Carinya Cove Pty Ltd, Re [1998] QSC 54

IN THE SUPREME COURT OF QUEENSLAND No. 2340 of 1998 Brisbane IN THE MATTER OF THE CORPORA TIONS LAW -and- IN THE MATTER OF CARINYA COVE PTY LTD (ACN 064186 090) No. 2341 of 1998 IN THE MATTER OF THE CORPORATIONS LAW -and- IN THE MATTER OF CARINYA COVE PTY LTD (ACN 064186 090) REASONS FOR JUDGMENT - CHESTERMAN J. Judgment Delivered 3 April 1998 CATCHWORDS: Statutory Demand - s 459H Corporations Law - offsetting claim Counsel: RA. Perry for the applicant T.P. Sullivan for the respondent Solicitors: Hill & Taylor for the applicant Minter Ellison for the respondent Hearing Date: 27 March 1998 -- 1 of 13 -- I! , IN THE SUPREME COURT OF QUEENSLAND No. 2340 of 1998 Brisbane IN THE MATTER OF THE CORPORATIONS LAW -and- IN THE MATTER OF CARINYA COVE PTY LTD (ACN 064186 090) No. 2341 of 1998 IN THE MATTER OF THE CORPORATIONS LAW -and- IN THE MATTER OF CARINYA COVE PTY LTD (ACN 064186 090) REASONS FOR JUDGMENT - CHESTERMAN J. Judgment Delivered 3 April 1998 By these applications Carinya Cove Pty Ltd ("Carinya") seeks orders from the Court setting aside two statutory demands each dated 16 February, 1998 by which Nyholt Constructions PtyLtd (,'Nyholt") demanded payment of$28,232.85 and $2,115.00 respectively. Carinya was the principal and Nyholt the contractor pursuant to a contract made in or about November 1996 by which Nyholt agreed to carry out earthworks and roadworks for what was called Tee Trees Estate Stage 3, a residential subdivision being developed by Carinya at the northern end of the Gold Coast. -- 2 of 13 -- 2 The amounts demanded are the subject of certificates for payment issued by the superintendent appointed under the contract. One certificate is for money due as a progress payment. The other is for the release of retention money. This certificate is discussed more fully later in these reasons. Carinya denies that it owes either amount of money to Nyholt. The basis for its denial is that it has an offsetting claim against Nyholt for an amount of $42,889.62 which, of course, exceeds the aggregate of Ny holt's two claims. Section 459G(I) provides that a company may apply to the Court for an order setting aside a statutory demand served on it. Section 459H(l) provides, "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." Section 459H(5) defines "offsetting claim" to mean, ".. a genuine claim that the company has against the respondent by way of counter- claim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)." The role of the Court in applications under section 459G is, I think, well settled. As Thomas J explained in re Morris Catering (Aust) Pty Ltd 1993 11 ACSR 601 at 605 the sections reqUIre " ... 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 off-' setting 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". -- 3 of 13 -- In Eyota Pty Ltd v. Hanave Pty Ltd 1994 12 ACSR 785 at 787 McClelland CJ in Eq. said of the expression "genuine dispute", "In my opinion that expression connotes a plausible contention requmng 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 and 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" ... 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". Applying this principle I turn to consider whether the evidence establishes that Carinya has an arguable claim which therefore becomes "genuine" for the purposes of section 459H or whether its claim is "mere assertion". What evidentiary basis there is for the off-setting claim appears in paragraph 12 of Mr Ingles' affidavit. He says: "(a) As part of the works to be performed in the contract, Nyholt was required to remove unsuitable material excavated from the Stage 3 land and place it on land not forming part of State 3, but part of the overall Tee Trees Estate which was designated for a future golf course ... (b) In breach of the contractor's obligations, Nyholt placed the unsuitable material not on the land designated by Carinya, but on residential land which was being developed by another company within The Ingles Group, Ingles Corporation Pty Ltd. This land was Stage 6 of the Tee Trees development. (c) To develop the Stage 6 land, Ingles Corporation Pty Ltd had entered into a contract for the performance of earth works on that land with Golding Contractors Pty Ltd with the Superintendent under that contract being Kinhills. (d) The placement of the unsuitable fill material in an uncontrolled manner on Stage 6 resulted in Golding Contractors Pty Ltd claiming a variation under their contract and Kinhills claiming extra costs associated with the extra work. (e) Further under the contract, Nyholt were obliged to place certain fill on Lot 224 which is land immediately adjacent to Stage 3 land of the Tee Trees Estate and to compact that fill. In breach of their obligations under the contract, Nyholt failed to compact the fill on Lot 224 and left the fill material in an uncontrolled state. -- 4 of 13 -- 4. (t) Again, this breach by Nyholt resulted in extra work having to be performed by Golding Contractors Pty Ltd under its contract with Ingles Corporation Pty Ltd. (g) The extra costs incurred in respect of the contract between Golding Pty Ltd and Ingles Corporation Pty Ltd totalled $42,889.62." ... The second aspect relied upon by Carinya as establishing a basis for its offsetting claim may be dealt with briefly. Mr Ingles asserts that it was a term of the contract that Nyholt was obliged to place fill on Lot 224 and to compact it. It is accepted by Nyholt that it filled and compacted certain lots up to the boundary of those lots with Lot 224 but that it did not fill onto Lot 224 more than was necessary to preserve the compaction on the adjoining land. That is to say, Nyholt accepts that it did not compact fill on Lot 224 beyond a minimal amount. Its point is that the contract did not oblige it to do so. Counsel for Carinya did not point to any term of the contract or the specification which did require Nyholt to "place certain fill on Lot 224 ... and to compact that fill". It seems to me this part of Carinya's offsetting claim has not been shown to be genuine. If there were a contractual provision which Nyholt breached it should have been relatively easy for Carinya to identify it. The first basis for the offsetting claim is that Nyholt placed spoil removed from Stage 3 "not on the land designated by Carinya but on residential land which was being developed by another company .. Ingles Corporation Pty Ltd". The claim is said to arise because to develop that land Ingles Corporation Pty Ltd had to pay additional monies to the contractor who was developing it to remove or otherwise treat the spoil. Counsel for Nyholt has two answers. The first is that, accepting it is correct that the spoil was incorrectly dumped on land owned by Ingles Corporation Pty Ltd and not where Carinya directed it to be placed, no loss has been incurred by Carinya. This for the reason that as between Carinya and Nyholt the latter was an independent contractor and Ingles Corporation Pty Ltd cannot make Carinya liable for Nyholt's -- 5 of 13 -- negligence or acts of trespass in depositing the spoil on its land. It is to be noted that, as far as the material reveals, Ingles Corporation Pty Ltd has not made any claim against Nyholt for its acts in dumping the spoil on Stage 6. Accepting that Ingles Corporation Pty Ltd has been put to extra expense by having to pay its contractor additional monies there is no legal basis by which Carinya can be made liable for that expense. The companies are related and the directors of Carinya may choose to pay the amount claimed by Ingles Corporation Pty Ltd but that is clearly insufficient to make Nyholt liable to Carinya. The second answer is that there is no sufficient evidentiary basis for the claim and it, to, is in the category of "mere assertion". Mr Sullivan points to a fax from Mr Williamson, an officer of the Superintendent, to Mrs Sims-Grant, a director ofCarinya, on 29 November 1996 which advised that Nyholt intended to start earthworks on Stage 3 within a few days. The fax went on to record that Nyholt wished to be told the location where it was to place spoil removed from the development. By fax of the same day, Mrs Sims-Grant advised Carinya's surveyors of the approximate location where the spoil was to be stockpiled and instructed them: "We need an area for approximately 15,000 cubic metres and as advised, your guys will be out on site at 8 a.m. 22nd December 1996 to peg the area. Make sure they show Tony Sinni (project manager Nyholts) where it is". Mr Sinni has deposed that he was on site when the surveyors came "and put the pegs marking the location where the excavated material was to be dumped .. the surveyors .. putting in the pegs and one of the surveyors came and saw me and took me to the back area and showed me where the pegs were located and instructed me that the material had to be dumped inside the boundary area. It was very easy to determine where the pegs were located ... As site foreman I ensured that all material was dumped within the pegs. " Mr Sinni also deposes that on two occasions Mrs Sims-Grant came to the estate and spoke -- 6 of 13 -- to him when he was no more than 30 metres from the dump area indicated by the surveyor's pegs. At the time some material was already stockpiled and trucks were delivering more. Carinya did not adduce evidence from the surveyors nor from Mrs Sims-Grant. The question whether the spoil was dumped in the right place was first raised about a year after the work was done. In its correspondence Carinya did not assert any facts supportive of its present claim. By letter of 19 December, 1997 Carinya's construction manager wrote to the superintendent and asked it to advise "what knowledge you have of the circumstances which lead to the placement of this fill and what directions were given to the contractor regarding disposal of unsuitabies". The superintendent replied by letter of 14 January, 1998 that the disposal of all unsuitable material was placed in the designated spoil area. Mr Ingles takes issue with the superintendent's reply. He said (para 14) "I strongly dispute the contents of the letter of (the superintendent) dated 14 January, 1998. The letter does not address what instructions, ifany, were given to the contractor and makes certain assumptions about the uncontrolled fill which are not substantiated and are at odds with the geo-technical report of Coffey Partners who undertook certain tests in respect of the land. " Whether or not the letter addressed the instructions given to Nyholt, Mr Sinni's affidavit certainly does and, as I said, his evidence is not contested. Nor did Counsel for Carinya identify the assumptions which were not substantiated and which were at odds with the geo-technical report. It may be right that the Court is concerned only to determine whether there is a genuine dispute and not to determine that dispute but when the task confronting the applicant is to demonstrate that its claim is arguable and is not mere assertion it is not enough, in my view, to make vague references to "certain assumptions" which are "not substantiated" and are contradictory to a "geo-technical" report by an engineer "who undertook certain tests in respect of the land". The contents of paragraph 14 appear to me to lack precision and sufficient plausibility to give rise to a finding that there is a genuine claim. Ifthere were any substance to its assertion, one would expect the assumptions to be identified and the grounds of criticism of' -- 7 of 13 -- 1, those assumptions explained. There was no such attempt. I accept the submissions of Counsel for Nyholt that, for the two reasons given, Carinya has not satisfied me that it has an offsetting claim. This is sufficient to dispose of both applications because the same offsetting claim is relied upon as an answer to both demands. Application 2340 raises, in addition, a different point with which I should deal. Clause 5.1 of the General Conditions of Contract provide that security, retention monies and performance undertakings are for the purpose of ensuring the due and proper performance of the contract. Clause 5.6 provides "The contractor shall be at liberty at any time to provide in lieu of retention monies, security in any of the forms permitted in Clause 5.3. To the extent that such security is provided, the principal shall not deduct retention monies and shall forthwith release retention monies. " Clause 5.3 provides that security shall be in the form of cash, bonds or inscribed stock issued by the Australian Government or an approved unconditional undertaking given by an approved financial institution. Carinya has withheld retention monies amounting to the sum of $28,232. 85. This sum is the subj ect of one of the demands. NyhoIt wish to take advantage of Clause 5.6 and obtained from its bank, Australia and New Zealand Banking Group Limited an unconditional bank guarantee in the usual form by which the bank agreed to pay to Carinya, on demand, and unconditionally, any sum not exceeding $28,232.85. By letter dated 16 December, 1997 from Nyholt to Carinya, NyhoIt advised of its wish to exercise its right given by Clause 5.6 and attached a copy of the bank guarantee. There is no suggestion that the bank is not an approved financial institution nor that the guarantee is unacceptable in its terms. Carinya's response, by letter of 22nd December 1997 was to say that the request should "more properly" be addressed to the superintendent who "will -- 8 of 13 -- advise accordingly." I do not understand why that course was thought to be appropriate. In the event Carinya did not take delivery of the original guarantee nor did it pay the retention monies to Nyholt. However, on 13 January 1998 the superintendent wrote to Carinya's construction manager saymg "We have received a request from NyhoIt .. to substitute a bank guarantee to the value of$28,232.85 for the cash retention of the same value held as security ... We have therefore prepared payment certificate number 8 on the basis of this substitution with a payment of $28,232.85 due to Nyholt Constructions ... Nyholt Constructions have supplied a copy of their bank guarantee and can present the original document on the receipt of payment number 8". Enclosed with the letter was certificate number 8 in these terms:- CERTIFICATE FOR PAYMENT Project: Principal: Contractor: Contract Sum Plus P. C. Items Plus Extras Less Deductions Variations in Quantities Sub Total Total Rise and Fall Arundel Estate - Stage 3 The Ingles Group Pty Ltd PO Box 558 SURFERS PARADISE QLD 4217 NyhoIt Constructions Pty Ltd $1 129314.50 $ 6523.00 $ 70671.00 $ 60273.00 $ 31 338.00 $ 62547.00 $1 177 573.50 Not applicable Contract No: GOOO 11-1 04 Job No: GOOOll1.603 Certificate No: 8 Period: Dec '97 Prepared: GJW Total Value of $1 129023.50 Work Completed Less Security Bank Guarantee 2.5% Total Value $1 129023.50 Less Amount $1 100790.65 Previously Certified -- 9 of 13 -- Adjustments to Date (add) Contract Value $1 177 573.50 Amount Certified $ 28232.85 We certifY that Nyholt Constructions is entitled to receive payment of Twenty-Eight Thousand, Two Hundred and Thirty-Two Dollars and Eighty-Five cents ($28,232.85) from The Ingles Group Pty Ltd. ______(Date 13/1/98) SINCLAIR KNIGHT IvIERZ PTY LTD A. C.N. 001 024 095 The applicant submits that the superintendent in issuing certificate number 8 has misconceived his role as certifier and the basis on which the retention monies might be paid upon provision of a bank guarantee. As to the former the applicant refers to Clause 42.1 of the General Conditions of Contract. It provides that at the times for payments stated in the annexure to the Contract the contractor shall deliver to the superintendent claims for payment supported by evidence of the amount due to the contractor including the value of the work carried out by the contractor to that time. The clause goes on to provide that within 14 days of receipt of a claim for payment the superintendent is to issue to the principal and to the contractor a payment certificate stating the amount of the payment which, in the superintendent's opinion, is to be made by the principal. The principal is obliged to pay an amount not less than that shown in the certificate within 14 days of its issue. The applicant points out that the substitution of a bank guarantee for retention monies is not a claim for payment within Clause 42 and is not something in respect of which the" superintendent may certify that monies should be paid by the principal to the contractor. This seems to be clearly right. The second point taken by the applicant is that Clause 5.6 which requires Carinya forthwith to "release retention monies" is said to give rise not to an obligation to pay money which could be enforced by an action on the common count but an -- 10 of 13 -- obligation to release the retention monies which can be enforced only by an action for specific performance. I cannot accept this argument. It seems to me that when Clause 5.6 talks of releasing retention monies, it means only that upon provision of one of the specified alternative forms of security the principal, Carinya, is to pay the retention monies it holds as security to the contractor. "Release retention monies" means simply "pay them". I am reinforced in this view by Clause 42.8 which defines the respective rights and obligations of the parties upon issue of the final certificate. The concluding phrase is: "Within 14 days after the issue of a final certificate which certifies a balance owing by the principal to the contractor, the principal shall release to the contractor any retention monies or security than held by the principle". The word "release" is meant to cover the alternative eventualities depending upon whether the contractor has provided security in an approved form or suffered the principal to withhold retention monies. Clause 42.8 applies indifferently to both possibilities. Upon the issue of the final certificate the principle is to surrender the security or pay the retention monies. In this context "release .. any retention monies .. " can only mean pay them. It follows, in my view, that Clause 5.6 obliges the principal, Carinya, to pay the retention monies to Nyholt upon provision of the bank guarantee. I think that condition precedent has been fulfilled. Nyholt has procured the guarantee from the bank and offered it to Carinya. I think this is sufficient to constitute "providing" the security. Carinya can scarcely be heard to argue that the guarantee has not been provided only because it refused to take it. The result is that Carinya is in default of its obligation to pay the retention monies to Nyholt. The latter was, it seems to me, entitled to demand payment. Carinya raises two more points. It submits that no retention monies were held because Carinya was entitled to, and had, applied those monies in partial satisfaction of its offsetting claim which arose from the misplaced stockpiling of spoil. I have dealt with this matter already and -- 11 of 13 -- II. conclude no such claim has been made out. There is, in addition, another answer. The right to set off a counter-veiling claim against the obligation to pay retention money, expressly provided for in the contract in Clause 42.10, arises at the time when the contractor makes it final claim for payment and the superintendent issues the final certificate. This is when the parties reckon to whom a balance is due and the amount of the balance. The payment of retention monies provided for in Clause 5.6 occurs earlier. The payment of those monies is not in satisfaction of a final balance due but a payment as part of the process of substituting one form of security for another. It seems to me that no right of set off exists in respect of that transaction. The last point taken by the applicant is that the statutory demand being based upon the misconception that the superintendent could certifY that the retention monies should be paid is of no effect and ought to be set aside. The statutory demand claims $28,232.85 (being the amount of the debt described in the schedule). The schedule refers to "certificate for payment number 8 issued by the superintendent". The certificate is, as I have indicated, misconceived. Nyholt's answer is that the reference to the certificate and the misconception on which the certificate is predicated is a defect in the demand which has not caused substantial injustice. Section 459J provides that "(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect. II Defect relevantly includes (a) an irregularity; and (b) a misstatement of an amount or total; and -- 12 of 13 -- (c) a misdescription of a debt or other matter; and (d) a misdescription of a person or entity. See Section 9 of the Corporations Law. The explanation in the statutory demand that the debt was due pursuant to certificate number 8 appears to me to be a misdescription of the debt or the basis for it. It is therefore a defect as defined. I have no doubt that the proper construction of section 459J is that a statutory demand may be set aside on the ground of a defect only if the defective demand will cause substantial injustice unless set aside. I appreciate the judicial controversy concerning the section (see Australian Corporations and Securities Law Reporter Vol. 2 para 141-240) but the construction I have mentioned seems to me the only sensible one. Will the demand cause substantial injustice if not set aside? The defect is to ascribe the obligation to pay the monies demanded to the certificate rather than the operation of Clause 5.6 of the General Conditions. When the demand was issued, Carinya was (and still is) indebted to Nyholt for the precise amount demanded. The letter which enclosed certificate number 8 explained the correct basis for Carinya's obligation to pay the retention monies to Nyholt. The only error was in ascribing the obligation to the operation of a certificate issued pursuant to Clause 42 rather than the operation of Clause 5.6 itself In these circumstances I cannot see that an injustice, let alone a substantial one, will be cause if the demand is not set aside. The applicant's material refers to an assignment ofa debt of$5,000. This point was not the subject of argument before me and I do not take it into account. The orders which I make are that applications 2340 and 2341 be dismissed with costs to be taxed. -- 13 of 13 --