Vallas v Tangent

[2010] VSC 665

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST

LIST E

S CI 2009 09662

BETWEEN

VALLAS ENTERPRISES	Plaintiff
v
TANJENT PTY LIMITED	Defendant

ASSOCIATE JUSTICE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATES OF HEARING:	5 February 2010
DATE OF JUDGMENT:	24 February 2010
CASE MAY BE CITED AS:	Vallas v Tangent
MEDIUM NEUTRAL CITATION:	[2010] VSC 665

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CORPORATIONS – Application to set aside statutory demand under section 459G of the Corporations Act 2001 (Cth) on the basis of offsetting claim for liquidated damages payable under construction contract – Demand set aside.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C Moeller	Norton Rose Australia
For the Defendant	Mr N Frenkel	Cornwall Stodart

HIS HONOUR:

1. The plaintiff, Vallas Enterprises Pty Ltd (“Vallas Enterprises”), applies to set aside a statutory demand dated 29 September 2009 which has been served on it by the defendant, Tanjent Pty Ltd (“Tanjent”). Vallas Enterprises has filed six affidavits in support  (or reply) of its application which have been met by four affidavits in opposition to the application. 

1. On 24 September 2007, Vallas Enterprises entered into a building contract with Tanjent, a builder, for the construction of a restaurant and bar in Clarendon Street, South Melbourne.  That contract, referred to the by the parties as the “Base Contract” was in writing and provided that the contract sum for the works was $1,399.496.79 plus GST.  Subsequently, on 1 August 2008, Vallas and Tanjent entered into a contract which the parties have described as the “Fitout Contract” which required Tanjent to design and construct the fitout for the restaurant for a maximum price of $1,100,000 plus GST.  The date nominated for practical completion of the Base Contract was 14 April 2008 and 7 September 2008 for the Fitout Contract.

1. The principal initial affidavit in support of the application was that of Steven Vallas, sworn 20 October 2009.  That affidavit seeks to raise a genuine dispute in respect of the amount the subject of the demand (which requires the payment of $152,487.42 excluding GST) and an alleged offsetting claim which is said to arise by reason of the operation of liquidated damages clauses in the Base Contract and the Fitout Contract.

1. After hearing initial argument from counsel, I determined to consider the parties’ arguments in respect to the offsetting claim because if the plaintiff was successful in establishing this part of its case the offsetting claim would overwhelm the amount claimed in the statutory demand.

1. Clauses 35.6 of the Base Contract and the Fitout Contract are identical in terms and provide for liquidated damages if Tanjent failed to reach practical completion of the works by the date nominated for practical completion.  The clause provides:

“If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor shall be indebted to the Principal for liquidated damages at the rate stated in the Annexure Part A for every day after the Date for Practical Completion to and including the Date of Practical Completion or the date that the Contract is terminated under Clause 44, whichever first occurs.”

1. As I have observed, the dates for Practical Completion were 14 April 2008 under the Base Contract and, 7 September 2008 under the Fitout Contract.  The Base Contract specified a daily rate for liquidated damages of $1,000 and the Fitout Contract specified a daily  rate of $1,500.  It would appear to be common ground that the Date of Practical Completion under the respective contracts was 7 November 2008, that is, some period after the respective dates nominated for Practical Completion under the Contracts.

1. Clause 35.5 of both Contracts contained a regime for obtaining an extension of time for practical completion. No such extension was granted although Tanjent made one application for such an extension under the  Base Contract which was refused.

1. By operation of the liquidated damages provision, Tanjent is prima facie liable to Vallas Enterprises for $207,000 under the  Base Contract, calculated at $1,000 per day for the 207 day period exceeding the Date for Practical Completion and ending on 7 November 2008.  Under the Fitout Contract, Tanjent is prima facie liable to Vallas Enterprises for $90,000, calculated at $1,500 for the 60 day period commencing on the Date for Practical Completion and ending on 7 November 2008.

1. The relevant tests to be applied in considering applications of this kind have been the subject of numerous authorities in the State Supreme Courts, the Federal Court and the High Court.  A collection and consideration of those authorities is contained in the decision of the Court of Appeal of the Supreme Court of Victoria in TR Administration Pty Ltd v Frank Marchetti and Sons (2008) 66 ACSR 67. 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.

1. In Solarite Airconditioning Pty Ltd v York International (Aust) Pty Ltd [2002] NSWC 411, Barrett J of the Supreme Court of New South Wales stated at [23]:

…[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].

1. See also John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 per Young J at 716 – 719 as to the use of statutory demands in the context of large construction contracts.

1. McLelland CJ  in Equity in Eyota Pty Ltd v Hanare Pty Ltd (1994) 12 ACSR 785 at 787 stated:

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.

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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.”

1. Tanjent contended that it could obtain relief from the application of the liquidated damages clauses in the contracts and its basis for such contentions are set out in the affidavit of Jack Bride, sworn 21 December 2009, in particular paragraphs 42 to 52.  In my view they do not overwhelm the submissions of Vallas Enterprises that it has genuine offsetting claims to raise in these circumstances.

1. I consider that, Vallas Enterprises, which bears the onus in this case, has established that it has a genuine offsetting claim constituted by the claims under the Base Contract and the Fitout Contract for liquidated damages in the sum of $297,000.  That amount overwhelms the amount claimed in the statutory demand of $152,487.42.  I consider that such claims have “a sufficient objective existence” and “prima facie plausibility” and they are not “spurious, hypothetical, illusory or misconceived”.

1. Despite the submissions of Mr Frenkel of counsel for Tanjent, it was not successfully demonstrated that the claims were based on “a patently feeble argument or assertion of facts unsupported by evidence.”  The arguments in support of the liquidated damages claim clearly warrant further investigation.  The matters put by Mr Frenkel are not susceptible of final determination in an application of the present character.  As the above authorities indicate, all that Vallas Enterprises has to establish is that it has genuine offsetting claims, which I consider it has succeeded in establishing.

1. I will order that the statutory demand dated 29 September 2009 which was served on Vallas Enterprises by Tanjent be set aside.  I will order Tanjent pay Vallas Enterprises’ costs of the application, including reserved costs, if any.

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