Re Life Springs Pty Ltd

[2022] VSC 406

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2021 02643

IN THE MATTER of LIFE SPRINGS PTY LTD (ACN 164 473 670)

BETWEEN:

LIFE SPRINGS PTY LTD (ACN 164 473 670)	Plaintiff
v
IDEVELOPMENT GROUP PTY LTD (ACN 134 745 716)	Defendant

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JUDGE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	29 October 2021
DATE OF JUDGMENT:	19 July 2022
CASE MAY BE CITED AS:	Re Life Springs Pty Ltd
MEDIUM NEUTRAL CITATION:	[2022] VSC 406

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CORPORATIONS – Application to set aside statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) – Sections 459E, 459G, 459H, 459J – What grounds are ‘supported’ by statutory period affidavit – Application of Sceam Constructions Pty Ltd v Clyne (2021) 64 VR 404 – Whether there is genuine dispute as to the existence or amount of the debt – Finding that there was a genuine dispute in respect of approximately half of the amount claimed in the statutory demand – Whether there is ‘some other reason’ to set aside the statutory demand in its entirety – UGL Process Solutions [2012] NSWSC 1256 applied – Statutory demand set aside.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr B Fry of counsel	Koya & Co
For the Defendant	Mr L Wirth of counsel	WBM Lawyers

HIS HONOUR:

Introduction

1. By originating process filed 27 July 2021, the plaintiff, Life Springs Pty Ltd (ACN 164 473 670) (‘Life Springs’) applies to set aside a statutory demand dated 7 July 2021 (‘Demand’) served upon it by the defendant, iDevelopment Group Pty Ltd (ACN 134 745 716) (‘iDevelopment’).

1. iDevelopment claims that $351,358.17 is owing to it by Life Springs. 

1. The schedule to the Demand describes the debt being claimed as follows:

Amount owing by the company to the creditor in respect of the HIA Medium Works Commercial Contract dated 28 October 2020 relating to 24 McLean Street, West Brunswick (as particularised in the Letter of Demand forwarded by the creditor to the company dated 26 March 2021 and as further demanded in the letter dated 4 June 2021 to the company from WMB Lawyers).

1. The Demand was accompanied by an affidavit of Maurice Randello (‘Mr Randello’), a director of iDevelopment, sworn 7 July 2021 and both those documents were attached to the originating process.  The Demand exhibits two letters of demand dated 26 March 2021 and 4 June 2021 referred to in the schedule to the Demand (‘Schedule’) together with a statement on iDevelopment’s stationery dated 26 March 2021 which lists and attaches a copy of each of the tax invoices constituting the claim made in the Demand.

1. The originating process seeks an order that the Demand be set aside pursuant to ss 459H and 459J of the Corporations Act 2001 (Cth) (‘Act’ or ‘Corporations Act’). The application has been made within the time specified in s 459G of the Act.

1. iDevelopment’s claim arises from a construction project at McLean Street in West Brunswick (‘McLean Street Property’).

1. In support of its application, Life Springs relies upon the affidavits of Alan Thompson affirmed 27 July 2021 (‘statutory period affidavit’) and sworn 22 October 2021.[1]

   [1]Mr Thompson also swore an affidavit of 18 July 2021 in support of an application for an adjournment which is not relevant to the substantive application.  

1. iDevelopment relies on an affidavit of Mr Randello sworn 16 August 2021 (‘Randello Affidavit’) and Tony Zdravkovski sworn 25 October 2021.[2]

   [2]Mr Zdravkovski is an employed solicitor in the office of iDevelopment’s solicitors and deposes as to an error which occurred in the collation of the exhibits to the Randello Affidavit.

1. Both parties filed written submissions and, in the case of iDevelopment, supplementary written submissions.

Legal principles

1. The principles to be applied in applications to set aside statutory demands are now well-settled.  They are succinctly described in the decision of the Court of Appeal in this State in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq):[3]

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.[4]

[3] [2015] VSCA 330.

[4]Ibid [47]–[50] (citations omitted).

The statutory period affidavit must support the grounds agitated by the applicant

1. In applications of this type, s 459G(3) by its terms requires the applicant to file and serve an affidavit ‘supporting’ the application within the ‘statutory period’[5] and it is necessary to identify what disputes or claims are supported by the statutory period affidavit.  The written and oral submissions of counsel for the parties concentrated a good deal on this issue. 

   [5]In this instance 21 days.

1. The Court of Appeal in this State has considered the relevant principles as to identification of what disputes or claims are supported by a statutory period affidavit in Sceam Constructions Pty Ltd v Clyne.[6]

   [6](2021) 64 VR 404 (’Sceam’).

1. In Sceam, the Court of Appeal traced the origins of what has become known as the Graywinter principle,[7] commencing with a consideration of its namesake, a decision of Sundberg J of the Federal Court of Australia, to recent authorities, including instances of its application by Full Courts and Courts of Appeal.  After conducting that exercise,[8] the Court of Appeal described the principles emerging from the authorities which it had reviewed.  It stated:

   [7]The Court of Appeal stated the term should preferably be avoided given the development of the subsequent authorities on the issue: Sceam (n 6) [42].

   [8]Ibid [11]-[37].

Standing back from all that has been written in the authorities, it is important to bear firmly in mind that what is critical is the language in the legislation. It requires an affidavit supporting the application to be filed with the Court within the statutory period. In the context of a claim to set aside the statutory demand on the basis that there is a genuine dispute as to the existence or amount of the demand, pursuant to s 459H(1)(a), the affidavit must support the application by providing the basis for establishing that there is a genuine dispute. Establishing the genuineness of the dispute requires material showing, or from which it can be inferred, that there is a real dispute. Most commonly this will be done by the deponent describing the dispute. That description will delineate the scope of the dispute which may be relied upon to set the demand aside. Where the dispute is based purely on the construction of a written agreement between the parties, the support requirement may be satisfied by exhibiting the agreement without more. But, for example and without being prescriptive, if something beyond the written terms is to be relied upon, then it is highly likely that this will need to be raised in the affidavit and more than mere assertion will be necessary. Ultimately, what is required to satisfy the support requirement must be assessed in the context of the particular application that is made.

In our opinion, while various forms of language are used in the authorities, their effect is the same. Whether the terms ‘fair notice’ or ‘fairly alert’ are used or whether it is said that the ground must be raised ‘expressly, by necessary inference or by a reasonably available inference’, the outcome turns on whether the affidavit supports the application. In their context, we do not understand the Victorian authorities referred to above to have used the terms ‘fair notice’ and ‘fairly alert’ in a procedural fairness sense. Rather, in substance and properly understood, those phrases have been used as a shorthand for the lengthier phrase ‘expressly, by necessary inference or reasonably available inference’. That phrase requires that the grounds for resisting the statutory demand appear in the affidavit. The phrases ‘fair notice’ and fairly alert’ convey the same requirement. And in several of the cases using that terminology, the Court has used both phrases, in a context indicating that it considered that they conveyed the same requirement.  The language of ‘fair notice’ or ‘fairly alerts’ has been directed towards the need for the affidavit to show that there is a real dispute, so as to properly be regarded as an affidavit that supports the application to set aside the statutory demand.

Further, in our view the language of ‘fair notice’ and ‘fairly alert’ describes one of the key purposes of the affidavit required to be filed and served under s 459G(3). That this is a key purpose of the section is supported by the extrinsic materials. Section 459G was introduced into the precursor to the Act by the Corporate Law Reform Bill 1992. The Explanatory Memorandum to that Bill records that s 459G was introduced as one of a suite of provisions to implement the recommendations of the ‘Harmer Report’ in connection with the setting aside of statutory demands. In relation to the affidavit requirement, the Harmer Report said as follows:

Proposal. In DP 32 (para 118) the Commission proposed that any person (including the company) seeking to oppose an application for a winding up order based upon an allegation of insolvency should have to file and serve on the applicant notice of the grounds of opposition verified by affidavit. This was to ensure that a person opposing a winding up order put forward the basis of the opposition within an appropriate time.

Recommendation. The Commission recommends that a person who has not, within the prescribed time, filed and served on the applicant notice of the grounds of opposition (verified by affidavit), should not, without leave of the court, be entitled to oppose an application for a winding up order. Further, where the application for winding up is based upon non-compliance with a statutory demand, limits should be placed upon the right of a company to dispute the demand.

Thus we do not think it constitutes an error to describe the affidavit requirement in s 459G(3) as directed to ‘fairly notifying’ or ‘fairly alerting’ the person who filed the statutory demand to the ground(s) on which the applicant will seek to have the statutory demand set aside. That is not to suggest that the language of ‘fair notice’ is concerned with matters of procedural fairness.

However, given that the language of ‘fair notice’ is not used in the statute itself, and is susceptible to misinterpretation, we consider that it would be preferable to avoid use of that language in the future. In a similar vein, while the shorthand phrase ‘Graywinter principle’ is convenient in some senses, it may be preferable to avoid its use, given that the authorities have developed since Graywinter was decided. It is more appropriate to use the language of the statute and to consider whether the statutory period affidavit ‘supports’ the application. If it does, then that affidavit may be supplemented by evidence filed outside the statutory period. If it does not, then there is no jurisdiction to consider material filed beyond that period.

Finally, we note that Graywinter itself concerned an affidavit that did not state any material facts to show that there was a genuine dispute; it contained mere assertions, and thus was not an affidavit ‘in support’ of the application. However, in other cases a supporting affidavit has been filed that does identify a genuine dispute on a particular basis, but the party seeking to set aside the statutory demand later seeks to rely on a different genuine dispute, identified in an affidavit filed outside the statutory time period. It is clear from the authorities that an affidavit filed within time that does not identify the dispute later sought to be relied upon is not a ‘supporting affidavit’ in so far as the different genuine dispute is concerned, and that the party concerned is not permitted to rely on that different genuine dispute if it was not identified in the supporting affidavit filed within the statutory time period.  That is, the particular ‘genuine dispute’ on which an applicant seeks to rely must be identified in the supporting affidavit filed within time; it is not sufficient to identify one genuine dispute in the supporting affidavit, and then to identify a different genuine dispute in later affidavits filed out of time and at the hearing of the application.[9]

[emphasis in original text]

[9]Ibid [38]-[43] (citations omitted).

1. Thus, the dispute or offsetting claim which is sought to be raised must ‘appear’ in and be supported by the statutory period affidavit and be discernible by being identified, ‘expressly, by necessary inference or by reasonably available inference.’ The Court is without jurisdiction to consider grounds of dispute, offsetting claims or whether a demand should be set aside under s 459J by reason of a defect in the demand or ‘some other reason’ which are not supported by the statutory period affidavit. Additional disputes, offsetting claims or bases to attract the jurisdiction under s 459J cannot be raised in affidavit evidence filed after the expiry of the statutory period.

The evidence

The statutory period affidavit

1. In order to determine what disputes and matters are supported by the statutory period affidavit, it is necessary to closely consider its contents.  Relevantly, Mr Thompson deposes:

3.In or about May 2020, I was [sic] met with Arthur Langadiotis, a director of Brisbane Project Groups Pty Ltd A.C.N. 624 537 293 (BPG) to invest in a development project at 24 McLean Street, Brunswick VIC (Property) as joint venture partner.  Now produced and shown to me and marked with the letters AT2 is a copy of that [sic] a historical Register Search issued by the Titles Office of Victoria.

4.At that meeting, BPG advised me that:

(a)it was a contracted purchaser of the Property but was in default; and

(b)the development of the Property was almost completed; and

(c)more funding was required to complete the project; and

(d)BPG had difficulty in securing finance for completion of the project; and

(e)[iDevelopment] was the builder for the project.

5.On or about 14 July 2020, I paid the sum of $90,000.00 on behalf of BPG.

6.Prior to October 2020, BPG confirmed with me that it would not be able to complete the acquisition of the Property.

7.In October 2020 by mutual arrangement, I met with the director of [iDevelopment], Maurice Randello who gave me assurances that he would procure the finance to complete the project.

8.On 22 October 2020, I met with [iDevelopment] again. At this meeting, [iDevelopment] presented me with a commercial building contract which I signed (Contract). Now produced and shown to me and marked with the letters AT3 is a copy of the Contract.

9.On or about 29 October 2020, I directed the company accountant to pay [iDevelopment] the sum of $71,500.00 as deposit for [iDevelopment] to recommence building works.

10.To give efficacy to the Contract and in accordance with Item 21 of the Schedule of the Contact, [Life Springs] would have to:

(a)Firstly, be in a position to give possession of the Property to [iDevelopment]; and

(b)Secondly, provide evidence of [Life Springs’] capacity to pay the Contract sum.

11.      To the best of my knowledge, [iDevelopment] has:

(a)not been able to procure funding as promised.

(b)ever [sic] required manned security for the Property owing to the existence of security cameras (as it claims under invoices 003 and 009), security fencing as I observed via several spot visits to the Property.

12.      [Life Springs] has neither:

(a)had any type of right to possession of the Property; nor

(b)been in any position to give possession of the Property to [iDevelopment]; nor

(c)had any capacity to pay the Contract sum.

13.Neither [Life Springs], nor any director or shareholder of [Life Springs] nor anyone it is associated with will profit from works, if any, performed by [iDevelopment].

14.On 7 July 2021, [iDevelopment] served a Statutory Demand on [Life Springs] alleging a debt of [$] 351,358.17 arising from the Contract.

15.There is no court order to sustain proof of the debt claims [sic] by [iDevelopment].

1. The contract referred to in paragraph 8 of the statutory period affidavit, the Medium Works Construction Contract (‘Contract’), is exhibited and described in the schedule to the Demand.

1. I pause to observe that the only dispute which appears to be expressly raised in the statutory period affidavit is that relating to the claim in the Demand for manned security mentioned in paragraph 11.  There is also perhaps a dispute supported inferentially by the rather oblique reference in paragraph 15 to there being no judgment supporting the Demand but this is not developed in the affidavit.  This was subsequently sought to be fashioned by Life Springs into a ground that the claim was one for damages for breach of contract which had not been transformed into a liquidated claim and therefore was not susceptible to being the subject of a statutory demand.

iDevelopment’s evidence

1. iDevelopment relied on the affidavit of Mr Randello sworn 16 August 2021 in opposition to Life Springs’ application.  Mr Randello is the sole director of iDevelopment, a company involved in building and construction.  One of iDevelopment’s projects is at the McLean Street Property.  The registered proprietor of the McLean Street Property is 24 McLean Street Pty Ltd (‘McLean Street’).

1. Mr Randello states that in 2020 iDevelopment was in the course of constructing 10 units at the McLean Street Property however a dispute arose between McLean Street and the mortgage lender, Acquisition Partners Pty Ltd (‘Acquisition Partners’) and the development at the McLean Street Property and works came to a halt. 

1. Mr Randello states that on about 13 October 2020 his father Tony Randello, who was a project manager for McLean Street informed him of a meeting that several people would be attending.   Those persons included Alan Thompson on behalf of Life Springs, Rick Lenzi, Life Springs’ accountant, Tony Randello on behalf of McLean Street, Bill Meletis also representing McLean Street, Matt Judkins, an intermediary who was facilitating discussions, and Alastair Grigor, a business associate of the parties.

1. Mr Randello did not attend the meeting but states that during the meeting he received a telephone call from Tony Randello who indicated that Mr Thompson had asked when iDevelopment could take possession and recommence construction.  Mr Randello indicated to his father in that telephone call that iDevelopment would recommence construction once a building contract had been signed, a deposit had been paid and issues regarding onsite security had been rectified.  Mr Randello states that Tony Randello informed him and he believes that he passed that information on to those people attending the meeting.

1. Mr Randello states that on 14 October 2020, Mr Judkins sent an email to Tony Randello and Mr Thompson which Tony Randello then forwarded to him requesting that Tony Randello and Mr Thompson attend to various matters with respect to the McLean Street Property. 

1. He states that on 22 October 2020, his father informed him that all necessary matters set out in Mr Judkins’ email of 14 October 2020 had been attended to and that on the same day, iDevelopment and Life Springs executed an agreement titled ‘Project Overview and Agreement’ (‘Project Overview Agreement’). That agreement is concerned with the completion of the construction at the McLean Street Property.  Life Springs is described in that document as the ‘Funder’ and ‘Financier.’ 

1. Although the parties are in dispute as to what that agreement was intended to achieve,[10] the Project Overview Agreement provided that the broader transaction between the parties was intended to operate as follows:

   [10]See affidavit of Alan Thompson affirmed 22 October 2020 (‘Further Thompson Affidavit’) [21] Cf Randello Affidavit.

(a)   McLean Street would remain the registered proprietor of the property site;

(b)  Life Springs, and Mr Thompson in a personal capacity, would pay further and ongoing costs necessary to complete the construction project, including in repayment of the first mortgage and the construction funding costs, in addition to providing a guarantee that such payments would be made promptly; and

(c)   once the construction project was completed, each of the units would be sold (other than one apartment which was to be retained by McLean Street) and the proceeds of the apartment sales would be applied in the following order of priority:

Use of Apartment Sales Proceeds

Proceeds from apartment sales will be allocated in the following priority order:

$ 2,840,000     To repay the property debt

$ 1,430,000     To repay construction loans

Apartment 7   As agreed between [McLean Street] (and/or its nominee), retains the absolute and unencumbered ownership

$ 65,000Building retention to be held on Trust by WMB Lawyers on behalf of [McLean Street], [Alan Thompson] and [Life Springs]

$ TBATo pay or repay other costs required to finalise the project, for example, Council Rates, Land Tax, Council Contributions (open space and air space) and other such costs and any tax of [McLean Street] directly relating to the project

$ TBAThe remaining surplus will be distributed to [Alan Thompson] and [Life Springs]

1. Mr Randello states that on 28 October 2020, iDevelopment and Life Springs executed the Contract for iDevelopment to complete the works at the McLean Street Property.  He states that on 6 November 2020, Life Springs paid the deposit of $71,500 under the Contract and, following receipt of the deposit, iDevelopment took possession of the McLean Street Property and recommenced building works.

1. Mr Randello states that on 17 November 2020, iDevelopment gave Life Springs an invoice for a progress payment in the sum of $141,082.63.  Mr Randello deposes that he did not receive any ‘protest’ from Mr Thompson or anyone else on behalf of Life Springs that this, or any of the later invoices, were not payable until after service of the Demand.

1. Mr Randello states that on 23 November 2020, Mr Thompson on behalf of Life Springs, Mr Grigor on behalf of McLean Street and Tony Randello executed an agreement titled ‘Project Recovery and Administration Agreement.’  Mr Randello states that the agreement is in similar terms to the Project Overview Agreement of 22 October 2020, and Life Springs is again described as ‘Funder and Financier.’

1. iDevelopment continued carrying out building works at the McLean Street Property until the mortgagee, Acquisition Partners, took possession of the property on 4 February 2021.  He states that on 26 March 2021, iDevelopment issued the first letter of demand in respect of overdue payments. 

1. In its letter of demand, iDevelopment refers to a series of invoices said to be owing by Life Springs under the Contract totalling $351,358.17, the amount claimed in the Demand.  That amount is comprised of the following:[11]

   [11]See exhibits to Randello Affidavit from p 150.

Invoice No.	Date of Issue	Amount	Description
001	17 Nov 20	$141,082.63	Construction progress claim (‘claim 1’)
003	5 Dec 20	$43,670.00	Security
011	31 Jan 21	$1,029.60	Additional Labour
009	31 Jan 21	$124,027.20	Security
010	31 Jan 21	$5,807.86	Interest on Overdue Payments
012	31 Jan 21	$4,356.00	Scaffold Over hire
013	26 Mar 21	$7,764.59	Interest on Overdue Payments
014	26 Mar 21	$23,620.29	Retention
Total	$351,358.17

1. I note that invoice 001 (‘first invoice’) appears to be calculated as an amount which was initially for the amount of $214,729.93 (described as ‘claim 1’) against which deductions were made for a retention charge of 10% in the sum of $21,472.99 and for a deposit which had been paid of $65,000.[12]

   [12]Which appears to be the pre-GST amount paid by Life Springs in its deposit in November 2020.

1. Mr Randello does not elaborate as to how claim 1 is calculated or what works comprises it.  He states that on 4 June 2021, iDevelopment’s solicitors sent a further letter of demand to Life Springs.  Mr Randello states that iDevelopment’s solicitors have informed him and he believes that they did not receive any response, nor has Mr Randello received any response to that letter.

1. On 8 July 2021, iDevelopment’s solicitors served the Demand on Life Springs, together with the affidavit in support of the Demand.

Life Springs’ further evidence

1. In the Further Thompson Affidavit, Mr Thompson deposes in more elaborate detail than the statutory period affidavit to the grounds he seeks to raise to set aside the Demand.  The affidavit purports to ‘expand upon, and set out in more detail, the grounds which, as identified in [the statutory period affidavit], Life Springs has for setting the statutory demand aside.’ However there is a real  question  as to whether the Further Thompson Affidavit seeks to agitate matters which are not supported by the statutory period affidavit.

1. In the Further Thompson Affidavit, Mr Thompson contends there are four grounds available to Life Springs to set aside the Demand and identifies in parentheses the paragraphs in the statutory period affidavit which he says supports each ground.  He describes them as follows:[13]

(a)Ground 1 – approximately 50% of the value of the invoices issued by iDevelopment relate to costs for ‘security charges’.  No such costs have ever been incurred by iDevelopment, nor is the claim for such costs a claim for debt (paragraphs 8, 11(b) and 14 of my First Affidavit);

(b)Ground 2 – the Building Contract has at all times been incapable of performance in circumstances where there was a mortgagee in possession, the funds necessary to pay out the mortgagee in possession were never obtained, and Life Springs never had the possessory interest the subject of the building contract (paragraphs 8, and 10-13 of my First Affidavit);

(c)Ground 3 – further, iDevelopment has never performed, and has never provided Life Springs with any proof, that the building works the subject of the ‘claim 1’ invoice it issued were in fact carried out (paragraphs 13-15 of my First Affidavit); and

(d)Ground 4 – further, if the ‘security costs’ were incurred by iDevelopment (which is denied), the quantum of the costs incurred was unreasonable and unnecessary (paragraph 14(b) of my First Affidavit).

[13]Grounds 1-4 contained in the Further Thompson Affidavit broadly emulate the first through to fourth grounds raised by counsel for the plaintiff in its written submissions which are considered below.

1. Mr Thompson identifies who he considers to be the relevant parties and participants in the project as being McLean Street, Tony Randello, iDevelopment, Mr Randello, Life Springs, Acquisition Partners, and Brisbane Projects Group Pty Ltd (‘Brisbane Projects’), who is described as a proposed secondary financier.

1. Mr Thompson states that in May 2020, he was introduced to Arthur Langadiotis for the purpose of investing in the development at the McLean Street Property.  Mr Langadiotis informed him that Tony Randello (as the developer) and Mr Randello (as the builder) had previously been conducting the project but had defaulted in repaying the construction loan provided by Acquisition Partners, after which Acquisition Partners had taken possession of the McLean Street Property and offered it for sale.  Mr Langadiotis also informed Mr Thompson that Brisbane Projects, a company which he owned, had entered into a contract to purchase the McLean Street Property from Acquisition Partners with the intention of completing the project however he had been having difficulties in raising the necessary finance to complete the project. 

1. Mr Thompson states that he agreed with Mr Langadiotis to invest in the project and during the period August 2020 to November 2020, at Mr Langadiotis’ direction he paid sums totalling around $900,000 for project related expenses.  Mr Thompson states that the understanding between him and Mr Langadiotis (or Brisbane Projects) was that at the conclusion of the project, he would receive one of the completed apartments in exchange for the contributions which he had made.  Mr Langadiotis told him the apartments would be worth collectively about $7 million so that a profit would be made on the sums invested. 

1. Mr Thompson states that during the period between August 2020 to April 2021, Mr Judkins, who he understood to be a consultant acting for Brisbane Projects and later Life Springs, sought to secure the finance necessary to complete the sale of the site to Brisbane Projects and fund the balance of the construction works.  He states that at the same time Mr Judkins was working to obtain finance, he and Mr Langadiotis were also in discussions with Mr Randello and Tony Randello as to iDevelopment being retained to complete the balance of the construction works.  Mr Randello provided Mr Langadiotis and Mr Thompson with copies of draft construction contracts between iDevelopment and Brisbane Projects.  He states that by 8 October 2020, it became apparent that Brisbane Projects would not be in a position to complete its contract of sale with Acquisition Partners. 

1. Mr Thompson states that because of that development, a proposal was formulated whereby Life Springs would become involved in completing the project in place of Brisbane Projects.  He states that throughout October 2020, he had numerous telephone discussions with Tony Randello in relation to Life Springs and the project more generally.  Mr Thompson states that the purpose of those telephone discussions was to canvass options for completing the project and he recalls that during that period he had a telephone conversation with Tony Randello where they exchanged words to the following effect:

Mr Thompson:         ‘I have no more money to put into the project.’

Tony Randello:        ‘Leave it with me, I will seek the finance.’

Mr Thompson:         ‘Good, if you secure the finance, then the project will be able to proceed.  If you are unable to secure the finance then I have no more money to contribute, and I will lose the money I have already paid.’

Tony Randello:        ‘Yes, let’s work together to arrange the finance and get the project completed.’

1. Mr Thompson states that the reason he remained involved in the project was because of his concern that if Acquisition Partners simply sold the site then he would lose the money he had already contributed.  It was also apparent to Mr Thompson that, if the project could not be completed, Tony Randello, Mr Randello and their family would lose the McLean Street Property, Tony Randello would remain liable to Acquisition Partners and Mr Randello would not be paid for the construction works. 

1. Mr Thompson states that at the time of those discussions in October 2020, he understood and believed that the construction works were approximately 65% complete.  Mr Thompson states that based on his discussions with Mr Randello and Tony Randello, his understanding of the arrangements between them relating to completing the project and recovering the funds that they had collectively contributed, was that:

(a)   Tony Randello would, through his contacts, arrange a funder who could provide sufficient funding to complete the project;

(b)  Life Springs would be the borrower in respect of such funding once it was arranged; and

(c)   subject to the finances being arranged by Tony Randello:

(i)     the debt owed to Acquisition Partners would be paid out;

(ii)  a further amount of $1,430,000 would be made available to fund the balance of the proposed construction works; and

(iii)             Life Springs would be paid back the funds it lent and would be entitled to any residual profit realised from the completion of the project.

1. Mr Thompson states on the morning of 22 October 2020, and following the discussions and arrangements described in paragraph 39 above, Mr Randello and Tony Randello attended his offices in William Street, Melbourne.  Mr Judkins was also present and in the course of that meeting, Mr Randello, Tony Randello and Mr Thompson had a discussion where words to the following effect were exchanged:

Mr Thompson:         ‘I want to preserve the money that I have put into this project.’

Tony Randello:        ‘As we have previously discussed, I will source the funding for the project so we can finish it.  The project has been 65%-70% completed.’

Mr Randello:           (handing Mr Thompson a copy of the building contract) ‘Here is a copy of the contract, can you please execute it.’

Mr Thompson:         (to Mr Judkins) ‘Is this contract safe to sign, have you looked at it, is it all good?’

Mr Judkins:‘Yes it is, it [sic] a standard building contract.  Alan, you need to pay $71,5000 as soon as possible for the project to recommence.  Please pay the money within 24 hours, they are already back on site.’

Mr Thompson:         ‘Okay, I will arrange for the payment’.

1. Mr Thompson states that following that discussion, he executed the Contract and the Project Overview Agreement to which reference has been made.  Mr Thompson states that he did not carefully read the Project Overview Agreement at the time he signed it and if he had done so he would not have signed it.  The Project Overview Agreement records that the project had already commenced and was about 65% completed, and that McLean Street would assist Mr Thompson and Life Springs to secure construction funding where necessary. 

1. Mr Thompson states that around 5 November 2020, Tony Randello telephoned him.  They had a further discussion in which words to the following effect were stated:

Tony Randello:        ‘I need to get some monies to start the project.’

Mr Thompson:         ‘I will arrange for the funds to be paid.  You realise I have no more money to put into this, how is the funding going?’

Tony Randello:        ‘I am working on it.  I have some prospects, and I am confident that we will get the funding’.

Mr Thompson:         ‘Great, thanks.’

1. Mr Thompson states that following this discussion, he arranged for Life Springs to pay from his own funds a sum of $71,500 to iDevelopment on 6 November 2020.

1. He states that on numerous occasions over the following months, and at least three times a week, he personally attended the McLean Street Property for the purpose of understanding what building works were being carried out.  On each occasion he attended, during the day and usually between 11:00am and 9:00pm, it was apparent to Mr Thompson that:

(a)   there were no more than two or three people on site;

(b)  there were no tradespeople on site;

(c)   there were no security personnel on site;

(d)  no actual construction works were being carried out;

(e)   there were no supplies, or construction materials coming to or being utilised at the site; and

(f)    over approximately 12 months of his regular visits to the site, there was no progress at all in relation to the construction works.

1. Mr Thompson makes reference to the Randello Affidavit where he refers to Life Springs having been issued with a progress payment invoice for $141,082.63 on 17 November 2020.  Mr Thompson states that no such invoice was ever issued to or received either by him or Life Springs around that time.  He states that the first time he saw a copy of that invoice was in the letter of demand.  Notwithstanding this, Mr Thompson makes the following observations in relation to the invoice:

(a)   it was issued only seven business days after Life Springs had made the $71,500 payment to iDevelopment which Mr Randello said needed to be paid before any further construction works would be carried out.  Further, Mr Randello states in his affidavit that iDevelopment did not actually recommence work until after it received those funds;

(b)  Mr Thompson states that he has never seen a quantity surveyor’s claim recommendation in relation to the invoice, nor is such a document put into evidence in Mr Randello’s affidavit;

(c)   the invoice is not for $141,082.63, the total value of it is $214,729.93;

(d)  no itemisation or explanation of what works it relates to are identified, which only states ‘claim 1’; and

(e)   by reference to his observations as to what construction activity was occurring on the project site during the period around 6 November 2020 to 17 November 2020, he states that iDevelopment cannot have carried out $214,729.93 worth of construction works during that time.  In fact, from his observation, it was apparent that no work at all was being performed during that period.

1. Mr Thompson refers to Mr Randello’s affidavit where he refers to and exhibits the Project Recovery and Administration Agreement which Mr Randello contends was executed on 23 November 2020.  Mr Thompson says he has reviewed that document carefully and says that prior to being served with Mr Randello’s affidavit, he had never seen it.  In addition, he observes that on the signature panel, it appears to have been signed by Mr Thompson.  However, as referred to above:

(a)   he had not seen the document prior to being served with Mr Randello’s affidavit;

(b)  he denies ever signing the document; and

(c)   the blue pen handwriting across the two pages of signature panels is not his handwriting.

1. Mr Thompson makes reference to the evidence of Mr Randello where he refers to a letter of demand issued by iDevelopment’s solicitors to Life Springs on 4 June 2021.  Mr Thompson states that the letter of demand exhibited to Mr Randello’s affidavit was issued on 26 March 2021, was not issued by a solicitor and it annexes a number of invoices.  He states that in addition to the first invoice, the balance of the invoices relate, for the most part, to alleged security charges.  He states that the first time he ever saw any of those invoices was when the letter of demand was issued to Life Springs around late March 2021.  He says he ‘did not provide a response to the letter as the claim had been made up by [Mr Randello] and did not warrant a response.’

1. Mr Thompson makes the following observations in relation to the letter of demand of 26 March 2021, and the invoices to which it refers:

(a)   the letter of demand makes clear that the alleged 24-hour on-site security was engaged in response to iDevelopment suspending works due to the non‑payment of the first invoice.  The first invoice was, on its face, issued on 17 November 2020 and purports to provide payment terms of seven days.  Mr Thompson observes that the charges for ‘24hrs on site security’ and ‘Night only 2^nd Security’ contained in invoice 003 dated 5 December 2020 commenced from 12 November 2020.  That is, those charges are said to have been incurred before the first invoice had been issued, before it fell due for payment and in circumstances where iDevelopment says those charges were incurred by reason of a failure by Life Springs to pay the first invoice;

(b)  the letter of demand makes clear that the security charges were incurred pursuant to iDevelopment’s alleged contractual duty to ‘take all reasonable steps to mitigate any loss or damage to the property.’  However, invoice 009 purports to charge a 20% margin of $18,792.00 on those costs;

(c)   Mr Thompson states that he has never sighted any contract, remittance advice or other document evidencing that iDevelopment ever engaged a third‑party security contractor or paid the significant sums as claimed to any such contractor, nor are any such documents exhibited to Mr Randello’s affidavit; 

(d)  from inspections of the project site which have been referred to, it was apparent to Mr Thompson that no such security provider had in fact been engaged;

(e)   in circumstances where Acquisition Partners was the occupant of the site and mortgagee in possession at the time the alleged security charges were incurred, it is not clear to him why iDevelopment would have needed to incur any such charges; 

(f)    invoices 010 and 013 relate to interest charges on, for the most part, the ‘claim 1’ payment and security charges and he denies, for the reasons described, that iDevelopment is liable to pay any such interest;

(g)  invoices 010 and 012 relate to alleged labour charges and other expenses incurred during the period 29 January 2021 and 8 December 2021 respectively.  Mr Thompson denies that iDevelopment is liable to pay any such charges for the reasons he has already given; 

(h)  Mr Thompson states that invoice 014, dated 26 March 2021, relates to an alleged 10% retention held and deducted from the first invoice.  Mr Thompson states that all that does is increase the value of the first invoice said to be outstanding by the amount of the retention and denies liability for it.

1. Mr Thompson says that the statement in Mr Randello’s affidavit that Tony Randello had informed him that all matters described in Mr Judkin’s email had been attended to is untrue.  He states that to the best of his knowledge the project feasibility and summary documents were never provided by Tony Randello to his financier and he never arranged the financing which he promised he would.

1. In addition, as to Mr Randello’s statement that iDevelopment continued carrying out the building works until the mortgagee took possession on 4 February 2021, Mr Thompson states that this cannot be true as Acquisition Projects was in possession of the site from around May 2020.  As to Mr Randello’s statement that iDevelopment suspended works and charged over $150,000 for security costs associated with locking up and securing the project site, he observes that there are no further documentary records of the additional work said to have been performed by iDevelopment.

1. In summation, he states as to the second ground in his affidavit mentioned that the Contract was never intended to become operative until such time as sufficient funding was secured so as to discharge the obligations of the mortgagee in possession and that never occurred.

1. Mr Thompson asserts that, in the limited time between recommencing works and then purporting to unilaterally suspend them, it is improbable that iDevelopment could have ever carried out the works the subject of the first invoice. 

1. He says that the claim for security charges has simply been made up by Mr Randello and that it is an ‘abuse [of] process’ for Mr Randello to have caused iDevelopment to have issued the Demand in respect of those charges.  He states that iDevelopment otherwise has no contractual entitlement to issue invoices by way of a debt outstanding for any such sums.

1. Finally, Mr Thompson states that the charges the subject of the invoices for security are completely unnecessary as building sites do not require 24-hour manned security.

Whether the plaintiff’s arguments relating to the interpretation of the Contract are precluded by operation of the Building and Construction Industry Security of Payment Act 2002 (Vic)

1. A preliminary issue arises as to whether the invoices comprising the demanded debt are the subject of unanswered payment claims under the Building and Construction Industry Security of Payment Act 2002 (Vic) (‘Security of Payment Act’), with the effect that there cannot be a genuine dispute regarding the contractual interpretation about them.[14] 

   [14]Security of Payment Act, s 16(4)(b)(ii); Re Douglas Aerospace Pty Ltd [2015] NSWSC 167; Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2018] NSWSC 1647.

1. At the earlier hearing on 12 October 2021, iDevelopment indicated to the Court that the invoices could not be payment claims and indicated that it would not press this argument.[15]  However, in its further written submissions and during the oral hearing, it contended the invoiced amounts were valid payment claims and as such, Life Springs was precluded from raising any dispute in this proceeding arising from the construction of the Contract regarding those debts.[16]  In particular, in response to the fourth ground, iDevelopment submitted that the invoices relating to security costs attracted the ‘protection’ of the Security of Payment Act by the cumulative operation of cll 17 and 21 of the Contract relating to variations.[17]

   [15]Transcript of Proceedings, Re Life Springs Pty Ltd (Supreme Court of Victoria, S ECI 2021 02643, Gardiner AsJ, 12 October 2021) 6, lines 10-11.  

   [16]Security of Payment Act, s 16(4)(b)(ii).

   [17]Transcript of Proceedings, Re Life Springs Pty Ltd (Supreme Court of Victoria, S ECI 2021 02643, Gardiner AsJ, 29 October 2021) (‘Transcript’) 42.

1. I reject that submission.  First, I consider that there is a genuine dispute as to whether the payment claims were served within time.[18]  In MKA Bowen v Carelli Constructions,[19] Digby J held that the service of a progress claim can only be made on or after the relevant ‘reference date.’  I accept Life Springs’ submissions that the first invoice, for claim 1, which was issued on 17 November 2021 for works commenced from 6 November 2021, appears to be in contravention of the contractual requirement that such invoice be served on the 28^th day of each month in which the works are done.[20] 

   [18]As is required by the Security of Payment Act, s 14(4).

   [19][2019] VSC 436.

   [20]See cl 21.1 and Item 15 of the Contract. 

1. I also accept Life Springs’ submission that the security charges claimed in invoice 003 (the ‘third invoice’) pre-date any contractual regime under which such claimed amounts could be said to arise. [21]  The security charges claimed in the third invoice are said to arise by reason of suspension of works for non-payment of the first invoice by the plaintiff, however, the third invoice claims security costs incurred from 12 November 2020 (i.e. prior to when the first invoice was issued on 17 November 2021).

   [21]Transcript, 18-19 and Further Thompson Affidavit [28].

1. Second, there is a genuine dispute as to whether the invoices are valid variations under the Contract as contended for by Life Springs, given that:

(a)   clause 20.1 required that iDevelopment must not vary the works except as directed or as agreed in writing – there is no evidence that any of the variations the subject of the invoice were made in writing or with the consent of the Life Springs;

(b)  clause 21.2(b) of the Contract requires that any progress claims must include ‘details of the value of the works carried out and of other moneys to the [b]uilder pursuant to the provisions of the contract’ – the invoices each provide scant details of the works said to have been performed.  Notably, the first invoice provides no itemisation or description of ‘claim 1’ which is said to be for $214,729.93; and

(c)   clause 20.5 of the Contract requires that, where the client and builder do not agree on the price of a variation, the price of that variation is to be calculated using ‘reasonable rates and prices.’  For the reasons given below in relation to the fourth ground, there is a genuine dispute as to whether the security costs were calculated in accordance with that term.

1. For the above reasons, I am satisfied there is a genuine dispute as to whether the invoices are valid payment claims under the Security of Payment Act. I therefore do not consider that Life Springs is prevented from raising a dispute in respect of the debt claimed in the Demand arising from the construction of the Contract pursuant to s 16(4)(b)(ii) of the Security of Payment Act.

The grounds sought to be agitated by Life Springs

1. Counsel for Life Springs, Mr Fry, contended that the following issues arise for determination in this application:

(a) whether the Demand was defective for ‘some other reason’ and should be set aside pursuant to s 459J as, in actuality, the Demand is a claim for damages as opposed to a debt (‘first ground’);

(b)  whether there is a genuine dispute as to whether, given the terms of the contractual agreement between the parties and specifically with regard to the terms of commencement under the Contract, the debt the subject of the Demand was due and payable (‘second ground’);

(c)   whether there is a genuine dispute as to whether, given the terms of the contractual agreement, iDevelopment had carried out the works for which it had invoiced (‘third ground’); and

(d)  whether there is a genuine dispute as to whether, given the terms of the contract between the parties, iDevelopment had unreasonably incurred costs the subject of the Demand (‘fourth ground’).

The first ground

1. Mr Fry contended first that the Demand should be set aside on one or other of the grounds mentioned in s 459J. He developed that submission by reference to the terms of the Contract, with particular reference to cl 20, which provides that the builder must not vary the works except as directed or as agreed in writing, and to cl 8, which provides for the parties indemnifying each other against certain matters with cl 8.2 providing that the builder must take all reasonable steps to mitigate any loss or damage caused or contributed by a client’s risk.

1. Mr Fry then referred to the first letter of demand, which preceded the issue of the Demand.  That letter was not exhibited or referred to in the statutory period affidavit but he contended that it was nonetheless capable of supporting a ground to set aside the Demand as it was an annexure to the originating process issued by Life Springs.  This, he contended, enabled Life Springs to agitate issues mentioned in the first letter of demand and contend that the security charges are in the nature of a claim for damages. 

1. Mr Fry emphasised those parts of that letter of demand concerned with its references to cl 8.2, noting iDevelopment’s obligation to take all reasonable steps to mitigate any loss or damage to the property and then proceeded to detail the claims made for on‑site security, which he contended were not the subject of a variation in compliance with cl 20.

1. Mr Fry contended that these invoices, having their source in cl 8 of the Contract thereby constituted claims for damages for which a statutory demand cannot be issued. He noted that the Demand claims $351,358.17, but of that total, $172,271.51 are claims referable to securities charges, together with interest and builder’s margin claimed in respect of those charges. As such, he says, just under half of the amount claimed in the Demand is referrable to a wholly unsubstantiated and unadjudicated claim for damages. He says therefore that the Demand falls foul of both limbs of s 459J(1) but particularly ‘some other reason’ under s 459J(1)(b) and should be set aside.

1. Mr Fry contended that Life Springs’ entitlement to agitate that issue is supported by paragraph 11(b) and paragraph 15 of the statutory period affidavit.  As earlier discussed, paragraph 11(b) of the statutory period affidavit stated that iDevelopment did not require manned security by reason of the existence of security cameras and security fencing.  He contended that paragraph 15, which  pointed to the absence of a court order ‘to sustain proof of the debt claims [sic] by [iDevelopment],’ supported the first ground.

1. Life Springs contends that, as the Contract was exhibited to the statutory period affidavit, the first ground is raised by necessary or reasonably available inference as the Contract contains the circumstances under which a payment claim can be issued for expenses arising from a suspension of works.

1. In the course of the hearing, Mr Fry contended that there is a ‘spectrum’ of species of grounds that may be raised in an application to set aside a statutory demand.  He submitted that as the ground that the demanded sum is actually in respect to unliquidated damages is a comparatively ‘obvious ground’, it falls within the category of being inferentially available with reference to the contents of the documents exhibited to the statutory period affidavit.  Mr Fry referred to various passages of Sceam[22] in support of the proposition that the case at hand could be distinguished from Sceam as, in this proceeding, the underlying contract was exhibited.

   [22]Sceam (n 6) [88]-[92].

1. Counsel for iDevelopment, Mr Wirth, in his submissions in response contended that the annexure of the Demand and affidavit in support to the originating process together with the exhibits to it did not assist Life Springs.  The statutory period affidavit referred only to the existence of the Demand and the amount of the claim, did not contain any reference to the affidavit in support or the documents exhibited to it, including the first letter of demand and did not assert, ‘even by mere bluster’, that the amount claimed in the Demand contains an unadjudicated claim for damages; less still does it ‘identify expressly, [or] by necessary or reasonably available inference [from] what [Mr Thompson] said or from the documents exhibited to his affidavit, anything upon which a legal argument could be mounted to establish such an assertion.’ 

1. Mr Wirth submitted that Life Springs sought to mount legal arguments by reference to documents which are not included in the statutory period affidavit but are sought to be incorporated into the affidavit by ‘cascading references from one document to another.’ Mr Wirth submitted that whilst such an approach may suffice for the incorporation of terms into an agreement or a form of commercial discourse, it does not meet the judicial understanding of the expression ‘an affidavit supporting the application’ in s 459G of the Act. He contended that the need for the ‘cascading references’ demonstrated that the documents sought to be relied on simply do not form part of the statutory period affidavit.

1. On an application of the principles set out in Sceam, I cannot accept the submission that by attaching a copy of the Demand which, in turn, attached the letter of demand to the originating process, Life Springs was thereby entitled to agitate the first ground.  There is no inkling in the statutory period affidavit of such a ground, nor do I consider that it can be inferred.  I do not consider that the attachment of the document together with several other documents to the originating process, without more, is sufficient. 

1. Similarly, in my view, it is drawing a very long bow to contend that paragraph 15 should be read in such a way as to support a ground that the Demand should be set aside because it makes a claim for damages.  In my view, a plain reading of paragraph 15 constitutes a statement that there is no judgment of a court to support the debt claimed by iDevelopment.  It does not support the ground for which Mr Fry contends. 

1. As I will discuss at a later stage, paragraph 11(b), for all its shortcomings in the manner it is expressed, supports a ground as for there being a genuine dispute in respect of the security charges claimed in the Demand which permits that issue to be the subject of elaboration as it was in the Further Thompson Affidavit.  It is a clear enough statement that a dispute was being raised in respect of the need for manned security and that there was an objection to paying for such charges.  I shall return to that issue later in these reasons.

The second ground

1. The second ground relates to whether there is a genuine dispute as to whether the contract had commenced having regard to terms of the Contract and therefore whether the debt the subject of the Demand was due and payable.

1. In its further written submissions, iDevelopment conceded that the statutory period affidavit ‘supports’, as a ground of Life Springs’ application, a proposition that, on a proper construction of the Contract, Life Springs was not liable to pay the debts the subject of the Demand.[23]

   [23]Defendant’s further written submissions [16]; Transcript 3, lines 13-15.

1. Mr Fry described the second ground as being that, as a matter of contractual interpretation, the Contract was never operative.  He submits that the statutory period affidavit at paragraph 10 describes this ground in ‘broad terms’ without specifically identifying the contractual provisions relied on.  He contends that in circumstances where the Contract is exhibited that ground has been raised or is ‘supported’ by the statutory period affidavit.

1. Paragraph 10 of the statutory period affidavit deposes that in order to give efficacy to the Contract and in accordance with Item 21 of the schedule to the Contract, Life Springs would have to be in a position to give possession of the McLean Street Property to iDevelopment and to provide evidence of its capacity to pay the Contract sum.  Mr Fry made reference to Item 4[24] of the Contract, which provides that it was to commence two weeks from the later date that Life Springs gave possession of the site to iDevelopment and evidence of its capacity to pay the Contract sum.  He contended that a commercial and common-sense interpretation of Item 4 is that before the Contract became operative, Life Springs first needed to secure funding to pay out Acquisition Partners and fund the building works.  As such, Mr Fry contended the Contract was conditional and subject to finance. 

   [24]Although Mr Fry referred to ‘cl 4’, it seems clear from the context that he intended to refer to Item 4 in the schedule to the Contract.

1. Mr Fry also pointed to certain ‘obvious difficulties’ with the Project Overview Agreement. As such, he contended the Court ought to be satisfied that the question of the proper interpretation of Item 4 represents a plausible contention requiring investigation and therefore the existence of a genuine dispute within the meaning of s 459G.

1. Mr Wirth, counsel for iDevelopment, contended that Item 4 merely provides particulars for the interpretation of cl 16 of the Contract, and in particular it gives context to the meaning of ‘commencement date’ in that clause.  Clause 16.02 of the Contract requires the builder, iDevelopment, to commence by the commencement date.  Mr Wirth submitted that definition of ‘commencement date’ in Item 4 does not suggest that the formation of the Contract, or the rights of iDevelopment under the Contract, are subject to finance.  He submits that it follows that, having performed the work (in the absence of any objection on Life Springs’ part), iDevelopment is entitled to be paid for its work in relation to the Contract. 

1. Mr Wirth states that even if the above analysis is not correct, Life Springs’ obligation to give possession of the McLean Street Property was discharged.  Mr Wirth refers to Mr Randello’s evidence of the sequence of events that led to iDevelopment taking possession which notably included payment by Life Springs of the deposit under the Contract.  Further, the evidence of capacity to pay was satisfied by Life Springs and Mr Thompson personally committing, in the separate agreements of 22 October and 23 November 2020, to the funding of, among other things, the construction costs. 

1. I think it can be accepted that the statutory period affidavit supports the alleged dispute based on the second ground.  However, I do not consider that ground to be arguable on a plain reading of the Contract.  I accept Mr Wirth’s submissions and I do not consider that the position being put forward by Life Springs regarding the construction of the Contract is tenable.

The third ground

1. As to the third ground, Life Springs contended that iDevelopment has never performed and has never provided Life Springs with any proof that the building works the subject of the first invoice contained in the Demand were, in fact, ever carried out.  This is said to be ‘supported’ by the ‘cumulative operation’ of paragraphs 13 to 15 of the statutory period affidavit. 

1. Paragraphs 13 to 15 of the statutory period affidavit in short compass contend that neither Life Springs nor any director or shareholder of it, nor anyone who was associated with it, will profit from the works performed, if any, by iDevelopment.  In the statutory period affidavit, Mr Thompson later deposes that the Demand was served on Life Springs on 7 July 2021 and concludes that ‘there is no court order to sustain proof of the debt claims [sic] by [iDevelopment].’ 

1. Life Springs submits that nowhere in Mr Randello’s evidence does it actually depose whether or not iDevelopment performed the works the subject of the first invoice, nor have any documentary records been provided which might corroborate such an assertion.  In addition, Mr Fry drew attention to the fact that the security charges appearing in iDevelopment’s invoices commence from 12 November 2020, noting that iDevelopment’s evidence is that the security personnel were only engaged after it suspended works.  As such, it is said that the Court ought look on the first invoice with suspicion. 

1. The evidence in the Further Thompson Affidavit and the submissions in regard to this ground have cogency and are plausible.  In short compass, the evidence is that iDevelopment did not commence the works under the Contract until it received the deposit funds on 6 November 2020 and purports to have issued ‘claim 1’ on 17 November 2020.  As such, the period in which iDevelopment could have performed the works was between 9 November 2020 to 17 November 2020, a period of seven business days.  It was submitted that it is objectively improbable that iDevelopment performed $214,729.93 of works during that time.

1. I cannot discern, aside perhaps from the reference to the words ‘(if any)’ included in parentheses in paragraph 13, of words which support the third ground that iDevelopment had not performed the relevant works.  Such a ground is developed in Mr Thompson’s further affidavit but that is not to the point in analysing whether any such ground was originally supported by the statutory period affidavit on an application of Sceam. 

1. If such matters had been ‘supported’ in the 21-day affidavit, the submissions that a genuine dispute arises in respect of the first invoice would, to my mind, have considerable force but I do not consider that the statutory period affidavit supports such a ground and I am without jurisdiction to consider it.  It is true that Mr Randello’s affidavit is scant on the subject of the works being performed, but it was an affidavit in response and in opposition to the matters put in Mr Thompson’s statutory period affidavit.  Life Springs bears the onus in this application and it is, of course, its obligation to support the application adequately in respect of the grounds it relies on.  However, the absence of evidence in rebuttal to Mr Thompson’s further affidavit to which I have referred will become relevant in a different context later in these reasons.

The fourth ground

1. As to the fourth ground, Life Springs submits that if iDevelopment did incur the security costs, the quantum of the costs incurred was unreasonable and unnecessary.  This is said to be supported by paragraph 11 of the statutory period affidavit.

1. As I have previously observed, paragraph 11(b) of the statutory period affidavit made reference to the security charges so as to enable Life Springs to develop a ground based on a genuine dispute in respect of such charges in subsequent evidence.  The fourth ground was the subject of elaboration in the Further Thompson Affidavit which is summarised above.[25]

   [25]Referring, in particular, to Further Thompson Affidavit [27], [32].

1. Significantly, Mr Randello’s affidavit says nothing at all on the subject of the security charges.  Although Mr Thompson’s further affidavit was filed some two months after Mr Randello’s affidavit, there was adequate opportunity for iDevelopment to take issue with the matters the subject of the Further Thompson Affidavit in respect of the security charges but no evidence was filed in that regard and no adjournment of the application was sought for such purpose.  It was also silent on the issue that Mr Thompson describes that iDevelopment could not have carried out $214,729.93 of work in the short time frame available.

1. Invoices 003 and 009 clearly relate to security in the amount of $43,670.00 and $124,072.20 respectively, which total $167,742.20.  Mr Fry contended that invoices 010 and 013 are also caught up and are referrable to the security charges such that the total amount in respect of the claims associated with security and associated charges is $181,314.65. 

1. Even if invoices 010 and 013 were excluded, I am satisfied with reference to paragraphs 27 and 32 of the Further Thompson Affidavit,[26] together with Mr Fry’s submissions, that there is a plausible contention requiring further investigation as to whether entitlement on the part of iDevelopment arises in respect of the security charges and those other parts of the claim associated with such charges (‘associated security charges’).  Those claims have their source in the Contract by joint operation of cll 17 to 23 of the Contract, which relevantly provide as follows:

   [26]Which are summarised in detail in these reasons at [47].

(a)   the builder was entitled to suspend works under the Contract due to non-payment of the first invoice (cl 17.1);

(b)  there is deemed to be a variation to the Contract if the suspension caused the builder to incur additional costs that would not otherwise have been incurred by the builder but for the suspension (cl 17.3);

(c)   the security costs, including the associated security charges, fall within the ambit of cl 17.3 and are as such a deemed variation;

(d)  clause 20.5 provides that, if the client and the builder have not agreed on the price of a variation, the variation is to be priced by using:

(a)       comparative rates stated in the Contract; or

(b)       if no rates are so stated, reasonable rates and prices

(e)   the price of any deemed variation is taken to be added (or deducted) to the contract sum (cl 20.6);

(f)    invoices for the security costs, including associated security charges, have been purportedly issued as progress claims (cl 21.2); and

(g)  as Life Springs has not disputed the purported progress claims within seven days pursuant to cl 21, those amounts have become due and payable (cl 21).

1. I consider that there is a genuine dispute in respect of the security charges claimed in the Demand, including whether the charges exacted were incurred at reasonable rates and prices, whether they were necessary at all, and whether iDevelopments had an entitlement to make a claim in respect of them.

1. Given the above, there is a genuine dispute in respect of at least $167,742.20.

Should the Demand be set aside under s 459J(1)(b) of the Act?

1. Life Springs contended that, if there is found to be a genuine dispute relating to an amount of just under half of the total amount claimed in the Demand, the entire Demand should be set aside on application of s 459J of the Act rather than be varied in accordance with the regime of s 459H of the Act.

1. In this regard, Mr Fry made reference first to First State Computing v Kyling.[27]In that decision, Santow J held that where there is held to be a genuine dispute as to whether a portion of the debt is due and payable and where the remaining portion of the demanded debt is greater than the statutory minimum, the Court has a discretion whether to vary the statutory demand or to set it aside in its entirety. Santow J considered that such discretion would ordinarily be exercised where, under either limb of s 459J, the statutory demand would be set aside either due to a ‘defect’ or ‘some other reason.’ His Honour stated:

It is clear enough from the terms of s459H(4) that where the substantiated amount is at least as great as the statutory minimum, the Court has a discretion whether or not to vary the statutory demand. Thus the Court is not compelled to vary it. The word “may” in s459H(4) is to be contrasted with the word “must” in s459H(3), which clearly compels the Court to set aside the statutory demand where the “substantiated amount” is less than the “statutory minimum”. Thus even if the application of s459H results in the substantiated amount of the demand exceeding the statutory minimum, the Court may exercise its discretion under s459H(4) by declining to vary the demand to the amount determined to be the substantiated amount. It may also set aside the demand on the ground of it being overstated and hence defective under s459J(1), as explained below.

The question is thus how this discretion under s459H(4) to vary the demand should be exercised in the circumstances of this case. In particular, the question arises as to how this discretion should be exercised in circumstances where there is a large discrepancy between the amount claimed in the statutory demand and the substantiated amount of that demand.

…

It would indeed be incongruous for the Court to decline to exercise its discretion under s459H(4) to vary the demand unless it were also satisfied that an order setting aside the statutory demand should be granted under s459J. Where the substantiated amount of the demand is greater than the statutory minimum, s459H(4) merely grants power to vary the statutory demand. s459H(4) itself does not grant power to set the demand aside. Such power must come from elsewhere in the Corporations Law. If the Court declined to exercise its discretion under s459H(4), then in the absence of an order under s459J(1), the Plaintiff would still be subject to an effective and unvaried statutory demand yet one which overstated the properly claimed amount of the demand. Such a result could hardly be an appropriate exercise of the discretion under s459H(4).

…

The circumstance complained of by the Plaintiff as justifying a refusal to exercise the discretion under s459H(4) (thus in logic requiring an order setting aside the demand under s459J(1)) is the substantial discrepancy between the amount claimed in the demand and the substantiated amount. Indeed the Plaintiff has not put forward any other basis. This discrepancy between the two amounts clearly comes within the definition in s9 of the Corporations Law of “defect”, as including “a misstatement of an amount or total”. Thus the basis of the Plaintiffs application under s459J(1) is because of a defect in the demand … [28]

[27][1995] 13 ACLC 939.

[28]Ibid 950-1.

1. His Honour further considered that whether the defendant ought to have known that a substantial portion of the debt would be subject to a genuine dispute is relevant to whether the Court’s discretion should be employed:

Where a statutory demand has been so grossly inflated as almost exclusively to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served, then an order under s459J(1)(b) setting aside the demand may well be required to prevent such an abuse of the regime under Pt5.4. This is even if the substantiated amount remained above the statutory minimum. The lack of bona fides on the part of the creditor in serving a demand where substantially the whole claim was obviously in dispute might be relevant to this.[29]

[29]Ibid 951.

1. Mr Fry also referred to decision in UGL Process Solutions.[30]In UGL Process Solutions, Black J explored the principle further and indicated that there was no requirement that the creditor needed to have known that the demand sum was meritless from the outset and that the amount held not to be due and payable as a proportion of the total demand was relevant to the Court’s discretion:

UGLPS also contends that the Demand should be set aside under s 459J of the Corporations Act because of a defect in the Demand which will give rise to substantial injustice or because there is some other reason why the Demand should be set aside. UGLPS contends that the nature of the agreement and services performed by Akers are such that the unravelling of the debts truly owing is not readily ascertainable by it.

In my view, the inclusion in the Demand of substantial amounts which Akers now accepts were not due for payment, constituting more than half of the amount claimed, was in itself a defect which would give rise to substantial injustice, by requiring UGLPS either to move to set aside the Demand, even if they were to pay any amount of it which was otherwise properly due: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 at 750. This would warrant an order setting aside the Demand under s 459J(1)(a) of the Corporations Act.

The Court may set aside a statutory demand under s 459J(1)(b) of the Corporations Act if it is satisfied that there is some other reason that the demand should be set aside. The Court’s power under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd above; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; CP York Holdings Pty Ltd v Food Improvers Pty Ltd [2009] NSWSC 409. A statutory demand may be set aside under that section where it involves conduct which is unconscionable or an abuse of process: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22. In First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939, Santow J observed that a statutory demand could be set aside under s 459J(1)(b) by reason of a substantial overstatement in the amount claimed, and that, where a statutory demand has been so grossly inflated as to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served, then an order under s 459J(1)(b) setting aside that statutory demand may well be required to prevent such an abuse of the regime under Pt 5.4 of the Act.

I would not go so far, in this case, as to find that it would have been obvious from the outset that the matters raised by UGLPS amounted to a genuine dispute, since the correspondence indicates that Akers had made substantial attempts to address UGLPS’s demands for further information, and it was arguable that those demands for verification did not amount to a dispute of the amounts claimed, although I have not accepted that argument in the context of the nature of the claims and the parties’ submission to the audit process. However, in my view, a statutory demand for a substantially overstated amount, where more than half of the amount claimed was conceded to be genuinely disputed, and substantially all of the balance of the debt claimed was found to be genuinely disputed at the hearing, is nonetheless inconsistent with the proper use of the statutory regime. In my view, the Demand therefore should also be set aside in its entirety under s 459J(1)(b) of the Corporations Act. It remains open, of course, to Akers to bring proceedings to recover the amounts claimed.[31]

[30][2012] NSWSC 1256 (‘UGL Process Solutions’).

[31]Ibid [41]-[44].

1. In Re Wollongong Coal Ltd,[32] Black J stated that the default position would generally be to vary the demand rather than set the demand aside.  His Honour stated:

If the substantiated amount exceeds the statutory minimum, the Court will generally vary the demand pursuant to s 459H(4), unless the demand was so grossly inflated, or comprised matters which were so obviously in dispute, that the service of the demand amounted to an abuse of the regime under Pt 5.4: First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939; Re UGL Process Solutions Pty Ltd above at [12]. I do not accept that is the case here, for reasons that I indicate below in dealing with WCL’s and Wongawilli’s further submission in that respect. After excluding invoice CMH1868 in the amount of $16,562.71, the substantiated amount that is properly the subject of the creditor’s statutory demand by CMG to Wongawilli is $170,638.55. The demand should be varied accordingly under s 459H(4), and Wongawilli’s claim to set aside this demand on the basis of a genuine dispute is otherwise not established. [33]

[32](2015) ACSR 134 (‘Re Wollongong Coal Ltd’).

[33]Ibid 151.

1. In Re Granite Power,[34] Rees J, while setting aside the demand by reason of the existence of a genuine dispute in respect of the debt claimed in the statutory demand, observed in obiter that where 80% of the demand was the subject of a genuine dispute, the entire demand could be set aside on this basis.  Her Honour stated:

Had I not found there to have been a genuine dispute, I would have been inclined to agree with Granite Power as to these contentions.  As Black J noted in UGL Process Solutions at [41]–[44], a substantial overstatement, where much of the amount is later conceded to be genuinely disputed, may result in there being a defect and “substantive injustice” for the purposes of section 459J(1)(a), while also being an “improper use of the statutory scheme” such that the demand must be set aside under section 459J(1)(b). It is not necessary for the overstatement to have been “obvious at the outset”: at [44]. As the statutory demand must be set aside under section 459H, it is not necessary to decide this point.[35]

[34](Admin Apptd) [2019] NSWSC 1491 (‘Granite Power’).

[35]Ibid [39].

1. In Tekno Autosports Pty Ltd v Jenkins,[36] Gleeson J considered circumstances where the parties had agreed from the outset that a demand for $65,000 ought to be varied to $41,000.  Again, as in Granite Power, her Honour ultimately held that the entire sum was subject to a genuine dispute for other reasons but stated that she would, in any event, have set aside the entire demand under s 459J(1)(a) or (b). She stated:

I am satisfied that each of s 459J(1)(a) and (b) apply to the statutory demand and that, in the circumstances, the statutory demand should be set aside.

As to s 459J(1)(a), in my view the errors in the statutory demand fall within the meaning of “defect“ in s 9 of the Act. The statutory demand substantially overstated the debt due, apparently by including claims for wages which had been paid. In my view, substantial injustice would be caused to the company if it were to remain subject to a demand requiring payment of a substantial amount referable to wages which it has already paid. As in UGL Solutions, the substantial injustice arises from the requirement to take action to avoid the risk of being wound up for non-payment of amounts previously paid.[37]

[36][2014] FCA 774 (‘Tekno Autosports’).

[37]Ibid [68]-[69].

1. At [76], her Honour stated:

Finally, it should have been obvious to Mr Jenkins, from the detailed correspondence between the parties, including the extensive involvement of lawyers on both sides, that there was a significant dispute as to the company’s liability to pay him wages for the relevant period unpaid.  There is no evidence that the company was not acting in good faith in the position which it took. The debt was significantly overstated by the inclusion of amounts which had been paid.  Mr Jenkins did not seek to explain why the debt was significantly overstated, or why that overstatement was not conceded before the morning of the hearing. In my view, it is reasonable to infer that, when Mr Jenkins issued the statutory demand, he knew that there was a genuine dispute as to the existence of the debt, and he issued the demand in order to apply pressure to the company to compel payment of the disputed debt. That conduct is a further reason to set aside the statutory demand.[38]

[38]Ibid [76].

Consideration on the application of s 459J(1)

1. The Corporations Act provides for a mechanism under s 459H for the reduction of the amount of a demand in circumstances where the Court finds that there is a genuine dispute about part of the debt claimed or there is a finding that the company has an offsetting claim. Section 459H provides that if the amount arrived at by applying such reduction (‘the substantiated amount’) is in excess of the statutory minimum, the Court may vary the demand, or, if the substantiated amount is less than the statutory minimum, the Court is required by order to set aside the demand.

1. With respect, I agree with the views of Black J in Re Wollongong Coal Ltd that the default position would generally be to vary the demand rather than setting aside the demand.  In Re Wollongong Coal, Black J, after reducing the amount of the demand by approximately $16,500, varied the demand to be, effectively, a demand for approximately $170,000. 

1. The question, in the circumstances of this application, is should the default position be departed from and the Demand be set aside in circumstances where there is a genuine dispute in respect of the security and associated security charges resulting in a reduction of approximately 50% in the amount claimed in the Demand. 

1. In my view, the Demand should be set aside in its entirety under s 459J(1)(b) on an application of the authorities to which I have referred, in particular UGL Solutions at [44]. There is no requirement to show that iDevelopment was aware that the security costs were not due and payable ‘from the outset’ but there is an additional feature and that is, as I has observed, no response by iDevelopment to Mr Thompson’s further affidavit detailing why the security and associated security charges were not payable; iDevelopment, despite the opportunity to do so, did not respond to what I consider to be quite compelling reasons as to why the claims relating to security charges raised by Life Springs had no basis. This is not a circumstance in which, iDevelopment having responded, I was required to weigh up whether Life Springs’ evidence should be preferred over iDevelopment’s. Rather, there was no response at all and Mr Thompson’s further affidavit in that regard was, to my mind, quite plausible.

1. There is also the feature that, as Mr Thompson observed, no response was forthcoming in respect of the absence of any documentation or information regarding what works were the subject of ‘claim 1’ contained in the first invoice.  The Court was left uninformed at the conclusion of the application as to how iDevelopment would have performed construction work to the value of $214,729 over a period of seven working days.

1. In Tekno Autosports,[39] Gleeson J held that s 459J was available to set aside the demand in circumstances somewhat akin to the present. In that case, the creditor did not seek to explain why the debt was significantly overstated; here, there was no attempt to meet the evidence in Mr Thompson’s further affidavit as to the security and associated charges or the claim made in the Demand in the first invoice.

   [39][2014] FCA 774.

1. In the circumstances, I will adopt the approach by the authorities to which I have referred and set aside the Demand for ‘some other reason’ under s 459J(1)(b). I will make orders that the statutory demand dated 7 July 2021 and served on Life Springs by iDevelopment be set aside but before formally doing so I will allow the parties to submit short written submissions as to costs.