The Uniting Church (NSW) Trust Association Limited v Northbank Place (Vic) Pty Ltd
[2009] VSC 659
•7 August 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4149 of 2009
| THE UNITING CHURCH (NSW) TRUST ASSOCIATION LIMITED | Plaintiff |
| v | |
| NORTHBANK PLACE (VIC) PTY LTD | Defendant |
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ASSOCIATE JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 March 2009 | |
DATE OF JUDGMENT: | 7 August 2009 | |
CASE MAY BE CITED AS: | The Uniting Church (NSW) Trust Association Limited v Northbank Place (VIC) Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 659 | |
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CORPORATIONS – EXTERNAL ADMINISTRATION - INSOLVENCY – Application to set aside statutory demand under section 459G of the Corporations Act 2001 – demand for payment of final instalment under construction contract – demand set aside by reason of existence of genuine dispute and offsetting claim – relevance of solvency of plaintiff.
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REASONS FOR DECISION
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | J Digby, QC and A Hourigan | HWL Ebsworth |
| For the Defendant | G Golvan, QC and J Twigg | Thomson Playford Cutlers |
HIS HONOUR:
By an originating process filed 13 January 2009 in proceeding 4149 of 2009 the Plaintiff, The Uniting Church (NSW) Trust Association Limited, makes application pursuant to s 459G of the Corporations Act 2001 (Cth) (“the Act”) to set aside a statutory demand dated 22 December 2008 (“the demand”), and served on it by the Defendant, Northbank Place (Vic) Pty Ltd (“Northbank”), on 23 December 2008.
In a related proceeding, The Uniting Church in Australia Property Trust (Q), by originating process filed 13 January 2009 in proceeding 4148 of 2009, makes application to set aside a statutory demand which was served on it by Northbank on the same day. That statutory demand is identical in its terms to the demand served on the Plaintiff and makes a claim in respect of the same debt. Except for one issue relating to the fact that the Queensland entity is constituted under the Uniting Church in Australia Act 1977 (Qld), that application gives rise to identical issues as those concerning the application by the Plaintiff in this application. Save for the consideration of that discrete issue, which I shall deal with in separate reasons, the reasoning below in respect of the Plaintiff’s application is appropriate to be applied in relation to the Queensland entity’s application.
The demand makes a claim for $3,662,144 which is said to arise from a liability to make a final payment to Northbank pursuant to cl 18.1(c) of an agreement dated 4\ April 2007 which is described in the affidavit material (and which I shall refer to in these reasons) as the Umbrella Agreement.
The application to set aside the demand was supported by affidavits of David Allen sworn 12 January 2009 and 27 February 2009, and of Anthony Robert Dimauro sworn 12 January 2009 and 27 February 2009.
In opposition to the application, Northbank relied on the affidavits of Anthony George Ellul sworn 12 February 2009, Robert John Cooke sworn 12 February 2009 and 5 March 2009, and Michael Warren sworn 18 March 2009. The Plaintiff gave notice of a number of objections to the affidavits of Mr Ellul, Mr Warren and Mr Cooke of 12 February 2009. The objections raised in respect of Mr Cooke’s affidavit are that certain paragraphs are in the nature of submissions while others profess to give opinions in respect of which it is said Mr Cooke is not qualified to give. Having regard to my view about how this application should be disposed of, I do not consider it necessary to rule on the objections.
The Evidence
The subject matter of the application is a ten storey office building project in Melbourne’s Central Business District known as the Northbank East Building Project (“the Project”). I shall consider at the outset the evidence filed by the parties and then move on to consider such material in the light of the relevant case law.
Before doing so, I observe that the affidavits and exhibits filed in this and the related application are voluminous. There are 47 exhibits to Mr Allen’s affidavit of 12 January 2009 which required three lever arch folders to accommodate them. There are 29 exhibits to Mr Cooke’s affidavit of 12 February 2009 which required one lever arch folder. The Umbrella Agreement and associated contractual documentation alone run to several hundred pages. In addition, the parties each filed written submissions which were the subject of reply and which in turn were the subject of written response.
The Plaintiff’s affidavits in support of the application
Affidavit of David Allen sworn 12 January 2009
Mr Allen is the Managing Director of Griffin Capital Ltd, which company was the Plaintiff’s asset manager. Griffin Capital has been engaged by the Plaintiff in that capacity for some four years. Among the services it provided were those with respect to the Project which is the subject of this application. As asset manager, Griffin Capital was responsible for what might be described as the project management of the Project. As such, Griffin Capital instructed and co-ordinated various consultants in relation to the Project, negotiated the terms of the Umbrella Agreement and represented the Plaintiff in the day-to-day monitoring and review of the construction and development of the Project. It was the line of communication between the Plaintiff and the other parties involved including the builder and the developer in relation to the various issues which arose in the course of the Project.
On 4 April 2007, the Plaintiff, The Uniting Church Property Trust (Q), Northbank and a number of other parties entered into the Umbrella Agreement which provided for the construction of the building. Northbank was the developer of the Project. On or about the same date, those parties entered into a deed which is described as the Construction Tripartite Deed along with L U Simon Builders Pty Ltd (“the builder”). At or about the same time, the builder and Northbank entered into a contract described as the Design and Construct Contract (“the Building Contract”). Mr Allen states that among the express terms of the Umbrella Agreement there were warranties that Northbank would “achieve specified and designated commercial standard quality, energy and environmental ratings which were set out in Clauses 6.7(c)(ii) and (iii) of the Umbrella Agreement”.
The demand makes a claim for the Final Payment under the Umbrella Agreement. The Plaintiff contends that since approximately September 2008, disputes have arisen between the parties which have impacted upon the attainment of Practical Completion of the Project and therefore the entitlement to final payment. The Plaintiff contends that the certification of Practical Completion, which it says gives rise to the entitlement of Northbank to final payment, is a nullity. In addition, the Plaintiff claims that it has an offsetting claim by way of a set-off or a right to a cross‑claim, the value of which is not able to be finally established at this juncture, by reason of Northbank’s unwillingness or inability to calculate the quantum of such cross-claim. The Plaintiff also states that under the terms of Clause 16.(4)(e) of the Umbrella Agreement[1], it is not required to make any further payment in the event that Northbank’s profit is less than $3,000,000. This provision is known as the Coverage Margin Clause and states:
If, at the time a drawing is requested under the Building Contract Loan, the amount of the developer’s profit is or would be $3,000,000 or less, the obligation of the principal to provide a drawing under the Building Contract Loan ceases.
[1]This should be a reference to Clause 17.4(e)
Mr Allen states that Northbank was advised by a letter of 6 November 2008 that the Coverage Margin had been reached and that no further payments would be made until there was rectification of all defaults and defects in the building. As such, the Plaintiff states it is not liable to pay Northbank the debt.
By a default notice dated 23 September 2008, the certifier under the Umbrella Agreement, Bruce Henderson & Associates (“the Certifier”) was advised of issues in regard to the air conditioning chiller which had been installed at the building. There was further correspondence on 8 October 2008 asserting that the position had not been rectified in regard to the chiller. In a further letter on 14 October 2008, the Certifier was advised that not only did the chiller default notice of 22 September 2008 remain unresolved, there were a number of other outstanding issues, including certification of the building as being entitled to a 4 Star Green Rating and 4.5 ABGR[2] rating. As such, the Plaintiff contended that the Project was not able to be certified for Practical Completion. The Plaintiff followed this up with further correspondence to the Certifier on 17 October 2008, seeking a response in respect of the issues raised on 14 October 2008 and did so again on 24 and 31 October and 4 November 2008.
[2]The Australian Building Greenhouse Rating Scheme.
Mr Allen states that despite such correspondence to the Certifier, the Certifier proceeded to issue a Certificate of Practical Completion on 14 November 2008. On 26 November 2008, the Plaintiff indicated to Northbank and the Certifier that it considered the Certificate of Practical Completion to be a nullity. In his affidavit, Mr Allen expresses an opinion that the Northbank building was not practically complete as of 14 November 2008 and that the certification of Practical Completion was premature. He says that, having regard to the lack of critical certifications in relation to acoustics and environmental energy ratings, the building was not in a position to be actively and aggressively marketed and that it was not capable of being the subject of an agreement with prospective tenants.
In his affidavit Mr Allen also states that, according to air conditioning experts which were engaged, the main air conditioning chiller did not and could not meet specified Project Requirements. In response, in correspondence of 10 September 2008, Northbank asserted that the chillers installed were equal to or better than the chillers specified. As a result, the Plaintiff served a Default Notice in relation to the chiller and there ensued considerable correspondence in relation to it. That correspondence was exchanged in November and December 2008. Mr Allen observed that it culminated in a letter of 24 December 2008 from Northbank which stated that:
“the Chiller as installed will operate less efficiently than if a chiller was installed that complies with the Project requirements”.
The Plaintiff contends that to change over the chiller would involve a cost of $501,569.20. In addition, it asserts an entitlement to what it terms as “significant damages” relating to the problems with the chiller but there is no quantification of such damages.
Another issue which Mr Allen alleges gives rise to a dispute involves the strapping and fixing of the air conditioning insulation, which the Plaintiff contends is not in compliance with Project Requirements. Mr Allen states that the strapping of the insulation does not comply with specifications and that it compresses the insulation, thereby reducing the insulating effect. He states that this affects energy efficiency ratings and that this will have a significant long-term effect on the ability of the building to attract tenants as well as rental return. In September and October 2008 there was considerable correspondence between the parties in regard to the insulation issue which culminated in the Plaintiff issuing a Default Notice under Clause 23.2 of the Umbrella Agreement in October 2008. Mr Allen states that that Default Notice remains unresolved. The Plaintiff states that the cost of rectification of the insulation is $100,760.
Mr Allen goes on in his affidavit to allege that there is an issue in regard to the Net Lettable Area of the building. The Umbrella Agreement provides that Northbank deliver an area of 10,013.7 square metres of office space with 328.9 square metres of retail space and 35 car parking spaces. Clause 6.7(b) of the Umbrella Agreement provides for a warranty from the developer (Northbank) that the Project, when designed, constructed and completed, will have the “Net Lettable Area” and have an “at-grade carpark of not less than 35 spaces.” “Net Lettable Area” is defined in Clause 1.1 of the Umbrella Agreement as meaning “10,342.6 sq.m being 10,013.7 sq.m of office space and 328.9 sq.m of retail space.” Clause 16.3 of the Umbrella Agreement provides that to the extent that there is a shortfall in relation to office space, retail space or car parking spaces, the agreed price is to be adjusted to reflect this shortfall. Tomkinson Surveyors, in a letter to Northbank dated 7 November 2008, contend that the office space for the Net Lettable Area is only 10,008.3 square metres, a shortfall of 5.4 square meters. Mr Allen also asserts that there is an issue in regard to the Net Lettable Area for retail space which Tomkinson Surveyors contend is 695.7 square metres. The Plaintiff disputes the methodology of calculation of this figure. It states that the parties have corresponded on this subject for several months and the issue remains unresolved. The correspondence is referred to in paragraphs 75 – 80 of the affidavit.
The Plaintiff also alleges a dispute which arises from the number of car park spaces at the development. The Umbrella Agreement provides that there be 35 spaces whereas it is contended by the Plaintiff that, at the date of Mr Allen swearing his affidavit, there were only 34 car park spaces available. The Plaintiff states that this issue remains unresolved (although the last correspondence on the subject from Northbank states that adjustments would be made to ensure that there were 35 car park spaces). The Plaintiff contends, in relation to the issues of office space and car parking, that it has an offsetting claim of $99,111 and that it has other disputes relating to the retail space and car space issues. These are “unspecified, but not unsubstantial” in terms of quantum and are calculable by reference to Clause 16.3(e) of the Umbrella Agreement.
Paragraphs 91 – 100 of the affidavit of Mr Allen set out what he alleges are disputes in respect of the insulation from noise from passing trains and traffic. Schedule 1, Clause 7 of the Umbrella Agreement makes provision for what is described by Mr Allen as very specific parameters in respect to acoustics. The Plaintiff states that such matters have been raised with Northbank but no substantive response has been received. The Plaintiff’s experts have carried out certain testing and Northbank has carried out some rectification works. As at the date of Mr Allen’s affidavit, testing was yet to be undertaken. At paragraph 100, Mr Allen states:
“To the extent that the preliminary findings regarding acoustic performance are substantiated in the final testing then expense of the rectification of the building to meet the parameters set out in the Project Requirements could be very substantial and at this time are impossible to assess”.
The complaint regarding acoustic performance amounts to an assertion that, depending on what the outcome of the acoustic testing is consequent upon the rectification works, a claim may possibly be made. As such, it is no more than an assertion of a possible claim but no quantification is provided in respect of that claim.
Paragraphs 101 – 111 of Mr Allen’s affidavit raise certain further alleged disputes which include the certification of the amplification system for mobile telephones in the building, the environmental certifications of the building and the 4.5 ABGR rating which Mr Allen alleges Northbank has not certified.
As regards to the issue of certification of the amplification system, Mr Allen states at paragraph 105:
“To the extent that the agreement of the protocol for the testing of mobile telephone reception, as well as the testing per se, the potential expense of the rectification of the Northbank Building to meet a specified Project Requirements could be substantial and at this time are impossible to assess”.
This complaint falls into the same category, in my view, to that raised in respect of the acoustics issue. The dispute is vague in its terms and is not quantified, other than an assertion that it may amount to a considerable sum which is not presently able to be quantified.
As to the environmental certification of the design and (“As Built”) Ratings for the building, Mr Allen states that Northbank has indicated to the Plaintiff that it is not incumbent upon Northbank under the terms of the Umbrella Agreement to provide certification nor is it obliged to provide information which will permit the Plaintiff to make application for such certification. The Plaintiff contends that such certification is critical to its ability to market the building to prospective tenants. Mr Allen states that the Plaintiff has obtained the costing of such certification from a relevant expert and such cost is put at $114,664 and says that it “disputes the debt alleged to be owed to the Defendant by the Plaintiff in the sum of $114,664”. It is not clear if this is said to be a dispute in respect of the amount claimed or an offsetting claim against the amount claimed. In addition to this dispute or claim, the Plainitff also contends that it has a claim for “an unspecified and potentially substantial sum in relation to the testing of mobile telephone reception and potentially the installation of an In Building Mobile Telephone Re Amplification System”. Again, in the context of this application, it is not possible to quantify this latter claim for the purposes of computing the amount of an offsetting claim as it consists of assertions as to the existence of a possible claim of an unspecified quantum.
The affidavit of Mr Allen culminates in a summary of the position being put by the Plaintiff. He says that the certification of Practical Completion is a nullity, that there are rectification costs and potential claims for damages in relation to various aspects of the building works which remain in dispute and unresolved issues of certification. He also says that the Plaintiff is entitled to retain a coverage margin of $3,000,000 which, together with the various aspects of the building works which remain in dispute, are of a greater sum than the amount alleged to be owing in the statutory demand.
Anthony Robert Dimauro sworn 12 January 2009
Mr Dimauro is the company secretary of the Plaintiff. He confirms the position of Griffin Capital’s involvement in the Project and Mr Allen’s responsibility for the day-to-day care and control of the Northbank Project. In his affidavit, Mr Dimauro refers to and adopts the grounds of dispute raised by Mr Allen’s affidavit, which include the certification issues, the dispute in relation to the chiller, the fixing of insulation, the issue of Net Lettable Area, acoustics certification, certification of mobile reception and environmental certification.
In paragraph 14 of his affidavit, Mr Dimauro makes reference to the issue of the Coverage Margin of $3,000,000 pursuant to Clause 16(4)(e)[3] of the Umbrella Agreement. Mr Dimauro states that in circumstances where the Coverage Margin has been reached, no further payments are required to be made to Northbank until there has been rectification of all faults and defects in the building. He states that Northbank was advised of the Plaintiff’s calculation of the Coverage Margin by a letter dated 6 November 2008, and that Northbank has at no point sought to take issue with that calculation. He states that the Plaintiff is not liable to pay to Northbank any of the alleged debt by reason that there are genuine disputes as to its existence.
[3]As I have noted above, that should be a reference to Clause 17(4)(e) of the Umbrella Agreement.
Mr Dimauro also contends that as at 31 December 2008, the Plaintiff had a total investment portfolio of $1.2 billion with net assets of approximately $72 million. In paragraphs 17, 18 and 19, Mr Dimauro deposes that the Plaintiff has the funds available to pay the alleged debt if required. I shall refer to this evidence later in these reasons.
The Defendant’s affidavits in opposition to the application
Affidavit of Robert John Cooke sworn 12 February 2009
Mr Cooke is the general manager of Far East Consortium and is Northbank’s representative under the Umbrella Agreement. Far East Consortium (Australia) Pty Ltd, Royal Domain Towers Pty Ltd and Oceanis NB Pty Ltd are joint venturers and were engaged by the Plaintiff to develop the building. In his affidavit, Mr Cooke seeks to address each of the categories of dispute raised in the Plaintiff’s affidavits in support.
Mr Cooke states that the Cover Margin issue is irrelevant to Northbank’s entitlement to Final Payment under the Umbrella Agreement. He states that under the Umbrella Agreement, the Plaintiff provides the “Building Contract Loan” as defined in the agreement to the borrowers, MFS Aquariums Pty Ltd and Far East Consortium NB Pty Ltd. That loan is required to be applied by Northbank to pay the costs of construction to the builder, L. U. Simon Builders Pty Ltd.
Mr Cooke states that under Clause 18.1 of the Umbrella Agreement, the Plaintiff is obliged to pay the “Final Payment” to Northbank on the “Payment Date” as defined in the agreement. Mr Cooke states that the borrowers do not draw on the Building Contract Loan to pay the Final Payment to Northbank, rather, the Plaintiff is liable to make the Final Payment to Northbank.
Mr Cooke states that under the terms of the Umbrella Agreement, the “Payment Date” is defined as the date on which the Plaintiff must pay the Final Payment. Under Clause 18.1 of the Umbrella Agreement, the “Payment Date” is defined as the “Date of Practical Completion”. That expression is in turn defined in Clause 1.1 as “the date on which Practical Completion is certified under the Building Contract.” Mr Cooke states that on 14 November 2008, Practical Completion was certified by the Certifier. He states that the Plaintiff and Northbank did not dispute that there had been Practical Completion under the Building Contract and the defect liability period thereby commenced to run on 14 November 2008.
Mr Cooke states that Northbank is rectifying defects within the building works as defined by the Building Contract and is rectifying or is awaiting instructions to rectify all the alleged defects referred to in Mr Allen’s affidavit. He states that Northbank and the Plaintiff are not in dispute over any of the defects and the rectification works have been performed promptly and in accordance with the Building Contract. He states that the Certifier has not served any Notice of Default on Northbank concerning alleged defects. He states that at the end of the defect liability period, which runs for 12 months commencing on the date of Practical Completion, Northbank will be released from further obligations under the Building Contract and the Plaintiff will return its performance security.
Mr Cooke contends that Northbank has provided the Plaintiff all certificates necessary under the Umbrella Agreement and that the Plaintiff has not served any Notice of Dispute disputing Practical Completion. He states that Mr Allen is not the Superintendent, i.e. Certifier, under the agreement and that he is not qualified to express an opinion as to whether or not the works have reached Practical Completion in accordance with the Building Contract. In response to Mr Allen’s assertion that the building is not in a position to be actively and aggressively marketed, Mr Cooke states that it is presently being marketed and the Plaintiff is in the process of obtaining tenants. He disagrees with Mr Allen’s assertion in respect of the acoustic and environmental rating issues and states that Mr Allen is incorrect when he says that the building is not ready to provide an income stream. He states that such allegation is unsubstantiated and untrue and says that on 2 December 2008, Northbank’s solicitors sent a letter to the Plaintiff’s solicitors setting out the calculation for the amount of the Final Payment and neither the Plaintiff nor its solicitors have disputed the calculation.
Paragraphs 35 to 74 of Mr Cooke’s affidavit deal with the issue of the air conditioning chiller. Mr Cooke descends to considerable detail and exhibits a large amount of correspondence dealing with the issue. He states that on 22 September 2008, the Plaintiff served a Notice under Clause 23.2 of the Umbrella Agreement on Northbank[IM1] . That Clause makes provision for service of such a Notice in the event of a “Developer Default Event.” In response, on 25 September 2008, the builder wrote to the Plaintiff asserting that the equipment installed did achieve the required ABGR rating. On the same day, the Project Engineer and Services Consultant for the Project, Norman Disney & Young (“ND&Y”), provided an opinion to the builders that the air conditioning unit was “of an acceptable commercial standard for the application”. The following day, ND&Y wrote to Mr Cooke advising that information provided by the manufacturer suggested that some of the original data used in the modelling was incorrect. ND&Y stated:
“Accordingly, as can be seen from the above summary, we note that following the remodelling, both the specified chiller and the actual installed chiller and their associated ancillaries still made 4.5* NABERS benchmark.
With respect to the selection and installation of the Trane/Dilkia equipment as against that originally specified, we note that Trane/Dilkia equipment is of an acceptable standard for the application.”
An exchange of correspondence then ensued in relation to the specifications of the chiller under the Project Requirements. A report was requested by Northbank’s solicitors from Waterman International in relation to the chiller seeking an opinion as to whether it complied with the specifications in the Umbrella Agreement and the Building Contract. On 23 October 2008, Mr Cooke received the report from Waterman International stating that the specifications in respect of the chiller were ambiguous. Shortly afterwards, the suppliers of the chiller, RKH Air Conditioning Pty Ltd, quoted a price of $373,000 plus GST to replace the chiller and in a separate communication defended its selection of the chiller, a Trane Chiller, which had been installed.
Mr Cooke recites details of the mechanical specifications of the chiller and goes on to contend that there is no chiller available on the market which is capable of complying with the mechanical specifications which are set out in the Mechanical Services Specifications as per the Project Requirements. On 8 December 2008, ND&Y again provided consultant advice. ND&Y said that it had performed modelling which indicated that the installed chillers met the 4.5* NABERS rating. Mr Cooke states that despite this, Northbank has offered to replace the chiller with a Carrier air conditioning unit at no cost to the Plaintiff.
The solicitors for the Plaintiff and Northbank then engaged in an exchange of detailed correspondence in relation to the chiller and the other matters which the Plaintiff contends give rise to genuine disputes in respect of the debt claimed in the demand. Mr Cooke states that the Plaintiff’s solicitors have not responded to Northbank’s proposal to replace the chiller. He states that the Plaintiff holds a bank guarantee for the sum of $750,000 which is more than adequate to secure replacement of the chiller (the cost of which has been quoted at $375,000). He states that the Plaintiff has not sustained any loss or damage in respect of the chiller issue.
In paragraphs 75 to 85, Mr Cooke deals with the issue of the fixing of insulation in the building. The issue is apparently that L. U. Simon Builders Pty Ltd, the builder, installed lengths of horizontal ducting with banding only, which does not comply with the Project Requirements in the Building Contract. On 28 October 2008, the Certifier, gave notice of the defect to the builder and the builder wrote to the Certifier on 3 November 2008 confirming that it would rectify the defect. Mr Cooke states that by 12 December 2008, L. U. Simon Builders Pty Ltd had completed the fixing of insulation using weld pins and that this was confirmed by Meinhardts, who are the Plaintiff’s consultants. As such, Mr Cooke contends that there is no dispute concerning the insulation. Mr Cooke says that on 27 January 2009, the lawyers for Northbank sent a letter to the Plaintiff’s solicitors notifying them that any remaining defects in the duct work were being rectified and the works could be inspected. However, he states that there has been no response to that letter.
Paragraphs 86 to 101 of Mr Cooke’s affidavit deal with the issue of the Net Lettable Area. Mr Cooke extracts Clause 16.3(e) of the Umbrella Agreement which provides:
“(e)If the actual net lettable area is less than the Net Lettable Area or the number of available car parking spaces is less than 35, the Agreed Price must be reduced by an amount equivalent to the annual rent for that reduced area capitalised at the rate of 6.75%. The Agreed Price will not be increased if the actual net lettable area is greater than the Net Lettable Area or the number of available car parking spaces is greater than 35.”
Clause 18.1 of the Umbrella Agreement provides that if at the date of Practical Completion:
“(c)the provisions of clause 16.3(d) apply, the Principal must pay to the Developer:
(i) on the Date of Practical Completion, the Final Payment; and
(ii)the balance of the Retained Profits pro rata as each floor or part floor of the Eastern Building is let in accordance with the Tenancy Parameters after deducting from that pro rata amount of the leasing fees, incentives and legal fees in letting that floor or part floor,
provided however, the Principal is not obliged to pay any portion of the Retained Profits in respect of any floor or part floor that remains unlet for 30 months after the Date of Practical Completion.
(d)The provisions of clause 16.3(e) apply, the Principal must, within 14 days after the Date of Practical Completion, calculate:
(i) the reduction in the Agreed Price; and
(ii) pay the Final Payment to the Developer.”
On 7 November 2008, the Project surveyors produced a survey of the Net Lettable Area of the building and a week later, on 14 November 2008, Northbank sent a notice to the Plaintiff concerning the Final Payment which Northbank contended was owing pursuant to Clause 18.1 of the Umbrella Agreement. A further survey of the Net Lettable Area was conducted which was the subject of a report received by Northbank on 28 November 2008. On 2 December 2008, the solicitors for Northbank sent a letter to the Plaintiff demanding Final Payment in the sum of $3,662,144. After making certain observations in respect of various items which were contended by the Plaintiff to be outstanding in respect of the works, Northbank’s solicitors observed that such defects would be remedied. The Plaintiff’s solicitors demanded a further survey on 11 December 2008, and Mr Cooke requested the surveyors to carry out that survey in January 2009. A further survey was provided on 20 January 2009, and passed on to the solicitors for the Plaintiff on 30 January 2009.
The letter forwarding the revised survey indicates that the revised survey confirms that the actual net lettable area of the building was 10,338.9 square meters, which is 3.75 square meters less than the Net Lettable Area as defined in the Umbrella Agreement. Mr Cooke contends that in fact the actual Net Lettable Area is less than the Net Lettable Area as defined in the Umbrella Agreement by 5.7 square meters for office space but is two square meters greater for the retail space. In relation to the issue regarding car parking spaces Northbank’s lawyers also contend that there were 35 car parking spaces at the building and that this had been communicated to the Plaintiff’s lawyers on five previous occasions. Mr Cooke states that there has been no response from the Plaintiff’s lawyers in respect of the net lettable area issue or the car parks issue.
Mr Cooke deals with the subject of acoustic performance in paragraphs 105 to 110 inclusive of his affidavit. He takes issue with Mr Allen’s assertion made in his affidavit that Richard Heath, who conducted preliminary testing of the acoustics, considered that the preliminary testing caused concern as strict measurement protocols could not be adhered to due to ongoing construction work and obtrusive ambient noise.
Mr Cooke states that on 7 November 2008, Acoustic Logic, who are noise and vibration consultants, provided a statement of design compliance which states that the Project:
“Complies, to the best of our knowledge and after due enquiry, except as noted below, with the requirements of the design intent as expressed in the brief under the contract subject to any variations or other changes authorised by the client.”
The report listed certain defects or departures from specification which required rectification. The lawyers for Northbank informed the Plaintiff’s lawyers on 24 December 2008 and 6 January 2009 that the defects identified in Acoustic Logic Consultancy’s statement were being rectified. This was followed up by a letter from Northbank’s solicitors to the Plaintiff’s solicitors on 21 January 2009, which confirmed that any acoustic defects identified in the report would be rectified. On 5 February 2009, Northbank’s solicitors sent a copy of a report from Acoustic Logic Consultancy, confirming that all defects had been rectified and that the building complied with the Project Requirements as defined by the Umbrella Agreement.
Mr Cooke states that the In Building Mobile Telephone Re Amplification System boosts the signal within the building so that mobile phone reception is enhanced. Mr Cooke contends that as part of the Project Requirements it was agreed that once the building was complete, field strength measurements would be conducted by Telstra to ensure that a satisfactory Telstra service was available. If it was found that the signal was below the required levels, Northbank would install a system to enable suitable reception of Telstra’s mobile service. Mr Cooke states that on four occasions, Northbank’s lawyers wrote to the Plaintiff’s lawyers confirming that Telstra would be conducting a test. Northbank has confirmed that if the Telstra testing showed that appropriate Telstra service was not available at the building, Northbank would install a system which would boost the signal in accordance with its obligations under the Umbrella Agreement.
Mr Cooke refers to Clauses 6.7 and 6.8 of the Umbrella Agreement, dealing with the issue of environmental rating, which provide:
“6.7(c)The Developer warrants to the Principal that the design, construction and completion of the Project Works at the Date of Practical Completion will be capable of complying in all respects with the Project Requirements including (without limitation) the following:
(i)A Grade PCA Standard;
(ii)4 Star Green Rating; and
(iii)4.5 ABGR,
provided that any failure to meet these standards will not be the responsibility of the Developer to the extent that they are caused or contributed to by the Principal failing to implement the Operating Protocol.
6.8(a)As soon as reasonably practicable after the Date of Practical Completion, the Principal must institute a preliminary assessment of compliance of the Project (preliminary assessment) with each of the Developer’s warranties contained in clause 6.7(c)(ii) and 6.7(iii) (the Standards);
6.8(b)the Principal must supply the Developer with the details of the instructions for the intended preliminary assessment and afford the Developer a reasonable period to comment on those instructions (in any event not less than 20 Business Days);
6.8( c)the Principal must implement a further set of assessments establishing the final compliant or otherwise of each of the standards as and when appropriate given the nature of each standard (final assessment);
6.8(d)it is acknowledged by the Principal and the Developer that the final assessment may not commence until the entire lettable area has been let and occupied and will continue for a period of not less than twelve months.”
Mr Cooke states that as of the date of his affidavit, the Plaintiff had not provided a preliminary assessment of compliance with the Project for each of the developer’s warranties contained in Clauses 6.7 (c)(ii) and 6.7 (c)(iii). Mr Cooke contends that the Plaintiff has not supplied Northbank with details of the instructions to enable the intended preliminary assessment to take place within 20 business days as contemplated by Clause 6.8(b) or at all. He says that Northbank will abide by the terms of the Umbrella Agreement in respect of the procedures set out in Clauses 6.7 and 6.8 to enable assessment of the relevant environmental ratings and will abide by those terms and provide any comments on the preliminary assessment.
Paragraphs 120 to 124 are conclusionary. Mr Cooke contends that in letters dated 15 December 2008, 23 December 2008, 2 January 2009, 19 January 2009 and 28 January 2009, the Plaintiff’s lawyers admit that Northbank is entitled to its Final Payment but dispute the amount. Mr Cooke states that the Plaintiff is not entitled to deduct payments under the Umbrella Agreement nor is it entitled to withhold a reserve from Northbank’s final payment. He states that in any event, the lawyers for the Plaintiff have not identified the amount that it considers should be deducted from the Final Payment or the amount of any reserve.
Affidavit of Anthony George Ellul sworn 12 February 2009
Mr Ellul is the Project Manager for the builder, L. U. Simon Builders Pty Ltd. Mr Ellul’s affidavit essentially confirms the position being put by Mr Cooke in his affidavit and I consider that it adds nothing further of substance to Mr Cooke’s affidavit.
The Plaintiff’s affidavits in reply
Affidavit of David Allen sworn 27 February 2009
Mr Allen takes issue with the suggestion in paragraph 42 of Mr Cooke’s affidavit that Mr Heath of Coffey Projects does not have any standing to give opinions which have contractual force. Mr Allen states that under the definition of “Principal’s Supervisor” contained at Clause 1.1 of the Umbrella Agreement “Principal Supervisor means the person appointed as the Principal Supervisor in accordance with Clause 5.1.” Clause 5.1 of the Umbrella Agreement states that:
“A principal may appoint the Principal’s Supervisor to be its representative for the purposes of this agreement and the Project (including the Project Works) and to perform the functions permitteral required of the Principal’s Supervisor by this agreement with the Tripartite Agreement.”
He states that Mr Heath of Coffey Projects was appointed as the Principal’s Supervisor to the building and attended all relevant meetings. Mr Allen states that through its Principal’s Supervisor, Coffey Projects, it sought a detailed list of defects from Northbank on 5 February 2009.
Mr Allen’s affidavit is somewhat repetitive and argumentative. Much of it is given over to reiteration of matters raised in his first affidavit. He disputes that Northbank has provided all necessary certificates required under the Umbrella Agreement. He states in paragraphs 16 and 17 of his affidavit that Northbank has not provided or caused to be provided to the Plaintiff executed Design Consultant Compliance Certificates in conformance with Clause 42.3(h) of the Building Contract.
Mr Allen states that Northbank has not secured any tenant for the building after two years of marketing by its appointed agent. Mr Allen states that the leasing agent was recently dealing with Parsons Brinckerhoff as a potential major tenant for the building. Parsons Brinckerhoff, through its estate agent, required a warranty from the Plaintiff to the effect that the building met with the specified Project Requirements under the Umbrella Agreement as part of any proposed Heads of Agreement for a lease of the property.
Mr Allen exhibits certain material passing between Northbank’s leasing agent, CBRE and Parsons Brinckerhoff’s representative. Amongst that material is a document headed “Commercial Terms” in respect of the property. It notes that the lessor will construct the building in accordance with a 4.5 NABERS based building rating and construct the building to achieve a 5 Star Green Star design rating. The lessor is identified as the Plaintiff and the Queensland entity.
Also exhibited to Mr Allen’s affidavit is documentation attached to an email of 13 January 2009 from Mr Furniss of CBRE to Mr Allen, where he attaches what he describes as standard technical information in the form of a spreadsheet. That information states that the building will be certified as, amongst other things, a 4.5* ABGR, 4* Green Star Office Design and as meeting other environmental standards requirements. The final document in that exhibit is a letter of 21 January 2009 from the solicitors for the Plaintiff to the solicitors for Northbank. The emailed letter contends that the Plaintiff and the Queensland entity were not yet satisfied that the warranties to be provided under the Umbrella Agreement by Northbank had been provided. It states that as lessors, the Plaintiff and the Queensland entity would provide warranties in accordance with the Project Requirements as specified in the Umbrella Agreement but that they would reserve all rights in relation to such warranties. It is noted by the writer that Parsons Brinckerhoff having specific technical skills would be likely to pursue their enforcements in the event that the warranties are not satisfied.
In paragraph 24 of his affidavit Mr Allen confronts the assertion by Mr Cooke in paragraph 39 of his affidavit that the design and construction of the building was certified as complying with the Project Requirements and that certification by the various consultants was provided to the Principal and attached to Project Control Group Reports. It will be recalled that Mr Cooke had stated that Mr Allen’s representative had attended all Project Control Group meetings and had presumably received these Reports. Mr Cooke has contended that none of the consultants referred to in the Building Contract had stated that the building has not achieved the specified standard. In response, Mr Allen exhibits correspondence from Coffey Projects indicating that on a number of occasions, issues were continuously raised by the Plaintiff’s supervisor, Coffey Projects, in relation to the absence of proper certification being provided.
In paragraph 34, Mr Allen merely repeats his previous evidence regarding the fixing of insulation and as to the issue of Net Lettable Area he contends that, notwithstanding that there have been three surveys carried out at the request of Northbank, the Net Lettable Area issue relating to the ground floor retail space remains in dispute. He makes reference to Exhibit DA1-4 in that regard. However, there seems to be no specific reference to this issue in that documentation.
As to the car parking issue, Mr Allen appears to concede in paragraph 40 of his affidavit that there is no longer any dispute in respect of the number of car parks as required under the Umbrella Agreement, noting only that the dispute was resolved as at 6 January 2009, following the service of the demand on 22 December 2008.
As to acoustic performance, Mr Allen merely reiterates the matters raised in his previous affidavit in this regard and asserts that Northbank has at no time satisfied the specified Project Requirements under the Umbrella Agreement in respect of acoustic performance and certification. The remainder of the affidavit merely restates by way of response the matters raised by Mr Allen in his previous affidavit.
The (second) paragraph 40 is something of an “executive summary”. Mr Allen asserts that there are long standing genuine disputes between the parties in relation to the debt the subject of the demand, first on the basis that certification of Practical Completion is a nullity and in breach of the requirements of the Design and Construct Contract and the Umbrella Agreement and, secondly, in relation to rectification costs and also the loss and damage suffered by the Plaintiff and the prospective claim for damages. Finally he contends that there is an issue arising in respect of the operation of the Coverage Margin provisions of the Umbrella Agreement.
Affidavit of Anthony Robert Dimauro sworn 27 February 2009
Mr Dimauro’s affidavit essentially raises nothing new to that contained in his first affidavit of 12 January 2009. He again asserts that the Plaintiff has funds available to it immediately in the form of cash and liquid securities to satisfy the claim for final payment.
Northbank’s further affidavits in opposition
Affidavit of Robert John Cooke sworn 5 March 2009
Mr Cooke seeks to respond to the affidavits of Mr Allen sworn 27 February 2009 and Mr Dimauro’s affidavit of the same date. His affidavit exhibits correspondence between the parties and their respective representatives from late 2006 to February 2009. The first exhibit to the affidavit is a seven page letter of 25 February 2009 from the solicitors for Northbank which descends to very considerable detail concerning the various issues which are said to be the basis of the Plaintiff’s dispute. The letter really adds nothing further to what has already been the subject of evidence in Northbank’s earlier affidavits. It covers the issues of the chiller, acoustics, fixing of the insulation, the mobile telephone re-amplification system, the 4* Green Star and 4.5* ABGR certifications, the Design Compliance Certificate, the Net Lettable Area and the car parks issue. It annexes a number of documents which are said to support its position as set out in the letter.
The second exhibit to the affidavit is a copy of an email sent to Mr Ellul by a firm RKH. The email is a quotation for the replacement of the Trane chiller with a Carrier chiller. The third exhibit is a document prepared by Acoustic Logic Consultancy, who are noise and vibration consultants, in relation to the acoustic issues for the Project. The document is over 40 pages long and consists of detailed specifications in relation to acoustic issues in relation to the Project.
Affidavit of Michael Warren sworn 18 March 2009
Mr Warren is the solicitor having principal conduct of this matter on behalf of Northbank. His affidavit is for a large part in the nature of a submission, making reference to various provisions of the complex contractual documentation already exhibited in the application. In the final several paragraphs of the affidavit he sets out the calculation as to how the alleged debt of $3,662,144 demanded is calculated.
Relevant Legal Principles
The principles to be applied when considering applications to set aside statutory demands under s 459G of the Act have been the subject of numerous authorities. In the decision of TR Administration Pty Ltd v Frank Marchetti & Sons,[4] the Court of Appeal of the Supreme Court of Victoria collected and considered the cases dealing with those principles.
[4] (2008) 66 ACSR 67
At paragraph [56] and following of the judgment Dodds-Streeton AJ stated:
“[56] The Court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
[57] No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the ‘ultimate question’ of the existence of the debt should not be compromised.
[58] On appeal, the sole question is usually whether the primary judge erred in determining that there was, or was not, a genuine dispute or off-setting claim. That is, of course, a different question from whether the debt exists.
[59] As Brooking and Charles JJA observed in Spacorp Australia Pty Ltd v Myer Stores Ltd (‘Spacorp’):The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.
We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.
[60] In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (‘Spencer’), the Full Federal Court cited a variety of different formulations of the principles applicable to determining the existence of a genuine dispute or off-setting claim. Their Honours considered the different articulations helpful, but warned that they should not become a substitute for the words of the statute.
[61] As recognised by Heerey J in Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd, any tendency to ‘trawl through a myriad of judgments’ and plethora of formulations is equally to be avoided.
[62] The Full Federal Court in Spencer concluded that:In our view a genuine dispute required that the dispute be bona fide and truly exist in fact.
The grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.”
At paragraph [64] Dodds-Streeton AJ quoted from the decision of McClelland CJ in Equity in Eyota Pty Ltd v HanarePty Ltd[5] where his Honour stated:
[5] (1994) 12 ACSR 785 at 787
“It is, however, necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 45OH [sic]. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sorts of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for an extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a general dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth… or “a patently feeble legal argument or assertion of facts unsupported by evidence…
But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute.
...
These matters, taken in combination, suggest that 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 that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.
[65] In Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said:
There is little doubt that Div 3 ... prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court's examination are the ascertainment of whether there is a ``genuine dispute'’ and whether there is a ``genuine claim'’.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).
I respectfully agree with those statements.
[66] In the present case, the appellant stressed the formulation of ‘a patently feeble legal argument or an assertion of facts unsupported by evidence’ set out in[the decision of the Full Court of the Supreme Court of South Australia] South Australia v Wall.
…[69] Cox J stated that, bearing in mind the policy, there was good reason for giving the words ‘genuine dispute’ a plain and uncomplicated meaning as a safeguard against allowing a colourable and insincere denial of liability to frustrate the goal of the provisions.
[70] [Cox J rejected the view that any objective appraisal of the dispute was appropriate. His Honour stated that while ‘a patently feeble legal argument or an assertion of facts unsupported by evidence would more readily disincline the Court to consider the dispute to be a genuine one, so far as the employer is concerned’, the merits were otherwise not relevant. Only a dispute which was frivolous or ‘one made without adequate inquiry and consideration’ would run the risk of not being considered genuine.”
At paragraph [71] Dodds-Streeton AJ, stated:
[71] As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should 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. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.
Barrett J of the Supreme Court of New South Wales in Solarite Airconditioning Pty Ltd v York International (Aust) Pty Ltd[6] stated:
“…[t]he task faced by a company challenging a statutory demand on the “genuine dispute” ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of a company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seem stronger [Emphasis added].”
[6][2002] NSWSC 411
The use of statutory demands in the context of large construction contracts was the subject of comment by Young J (as he then was) of the Supreme Court of New South Wales in John Holland Construction & Engineering Pty Ltd v. Kilkpatrick Green Pty Ltd.[7] In that case, the creditor claimed approximately $1 million based on 3 invoices. The application was originally heard by a Master who considered that there was no adequate material before him to substantiate the claim that the dispute was genuine. Young J stated:[8]
“Prior to the amendments to the Corporations Law by the Corporations Reform Act No 210 of 1992, the way in which the Companies Court approach to disputed debt applications was relatively clear, though it was sometimes difficult to work out cases that were on the boundary line. The clear principle was that the Companies Court was not to be the place where litigation was to be conducted about disputed trading debts. The Companies List is designed to wind up insolvent companies in the public interest, not as a way of getting a dispute between companies in the marketplace on before a Court quickly. Generally speaking, if it could be seen from the conduct of the parties that there was an honest dispute between them, then they would be expected to have that dispute resolved in the normal channels, that is, in litigation in the Common Law Division or the District Court or before an arbitrator, and not in the Companies List.
…
The important thing to realise is that the basic attitude that the Companies Court is not to be the court which deals with disputed debts remains the principle.
There will be various types of commercial relationships that will produce debts between traders. Sometimes the debt is very easy to compute, such as the situation where there are a limited number of buying and selling transactions between the parties to the dispute. However, on the other end of the scale can be large construction contracts where it is sometimes difficult, at least in the short term, to work out just what is owing by one party to the other.”
[7](1994) 14 ACSR 250
[8](1994) 14 ACSR 250 at 251
And at page 253 of the judgment:
“There may be cases, and indeed it may be even the majority of cases, where the court will look not only to an assertion of a dispute, but some sort of material short of proof which backs up the claim that is made that the amount is disputed. It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say that it did not owe a debt.
On the other hand, if proof of a claim is required then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court. What more than assertion is required is something that may differ from case to case… [S]o long as the claim is not fictitious or merely colourable and is genuinely believed to exist one can ordinarily take that as sufficient. That is something more than mere assertion… [I]n a sizeable construction case, where the contemporaneous correspondence between the parties shows that there is a disputing of the figures, then one can say, without looking at the figures or without looking at the evidence that backs up the figures, that there is a genuine dispute between the company and the respondent about the amount of the debt. A similar thing can be said about any offsetting claim.
…
It would seem to me that in the present case, where the proprietor has asserted that a particular amount only is the value of the work, and that amount is put forward by the contractor to the sub-contractor, then even if there is nothing before the court to show how the amount is made up, there is a genuine dispute between the contractor and the sub-contractor as to the amount of all sums over and above that admitted value of the work.”
At page 254:
“It may be that I am doing a disservice to this court in approaching the matter in this mathematical way. It may be that it is far more appropriate in the instant sort of case for the court to just take a broad brush approach. Thus the court might just say that because this is not a debt collecting court, where there is a construction case of this nature, the demand should be set aside under s 459J(1)(b) whenever it can be seen from the correspondence that there are honestly held views on either side which have brought a dispute between the parties. Thus, the matter can be dealt with in the ordinary way in which construction disputes are dealt with without the time and expense that is involved in running this sort of litigation ahead of that dispute. If I were to do that in the instant case, I would come to the same result.”
In my view the approach taken by Young J in John Holland Construction is appropriate for application in this instance. The issues which arise from the evidence filed by the parties are much too complex and are incapable of resolution in the context of an application under s 459G of the Act. The evidence filed by the parties in this application is more of the character that one would expect to find in a court book for a proceeding in the Building Cases list.
In coming to this view I accept that there are aspects of the Plaintiff’s position which are comprehensively addressed by Northbank in its affidavit evidence filed in opposition to the application. In addition, insofar as the Plaintiff seeks to raise offsetting claims these claims are not, to a large degree, quantified by evidence of the required quality. However, I consider that the disputes raised by the Plaintiff are, based on an examination of the contemporaneous correspondence passing between the parties, genuine and warrant further investigation. The position being contended for by the Plaintiff is not, in my view, to adopt the words of Barrett J in the Solarite case, “as being so devoid of substance that no further investigation is warranted” nor is it “spurious, hypothetical, illusory or misconceived”.[9] Some of the authorities dealing with this type of application liken the appropriate approach to the test to be applied when considering whether there should be leave to defend in a summary judgment application. If I consider hypothetically that the matter was the subject of an application by Northbank for summary judgment, the complexity of the matter is such that the Plaintiff would undoubtedly be given leave to defend.
[9]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464
My task in this application is to ascertain whether there are genuine disputes in respect of the debt the subject of demand, not to express any opinion which may embarrass any other Court subsequently considering the matter.[10] As Robson J stated in Rhagodia Pty Ltd v National Australia Bank Ltd[11]:
“It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond the perception of genuineness (or lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple – to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offset claim (and not the likely result of it).”
[10] Spacorp Australia Pty Ltd v. Myer Stores Ltd (2001) 19 ACLC 1270 at [3]-[4]
[11](2008) VSC 195
It may well be that Northbank’s arguments may succeed if the matter were to proceed to trial in the conventional way but, in my view, the complexity of the contractual documentation and the factual issues arising from the construction of the Project are such that I consider that there is a genuine dispute. The tone of the protracted correspondence in the several months leading up to the service of the statutory demand gives me comfort that the alleged disputes are plausible and genuine.
Relevance of the financial position of the Plaintiff
I consider that another factor which is of significance is that of the financial position of the Plaintiff (and of The Uniting Church in Australia Property Trust (Q)). It is contended by them that they have vast reserves of liquid funds to meet the amounts of the demands if called upon to do so.
Generally, the solvency of a company of and in itself will not constitute “some other reason” to set aside a statutory demand within the meaning of s 459J(1)(b) of the Act. In Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation,[12] the Court held that there were several considerations which supported the view that solvency alone is not intended to constitute “some other reason” for the setting aside of a statutory demand.
[12](1995) 15 ACSR 682
Section 459E(1) entitles a creditor to serve a statutory demand and the plain terms of s 459C(2)(a) are intended to allow the creditor the benefit of the presumption of insolvency in the event of non-compliance with the demand. If the establishment of solvency, without more, could warrant the setting aside of a demand, no creditor could safely serve one without first investigating the debtor’s solvency position. Further, the scheme of the Act is such that the issue of solvency is to be the subject of a determination in the winding-up proceedings following on from non-compliance of the demand.[13]
[13]See Chippendale Printing Co Pty Ltdv Deputy Commissioner of Taxation (1995) 15 ACSR 682 at 698; Statutory Demands Law & Practice F Assaf, Lexis Nexis Butterworths at para 7.69
The situation is different, however, when a statutory demand is served on a company which is obviously solvent. In those circumstances there is authority for the proposition that a Court is entitled to take this into account in determining whether the statutory demand should be set aside.
In Paperlinx Ltd v Skidmore,[14] Finkelstein J of the Federal Court considered the situation where a creditor served a statutory demand upon a publicly listed company with a book value of over $4 billion and an annual turnover of $6 billion. The creditor, who was owed a relatively modest sum, had obtained judgement against the company and a subsequent application by the company for a stay pending appeal was refused. The creditor served a statutory demand and, save for a proportion held back for payment to revenue authorities, the company paid most of the amount claimed in the demand to the creditor. Finkelstein J held that any winding-up application brought by the creditor was doomed to fail because the company was clearly solvent.
[14](2004) 51 ACSR 614
The quality of the evidence in regards to the company’s solvency in Paperlinx is not readily apparent from the reasons for judgment. Finkelstein J stated that the company was said to have had assets with a book value in excess of $4.7 billion, and a current annual turnover of around $6.2 billion from which it derived approximately $109 million in profit. There was no evidence referred to in respect of the cash flow solvency of the company in that case. Finkelstein J observed at paragraph [5]:
“Under the old procedure, the company was deemed to be unable to pay its debts when it failed to comply with the statutory demand if it were in fact solvent. The rule, which may be traced back to the House of Lords decision in Bowes v Hope Life Insurance and Guarantee Co (1865) 11 HL Cas 389 at 402; 11 ER 1389 was that a creditor was prima facie entitled to a winding-up order, even against a solvent company, if he could not get paid. The rule was not absolute. The court could, in it’s discretion, refused to make the order but it usually exercised its discretion in favour of the unpaid petitioner.”
And at paragraph [8]:
“[Counsel for the Plaintiff] contended that I could not set aside the statutory demand for two reasons. First he says that I must ignore the plaintiff’s solvency with the purpose of deciding what to do with the demand. He referred me to the decision in Master Paving Pty Ltd v Heading Contractors Pty (1997) 15 ACLC 1025. That was an application to set aside a statutory demand in part for the reason that the company was solvent. In the course of his reasons Lander J (at 1032) said:
The solvency of the recipient of the statutory demand is not a relevant matter for an application to set aside the statutory demand under s 459G and could not provide some other reason why the demand should be set aside [s 459J]. It would be a very curious result if a company could avoid paying its creditors upon their making a demand by the company simply proving (sic) it could pay its creditors. Moreover it could be quite burdensome for a creditor upon making a demand upon a company, the creditor immediately became embroiled in an argument as to whether the debtor was solvent. The question of solvency therefore is not a question that can be raised in an application to set aside a statutory demand but can always be raised at the time of the application for winding up, whether or not the defendant company did in the time prescribed make application to set aside the statutory demand.
[9] For present purposes, I am prepared to accept that Lander J’s statement is generally correct. But it cannot be correct for all purposes. Take the case where it is alleged that winding-up proceedings are threatened for a purpose which would constitute an abuse of process. Gummow J recognised such a situation in David Grant & Co Pty Ltd (rec. apptd.) v Westpac Banking Corp (1995) 184 CLR 265 at 279. He said that in those cases appropriate relief, for example an injunction, would be granted. In deciding whether a person is threatening the winding-up application for an improper purpose it is quite legitimate, indeed it will often be necessary, to enquire into the solvency of the company.
[10] Here I have no doubt that the defendant served the statutory demand for a purpose foreign to the Corporations Act. He could not have intended to rely on non-compliance with the demand to establish insolvency because he knew the company could easily rebut the presumption.
…
Nevertheless, the plaintiff was entitled to bring this application to avoid what, from its perspective, was the risk of having to face a winding-up application.”
Mr Dimauro, in his affidavit sworn 12 January 2009, contends that as at 31 December 2008, the Plaintiff had net assets of approximately $72 million with a total investment portfolio of $1.2 billion. He states that the Plaintiff has “no less than 10 per-cent held in cash and liquid securities” of its total investment portfolio by which I take it to mean it has $120 million in liquid assets. He states that those funds are immediately available to satisfy claims such as the debt.
Northbank did not seek to contradict that evidence and I have no reason to reject it. While the Plaintiff’s evidence as to its financial position is not of the quality that would be put forward if it were defending an application for winding-up in insolvency, which the authorities indicate requires exhibition of audited accounts of the company to demonstrate solvency,[15] it is of a similar character and quality to that put forward in Paperlinx.
[15]Ace Contractors & Staff Pty Ltd v Westgarth DevelopmentPty Ltd (1999) FCA 728; Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711.
I consider that on application of the reasoning of Finkelstein J in Paperlinx the demand should be set aside on that basis alone. One always has to remember that the purpose of statutory demands is to create a deemed act of insolvency so as to provide the basis for an application to wind-up an insolvent company under provisions of the Act. On the basis of the financial evidence referred to, the Plaintiff could readily establish that it is solvent and any application for winding up by Northbank would be dismissed. Although there clearly exists an unresolved controversy between the parties, as I have stated above, statutory demands are not an appropriate mechanism for the resolution of such disputes.
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