in respect of this invoice as ‘Value of work overclaimed for this period’. The invoice, for $44,000, has been partly paid with $22,000 remaining outstanding. Building Engineering contends that it has issued a payment schedule under the SOP Act in respect of this invoice by which it disputes $20,000 plus GST as being overclaimed.

1. By way of response, Metweld says that there are no particulars whatsoever in support of the contention that the invoice overclaims the amount due so as to enable Metweld to respond in any adjudication of that schedule.  It asserts that an inference should be drawn that Building Engineering has charged the head contractor for the work in respect of this invoice but is simply refusing without reason to pay for that work.  In response to this criticism, Building Engineering states only that Metweld could have raised the insufficiency of the payment schedule as part of an adjudication but has chosen not to do so. Significantly, it adduces no evidence to substantiate this dispute.

1. I consider that Annexure 1 does ‘fairly alert’ Metweld of the nature of the dispute, which is later sought to be the subject of elaboration in the Basel August affidavit, but it is another question as to whether the evidence put forward by Building Engineering ultimately establishes to the relevant degree, a dispute in that regard.  In my view, Building Engineering, which bears the onus, has failed to meet the relatively low threshold described in the authorities above.  There is no factual particularisation rising above the mere assertion that Metweld has overcharged, or as it puts it, overclaimed, in respect of the work the subject of this invoice.

1. As such, I consider that Metweld is entitled to maintain its claim of $22,000 in respect of this invoice.

Invoice 4510

1. This invoice, in relation to the Arts Centre project, was issued in the sum of $20,812 however Building Engineering deducted $6,384 because it contended that the parties made an agreement that Metweld, because a crawler crane could not be used on site, would instead use a gantry provided by Building Engineering and the cost attributed to that was to be met by Metweld.  Building Engineering issued a payment schedule which has not yet been the subject of adjudication.  Mr Basel contends that the proper cost, on the basis of his training and experience, was in the order of $9,300. Building Engineering says that the total cost of the use of the gantry came to $8,512 which has been deducted across this invoice, being invoice 4510 for $6,384, and invoice 4509, discussed below, for $2,128.

1. Metweld contends that quite a different arrangement was struck in respect of the gantry stating that the agreement was that Metweld would cover the cost of the gantry to the extent of the cost which had been allowed for a crawler crane at the rate of $350 a day for three days and that any deduction would not exceed $1,050.  Metweld states that no payment schedule was received from Building Engineering in respect of this invoice and contends that a document asserted to be a payment schedule is not an effective payment under the legislation.

1. I accept that Building Engineering’s evidence is unclear and somewhat unsatisfactory however it has, to my mind, established that on application of the relevant tests there is a genuine dispute in respect of this invoice.  The parties struck an oral agreement and the position that Building Engineering contends for differs from that of Metweld.  I do not consider that there are any features of Building Engineering’s evidence which are implausible and there are no contemporaneously generated documents to contradict it.  The authorities indicate that it is not appropriate conduct an analysis of which party’s version of the arrangement struck is the more likely one, rather to consider whether there is a plausible contention requiring investigation and in this instance I consider that there is.

1. As such, I consider that Building Engineering has established that it has a genuine dispute in this invoice which gives rise to a variation in the Demand for the sum of $6,384.

Invoice 4509

1. As I already indicated in paragraph 132 above, I do not consider that on the application of the Graywinter principle Building Engineering is entitled to agitate the alleged dispute in respect of this invoice.  The only mention of the dispute in the 21 day affidavit is the reference in the Annexure to ‘Back-charges deducted from amount claimed in invoice.  Remaining amount paid in full.’  There is no reference to the nature of the dispute in the body of the affidavit and I do not consider that Metweld has been fairly alerted to the nature of the dispute for it to be considered it to have been ‘raised’ and be capable of the subject of later elaboration.

1. If my view in regard to the application of Graywinter is not correct, the dispute which Building Engineering purports to raise in respect of this invoice is not, to my mind, adequately supported in any event by its evidence or the facts said to constitute it adequately particularised.  There is, as I have said, scant reference to the dispute in Annexure 1.  The position is not improved in subsequent affidavit material filed by Building Engineering. No further information of any substance is provided in respect to the defects other than the assertion that Building Engineering rectified the defects and deducted the cost of doing so from the amount in the invoice.  Mr Basel in his October affidavit stated that he had incorrectly deposed that the amounts of $2,128.01 and $1,936 had been deducted for defects whereas $2,128.01 was deducted for gantry charges.  To the extent that there was any particularisation, Mr Basel in the Basel October affidavit asserted that $1,936 was deducted for the rectification work which it is said was the cost of Building Engineering’s cladding subcontractor for cladding required to Metweld’s steelwork.  It is not explained why, if the cost of rectification was $1,936, only half the invoice amount has been paid.

1. I do not consider that Building Engineering has established a genuine dispute in respect of this invoice. Metweld is entitled to maintain its demand in respect of this invoice for $4,064.01.

Invoice 4444

1. This invoice, for $638, relates to the MFB project.  The Annexure to the 21 day affidavit identifies the nature of the dispute as being ‘payment schedule issued’ but no elaboration is provided.  In the Basel August affidavit, the payment schedule is exhibited.  The payment schedule asserts that Building Engineering ‘had provided no instruction to proceed with this work’.  Metweld contended that no such payment schedule had been received.  Indeed, Metweld’s evidence was that Mr McMahon of Building Engineering had asserted that he had never received certain invoices including this invoice and they were re-emailed to him on 11 January 2019.  It was said by Metweld that it was unclear how a payment schedule could have been issued on 19 June 2018 to dispute an invoice of that date which it had been said had not been received at that time.

1. I do not consider Building Engineering has established that there is a genuine dispute in respect of this invoice.  It is scantly mentioned in the 21 day affidavit and the alleged dispute is never satisfactorily developed by evidence.  In this regard I accept Mr Bingham’s submission that the reference in the Annexure to the 21 day affidavit does not fairly alert Metweld of the nature of the dispute.  It is not a situation which really calls for the application of the Graywinter principle to be assessed as it is not, in any event, the subject of later elaboration rising above mere assertion.

1. Metweld is accordingly entitled to maintain its demand for this invoice for $638.

Conclusion

1. Based on the foregoing analysis, the position in regard to the various categories of dispute which have been adopted is as follows:

Category	Description of category	Net position for the category
Category A	Invoices paid in full	$13,659.80 to Building Engineering
Category B	Retention sums	$46,788.50 to Metweld
Category C	Clauses 3.1 and 3.2	$73,259.50 to Building Engineering
Category D	Drafting charges	$18,471.75 to Building Engineering
Category E	Miscellaneous invoices	$22,000 to Metweld (invoice 4392) $4,064.01 to Metweld (invoice 4509) $6,384 to Building Engineering (invoice 4510) $638 to Metweld (invoice 4444)
Total		$73,487.51 to Metweld

1. In this regard, the Court notes the sum of the invoices in the schedule of the Demand is $1,099.50 more than the debt claimed as being owing in the body of the Demand.  

1. The parties, after considering these reasons, should attempt to agree on orders which effect these reasons.  Because the effect of the reasons will result in a substantial variation to the Demand, consideration will need to be given to what order should be made as to costs and if the parties are not able to agree on the appropriate order in that regard, they should each file a brief written submission not exceeding three pages, together with any necessary evidence in support of that party’s position as to costs, by 13 November 2020.  I will make final orders on 18 November 2020, which will include orders to vary the Demand in accordance with these reasons together with orders as to costs.

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