Re Simmoll Pty Ltd
[2021] VSC 693
•26 October 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 00316
IN THE MATTER of SIMMOLL PTY LTD (ACN 169 767 408)
| SIMMOLL PTY LTD (ACN 169 767 408) | Plaintiff |
| v | |
| MARCUS BROOKES | Defendant |
---
JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 May 2021 |
DATE OF JUDGMENT: | 26 October 2021 |
CASE MAY BE CITED AS: | Re Simmoll Pty ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 693 |
---
CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4 – Insolvency – Statutory demand – s 459G – Application to set aside – s 459E(2) – Failure to properly particularise or explain debt claimed – s 459J(1)(a) – Defect in demand – Whether substantial injustice caused unless set aside – s 459E(3) – Failure of affidavit in support of demand to properly verify debt – s 459E(1) – Whether demand claims debt that is due and payable – Meaning of ‘debt’ – Amount claimed not a liquidated sum – s 459J(1)(b) – Whether some other reason to set demand aside – s 459H(1)(a) – Whether genuine dispute about existence and/or amount of debt – s 459H(1)(b) – Whether offsetting claims – Demand set aside.
WORDS AND PHRASES – ‘Debt’.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L M Stanistreet | Meerkin & Apel |
| For the Defendant | Mr J Kenny, solicitor | Kalus Kenny Intelex |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Procedural history.............................................................................................................................. 1
Statutory provisions and legal principles..................................................................................... 3
Section 459J grounds......................................................................................................................... 8
Debt properly particularised and explained?.................................................................. 8
Does the affidavit in support of demand properly verify the debt?.......................... 14
Is the amount claimed a debt that is due and payable?............................................... 17
Genuine dispute as to existence or amount of debt.................................................................. 22
Plaintiff’s material on genuine dispute.......................................................................... 22
Defendant’s material on genuine dispute...................................................................... 25
Consideration of genuine dispute ground..................................................................... 28
Offsetting claims.............................................................................................................................. 32
Conclusion......................................................................................................................................... 33
HIS HONOUR:
Introduction
Simmoll Pty Ltd (‘the plaintiff’) is a registered builder in the business of constructing, maintaining and renovating homes. Mr Marcus Brookes (‘the defendant’) is the owner of property located at 1 Codrington Street, Sandringham, Victoria (‘the property’). On 13 November 2018, the parties entered into a major domestic building contract worth over $714,000 for the substantial renovation of an existing dwelling on the property (‘the building contract’). Matters have since become contentious and various steps have been taken by the parties. One such step entailed the defendant serving the plaintiff with a statutory demand dated 21 January 2021 in the amount of $33,952.05 (‘the statutory demand’ or ‘the demand’). By originating process dated 11 February 2021, the plaintiff now applies to set the demand aside under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) (‘the Corporations Act’).
The plaintiff challenges the statutory demand on a number of bases; namely that it is defective and/or should be set aside for other reasons; because there is a genuine dispute about the existence and/or the amount of the debt the subject of the demand; and because of offsetting claims against the defendant. For reasons which follow, the demand will be set aside on most of the grounds advanced by the plaintiff, but not all.
Procedural history
The plaintiff’s originating process was first returnable before the Court on 10 March 2021. On that day, the Court made orders by consent listing the proceeding for a final hearing on 21 May 2021. The orders made provision for the filing of affidavits and submissions prior to the final hearing. The matter was heard as scheduled on 21 May 2021 via videoconference technology.
In support of its application, the plaintiff relies upon: the affidavits of Gavin Cadzow sworn on 11 February 2021, 9 April 2021 and 7 May 2021, together with their exhibits (‘the first Cadzow affidavit’, ‘the second Cadzow affidavit’, and ‘the third Cadzow affidavit’, respectively); the affidavit of his wife, Debbie Cadzow, sworn 9 April 2021 and its exhibits; the affidavit of Hugh Maclaren (solicitor) affirmed on 9 April 2021 and its exhibit, along with written submissions dated 23 April 2021 and 12 May 2021.
The defendant places reliance upon the affidavit of Marcus Brookes sworn 21 January 2021 in support of the statutory demand (‘the affidavit in support’ or ‘the first Brookes affidavit’); the affidavit of Mr Brookes sworn on 26 March 2021 (‘the second Brookes affidavit’) and the affidavit of his wife, Heather Richardson, affirmed on 26 March 2021 (‘the Richardson affidavit’), together with written submissions dated 3 May 2021.
Despite the modest quantum of the debt claimed in the statutory demand, the materials relied upon by the parties are extensive. Having regard to those materials and the way in which the application was argued at the hearing, the following questions arise:
(a) Is the demand defective because it fails to properly particularise or explain the debt claimed? If so, does that give rise to a substantial injustice in accordance with s 459J(1)(a) of the Corporations Act?
(b) Does the affidavit in support properly verify the debt claimed in the demand for the purpose of s 459E(3) of the Corporations Act? If not, is that ‘some other reason’ to set the demand aside under s 459J(1)(b) of the legislation?
(c) Does the demand claim a debt that is due and payable for the purpose of s 459E(1)(a) of the Corporations Act? If not, is that ‘some other reason’ to set the demand aside under s 459J(1)(b) of the legislation?
(d) Is there a genuine dispute about the existence and/or the amount of the debt the subject of the demand for the purpose of s 459H(1)(a) of the Corporations Act?
(e) Does the plaintiff have offsetting claims under s 459H(1)(b) of the Corporations Act?
Statutory provisions and legal principles
Section 459E of the Corporations Act relevantly provides:
(1) A person may serve on a company a demand relating to:
(a)a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum;
…
(2) The demand:
(a)if it relates to a single debt--must specify the debt and its amount; and
…
(e) must be in the prescribed form (if any);
…
(3)Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a)verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
(b)complies with the rules.
The prescribed form for a statutory demand is Form 509H, which is found in Schedule 2 of the Corporations Regulations 2001 (Cth).
Rule 5.2 of the Supreme Court (Corporations) Rules 2013 (Vic) (‘the Corporations Rules’) relevantly states that the requisite affidavit accompanying a statutory demand must ‘be in accordance with Form 7 and state the matters mentioned in that Form’. Paragraph 1 of Form 7 requires the deponent of the affidavit to specify the amount of the debt or debts owed by the debtor company to the creditor. It also requires the deponent to ‘state [the] nature of [the] debt, or debts, ensuring that what is stated corresponds with the description of the debt, or debts, to be given in the proposed statutory demand, with which … [the] affidavit is to be served on the debtor company’.
Rule 1.7(1) of the Corporations Rules provides that it is sufficient compliance for a document required to be in accordance with a form ‘if the document is substantially in accordance with the form required or has only such variations as the nature of the case requires’.
Section 459G of the Corporations Act states:
(1)A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2)An application may only be made within the statutory period[1] after the demand is so served.
(3)An application is made in accordance with this section only if, within that period:
(a)an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
[1]The term ‘statutory period’ is defined in s 9 of the Corporations Act 2001 (Cth) as: ‘(a) if a period longer than 21 days is prescribed--the prescribed period; or (b) otherwise--21 days’.
Section 459H(1) of the Corporations Act provides:
(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.[2]
[2]An ‘offsetting claim’ is defined in s 459H(5) to be a ‘genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)’.
Where a company applies to set aside a statutory demand under s 459H of the Corporations Act, the Court must calculate the ‘substantiated amount’ of the demand in accordance with the formula prescribed in s 459H(2). Section 459H(3) provides that where the substantiated amount is less than the statutory minimum, the Court must set the demand aside.
The following propositions concerning what constitutes a genuine dispute for the purpose of s 459H(1) of the Corporations Act are well-established:
(a) for a dispute to be ‘genuine’ it must be ‘bona fide and truly exist in fact’;[3]
[3]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 464 (Northrop, Merkel and Goldberg JJ) (‘Spencer Constructions’), cited with approval by the Victorian Supreme Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 [49] (Kyrou, Ferguson and Kaye JJA) (‘Malec’).
(b) ‘the grounds for alleging the existence of a dispute … [must be] real and not spurious, hypothetical, illusory or misconceived’;[4]
[4]Spencer Constructions (n 3) 464, cited with approval by the Victorian Supreme Court of Appeal in Malec (n 3) [49] (Kyrou, Ferguson and Kaye JJA).
(c) the dispute must have a ‘sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile… Something “between mere assertion and the proof that would be necessary in a court of law” may suffice’;[5]
[5]TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA) (‘TR Administration’); Malec (n 3) [49] (Kyrou, Ferguson and Kaye JJA).
(d) a genuine dispute may involve a ‘plausible contention requiring investigation’ and raising the same sort of considerations as the ‘serious question to be tried’ test that applies in the case of interlocutory injunctions;[6]
[6]Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601, 608 [31] (Beazley P, Meagher and Gleeson JJA) (‘Britten-Norman’); Malec (n 3) [48] (Kyrou, Ferguson and Kaye JJA).
(e) the Court should not uncritically accept statements about an alleged genuine dispute which are ‘equivocal, lacking in precision, inconsistent with undisputed contemporary documents … or inherently improbable …’;[7]
(f) if the dispute appears to be something ‘merely created or constructed in response to the pressure represented by the service of the statutory demand’, then it is not advanced in good faith and will not be regarded as genuine;[8] and
(g) whilst the underlying nature of the dispute about the existence of a debt ‘must be exposed’, the Court will not deal with the merits and nothing of substance will be decided.[9]
[7]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 (McClelland CJ in Eq), cited with approval by the Victorian Supreme Court of Appeal in TR Administration (n 5) 78 [64] (Dodds-Streeton JJA) and Malec (n 3) [50] (Kyrou, Ferguson and Kaye JJA).
[8]Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212, 224 [47] (Barrett AJA, with Gleeson and White JJA agreeing). See also JJMMR Pty Ltd v LG International Corp [2003] QCA 519 [18] (McPherson JA) where the same point was made in respect of an offsetting claim.
[9]Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd [2004] FCA 111 [4] (Finkelstein J). See also Malec (n 3) [48] (Kyrou, Ferguson and Kaye JJA).
The principles referred to above apply equally in the case of an application to set aside a statutory demand on the basis of an offsetting claim.[10] In the case of an offsetting claim, the following additional principles are also apposite:
[10]See the discussion of the relevant principles by the Victorian Court of Appeal in the context of both genuine disputes and offsetting claims in TR Administration (n 5) 79 [71] (Dodds-Streeton JA) and Malec (n 3) [47]-[50] (Kyrou, Ferguson and Kaye JJA). See also Britten-Norman (n 6) 609 [36] and 615 [70] (Beazley P, Meagher and Gleeson JJA) where the New South Wales Court of Appeal discussed the evidentiary threshold in establishing either a genuine dispute or offsetting claim under s 459H.
(a) a genuine offsetting claim ‘means a claim on a cause of action advanced in good faith, for an amount claimed in good faith’.[11] In this context, ‘good faith’ means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful;[12]
(b) there must be some evidence to indicate the nature of the offsetting claim and the way in which it is calculated, including any loss which is said to arise;[13]
(c) however, it is not necessary to particularise the offsetting claim to the last ‘dollar and cent’.[14] The evidence need only be sufficient for the Court to make an estimate of the amount of the offsetting claim,[15] which must be capable of being quantified in monetary terms.[16]
[11]Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 [18] (Palmer J) (‘Macleay Nominees’). See also Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 34 ACSR 301, 306-7 [29] (Santow J).
[12]Macleay Nominees (n 11) [18] (Palmer J).
[13]Ibid; Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [2005] NSWSC 638 [30]-[31] (Gzell J); Mayaman Developments Pty Ltd v TQ Constructions Pty Ltd [2009] QSC 144 [22]-[23] (Daubney J).
[14]Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 [19] (Barrett J).
[15]Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 [90], (Pullin JA, with Newnes and Murphy JJA agreeing).
[16]Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd (1995) 17 ACSR 128, 135 [30] (Lindgren J); Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269, 284-5 [45] (Debelle J, with Besanko and Layton JJ agreeing); No 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146 [27] (Barrett J).
Section 459J of the Corporations Act is in the following terms:
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2)Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
In Re MHC Pathology Pty Ltd (‘Re MHC Pathology’),[17] I made the following statements about the operation of s 459J of the Corporations Act:[18]
The case law makes clear that sub-paragraphs (a) and (b) of s 459J(1) are mutually exclusive.[19] The only source of power to set aside a demand on the basis of a defect is found in s 459J(1)(a) and not s 459J(1)(b).[20] In other words, the provisions do not overlap.
The term ‘defect’ as it appears in s 459J is given a wide and inclusive definition by s 9 of the legislation and may encompass an irregularity, a misstatement of an amount or total, a misdescription of a debt or other matter, or a misdescription of a person or entity. But the expression ‘defect’ in s 459J does not imply any degree of proportionality or distinguish between defects which are major or minor in nature.[21] Even significant defects in a demand are to be determined under s 459J(1)(a).[22]
The question of whether substantial injustice will arise unless the demand is set aside depends on the nature of the particular defect identified and the surrounding circumstances.[23] …
[T]he authorities are clear that the ‘other reason’ required by s 459J(1)(b) cannot be a defect in the demand.[24] Something else is required. In Arcade Badge Embroidery Co Pty Ltd v DCT,[25] the Court of Appeal of the Australian Capital Territory found that the other reasons envisaged by s 459J(1)(b) include ‘conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice’.[26] Whilst the discretion conferred by the provision is broad, a judge should not set aside a statutory demand under s 459J(1)(b) simply because she or he subjectively considers it fair to do so.[27] The Court’s power under the sub-section exists to maintain the integrity of the statutory demand procedure in Part 5.4 of the Corporations Act and to counter its subversion.[28]
[17](2020) 356 FLR 222.
[18]Ibid 243.
[19]See Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525; Spencer Constructions (n 3).
[20]Spencer Constructions (n 3) 458–9 (Northrop, Merkel and Goldberg JJ); Daewoo Australia Pty Ltd v Suncorp-Metway Ltd (2000) 33 ACSR 481, 493–4 [44]–[45] (Austin J) (‘Daewoo v Suncorp-Metway’).
[21]Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726 (‘Main Camp’). See also Farid Assaf, Statutory Demands and Winding Up in Insolvency (Lexis Nexis, 2nd ed, 2012) [7.12].
[22]Spencer Constructions (n 3) 459 (Northrop, Merkel and Goldberg JJ).
[23]Condor Asset Management Ltd v Excelsior Eastern Ltd (2005) 56 ACSR 223, 231 [25] (Barrett J); Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 848 [15] (Barrett J).
[24]Spencer Constructions (n 3) 458–9 (Northrop, Merkel and Goldberg JJ); Daewoo v Suncorp-Metway (n 20) 493–4 [44]–[45] (Austin J).
[25](2005) 157 ACTR 22.
[26]Ibid 26 [27] (Crispin P, Gray and Marshall JJ). See also Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 19 ACSR 125; Neutral Bay Pty Ltd v Deputy Commissioner of Taxation (2007) 25 ACLC 1341.
[27]Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229, 240 [60]–[61] (Santow and Tobias JJ, and Young CJ in Eq).
[28]Rinfort Pty Ltd v Arianna Holdings Pty Ltd (2016) 111 ACSR 607, 633 [84] (Black J).
The term ‘defect’, according to its ordinary usage, also means ‘a lack or absence of something necessary or essential for completeness; a shortcoming or deficiency; an imperfection’.[29]
[29]Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 12 ACSR 389, 392 (Lockhart J). See also Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (2015) 104 ACSR 425, 445-6 [108] (Wigney J).
Lastly, it is important to note that a plaintiff’s affidavit in support of an application under s 459G of the Corporations Act must contain sufficient facts to support its case.[30] The affidavit need not detail the evidence supporting the dispute and may assert material facts in the nature of a pleading.[31]
[30]Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, 459 (Sundberg J).
[31]Ibid; Kortz Ltd v Data Acquisition Pty Ltd (2006) 155 FCR 556, 565–6 [40] (Greenwood J).
Section 459J grounds
It is convenient to first examine the various grounds relied upon by the plaintiff to justify the setting aside of the statutory demand under s 459J of the Corporations Act.
Debt properly particularised and explained?
As previously noted, the statutory demand claims a debt in the sum of $33,952.05 said to be owing by the plaintiff to the defendant in respect of monies paid under certain invoices. The debt is described in the schedule to the demand as follows:
| Description of the debt | Amount |
| Joinery Monies paid by the Creditor to the Company under invoices 1762 dated 6 January 2020, 1768 dated 28 January 2020, 1779 dated 13 February 2020 and 1781 dated 5 March 2020, being invoices forming the Fix Stage pursuant to a Major Domestic Building Contract 2018 for the following works: | |
| (a) Kitchen Joinery (b) Pantry Joinery (c) Laundry Joinery (d) Access door (e) Stone Substrates and Templates | $21,470.00 plus GST $5,690.00 plus GST $9,820.00 plus GST $240.00 plus GST $1,500.00 plus GST |
| which works were paid for in full by the Creditor but not performed by the Company. | |
| Sub total (joinery) GST (joinery) TOTAL (Joinery) | $38,720.00 $3,872.00 $42,592.00 |
| Less amounts paid by Company to Flash Cabinets on: 26 February 2020 27 February 2020 | ($10,000.00) ($10,000.00) |
| Tiling Monies paid by the Creditor to the Company under invoices 1762 dated 6 January 2020, 1768 dated 28 January 2020, 1779 dated 13 February 2020 and 1781 dated 5 March 2020, being invoices forming the Fix Stage pursuant to a Major Domestic Building Contract dated 13 November 2018 for tiling, which works were paid for in full by the Creditor but only part performed by the Company, which part performed work was to the value of $4,116.75 including GST, paid by the Company to its subcontractor Jacobs Tiling for the said work. | $15,888.00 plus GST |
| Sub total (tiling) GST (tiling) TOTAL (Tiling) | $38,720.00 $3,872.00 $42,592.00 |
| Less tiling invoice 1786 paid by the Company to Jacobs Tiling | ($4,116.75) |
| Less amounts repaid by the Company to the Creditor on: 28 October 2020 30 November 2020 | ($1,000) ($1,000) |
Total debt | $33,952.05 |
The schedule to the demand therefore lists four invoices and five work items forming part of the fix stage of the building contract and pertaining to ‘joinery’. Those works are said to have been ‘paid for in full by [the defendant] but not performed.’ The same four invoices are then identified in respect of ‘tiling’ and are said to have been ‘paid for in full by [the defendant] but only part performed.’ Amounts apparently paid to Flash Cabinets and Jacobs Tiling, who were subcontractors engaged by the plaintiff, are deducted from the respective subtotals for joinery and tiling. Deductions are also made in respect of amounts repaid by the plaintiff to the defendant.
The plaintiff argues that the demand fails to clearly articulate the matters required by s 459E(2) of the Corporations Act and, in particular, is conspicuously silent as to the legal basis for the debt claimed.
The defendant submits that the debt claimed in the statutory demand ‘seeks a refund’ of the funds paid to the plaintiff by the defendant pursuant to invoice 1781 dated 5 March 2020, ‘after the parties agreed that the plaintiff would invoice for work in advance of that work being done, and would refund… any overpayment to the defendant’. The alleged agreement is said to have been reached by a series of emails exchanged on 13 February 2020 and a telephone conversation that same day between Ms Cadzow (on behalf of the plaintiff) and Ms Richardson (on behalf of the defendant). Whilst invoice 1781 is one of a number of invoices referenced in the schedule to the demand and exhibited to the first Brookes affidavit, the defendant characterises it as being the critical invoice in question. It is said that by this invoice the plaintiff charged the defendant for work in advance of completion.
The defendant also asserts that regardless of the language of the statutory demand, Mr Cadzow has evinced a clear understanding of the nature of the debt claimed in the demand by describing it in the first Cadzow affidavit as representing ‘[a]s best [he] understand[s] it … the difference between the tiling and joinery work paid in advance pursuant to Invoice 1781 and the work completed by [the plaintiff] before [the defendant] terminated the [building] contract.’
In LSI Australia v LSI Holdings,[32] Austin J explained the need for a statutory demand to clearly and unambiguously articulate the matters required by s 459E of the Corporations Act:
A statutory demand is required by Form 509H to “describe” the debt that is claimed. If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim, then there is a lack of something necessary for completeness, and therefore a defect in the demand.[33]
[32][2007] NSWSC 1406 (‘LSI Australia’).
[33]Ibid [54].
In the later case of Patonga Beach Holdings Pty Ltd v Lyons,[34] Austin J considered a statutory demand which relied upon a deed to support the underlying debt. The demand did not identify what particular event had triggered a payment obligation under the deed. The demand also made a reference to a specific date upon which the debt was alleged to have become due and payable, without any explanation as to its significance. His Honour set the demand aside because the debtor company was not placed in a position of being able to assess whether there was a genuine dispute as to whether the money had become payable.[35] His Honour further held that because of the nature of the defect, substantial injustice would be caused unless the demand was set aside.[36] The substantial injustice arose because the lack of information in the statutory demand put the debtor in the ‘unacceptable position of having to decide whether to make an application to set the demand aside without knowing precisely how the claim was made’.[37]
[34][2009] NSWSC 1257 (‘Patonga Beach’).
[35]Ibid [18].
[36]Ibid.
[37]Ibid.
The case of Business to All Australia Pty Ltd v North East Developments Pty Ltd (Receivers and Managers Appointed),[38] involved a statutory demand which claimed a sum owing under a lease but which did not specify the nature of the amount claimed by identifying any specific provision giving rise to the asserted debt. In addition, the demand purported to claim as a debt an amount referable to the entire period of the lease, notwithstanding its earlier termination. Justice Hammerschlag determined to set the demand aside on the basis that it did ‘not provide a clue as to the source of the obligation asserted.’[39]
[38] [2011] NSWSC 668 (‘Business to All’).
[39]Ibid [11].
It follows that a statutory demand and, by extension, its accompanying affidavit, must put the debtor company on notice in an unambiguous way of the matters the legislation requires, including: the nature of the debt;[40] a statement that the debt is due and payable;[41] and an explanation of how the amount claimed is composed or calculated.[42] Although a debtor company can be presumed to have some familiarity with the relevant subject matter of the statutory demand, it is not obliged to speculate upon what it is that the creditor demands.[43] At the same time, whilst a failure to specify in the demand the precise legal basis of the debt claimed may constitute a defect, it will not necessarily be causative of substantial injustice sufficient to justify its setting aside.[44]
[40]LSI Australia (n 32) [54] (Austin J); Patonga Beach (n 34) [18] (Austin J); and Business to All (n 38) [11] (Hammerschlag J).
[41]Main Camp (n 23) [23] (Barrett J).
[42]RadioMio Pty Ltd v Kendell (2011) 254 FLR 33, 46 [56] (Gardiner AsJ).
[43]Farid Assaf, Assaf’s Winding Up in Insolvency (3rd ed, Lexis Nexis, 2021) [8.19] (‘Assaf’s Winding Up in Insolvency’), citing Main Camp (n 21) [37] (Barrett J) and Embleton Motor Co Pty Ltd v Saedi [2014] WASC 308 [7] (Sanderson M).
[44]Assaf’s Winding Up in Insolvency (n 43) [8.38], citing Aspermont Ltd v Robash Pty Ltd (1998) ACLC 485; Arrow Asset Management Pty Ltd v Sportsworld Group plc [1999] NSWSC 1207.
In my view, the demand in question is vague and ambiguous because it fails to explain to a reasonable person in the position of the director of the plaintiff the general nature of the alleged debt in order for that person to ascertain whether there is a genuine dispute about the debt or an offsetting claim. The legal basis of the debt claimed is unclear. There is no reference to any alleged agreement by which the plaintiff was to refund the defendant in respect of any overpayment for works invoiced in advance or the mechanism by which such a refund was to be calculated. Nor is there any reference to a specific provision within the building contract which gives rise to such an entitlement. Whilst the defendant now places reliance upon matters set out in the second Brookes affidavit and the Richardson affidavit (which are discussed later in these reasons) to describe the alleged agreement for repayment, those affidavits were filed in response to the plaintiff’s application and do not assist in providing an understanding of the demand at the time it was served.
I do not accept the defendant’s submission that Mr Cadzow has indicated in his evidence that he understands the nature of the debt claimed in the statutory demand. Mr Cadzow has simply expressed a view about how the debt may have been calculated by the defendant. But he has not indicated that he appreciates its legal basis. In fact, after service of the demand, in a letter to the defendant’s solicitors dated 3 February 2021, the plaintiff’s solicitors queried the legal foundation for the debt.
Further, the manner in which the debt is calculated is obscure. The plaintiff submits, and I accept, that it is unclear which of the invoices referred to in the statutory demand are relevant to understanding the debt in question. Whilst the defendant contends that invoice 1781 is the key invoice for the purpose of construing the statutory demand (because that is the invoice by which work was charged in advance), in the second Brookes affidavit he variously suggests that:
(a) ‘the figures in the demand come from invoice 1781 dated 5 March, 2020’; and
(b) the last two invoices rendered for the fixing stage of the building contract (being invoices 1779 and 1781) are ‘the basis of the debt claimed in the Demand’.
It is difficult to reconcile the amount of $44,639.25 claimed under invoice 1781 with the amount of $33,952.05 claimed in the statutory demand or its constituent parts. It is, however, possible to correlate the work items charged for joinery and tiling in invoice 1779 dated 13 February 2020 with the items set out in the schedule to the demand.[45] It may well be that the reference in both the defendant’s submissions and the second Brookes affidavit to invoice 1781 was intended to be a reference to invoice 1779 only.[46] That said, it is the unchallenged evidence of Mr Cadzow that invoice 1779 was not issued in advance and that the work charged for in that invoice ‘was completed by the time … [it] was rendered and the invoice was due and payable.’ Regardless of whether the statutory demand was based upon invoice 1779 or invoice 1781, or both of these, the relevance of the other invoices referred to in the schedule to the demand is not immediately apparent. It is also a source of confusion as to the basis and calculation of the amount claimed in the demand.
[45]Curiously, the copies of invoices 1779 and 1781 exhibited to the second Brookes affidavit are different to the versions exhibited to the first Brookes affidavit (the affidavit in support of the statutory demand). The list of work items (totalling $38,977.05) that is incorporated into invoice 1779 in the version exhibited to first Brookes affidavit is instead part of invoice 1781 in the second Brookes affidavit.
[46]The confusion may arise by reason of the matters set out in (n 45) above.
The plaintiff should not be expected to guess what the demand relates to or the source of the obligation to pay it. Without knowing how the claim was made, the plaintiff was placed in the difficult position of having to assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim and whether to make an application to set the demand aside. This constitutes a substantial injustice in the circumstances. Unless the Court sets the demand aside, the plaintiff will also suffer the substantial injustice of having a presumption of insolvency raised against it in any future winding up proceeding.
The statutory demand is defective for the reasons set out above and should be set aside under 459J(1)(a) of the Corporations Act.
Does the affidavit in support of demand properly verify the debt?
The plaintiff submits that it is not only the demand which fails to properly articulate the nature of the amount claimed, but the supporting affidavit also (that is, the first Brookes affidavit).
The authorities make clear that a failure by a creditor to properly verify matters required by the prescribed form of affidavit found in Form 7 of the Corporations Rules may constitute ‘some other reason’ to set aside the statutory demand under s 459J(1)(b) of the Corporations Act.[47] The absence of a specific reference to the nature of the debt in the affidavit may warrant the setting aside of the statutory demand under s 459J(1)(b) of the legislation,[48] although it is not necessary for the deponent of the affidavit to set out every element of the cause of action upon which the demand is founded.[49] Similarly, where the subject words of the affidavit are ambiguous, the affidavit may not provide the requisite verification of the debt claimed in the statutory demand pursuant to s 459E(3) of the Corporations Act and the demand is susceptible to being set aside under s 459J(1)(b).[50]
[47]See in particular: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 and IFA Homeware Imports Pty Ltd v Shanghai Jerrys Candle Co Ltd [2003] FCA 533 [22]–[26] (Tamberlin J) (failure to state belief that no genuine dispute in relation to the debt claimed); Main Camp (n 21) at [23] (Barrett J) and Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393, 402-3 [39]-[41] (Barrett J) (failure to verify that the debt is due and payable). See also Assaf’s Winding Up in Insolvency (n 43) [8.53]-[8.54] and the additional authorities referred to therein.
[48]AMD Resources Ltd v TRS Management Pty Ltd [2021] VSC 202 [37] (Randall AsJ) (‘AMD Resources’).
[49]See Azed Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54 (‘Azed Developments’).
[50]Aromas Café Toowoomba Pty Ltd v Aromas Tea & Coffee Merchants Pty Ltd [2019] FCA 1699 [59] (Reeves J).
In this case, the first Brookes affidavit which accompanies the statutory demand:
(a) describes the relevant debt claimed in the statutory demand as relating to payments invoiced pursuant to the building contract for works which were not performed;
(b) makes reference to and exhibits:
(i) the same invoices as itemised in the demand which total $172,894.80 and refer to at least 35 items of work;
(ii) a notice of breach issued by the defendant on 28 April 2020 which alleged the plaintiff had breached the building contract, including by seeking progress payments in respect of work not yet performed and failing to complete variations included in invoice 1781 (‘the notice of breach’);
(iii) a letter dated 30 April 2020 accompanying the notice of breach, by which the defendant demanded repayment of the amount of $69,156 in respect of items relating to the fixing stage which were allegedly invoiced by the plaintiff prior to its entitlement to receive payment and in breach of the building contract (‘the letter of demand’); and
(iv) a notice of termination of the building contract dated 20 May 2020 and issued by the defendant on 21 May 2020 (‘the notice of termination’);
(c) itemises specific payments applied against particular work items which appear to be drawn from invoice 1779 without any explicit reference to that invoice;
(d) asserts that at the time of the termination of the building contract, the joinery had not been installed or paid for in full by the plaintiff and the tiling had not been completed or paid for in full by the plaintiff;
(e) observes that despite the letter of demand, the amounts paid to the plaintiff for joinery and tiling have not been repaid;
(f) makes reference to an email dated 5 October 2020 by which the plaintiff purportedly admitted the debt;
(g) claims that the debt in the demand is due and payable by the plaintiff; and
(h) states there is no genuine dispute about the existence or amount of the debt.
In my view, the affidavit in support of the statutory demand (the first Brookes affidavit) does not substantially comply with Form 7 of the Corporations Rules and does not provide the necessary verification of the debt claimed in the statutory demand as required by s 459E(3)(a) of the Corporations Act. In particular, it does not clearly state the nature of the debt or refer to the source of the obligation on the plaintiff to make payment. Nor does it illuminate the basis upon which the debt set out in the demand is calculated.
Moreover, the reference to and inclusion of four invoices, which total $172,894.90 and encompass approximately 35 items of work, is confounding in circumstances where the demand itself, which claims a total debt of $33,952.05, does not apparently relate to all of these invoices. There is also inconsistency in the description of the debt as between the affidavit in support and the demand itself. Whereas the demand states that the debt relates to joinery work paid for but not performed by the plaintiff and tiling work paid for but only partly performed by the plaintiff, the affidavit seems to suggest the relevant debt relates to payment for works which were not performed in their entirety.
The reference in the first Brookes affidavit to the letter of demand only further complicates matters. The letter of demand seeks repayment of the sum of $69,156 which is for an amount more than double the sum of $33,952.05 claimed in the statutory demand and the affidavit. It is unclear why there is such a marked discrepancy between these amounts, especially when the statutory demand and its supporting affidavit exclusively concern payment for joinery and tiling works and the majority of the sum claimed in the letter of demand (around $64,000 in value) also relates to joinery and tiling. In addition, whilst the letter of demand asserts that a progress claim relating to the completion of the fixing stage was issued prior to the plaintiff’s entitlement and in breach of the terms of the building contract, this contention is not repeated in the demand or the affidavit in support of the demand. Instead, the affidavit states that the plaintiff failed to complete work which was paid for but not performed. In other words, there appear to be two distinct breaches of the building contract alleged by the defendant at various times.
Taken together, the affidavit in support of the statutory demand and its annexures are an amalgam of confusing, inconsistent and unclear information. The debt claimed in the demand is not properly verified for the purpose of s 459E(3) of the Corporations Act. I am satisfied that the substantive deficiencies and ambiguities which are inherent in the affidavit in support constitute ‘some other reason’ to set the demand aside under s 459J(1)(b) of the legislation.
Is the amount claimed a debt that is due and payable?
I turn now to whether the amount claimed in the demand is in respect of a debt which is due and payable.
For the purpose of s 459E of the Corporations Act, a debt is due and payable when it is ascertainable, immediately payable and presently recoverable or enforceable by action.[51]
[51]Re Elgar Heights Pty Ltd [1985] VR 657, 669, 671 (Ormiston J) (‘Re Elgar Heights’); Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 [39]–[42] (White J) (‘Remuneration Data Base’); NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd (2010) 79 ACSR 544, 552–3 [63] (Lindgren AJA); Main Camp (n 21) 731–2 [17] (Barrett J); Re Sceam Construction Pty Ltd [2021] VSC 437 [34] (Hetyey AsJ).
Although the term ‘debt’ is not defined in the Corporations Act, it should be construed in a practical and common sense manner, consistent with its context and the underlying statutory purpose.[52] In Rothwells Ltd v Nommack (No 100) Pty Ltd,[53] a case which involved an application to restrain a winding up proceeding, McPherson J succinctly described a debt as ‘a liquidated sum in money presently due, owing and payable’ by a debtor to a creditor.[54] A debt can therefore be distinguished from a claim of damages for breach of contract or any other unliquidated claim.[55] In the context of the insolvent trading provisions found in Division 3 of Part 5.7B of the Corporations Act, a debt which is incurred for the purpose of s 588G of the legislation must be for a liquidated amount capable of being ascertained, as distinct from an unascertained claim for damages.[56] Similarly, there is abundant authority for the proposition that an obligation to pay unliquidated damages is not a debt capable of supporting a statutory demand.[57] This is consistent with the legislative policy underpinning Part 5.4 of the Corporations Act that the statutory presumption of insolvency in s 459C(2)(a) should be available only in clear cases of indebtedness where the reason for non-compliance with a statutory demand is an inability of the debtor company to pay and where no other inference for non-payment can be drawn, such as the debt being presently unrecoverable or unenforceable.[58]
[52]Hawkins v Bank of China (1992) 26 NSWLR 562, 572 (Gleeson CJ) (‘Hawkins’); Powell v Fryer (2001) 159 FLR 433, 443 [64] (Olsson J, with whom Duggan and Williams JJ agreed).
[53][1990] 2 Qd R 85 ('Rothwells v Nommack’).
[54]Ibid 86. A liquidated sum was explained in Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 138, 142 (Knox CJ and Starke J quoting the then current fifth edition of Odgers on Pleading and Practice) as being an ‘amount to which the plaintiff is entitled … [which] can be ascertained by calculation or fixed by any scale of charges, or other positive data’.
[55]Young v Queensland Trustees Ltd (1956) 99 CLR 560, 569 (Dixon CJ, McTiernan and Taylor JJ). See also Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 424 where Brennan CJ, Dawson and Toohey JJ characterised a debt as being a ‘form of action for a liquidated sum and not damages’; and Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321, 327 (White J) (‘Hansmar Investments’).
[56]Hawkins (n 52) 569 (Gleeson CJ); Box Valley Pty Ltd v Kidd (2006) 24 ACLC 471, [14]–[15] (Bryson JA), [60] (Basten JA), [69]–[74] (Gzell J); Re Melbournehomes.com Pty Ltd (in liq) (2020) 356 FLR 390, 411-412 [80]-[82] (Hetyey AsJ). See also Farid Assaf, Brett Shields and Hilary Kincaid, Voidable Transactions in Company Insolvency (LexisNexis Butterworths, 2015) [10.35], and the authorities referred to therein.
[57]Re Elgar Heights (n 51); Rothwells v Nommack (n 54) 88 (McPherson J); First Line Distribution Pty Ltd v Whiley (1995) 18 ACSR 185, 188 (Cohen J); Reinsurance Australia Corporation Ltd v Odyssey Re (Bermuda) Ltd (2000) 36 ACSR 348, 355 (Macready M); CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100, 103 (Barrett J); Re Towncars Franchises Sydney Pty Ltd [2013] NSWSC 1235 [29]-[30] (Brereton J).
[58]Assaf’s Winding Up in Insolvency (n 43) [3.49]. See also Re Elgar Heights (n 51) 669 (Ormiston J); Remuneration Database (n 51) [41] (White J); Re Renu Waste Pty Ltd [2020] NSWSC 108 [23] (Rees J) (‘Re Renu Waste’); Re Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 [97] (Rees J).
This narrow construction of the term ‘debt’ can be contrasted with the more expansive approach found in s 553(1) of the Corporations Act which provides that the debts and claims provable in a winding up include ‘all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date’ (that is, the date on which the winding up is taken to have begun).[59]
[59]See also Re Pen-y-Can Colliery Company (1877) 6 Ch D 477, 482 where Sir George Jessel MR considered the nature of proofs of debt under the Companies Act 1862 (UK).
In AMD Resources, after reviewing the relevant authorities,[60] Randall AsJ concluded:
… where a contract or agreement between parties provides for a mechanism to calculate or ascertain a specific amount that is due and payable, that amount is a liquidated sum and is a debt for the purposes of s 459E of the Act.[61] Where a contract or agreement does not provide such a mechanism, an amount claimed under the contract will only constitute a liquidated claim or liquidated demand and will not constitute a debt for the purposes of s 459E of the Act.[62]
[60]See in particular HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234 (‘HL Diagnostics’); Vimblue Pty Ltd v Toweel trading as Carpenters Core Building [2009] NSWSC 494 (‘Vimblue v Toweel’) and Timberland Property Holdings Pty Ltd v Abercrombie & Fitch Australia Pty Ltd [2012] NSWSC 379.
[61]See also Meales Concrete Pumping Pty Ltd v Probuild Constructions (Aust) Pty Ltd (2015) 302 FLR 393, 405 [42]–[43], 406 [47]; AMI Australia Holdings Pty Ltd v PHD Networks Pty Ltd [2011] NSWSC 161 [62] (Macready AsJ).
[62]AMD Resources (n 48) [89] (Randall AsJ).
In Vimblue v Toweel, Barrett J confirmed that it is the process of valuation or assessment, or the application of some standard of measurement that is necessary to cause a liquidated sum ‘to emerge from or be distilled from’ a liquidated claim or a liquidated demand.[63]
[63]Vimblue v Toweel (n 60) [16] (Barrett J), referring to Stephenson v Weir (1879) 4 LR Ir 369, 372 and Re Ahearn; Ex parte Palmer (1906) 6 SR (NSW) 576, 577.
However, as the learned author explains in his text, Assaf’s Winding Up in Insolvency:[64]
Under some contracts, particularly in relation to sales of land, the effect of termination is to crystallise a party’s right to be paid particular amounts as distinct from claiming unliquidated damages for breach of contract.[65]
[64]Farid Assaf, Assaf’s Winding Up in Insolvency (3rd ed, Lexis Nexis, 2021).
[65]Ibid [3.57], citing Ashdown v Kirk [1999] 2 Qd R 1, Trpkovski v Russell [2001] FCA 1871 and Binshell Pty Ltd v Broadway Australia Pty Ltd [2002] NSWSC 54; Re Renu Waste (n 58) [24] (Rees J).
Such a contract was the subject of consideration in Hansmar Investments. There, the statutory demand sought payment of a debt pursuant to a specific clause of a contract for the sale of land between the plaintiff and the defendant as mortgagee. The plaintiff had failed to complete under the contract and the land was sold to another party. By its demand, the defendant sought payment of the difference between the sale price stated in the original contract and the sale price obtained upon the subsequent sale to the third party. Justice White relevantly held:
… where, under a contract, a person promises to pay a specific or readily calculable sum which does not depend upon an assessment, albeit that the sum is payable as liquidated damages for breach of contract, the person’s contractual liability is properly characterised as giving rise to a debt in that sum.[66]
[66] Hansmar Investments (n 55) 332.
In the present case, I am of the opinion that the amount claimed by the defendant in the statutory demand is not a liquidated sum that is due and payable in accordance with s 459E(1) of the Corporations Act. Instead, it is a claim for unliquidated damages for breach of contract.
Despite setting out certain amounts paid to the plaintiff and credited in its favour, the amount claimed in the demand is not fixed by any express clause in the building contract which provides a mechanism for its calculation. Instead, properly understood, the amount claimed depends upon an assessment of what work was actually performed by the plaintiff or its subcontractors under the building contract (which has been purportedly terminated by the defendant), whether the plaintiff has received payment in excess of that work and, if so, to what extent. In the event the plaintiff has breached the building contract by failing to perform work for which it was paid, or for requiring payment prior to its entitlement, then, on the assumption the defendant has validly terminated the building contract, the defendant can sue for breach of contract and seek damages for loss flowing from the breach. However, because the defendant’s entitlement to damages has not been established and the amount of such damages has not yet been ascertained, there is no debt which is due and payable to support the statutory demand.
To the extent the defendant relies upon the emails and conversation of 13 February 2020 as giving rise to the existence of a partly verbal and partly written contract between the parties to make provision for the repayment of amounts overpaid to the plaintiff for works invoiced in advance, a claim alleging breach by the plaintiff of that agreement might also sound in damages. At its highest, it might constitute a liquidated claim or a liquidated demand. But a process of valuation or assessment would still be necessary to determine to what extent the plaintiff has been overpaid in order to arrive at a liquidated sum necessary to ground a statutory demand.
I note in passing that an interesting question arises as to whether the defendant might have sought to claim a sum certain for any overpayment on a restitutionary basis, perhaps expressed as a claim for monies had and received[67] or for failure of consideration.[68] But that is not how the demand (and associated documentation) has been drafted or how the defendant argued his case at the hearing. The defendant nailed his colours to the mast by maintaining that the claim is contractual in nature.
[67]As the demand was expressed in Azed Developments (n 49).
[68]See Arrow Asset Management Pty Ltd v Sportsworld Group PLC [1999] NSWSC 1207; HL Diagnostics (n 60) (where claims based upon total failure consideration were held to be debts within the meaning of s 459E of the Corporations Act). More recently, the Court of Appeal in MSA Renex Corp Pty Ltd v Create Environment Pty Ltd [2021] VSCA 178 (Ferguson CJ and Walker JA, with Kyrou JA dissenting) held that there was no genuine dispute in relation to a debt based on a total failure of consideration which was described in the relevant statutory demand as a receivable advanced pursuant to a share sale and option agreement.
Because the statutory demand does not claim a debt which is due and payable in accordance with s 459E(1), there has been a fundamental departure from the clear operation of Part 5.4 of the Corporations Act. It follows that the demand should be set aside for ‘some other reason’ under s 459J(1)(b) of the legislation.
Genuine dispute as to existence or amount of debt
Having found that the statutory demand should be set aside for each of the grounds advanced under s 459J of the Corporations Act, I will now consider whether there is also a genuine dispute in relation to the debt.
Plaintiff’s material on genuine dispute
According to Mr Cadzow, the plaintiff commenced works under the building contract in January 2019. Works were performed at the property throughout January 2019 and from mid-April 2019 until 12 March 2020. Although the details are ultimately the subject of disagreement, on or around 13 February 2020, the parties reached an arrangement in respect of the rendering of invoices by the plaintiff to the defendant prior to works being completed.
Mr Cadzow explains that on 13 February 2020, Ms Richardson sent an email to the plaintiff requesting that it issue invoices for the third and fourth instalments of the fix stage of the building contract prior to works being completed in case of delays in payment by the defendant’s bank. He deposes to there being a subsequent telephone conversation on the same day between his wife, Mrs Cadzow, and Ms Richardson in relation to this invoicing arrangement. Later that day, the plaintiff sent invoice 1779 for building work completed between 28 January 2020 and 13 February 2020. The invoice also foreshadowed the amount of the final invoice but did not demand payment in advance. Invoice 1781 was then sent to Ms Richardson by the plaintiff on 5 March 2020. That invoice covered building work completed between 13 February 2020 and 5 March 2020 in addition to work due to be completed between 5 March 2020 and 16 March 2020. Difficulties arose in relation to the scheduling of tiling and plumbing work as a result of a change of mind by the defendant about tiling and tapware.
However, within weeks, the COVID-19 pandemic had interrupted works at the property. On 23 March 2020, Mr Cadzow determined to restrict access to the property to deal with the attendant occupational health and safety risks. The plaintiff emailed Ms Richardson on 23 March 2020 explaining that building works would need to cease by close of business that day. Mr Cadzow says that the majority of the tiling work referred to in invoice 1781 was complete by this time and, had it not been for the delays caused by the defendant, the plaintiff would have completed the balance of the work set out in the invoice by 16 March 2020 or shortly thereafter. However, he says that because new tiling plans were required after invoice 1781 had been issued, the actual tiling prices would necessarily differ from the original prices set out in the invoice.
The defendant then issued the notice of breach on 28 April 2020, alleging that the plaintiff had breached the building contract, including by seeking progress payments in respect of work not yet performed. As previously noted, the accompanying letter of demand required the plaintiff to pay the amount of $69,156 on the basis the plaintiff had received payment for items prior to its entitlement and in purported breach of the building contract.
Mr Cadzow says this directly contradicted the agreement he believed had been reached between the parties on 13 February 2020 for the plaintiff to render invoices for construction work prior to the completion of the work in accordance with the request made by Ms Richardson.
On 5 May 2020, the defendant referred the matter to Domestic Building Dispute Resolution Victoria (‘DBDRV’) under s 45 of the Domestic Building Contracts Act 1995 (Vic) (‘the DBC Act’). The defendant then purported to terminate the building contract on 20 May 2020. On 28 August 2020, DBDRV assessed the matter as being suitable for conciliation by a dispute resolution officer and sent to the parties a list of matters in dispute. The list was set out in the form of a composite table identifying each issue in dispute and the respective positions adopted by the parties in relation to those issues. The issues in dispute included complaints about the quality of work undertaken by the plaintiff, alleged incomplete work and ‘miscellaneous issues’. The miscellaneous issues were described in the table as follows:
Item no.
Description of Party A’s other issue
Party B’s response
1
Builder was paid for works which the builder did not complete, specifically the fixing stage.
Builder did not complete joinery, tiling and waterproofing, installing fireplace, internal painting.
Builder has retained payment for works not completed.Simmoll Pty Ltd did not complete fixing stage of works due to breaches by other party resulting in a 3 week project delay.
2
Builder did not complete contract. Builder demanded additional payment from Owner in order to complete contract. Owner has had to engage another builder to complete the works.
Simmoll Pty Ltd has never demanded additional payments from the owner.
Following an unsuccessful conciliation between the parties, DBDRV issued a certificate on 25 September 2020 stating that the dispute could not be resolved and explained that the parties were entitled to commence proceedings in the Victorian Civil and Administrative Tribunal (‘VCAT’). The defendant has since commissioned a building report dated 8 January 2021 for the purpose of anticipated proceedings in VCAT and which, among other things, identifies various defects in respect of the work undertaken by the plaintiff under the building contract.
Mr Cadzow notes that the statutory demand claims an amount for tiling and joinery work the defendant claims the plaintiff did not perform or only partly performed. He denies the plaintiff had any agreement with the defendant which would allow him to claim a debt under the building contract from the plaintiff, or at all. Whilst clause 18.1 of the building contract allows the defendant to claim liquidated damages from the plaintiff for failure to complete by the relevant completion date, Mr Cadzow observes that the building contract did not contain any other mechanism by which the defendant could claim liquidated damages or an amount in debt. He also denies that the plaintiff ever admitted the amount claimed in the demand. Whilst he accepts the plaintiff made a statement in an email dated 5 October 2020 (which is extracted further below) regarding overpayment by the defendant, the statement was vague and does not support any of the specific amounts referred to in the statutory demand.
Mrs Cadzow’s evidence is more confined in its scope. She refers to the phone conversation she had with Ms Richardson on 13 February 2020 in relation to the preparation of the last two invoices of the fixing stage (invoices 1779 and 1781). She says that she offered the defendant a choice between being reimbursed for any overpayment or for an adjustment to be made to the final invoice if that was preferred by the defendant. These options had been conveyed in an email from Mrs Cadzow to Ms Richardson at 1:31pm on 13 February 2020. However, she maintains that there was no agreement reached in the telephone conversation in relation to either of these options. She says the only agreement reached was in relation to the layout and content of invoice 1779 to meet the requirements of the defendant’s bank.
Defendant’s material on genuine dispute
In the second Brookes affidavit, Mr Brookes confirms that he is the owner named in the building contract and explains that throughout the period of the building work, the plaintiff often communicated with his wife, Ms Richardson, who kept him informed of those communications.
Mr Brookes says there was an agreement by which the plaintiff would invoice for work in advance on the basis that any work not done would be refunded. He asserts that the debt claimed in the statutory demand is the debt owing pursuant to that agreement. He refers to and exhibits a number of emails exchanged between the parties on 13 February 2020. At 12:52pm on that day, Mrs Cadzow sent an email to Ms Richardson noting that the third invoice for the fixed stage (invoice 1779) would need to be issued and queried whether it was necessary to combine it with the fourth invoice (invoice 1781). Ms Richardson replied at 1:07pm stating that the third and fourth invoices would need to be invoiced together showing the amount paid for the fixing stage and the balance outstanding so that it could be presented to the defendant’s bank. Ms Cadzow’s responsive email at 1:31pm relevantly stated:
This is where it gets a little difficult, as we’ve made allowances for the flooring, joinery, tiling, heating and cooling and invoices/quotes are not yet finalised, there are multiple “grey areas”. We also have additions such as the pool channel plumbing, outdoor shower fixtures, and alarm. Would you trust us to invoice the complete amount then reimburse you once Fix Stage is finished and we have all invoices?
…reimbursement should be given within five weeks, otherwise deducted off final invoice if preferred. I look forward to hearing from you.
Later that day, the plaintiff rendered invoice 1779 in the amount of $44,639.25. Invoice 1781 dated 5 March 2020 was the fourth and final invoice for the fixing stage (also in the sum of $44,639.25). Mr Brookes says both invoices were paid in full by the defendant. He explains that invoice 1781 contained an amount for the prime cost charges for tiling and joinery. (As I have previously indicated, it may be that the defendant’s references to invoice 1781 in the second Brookes affidavit were intended to be a reference to invoice 1779).[69] The defendant took the reference to prime cost charges to mean that the plaintiff was not charging for its own work in respect of tiling and joinery because subcontractors were carrying out that work in full. However, he says that before the tiling and joinery work described in invoice 1781 was completed, the plaintiff ceased work without cause on 23 March 2020. He deposes to discovering that not all of the amounts remitted to the plaintiff for payment to the subcontractor were in fact paid to the relevant subcontractor.
[69]See paragraph [33] of these reasons.
Mr Brookes deposes to a phone conversation on speaker between Mr and Mrs Cadzow and Ms Richardson on 20 April 2020, which he listened to. He says that during the conversation, Mr Cadzow explained that the plaintiff’s funds had been wiped out, that it had no income and that it had ‘used monies paid upfront by [the defendant] to pay its creditors, employees, superannuation and tax ...’ Mr Cadzow also purportedly said the plaintiff would not complete the building work unless the defendant paid a further $40,000. Mrs Cadzow followed up with a lengthy email on 21 April 2020, as extracted below:
The landscape and our position has greatly changed and affected our ability to meet the original contract price and timeline, all of our business funds have been wiped completely this has devastated us and will take our business years to recover…
…
Any payments made up to the date we closed have been dissolved in business costs and costs of paying everyone to that date which we have done.
List of outstanding items:
Tiling bathrooms, laundry and kitchen, flooring completed
…
Joinery 22,238 and Stone – TBC
…
We have paid for all materials and all sub-contractors for works completed onsite to the day we closed.
… we have tried everything we can to continue and work out ways of funding your project at our own expense to get you in but with no income this is impossible …
Should you wish to continue to terminate the contract, we understand.
…
You can pay the trades directly without any involvement from us and we don’t want you to pay us the final payment on completion we just need your help in the interim to finish the project ...
On 5 October 2020 Mrs Cadzow sent an email to the defendant which relevantly stated:
…
We have picked up a couple of small jobs, so after nearly six (6) months of no work and with the stage 4 [COVID-19] restrictions easing, we would like to make a regular payment to you for the over payment on invoice #1781 before we were forced off the site.
…
Please provide bank details so we can commence these payments.
Following this email, the plaintiff made payments of $1,000 to the defendant on 28 October 2020 and 30 November 2020.
Mr Brookes says that the debt claimed in the statutory demand is ‘for a refund of the work not done, made up of amounts which should have been paid to third party contractors, pursuant to the agreement reached on 13 February 2020 but were not’.
In her affidavit, Ms Richardson deposes to the exchanges between herself and Mrs Cadzow on 13 February 2020 which are previously set out. She says she called Mrs Cadzow at 1:32pm on 13 February 2020 to discuss the emails that had passed between them that day. She asked that the invoice be split (rather than the third and fourth invoices combined) and agreed to accept the invoices before the work was completed based on the plaintiff’s offer to refund any overpayment. Ms Richardson also gives evidence about inquiries she made of the subcontractors engaged by the plaintiff and the extent of payment received by them from the plaintiff.
Consideration of genuine dispute ground
For the reasons set out below, I am satisfied there is a genuine dispute as to the existence and amount of the debt claimed in the statutory demand.
First, whether the parties reached a concluded agreement for the plaintiff to invoice the defendant for work in advance on the basis there would be reimbursement for any work not completed is a critical matter of contention. The dispute concerning the alleged reimbursement agreement is real, bona fide, and rises above mere assertion. Properly characterised, the agreement relied upon by the defendant is partly written and partly oral. Insofar as the alleged agreement is in writing, there is disagreement as to the proper construction of Mrs Cadzow’s email of 1:31pm on 13 February 2020 and whether it evidences an unequivocal agreement for the plaintiff to reimburse the defendant for amounts paid for work invoiced in advance but not performed. I note in this regard that there were two mutually exclusive options presented in the email, namely; reimbursement or deduction from the final invoice, depending on the preference of the defendant. Given the open-ended nature of the email, the subsequent phone conversation between Mrs Cadzow and Ms Richardson at 1:32pm on 13 February 2020 assumes particular significance. However, because each of the participants has given conflicting evidence about the content of that conversation, cross-examination may ultimately be required.
To the extent the alleged agreement constitutes a purported variation of the building contract, the plaintiff disputes the requisite consideration was given.[70] This is a plausible contention requiring investigation. So too is the question of whether an amendment to the written payment terms of the building contract is valid. I note in this regard that s 40 of the DBC Act sets limits on the amount of each progress payment that can be charged under a domestic building contract by reference to the relevant stage which has been reached and that s 132 of the DBC Act expressly prohibits the contracting out of the legislation.
[70]Relying upon the decision of Robson J in GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 143 [116].
Further, the reimbursement agreement was seemingly raised for the first time by the defendant in the second Brookes affidavit which was filed in response to the plaintiff’s application to set aside the statutory demand. The demand itself and the supporting affidavit make no reference to any such agreement or the mechanism by which a refund for overpayment was to be assessed.
The existence of any agreement for reimbursement is therefore a triable issue which cannot be resolved summarily as part of the present proceeding.
Secondly, assuming an agreement was struck between the parties in relation to the reimbursement of any overpayment for works invoiced in advance, there is a genuine dispute as to the application of its terms and, specifically the mechanism by which any reimbursement was to occur. However, it is important to observe that a proceeding brought under s 459G of the Corporations Act is not ordinarily an occasion for the Court to construe a contract where its meaning is in dispute.[71] It would appear that VCAT is the more appropriate forum for that to occur given the extent of its jurisdiction under Part 5 of the DBC Act.
[71]Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 92 ACSR 27, 34 [46] (Young JA); Broadspectrum (Australia) Pty Ltd v Centauri Business Services Pty Ltd [2016] NSWSC 1045 [22] (Barrett AJA); Re Litigation Insurance Pty Ltd [2017] NSWSC 334 [31] (Gleeson JA); Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300 [29] (Barrett AJA; Gleeson and White JJA agreeing).
The methodology adopted by the defendant in calculating the amount of reimbursement apparently involved itemising various work items in invoice 1781 (or perhaps invoice 1779),[72] which were paid by the defendant, and then deducting all amounts actually remitted to subcontractors along with the two $1,000 repayments already made by the plaintiff, so as to arrive at the amount claimed in the statutory demand. In the second Brookes affidavit, Mr Brookes said this represented the amount which should have been paid to the third party contractors but was instead retained by the plaintiff. The statutory demand itself characterises the debt as being an amount for works paid for in full by the defendant but either not performed or only partially performed by the plaintiff.
[72]See paragraph [33] of these reasons.
However, it is the plaintiff’s submission (and Mr Cadzow’s evidence) that the majority of the tiling work referred to in invoice 1781 was in fact completed by the time work ceased on 23 March 2020. Further, Mr Cadzow has deposed that were it not for delays caused by the defendant, the plaintiff would have completed the balance of the work set out in invoice 1781. This same contention was made by the plaintiff and recorded in the list of issues compiled by DBDRV and sent to the parties on 28 August 2020 in anticipation of the conciliation which occurred on 22 September 2020. It is not an argument which has simply been constructed in response to the statutory demand.
Thirdly, it follows that there is also genuine dispute about the extent to which the plaintiff has completed work for which it has been paid. It will be necessary for an assessment to be undertaken of the work performed by the plaintiff or its subcontractors to determine whether and, if so, to what extent the plaintiff has received payment in excess of that work.
Fourthly, given how the sum specified in the statutory demand is expressed, there is a plausible contention requiring investigation that the amount claimed is not a debt that is due and payable, but is instead a claim for damages for breach of contract.[73] This contention was not only put forward by the plaintiff in its written and oral submissions, but was a matter squarely raised by the plaintiff’s lawyers in their 3 February 2021 letter to the defendant’s lawyers. Additionally, in his evidence, Mr Cadzow notes that aside from the liquidated damages clause, the building contract did not contain any other mechanism by which the defendant could claim liquidated damages or a debt. This is another instance of a genuine dispute about the existence of the debt to which the demand relates.
[73]See paragraphs [44]–[53] of these reasons.
Fifthly, I am unpersuaded by the defendant’s argument that there can be no genuine dispute about the debt because the plaintiff has admitted its existence. The defendant relies on the 5 October 2020 email from Mrs Cadzow in which she said ‘we would like to make a regular payment to you for the over payment on invoice #1781’. He also points to the two $1,000 payments made by the plaintiff on 28 October 2020 and 30 November 2020 as constituting an admission of the debt. However, Mr Cadzow has denied the plaintiff has ever admitted liability for the amount claimed in the statutory demand. Whilst he accepts the 5 October 2020 email references an overpayment by the defendant, he says the statement is vague and does not support any of the specific amounts referred to in the statutory demand. I agree with that characterisation.
Further, I note that the 5 October 2020 email does not identify the quantum of the overpayment. Whilst the email specifically refers to invoice 1781, that invoice is for an amount that does not correlate to the debt claimed in the statutory demand. Even if the two payments were made by way of reimbursement for overpayment, the extent to which the plaintiff is ultimately liable to reimburse the defendant will require a reconciliation between the amounts paid to the plaintiff and what work was actually performed.
Whether there has been an admission or acknowledgment of the debt is also the subject of a genuine dispute between the parties and a matter requiring further investigation.
Finally, even if monies paid by the defendant in advance of work being undertaken have been utilised by the plaintiff to meet its business costs (as suggested by the defendant’s account of the phone conversation of 20 April 2020 and Mrs Cadzow’s email of 21 April 2020), it does not follow that the plaintiff has not performed any work on account of these payments. Again, an assessment of the amounts paid to the plaintiff and the work actually performed will be necessary.
Given there is a genuine dispute as to the entirety of the debt claimed in the statutory demand, the demand should be set aside under s 459H(3) of the Corporations Act.
Offsetting claims
The last issue for consideration is whether the plaintiff has offsetting claims under s 459H(1)(b) of the Corporations Act. I will deal with this aspect of the plaintiff’s application briefly.
The first offsetting claim apparently relates to works carried out by the plaintiff but not paid for by the defendant. It is put as a claim for damages or, alternatively, by way of quantum meruit. In the first Cadzow affidavit, Mr Cadzow lists a number of items relating to tiling and joinery which are said to be extracted from invoice 1781 dated 5 March 2020 and the schedule to the statutory demand. Those items include amounts payable by the defendant to the plaintiff and amounts credited by the plaintiff to the defendant in respect of payments to subcontractors, along with the two $1,000 payments by the plaintiff. Mr Cadzow says that the total of these amounts and deductions equates to $9,132 owing by the defendant to the plaintiff.
The basis of this offsetting claim is difficult to follow. The amounts referred to do not appear to arise from invoice 1781, according to the version of that invoice exhibited to the first Cadzow affidavit. Instead, they appear to be drawn from invoice 1779, dated 13 February 2020. However, it is the defendant’s evidence in this proceeding that both invoices 1779 and 1781 were paid. That evidence has not been directly contradicted by the plaintiff. Invoice 1781 also clearly records the payment of invoice 1779 as having been made. Further, no objective evidence is identified to distinguish this offsetting claim from mere bluster or assertion. For example, it does not appear to have been raised in any previous correspondence between the parties. I find this offsetting claim to be spurious and misconceived. It is not an offsetting claim made in good faith.
There are further offsetting claims advanced. In the first Cadzow affidavit, Mr Cadzow says:
By reason of Mr Brookes’ termination of the Contract, Simmoll is owed debts by Mr Brookes as set out below:
(a) The shortfall on the Statutory Demand after inclusion of deductions, based on the Statutory Demand and calculations outlined… above [referring to the same list of items payable by the defendant and credited to the defendant as discussed above].
(b) A balance of $44,909.75 remains and invoiced because of the termination of the Contract by Mr Brookes the total of which exceeds the amount of the Statutory Demand.
As to the offsetting claim based on the ‘shortfall on the Statutory Demand’, this appears to be another expression of the first offsetting claim which is based on a reconciliation of the numbers set out in the statutory demand and invoice 1779. The reference to earlier calculations suggests that is the case. I have already said that the first offsetting claim is not made in good faith. In the event this ‘shortfall on the Statutory Demand’ claim is intended to be treated as a discrete offsetting claim, it is unintelligible and lacks sufficient particularity.
Finally, the plaintiff submits that the last offsetting claim for $44,909.75 represents damages for loss of profits flowing from the defendant’s wrongful termination of the building contract. However, I am not satisfied that the claim is advanced in good faith because the limited facts asserted lack sufficient particularity to enable the Court to determine the claim is not fanciful. It is unclear on the material why the defendant is said to have wrongfully terminated the building contract. Further, the basis of calculation of this offsetting claim is simply not apparent.
Conclusion
For the reasons set out above, the statutory demand will be set aside on each of the independent grounds advanced under s 459J of the Corporations Act and by reason of a genuine dispute pursuant to s 459H(1)(a). The plaintiff’s remaining grounds, which concern offsetting claims under s 459H(1)(b) of the legislation, have not succeeded.
I will hear the parties on the question of costs.
12
42
0