Plaintiff Applies to Set Aside Statutory Demands

Re Life Springs Pty Ltd [2022] VSC 406 (19 July 2022)

The parties entered into a Building Contract. The plaintiff was served by the defendant a demand for claim arising out of a construction project. The Court, in making its orders, assessed whether the demand should be set aside as sought by the plaintiff. 

Facts:

By originating process filed 27 July 2021, the plaintiff, Life Springs Pty Ltd (ACN 164 473 670) (‘Life Springs’) applies to set aside a statutory demand dated 7 July 2021 (‘Demand’) served upon it by the defendant, iDevelopment Group Pty Ltd (ACN 134 745 716) (‘iDevelopment’).  iDevelopment claims that $351,358.17 is owing to it by Life Springs. The schedule to the Demand describes the debt being claimed as follows: Amount owing by the company to the creditor in respect of the HIA Medium Works Commercial Contract dated 28 October 2020 relating to 24 McLean Street, West Brunswick (as particularised in the Letter of Demand forwarded by the creditor to the company dated 26 March 2021 and as further demanded in the letter dated 4 June 2021 to the company from WMB Lawyers).

The Demand was accompanied by an affidavit of Maurice Randello (‘Mr. Randello’), a director of iDevelopment, sworn 7 July 2021, and both those documents were attached to the originating process. The Demand exhibits two letters of demand dated 26 March 2021 and 4 June 2021 referred to in the schedule to the Demand (‘Schedule’) together with a statement on iDevelopment’s stationery dated 26 March 2021 which lists and attaches a copy of each of the tax invoices constituting the claim made in the Demand.  The originating process seeks an order that the Demand be set aside pursuant to ss 459H and 459J of the Corporations Act 2001 (Cth) (‘Act’ or ‘Corporations Act’).  The application has been made within the time specified in s 459G of the Act.

iDevelopment’s claim arises from a construction project at McLean Street in West Brunswick (‘McLean Street Property’).  One of iDevelopment’s projects is at the McLean Street Property. The registered proprietor of the McLean Street Property is 24 McLean Street Pty Ltd (‘McLean Street’).  Mr. Randello, the sole director of iDevelopment, states that in 2020 iDevelopment was in the course of constructing 10 units at the McLean Street Property however a dispute arose between McLean Street and the mortgage lender, Acquisition Partners Pty Ltd (‘Acquisition Partners’) and the development at the McLean Street Property and works came to a halt.

He states that on 22 October 2020, his father informed him that all necessary matters set out in Mr. Judkins’ email of 14 October 2020 had been attended to and that on the same day, iDevelopment and Life Springs executed an agreement titled ‘Project Overview and Agreement’ (‘Project Overview Agreement’). That agreement is concerned with the completion of the construction at the McLean Street Property. Life Springs is described in that document as the ‘Funder’ and ‘Financier.’  iDevelopment continued carrying out building works at the McLean Street Property until the mortgagee, Acquisition Partners, took possession of the property on 4 February 2021.

In its letter of demand, iDevelopment refers to a series of invoices said to be owing by Life Springs under the Contract totalling $351,358.17, the amount claimed in the Demand. On 8 July 2021, iDevelopment’s solicitors served the Demand on Life Springs, together with the affidavit in support of the Demand. In the Further Thompson Affidavit, Mr. Thompson deposes in more elaborate detail than the statutory period affidavit to the grounds he seeks to raise to set aside the Demand. The affidavit purports to ‘expand upon, and set out in more detail, the grounds which, as identified in [the statutory period affidavit], Life Springs has for setting the statutory demand aside.’ 

Issues:

Whether or not the Demand should be set aside.

Applicable law:

Corporations Act 2001 (Cth) s 459G - requires the applicant to file and serve an affidavit ‘supporting’ the application within the ‘statutory period.

Corporations Act 2001 (Cth) s 459H - make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim.  

MKA Bowen v Carelli Constructions [2019] VSC 436 - Digby J held that the service of a progress claim can only be made on or after the relevant ‘reference date.’ 

First State Computing v Kyling [1995] 13 ACLC 939 - Santow J held that where there is held to be a genuine dispute as to whether a portion of the debt is due and payable and where the remaining portion of the demanded debt is greater than the statutory minimum, the Court has a discretion whether to vary the statutory demand or to set it aside in its entirety.  

UGL Process Solutions [2012] NSWSC 1256 - Black J explored the principle further and indicated that there was no requirement that the creditor needed to have known that the demand sum was meritless from the outset and that the amount held not to be due and payable as a proportion of the total demand was relevant to the Court’s discretion. 

Re Wollongong Coal Ltd (2015) ACSR 134 - provides that if the substantiated amount exceeds the statutory minimum, the Court will generally vary the demand pursuant to s 459H(4), unless the demand was so grossly inflated, or comprised matters which were so obviously in dispute, that the service of the demand amounted to an abuse of the regime under Pt 5.4.

Tekno Autosports Pty Ltd v Jenkins [2014] FCA 774 - Gleeson J held that s 459J was available to set aside the demand in circumstances somewhat akin to the present. 

Analysis:

Life Springs contended that, if there is found to be a genuine dispute relating to an amount of just under half of the total amount claimed in the Demand, the entire Demand should be set aside on application of s 459J of the Act rather than be varied in accordance with the regime of s 459H of the Act. There is no requirement to show that iDevelopment was aware that the security costs were not due and payable ‘from the outset’ but there is an additional feature and that is, no response by iDevelopment to Mr. Thompson’s further affidavit detailing why the security and associated security charges were not payable; iDevelopment, despite the opportunity to do so, did not respond to compelling reasons as to why the claims relating to security charges raised by Life Springs had no basis.  

There is also the feature that, as Mr. Thompson observed, no response was forthcoming in respect of the absence of any documentation or information regarding what works were the subject of ‘claim 1’ contained in the first invoice. The Court was left uninformed at the conclusion of the application as to how iDevelopment would have performed construction work to the value of $214,729 over a period of seven working days. 

Here, there was no attempt to meet the evidence in Mr. Thompson’s further affidavit as to the security and associated charges or the claim made in the Demand in the first invoice.

Conclusion:

Orders are made for the the statutory demand dated 7 July 2021 and served on Life Springs by iDevelopment be set aside but before formally doing so the Court will allow the parties to submit short written submissions as to costs.