JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : PDR PTY LTD -v- COTTESLOE CONSTRUCTIONS PTY LTD [1999] WASC 188 CORAM : MASTER SANDERSON HEARD : 22 SEPTEMBER 1999 DELIVERED : 29 SEPTEMBER 1999 FILE NO/S : COR 230 of 1999 MATTER : Section 459G of the Corporations Law BETWEEN : PDR PTY LTD Applicant
AND
COTTESLOE CONSTRUCTIONS PTY LTD
Respondent
Catchwords:
Corporations law - Application to set aside statutory demand - Turns on its own facts
Legislation:
Corporations Law, s 459G, s 459H
Result:
Demand varied under s 459H(4)
(Page 2)Representation:
Counsel:
Applicant : Mr S J McComish
Respondent : Mr C H Edwards
Solicitors:
Applicant : Hollingdales
Respondent : A C Thorpe
Case(s) referred to in judgment(s):Eyota Pty Ltd v Hanave (1994) 12 ACLC 669John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062Silk Holdings Pty Ltd v Palamore Pty Ltd, unreported; SCt of WA; Library No 980692; 4 December 1998Case(s) also cited:
Besser Industries (NT) Pty Ltd v Steelcon Constructions Pty Ltd (1995) 13 ACLC 544Capital Bay Investments Pty Ltd & Ors v Richard Szklarz Architects Pty Ltd & Ors, unreported; SCt of WA (Murray J); Library No 980503; 8 September 1998Casinos Austria International (Christmas Island) Pty Ltd & Ors v Christmas Island Resort Pty Ltd & Anor, unreported; SCt of WA (Owen J); Library No 980727; 16 December 1998Graywinter Properties Pty Ltd v Gas and Fuel Superannuation Fund (1994) 14 ACLC 1703Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455John Shearer Ltd v Gehl Co (1995) 17 ACSR 350Re J L Young Manufacturing Co Ltd [1900] 2 Ch 753Rothwells Ltd v Nommack (No 100) Pty Ltd (1988) 6 ACLC 1199Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1994) 12 ACLC 111 (Page 3)1 MASTER SANDERSON: This is an application to set aside a statutory demand. The application is brought under s 459G of the Corporations Law and falls to be determined under the provisions of s 459H. The applicant says that there is a genuine dispute as to the debt and that the statutory demand should be set aside under the provisions of s 459H(1). As an alternative, the plaintiff says that the substantiated amount of the demand, as calculated in accordance with s 459H(2) is less than the statutory minimum and that the demand ought therefore be set aside under s 459H(3). Further, although it was not expressly dealt with by counsel for the applicant in his submissions, it is implicit in the way the case was run that if the substantiated amount was greater than the statutory minimum the demand should be varied in accordance with s 459H(4). 2 The application is supported by three affidavits: one sworn by Kelvin James Fitzgerald ("Fitzgerald") on 13 August 1999 and two affidavits of Paul Damian Price, one sworn 16 August 1999 and the other sworn 30 August 1999. The respondent also relied on three affidavits: one sworn by Mark Lovekin ("Lovekin") on 14 September 1999, one sworn by Dean Prosper Hely on 15 September 1999 and one sworn by Michael Charles Mann ("Mann") on 15 September 1999. At the commencement of the hearing counsel for the respondent raised a number of objections to the affidavit of Fitzgerald and these objections were dealt with before the application itself was heard. As a consequence of these objections, I struck out par 84 of Fitzgerald's affidavit. I allowed the rest of the affidavit to stand. I indicated to counsel that in this decision I would give reasons why I refused the respondent's application, save with respect to par 84 of the Fitzgerald affidavit. I will deal with that issue before dealing with the application itself.
3 Essentially, counsel for the respondent submitted this was a final application and not an interlocutory application and the evidence led in support had to be approached accordingly. Counsel objected to a number of paragraphs in Fitzgerald's affidavit, largely on a basis the evidence was hearsay and not admissible. Counsel's objections all depended upon the characterisation of this application being interlocutory.
4 In Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062 Hayne J dealt at some length with this question. His Honour concluded (at 1067):
"In my view this application is an interlocutory proceeding. … the present proceeding determines only whether a demand may stand or not. If the demand stands, the
(Page 4)consequences are serious but there is no final determination of any right. All that follows from the demand not being set aside is that the company will have a further perhaps short period within which it must meet the demand or face a conclusion that it is to be presumed insolvent (unless it proves to the contrary). No order can be made under s 459G which finally determines the rights of the parties."
5 Counsel for the respondent submitted that his Honour was only dealing with a situation where the demand stood and the application to set aside was dismissed. It was submitted that if the application was dismissed then proceedings in relation to the originating summons challenging the demand were brought to an end and the rights of the parties in relation to the statutory demand were finally determined. With respect, it would seem to me that the conclusion reached by Hayne J is clearly correct no matter which way an application to set aside a statutory demand is determined. In no sense can these proceedings be said to finally determine the rights between the parties. 6 That being the case, O 37 r 6 governs what may be in an affidavit. Relevantly, under r 6(2) and r 6(2)(a) the affidavit may contain hearsay material provided the sources and grounds of the hearsay is specified. On this basis, the bulk of the objections taken by counsel for the respondent fell away. However, I did strike out par 84 of Fitzgerald's affidavit. The statements in that paragraph are clearly hearsay material and the sources of the hearsay are not adequately defined. Otherwise, Fitzgerald's affidavit was admitted into evidence.
7 The facts in this matter can be shortly stated. In or about September or early October 1998 the plaintiff, through its directors, was looking for the opportunity to develop a restaurant or bar on the coast north of Perth. An opportunity to develop a venue in the Hillarys' boat harbour presented itself. The plaintiff, through its then directors, Lovekin and Fitzgerald, discussed renovation of the premises with Mann on behalf of the respondent. Further discussions took place in November and December 1998 and as a consequence of these discussions Fitzgerald prepared what is described in his affidavit as "the original budget". This handwritten document is to be found as Annexure "KJF2" to Fitzgerald's affidavit. It shows a budget for renovations in an amount of $178,500. It is clearly an estimate, there being no suggestion that it is based upon detailed quantities or prices obtained from subcontractors. It is in round figures and no attempt is made to break down, to any significant extent, particular items. For instance, the figure under "lighting" is $5,000.
(Page 5)There is no indication of whether this is for light fittings and the necessary electrical work, which lights are to be replaced - in short, no detail is provided at all. Remarkably enough, this original budget was the only written document which was prepared before the plaintiff engaged the defendant to carry out the renovation works. The work on the renovations commenced in early January 1999 and progressed through until March of the same year. During the course of the works there were various changes to the specification, discussed and agreed between Fitzgerald and Mann. No note ever appears to have been made of precisely what these changes might be and the price increase or decrease which resulted. During the course of construction the applicant made three payments to the respondent totalling $175,000. These payments were apparently made without any invoice being rendered by the respondent to the applicant and, it seems, without any receipt being provided. Then, in early May, Mann met with Fitzgerald and presented him with what amounts to a full account for the work which had been undertaken. The cost of renovations, including the respondent's 12 per cent margin, was said to be $269,136. Allowing for the $175,000 the applicant had already paid the respondent, this meant that the respondent said that the applicant still owed it just over $93,000.
8 Fitzgerald was clearly stunned by the account. He says in his affidavit that he had no idea that the renovations would cost anything like the amount in the final account and he says that throughout the course of the renovations Mann had done nothing to alert him to the likely end cost. Quite the reverse. Fitzgerald says that he was led to believe by Mann that the costs of renovations would be at or about the budgeted figure. He declined to make any payment to the respondent pending further discussions. 9 There then followed correspondence between the lawyers for the respective parties. This correspondence is annexed to Fitzgerald's affidavit and it is relevant to detail the way the dispute has developed. On 16 June 1999 the respondent's solicitors wrote to the applicant's solicitors seeking payment of the outstanding account. The applicant's solicitors responded on 22 June 1999 seeking "detailed invoices and documents in relation to the extra costs". There is mention in this letter of some problems which had arisen with the flooring in the renovated premises, but no further detail is given as to what, if any, other matters are in dispute. A more detailed break down of the accounts in the form of a spreadsheet was then provided by the applicant to the respondent. On 29 June 1999 the respondent's solicitors wrote again to the plaintiff's solicitors seeking details of what, if any, matters were in dispute. The
(Page 6)applicant's solicitors responded by letter of 30 June 1999. This letter appears to be directed at ascertaining the nature of the contractual relationship between the parties. Once again, it does not give any idea of precisely what matters are in dispute. The next letter is from the applicant's solicitors to the respondent's solicitors on 27 July 1999. It was written after the statutory demand had been served on the applicant. The rest of the correspondence is of limited interest. It is perhaps relevant to note that on 3 August 1999 the applicant's solicitors wrote to the respondent's solicitors seeking more details about the costs incurred in performing the renovation work. Once again, it is not clear from the correspondence just what it is that is being disputed by the applicant.
10 At the commencement of his submissions, counsel for the applicant conceded that the agreement between the applicant and the respondent was a "cost plus" building contract. That was a significant concession and one which, on the evidence, was properly made. However, the concession was not made in counsel's written submissions and it appeared from the evidence which was submitted the applicant may have been arguing that it had a fixed price contract with the respondent. Clearly, the respondent was uncertain what position the applicant was adopting with respect to the contract. Once the concession as to the true nature of the agreement between the parties was made, the evidence could be put in context. In a cost plus agreement the client (in this case the applicant) agrees to pay the costs incurred by the builder (the respondent) together with a margin representing the builder's profit. It is no doubt possible to imply terms in the agreement so as to require the costs incurred to be properly incurred and to require the builder to provide invoices and detailed accounts when called upon to do so. What is more, if the work done is not properly done or if the materials used prove to be unsuitable, then there is no doubt a term implied in the agreement between the parties that any defects will be remedied. If the defects are not remedied then the client would have the right to have a third party remedy the defects and would be entitled to claim the cost of such remedial work from the respondent. 11 In this case the evidence led by the applicant (with one exception which I will come to below) gives no indication at all of what is in dispute. In conceding this was a cost plus agreement the applicant concedes that it is liable to pay the costs incurred by the respondent. If it disputes a particular item, it must do so on the basis that the cost was not properly incurred or the amount in the circumstances was unreasonable. It might also be able to refuse to make payment on the basis that proper accounts had not been provided so that it was not able to satisfy itself that the costs were reasonable and proper. But taken in the overall, the
(Page 7)evidence led by the applicant in this case gives no indication at all of what, if anything, is in dispute between the parties. For instance, in the first set of accounts there is an entry in the name of Junction Electrics for a sum of $7,140 on 11 March (see page 31 of Fitzgerald's affidavit). Fitzgerald does not say that he disputes this account or that the work could have been done for a lesser sum. Taken in the overall, Fitzgerald's evidence is nothing more than a bald statement that he thinks the amount he has been called upon to pay is too much. It is not possible to ascertain from the evidence what is in dispute between the parties.
12 The test to be applied in determining whether there is a genuine dispute has been outlined in any number of cases. It is convenient if I refer again to the decision of Mibor Investments Pty Ltd v Commonwealth Bank (supra) where Hayne J said (at 1064 - 1065):
" … at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of the dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute."
13 It is clear that the word "dispute" is conditioned by the word "genuine". That is to say the court must be satisfied that there is a real argument between the parties. This cannot be established by a mere assertion by an applicant that the amount in the statutory demand is not admitted. As McLelland CJ said in Eyota Pty Ltd v Hanave (1994) 12 ACLC 669 (at 671):
"This does not mean that the Court must accept uncritically as giving rise to a genuine dispute every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by some deponent, or inherently improbable in itself it may be not having 'sufficient prima facie plausibility to merit further investigation to its truth' or 'a patently feeble legal argument, or assertion of facts unsupported by evidence'."
14 Counsel for the applicant referred to the decision of Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716. It was submitted that, in construction cases where there was contemporaneous correspondence between the parties, it was not difficult to infer that a debt was genuinely disputed. However, (Page 8)the contemporaneous correspondence in this case goes no way to establishing the basis upon which the debt is generally disputed or what items in particular are in dispute. As I have indicated, the applicant has made a broad general complaint as to the amount of the final account but give no detail as to how and why that amount is disputed.
15 In my view, the applicant has not made out that there is a genuine dispute as to the debt claimed by the respondent from the applicant. I would not set aside the statutory demand on this basis. 16 That, then, leads to consideration of whether or not the applicant has an offsetting claim as that term is defined in s 459H(5). The evidence makes it plain that there is a dispute between the parties as to the suitability of the floor in the renovated premises. It appears that the surface coating placed on the floor is lifting and, although it has been replaced once, it might well have to be replaced again. Appearing as Annexure "KJF4" to Fitzgerald's affidavit is a quote from Bromain-Atlas Floor Sanding for the costs of sanding and resealing the floor. The amount of the quote is for $11,000. I am satisfied that that amount falls within the definition of an offsetting claim. But that is the only amount which can be ascertained with any precision. There are complaints in relation to a series of other matters, such as the tiles, the wall cladding, the electrical work and so on. But in relation to none of these are quotes provided so that the offsetting claim can be quantified. It is entirely inappropriate that I speculate as to what might be the appropriate figure for these offsetting claims. In my view, none of the applicant's complaints, save with respect to the flooring, can be considered for the purposes of settling upon the substantiated amount: see, generally, Silk Holdings Pty Ltd v Palamore Pty Ltd, unreported; SCt of WA; Library No 980692; 4 December 1998.
17 For the purposes of calculating the substantiated amount, the admitted total is $88,757.43. The offsetting total is $11,000, leaving a balance of $77,757.43. I am satisfied that this is the substantiated amount. The statutory demand ought be adjusted accordingly.
18 I will hear the parties as to the precise form of orders.