New South Wales Supreme Court CITATION : Southern v Balancing [1999] NSWSC 521 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 1070 of 1999 HEARING DATE(S) : 15/05/99 JUDGMENT DATE : 3 June 1999 PARTIES : Southern Air Conditioning Pty Ltd v Balancing & Commissioning Services Pty Ltd. JUDGMENT OF : Master Macready at 1 COUNSEL : Mr P. Fury for the plaintiff Mr G.A. Sirtes for the defendant SOLICITORS : Kemp Strang for the plaintiff Cutler Hughes & Harris for the defendant CATCHWORDS : Corporations Law - Application to set aside statutory demand. No matter of principle. DECISION : Para 18 12 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY Thursday 2 June 1999 1070/99 SOUTHERN AIR CONDITIONING v BALANCING AND COMMISSIONING SERVICES JUDGMENT 1 MASTER MACREADY: This is an application to set aside a creditor's Statutory Demand for payment of a debt. The Statutory Demand which was served by the defendant on the plaintiff claims the amount of $41,860.50 and was dated 22 December 1998. The plaintiff's business is the supply and installation of commercial air conditioning and the defendant was engaged by the plaintiff to install air and water systems to two projects, one being Sydney Central Plaza project and the other Royal Exchange Pitt Street project. The plaintiff was a sub-contractor on those sites. 2 The Statutory Demand has particulars of the amounts due by reference to the outstanding invoices. Two of them, invoice No 8943 for $1,800 and invoice 8997 for $438 are for the Central Plaza project. The others are for the Royal Exchange Pitt Street project. 3 I will first deal with the Sydney Central Plaza project. That project was originally for a contract price of $120,800. In due course given the various pressures in the performance of the project there was agreement that the final cost of the project would be $185,000. The defendants have been paid $182,762 for the work on that project and the amount outstanding corresponds to the two invoices I have mentioned above, namely, a total of $2,238. 4 The plaintiff suggests that there is a dispute as to this amount because of the failure of the defendant to complete his work under the contract. It alleges that the defendant has failed to complete the test reports which are required once the commissioning of the various air conditioning and other systems are complete. The failure of the defendants to do this work has led the plaintiffs to have to recheck the air conditioning systems and prepare test reports in order to complete their contractual obligations with Multiplex, the head contractor. Although the evidence does not establish precisely what is the cost of this work in the context of the contract price and the small amount left in issue there is a genuine dispute in relation to this matter. 5 Apart from the genuine dispute the defendants suggest that the matter is not able to be raised because the affidavit which was filed in support of the application to set aside the demand was not a sufficient affidavit for the purposes of the Act. It is necessary for the affidavit to comply with certain standards. 6 The law in this regard is conveniently set out in the Judgment of Sunburg J in Graywinter Properties Pty. Limited v Gas and Fuel Corporation Superannuation Fund, 21 ACSR, 581. At 587.8 his Honour had the following to say: "Is a complying affidavit a condition of jurisdiction? It seems to me that s 459G(3) makes plain that the Court can entertain an application to set aside only if within the prescribed period an affidavit supporting the application is filed and copies of the application and affidavit are served. The High Court in Grant said that compliance with the subsection is a limitation or a condition upon the authority of the Court to set aside a demand; it is a condition of the jurisdiction that subs (3) be observed; if the condition is not observed there is no application before the Court. I am thus unable to agree with the Senior Master that the failure of an affidavit to satisfy the minimum requirements for an affidavit to be a "supporting affidavit" is not a jurisdictional impediment. The minimum requirements in a genuine dispute case. In order to be a "supporting affidavit", an affidavit must say something that promotes the company's case. An affidavit which merely says "I am a director of the company but am too busy at present to make a full affidavit, and I will do so later" would not support the application. It would in no way advance, further or assist the company's cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute: John Holland. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief: 71 Paisley Street. In a s 459H1(a) case, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute not enough. Nor is there a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of an affidavit, that it may read like a pleading. An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify. I am thus unable to accept the respondent's submission that the affidavit must contain sufficient material to make out a case under s 459H. In reply, that submission was somewhat retreated from. It was said that the affidavit must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute - it might read more like a pleading than a story. That accords with what I consider to be the minimum requirement. ………A multitude of affidavits? In several cases, it has been held that an applicant is not restricted on the hearing to the affidavit that is served with the application. See Scanhill at 467 and Mibor Investments Pty. Limited v Commonwealth Bank of Australia (1993) 11 ACSR 362 at 368. An applicant whose initial affidavit has satisfied the threshold test must be able to supplement the material, because while the "supporting" affidavit does not have to deploy the evidence, on the hearing only admissible evidence can be relied on. In Louisbridge, Ryan J said that "provided that an affidavit is filed and served within the 21 day period which supports the application by providing grounds for concluding that there is a genuine dispute... or that the company has an offsetting claim", supporting affidavits may be filed under the period has expired. Apart from Hire Works, the cases do not support the proposition for which the applicant contended, namely that an affidavit that does not satisfy the threshold test can be supplemented later on. That issue did not arise in Scanhill or Mibor. It did arise in Hire Works, but for the reasons I have given, I am respectfully unable to agree that the Court can entertain as an application under s 459G a case in which an affidavit containing the minimum requirements has not been served within time." Given the fact that the affidavit does not need to be in strictly admissible form, I think it is appropriate to consider the whole of the affidavit, not just the part that was admitted into evidence on the hearing before me. 7 The relevant affidavit is that of Mark Grynberg of 12 January 1999. Paragraphs 4 and 5 of that affidavit are in the following terms:- "The Defendant, Balancing and Commissioning Services Pty Limited was engaged by the Plaintiff to install air and water systems on the Sydney Central Plaza Project and the Royal Exchange Pitt Street projects which are projects on which the Plaintiff is a subcontractor for the supply and installation of mechanical services which includes air conditioning and ventilation systems. I have reviewed the Plaintiff's records in relation to the work performed by the Defendant on the Sydney Central Plaza project. Those records indicate the Defendant has bee paid for all work performed in relation to the Sydney Central Plaza Contract. To date, the Plaintiff has been paid the sum of $182,762 to the Defendant in relation to the Sydney Central Plaza Project." 8 It is suggested that the full purport of the dispute which emerged from the later affidavits could not be gleaned from paragraph 5 above. In my view given the reference in the last sentence to the amount that has been paid the affidavit asserts that there has been payment for work done. Accordingly, I would have thought it would have been a sufficient affidavit to put the plaintiff's case on that aspect. 9 I turn to the Royal Exchange Pitt Street project which concerns the balance of $39,622.50. In respect of the contractual arrangements between the parties in respect of this project there are some difficulties. Work commenced on the project on 29 May 1998. Prior to that there was a discussion between the representatives of each side when it was acknowledged that given the absence of knowledge about the amount of work needed on existing systems work would be done on a do and charge basis. Shortly prior to 3 August a quote was requested of the defendant and on 3 August a quote was sent bearing that date. The quote was for $79,650 and the quotes specifically covered matters included in the quote and other matters not included. The matters included were:- (a) Basement supply and exhaust systems. (b) Ground floor A/C supply. (c) Levels 1 - 26 centre zone and perimeter zone A/C systems. 10 Excluded were all other systems due to their unknown state and the amount of testing required. The systems were stair pressurisation and smoke exhaust, outside air VCUs, toilet exhaust and tearoom exhaust. The water system balance was quoted at $18,000 and this was later reduced to $12,000. 11 In due course the plaintiff issued what was described as a material requisition which was dated 11 August 1998. That included the systems covered in the quote I have just referred to but also included additional systems of stair pressurisation, smoke exhaust, O/A TX and tearoom exhaust all for the price of $79,650. There is a dispute about this document the defendant's representative having sworn that it was not received until November. Clearly there is raised a question as to what might be the contractual arrangements and the extent of the work that was within the fixed price quote. The defendant submitted during the course of the contract a number of invoices both in respect of the works under what it described as the original contract for $79,650 and also for extra works. Clearly the invoices under the original contract are in the nature of progress claims. 12 Another matter in which the parties are at issue in respect of this project is the amount that has been paid. According to the plaintiff a sum of $68,980 has so far been paid for the Royal Exchange project. This has been supported by its internal records. The defendant, however, suggests through its representative, Mr Milling, that only $44,930 has been paid by the plaintiff in relation to works at the Royal Exchange project. That statement is not supported by any records which are in evidence. According to the defendant's case there are three invoices outstanding. The first is invoice 8909 for the sum of $5,600 and the second, 8939 in the sum of $25,000. These are simply progress claims for what the defendant called the original contract. The other outstanding invoice 8957 is for $9,022.50 which clearly is for extras or what the defendant believed were extra works. 13 The defendant stopped work on the site and there also appears to be a dispute about completion of the work. Although the defendant concedes that level 2 air conditioning work was not done it has reduced the amount of its claim to take account of this. According to the plaintiff the defendant has not completed all the work that was required to be done and this included provision of documentation for the test data reports, test systems for the 12th floor of the project and miscellaneous exhaust systems which were part of the contract works according to the plaintiff. They estimate the amount of this between $4,000 and $9,000. During the period before the defendant left the job there were attempts at reconciling the amounts outstanding. In a fax of the 12 November 1998 the plaintiff conceded that on its figures there was a balance outstanding of $14,117.50. 14 If one stands back and looks at the areas of dispute which have emerged it is clear that there are disputes between the parties as to what was included in the contract price of $79,650. There is a dispute as to the amount that has been paid and there is a dispute as to the completion of the work. On the evidence before me one would incline to the plaintiff's version as to how much has been paid given the details that they have provided. It is suggested that in order to meet the amounts which might be outstanding for any particular invoices the plaintiff would have to establish an offsetting claim. It would seem to me that the arrangements between the parties were that invoices issued for the contract were claims for payment by way of progress claim as the works progressed. Accordingly, the matter should be treated as a genuine dispute not an offsetting claim. 15 I had the benefit of having a number of submissions in respect of the principles to be applied and I think probably the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments respect of the expression "Genuine dispute": "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s.459H. In my opinion that 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 or for the extension or removal of a caveat. 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' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194). 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. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in those 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.' In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Division 3 . . . prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim". It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simply - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).' I respectfully agree with those statements." 16 It is particularly difficult in building and construction matters, because of the detail needed to resolve them, to determine precisely what is the correct result. In John Holland Construction & Engineering v Kilpatric Green (1994) 12 ACLC 716 His Honour Mr Justice Young was involved in matter involving a statutory demand and the question of whether there was a genuine dispute. In that case His Honour commented on the evidence which largely consisted of assertions in correspondence between the parties. He said:- "It would seem to me that in the present case, where the proprietor has asserted that, a particular amount only is the value of the work, and that amount is put forward by the contractor to the sub-contractor, then even if there is nothing before the court to show how the amount is made up, there is a genuine dispute between the contractor and the sub-contractor as to the amount of all sums over and above that admitted value of the work." 17 He then went on to comment as follows:- "It may be that I am doing a disservice to this Court in approaching the matter in this mathematical way. It may be that it is far more appropriate in the instant sort of case for the court to just take a broad brush approach. Thus the court might just say that because this is not a debt collecting court, where there is a construction case of this nature, the demand should be set aside under section 459(1)(b) whenever it can be seen from the correspondence that there are honestly held views on either side which have brought a dispute between the parties. Thus, the matter can be dealt with in the ordinary way in which construction disputes are dealt with without the time and expense that is involved in running this sort of litigation ahead of that dispute. If I were to do that in the instant case, I would come to the same result." 18 Looking at the range of disputes and the parties in this matter it seems to me that there is a genuine dispute except as to the extent of the amount the plaintiff has admitted in its fax of 12 November. Allowing a deduction from that of $9,000 there is an amount outstanding of $5,117.50. In these circumstances the appropriate order is that the statutory demand be varied by reducing the amount to $5,117.50. 19 I will hear the parties on costs. ********** Last Modified: 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.