New South Wales Supreme Court CITATION : Ednalyn Gardens v Kovarfi & Anor [2000] NSWSC 605 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 1648/00 HEARING DATE(S) : 1 May 2000 JUDGMENT DATE : 1 May 2000 Ednalyn Gardens Pty Limited (Plaintiff) PARTIES : v Attila Kovarfi and Edith Etelka Kovarfi (Defendant) JUDGMENT OF : Davies AJ COUNSEL : P: Mr T Alexis D: Mr R Montgomery SOLICITORS : P: Rockliffs D: Bryan McCarthy CATCHWORDS : Corporation - Statutory demand - whether genuine dispute between the parties - whether affidavit disclosed material facts. Corporations Law, ss459G, 459H,459S LEGISLATION CITED : Trade Practices Act 1974 (Cth) Fair Trading Act 1987 CASES CITED : Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 14 ACLC 1703 Collier Nominees Pty Ltd v Consolidated Constructions Pty Ltd (Santow J, unrep, 3/7/98) DECISION : See paragraph 16. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DAVIES AJ 1 MAY 2000 1648/00 - EDNALYN GARDENS PTY LIMITED v Attila KOVARFI and Edith Etelka KOVARFI JUDGMENT 1 HIS HONOUR: It has been brought to my attention that the oral judgment which I delivered on 1 May 2000 has not been transcribed and that the notebook recording my reasons for judgment cannot be located. Accordingly, I now set out my reasons for the orders made on 1 May 2000 as I recall them. 2 This is an application to set aside two statutory demands arising out of building works carried out by the defendants for the plaintiff. The details of the first statutory demand were: "SCHEDULE Description of Debt Contract price pursuant to Agreement dated 3rd of December, 1998 $375,000.00 Less paid $177,000.00 Sub-total $198,000.00 Less paid 8th February, 2000 $120,000.00 Balance $ 78,000.00 TOTAL DEBT: $78,000.00" 3 The details of the second demand were: "SCHEDULE Description of Debt Balance owing by the Company to the Creditors pursuant to an Agreement made 11th February, 1999 for building works at 126 Lawrence Street, Harbord being as follows: Interest on 4th Invoice to 7th February, 2000 $ 1,134.61 Interest on 5th Invoice to 7th February, 2000 $ 56.75 PC Price Adjustment $ 8,023.80 Variations $ 4,902.70 Interest on PC Price Adjustment and Variations $ 21.25 $14,169.11 " 4 The plaintiff, Ednalyn Gardens Pty Limited, has applied to the Court for an order setting aside those statutory demands. The defendants have countered that application with an application that the plaintiff's summons be summarily dismissed. 5 Relevant provisions of the Corporations Law provide as follows: 459G(1) A company may apply to the Court for an order setting aside a statutory demand served on the company. … 459G(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. 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. 459H(2) The Court must calculate the substantiated amount of the demand in accordance with the formula: Admitted total - Offsetting total where: 'Admitted total' means: (a) the admitted amount of the debt; or (b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates; 'Offsetting total' means: (a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim; or (b) if the Court is satisfied that the company has 2 or more offsetting claims - the total of the amounts of those claims; or (c) otherwise - a nil amount. 459S(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). 6 An affidavit filed in support of an application to set aside a statutory demand may be brief, but it must show that there is a genuine dispute between the parties. It should contain, at least, a statement of the material facts on which the applicant intends to rely to show a genuine dispute. In Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 14 ACLC 1,703, Sundberg J said at 1,708-9: "In a s459H(1)(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 is not enough. Nor is 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." Santow J expressed a like view in Collier Nominees Pty Ltd v Consolidated Constructions Pty Ltd (unreported, 3 July 1998). 7 In the present case, the affidavit of Stephen John Rockliff, a director of the plaintiff, filed in support of the application to set aside the statutory demands, states, inter alia: "14. As at 8 February 2000, the building works had not been completed in accordance with the Building Agreement as particularised in the letters to the Defendants dated 2, 8 and 9 February 2000 (annexures 'B1', 'B2' and 'B3'), sent prior to the issue of the Statutory Demands referred to in paragraph 6 above. Further, apart from installing flyscreens and minor external painting, the Defendants have failed since 8 February 2000 to complete the works, necessitating Ednalyn to cause other tradesmen to complete the works. 15. In addition to the claim of Ednalyn against the Defendants for failing to complete the works in accordance with the Building Agreement, Ednalyn has a number of other claims against the Defendants which exceed the amounts claimed by the Defendants under the Statutory Demands, including:- 15.1 Damages, estimated at $100,000, against the Defendants for engaging in misleading and deceptive conduct, as particularised in the first paragraph under item 1 on page 2 of the said letter of 8 February 2000; 15.2 Damages, estimated at $15,000, for misleading and deceptive conduct in relation to the state of readiness of the Defendants to start and complete the works, as particularised in item 2 on page 2 of the said letter of 8 February 2000; 15.3 Damages, estimated at $3,000, for failing to complete part of the works pursuant to the Building Agreement, that is, supplying and installing in the kitchen of each townhouse of an inferior finish to what was selected and ordered pursuant to the Building Agreement." The affidavit is unsatisfactory in some aspects. 8 On the first issue, that raised in paragraph 14 of the affidavit, there is a complete lack of quantification of the cost of completing and rectifying the building works. The letters referred to, those of 2, 8 and 9 February 2000, all show that further work was found to be necessary; but no sum was placed upon the cost of rectification. The affidavit annexes a report from Mr Neil A Monteith which sets out what, in his view, were defects which needed to be completed at the date of his inspection, 1 December 1999. Again, no estimate was made of the cost of completion. The only figures that have been placed upon the building issues are the sums of $15,000 and $3,000 referred to in paragraphs 15.2 and 15.3 of Mr Rockliff's affidavit, sums which were estimated in relation to the defendants' state of readiness to start and to complete the work and for the installing in the kitchen of each townhouse of an inferior finish to that selected and ordered. 9 Notwithstanding the failure of the plaintiff to estimate the cost of completion, I am satisfied that there is a significant building dispute between the parties. It is clear that, on 7 February 2000, the defendants served a Notice of Practical Completion and a Final Payment claim. Thereafter, there was a great deal of angry correspondence between solicitors. On 18 February 2000, the defendants served a Notice of Termination on the plaintiff. At some stage, the plaintiff took possession and changed the locks and either excluded the defendants from the premises or made it difficult for them to continue to work on the premises. 10 The material before the Court is sufficient to satisfy me that there is a genuine building dispute. Although the cost of completion and rectification has not been quantified, it is clear that the dispute extends to the question as to whether the defendants achieved a state of Practical Completion and as to what were the progress payments to which the defendants had become entitled. The matters in dispute are substantial. 11 Another problem is the claim for misleading and deceptive conduct under the Trade Practices Act, 1974 (Cth) or the Fair Trading Act, 1987. The damages in respect of this claim have been estimated by Mr Rockliff at $100,000. However, the facts on which the claim is based have not been stated with any degree of clarity. A letter from the plaintiff to the defendants of 8 February 2000, prior to the service of the statutory demands, contained this information, inter alia: "Further, this company has a number of claims against you including but not limited to:- 1. Engaging in misleading and deceptive conduct - we note representatives of the company were never informed of the proposed development at the rear of 124 Lawrence Street - the plans annexed to the contract make no reference to access for this development being via the driveway. On completion of the Sale of Shares when the company records were handed over no documents were handed over in relation to this matter. In fact it appears that notice of the proposed development was withheld thereby depriving the company the opportunity of lodging an objection with the council. Further, no right of carriageway or easement for services has been created in favour of the development at the rear of 124 Lawrence Street. The development at the rear of 124 greatly affects the value of townhouses C and D because of its size and design." This claim appears to have arisen from the circumstances that, on the land on which the building works were carried on, there was a right of way and an easement for services for the benefit of the adjoining property. 12 In support of the claim, counsel for the plaintiff referred to the fact that the landscaping plan attached to the Building Agreement appears to show bushes growing along the whole length of the boundary between the two properties, thus excluding any use of the right of way by occupiers of the adjacent property. Nevertheless, the material before the Court does not make it clear how any claim for misleading and deceptive conduct would be framed. 13 Notwithstanding that the affidavit of Mr Rockliff is very brief in relation to this matter, I am satisfied that the material scrapes into the requirements enunciated by Sundberg J and Santow J. As the allegation was raised in correspondence between the parties on 8 February 2000 as a matter of dispute between them, I am satisfied that the plaintiff has shown that there is a genuine dispute between the parties in relation to this matter. 14 I am accordingly of the view that the application to set aside the statutory demands must succeed. 15 Counsel for the plaintiff sought an order for indemnity costs. Attached to Mr Rockliff's affidavit is a letter of 21 February 2000, written before the proceedings commenced. This letter gave notice to the defendants that, if the statutory demands were not withdrawn, proceedings would be instituted in this Court. Notwithstanding the letter, I consider it was appropriate for the defendants to resist the application and that indemnity costs would not be appropriate. 16 In these circumstances, the order will be that the statutory demands dated 16 February 2000 be set aside, that the defendants' notice of motion be dismissed and that the defendants pay the costs of the proceedings. The exhibits may be returned. ********** Last Modified: 09/26/2000 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.