FEDERAL COURT OF AUSTRALIA Geelong Grove Retirement Village Pty Ltd v Harcom Pty Ltd [1999] FCA 485 CORPORATIONS – statutory demand – application to set aside – whether "genuine dispute" as to existence or amount of debt – whether off-setting claim – whether "some other reason" why demand should be set aside. Corporations Law ss 459E(1)(b), 459E(2)(e), 459G, 459H(1)(a), 459H(1)(b), 459H(5), 459J(1)(b) Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd. (1994) 14 ACSR 250 at 252-253 Scanhill Pty Ltd v Century 21 Australasia Pty Limited (1993) 47 FCR 451 at 467 GEELONG GROVE RETIREMENT VILLAGE PTY LTD v HARCOM PTY LTD (ACN 004 790 167) VG 3317 of 1998 WEINBERG J MELBOURNE 23 APRIL 1999 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3317 OF 1998 BETWEEN: GEELONG GROVE RETIREMENT VILLAGE PTY LTD Applicant AND: HARCOM PTY LTD (ACN 004 790 167) Respondent JUDGE: WEINBERG J DATE OF ORDER: 23 APRIL 1999 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The statutory demand of the respondent dated 27 August 1998 be set aside. 2. The respondent pay the applicant's costs of this application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3317 OF 1998 BETWEEN: GEELONG GROVE RETIREMENT VILLAGE PTY LTD Applicant AND: HARCOM PTY LTD (ACN 004 790 167) Respondent JUDGE: WEINBERG J DATE: 23 APRIL 1999 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 This is an application pursuant to s 459G of the Corporations Law seeking an order that a statutory demand of the respondent dated 27 August 1998 be set aside. 2 Section 459G provides as follows: "459G (1) A company may apply to the Court for an order setting aside a statutory demand served on the company. (2) An application may only be made within 21 days after the demand is so served. (3) An application is made in accordance with this section only if, within those 21 days: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company." 3 There is before the Court an affidavit sworn on 15 September 1998 by Stewart James Gull, a director of the applicant company. Mr Gull deposes that on 27 August 1998 the respondent served on the applicant the following statutory demand: "Paragraph 459E(2)(e) FORM 509H Corporations Law CREDITOR'S STATUTORY DEMAND FOR PAYMENT OF DEBT To: Geelong Grove Retirement Village Pty. Ltd. ACN 075 604 652 42 Lydiard Street South Ballarat, Victoria, 3350 1. The company owes Harcom Pty. Ltd. ACN 004 790 167 of Forest Road Corio Victoria 3214 ("the creditor") the amount of $100,241.00 being the total of the amounts of the debts described in the Schedule. 2. Attached is the Affidavit of Graham John Hart dated 27 August 1998 verifying that the amount is due and payable by the company. 3. The creditor requires the company, within 21 days after service on the company of this demand:- (a) To pay to the creditor the total of the amounts of the debts; or (b) To secure or compound for the total of the amounts of the debts, to the creditor's reasonable satisfaction., 4. The creditor may rely on a failure to comply with this demand within the period for compliance set out in sub-section 459F(2) as grounds for an application to a court having jurisdiction under the Corporations Law for the winding up of the company. 5. Section 459G of the Corporations Law provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Law for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period:- (a) An affidavit supporting the application must be filed with the court; and (b) A copy of the application and copy of the affidavit must be served on the person who served the demand. 6. The address of the creditor for service of copies of any application and affidavit is Coulter Bourke Pty. Ltd., Legal Practitioners, of 77 Yarra Street Geelong Victoria 3220. SCHEDULE Description of the Debt Amount of the Debt A. Moneys owed by the company to the creditor pursuant to the creditor's Invoice No. 6510 dated 30 April 1998 being a progress claim for works carried out for and at the request of the company by the creditor in the construction of roadworks and associated drainage for Geelong Grove Retirement Village Stage 1 $40,000.00 B. Moneys owed by the company to the creditor pursuant to the creditor's Invoice No. 6539 dated 31 May 1998 being a progress claim for works carried out for and at the request of the company by the creditor in the construction of roadworks and associated drainage for Geelong Grove Retirement Village Stage 1 $40,000.00 C. Moneys owed by the company to the creditor pursuant to the creditor's Invoice No. 6580 dated 30 June 1998 for variations to civil works contract at Geelong Grove Retirement Village Stage 1 $20,241.00 $100,241.000 Dated: 27 August 1998 Signed: (signed by Graham J Hart) Print Name: Graham John Hart Capacity: Director Corporation: Harcom Pty. Ltd. ACN 004 790 167" The case for the applicant 4 Mr Gull deposes that the applicant was formed as a corporate vehicle in order to purchase a retirement village in Geelong known as the "Geelong Grove Retirement Village" ("Geelong Grove"). That property was acquired in late 1996. The applicant is involved in developing Geelong Grove, and other properties which it might acquire in the future. 5 At the time the applicant purchased Geelong Grove there were twenty-two units and a community centre at the property. There was also sufficient land to complete a further forty serviced retirement apartments, and a further one hundred and seventeen retirement units. Works on the community centre have been commenced, and are continuing, together with works on a further thirteen units built on the property. 6 After the purchase of Geelong Grove, the applicant appointed consulting engineers, AGB Group, as the engineers for the development of that project. AGB Group was to oversee all works except those involving road construction. 7 The applicant instructed AGB Group to invite the respondent, and others, to tender for the road construction works at Geelong Grove. The respondent was the successful tenderer. On 16 December 1997 the applicant issued a purchase order number 4574N/C/003 to the respondent for Stage 1 Expansion Project. Under the terms of that purchase order, it was agreed, according to Mr Gull, that the completion date of the works would be 28 February 1998, and that the contract price would not exceed $255,000.00. The scope of the works involved the respondent constructing "storm water, drainage, kerbing and channelling, road construction and sealing, line marking and traffic signs". 8 Mr Gull deposes that it was made clear to each of the tenderers, including the respondent, that the works had to be completed by the end of February 1998. This was a tight timeframe, and some of the tenderers did not put in a tender as they could not finish the works within that timeframe. 9 The respondent commenced the works around Christmas 1997. It soon became clear that the respondent would not be able to complete the works by 28 February 1998. Mr Gull deposes that one of the major reasons for this delay was that the respondent's employees were not turning up at the site. Mr Gull instructed AGB Group to write to the respondent complaining about the delay, and eventually called a meeting which took place on 20 March 1998. As at that date there was still a lot of work to be done. Mr Gull was informed that the works would not be completed until approximately 26 April 1998, some eight weeks after the date stipulated for completion. Mr Gull held back payment of approximately $30,000-$40,000.00. The respondent's managing director, Mr Graham Hart, insisted that the respondent had to be paid for the work which had been performed. However, Mr Gull reiterated that he would not make any payment until all of the works had been completed. Mr Gull informed Mr Hart that the applicant had suffered damage as a result of the respondent's delays. He also told him that it was not possible to obtain another contractor on short notice to complete the work. 10 Mr Gull deposes that problems continued thereafter. There were further delays. The applicant paid the respondent some money as various components of the job were completed. However, the revised scheduled completion date could not be met. 11 According to Mr Gull the position as at 15 September 1998 was that the following works had not been completed: (a) fixing some ponding problems on the east side of the southern roundabout. (b) patching bitumen in marked spots. (c) signs and line marking as per drawing provided to the respondent. (d) removal of concrete rubbish which was dumped behind the manager's residence. Mr Gull then dealt specifically with the debts allegedly owed by the applicant to the respondent. He exhibited to his affidavit each of the three invoices which formed the basis of the statutory demand. 12 Mr Gull deposes: "Invoices 6510 and 6539 are denied. The progress claims are disputed for a number of reasons. First, it is unclear what works were done by the respondent for the amounts claimed. Secondly, the claims have not been substantiated nor was the applicant's approval sought. The only "Extras" which the applicant approved was for the North entrance to Barrwarre Road in the amount of $6800.00. In any event the respondent failed to complete the said "Extras" by May 1998. Thirdly, in working out any amounts owing, the applicant and respondent would normally adjust the credits and debts to arrive at the figure. The applicant cannot reconcile the amounts claimed in the said invoices and the respondent has failed to verify the said amounts. Invoice 6580 is denied. The progress claim for this invoice relates to "Extras". The applicant has repeatedly asked the respondent to supply the costings for the "Extras" for approval which have only been received. Further, this invoice was sent to the applicant on 20 August 1998. The terms of payment stated in the invoice is (sic) "Strictly Nett 30 days". Even if this was a legitimate debt (which is denied) time has not expired for payment." 13 Mr Gull then deposes that as a consequence of the respondent's failure to complete the works on schedule, the applicant has suffered loss and damage. This included the need to engage the AGB Group to supervise the roadworks (an added expense for the applicant), the need to pay accommodation costs for people who had purchased units but could not move into them, and other sundry items which were identified. 14 He also deposes that Geelong Grove has recently been valued at $2 million. A number of completed units are currently available for sale – the value of these totals in excess of $400,000.00. The applicant has also recently purchased 14.5 acres of land near Broadmeadows for $1.45 million. That site is to be developed as a retirement village. Mr Gull deposes that the applicant is solvent, and is able to pay its debts as and when they become due and payable. 15 Mr Gull's affidavit is supported in general by an affidavit sworn by Mr Justin Leslie Savage, a design draftsman contracted with the AGB Group. Mr Savage has exhibited to his affidavit what purports to be a series of claims for "Extras" made by the respondent, but prepared in a form which would make it difficult to assess whether or not those claims were justified. 16 Since swearing his original affidavit Mr Gull has sworn another in which he deposes to the applicant having commenced proceedings against the respondent in the Supreme Court of Victoria. In those proceedings, the applicant claims damages against the respondent arising from its alleged failure to comply with its contractual obligations, and its alleged breaches of various provisions of the Trade Practices Act 1974 (Cth). A copy of the writ and statement of claim in the Supreme Court proceedings has been exhibited to that affidavit. The case for the respondent 17 The respondent has filed an affidavit sworn by its managing director, Mr Graham John Hart on 17 November 1998. It is not necessary for me to set out in any detail what Mr Hart says in response to Mr Gull's original affidavit. It is sufficient to say that he does not accept Mr Gull's version of the circumstances in which the respondent came to be engaged to carry out the road construction work. He also denies that the respondent was in any way responsible for such delays as had occurred. He contends, for example, that the respondent was held up in its road construction activities by other service contractors who had not completed in a timely manner work for which they were responsible. He also claims that any matters which were outstanding were not included in the progress or variation claims made by the respondent and were not, therefore, the subject of the statutory demand. He denies that it had ever been a term of any agreement between the applicant and the respondent that the works would be completed by 28 February 1998. If, however, that was a term of the agreement, Mr Hart contends that such term was subsequently varied. The variation was brought about by the actions of the applicant or, alternatively, by the actions of parties other than the respondent. He denies that the applicant has suffered any loss or damage by reason of any conduct of the respondent. He contends that there is no genuine dispute between the applicant and the respondent about either the existence or the amount of the debt to which the statutory demand relates. He doubts that the applicant has an offsetting claim against the respondent. 18 It should be noted that Mr Hart's affidavit produced a strong response from Mr Savage. He described some of Mr Hart's assertions as untrue. 19 It is obviously inappropriate to embark upon a consideration of any of the merits of the respective claims. It is sufficient for present purposes to say that the dispute between the parties has all the hallmarks of a classic building case in which each side makes allegations against the other, and denies the allegations made against it. There are plainly a number of matters, both factual and legal, which are in contention between the parties. The relevant legal principles 20 The applicant applies pursuant to s 459G of the Corporations Law to set aside the statutory demand. It contends that there is a genuine dispute about the existence or the amount of the debts to which the demand relates, and also contends that it has an offsetting claim to the whole of the respondent's claim – see s 459H(1)(a) and (b). The applicant also relies, in the alternative, upon s 459J(1)(b) of the Corporations Law. The relevant subsections are as follows: "459H (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. … 459J (1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) … (b) there is some other reason why the demand should be set aside. …" 21 The applicant submits that the affidavits and exhibits thereto of Messrs Gull and Savage demonstrate that there is plainly a genuine dispute about the existence or amount of the debts to which the statutory demand relates. The respondent does not accept the existence of any such genuine dispute. 22 The obligation of the Court under s 459H(1)(a) is simply to determine whether there is a genuine dispute. While the Courts have adopted various explanations as to the meaning of the expression "genuine dispute", a Full Court of this Court has recently held in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464 that a "genuine" dispute requires that: · The dispute be bona fide and truly exist in fact; · That the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived. 23 The Full Court also referred to other formulations, including that of McLelland CJ in Equity in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 where his Honour said: "In my opinion [the] expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction … This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be " or "a patently feeble legal argument or an assertion of facts unsupported by evidence"." 24 The Full Court in Spencer Constructions also cited with apparent approval the following formulation of Young J in the New South Wales Supreme Court decision of John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 252-253: "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 it did not owe a debt …" 25 It is abundantly clear that the Court should not examine the merits of the dispute other than to see if there is in fact a genuine dispute. 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. I did not understand counsel for the respondent to contend that these principles do not accurately state the law. He contended rather, that in their application to the facts of this case they lead to the conclusion that there is no genuine dispute within the terms of the relevant provision. Invoices 6510 and 6539 26 Each of these invoices claims a progress payment of $40,000.00. The claims are disputed for a number of reasons. The applicant contends that it is unclear precisely what works were done by the respondent. Moreover, the claims have not been substantiated and it is said that some of the "Extras" which form part of these claims were never, at any stage, approved. 27 Having read the invoices, and the exhibits to each of the affidavits sworn by Mr Gull and Mr Savage, I am satisfied that there is a genuine dispute between the applicant and the respondent concerning the amounts claimed. There is nothing to suggest that what these deponents have sworn to in their affidavits is, on its face, untrue or inaccurate. A number of their claims seem to be supported by contemporaneous documents. 28 I note that Mr Hart disputes many of their assertions. That dispute may need to be resolved at an appropriate stage. However, I am not persuaded by Mr Hart's contention that there is no genuine dispute between the parties. I think it is obvious that such a dispute does exist. 29 The applicant also contends that it has an "offsetting claim" against the respondent pursuant to s 459H(1)(b) of the Corporations Law. It relies upon the proceedings which it caused to be issued in the Supreme Court of Victoria against the respondent on 27 October 1998 to demonstrate the existence of this offsetting claim. It submits that the offsetting claim may be characterised as "a genuine claim that the company has against the respondent by way of counterclaim, set-off, or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)" within the meaning of s 459H(5) of the Corporations Law. The applicant submits that the test to be applied for the purposes of s 459H(1)(b) is whether the Court is satisfied that there is a serious question to be tried that a party has an offsetting claim – Scanhill Pty Ltd v Century 21 Australasia Pty Limited (1993) 47 FCR 451 at 467. 30 I am satisfied that there is a serious question to be tried concerning the applicant's offsetting claim. It follows that even if I were not persuaded that there is a genuine dispute between the applicant and the respondent about the existence or amount of a debt to which the statutory demand relates, within the meaning of s 459H(1)(a), the statutory demand should be set aside by reason of the operation of s 459H(1)(b). 31 Finally, the applicant also contends that the claims reflected in these invoices should be set aside pursuant to s 459J(1)(b) of the Corporations Law. The applicant submits that the fact that the respondent has filed a counterclaim in the Supreme Court proceedings instituted by the applicant seeking the same amounts as are the subject of the statutory demand means that the respondent has thereby elected to establish its debts in those proceedings. The applicant submits that this provides "some other reason" within the meaning of that expression in s 459J(1)(b) why the statutory demand should be set aside. 32 Having regard to the findings that I have made in relation to ss 459H(1)(a) and (b) it is unnecessary for me to deal with this submission. I doubt that s 459J(1)(b) was intended to operate in the manner contended for by the applicant, but I expressly refrain from making any finding in relation to this issue. Invoice 6580 33 The progress claim for this invoice relates to "Extras" which the applicant contends were not approved, and which were not the subject of any quotation provided by the respondent. The applicant asserts that it repeatedly asked the respondent to supply the costings for the "Extras" (after it had received the invoice) but it had only recently received those costings. Accordingly, the applicant disputes that it has any liability for the "Extras". 34 A more fundamental difficulty, perhaps, arises from the fact that although invoice 6580 was dated 30 June 1998, there is evidence before me from Mr Gull that this invoice was not received by the applicant until 20 August 1998. The copy of the invoice exhibited to Mr Gull's affidavit of 15 September 1998 bears a receipt stamp dated 20 August 1998. Mr Gull has sworn that the invoice was sent to the applicant on that date. 35 The terms of payment stated in the invoice are "Strictly Nett 30 days". If what Mr Gull says concerning the date on which that invoice was received is correct (and there is at least a serious question to be tried in relation to that issue) the debt alleged in that invoice was not due for payment at the time the statutory demand was served. The statutory demand, in so far as it relates to this invoice, would be invalid because it fails to satisfy s 459E(1)(b) of the Corporations Law, this particular debt not being due and payable at the time of the service of the demand. 36 The respondent did not seriously challenge the applicant's contentions in this regard. 37 In my opinion the applicant's contentions concerning invoice 6580 should be accepted. The statutory demand, in so far as it relates to this invoice, should be set aside. Conclusion 38 It follows that the respondent's statutory demand of 27 August 1998 should be set aside. The respondent should pay the applicant's costs of and incidental to this application. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg. Associate: Dated: Counsel for the Applicant: Mr SR Horgan Solicitor for the Applicant: Nevett Ford Counsel for the Respondent: Mr R Waddell Solicitor for the Respondent: Coulter Burke Date of Hearing: 9 March 1999 Date of Judgment: 23 April 1999