Case: Demir Proprietary Limited v Graf Plumbing Proprietary Limited (2004) NSWSC 553
Outcome: followed
client's rights in relation to the Contract (which are maintained under s 100 of the Building and Construction Industry Payments Act 2004 (Qld)) constitutes sufficient "other reason" within the meaning of s 459J of the Corporations Act 2001 (Cth) for the demand to be set aside. The letter sought a response by 4 pm on 25 May 2009. There was a prompt response by Winchester Young &amp; Maddern to Cooper Grace Ward on 25 May 2009: The Adjudication decision was made on 11 March 2009. In this decision, the Adjudicator took into account the payment by your client of $35,279.50 on 8 January 2008 and the depositing of $53,548.11 into our trust account on 23 January 2008. The Adjudicator stated that he was not aware of the status of these sums of money and would go on to set out what he found due under the payment claim and leave it to the parties and their solicitors to decide how payment was to be made. Our client acknowledges the receipt of $27,782.40 paid to our clients prior to the lodgement of Adjudication Application 10 which was lodged on 26 February 2009 and the decision made on 11 March 2009. Our client had returned the sum of $25,765.71 being the balance of $53,548.11, to your client on 20 February 2009. In its Adjudication Application our clients acknowledged and deducted the sum o f$27,782.40 from its claim. At paragraph 64 of the adjudication decision, the adjudicator has set out the amounts he has found due and which the parties acknowledge with costs and interest to be $68,050.62. As your client has paid $40,286.22 the balance of $27,782.40 remains owing and our client seeks the payment of these monies. Our client will not withdraw the statutory Demand. In relation to your client's alleged (unliquidated) offsetting claim, we are instructed that our client disputes that the Contract was properly terminated and further instructs that our client has an equal, if not greater counterclaim against your client. Be that as it may, our client's position is that your client's offsetting claim does not diminish your client's liability under the Adjudication Certificate and our client will not withdraw the Statutory Demand unless balance monies owing under the Certificate are paid. We await your client's response. There was a further letter then in response, sent the following day on behalf of Tesoro by Cooper Grace Ward: We are seeking instructions to apply to set aside the demand. We put you on notice that if we receive those instructions we will be making the application without any further reference to you. To avoid any argument that our client has not made its position completely clear, we respectfully note that the following points in response to your letter: We do not necessarily admit that our client's claim would be unliquidated. However, the point is irrelevant because "offsetting claims" for the purposes of s 459H can include claims for unliquidated amounts, particularly where there is evidence to substantiate the quantum of the claim in relation to the amount claimed in the statutory demand: see, eg Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at [18] . The fact that your client claims to have "an equal, if not greater counterclaim against [our] client" is also irrelevant: (a) Section 459H(3) requires a consideration of whether the "substantiated amount" is below the prescribed minimum. (b) The "substantiated amount" equals the "admitted amount" minus the "offsetting total": s 459H(2). (c) The "admitted amount" here would be nil. We respectfully refer you to the various decisions which have held that a company can rely upon disputes in relation to a construction contract to offset a purported statutory demand based on a decision under the Building and Construction Industry Payments Act , including Max Cooper &amp; Sons (Builders) Pty Ltd v M&amp;E Booth &amp; Sons Pty Ltd (2003) 212 ALR 680; Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553 at [15] - [22] ; Ozy Homewares Pty Limited v Wesgordon Pty Limited (2007) 25 ACLC 1 ,239. (d) However, for the purposes of discussing the irrelevance of your client's alleged counterclaim, we will assume that the Court does not accept that there is a genuine dispute about the amount outstanding in relation to the judgment certificate (ie that the "admitted amount" is $27,782.40). (e) The "offsetting total" is the total of any "offsetting claims": s 459H(2). An "offsetting claim: is a "genuine claim" that the company has against the respondent: s 459H(5). The genuineness of our client's claim is shown by the various correspondence exchanged in relation to the BCIP application, and by the expert reports referred to in our letter of 22 May 2009. (f) Therefore, even if your client did have a counterclaim which exceeded our client's offsetting claim (which is denied), and even if our client could not challenge the Adjudication Certificate, any alleged counterclaim by your client would be irrelevant because such counterclaim is not taken into account in calculating the "substantiated amount" for the purposes of s 459H. (g) Applying the substantiated amount formula referred to in sub-paragraph (b) above, the "substantiated amount" is the result of deducting the "offsetting total" (in the order of the $150,000) from the "admitted amount" (on the assumption set out in sub-paragraph (d) above, being $27,782.40). For those reasons, we maintain that your client has no legal basis to rely upon the demand. We will be relying upon this letter to make a submission that our client should have indemnity costs because your client's refusal to withdraw the demand was in wilful disregard of clearly established law and because your client's position is doomed to fail. We against request the trust account statement as requested in letter of 22 May 2009. It suffices to note that after this exchange of correspondence there was some further correspondence by Cooper Grace Ward that in the absence of any withdrawal of the demand, Tesoro was proceeding on the basis of having to institute proceedings for the setting aside of the demand. Those proceedings then were instituted, the application for the setting aside of the demand being accompanied by a comprehensive affidavit sworn by Benjamin Stephen Maggiolo, also filed on 11 June 2009. As it happens, after the application had been filed, further correspondence between the parties transpired. In particular, in a letter dated 24 June 2009 sent by Winchester Young &amp; Maddern to Cooper Grace Ward, the following statement is made: Our client has instructed us to withdraw the statutory demand, and accordingly we hereby withdraw the statutory demand. In relation to the application, ie, the application to set aside the statutory demand, our client instructs us to propose that, "(a) Our client undertake to the court to institute proceedings in respect to the termination of the contract within 21 days after 26 June 2009; (b) the costs of the application be the costs in the cause of those proceedings; (c) the application be dismissed on commencement of the proceedings by our client." There was some concern on behalf of Tesoro by its solicitors about whether, having regard to the terms of that letter, there was an unequivocal or unconditional withdrawal of the statutory demand. It is perhaps moot whether that concern was necessary and in any event there can be no doubt now, having regard to the statement made in open court, that the statutory demand has been withdrawn and hence no longer exists. Of those New South Wales authorities it suffices, for present purposes, to refer to but one, namely, Demir Proprietary Limited v Graf Plumbing Proprietary Limited (2004) NSWSC 553 at [20] where Campbell J stated: Next, it was submitted that, if it were possible to rely upon an offsetting claim to set aside a statutory demand, the object of the [analogous New South Wales Act] would not be achieved. I do not accept that this is so. There are means of enforcement, short of a winding up action, which are open to a judgment creditor. When a judgment has been obtained pursuant to the analogous New South Wales Act, if the judgment debtor does not pay it voluntarily, then the judgment creditor can use the range of remedies open to a judgment creditor. It is not possible, however, for the terms of the Commonwealth Act, the Corporations Act 2001 (Cth) to be construed, or limited, by reference to the intention implicit in a State Act. The provisions of Div 3 of Pt 5.4 of the Corporations Act 2001 (Cth) set out a regime whereby a statutory demand to set aside whenever there is an offsetting claim, as defined. In the correspondence directed to Total Building Group by its solicitors, Tesoro, by its solicitors, at some length made reference to the New South Wales authorities. It further set out in a considered way why it was that Total Building Group ought not to resist the setting aside of the statutory demand or, at least, ought to withdraw it. In the face of that correspondence, the response made on behalf of Total Building Group was to assert or at least put in dispute that the underlying building contract was properly terminated and further to relay instructions that Total Building Group had an equal if not greater counterclaim against Tesoro. The latter phraseology in particular was, in my opinion, or at least ought to have been, pregnant with a realisation that the pressing further of the statutory demand was futile.