Supreme Court New South Wales Medium Neutral Citation: In the matter of One Mastery Developments Pty Ltd [2023] NSWSC 980 Hearing dates: 14 August 2023 Date of orders: 18 August 2023 Decision date: 18 August 2023 Jurisdiction: Equity - Corporations List Before: Williams J Decision: See conclusion at [46] Catchwords: CORPORATIONS — Winding up — Statutory demand — Failure to comply with statutory demand — No application to set aside statutory demand — Leave sought under s 459S to oppose winding up application on the ground that the existence or amount of debt disputed — Where dispute is material to proving that the debtor company is solvent — Where serious question to be tried established — Where explanation for failure to apply to set aside the statutory demand insufficient — Applicant unreasonably failed to attend to correspondence delivered to its registered office Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW), ss 4, 5, 6, 6(1)(b)(ii), 8, 13, 13(1), 14(4), 15 Corporations Act 2001 (Cth), ss 459G, 459S, 459S(2), Part 5.4 Cases Cited: Hadley v BetHQ Pty Ltd [2016] FCA 1263 Hanson Construction Materials Pty Ltd v FEC Civil Pty Ltd [2009] NSWSC 161 In the matter of ACN 151 738 135 Pty Ltd [2015] NSWSC 1216 In the matter of Garslev Holdings Pty Ltd [2023] NSWSC 609 In the matter of Kornucopia Pty Ltd (ACN 615 630 316) [2020] VSC 7 In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546 Nick Scali Ltd v JSK Logistics Pty Ltd [2008] NSWSC 597 Perpetual Nominees Ltd v Masri Apartments Pty Ltd; Perpetual Nominees Ltd v Aus Constructions Pty Ltd (2004) 49 ACSR 719; (2004) 22 ACLC 975; [2004] NSWSC 551 Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661; (2000) 155 FLR 282; (2000) 33 ACSR 723; [2000] NSWCA 37 Texts Cited: N/A Category: Principal judgment Parties: Ceerose Pty Ltd ACN 088 827 678 (Respondent/Plaintiff) One Mastery Developments Pty Ltd ACN 661 384 532 (Applicant/Defendant) Representation: Counsel: Mr M T Fernandes (Respondent/Plaintiff) Mr A D Bailey (Applicant/Defendant) Solicitors: Centurion Lawyers (Respondent/Plaintiff) MurdockCheng Legal Practice (Applicant/Defendant) File Number(s): 2023/115232 Publication restriction: N/A Judgment Introduction 1. By originating process filed on 11 April 2023, the plaintiff seeks an order winding up the defendant in insolvency. The plaintiff relies on the defendant's failure to comply with a statutory demand in respect of a debt of $202,462.08. That statutory demand, together with a verifying affidavit sworn by the director of the plaintiff, was served on the defendant at its registered office on 9 March 2023. 2. The statutory demand describes the debt as a statutory debt arising by operation of s 14(4) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) in respect of payment claim PC02 served on the defendant on 20 December 2022, in response to which the defendant served no payment schedule. The verifying affidavit sworn by the plaintiff's director, Mr Edward Doueihi, described the debt in those terms. Mr Doueihi deposed that he had inspected the plaintiff's business records, that the debt remained due and payable by the defendant, and that he believed that there was no genuine dispute about the existence and amount of the debt. 3. The defendant did not apply to set aside the statutory demand. These reasons for judgment concern the defendant's application made by interlocutory process filed on 6 July 2023, for leave under s 459S of the Corporations Act 2001 (Cth) to oppose the winding up application on the ground that the existence of the alleged statutory debt is disputed. 4. The basis of that dispute, as articulated in the defendant's submissions, is that no statutory debt arose by operation of s 14(4) of the SOP Act because the contract or arrangement between the parties was not a "construction contract" within the meaning of the SOP Act, having not been a contract or arrangement for the defendant to carry out "construction work" or to supply "related goods and services" to the plaintiff, as those terms are defined in ss 5 and 6 of the SOP Act. Accordingly, in the defendant's submission, the plaintiff had no right to progress payments under s 8 of the SOP Act, the plaintiff had no right to issue a payment claim under s 13 of the SOP Act, and no statutory debt arose under s 14(4) of the SOP Act by reason of the defendant's failure to serve a payment schedule in response to the payment claim. 5. The defendant's submissions described Mr Doueihi's verifying affidavit that accompanied the statutory demand as inadequate. That is, in substance, merely another way of expressing the defendant's dispute about the existence of the alleged statutory debt in respect of which the plaintiff issued the demand. 6. There was no dispute about the applicable principles. The matters relevant to an application for leave under s 459S are: [1] 1. whether there is a serious question to be tried on the ground sought to be raised; 2. the sufficiency of any explanation as to why that ground was not raised in an application to set aside the creditor's statutory demand, involving an evaluation of the reasonableness of the debtor's conduct at the time when the application might have been made; and 3. whether the Court is satisfied that the relevant ground is material to proving whether the debtor is solvent. 1. It has been said that the discretion under s 459S is to be exercised "cautiously and sparingly and with regard to the purpose of Part 5.4 of the Corporations Act to provide for determination of any objections to a creditor's statutory demand by an application under s 459G of the Corporations Act, rather than at the time of the winding up application". [2] More recently, however, the description of the proper approach to the exercise of the discretion as "cautious" or "sparing" has been eschewed, recognising that careful scrutiny of each application on its facts and keeping in mind the purpose and policy of Part 5.4 is not equivalent to caution or reluctance. [3] 2. In the present case, the plaintiff accepts that the dispute about the existence of the statutory debt on which the defendant seeks leave to rely in opposing the winding up application is material to proving that the defendant is solvent, irrespective of whether the narrower or broader approach to s 459AS(2) is to be preferred. [4] Accordingly, the defendant's application under s 459S turns on the first and second matters referred to above. 3. For the reasons that follow, I have determined that leave should be refused. Salient evidence 1. The defendant relied on affidavits affirmed by Mr Iwan Sunito on 20 June 2023 and 6 July 2023. The plaintiff, Ceerose Pty Ltd, relied on an affidavit sworn by Mr Doueihi on 6 August 2023. 2. Mr Sunito gave evidence that the defendant—One Mastery Developments Pty Ltd—is a wholly owned subsidiary of One Mastery Developments Holdco Pty Ltd, which is in turn a wholly owned subsidiary of Global Capital Pty Ltd. Sunito Capital Pty Ltd (as trustee of the One Global Trust) is the holding company of Global Capital Pty Ltd, and the ultimate holding company of the defendant. Mr Sunito is the sole director of Sunito Capital Pty Ltd, Global Capital Pty Ltd, One Mastery Developments Holdco Pty Ltd, and the defendant. Each of these entities, together with other related entities, has its registered office at Level 29, 1 Market Street, Sydney. 3. Mr Sunito also gave evidence that Crown Group Holdings Pty Ltd (CGH) is the parent company of a group of companies in the business of property development, including Crown W48 Pty Ltd (Crown W48). Mr Sunito and his business partner, Mr Paul Sathio, are the directors of CGH and Crown W48. Those entities also have their registered office at Level 29, 1 Market Street, Sydney. 4. On about 1 February 2021, the plaintiff submitted a tender to CGH or Crown W48 for the finalisation of the design and construction of certain buildings as part of a high-rise and low-rise development at Waterloo known as "Mastery" (the Development). 5. At a tender review meeting between representatives of the plaintiff and representatives of CGH on 16 February 2021, CGH requested that the plaintiff submit a formal proposal for Early Contractor Involvement (ECI). 6. The plaintiff submitted its ECI proposal to CGH on or about 25 February 2021. The proposal records CGH's objective that "… the preferred Tenderer will undertake an Early Contractor Involvement process to refine the design and achieve a cost-effective Final Tender Price". The nature of the work that the plaintiff proposed in order to achieve this objective was described in Schedule 4 of the proposal as involving the review of the design for the Development in six specified stages (and on a building-by-building basis for each stage) to identify potential design changes to achieve cost savings without sacrificing design integrity or the appearance, quality, and functionality of the buildings, the costing of those potential changes, and updates to the design documentation to reflect the decisions made. The proposal stated that this process—referred to as "value engineering", or "value management"—would require the input and advice of the architects, landscape architects, structural engineer, and building services consultant. 7. In his affidavit affirmed on 6 July 2023, Mr Sunito deposed that Crown W48 did not accept the plaintiff's ECI tender. 8. From about February 2022, CGH representatives Mr William Lam and Ms Christine Chan engaged with the plaintiff's representatives about changes to the pricing that the plaintiff had submitted in its February 2021 tender. The plaintiff submitted a revised tender on or about 26 April 2022. According to Mr Sunito's evidence, he was in discussions with Mr Sathio at about this time about the possibility of "splitting" the Development so that Mr Sunito would assume the development and construction of the low-rise buildings within the development. Mr Sunito deposed that he wanted to obtain further information about the construction costs to determine whether the proposed split was feasible. 9. On or about 5 July 2022, CHG requested that the plaintiff submit a further ECI proposal based on an engagement of six weeks, noting that the plaintiff's previous proposal had been for a three-month engagement at a fee of $250,000.00. 10. On or about 15 July 2022, CGH sent a letter to the plaintiff stating that the plaintiff was the preferred tenderer for the component of the Development referred to as "Mastery Low Rise (Building A, B, D and E)", and that CGH wished to engage the plaintiff in "Early Contractor Involvement (ECI)" for that component. It is convenient to refer to this letter as the ECI engagement letter. 11. The ECI engagement letter described the work to be undertaken by the plaintiff under the ECI engagement as including working with "the Consultant team" to workshop "Value Management savings", including savings to be derived from changes to the design and specifications. The ECI engagement letter stipulated that the resources to be provided by the plaintiff were to include—at a minimum—a project director, a chief estimator, and a design manager. The plaintiff was to be paid a fee of $80,000.00 (excluding GST) for the ECI services on the basis that any third-party consultant fees for value management exercises during the ECI would be paid directly by "OGC". The reference to "OGC" appears to be a reference to Global Capital Pty Ltd. The ECI engagement letter stated that the plaintiff would "forgo the ECI fee if a D&C Contract is signed for the design and construction of the Mastery Low Rise development". 12. It is common ground between the plaintiff and the defendant that the plaintiff performed ECI work during the period from about 15 July 2022 until 13 September 2022. 13. Mr Sunito gave evidence that the defendant company was incorporated on 1 August 2022 for the sole purpose of managing the Development if the proposed split between low-rise and high-rise proceeded. 14. On 13 September 2022, the plaintiff was instructed to cease all further work because a decision had been made not to award the tender for the construction of the Development to the plaintiff. 15. Mr Doueihi replied to that instruction by email dated 13 September 2022, expressing his disappointment and describing the nature and extent of the work that the plaintiff had done in relation to the Development prior to and during the ECI engagement. Mr Doueihi's email described that work as involving the preparation and revision of estimates, the development of initiatives to be incorporated into the design to achieve cost savings, and participation in programming and costing discussions and design meetings. Mr Doueihi argued that the plaintiff should be reimbursed for the costs of all of this work, including work that the plaintiff had undertaken prior to the commencement of the ECI engagement. Mr Doueihi attached to his email a schedule entitled "Claim for Reimbursable Costs" totalling $252,238.25 (excluding GST) and $277,462.07 (including GST), calculated on the basis of the number of hours worked by the plaintiff's managing director, construction manager, project manager, design manager, chief estimator, estimator, and contractor administrator, and personnel or third-party service providers referred to as "programme", "legals", and "bill of quantities". 16. Mr Sunito gave evidence that, on 27 October 2022, he caused the sum of $75,000.00 to be paid to the plaintiff, "which covers close to the $80,000 ECI Fee". Mr Sunito did not proffer any explanation for failing to pay the full $80,000.00 fee stipulated in the ECI engagement letter, plus GST. Mr Sunito gave evidence that he has "never agreed" with the plaintiff's claim of $277,462.07. 17. It is not necessary for present purposes to refer to all of the email correspondence passing between the plaintiff and representatives of the defendant, its related companies, and CGH after 27 September 2022 in relation to the plaintiff's demand to be reimbursed for its costs. It suffices to note that the following communications between the parties occurred after the $75,000.00 payment had been made on or about 27 October 2022. 18. On 3 November 2022, Mr William Lam of OGC sent emails to Mr Doueihi and to Ms Rima Doueihi, the plaintiff's Finance Director, nominating the defendant as the entity to which invoices were to be issued and stipulating that "[t]his first invoice to be to the value of $75K excl. GST". 19. The plaintiff issued invoice MAS1-PC01 to the defendant on 3 November 2022 for an amount of $75,000.00, which was described as an agreed "part payment" of an ECI Engagement Fee of $252,238.25. As I have already mentioned, the sum of $75,000.00 had already been paid, although not the GST component of $7,500.00 included in the invoice. 20. During the period from about 9 November to 8 December 2022, Mr Sunito sought, and the plaintiff provided, further information about its costing of the Development. It was in that context that Mr Doueihi sent an email to Mr Sunito on 8 December 2022 reiterating the plaintiff's requirement for payment of the balance of its costs, noting that the first invoice had been short-paid because the GST component had not been paid. On 9 December 2022, the plaintiff issued invoice MAS1-PCO2 to the defendant for the balance of $202,462.08. The plaintiff re-issued that invoice on 20 December 2022. The re-issued invoice contained a statement that it was a payment claim made under the SOP Act. 21. On 12 January 2023, Mr Jason Cameron—who appears to be a solicitor employed by the plaintiff—sent an email to Mr Sunito and others noting that no response had been received to the plaintiff's payment claim, and setting out the provisions of ss 14(4) and 15 of the SOP Act. 22. On 19 January 2023, Mr Doueihi sent an email to Mr Sunito referring to that email, and to a meeting on 18 January 2023. Mr Doueihi's email foreshadowed legal action to enforce payment but invited a resolution in the event that Mr Sunito simply required additional time to pay. 23. Mr Sunito replied by email dated 2 February 2023, disputing the plaintiff's entitlement to the sum invoiced and requesting confirmation that the invoice had been withdrawn. Mr Sunito stated that his email would be relied on in support of an application for costs in the event that the plaintiff initiated legal action. 24. As I have mentioned earlier in these reasons, the plaintiff's statutory demand for $202,462.08, together with Mr Doueihi's verifying affidavit, was served on the defendant at its registered office on 9 March 2023. [5] 25. In his affidavits affirmed on 20 June 2023 and 6 July 2023, Mr Sunito gave evidence that he had not received any written correspondence posted to the defendant's registered office in March 2023. Mr Sunito added that he had not attended that office during 2023, with the exception of two or three occasions, "due to an internal dispute between the co-founders of the Crown Group". Mr Sunito gave evidence that he had been provided with a copy of the statutory demand on 21 April 2023. Mr Sunito also gave evidence of having received a text message on 21 April 2023 attaching a photograph of the winding up application. As I have already mentioned, it was not until 6 July 2023 that the defendant filed its interlocutory process seeking leave under s 459S of the Corporations Act to oppose the winding up application on the ground that the existence of the alleged statutory debt is disputed. [6] A serious question to be tried? 1. The first matter referred to at [6] above directs attention to whether the defendant has a seriously arguable case that the plaintiff's payment claim, and the defendant's failure to serve a payment schedule in response to it, did not give rise to a statutory debt under s 14(4) of the SOP Act. [7] 2. There were two limbs to the defendant's submission that it has a seriously arguable case. 3. The first limb of the defendant's submission was that the work done by the plaintiff was not "construction work" or "related goods and services" as defined in ss 5 and 6, and that the work was therefore not carried out under a "construction contract" as defined in s 4, of the SOP Act. The plaintiff was not entitled to make a payment claim under s 13(1) because it had no entitlement to progress payments under s 8 of the SOP Act, not being a person who had undertaken to "carry out construction work or to supply related goods and services" under a construction contract. 4. The second limb of the defendant's submission, which received far less attention than the first limb both in the written submissions and during the hearing, was that the work done by the plaintiff prior to 15 July 2022 was not the subject of any "contract or other arrangement" under which the plaintiff had undertaken to carry out construction work or to supply related goods and services. The plaintiff had simply performed the work as part of its continuing efforts to succeed in its tender for the design and construction work submitted in February 2021 and revised in April 2022. That was a further or alternative reason relied on by the defendant as giving rise to an arguable case that the plaintiff had no entitlement to progress payments under s 8 of the SOP Act (insofar as the work was done prior to 15 July 2022) and therefore no entitlement under s 13(1) to issue a progress claim. It was submitted that, insofar as the work was performed after 15 July 2022, it was done on the terms of the ECI engagement letter, which entitled the plaintiff to payment of a fee of $80,000.00 (plus GST), of which the defendant paid $75,000.00 before the statutory demand was issued. 5. The plaintiff submitted that the work done is properly characterised as design and quantity surveying services, which fall within the definition of "related goods and services" in s 6 of the SOP Act. It was further submitted that, even if the court considered that the defendant established a serious question to be tried, its application under s 459S should be dismissed due to the absence of a sufficient explanation for its failure to apply to set aside the statutory demand on the basis of that dispute. 6. In my opinion, the evidence referred to at [20] and [24] above concerning the nature of the work that the defendant agreed to undertake as described in the ECI engagement letter, and the evidence of the nature of the work that it did undertake as described in Mr Doueihi's 13 September 2022 email, does not disclose a serious question to be tried that the work was not "construction work" or "related goods and services" within the meaning of the SOP Act. In my opinion, the work is properly described as design and quantity surveying services—which fall within the definition of "related goods and services" in s 6(1)(b)(ii) of the SOP Act. 7. However, the defendant has established a seriously arguable case, in my opinion, that most of the work was not done under a "construction contract" as defined in s 4 of the SOP Act. The evidence summarised above raises serious questions to be tried about whether the work done prior to the ECI engagement on 15 July 2022 was done under a "contract or other arrangement" pursuant to which the plaintiff undertook to perform the "construction work". To the extent that work was carried out after the parties entered into the ECI engagement on 15 July 2022, the fee stipulated in the ECI engagement letter was $80,000.00 (plus GST). As referred to at [25] above, $75,000.00 of that fee was paid by the plaintiff before the statutory demand was issued. The defendant has therefore established a serious question to be tried about the existence or amount of the debt. A sufficient explanation? 1. The defendant's submissions accepted that an applicant for leave under s 459S must provide a sufficient explanation for failing to apply to set aside the statutory demand on the basis of the ground that it seeks leave to rely on in opposing the winding up application. The reasonableness of the applicant's conduct can be taken into account in assessing the sufficiency of the explanation proffered. Leave is less likely to be granted where there is some default on the part of the applicant or its advisers in that regard. [8] 2. On the basis of Mr Sunito's evidence referred to at [34] above, I infer that the defendant failed to put in place adequate arrangements to ensure that correspondence delivered to its registered office was brought to the attention of its sole director, or to the attention of some other person to whom the sole director delegated the responsibility for dealing with and responding to such correspondence on behalf of the company. There is no evidence that Mr Sunito or the defendant put in place any such arrangements. Nor is there is any evidence that the dispute between Mr Sunito and the other co-founders of the Crown Group prevented him, as the sole director of the defendant, from attending the defendant's registered office to check for, and attend to, correspondence, during the month of March 2023. Mr Sunito simply says that he did not do so. Even if the dispute precluded Mr Sunito from attending the registered office personally, there is no evidence of any reason why arrangements could not have been put in place for the defendant's mail to be sent to Mr Sunito. It would not have been difficult to make such arrangements, yet there is no evidence that any steps were taken to do so. As the plaintiff submitted, the failure to put any arrangements in place was unreasonable, particularly having regard to the emails passing between Mr Doueihi and Mr Sunito in January and February 2023 in which Mr Doueihi foreshadowed that the plaintiff may commence legal action against the defendant in respect of its claim for payment. [9] In short, there is no evidence that the statutory demand did not come to Mr Sunito's attention within the 21-day period for any reason other than his, and the defendant's, failure to act reasonably in relation to systems or arrangements for the distribution or collection of mail addressed to the defendant and delivered to its registered office. 3. In my opinion, Mr Sunito's evidence does not disclose a sufficient explanation for the defendant's failure to apply to set aside the statutory demand within 21 days after it was served on the grounds of the dispute that it now seeks to rely on in opposition to the winding up order. The policy objective of s 459G of the Corporations Act is to ensure that disputes about the existence of a debt are determined at the point of an application to set aside a creditor's statutory demand, rather than at the point of the winding up application. [10] To grant leave under s 459S in this case would allow that policy objective to be displaced by a debtor's failure to take reasonable steps which were available to it to attend to correspondence served at its registered office in circumstances where the debtor was well aware of the dispute that gave rise to the issue of the statutory demand, and where the creditor had foreshadowed legal action. In my opinion, leave should be refused in this case for that reason. As Black J said in Vangory Holdings, "inattention and inactivity cannot provide a satisfactory explanation for a failure to comply with or set aside a statutory demand, since otherwise the statutory scheme in relation to statutory demands would be significantly undermined." [11] 4. As counsel for the plaintiff submitted, the circumstances of this case do not call for me to express a view about whether, as a matter of statutory construction, non-receipt of the statutory demand correctly served on the defendant's registered office would have afforded a basis for granting leave under s 459S if Mr Sunito had acted reasonably with respect to arrangements for the collection of mail from the registered office. [12] Conclusion 1. For all of the foregoing reasons, the order of the Court is that the defendant's interlocutory process filed on 6 July 2023 is dismissed. 2. I am not aware of any reason why the defendant should not be ordered to pay the plaintiff's costs, but I will hear the parties in relation to costs. ********** Endnotes 1. In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546 at [10], [20] (Black J) (Vangory Holdings). 2. Vangory Holdings at [10] (Black J). 3. In the matter of Garslev Holdings Pty Ltd [2023] NSWSC 609 at [11]-[16] (Hammerschlag CJ in Eq). 4. Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661; (2000) 155 FLR 282; (2000) 33 ACSR 723; [2000] NSWCA 37 at [53]-[56] (Spigelman CJ, Handley and Giles JJA agreeing); Hanson Construction Materials Pty Ltd v FEC Civil Pty Ltd [2009] NSWSC 161 at [28] (Barrett J); see also the discussion of the narrow approach, as against the broad approach, in Vangory Holdings at [24]-[33] (Black J). 5. See above at [1]. 6. See [3] above. 7. Vangory Holdings at [11] (Black J). 8. Vangory Holdings at [20] (Black J), and the authorities there referred to. 9. See above at [30]-[32]. 10. In the matter of ACN 151 738 135 Pty Ltd [2015] NSWSC 1216 at [14] (Black J) (ACN 151 738 135). 11. Vangory Holdings at [21] (Black J); see also ACN 151 738 135 at [14] (Black J). 12. Perpetual Nominees Ltd v Masri Apartments Pty Ltd; Perpetual Nominees Ltd v Aus Constructions Pty Ltd (2004) 49 ACSR 719; (2004) 22 ACLC 975; [2004] NSWSC 551 at [19] (Austin J); Nick Scali Ltd v JSK Logistics Pty Ltd [2008] NSWSC 597 (Rein J); Hadley v BetHQ Pty Ltd [2016] FCA 1263 at [39]-[42] (Farrell J); In the matter of Kornucopia Pty Ltd (ACN 615 630 316) [2020] VSC 7 at [165]-[183] (Sifris J). DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 August 2023