New South Wales Supreme Court CITATION : Parkview v Tracktech [2009] NSWSC 943 HEARING DATE(S) : 07/09/09 JUDGMENT DATE : 8 September 2009 JURISDICTION : Equity Division JUDGMENT OF : Macready AsJ at 1 EX TEMPORE JUDGMENT DATE : 8 September 2009 DECISION : Paragraph 48 CATCHWORDS : Corporations Law. Application to set aside statutory demand under s 459G of Corporations Act. Whether work was residential building work done by an unlicensed contractor. Effect of S10 of Home Building Act. Held no recovery allowed and demand set aside. PARTIES : Parkview Constructions Pty Limited v Tracktech Pty Limited FILE NUMBER(S) : SC 5585/08 COUNSEL : Mr ARR Vincent for plaintiff Mr B Zipser for defendant SOLICITORS : Salim Rutherford Lawyers for plaintiff Charles G Roth FOR DEFENDANT - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ASSOCIATE JUSTICE MACREADY TUESDAY 8 SEPTEMBER 2009 5588/08 PARKVIEW CONSTRUCTIONS PTY LIMITED v TRACKTECH PTY LIMITED JUDGMENT 1 HIS HONOUR: This is an application to set aside a statutory demand under section 459G of the Corporations Act. The application raises questions of whether there may be a genuine dispute as well as an offsetting claim. 2 The plaintiff is the head contractor for the building of a mixed residential. commercial and retail development at Alison Road, Randwick. Part of the development involved demolition of buildings and the erection of new residential accommodation and part involved the restoration of two existing terraces which would, once complete, be used for commercial purposes. 3 The defendant was engaged as a sub-contractor to do specialised heritage restoration work on the two terraces. 4 The statutory demand was dated 15 October 2008 and claimed a sum of $49,683 31 for the following: "Description of the Debt Amount of the Debt $49,683.31 Being an amount due in respect of services provided by Tracktech Pty Ltd to Parkview constructions Pty Ltd at its request pursuant to Subcontract Number 9957 Dated 22 January 2007 in respect of Project 3.061 details of which are contained in claim 9 dated 10 July 2008 provided by Tracktech Pty ltd to Parkview constructions Pty Ltd on or about that date." 5 I will deal with the allegation of a genuine dispute. 6 I have had the benefit of having a number of submissions in respect of the principles to be applied. I think the most useful summation of what is a genuine dispute 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 most 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.' 7 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." 8 There are a number of claims on different levels. Firstly, there are claims for precise items, and secondly there are claims for matters which are an answer to all of the detailed claims. 9 There are three detailed claims: (a) variations. (b) retention. (c) balance of contract sum. 10 I will deal with them in reverse order. The last claim submitted by the contractor was in this form: "Invoice 10 July 2008 Parkview construction P/L 23 Hickson Road The Rocks Attention: Nick Belivanis claim 9 - July 2008 Contract sum $40730.00 + GST Value of Variations approved to date $62618.00 + GST New Variations claimed: Supply and fix cornice $5454.00 + GST Supply and fix Fanlight Hardware $1694.00 + GST Supply and fix Brass cylinders` $2142.00 + GST S6805 Hand and install Hardware to 4 doors as per our quotation of 4 November 2007 $4348.00 + GST Replace TD-1 $707.00 + GST Wall chasing Repairs (1) $1450.00 + GST Wall chasing Repairs (2) $435.00 + GST Repairs to Stair Treads $1230.00 + GST Value of Variations $70078.00 + GST Value of Contract Works $473808.90 GST $47380.99 Total Value of Contract Works $521199.68 Less previous payments $496229.80 $24969.88 Retention $24713.43 Total now due $49683.31" 11 The variations totalled $17,460.80 which, with GST, comes to $19,206.88. On the face of the claim the outstanding sum on the contract excluding variations is $5,763. This is almost the claim of the defendant for the balance unpaid of $5,230 plus GST, in other words $5,753. 12 Effectively , the plaintiff has not responded by affidavit to this claim which was earlier articulated in an affidavit of Mr Dwyer, the defendant, sworn yesterday, 7 September 2009. It has not put forward anything to suggest payments are wrong and, accordingly, there seems to me to be no dispute that this amount is owing. Retention sum 13 The retention sum was $24,713.43. The clauses in the contract dealing with the retention sum were clauses 14, 15 and 16, which are in the following terms: "14 Parkview will retain 10% of each progress payment or claim due to the Subcontractor until 5% of the total Contract Price is reached. 15. The Subcontractor has 12 months from the Completion Date to claim 50% of the total amount retained by Park view and then a further six months from the end of the Defects Liability Period to claim the remaining 50% by the Subcontractor may only submit such a claim if it has complied with all of its obligations under the Agreement and has signed the attached Certificate of Release. 16. If the Subcontractor will fails to claim the total retention within six months of the end of the Defects Liability Period it forfeits its right to claim any retention." 14 The relevant certificate which is referred to in clause 15, which is attached to the contract, is as follows: "The Subcontractor hereby certifies that: (a) it agrees to accept the final Contract Price of $403,730.00 as full and final payment for execution of the Contract Works; (b) It releases Parkview from any and all claims for payment or damages or any other claims with respect to its employees or contractors, of the Works, Parkview or the Principle; (c) the Subcontract Works have been completed to the standard and specifications required under this Agreement and the Contract Specifications and Work Method Statement; (d) all payments and statutory entitlements due and owing to its employees and/or contractors in respect of the Works have been paid; (e) all payments due to contractors of the Subcontractor have been made in accordance with the Building and Construction Industry Security of Payment Act 1999 (NSW); (f) the Subcontractor acknowledges that on execution of this form it cannot assert any right to claim further monies pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW); (g) payments to its employees or contractors have been made in strict accordance with Parkview's requirements pursuant to the Agreement or as might have been directed; (h) Parkview has received a signed copy of the Agreement; and (i) all Certificates of Insurance as required under this Agreement are valid up to date and have been fully complied with." 15 It is an extraordinary provision to insert in a contract as (b) would seem to require the release of a subcontractor's claim for breach of contract as the price for receiving the retention amount back. 16 It is said to be unconscionable and vague as to the amount inserted in (a) where it can be seen it inserts a contract sum which was actually in the contract. The latter point I would have thought would have been salved by an appropriate implied term. 17 Although it is unusual the clause can have contractual effect. On the arguments previously put to me it is an arguable matter and, accordingly, I am satisfied that a genuine dispute exists in respect of the sum. I say nothing about the appropriateness or otherwise of such a clause which would seem to deny on its face the right to receive retention. Variations Supply and fix cornice 18 On the material before me there is a clear dispute on the terms of the contract on this point. On the copy of the specification attached to the contract which Mr Dwyer signed it is included. On his version of the tender it was not and was the subject of some discussion before contract. There is a genuine dispute on this item. Fanlight hardware 19 This is an argument as to whether the item was included in the contract. As the relevant oral conversation was disputed I find there is a genuine dispute on this item. Brass Cylinder 20 There is also a dispute as to this item included in the contract. As the relevant oral conversations are disputed I find there is a genuine dispute. Hang and install Hardware to four doors 21 There is a quote, acceptance and construction to proceed on this variation. I do not think there is any genuine dispute in respect of this item. Replace Door TD01 22 This concerns a door which, when its covering was stripped, was found to be beyond repair. As the variation conversations about this item are disputed I find there is a genuine dispute on this item. Wall chasing repairs 23 There is a dispute as to whether it was included in the contract. Given the terms of the contract there plainly is a genuine dispute on this item. Repairs to stair treads 24 This was as a result of damage by some other demolition contractor. There is no documentation to support the contractual requirements under clause 56 of the contract. There is evidence the plaintiff has claimed an amount for this but no evidence of it being paid. There is a genuine dispute in respect of this item. Genuine dispute claims that cover all items 25 There are two such claims, namely, a defence under section 10 of the Home Building Act, and a breach of section 175B of the Workers Compensation Act. The relevant prohibition is in section 10 of the Home Building Act and it is in these terms: "10. Enforceability of contracts and other rights (1) A person who contract to do any residential building work, or any specialist work, and who so contracts: (a) in contravention of section 4 (Unlicensed contracting), or (b) under a contract to which the requirements of section 7 apply that is not in writing or that does not have sufficient description of the work to which it relates (not being a contract entered into in the circumstances described in section 6 (2)), or (c) in contravention of any other provision of this Act or the regulations that is prescribed for the purposes of this paragraph, is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of the breach of the contract committed by the person. (4) This section does not affect the liability of the person for an offence against a provision of or made under this or any other Act." 26 The argument is that it was residential building work. There is no dispute the defendant did not have a licence and thus, if it was residential building work, it would be a contravention of section 4. 27 I note the relevant definitions are as follows. In relation to "Residential building work" the definition is: "residential building work means any work involved in, or involved in co-ordinating or supervising any work involved in: (a) the construction of a dwelling, or (b) the making of alterations or additions to a dwelling, or (c) the repairing, renovation, decoration or protective treatment of a dwelling. It includes work declared by the regulations to be roof plumbing work or specialist work done in connection with a dwelling and work concerned in installing a prescribed fixture or apparatus in a dwelling (or in adding to, altering or repairing any Such installation). It does not include work that is declared by the regulations to be excluded from this definition." 28 There is a reference to the definition of "dwelling" which is: "'dwelling' means a building or portion of a building that is designed, constructed or adapted for use as a dwelling (such as a detached or semi-detached house, transportable house, terrace or town house, duplex, and villa-home, strata or company title home unit or residential flat). It includes any swimming pool or spa constructed for use in conjunction with a dwelling and such additional structures and improvements as are declared by the regulations to form part of a dwelling. It does not include buildings or portions of buildings declared by the regulations to be excluded from this definition." 29 It is necessary to refer to the development in a little more detail. This can be conveniently seen from both the plans and also a number of photographs of the relevant buildings. If one looks at Mr Dwyer's last affidavit of 7 September 2009 at page 69 the first photograph shows on the corner of the two streets the retail development and one can see down the side on the left-hand side parts of the residential development. On the right of the retail development is the two terraces. They are shown more fully in the second photograph on that page and there is more detail on page 70. 30 The relevant plans which are attached to the Development Approval also explained the development. If one looks at the ground floor plan one sees new areas and the various car parks under the residential development and retail area. One can see the terraces and their description as commercial 1 and commercial 2. 31 It is plain from the diagrams that at least one of the terraces has bathrooms and a toilet, and they both have some sort of kitchenette arrangement. When one looks at the plans one can see the residential development and one can see that a residential development and the terraces are separated by a courtyard which is obviously used by them both, along with probably access from there to the retail area as well. 32 In Mr Tooma's affidavit of 9 May 2009 he refers to this fact about common access. He also refers to the fact that the plumbing on the two buildings on the site is interlinked having a single source for water and drains through one sewer. He also referred to the stormwater drainage running through one tank under the units and electricity coming in to one board and being distributed throughout the units. The fire alarm system has its source in one particular area. 33 The argument was put on two levels by the plaintiff. Firstly, because the buildings were obviously terraces the work of restoration was thus work of renovation of a dwelling, notwithstanding that they were later to be used for commercial purposes. 34 Secondly, as the whole precinct includes residential lots, work on the terraces could be considered as a portion "of the overall building complex." 35 On the first point it is immediately apparent on a first reading of the definition that the definition does not focus upon its actual use as part of the criteria; instead, the criteria is the nature of the construction such that it may, because of the method of construction, be used as a dwelling. 36 In this case the building, because of its location and age, the terrace houses being built many years ago, still contains bathrooms and apparently cooking facilities. They plainly are capable of being used as a dwelling as they were in the past. 37 I was not directed to any other provisions of the Act which may bear upon the construction. It seems to me that the construction intended for by the plaintiff may be one within the purpose of the legislation. For example for ease of enforcement it might be better for the legislation to focus on the nature of the building rather than actual use of the building. Plainly the definition has not fixed upon a permitted use under zoning laws as the criteria. On the second point I think the matter is a bit more doubtful and I think that there are certainly very good arguments either way as to whether or not one would be regarded the terraces as portion of the dwelling. 38 It was suggested in answer to the whole claim that there may be a claim in quantum meruit it in any event. However, as pointed out in Vimblue Pty Ltd v Toweal Trading as Computers Core Building [2009] NSWSC 494 such claim is not a debt that is due and payable and thus able to support a statutory demand. 39 In my view, having regard to the first argument advanced, there is a genuine dispute in respect of the whole claim. 40 The other basis is that there has been no compliance with section 175 of the Workers Compensation Act. That section in its terms says: "Liability of principal contractor for unpaid premiums payable by subcontractor (1) This section applies where: (a) a person ('the principal contractor') has entered into a contract for the carrying out of work by another person ('the subcontractor'), and (b) employees of that subcontractor engaged in carrying out the work ('the relevant employees'), and (c) the work is carried out in connection with a business undertaking of the principal contract and is work that is an aspect of the work of the business undertaking. (2) The principal contractor is liable for the payment of any workers compensation insurance premiums payable by the subcontractor in respect of the work done in connection with the contract during any period of the contract unless the principal contractor has a written statement given by the subcontractor under this section for the period of the contract. (3) In this section: 'workers compensation insurance premiums' means: (a) if the subcontractor has failed to obtain or maintain in force a policy of insurance as required by section 155(1) in respect of the work done in connection with the contract during any period of the contract the amount recoverable under section 156(1) (Recovery of double premiums from employer not obtaining policy of insurance) in connection with that failure, or; (b) if an amount is due and payable by the subcontractor to an insurer as a premium or balance of premium for the issue or renewal of a policy of insurance in respect of the work done in connection with the contract during any period of the contract that amount, together with any late payment fee payable in respect of that amount under section 175 (2). (4) The written statement is a statement comprising the following: (a) a statement by the subcontractor that all workers compensation insurance premiums payable by the subcontractor in respect of the work done in connection with the contract during any period of the contract have been paid, accompanied by a copy of any relevant certificate of currency in respect of that insurance, (b) a statement by the subcontractor as to whether the subcontractor is also a principal contractor in connection with that in work, (c) if the subcontractor is also a principal contractor in connection with the work, a statement by the subcontractor as to whether the subcontractor has been given a written statement under this section in the capacity of principal contract in connection with that work. (5) The regulations may make provision for with respect to the form of the written statement. (6) The principal contractor must keep a copy of any written statement under this section for at least seven years after it was given. (7) The principal contractor may withhold any payment due to the subcontractor under the contract until the subcontractor gives a written statement under this section for any period up to the date of the statement. Any penalty for late payment under the contract does not apply to any payment withheld under this subsection. (8) The written statement is not effective to relieve the principal contractor of liability under this section if the principal contractor had, when given the statement, reason to believe it was false. (9) A subcontractor who gives the principal contractor a written statement knowing it to be false is guilty of an offence. Maximum penalty: 100 penalty units. (10) Any amount payable by a principal contractor under this section is recoverable as a debt in a court of competent jurisdiction by the person to whom the amount would, as workers compensation insurance premiums, be payable by the subcontractor. (11) The principal contractor is entitled to recover from the subcontractor as a debt in a court of competent jurisdiction any payment made by the principal contractor under this section. (12) This section does not apply in relation to a contract if the subcontractor is in receivership or in the course of being wound up or, in the case of an individual, is bankrupt and if payments made under the contract are made to the receiver, liquidator or trustee in bankruptcy. (13) This section does not apply in respect of a contract entered into by the principal contractor for the carrying out of work at the principal place of residence of the principal contractor. (14) The regulations may exempt from the operation of this section any contract, work, principal contractor or subcontractor of a class or description specified in the regulations." 41 Subsection (1) is engaged in this case and subsection 4(a) sets out the requirements for the certificate, including a copy of any relevant certificate of currency. Subsection (7) gives the right to withhold payment. 42 Similar provisions are to be found in section 127 of the Industrial Relations Act but these have no reference to the insurance requirement. 43 Mr Tooma in his affidavit of 10 November 2008 swore that the plaintiff had failed to provide the prescribed annexures in respect of the payment of the last claim, including a statutory declaration as to employees and contractors employed by the defendant. 44 The plaintiff company's response to claim 9 indicated this as a problem. 45 A certificate has been included in one of the earlier claims but the evidence was not such that I should infer it was accompanied by a relevant certificate of currency. A new certificate was tendered yesterday but it did not include a certificate of currency. This was prompted by the decision of Hammerschlag J in Seana constructions Pty Ltd v Bright constructions Group Pty Ltd [2008] NSWSC 920. 46 When the matter resumed today a further affidavit of Mr Dwyer sworn yesterday was read and that annexed certificates of currency which covered the whole of the relevant period of the contract. Although they have not been served, they can no doubt be served today and in accordance with his Honour's decision all that would lead to would be an extension of time. 47 There was also a suggestion in the affidavit of an offsetting claim for the whole of the amount paid to the defendant on the basis that it was unlicensed and the payment could be claimed back from it. The short answer to this is that is not what section 10 says. It prevents recovery and does not deal with amounts that have already been paid willingly. 48 Accordingly, the order make is I set aside the demand dated 15 October 2008 served by the defendant on the plaintiff and I order the defendant to pay the plaintiff's costs. (Mr Vincent sought indemnity costs. Counsel addressed) 49 There has been an application that there be a claim for indemnity costs based on an offer dated 16 March 2009. The offer was that the whole underlying matter be resolved by the plaintiff paying $27,000, the statutory demand being set aside, and each party bear their own costs. 50 Given the result, and having regard to the terms of my judgment, I do not think that offer is sufficient to lead to an order for indemnity costs and, accordingly, I do not vary the order which I have made. (Mr Zipsen sought that his Honour vary order as to costs. Counsel further addressed on costs) 51 I have heard a submission that there be some other order rather than the order that the defendant pay the plaintiff's costs based upon the success on the issues in the matter. That sometimes is an appropriate course but it is less likely to be an appropriate course when it a is a statutory demand matter, and where the levels of proof required to establish a genuine dispute are not anywhere near as high. 52 In this case there were two matters which, until this morning, were a complete bar to the statutory demand, and also on its face the statutory demand was a claim for variations which it knew were disputed. 53 Admittedly the defendant succeeded on several matters but, in my view, the appropriate order is that the defendant pays the whole of the costs and, accordingly, I do not vary my order. I direct the exhibits be returned. ********** 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.