Kingston Manuka Holdings Pty. Limited v Zeljko Stipancic and Veljko Pavic t/a Colour Our World [1998] ACTSC 276; [1998] SCACT 21 (20 March 1998)

  
  
  
  

  
   

  

   IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

   MILES CJ

  

  

   CORPORATIONS - application
under sub-s.459G(1) to set aside a statutory
demand - whether bona fide dispute relating to amount claimed in demand -
power to make
an order to set aside/vary statutory demand subject to
conditions, s.459M - set off or counter claim, ss.459H, 459J - demand varied
to allow for dispute over rectification already carried out to alleged faulty
paintwork but not to allow for further alleged counter-claiming.

  

   Corporations Law, sub-s.459G(1)

  

   Fleming on Torts (8th ed) (1992) at 637

   Mibor Investments Pty Ltd v. Commonwealth
Bank of Australia (1993) 11 ACSR
362

   Chadwick Industries (South Coast) Pty Ltd v. Condensing Vaporisers Pty Ltd
(1994) 13 ACSR
37

  

  

   CANBERRA, 7 and 12 November 1997 (hearing), 20 March 1998 (decision)

   #DATE 20:03:1998

  

   Appearances

  
Counsel for the applicant: Mr. C.M. Erskine

   Solicitors for the applicant: Colquhoun Murphy

  

   Counsel for the respondents:
Mr. I. Byrne

   Solicitors for the respondents: Hill & Rummery

  

  

  

   THE COURT ORDERS THAT:

  

   The statutory
demand dated 25 August 1997 served on the applicant by the
respondents be varied by inserting into the Schedule thereto immediately
above
the line marked Balance the words and figures "Less claimed by the company for
rectification of faulty paintwork $10,000" and
further by deleting the figure
64,459 wherever appearing and substituting the figure 54,459.00 subject to the
following conditions:

  

   (1) The applicant within 21 days file and serve upon the respondents'
solicitors a statement of claim setting out the particulars
of its claim
against the respondents for alleged faulty workmanship in respect of the
Dowling contract limited to a total claim of
$10,000.

  

   (2) The respondents within a further 21 days file and serve their statement
of defence.

  

   (3) The applicant
within a further 14 days file and serve any reply.

  

   (4) The matter be listed for further directions on Friday, 8 May 1998
at
9.30 a.m.

  

  

   MILES CJ

  

  

   1. On 12 September 1997 the applicant filed an application under
sub-s.459G(1) of the
Corporations Law seeking an order to set aside a
statutory demand served upon it by the respondents dated 25 August 1997. The
application
came before the Court for hearing on 7 November 1997. Evidence was
taken and limited submissions were made. On 12 November 1997 I
indicated that
I was minded to make an order to set aside or vary the statutory demand, but
only upon condition that the applicant
proceed forthwith to prosecute a
counter-claim against the respondents; possibly, upon further condition that
the parties accept
mediation; alternatively, instead of making an order to set
aside or vary the statutory demand, ordering that the proceedings on
the
statutory demand be stayed pending formulation of issues in the ordinary way
by the filing and exchange of pleadings. Being unsure
of the power to make
orders in the nature of those proposed, I gave leave to the parties to file
further submissions in writing in
accordance with a time-table limited to the
nature and terms of the orders to be made. The submissions in writing have
been received,
not all of them within the time-table laid down.

  

   2. For the purpose of the application to set aside the statutory demand
I
make the following findings of fact and I state the issues for determination
on that application.

  

   3. The applicant was
engaged in construction work on separate parcels of
land in Torrens Street, Braddon. There was to be a block of apartments on each
parcel of land. One block was called "The Dowling". The other was called "The
Vail".

  

   4. The applicant and the respondents
entered into two separate contracts in
which the respondents agreed to paint certain areas in the respective
apartment blocks. (In
the language of the construction industry the applicant
was probably the head contractor and the respondents were the painting
sub-contractors.)
According to the applicant, the undated Dowling contract was
entered into on or about 14 May 1996. The Vail contract was dated 22
November
1996. The respondents carried out painting work in accordance with their
obligations under the two contracts. They claim
that they completed the work
contracted for and that they did it properly. After allowing for payments on
both contracts, the respondents
are owed $64,459.00 by the applicant for the
work they did.

  

   5. The applicant raises by way of defence that the work was not
completed
within the times set by the contracts, that the work done on each building, or
some of it, was not carried out to the standard
required by the contract and
that some of the work was not completed. Those are familiar enough defences to
a claim for work done
in the construction industry. In addition, the applicant
claims that the respondents colluded with the applicant's then project manager
to render false invoices for the work done and that this collusion has
resulted in loss and damage to the applicant. The applicant
claims in summary
that there has at all times been a bona fide dispute between the parties which
disentitled the respondent from
issuing a statutory demand.

  

   6. The relevant evidence on affidavit establishes the following: _ In or
about the middle of
June 1996 Malcolm Naylor, the applicant's project manager
approached Mr Trussler, the site foreman on the Dowling project, and told
Mr
Trussler that he was worried about budget over-runs, that the expected profit
on the Dowling project was "disappearing fast" and
that he needed to "transfer
some of the costs to the Vail".

   _ On or about 20 September 1996 Mr Naylor told Mr Trussler to transfer
$50,000 of the Colour Our World contract "from the Dowling to the Vail".

   _ On or about 27 September 1996 Mr Stipancic, the first
respondent, Mr
Naylor and Mr Trussler met. Mr Naylor said to Mr Stipancic that he wanted to
"transfer some funds from the Dowling
to the Vail" that this would not affect
Mr Stipancic's prices for the "overall contract on the Dowling" and that the
only difference
would be that the "payment advice will have a different job
name on it". Mr Stipancic agreed with the proposal.

   _ On or about
1 October 1996 Mr Trussler advised Mr Stipancic that if he
did what Mr Naylor wanted he would get his "money from the Dowling".

   _ On 5 October 1996 in response to Invoice 108 received from Mr Stipancic,
Mr Trussler prepared and sent to the applicant's office
a progress payment
certificate number 8 bearing that date and marked "The Dowling". The
certificate bore a column of figures at the
bottom of which and alongside a
box marked "This Payment" appeared the figure of $28,500.

   _ On the same day Mr Naylor asked Mr
Trussler to "transfer Invoice 108 to
the Vail". Mr Naylor prepared a new and different progress payment certificate
in similar form
to the one dated 5 October 1996 and marked "the Dowling", but
dated 4 October 1996 and marked "Vail Apart". This latter progress
payment
certificate contained a column of figures different from those in the previous
progress payment certificate, but at the bottom
the figure for "This Payment"
is the same, namely $28,500. There is no evidence that Mr Stipancic had
anything to do with the latter
certificate.

   _ On or about 19 October 1996 Mr Trussler received an invoice numbered 109
from Mr Stipancic. This invoice was dated
18 October 1998. It was marked "Vail
units" and bore a figure of $20,000. In response Mr Trussler sent invoice 109
together with
a memorandum to the applicant's site administrator for the
Dowling contract. The documents were accompanied with a written request
as
follows:

   "Would you process Colour Our World for 20,000 this should complete the
transfer to 50,000".

  

  

  

   7. From
this evidence the conclusion is open that the applicant paid the
respondents $50,000 less than what was owed for the Dowling project
and
$50,000 more than what was owed for the Vail project, but with the net result
that the applicant paid to the respondents no more
and no less than what was
owed for the total painting work carried out on both projects.

  

   8. There is nothing in the evidence
to indicate any fraudulent intent on
the part of the respondents or any loss accruing to the applicant as a result
of anything done
by Mr Stipancic. If there was any loss to the applicant there
is no evidence that Mr Stipancic knew that it was likely. There is
no evidence
that Mr Naylor was acting other than in accordance with what he understood to
be the interests of the applicant and in
accordance with his authority. There
is no arguable basis for any claim that the applicant has a set-off or
counterclaim against
the respondents in the nature of a tortious claim,
whether in deceit, conspiracy or anything else.

  

   9. There is no evidence
of any loss to the applicant as a result of Mr
Stipancic acceding to Mr Naylor's request to render an invoice claiming
payment for
work on the Vail contract which was in truth for work done on the
Dowling contract. Damage is "of the gist" of the tort of deceit:
Fleming on
Torts (8th ed) (1992) at 637. Actual damage may not be necessary in an action
for conspiracy but proof of intent to injure
is necessary: see Fleming on
Torts at 705-707. The applicant does not have an arguable claim in deceit or
conspiracy against the
respondents.

  

   10. The applicant has not shown that it could recover more than nominal
damages even if it was successful in
a claim in tort against the respondents.
However, the dispute that the applicant seeks to rely upon in order to avoid
the consequence
of non-compliance with the statutory demand, extends to an
assertion that the paintwork was neither completed, nor carried out
satisfactorily.

  

   11. A complaint about lack of completion of "rectification work" to the
ceilings, corridor walls and unit entrance doors
of the Dowling was made by
the applicant by an undated letter following a meeting of 23 April 1997. A
list of alleged defects was
prepared by Alliance Properties Limited,
apparently the proprietor on whose behalf the Dowling was being constructed.
It was dated
17 July 1997. A copy of the list of alleged defects was sent to
the respondent on 3 September 1997. The alleged defects were rectified
by
Katrina Menzies Painting at a cost of $10,000. Another painting contractor
submitted a quotation presumably for the same work
at a total of $17,850, and
another contractor at $34,280. Katrina Menzies has submitted a quotation for
$31,850 for further work.
There is evidence in the form of a letter (undated
and marked "without prejudice") from Master Painters Australia that the
painting
overall has been carried out in an acceptable manner and that there
has been considerable damage to painted surfaces by tradespersons
and also
some bubbling of paintwork due to moisture. The applicant's case has not been
presented with sufficient clarity for me to
be satisfied that there is a bona
fide claim by the applicant that the further work quoted for at $31,850 or any
further rectification
is required as a result of any failure on the part of
the respondents.

  

   12. On the evidence as it stands, I am not satisfied
that there is a bona
fide dispute about the completion of the paintwork on the Vail project. The
applicant claims that the respondents
did not complete the painting of the
basement of the car park of the Vail project. Mr Stipancic's affidavit deposes
that conversations
about possibly painting the car parks on both projects came
to nothing. I see no reason to reject that evidence for the purposes
of the
application.

  

   13. The provisions of the Corporations Law relating to statutory demands
were examined by Hayne J. in
Mibor Investments Pty Ltd v. Commonwealth Bank of
Australia (1993) 11 ACSR 362. At 366 his Honour concluded as follows: "First,
any
application to set aside a statutory demand must be made very quickly: it
must be made within 21 days. Second, the statute contemplates
a summary
procedure, the only outcome of which will be an order affecting the statutory
demand, not any order or judgment declaring
a debt to be owing or not to be
owing or ordering payment of any money sum. Third, the only significance that
the statutory demand
has is that if there is failure to comply with it then
the company is deemed to be insolvent. Thus the demand is no more than a
precursor
to an application for winding up in insolvency. Fourth, an
application to wind up in insolvency must be determined within six months
(unless the court is satisfied that special circumstances justify an extension
of that time): s.459R. Fifth, on the hearing of the
application to wind up,
the company may not oppose the application on grounds that it might have taken
in any application to set
aside the demand, unless those grounds are material
to proving that the company is solvent.

  

   14. 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."

  

  

   On p.368
his Honour further observed:

  

  

   "If the demand stands, the 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 the contrary). No order
can be made under s.459G
which finally determines the rights of parties."

  

  

   15. In the later case of Chadwick Industries
(South Coast) Pty Ltd v.
Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, Lockhart J. surveyed some of
the case law and commented
as follows (at 39):

  

  

   "Certainly the court will not examine the merits of the dispute other than
to see if there is in
fact a genuine dispute. The notion of a "genuine
dispute" in this context suggests to me that the court must be satisfied that
there
is a dispute that is not plainly vexatious or frivolous. It must be
satisfied that there is a claim that may have some substance.
On the other
hand the court must be careful, because if all an applicant has to do is to
assert both a claim and some basis for it,
without more, it would mean in
almost every case that the court would set aside statutory demands where
application is made to that
effect. Plainly that is not what the legislature
intended by introducing this new regime."

  

  

   16. On the principles enunciated
by their Honours, with which I
respectfully agree, I come to the conclusion in this case that there is a
genuine dispute between
the parties limited to the matter of the standard of
workmanship of the painting work carried out by the respondents on the Dowling
project which was rectified at a cost of $10,000. I am not convinced that
there is any genuine dispute at all between the applicant
and the respondents
in relation to what the applicant asserts to have been fraudulent or
unauthorised conduct on the part of one
or more of its own employees or
officers conspiring with Mr Stipancic. Nor am I convinced that the claim made
on behalf of the applicant
in relation to the alleged failure of the
respondents to paint part of the parking area of the Vail project is a genuine
claim. The
claim that the work was not completed in time may have some
substance but it does not give rise to a dispute in any relevant sense
as no
arguable case has been made out to show that delay in completion caused
financial loss to the applicant.

  

   17. It is
conceded by counsel for the applicant that there is a power to
make an order setting aside a statutory demand subject to conditions.
The
concession appears proper. Section 459M to which I was referred by counsel for
the respondents in written submissions provides
that an order under s.459H or
459J may be made subject to conditions. Further, as Hayne J observed, "if
there is a genuine dispute
or an offsetting claim, the court must calculate
the substantiated amount of the claim in accordance with a statutory formula".

  

   18. Certain consequences follow relating to the Court's power to set aside
or vary the demand. The submissions of counsel
did not condescend to touch on
this aspect. For the purposes of s.459H, doing the best I can for myself, I
find, in accordance with
the formula, that the "admitted total" of the debt
owing by the applicant is $64,459.00 and that the "offsetting total" claimed
by
the applicant is $10,000. The substantiated amount is therefore $54,459.
That amount is "at least as great as the statutory minimum"
fixed by s.9 at
$2,000. The Court, therefore, has the power under sub-s.459H(4) to vary the
statutory demand. I propose to exercise
that power.

  

   19. As far as the demand is concerned, it is varied by reducing the claim
by the disputed $10,000 and subject
to the following conditions:

  

   (1) That the applicant within 21 days file and serve upon the respondents'
solicitors a statement
of claim setting out the particulars of its claim
against the respondents for alleged faulty workmanship in respect of the
Dowling
contract limited to a total claim of $10,000.

  

   (2) That the respondents within a further 21 days file and serve its
statement
of defence.

  

   (3) That the applicant within a further 14 days file and serve any reply.

  

   (4) That the matter be listed
for further directions on Friday, 8 May 1998
at 9.30 a.m.