Supreme Court New South Wales

• Medium Neutral Citation: Rite Flow Pty Limited v Nahas Constructions (NSW) Pty Limited [2012] NSWSC 553
• Hearing dates: 5 March 2012
• Decision date: 06 March 2012
• Jurisdiction: Equity Division - Corporations List
• Before: Black J

Decision

Statutory demand set aside. Defendant to pay Plaintiff's costs of the proceedings on an indemnity basis.

• Catchwords: CORPORATIONS - Winding up - Statutory demand - Application to set aside statutory demand - Whether there is a "genuine dispute" as to the amount claimed in the statutory demand.; COSTS - Indemnity costs - Application for indemnity costs in circumstances where there were significant deficiencies in respect of statutory demand, a very substantial defect in the affidavit verifying the statutory demand, and a finding that the statutory demand was not a proper use of the statutory demand procedure.
• Legislation Cited: - Civil Procedure Act 2005 (NSW) ss 56, 57,58(1); - Corporations Act 2001 (Cth) Pt 5.4, ss 459G, 459G(3), 459F, 459H, 459J
• Cases Cited: - Beauty Health Group Ltd v Sholl [2011] NSWSC 77; - Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; - Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362; - Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896; - Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; - Scope Data Systems Pty Ltd v Gorman [2007] NSWSC 278; (2007) 70 NSWLR 176; - Steel Building Systems Pty Ltd v Beks Constructions (NSW) Pty Ltd [2010] NSWSC 1405; (2010) 245 FLR 212
• Category: Principal judgment
• Parties: Rite Flow Pty Ltd (Plaintiff); Nahas Constructions (NSW) Pty Ltd (Defendant)
• Representation: Counsel: D. Allen (Plaintiff); Ms Kavaratzis (General Counsel for Defendant); Solicitors: Proctor & Associates (Plaintiff)
• File Number(s): 12/24150

Judgment - ex tempore

1 This proceeding involves an application by the Plaintiff Rite Flow Pty Limited ("Rite Flow") to set aside a statutory demand which was served on it dated 22 December 2011 ("Demand").

Adjournment application

2 The originating process filed by Rite Flow was initially made returnable on 27 February 2012. There was no appearance for the defendant Nahas Constructions (NSW) Pty Limited ("Nahas Constructions") on that occasion. The matter was then listed for hearing before me on 5 March 2012 and there was also no appearance by Nahas Constructions on that occasion. I reserved my judgment, and listed the matter for judgment for 2.00pm on 6 March 2012.

3 I directed Rite Flow to give notice to Nahas Constructions of the fact that the matter had been heard and the fact that judgment would be delivered today to allow Nahas Constructions an opportunity to appear and to make further submissions if it wished to do so. Ms Kavaratzis, who has identified herself as General Counsel of Nahas Constructions, appears and seeks to have the matter adjourned so that Nahas Constructions can brief Senior Counsel to appear.

4 No affidavit evidence has been led before me by way of explanation of Nahas Constructions' failure to appear on the first return date of the Originating Process or when the matter was listed before me for argument yesterday. Ms Kavaratzis has indicated from the bar table that the matter did not come to her personal attention but that provides no explanation of the position taken by others within Nahas Constructions who were aware of service of the Originating Process upon it. Ms Kavaratzis does not contend before me that the Originating Process had not in fact been served upon Nahas Constructions and there is evidence of service of the Originating Process on the registered office of that entity on 24 January 2012.

5 In deciding whether to grant the further adjournment sought by Nahas Constructions, I am required to act in accordance with the dictates of justice under s 58(1) of the Civil Procedure Act 2005 (NSW) and I may have regard to the provisions of s 56 and s 57 of the Civil Procedure Act. Section 56 of the Civil Procedure Act identifies the overriding objective in civil proceedings as to facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings. Section 57 of the Civil Procedure Act in turn refers to the objects of case management including the just determination of the proceedings, the early disposal of the Court's business, the efficient use of available judicial and administrative resources and the timely disposal of the proceedings and all other proceedings before the Court at a cost affordable by the respective parties.

6 I am not satisfied that I should grant the adjournment sought by Nahas Constructions. To do so would leave Rite Flow under continuing threat of a winding up application and would deprive Rite Flow of the determination to which it is entitled, having put submissions before me on an occasion where Nahas Constructions did not choose to attend. It would in my view also be inconsistent with the efficient disposal of the Court's business and the use of judicial and administrative resources and would be inconsistent with the interests of the community in the efficient administration of justice. The costs incurred by the community in the hearing of the matter before me on 5 March would be potentially wasted. Accordingly I decline to grant the adjournment which is sought.

Substantive determination

7 I offered Ms Kavaratzis the opportunity to make further submission in respect of the substantive issues in the proceedings but she has not made such submissions. I will now proceed to deliver judgment in the proceedings.

8 Rite Flow moves to set aside the Demand issued by Nahas Constructions, by Originating Process under ss 459G, 459F and 459J of the Corporations Act. The Demand claims the amount of $336,190.37 which is described in the Schedule to the Demand as "[(c)]osts incurred by the creditor in accordance with the provisions of the subcontract agreement between the creditor and the debtor company dated 23 June 2010" ("Subcontract") and the schedule also refers to a letter and invoice dated 10 November 2011 from Nahas Constructions to Rite Flow. The Demand was supported by an affidavit sworn 22 December 2011 by Mr Youssef Nahas, a director of Nahas Constructions, which states that Nahas Constructions issued the invoices to Rite Flow pursuant to the provisions of the Subcontract. The affidavit does not further identify the relevant provisions of the Subcontract which are said to give rise to the debt.

9 The invoice dated 10 November 2011 identifies a claim pursuant to clauses 16(a) and 26(a) of the Subcontract for "the costs incurred whilst undertaking construction work required to rectify damage caused by Rite Flow." The invoice attaches a schedule of "counter charges" and claims, variation approvals and invoices. The invoice also refers to a claim of $46,200 plus GST as liquidated damages pursuant to clause 28(b) of the Subcontract.

10 Clause 16(a) of the Subcontract relevantly provides that:

"The Subcontractor shall take all necessary steps ... to prevent damage to adjacent works. Should any such damage be caused by the Subcontractor or its employees, agent, or subcontractors, the Subcontractor shall make the same good immediately upon request from the Builder. The Builder may make the same good at the cost of the Subcontractor and such cost shall be a debt due by the Subcontractor to the Builder."

It should be noted that, so far as that clause deems the cost of making good work to be a debt owed by the Subcontractor to the Builder, it is only applicable if it is established, as a matter of fact, that such damage was caused by the Subcontractor or its employees, agents or subcontractors, which is the prerequisite to the application of the clause.

11 Clause 26(a) of the Subcontract provides that:

"Any reference to any costs, expenses or losses recoverable by the Builder from the Subcontractor under the Subcontract shall be deemed to be a debt due and payable by the Subcontractor to the Builder."

That provision also depends upon it being established that an amount is in fact recoverable by the Builder from the Subcontractor under the Subcontract. Clause 28(b) allows a right of set-off as against moneys due to the Subcontractor and a right of recovery against retention moneys for, or security provided by, the Subcontractor. That provision would not support a claim for payment under the Demand.

12 The affidavit sworn by Mr Youssef Nahas in support of the Demand verifies the fact of the Subcontract, the fact that an invoice was issued and the fact that the "debt" claimed was not paid. However, that affidavit is notably silent about the question of how Rite Flow is alleged to have caused the alleged damage, the costs of remedying which are claimed in the invoice.

13 Rite Flow relies on an affidavit of Mr George Karidis sworn 20 January 2012 in support of an application to set aside the Demand. Mr Karidis gives evidence that the Demand, which had been sent by registered post, was collected from the post office on 9 January 2012. That evidence indicates that the Demand could not have been delivered to the registered office of Rite Flow prior to that date, since it was still at the post office on that date, and displaces any operation of a presumption as to delivery which might otherwise arise under s 29 of the of the Interpretation Act 1901 (Cth) or s 160 of the Evidence Act (NSW): see Scope Data Systems Pty Ltd v Gorman [2007] NSWSC 278; (2007) 70 NSWLR 176; Steel Building Systems Pty Ltd v Beks Constructions (NSW) Pty Ltd [2010] NSWSC 1405; (2010) 245 FLR 212. The Originating Process to set aside the Demand was filed and served on 24 January 2012, within the 21 day period specified in s 459G(3) of the Corporations Act on the basis that service of the Demand was effected on 9 January 2012.

14 Mr Karidis gives evidence that Rite Flow did not cause the claimed water damage on which Nahas Constructions relies; refers to amounts due from Nahas Constructions to Rite Flow for plumbing work that had not been paid; and indicates that Rite Flow and its employees did not observe water damage of the kind described by Nahas Constructions in its letter dated 10 November 2011, with one exception which cost approximately $500 to repair. That affidavit also points to mathematical and other errors in the invoice on which Nahas Constructions relied; to advice from a party who is claimed by Nahas Constructions to have remedied the water damage that it did not in fact undertake work rectifying water damage at the relevant premises; and to the absence of identified causes of water damage in the relevant invoices. In summary, Mr Karidis denies that Rite Flow caused the damage and denies the validity of the invoices said to be directed to repairing it. It is difficult to see that he could do more than deny causing that damage where the affidavit verifying the Demand had not identified the basis on which it was said that Rite Flow had caused such damage.

15 The first basis upon which Rite Flow seeks to set aside the Demand is that there is a genuine dispute as to the amount of the Demand. The case law as to the existence of a "genuine dispute" for the purpose of s 459H of the Corporation Act is well-known and the test has been variously formulated as that the dispute is not plainly "vexatious or frivolous" or "may have some substance" or "involves a plausible contention requiring investigation" and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: see, for example, Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362; Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [17]; Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [4].

16 I am satisfied that the evidence led by Mr Karidis that Rite Flow did not cause the claim to damage sufficiently impeaches the basis of the invoices to establish a genuine dispute as to the claimed debt and the Demand should be set aside on that basis.

17 I would also have set aside the Demand under s 459J of the Corporations Act had it been necessary to do so. That section permits the Court to set aside a statutory demand if it is satisfied, inter alia, there is some other reason that the Demand should be set aside. The Court's power under that section exists to maintain the integrity of the process under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229. A statutory demand may be set aside under that section where, inter alia, it involves an abuse of process.

18 I consider that the demand is also liable to be set aside on that basis, since the verifying affidavit failed to verify a critical component of the claimed debt, namely, the fact that Rite Flow was contended to have caused the relevant damage. I also consider that the demand did not relate to a debt, but in substance to an unliquidated claim for damages, and that the statutory demand procedure under the Corporations Act was not properly used in respect of such a claim.

19 An application is made by the Plaintiff for an order for indemnity costs in these proceedings. I have found that there were significant deficiencies in respect of the Demand in that it was not a proper use of the demand procedure and there was a very substantial defect in the affidavit verifying the demand. I have also found that the debt which was the subject of the Demand was genuinely disputed. In these circumstances, it appears to me that the demand ought not to have been served and there is a compelling case for an order for indemnity costs such that the Plaintiff is not disadvantaged by the differential between the cost on a party/party basis and solicitor and client costs so far as an order for indemnity costs can minimise that disadvantage.

20 Accordingly, I order that:

1. The statutory demand dated 22 December 2011 be set aside.

2. The Defendant pay the Plaintiff's costs of the proceedings on an indemnity basis as agreed or as assessed.

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Decision last updated: 30 May 2012