Site Foreman Pty Ltd, The v Brand

[2011] NSWSC 821

Supreme Court

New South Wales

Medium Neutral Citation:	Site Foreman Pty Ltd, The v Brand [2011] NSWSC 821
Hearing dates:	20 and 25 July 2011
Decision date:	04 August 2011
Jurisdiction:	Equity Division
Before:	Black J
Decision:	Statutory demand set aside
Catchwords:	Statutory demand - defect in the demand arising from specification of two different amounts for the debt claimed - offsetting claims.
Legislation Cited:	- Corporations Act 2001 (Cth) - s 459G, s 459H, s 459J - Employees Liability Act 1991 (NSW) - s 3
Cases Cited:	- AR Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 - Beauty Health Group Ltd v Sholl [2011] NSWSC 77 - Bennell v Netlink Australia Pty Ltd [2002] NSWSC 680; (2002) 42 ACSR 680 - Bolton Gems Pty Ltd v Gregoire (unreported, 10 November 1995, Young J) - Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581 - Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321 - Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21 - Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302; 19 ACSR 125 - Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219; (2002) 20 ACLC 726 - Marshall v Whittaker's Building Supply Co Ltd [1963] HCA 26; (1963) 109 CLR 210 - Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 - On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 - Panel Tech Industries (Australia) Pty Ltd v Australia Skyreach Equipment Pty Ltd [2003] NSWSC 619; (2003) 200 ALR 321 - Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300; 20 ACSR 746 - POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533 - Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393 - Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 - Sheridan International Pty Ltd v CS Brooks Inc [2005] NSWSC 140
Category:	Principal judgment
Parties:	The Site Foreman Pty Ltd (Plaintiff) Alan Brand (Defendant)
Representation:	Counsel: G.P. Segal (Plaintiff) J.T. Johnson (Defendant) Solicitors: Eaves Legal (Plaintiff) Sally Nash & Co (Defendant)
File Number(s):	2011/071822

Judgment

1. In these proceedings, the Plaintiff ("Site Foreman") applies for an order setting aside a Statutory Demand ("Demand") served upon it under s 459G of the Corporations Act 2001 (Cth). Site Foreman contends that the Demand should be set aside under s 459J of the Corporations Act or alternatively on the basis that it has an offsetting claim against the Defendant, Mr Alan Brand ("Mr Brand"), greater than the amount demanded for the purposes of s 459H of the Corporations Act .

1. Site Foreman relies on the affidavits of Mr Stephen Moore sworn 4 March 2011 ("Moore 1"); 31 March 2011 ("Moore 2"); 4 May 2011 ("Moore 3"); 14 May 2011 ("Moore 4"); and 18 July 2011 ("Moore 5") and the affidavit of Mr Anthony Harb sworn 25 May 2011. Mr Brand relies on his own affidavit sworn 25 April 2011, a notice to admit facts and authenticity of documents and Site Foreman's response dated 27 May 2011.

Application to set aside Demand under Corporations Act s 459J(1)(a)

1. Site Foreman contends, first, that the Demand should be set aside under Corporations Act s 459J(1)(a) on the basis that the Court should be satisfied that, because of a defect in the Demand, substantial injustice will be caused unless the Demand is set aside. The bulk of authority indicates that the reference to a defect "in the demand" in that section is to a defect in the demand itself, rather than a defect in the accompanying affidavit. The term "defect" is defined in Corporations Act s 9 to include a misstatement of an amount or total and a misdescription of a debt or other matter.

1. Site Foreman points to a plain inconsistency between a statement in the opening words of the Demand that Site Foreman owes Mr Brand "the amount of $29,304.51 being the total amount of the debts described in the Schedule" and the Schedule to that Demand which identifies a series of invoices, a due date in respect of each invoice, and an amount said to be due in respect of each invoice, and totals the amount of those invoices in the words "total amount: $18,309.51". The affidavit accompanying the Demand in turn states that "[t]he total of $18,309.51 of the debts mentioned in the Statutory Demand is due and payable by the debtor company". Mr Brand characterises the discrepancy between the two amounts specified in the Demand as involving a "typographical error" in the figure specified in the opening words of the Demand, although the language of the affidavit accompanying the Demand might have suggested it was drawing a distinction between the larger amount first stated in the Demand and a smaller amount then due and payable. There is no further evidence before me as to the nature of that error or how it arose. Mr Brand submits that there is no evidence that Site Foreman had any misunderstanding as to what was needed to be done to satisfy the Demand.

1. The misstatement in the amount of the debt due in the opening words of the Demand, and the associated discrepancy between that amount and the amount stated in the Schedule to the Demand, is plainly a "defect" in the Demand within the meaning of ss 9 and 459J(1)(a) of the Corporations Act . Section 459J(1)(a) of the Corporations Act provides that a statutory demand may only be set aside because of a defect in the demand where substantial injustice would be caused unless that demand is set aside.

1. The question whether the defect in the Demand noted above is such that it would cause substantial injustice to Site Foreman if the Demand is not set aside is to be determined by reference to the likely effect of the defect on Site Foreman as the recipient of the Demand, and must take account of the significant consequences which would follow from a failure to comply with the Demand. In Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219 (2002) 20 ACLC 726; at [21], Barrett J stated that:

"By serving a statutory demand on a company, a creditor takes the first step towards bringing into existence a statutory presumption of insolvency on the basis of which the creditor may proceed to ask the court to supplant the existing custodians of the company's property and affairs in favour of an officer of the court whose first duty is to attend to the interests of the general body of creditors. If the court accedes to that request, the established order of administration within the company is put into abeyance and a regime in which the interests of shareholders are subordinated or deferred comes to the fore. The first step to which I have referred involves, in essence, a clear delineation of the creditor's assertion of an entitlement to receive payment of a debt in respect of which there exists not only an unquestionable obligation to pay but also an unconditional obligation to pay immediately. The message conveyed by the demand is effectively a message of last chance: that, unless the payment already unequivocally and immediately required to be made is in fact made within the period stated in the demand, the company will be vulnerable to the grave consequences which the court may, on application made, visit upon it on the basis of the statutory presumption of insolvency."

1. His Honour also observed at [37] that:

"An essential feature of a statutory demand is that it inform the addressee company in unambiguous terms what it must do to forestall the statutory presumption of insolvency. The debtor is not expected (indeed, cannot be expected) to guess which of several possible courses suggested by the terms of the document is demanded of it, or to initiate inquiries of its own in order to ascertain the required course. Some familiarity on the debtor's part with the relevant subject matter may be presumed, but it is not obliged to speculate exactly what it is that the creditor demands."

His Honour there held that a statutory demand which stated two different amounts claimed would leave the recipient in an "unfair and invidious" position of not knowing with certainty how much it was expected to pay and held that substantial injustice would be caused unless the debtor was relieved of the consequences of the failure to comply.

1. Similarly, in AR Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 at [29], Barrett J observed that:

"The demand must be unambiguous; it must leave the recipient in no doubt as to the course that should be taken. Where ambiguity exists within a statutory demand, such as to produce doubt in the mind of any reasonable reader as to the course that must be taken in order to avoid a situation where the statutory presumption of insolvency is created, the demand is defective as contemplated by s 459J(1)(a)."

In that case, his Honour found that a demand which exposed the company to the possibility of a presumption of insolvency unless it paid the higher of two amounts specified in the demand and a schedule to it "would clearly be a source of substantial injustice".

1. In my view, Site Foreman as the recipient of the Demand at issue in these proceedings would be left in clear uncertainty as to whether it was required to pay the higher amount specified in the opening words of the Demand or the lower amount specified in the Schedule, and verified by the accompanying affidavit, in order to avoid a presumption of insolvency arising. That uncertainty would, in my view, give rise to substantial injustice, since the recipient of a demand in this form may consider it has no alternative other than to pay the higher amount claimed in order to avoid the significant adverse consequences arising from a presumption of insolvency. In my view, that outcome amounts to a substantial injustice for the purposes of s 459J(1)(a) of the Corporations Act . This conclusion is sufficient to support an order setting aside the Demand.

1. Counsel for Mr Brand, Mr J.T. Johnson, drew my attention to the decision in Bennell v Netlink Australia Pty Ltd (2002) 42 ACSR 680 where Austin J considered a demand which required payment for less than the amount of a judgment debt, interest and costs, the correct amount of which was shown in a schedule. I do not consider that decision assists Mr Brand. First, Austin J observed that it had not been contended that that statutory demand was invalid or ineffective by reason of the discrepancy (at [12]) so his Honour did not need to, and did not, address that matter. Second, the injustice which I consider arises, from uncertainty as to the amount which Site Foreman was required to pay to avoid the presumption of insolvency is exacerbated when one of the alternative amounts claimed is substantially larger than the amount due.

1. I should note that Mr Brand also contended that the discrepancy between the two amounts specified in the Demand was not specified in the Originating Process filed by Site Foreman with any level of detail (although the Originating Process referred to s 459J of the Corporations Act ) and that it was not open to Site Foreman to rely on this matter. In my opinion, it was open to Site Foreman to rely on the defects in the Demand for which it contends where those defects emerge from the Demand itself which was annexed to Moore 1: POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143 (2007) 214 FLR 393.

Application to set aside Demand under Corporations Act s 459J(1)(b)

1. Alternatively, Site Foreman contends that there is some other reason why the Demand should be set aside, within the meaning of s 459J(1)(b) of the Corporations Act , in that the affidavit accompanying the Demand does not verify the debt claimed in the Demand as being due and payable by Site Foreman. The premise of this argument is that the larger amount specified in the Demand, $29,304.61, is not verified by the affidavit accompanying the Demand which instead verifies the lesser amount of $18,309.51 specified in the Schedule.

1. A statutory demand may be set aside under Corporations Act s 459J(1)(b) where there is "some other reason" to set aside that demand. Whether such "other reason" exists is to be determined by reference to the legislative intent of Pt 5.4: Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 at 235; [2005] NSWCA 24. A failure of a creditor to verify that the relevant debt is due and payable or that there is no genuine dispute regarding that debt may warrant an order setting aside that demand under s 459J(1)(b): Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd above. A deficiency in the affidavit supporting a statutory demand may also support an order to set aside the demand: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300; 20 ACSR 746. It is not necessary for Site Foreman to establish substantial injustice in order to set aside the Demand if a reason other than a defect in the Demand is established under s 459J(1)(b): Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302; 19 ACSR 125 at 139.

1. I am not satisfied that the Demand should be set aside on this ground. The affidavit verifies the amount stated in the Schedule to the Demand and the deficiency which arises is not in respect of the verification of that amount but rather in the Demand itself, so far as it specifies two alternative amounts for the debt then due as I have noted above.

Offsetting claim

1. Site Foreman also seeks to set aside the Demand on the basis that it has an offsetting claim under s 459H of the Corporations Act . That section provides that, where the Court is satisfied that the company has an offsetting claim, it must set aside the demand if the substantiated amount (as defined) is less than the statutory minimum. An "offsetting claim" for the purposes of s 459H(1)(b) of the Corporations Act is the amount of a claim or claims that the company has against the person who served the statutory demand by way of counter claim, set-off or cross-demand, whether or not that amount arises out of the same transaction or circumstances as the debt to which the demand relates: s 459H(5).

1. The case law in respect of offsetting claims is well-known. A company can establish an "offsetting claim" if there is a "serious question to be tried" or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor and that claim is made in good faith and is arguable and not frivolous or vexatious: Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 356-7. The effect of that case law was recently summarised in Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [23], where Barrett J observed that s 459H(1)(b), read in conjunction with the definition of "offsetting claim" in s 459H(5):

"... requires the court to consider whether the plaintiff has a 'genuine' claim against the defendant in respect of the matter raised. It is also necessary to ascribe an 'amount' to any 'genuine' claim in order to determine, under s 459H(2), the 'offsetting total' which plays a central part in determining whether the 'substantiated amount' is less than the statutory minimum of $2,000. The court's task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried ( Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith ( Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious ( Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37)."

1. The offsetting claims on which Site Foreman relies are, in short, that Mr Brand's alleged breach of implied terms requiring the exercise of care and skill in the contract between Site Foreman and Mr Brand gave rise to losses in respect of Site Foreman's dealings with its clients, which Site Foreman claims to be entitled to recover against Mr Brand.

1. Site Foreman engaged Mr Brand under contracts dated 7 August 2007 and 2 November 2007 (Moore 1 Annexures B, C). The contract dated 7 August 2007 between Site Foreman and Mr Brand relevantly provided:

" Employment Contract

You are employed as a contractor and as such you will be responsible for your own workers compensation insurance and superannuation. You will also be responsible for your motor vehicle, mobile phone and the associated running costs of the same.

You will be paid for results achieved in accordance with the scheduled rates detailed below. These payments are inclusive of GST and are paid upon production of a tax invoice in accordance with our standard trading terms ...

3/ Project Management

Project management services to our clients include a weekly site meeting, progress claim assessment, variation assessment, defect monitoring and generally acting as the agent and advisor between the client and the builder. The overall objective of the project manager is to achieve an on budget, on time project.

The project manager is paid a fee equal to 25% of that which is received by The Site Foreman."

1. A subsequent contract dated 2 November 2007 contained similar terms but also included the additional paragraph:

"As divisional manager all project management works for construction in NSW will be directed to you. You are to use your discretion as to how this work is carried out and what staffing resources are required to complete the work."

1. Site Foreman in turn contracted to provide project management services for a client in respect of residential construction works at Roseville ("Roseville project") and Mr Brand was nominated as Site Foreman's representative under its contract with its clients for the Roseville project (Moore 1 Ex SM-1). Site Foreman contends that defaults on the part of Mr Brand led to losses in respect of that project.

1. Mr Moore's evidence is that Mr Brand failed to advise Site Foreman's clients in a timely way of a significant increase in the costs of rock excavation in respect of the Roseville project. Mr Moore's evidence is that it is inappropriate practice in the building industry, particularly in respect of supervision of residential projects, to fail to inform the clients of such a matter.

1. Mr Moore gives evidence of a meeting, after this issue had arisen, attended by Mr Brand, the builder, two directors of Site Foreman and Site Foreman's clients in which those clients complained that the cost of rock excavation associated with the Roseville project had increased from an initial estimate of $64,000 to about $300,000. The builder stated that he had advised Mr Brand of the substantial amount of rock being extracted and that Mr Brand had instructed the builder to keep going with that excavation and the clients had also complained as to a lack of contact with Mr Brand in respect of the project. Mr Moore's evidence is that, during the meeting, Mr Brand accepted that he had been at fault. Mr Moore's evidence is that the clients expressed the position in the meeting that, had they been told of the escalating cost of rock excavation, they would have concentrated on the excavation necessary for the house and not undertaken additional excavation. Mr Moore also gives evidence of a subsequent complaint concerning Mr Brand's continuing lack of involvement with the project and of his subsequent removal from the project.

1. The builder in respect of the Roseville project also gave evidence of discussions with Mr Brand expressing concerns about the extent of the rock excavation work and the likely cost for the clients, in which Mr Brand had advised him that the clients were aware of the issue; of Mr Brand's failure to attend the site despite conversations in which the builder had expressed concern about ongoing rock excavation; and of Mr Brand's comment at the meeting with the clients to the effect that "I stuffed up". That evidence was consistent with Mr Moore's evidence in this regard.

1. Mr Brand's evidence was that he did not quote for rock excavation removal in respect of the Roseville project and was not aware of the costing for that work and he denied that he was present at conversations between Mr Moore, the clients and the builder.

1. Mr Moore's evidence is that, after the clients complained of the need to fund the additional excavation charges, Site Foreman offered to waive the 8.8% fee that it was entitled to charge in respect of the variation in relation to those additional charges. By email dated 10 November 2010, Mr Moore advised Mr Brand that, inter alia, there would be no variation charge for the rock excavation from Site Foreman and the absence of that charge is reflected in the tax invoice issued by Site Foreman to the clients in respect of that variation. Mr Moore's evidence is that Site Foreman has not recovered any variation fees in respect of the Roseville project, other than a fee on a first variation which occurred prior to the problem concerning excavation. Mr Brand's evidence is that he was not aware of the arrangements which Site Foreman subsequently made with the clients in this regard.

1. Mr Moore contends that Site Foreman lost at least $25,168 (being 8.8% of the additional excavation charges) by reason of Mr Brand's alleged failure to correctly assess the amount of rock excavation required or to take action to prevent excavation work from proceeding without instructions from the clients.

1. Site Foreman also contends that defaults on the part of Mr Brand also led to its loss of a cancellation fee in respect of another client's termination of a contract in respect of a project at North Curl Curl ("North Curl Curl project"). Mr Brand was also nominated as Site Foreman's representative under the contract in respect of that project (Moore 1 Ex SM 2). Mr Moore's evidence is that it was Site Foreman's obligation to obtain an amended construction certificate before proceeding with further work on that project; that Mr Brand was appointed by Site Foreman as project manager for that project; and that he was required to, and undertook to, arrange for the amended construction certificate in that capacity. Mr Moore's evidence is that the customer subsequently terminated the contract with Site Foreman by reason of a failure to make progress in respect of the project during the period when he was overseas and that the reason for such lack of progress was because of Mr Brand's failure to obtain the amended construction certificate.

1. There is a contest between the evidence of Mr Moore and Mr Brand as to whether the true cause of the delays in respect of the North Curl Curl project was the absence of approval for the variation of the works or the client's absence overseas. Mr Brand's evidence is that work on the North Curl Curl project ceased because there were major problems with an excavation and Mr Brand could not obtain the client's instructions while the client was overseas and would not authorise the builder to carry on without those instructions and that the absence of an amended construction certificate had no bearing on the work ceasing.

1. Mr Moore's evidence is that Site Foreman was unable to properly claim the cancellation fee of $25,000 which would otherwise have been payable on the client's termination of the contract relating to the North Curl Curl project in these circumstances and, by email dated 9 December 2010, Mr Moore emailed the client agreeing to release the client from any contractual obligations to Site Foreman. Mr Moore also gives evidence of lost earnings in respect of the balance of the project, and estimates a loss of profit on the project to Site Foreman as $25,000.

1. Mr Brand was also nominated as Site Foreman's representative in respect of a project at Summer Hill under a contract between Site Foreman and its client. Mr Brand takes objection to Site Foreman's reliance on this matter on the basis that no reference was made to that claim in Moore 1: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581. In my view, that objection is well-founded and it is not open to Site Foreman to establish an offsetting claim in respect of this project.

1. There is also a dispute as to whether Mr Brand ceased involvement with Site Foreman by reason of dissatisfaction with his performance (as Mr Moore claims) or because he had not been paid the amounts due to him (as Mr Brand claims). Mr Brand's evidence is that he had not been advised of any dissatisfaction with his work and that the failure to pay him had been explained as a result of a large tax bill payable by Site Foreman. Mr Moore contests that evidence. Mr Brand also denies that he caused loss or damage to Site Foreman.

1. In my opinion, and subject to the additional issue concerning the application of the Employees Liability Act 1991 (NSW) to which I refer below, Site Foreman can establish the essential elements of an offsetting claim against Mr Brand arising from the facts for which it contends. It is reasonably arguable that the terms of Mr Brand's engagement contained an implied term that he would exercise reasonable care and skill in respect of the matters for which he had responsibility: Bolton Gems Pty Ltd v Gregoire (unreported, 10 November 1995, Young J). The matters alleged in respect of Mr Brand's conduct in respect of the Roseville project and the North Curl Curl project arguably establish a breach of that duty, and it is also arguable that Site Foreman could recover the loss which it has incurred in seeking to address the respective clients' complaints against Mr Brand in a contested hearing of its claims. Although there is a contest as to the relevant facts between Mr Moore's evidence (supported, in respect of the Roseville project, by the builder's evidence) and Mr Brand's evidence, I am satisfied that there is at least a "serious question to be tried" or "an issue deserving of a hearing" as to these claims and that they are made in good faith and are arguable and not frivolous or vexatious.

Application of Employees Liability Act

1. Mr Brand contends that the offsetting claims asserted by Site Foreman do not give rise to a genuine dispute in that the contractual arrangement existing between Site Foreman and Mr Brand was that of employment and the claim against him is barred by the operation of s 3 of the Employees Liability Act 1991 (NSW), which provides that:

"(1) If an employee commits a tort for which his or her employer is also liable:

(a) the employee is not liable to indemnify, or to pay any contribution to, the employer in respect of the liability incurred by the employer, and

(b) the employer is liable to indemnify the employee in respect of liability incurred by the employee for the tort (unless the employee is otherwise entitled to an indemnity in respect of that liability).

(2) Contribution under this section includes contribution as joint tortfeasor or otherwise."

1. Whether this contention can be established depends, first, on the question whether the relationship between Site Foreman and Mr Brand is properly characterised as one of employment within the scope of that section. Counsel for Mr Brand refers to the "totality test" set out in On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 at [188]-[220] and submits that "there is a substantial argument in favour of the fact that the true nature of the relationship between the Plaintiff and the Defendant was one of employer and employee". Mr Brand contends that features which indicate an employment relationship include that he was held out as part of Site Foreman's business and nominated as its representative for contractual dealings; that Site Foreman considered that it could remove him from any project; that the payment structure was principally by way of commission based upon work introduced by Site Foreman; and that costs other than Mr Brand's motor vehicle, mobile phone, worker's compensation and superannuation were borne by Site Foreman.

1. On the other hand, Site Foreman points to indicia that the contract between it and Mr Brand was a contract for services and not a contract of employment, including the fact that invoices were issued in respect of Mr Brand's services by "APM Constructions" and which included a charge that appears to be referable to GST. Site Foreman also points out that the contract dated 12 November 2007 provided that Mr Brand was to use his discretion as to how work was to be carried out and as to the level of staffing resources required to complete the works; that he was to be paid on results and on the production of a tax invoice; that there was no provision concerning hours of work, leave or other entitlements normally attaching to contracts of employment; and that there was no requirement that Mr Brand devote his full time and attention to Site Foreman's business.

1. The characterisation of the relationship between Site Foreman and Mr Brand as one of employment on the one hand, or independent consultant on the other, requires the totality of the relationship between them to be considered: Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21; On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3), above, at [207]-[208]. I do not consider that it is necessary or appropriate for me, in an application to set aside a statutory demand, to reach a determination as to this issue where the parties have not had the opportunity to obtain discovery nor has there been cross examination of witnesses or a full exploration of the relevant facts.

1. There is also a difficult issue as to the potential application and effect of s 3 of the Employees Liability Act in the present facts. In Sheridan International Pty Ltd v CS Brooks Inc [2005] NSWSC 140, Einstein J noted that it was "distinctly arguable" that that section only applied to "third party" claims in tort; that the word "tort" should be given its normal legal meaning which is a wrongful act giving rise to a cause of action distinct from a breach of contract, statute or equitable obligation; and that the application of the section "very arguably" depended upon the existence in both an employer and an employee, of a liability in tort to a third party. His Honour declined to strike out claims by an employer against an employee in, inter alia, contract on the basis that the application of the Act in those circumstances was "a matter where there is some real uncertainty" (at [23]). In the present case, Site Foreman contends that the Employees Liability Act has no application because Mr Brand is liable to it by reason of a breach of an implied term to exercise reasonable care and skill in the performance of his duties under the relevant contract and any actual or potential liability of Site Foreman to its customers was also contractual and did not arise in tort. It is by no means clear that s 3 of the Employees Liability Act would apply to such claims merely because a client could have brought a claim against Site Foreman in tort and Site Foreman could have brought a claim against Mr Brand in tort, notwithstanding that neither did do.

1. It is sufficient for Site Foreman to establish its offsetting claims that it can show a "serious question to be tried" or "an issue deserving of a hearing" and that those claims are made in good faith and are arguable and not frivolous or vexatious. In my view, neither the proposition that Mr Brand was an employee of Site Foreman nor the effect of s 3 of the Employees Liability Act in that situation is sufficiently clear as to deprive Site Foreman's claims of that character.

Conclusion

1. I am satisfied that the discrepancy in the amounts claimed in the Demand gave rise to substantial injustice for the purposes of s 459J(1)(a) of the Corporations Act and that the Demand should be set aside on that basis.

1. I am also satisfied that the amount of the offsetting claims established by Site Foreman exceeds the amount of the Demand and, accordingly, the substantiated amount of Demand (for the purposes of s 459H(2) of the Corporations Act ) is less than the statutory minimum. I am therefore required to set aside the Demand in accordance with s 459(3) of the Corporations Act and that provides a further basis for the Demand to be set aside.

1. Site Foreman seeks its costs in respect of the application to set aside the Demand. Subject to hearing from the parties, I consider that Site Foreman, which has been successful in setting aside the Demand, is entitled to an order for costs against Mr Brand.

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Decision last updated: 05 August 2011