Dickson Hotel Pty Limited Acn 081 362 754 v Pendon Constructions Pty Limited Acn 079 156 988 [2000] ACTSC 104 (17 November 2000)

Last Updated: 17 November 2000

Dickson Hotel Pty Limited ACN 081 362 754 v Pendon Constructions Pty Limited ACN 079 156 988 [2000] ACTSC 104 (17 November 2000)

CATCHWORDS

PRACTICE AND PROCEDURE - Application to set aside statutory demand - Jurisdiction of Master - Master may exercise jurisdiction under s459H of Corporations Law - Corporations Rules 2000.

CORPORATIONS LAW - Application to set aside statutory demand - Whether genuine dispute exists as to existence of debt - Whether applicant has grounds for offsetting claim.

Corporations Law Rules 2000 Schedule 2

Corporations Law sections 459F, 459H, 459J, 459L,459M and 459N

Edge Technology Pty Ltd v Lite-On Technology Corporation [2000] NSWSC 471

Spencer Constructions v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452

No. SC 737 of 2000

Coram: Master T Connolly

Supreme Court of the ACT

Date: 17 November 2000

IN THE SUPREME COURT OF THE )

) No. SC 737 of 2000

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: DICKSON HOTEL PTY LIMITED

ACN 081 362 754

Plaintiff

AND: PENDON CONSTRUCTIONS PTY LIMITED ACN 079 156 988

Defendant

ORDER

Coram: Master T. Connolly

Date: 17 November 2000

Place: Canberra

THE COURT ORDERS THAT:

1. The statutory demand be varied by substituting $93,091 for $149,091.

1. This is an application pursuant to s459G of the Corporations Law to set aside a statutory demand dated 26 September 2000. This statutory demand was served by the defendant Pendon Constructions Pty Ltd on the plaintiff Dickson Hotel Pty Ltd on 11 October 2000 and claimed a debt due in the sum of $149,091.00. By originating application dated 31 October 2000 the plaintiff applied to have the statutory demand set aside. Section 459G of the Corporations Law provides that a company may apply to have a statutory demand set aside only by application within 21 days of service, and this was complied with in this case.

2. Under the former arrangements relating to jurisdiction to deal with matters under the Corporations Law contained in what was Schedule 13 of the ACT Supreme Court Rules the Master did not have jurisdiction to deal with an application to set aside a statutory demand. The source of the Master's jurisdiction in matters arising under the Corporations Law is now found in the Corporations Law Rules 2000 which came into effect from 3 April 2000. Schedule 2 to these Rules sets out a list of provisions of the Corporations Law under which powers may be exercised by the Master. This list includes at item 47, "sections 459F, 459H,459J, 459L,459M and 459N power to make orders in relation to statutory demands". Although this does not provide the Master with any power with respect to s459G it was the common submission of counsel in this matter that Schedule 2 of the Corporations Rules 2000 does confer power on me to determine applications to set aside a statutory demand, as s459G provides only the authority for a company to make application, and the powers of the court to deal with and dispose of an application are found in ss459H, 459J, 459L, 459M and 459N of the Corporations Law. I am satisfied that this is the case, and that accordingly I have jurisdiction to hear and dispose of this matter.

3. The background to the dispute between the parties must be briefly stated. The plaintiff entered into a contract with the defendant on or about 15 February 1999 whereby the defendant agreed to construct for the plaintiff an accommodation complex in Dickson in the Australian Capital Territory. This was a significant development, and the scale of the venture is apparent in the statutory demand itself. The total amount of unpaid claims the subject of the demand is $149,091, but the total cost of the project is said to be $4,288,296, with $3,817,702 acknowledged as having been paid to that time. The balance relates to an amount due to a concrete supplier which is apparently the subject of a separate arrangement between the supplier and the plaintiff.

4. A statutory demand may be served on a company in relation to a debt, pursuant to s459E of the Corporations Law, and unless the demand is set aside or varied by a court, a company must comply with the demand by making the payment within 21 days of the service of the demand. A failure to comply will provide grounds for the winding up of the company. A statutory demand is thus a most powerful weapon to achieve the recovery of a debt. Such a weapon could be oppressive, and so provision is made in the Corporations Law for a company to make application to a court to set aside the demand. A court may set aside or vary the demand where there is a genuine dispute between the company and the person who served the statutory demand about the existence of the debt, or where the company has an offsetting claim (s459H). There is also a power to set aside a demand on discretionary grounds (s459J).This allows matters that are genuinely in dispute to be resolved in the ordinary way in the case of a disputed debt or offsetting claim.

5. In this application the plaintiff seeks the relief of setting aside the statutory demand on the basis that there is a genuine dispute over substantial portions of the debt claimed, and there is an offsetting claim which amounts to more than the balance of the debt. It further argues that the statutory demand be set aside as an abuse of process, on the basis that any debt should be the subject of the arbitration clause set out in clause 8 of the contract between the parties of 15 February 1999.

6. I will deal with the discretionary ground first. It is said by the plaintiff that it is an abuse of process for the defendant to bring a statutory demand before first invoking the arbitration provisions contained in clause 8 of the contract.

7. The arbitration clause is set out in full in the affidavit of Mr Parton, a director of the plaintiff. It appears to be a standard form of arbitration clause in respect of building disputes, and I am not satisfied that it operates, on its terms, to preclude a builder from taking appropriate action to recover a debt due and owing. I am thus not satisfied that the defendant is abusing the process of the court in issuing a statutory demand to recover what it says is a debt due and I decline to exercise my discretion to set the demand aside pursuant to s459J.

8. The Corporations Law sets down in s459H to process which a court must follow where it is claimed that there is a genuine dispute in relation to a debt, or that there is an offsetting claim. The court is required to calculate a "substantiated amount" of the demand, which involves reducing the amount claimed in the statutory demand by any components over which there is a genuine dispute, thus achieving an "admitted amount", and reducing from this admitted amount "any offsetting total" being any offsetting claim or claims. If this substantiated amount is less than the statutory minimum, the statutory demand is to be set aside, and if it is at least as great as the statutory minimum, the court makes an order pursuant to s459H (4) varying the amount of the statutory demand. It can be seen that this involves two separate exercises, being first a determination as to whether any amounts are genuinely in dispute and thus have the effect of reducing the starting point of the statutory demand, and then determining whether there are any offsetting claims which further reduce this amount.

9. In an affidavit of 31 October 2000 Mr Parton, a director of the plaintiff, sets out the plaintiff's case in relation to the disputed items and offsetting claim. In relation to the disputed items, Mr Parton asserts that he was invoiced for certain sums which he believe in fact related to work done on other jobs, or which overstated the number and value of goods delivered. These amounts, some of which were not precisely qualified, set out in para 7(c) of his affidavit, were agreed to amount to about $11,000. Mr Blank took me to various sections of the affidavits of Mr Beaumont, the director of the defendant, where these assertions were contested, but conceded that it would be open to me to find that a genuine dispute existed in relation to these sums.

10. Mr Parton also asserted that he had been required incur expenses amounting to a total of $15,000 for work which he has had done to make good or otherwise remedy damage caused to the premises as a result of water damage which he asserts is the fault of the defendant. Mr Blank acknowledged that there was a problem in relation to water damage, which he says will be fully rectified by the defendant, but conceded that it would be open to me to find that the plaintiff had incurred these costs giving rise to an offsetting claim in relation to these sums.

11. It is also asserted by Mr Parton in paragraph 7(f) of his affidavit that the amounts shown in the statutory demand as payable for March 2000 and May 2000 are for rectification work, and so should be payable by the defendant and not the plaintiff. He annexes a bundle of 28 invoices in support of this assertion, but it is not apparent to me from an examination of these that they relate to rectification work and not to the ordinary work involved in bringing the project to completion. While it is the case that the plaintiff entered into possession of the building on practical completion and the issue of an interim certificate of occupancy on 17 December 1999 and a final certificate of occupancy and use was issued on 9 March 2000, it does not follow that because an amount was billed in March or May it relates only to rectification works.

12. Mr Parton asserts in paragraph 12 of his affidavit that pursuant to special condition 3 of the Contract the defendant is required to pay to the plaintiff half of the amount by which the total costs of the work exceed the budgeted sum of $3,700,000 up to a limit of $30,000. It is common ground that the total costs have exceeded this amount, being on the defendants own statutory demand $4,288,296. The plaintiff thus says that the defendant should allow a credit of $30,000. While the defendant acknowledges this term, it says that the reasons for the overruns are changes to the designs and requirements made at the behest of the plaintiff, but Mr Blank acknowledged that it would be open to me to find a genuine dispute here in the sum of $30,000.

13. Mr Parton asserts in paragraph 8 of his affidavit that the defendant is in breach of the contract in that there are serious water seepage problems as a consequence of defects in the construction. This is the problem referred to in paragraph 10 above in relation to amounts the plaintiff has already expended in relation to rectification works that the plaintiff has directly commissioned and paid for. Mr Parton says that he has obtained a quote, which he attaches to his affidavit, from a contractor that the cost to excavate and make good the problems would be some $80,000. A subsequent affidavit from Mr Elvin, another director of the plaintiff, revises this estimate to $85,000.

14. In response to this Mr Beaumont, the director of the defendant, has asserted that on his estimate, from a consultant engineer, the cost to fully rectify water seepage problems should be in the order of $8,500. Mr Mossop, for the plaintiff, submitted that I should be satisfied from this that there is an offsetting claim in the order of $85,000 in respect of the likely cost of rectifying water seepage problems, and that this should properly be offset against the revised "admitted amount", which would have the effect of setting aside the statutory demand in full.

15. In response Mr Blank submitted that any cost of future work to rectify the admitted water seepage problems was not a matter to be taken into account in the exercise of considering the statutory demand. He acknowledged that the defendant was under a contractual obligation to rectify any problems with the work pursuant to general law and the express warranty in the contract, and that this would be done, with the defendant incurring such expenditure as was necessary and appropriate to rectify the problem to the appropriate standard. He submitted that, if the rectification works were done in a manner that the plaintiff was dissatisfied with, the plaintiff could then invoke the arbitration clause in the contract to resolve the dispute. The rectification works, in his submission, was the clear contractual responsibility of the defendant, and it was not open to the plaintiff to obtain quotes for this and refer to this amount, which when it was properly incurred would be the defendant's responsibility, as an offsetting amount.

16. The test as to whether there is a genuine dispute as to components of the debt claimed in a statutory demand has been extensively discussed by superior courts. The authorities are set out by Northrop, Merkel and Goldberg JJ in Spencer Constructions v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464. The test is conveniently summarised by Santow J in Edge Technology Pty Ltd v Lite-on Technology Corporation [2000] NSWSC 471 where His Honour says at paragraph 31:

"For the demand to be set aside on the basis of the demand debt being genuinely disputed, it must be established by the plaintiff that the dispute concerning its existence is bona fide and not spurious, hypothetical, illusory or misconceived: Spencers Case. In other words, there must be a plausible contention requiring further investigation which genuinely puts in dispute the debt which grounds the statutory demand. But the merits are not now to be determined beyond the preliminary testing as to whether there is a serious question to be tried".

17. I am satisfied that there is a serious dispute as to the amounts referred to in paragraphs 9 and 12 above. I am not satisfied that the claim referred to in paragraph 11 that because certain amounts are billed in March and May they relate to rectification works establishes a genuine dispute. I thus find that there is a genuine dispute in relation to the sum of $41,000, which leads me to find an admitted amount of $108,091.

18. I find that there is an offsetting claim of $15,000 in relation to the matters referred to in paragraph 10 above. In relation to the large offsetting claim being the sum of $85,000 referrable to the quotation obtained by the plaintiff from a contractor for rectification works, I find that under the contract, it is the responsibility of the defendant builder to undertake rectification works, under the general law and the specific contractual warranty. It seems to me that this is what should occur here, and if there is a dispute concerning whether the rectification work performed by the defendant has been satisfactorily completed, then the arbitration clause in the contract can be invoked. It does not seem to me to be appropriate for the plaintiff in this case to, in effect, refuse to come up with the final invoiced payments for the building works on the basis of the claimed or estimated cost of future rectification works which are in any event the responsibility of the defendant.

19. It seems to me that, if this were not so, then any final amount due under a building contract could be resisted in the context of a statutory demand by an assertion that the debtor had obtained a quote for whatever sum for rectification work that the debtor felt was appropriate. Where there is a contractual and statutory requirement for the builder to make good any defects, such an argument is in my view unsustainable.

20. I therefore find that there is an off setting amount of $15,000, which results in my finding that there is a substantiated amount of $93,091. This is greater than the statutory minimum, and so I order, pursuant to s459H (4), that there should be a varied statutory demand in the sum of $93,091 which has effect from the date the demand was served on the plaintiff.

21. I will hear the parties as to costs.

I certify that the preceding twenty one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of Master T. Connolly.

Associate:

Date: 17 November 2000

Counsel for the Plaintiff: Mr Mossop

Solicitor for the Plaintiff: Colquhoun Murphy

Counsel for the Defendant: Mr Blank

Solicitor for the Defendant: O'Connor Harris

Date of hearing: 10 November 2000

Date of judgment: 17 November 2000