New South Wales Supreme Court CITATION : Cultured Stone v Incy [2003] NSWSC 220 HEARING DATE(S) : 27/03/2003 JUDGMENT DATE : 27 March 2003 JURISDICTION: Equity Division JUDGMENT OF : Master Macready at 1 DECISION : Paragraph 24 CATCHWORDS : Corporations Law. Application to set aside statutory demand. Demand set aside. No matter of prinicple. PARTIES : Cultured Stone Australia Pty Ltd v Incy Pty Ltd FILE NUMBER(S) : SC 6093/2003 COUNSEL : Mr J.C. Thompson for plaintiff Mr G.B. Carolan for defendant SOLICITORS : Adams & Parnters for plaintiff Tress Cocks and Maddox for defendant - 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY THURSDAY 27 MARCH 2003 6093/02 - CULTURED STONE AUSTRALIA PTY LIMITED T/AS SPRINGWOOD DRAFTING AND CONSTRUCTION SERVICE v INCY PTY LIMITED T/AS IN CITY CONCRETING JUDGMENT 1 MASTER: This is an application to set aside a statutory demand dated 3 December 2002 served by the defendant on the plaintiff. The demand claims $39,462.53 pursuant to a judgment which was obtained by the defendant against the plaintiff in the District Court on 4 November 2002. 2 The underlying dispute arises from concreting work done by the defendant for the plaintiff on a building project being constructed by the plaintiff for Leura Fairways. 3 There were District Court proceedings between the parties in which the defendant in this case is the plaintiff in the District Court proceedings. In these proceedings the present defendant obtained summary judgment for part of this claim. The present plaintiff has brought a cross-claim in the District Court but that claim has not yet been determined. 4 There was an application for a stay of the District Court judgment, but that was refused on 23 December 2002. The demand had been served prior to that on 3 December 2002. 5 The plaintiff raises the following five offsetting claims: (1) Retention allowance - $3946.25. (2) Payment to Ezidek on behalf of the defendant of $40,000. (3) Liquidated damages - $57,500. (4) Cost of rectifying the stairs - $32,516, and (5) Cost of documentation and approvals $2000. 6 The Court's task in assessing an offsetting claim has been dealt with in a number of cases. For instance, in Edge Technology Pty Ltd v Lite-On Technology Corp (2000) 18 ACLC 576, Santow J had the following to say at pars 24 and 25: "It is here again true (as it was in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456) that it 'is not my task in the present proceedings to seek to resolve the competing claims of the Plaintiff and Defendant.': per Austin J at 462. Rather, it is to 'resolve whether, for the purposes of s 459(H)(1)(a), there is a genuine dispute between the Plaintiff and the Defendant about the existence or amount of the debt to which the Defendant's statutory demand relates': Austin J at 462. Or alternatively, whether there is a genuine counter-claim, set-off or cross-demand against the Defendant and if so, in what amount. In particular, how should it be quantified; at a nominal $1 or at a large figure and if the latter, how is the quantification to be arrived at? The latter question essentially asks whether the counter-claim or set-off is fictitious or merely colourable; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Limited (No 2) (1994) 12 ACLC 490; 13 ASCR 787. In that context, to come up with a plausible contention to (sic) requiring further investigation which, if later established, would preclude there being an offsetting claim. That would not establish that the counter-claim or set-off was fictitious, or merely colourable. In that sense, the counter-claim or set-off is not the reciprocal of the statutory demand debt. Rather it is a means of offsetting the statutory demand debt with a genuine counter-claim or set-off. I adopt the approach of the Full Federal Court in Spencer Constructions Pty Limited v. G & M Aldridge Pty Limited (1997) 15 ACLC 1,001, at 1,011, (1997) FCR 452 at 464; that a genuine dispute requires that 'the dispute be bona fide and truly exist in fact' and that the 'grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived'. The same applies to the counter-claim or set-off One asks: Is it bona fide, is it real and not spurious?" 7 He later went on to say: "For the demand to be set aside on the basis of the demand debt being genuinely disrupted, it must be established by the Plaintiff that the dispute concerning its existence is bona fide and not spurious, hypothetical, illusory or misconceived: Spencer's Case (supra). 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. The alternative basis for the demand to be set aside or reduced by reason of an offsetting claim involves, as I have said, a different test. The question is not whether there is a genuine dispute in the above sense against the offsetting claim. The question is rather whether the 'offsetting claim' can be shown to be 'not frivolous or vexatious'; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. That places a heavier onus on the party seeking to maintain its statutory demand, than if it merely had to establish the reciprocal of a genuine dispute against the offsetting claim." 8 I turn to a consideration of whether the claims can be said to be not frivolous or vexatious. 9 Retention allowance. This is said to be based on the fact that the contract between the parties had a retention allowance on all claims of ten per cent. The actual amount claimed is ten per cent of the amount in the judgment which was obtained in the District Court. 10 I would have thought that if there were claims for payment, the entitlement to the retention amount would depend upon the state of the contract. There is now no contract as it was terminated on 12 February 2002 and I assume all the claims for work pursuant to the contract are in the District Court proceedings. I find it hard to see that there would be a claim for a retention allowance, and, accordingly, I am not satisfied that this would be an appropriate offsetting claim. 11 Payment to Ezidek on behalf of the plaintiff. This matter arises because of a conversation which was initially put by Mr Williams as at December 2001, but which later he agrees took place in January. Mr Williams was a director of the plaintiff and he had a meeting with Mr Mangos, a director of the defendant. He gave evidence of a conversation in which he says there was an agreement that he would pay some amount of the defendant's account with Ezidek, which was a supplier to the plaintiff. There was in fact a payment and there is an invoice that was received on 14 February, which was for the supply of bricks for $40,000. That was on 14 February 2002, two days after termination of the contract. 12 On 22 February 2002 $40,000 was in fact paid by the plaintiff to Ezidek. There are then a number of letters in evidence from Ezidek written some time later commencing in April which are Exs G, H and I to the affidavit of Mr Williams of 20 December 2002. In them Ezidek in writing to Springwood Drafting and Construction Service indicated there were outstanding debts due by the defendant to Ezidek, regarding the agreement that the plaintiff would pay the sum of $40,000 reduction of the amounts due, and in particular the last one (Ex I) which refers to the amount being credited to the defendant in Ezidek's account. 13 Those letters have prompted an affidavit by Mr Wheeler, who was the author of the last letter, in which he says he only wrote it with a view to the mutual settlement of the matter. He does not go so far as to say that the letter is false, and he certainly does not say that the payment was not credited to the account of the defendant. 14 I would point out that the conversations which took place in January are disputed on the part of the defendant, but obviously I cannot resolve that dispute here. 15 What is clear, however, from the material is there was a sum of $40,000 paid by the plaintiff, which was received by Ezidek and was apparently credited to the defendant's account with Ezidek. It seems to me that this a proper offsetting claim and the amount of the offsetting claim is clearly quantified at $40,000. 16 I turn to the claim for liquidated damages. In the claim there is a cross-claim for 111.5 days at $500 per day, making a figure of $57,500. There is no evidence before me which actually substantiates or proves that there were delays by the defendant in these amounts. There has been received a letter written by the plaintiff from the proprietor in which the proprietor claims liquidated damages of $95,500. In the affidavit there is a statement by Mr Williams which he says the delay is attributable as to 80 per cent to the defendant but gives absolutely no basis for that opinion. 17 I really do not think that takes the matter much further. There is really no evidence as to the delays or how they arose. There is no basis for his opinion, and indeed the delays are denied by the defendant. I am not satisfied that this is a proper offsetting claim. 18 I turn to the cost of rectifying the stairs. There is a report in evidence by C S Barratt, Building Consultants. That report deals with a consideration of the contract work done by the defendant for the plaintiff. In his indication of background material as part of his report he refers to the fact that Mr Gerald Wolff in his report on rectification of the stairs assessed the replacement of the stairs between the garage and the ground floor as being $32,516.00. 19 It is clear there were complaints about the stairs. There was reference to the treads and risers not being true, being excessively chipped, and contravening the building codes. The report goes on in par 4 to talk about the cost of rectification of the works to units 1 to 19 as being impossible to quantify as the works involved would require demolition and reconstruction as the only methodology of achieving a better quality of workmanship which is not a practicable solution. 20 The report goes on to say there were no further observed structural defects or defect which would raise concerns about stability and he concluded the matter in question is a commercial issue, not a construction issue, and someone should seek a reduction of the commercial agreement. What that in effect says is the work is not likely to be repaired, and in effect there is no quantification of damage. 21 There is no evidence of the stairs being replaced, nor is there any evidence that it is intended to replace them. 22 In the circumstances, I am not satisfied there is an appropriate offsetting claim. 23 Costs of documentation and approvals. This claim appeared to be made when the cross-claim was filed, but there does not seem to be any supporting evidence on the material before me. 24 Be that as it may, I am satisfied there is an offsetting claim in the sum of $40,000 and, accordingly, as this is greater than the demand, I make orders 1 and 2 in the application. ********** Last Modified: 04/03/2003 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.