Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd

1. [1]

   BELL P:

Introduction

1. [2]

   This is an application for leave to appeal from a decision of Parker J, a judge of the Equity Division, and reported at [2018] NSWSC 1647, dismissing the application of Grandview Ausbuilder Pty Ltd (Grandview) to set aside a creditor’s statutory demand under s 459G of the Corporations Act 2001 (Cth) (the Corporations Act).

2. [3]

   The statutory demand arose from the failure of Grandview to pay two progress claims issued by the respondent, Budget Demolitions Pty Ltd (Budget), in November and December 2017 in the combined sum of $1,024,573.36 (the November and December Payment Claims).

3. [4]

   Grandview and Budget were parties to a sub-contract (the Sub-Contract) for demolition and construction work at a development at Villawood. The Sub-Contract was subject to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). As a result of the operation of the SOP Act (in light of Grandview’s service of a payment schedule providing for payment of the full amount of the November 2017 Payment Claim and its failure to respond within the 10 business day period specified in s 14(4) of the SOP Act, with respect to the December 2017 Payment Claim), it was not in dispute that Grandview was, as at 31 January 2018, indebted to Budget in the amounts specified in the November and December Payment Claims. No judgment or judgments in the combined or several sums of the November and December Payment Claims was or were obtained by Budget against Grandview although it would have been open to Budget to do so: see SOP Act, s 15(2)(a)(i)).

4. [5]

   The primary judge accepted that the observations of Brereton J (as he then was) in In the matter of Douglas Aerospace Pty Ltd [2015] NSWSC 167 (Douglas), applying the decision of the Western Australian Court of Appeal in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 (Diploma) concerning the inability to raise a “genuine dispute” in relation to a judgment debt obtained under the SOP Act, apply equally to a debt that arises because the payment claim is accepted by the issue of a payment schedule or is not disputed within the period allowed by the SOP Act: see [2018] NSWSC 1647 at [11]. That is to say, his Honour accepted that no relevant differentiation was to be made in this context between a judgment debt and a statutory debt.

5. [6]

   The principles associated with Douglas and Diploma and applied by the primary judge do not, however, prevent a party in receipt of a statutory demand based on either a judgment obtained or an accepted or unchallenged claim under the SOP Act from raising offsetting claims: see Douglas at [93]; see also Re J Group Constructions Pty Ltd [2015] NSWSC 1607; 303 FLR 139. An offsetting claim is one that is defined in s 459H(5) of the Corporations Act as meaning:

6. [7]

   At first instance, Grandview identified three alleged offsetting claims (the Offsetting Claims) which it maintained warranted the setting aside of the statutory demand. These can be described as:

   1. (1)

      the Liquidated Damages Claim (dealt with in the judgment below at [17]-[25] and said by Grandview to be valued at $330,000);

   2. (2)

      the Milestone Damages Claim (dealt with in the judgment below at [26]-[29] and said by Grandview to be valued at $3.816 million); and

   3. (3)

      the Loss of Bargain Damages Claim (dealt with in the judgment below at [30]-[54] and described there as the “cost to complete works claim” and said by Grandview to be valued at approximately $1.1 million).

7. [8]

   The establishment of an offsetting claim for the purposes of s 459H does not, of course, constitute a finding that the claim is a good one, or that it has been made out. It represents nothing more than a finding that there is a serious question as to the existence of an offsetting claim or an issue deserving of a hearing as to whether the company has such a claim against the creditor and that a claim is made in good faith and is arguable and not frivolous or vexatious: Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451 at 460, 467 per Beazley J (as her Honour then was); In the matter of Oztec Pty Ltd [2012] NSWSC 1234 at [22] per Black J, and see further at [62]-[65] below.

8. [9]

   The primary judge accepted that Grandview had established an offsetting claim in the sum of $220,000 for the purposes of s 459H(1)(b) of the Corporations Act in respect of the Liquidated Damages Claim. That finding is not challenged in these proceedings by Budget. (Nor is there any challenge by Grandview to the primary judge’s reduction of the arguable value of that claim from $330,000 to $220,000). This figure was calculated at the rate of $4,000 per day following the failure of Budget to reach practical completion by 12 December 2017, as provided for by 30(a)(i) of the Sub-Contract.

9. [10]

   The primary judge held, however, that neither the “Milestone Damages Claim” nor the “Loss of Bargain Damages Claim” had been established to the requisite level of satisfaction required (see [8] above) or at all.

10. [11]

    Because the primary judge found that the Liquidated Damages Claim was a “potentially viable claim” worth up to, but no more than, $220,000 and because he eschewed any preliminary analysis of the true quantum of the claim, at [71] of his reasons, he indicated a preparedness to reduce the amount of the statutory demand by $220,000 but only on condition that:

11. [12]

    Grandview seeks to challenge the primary judge’s conclusions that neither the Milestone Damages Claim nor the Loss of Bargain Damages Claim was available to it as an offsetting claim within the meaning of s 459H(1)(b) of the Corporations Act.

Relevant Background

1. [13]

   The Sub-Contract was entered into in June 2017 with work beginning that month. The contract price was $2,314,581 plus GST and the scheduled practical completion date was 12 December 2017. There was a later upward variation of this contract price.

2. [14]

   Between July and October 2017, Budget made some four progress claims resulting in payment to it by Grandview of approximately $1.2 million.

3. [15]

   On 21 November 2017, Budget made a progress claim in the sum of $498,528.10. A month later, on 21 December 2017, a further progress claim was made in the sum of $526,045.26. It is these two claims which, together, comprised the subject of the statutory demand for $1,024,573.36.

4. [16]

   12 December 2017 was, as has already been observed, the contractually specified date for practical completion. As at that date, the work remained incomplete but Grandview did not take any step under the Sub-Contract to issue a Show Cause Notice or otherwise to terminate the Sub-Contract.

5. [17]

   On 20 December 2017, Mr Peter Liu of Grandview wrote to Mr Sam Habib (Mr Habib) of Budget in the following terms:

6. [18]

   Notwithstanding the communication of 20 December 2017, Budget sought to resume work on 3 January 2018 but, on 4 January 2018, as the primary judge recounted at [6]:

7. [19]

   The statutory demand was issued on 31 January 2018. On the same day, Budget gave Grandview notice of suspension of works pursuant to the SOP Act on the ground of Grandview’s failure to pay the November 2017 Payment Claim in the following terms:

8. [20]

   It may be noted that s 27 of the SOP Act relevantly provides that:

9. [21]

   Section 15 of the SOP Act, referred to in s 27(1) and entitled “Consequences of not paying claimant where no payment schedule”, provides that:

10. [22]

    On the afternoon of 1 February 2018, and contrary to the communication of 20 December 2017 noted above, Grandview informed Budget that “Villawood site work will not resum[e] on Monday 05 Feb 2018 until further notice from us.”. That communication elicited the following response from Budget on the morning of 5 February 2018:

11. [23]

    The following day, Mr Jason Zhang (Mr Zhang) of Grandview wrote to Mr Habib of Budget in the following terms:

12. [24]

    On 15 February 2018, Grandview proposed a payment plan of $150,000 per month in respect of the November and December Payment Claims on condition that Budget withdraw its statutory demand.

13. [25]

    Grandview filed its application to set aside the statutory demand on 20 February 2018 within the statutorily specified time (together with an affidavit in support of one of its directors, Mr Zhang), the payment plan offer of 15 February 2018 not having been taken up by Budget. The filing of such an affidavit is, of course, required by s 459G(3) of the Corporations Act. That affidavit included the following:

14. [26]

    The statement made in para 29 of the Affidavit overlooked the fact that Budget had been prevented from working and indeed was warned off the site on 3 January 2018 and the site remained closed, initially until 4 February 2018 and, as per the 1 February 2018 communication from Grandview to Budget, indefinitely. It also overlooked the fact that Budget had triggered a statutory suspension of its contractual obligations pursuant to ss 15 and 27 of the SOP Act on 31 January 2018.

15. [27]

    The statement made in para 29 of Mr Zhang’s Affidavit was also prospective in that Grandview had not purported to terminate the Sub-Contract as at the date of the Affidavit. As will be seen, it did not purport to do so until 9 April 2018.

16. [28]

    On 2 March 2018, Grandview served Budget with a notice requiring it to show cause pursuant to cl 40 of the Sub-Contract as to why it should not exercise its rights and terminate the contract.

17. [29]

    On 9 April 2018, Grandview purported to terminate the Sub-Contract. The Termination Notice was in the following terms:

18. [30]

    By letter dated 19 April 2018, solicitors for Budget wrote to Grandview’s solicitors in the following terms:

19. [31]

    Subsequent to that correspondence, the parties filed extensive further evidence, including expert evidence, in relation to the application to set aside the statutory demand with the consequence that it did not come on for hearing before the primary judge until 24 October 2018.

The Milestone Damages Claim

1. [32]

   At [26]-[29] of his reasons, the primary judge said the following:

2. [33]

   The primary judge’s reference in [28] of his judgment as extracted above to Item 15(b) was a reference to Item 15 of Annexure A to the Sub-Contract which set out Sub-Contact Particulars. Item 15 was expressed in these terms:

3. [34]

   Clauses 30(a) and (b) of the Sub-Contract referred to in Item 15 and entitled “Delay to Completion” were in these terms:

4. [35]

   Item 12 of Annexure A, headed “Milestone Completion Dates Clause 1(a)”, provided as follows:

5. [36]

   There was, of course, no rate stated in Item 15(b) of Annexure A by which to calculate liquidated damages. The “attached construction programme” referred to in Item 12 of Annexure A (and which formed Annexure E to the Sub-Contract) set out a series of tasks and dates, but the code or key subscribed to the programme did not suggest, with one exception, that any of these dates were “milestone completion dates”. This presented an insuperable obstacle to an alternative argument advanced by Grandview on appeal and which is addressed in paragraphs [41]-[44] below.

6. [37]

   The primary judge’s finding in relation to the Milestone Damages Claim is the subject of Grandview’s third ground of appeal which was expressed in language of considerable generality. The generality with which that ground was expressed was barely advanced or developed in written submissions which seemed to accept both the necessity for rectification of Annexure A of the Sub-Contract in order to establish a foundation for the calculation of the asserted Milestone Damages Claim and that rectification had not been identified as a necessary pre-requisite for the Milestone Damages Claim in either the statutory affidavit or any other subsequently filed evidence. It was contended that the necessary first step of rectification did not amount to a “new ground” in accordance with the so-called Graywinter principle (see Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (Graywinter)), but was simply a means to present a claim that had been articulated in the s 459G Affidavit.

7. [38]

   Whether that is so or not does not need to be decided in circumstances where no evidentiary foundation whatsoever was laid to make out that there was a genuine or arguable case for rectification. That having been said, in my opinion, the primary judge was correct in his application of the so-called Graywinter principle which built upon the terms of Order 71, r 36B of the, now repealed, Federal Court Rules 1979 (Cth) and which provided that the affidavit accompanying an application under s 459G must both “stat[e] any material facts relied upon by the applicant in support of the application” and “identif[y] the grounds on which it is said that the Court should make the order under section 459H or 459J” of the legislation: see Graywinter at 456.

8. [39]

   Mr Zhang’s Affidavit of 20 February 2018 did not set out any material facts that could sustain a claim to rectify Annexure A of the Sub-Contract. Nor did any of the other evidence filed on behalf of Grandview.

9. [40]

   It may be observed in passing that the continued use of the shorthand label “the Graywinter principle” is perhaps unfortunate or at least should be employed with some caution for at least three reasons. First, it has a tendency to distract attention from the language of the statute. Secondly, as this Court pointed out in Infratel Networks Pty Ltd Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372 at [28], subsequent decisions, including of intermediate appellate courts (Graywinter being a decision of Sundberg J of the Federal Court sitting at first instance), have modified it: see, for example, Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51. Thirdly the Federal Court rule by reference to which Sundberg J framed his judgment in Graywinter has since been repealed and, as Robertson J observed in Independent Portable Buildings Pty Ltd v Modular Building Systems Pty Ltd [2011] FCA 511 at [48], there appears to be no equivalent provision in either the Corporations Act or the Federal Court (Corporations) Rules 2000 (Cth).

10. [41]

    During the course of oral argument in this Court, Ms Culkoff, who appeared for Grandview, shifted the focus of the argument in respect of the Milestone Damages Claim significantly, contending, contrary to what had been accepted by her predecessor at first instance, that rectification in equity (see Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11 at [12]) was not required but instead that the Sub-Contract could in fact be construed in a way that allowed the Milestone Damages Claim to be calculated or quantified. This submission was developed no doubt to circumvent the difficulty as to the lack of any reference to the need for rectification in the statutory affidavit and the complete absence of evidence that could establish a case for rectification in equity to which I have already referred.

11. [42]

    Whilst the motivation for Ms Culkoff’s alternative “construction” argument may have been clear, the reasoning underpinning it was not; and I would reject it. Her contention depended upon a submission that each of some 78 events in the construction program that formed Annexure E to the Sub-Contract was a “milestone” within the definition of that term in clause 1 of the Sub-Contract. That definition was in the following terms:

12. [43]

    The fatal problem for this argument, however, is that, as noted in [36] above, the Sub-Contract Program contained a code or key which only identified one milestone in addition to the date for practical completion. It might also be observed that the prospect of the parties (and particularly the Sub-Contractor) agreeing to some 78 “milestone” events in a building program that was to run for one week shy of 6 months was commercially most unlikely.

13. [44]

    For these reasons, I would reject Ms Culkoff’s alternative argument with respect to the Milestone Damages Claim.

The Loss of Bargain Damages Claim

1. [45]

   At first instance, Grandview maintained that it had an offsetting claim in the sum of approximately $1.1 million, representing what its expert said were the costs required to complete the Sub-Contract works following Grandview’s purported termination of the Sub-Contract.

2. [46]

   During the course of the hearing in the Court below, counsel for Grandview was pressed by the primary judge on a number of occasions to articulate the legal basis for recovery of this amount. It is fair to say that there was a high degree of vacillation on the part of counsel then appearing for Grandview in articulating the basis of this offsetting claim. Thus, at an early stage of the hearing counsel, by reference to expert evidence to the effect that approximately $1.1 million worth of work remained to be done after receipt of the December 2017 Payment Claim, characterised his client’s claim as one based on “overcharging” by Budget. Thus, at p 7 of the transcript, counsel said:

3. [47]

   This elicited the entirely understandable response from the primary judge that:

4. [48]

   As argument developed further, the primary judge again pressed Grandview’s counsel to articulate the legal basis for this aspect of its claim. On this occasion, counsel responded that “[t]his would be damages for breach of contract because [Budget] would be claiming for 1 million odd dollars’ worth of work that it has not performed”. This submission, in substance, had the same difficulty as the “overcharging” formulation earlier essayed by counsel for Grandview.

5. [49]

   On the second day of hearing, the primary judge revisited the legal basis on which Grandview put this aspect of its offsetting claim. On this occasion, counsel for Grandview accepted that it was a claim for loss of bargain damages on the basis that Grandview should be put in the position it would have been if the Sub-Contract had been completed.

6. [50]

   Now it will be recalled that Grandview did not purport to terminate the Sub-Contract until 9 April 2018. That is to say the Sub-Contract remained on foot both as at the date of the making of the statutory demand (31 January 2018) and at the date of the making of the application to set aside the statutory demand (20 February 2018). There was no extant claim for loss of bargain damages at that point in time and it was still open to Budget to complete the Sub-Contract for the bargained for price, and equally open to Grandview to seek specific performance so as to secure the bargain. In short, the bargain had not been lost as at either 31 January 2018 or 20 February 2018.

7. [51]

   On the first day of the hearing at first instance, counsel for Grandview had accepted that the existence and viability of an offsetting claim had to be assessed as at the date of the statutory demand or, at the latest, as at the date that the application was made to set aside the statutory demand. On the second day of the hearing, he shifted from this position and drew the Court’s attention to authorities suggesting that the relevant date for assessing the existence and viability of the offsetting claim was the date of the hearing of the application to set aside the statutory demand.

8. [52]

   In this context, some authorities appear to support the view initially accepted, namely that an offsetting claim must have crystallised by no later than the date of the filing of the application to set aside the statutory demand whilst others support the view that an offsetting claim need only exist as at the time of the hearing of the application to set aside the statutory demand (see, for example, Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 296; [1997] FCA 1366; Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) (2014) 46 WAR 483; [2014] WASCA 132). In the present case, there was a gap of more than 9 months between the date of filing the set-aside application and the hearing of it and it was common ground that Grandview did not purport to terminate the Sub-Contract until after the filing of the set-aside application.

9. [53]

   In the course of hearing in this Court, Mr Pesman SC, who appeared for Budget, conceded that the weight of authority favoured the second view, namely that the asserted offsetting claim may exist at the time of the hearing of the setting aside application as opposed to the date on which it is filed. Ordinarily, that will be a much shorter period than in the present case. Further, the requirement for the statutory affidavit to identify the grounds for setting aside the statutory demand, albeit with a relatively low level of particularity (although one that goes beyond “mere assertion”: see Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; 286 ALR 768 at [36]) will generally mean that claims that arise after the filing of the setting-aside application will not fall to be considered. That was not the case in the present matter because para 29 of Mr Zhang’s affidavit (see [25] above) foreshadowed termination of the contract.

10. [54]

    The primary judge did not consider it necessary to express an opinion as to the differing views contained in the cases referred to in [52] above because he took the view that Grandview did not have an available claim in any event. His reasoning was as follows:

11. [55]

    There are a number of difficulties, in my respectful opinion, with the primary judge’s reasoning in paragraphs [53]-[54]. First, no issue of “defective work” was raised, and indeed counsel for Grandview at first instance expressly eschewed any potential claim based on defective work. More fundamentally, however, his Honour’s conclusion that “the figure for loss of bargain damages is negative and nothing is recoverable” overlooks the extant liability of Grandview to Budget in relation to the statutory debt that had arisen pursuant to the operation of the SOP Act consequent upon the November and December Payment Claims. Those amounts, it will be recalled, totalled $1,024,573.36. The offsetting claim based upon the alleged loss of bargain damages, according to the evidence before the primary judge and which he accepted for the limited purpose of the setting-aside application, was approximately $1.1 million, which exceeded the amount of the statutory demand. The fact that Grandview had not in fact paid the amount demanded (so as to give rise to an arguable claim in restitution) did not affect the fact that, by reason of the SOP Act, Grandview was at all material times from at least 31 January 2018 subject to a liability to meet that statutory debt.

12. [56]

    Prima facie, therefore, an offsetting claim for loss of bargain damages had been raised which exceeded in arguable value the statutory demand with the consequence that a basis for setting it aside had been made out.

13. [57]

    Faced with this reality, counsel for Budget sought leave to file a Notice of Contention during the course of the hearing in the following terms:

14. [58]

    The reference in this Notice of Contention to “no entitlement to terminate the contract” must be understood as no arguable entitlement. In the absence of any prejudice being identified by counsel for Grandview, the Court granted Budget leave to file the Notice of Contention.

15. [59]

    The primary judge appears to have assumed without deciding that the offsetting claim for Loss of Bargain Damages was a “genuine one” within the meaning of s 459H(5) of the Corporations Act but did not address this in light of his conclusion, with which I have expressed my disagreement, that it would give rise to no loss.

16. [60]

    Consistent with the Notice of Contention, Budget had, in its written submissions, raised doubts as to the “genuineness” of Grandview’s Loss of Bargain Damages Claim, contending that:

17. [61]

    Before turning to assess the strength of the Notice of Contention, it is desirable to say something as to the meaning of the word “genuine” in the context of the definition of “offsetting claim” in s 459H(5) of the Corporations Act and how it has been interpreted in the case law. The terms of the definition have already been noted at [6] above.

18. [62]

    In Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269; [2006] SASC 91 at [46]-[49] per Debelle J (with whom Besanko and Layton JJ agreed) said:

19. [63]

    In addition to these valuable observations, reference should be made to the judgment of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 where his Honour, having characterised the test for whether or not there was a “genuine claim” in terms of whether there was “a plausible contention which requires investigation”, went on to say:

20. [64]

    The Victorian Court of Appeal has spoken of “prima facie plausibility” in this context: TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; 66 ACSR 67 at [71]; see also Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [48]-[49].

21. [65]

    Most recently, in In the matter of Citadel Financial Corporation Pty Ltd [2019] NSWSC 65 at [30], White JA said:

22. [66]

    In my opinion, and fully cognisant of and sensitive to the relatively low threshold that is necessary to be satisfied to establish an offsetting claim for the purposes of s 459H(1)(b), I do not consider that Grandview’s asserted claim for Loss of Bargain Damages meets that threshold.

23. [67]

    The reasoning is, in my opinion, straightforward. The date for practical completion, namely 12 December 2017, came and passed. Budget remained working on the site and no complaint was made in relation to the failure to complete as at that date. More significantly, as noted at [17] above, on 20 December 2017, in the course of notifying Budget that the site would be closed down over the Christmas and New Year period, Grandview indicated that site work would resume on Monday, 5 February 2018 and stated “[f]rom all the team at Grandview, we look forward to continue working with you throughout 2018.” This was, in my opinion, an unequivocal statement wholly inconsistent with any intention to terminate the Sub-Contract. Under the Sub-Contract, Grandview had the benefit of liquidated damages for delay in completing the work after the practical completion date and indeed it foreshadowed the taking advantage of the provision for liquidated damages in its Liquidated Damages Claim to which I have referred above and which the primary judge was prepared to assess as arguably having a value of $220,000.

24. [68]

    As at 20 December 2017, it was clear beyond argument that Grandview had affirmed the Sub-Contract, made no complaint about the failure to reach practical completion on 12 December 2017 and looked forward to Budget resuming its work pursuant to the Sub-Contract upon the reopening of the site. As has already also been noted, on 31 January 2018 Budget had taken advantage of its statutory right to suspend works on the project pursuant to ss 15 and 27 of the SOP Act. The effect of s 27(3) of that Act is that Budget could not have been liable for any loss or damage suffered by Grandview as a consequence of not carrying out the work during the period of the suspension. As the November and December Payment Claims remained unpaid, Budget remained entitled to suspend its works under the Sub-Contract (and to remove its equipment from site during that period and put it to economic use elsewhere) and this remained the case up until (and indeed beyond) 9 April 2018 when Grandview purported to terminate the Sub-Contract.

25. [69]

    Grandview’s implicit contention that it had a “plausible” claim for Loss of Bargain Damages following its purported termination of the Sub-Contract cannot, in my opinion, be accepted. It plainly elected to continue the performance of the Sub-Contract or, as it is often put, affirmed the Sub-Contract notwithstanding the breach on which it relied, namely the non-completion of the works by 12 December 2017: see Wendt v Bruce (1931) 45 CLR 245; [1931] HCA 9 at 253 per Gavan Duffy CJ and Starke J; Tropical Traders Ltd v Goonan (1964) 111 CLR 41; [1964] HCA 20 at 55 per Kitto J; Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40 at 646 per Stephen J, 655-6 per Mason J; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391 at 398 per Lord Goff.

26. [70]

    Counsel for Grandview also contended that the Loss of Bargain Damages claim was available to Grandview as an offsetting claim by reason of the operation of cl 37(h) and cl 39 of the Sub-Contract. Clause 39 of the Sub-Contract was in the following terms:

27. [71]

    Clause 39 was not and could not be engaged by the claimed Loss of Bargain Damages because it only applied to moneys which were “due from the Subcontractor to the Builder” as opposed to money simply “claimed” to be due.

28. [72]

    Clause 37(h) of the Sub-Contract uses different terminology to cl 39 and speaks not only in terms of “money due” but also money “claimed to be due from the Sub-Contractor”. It relevantly provided that:

29. [73]

    Grandview’s attempted reliance on cl 37(h) is, however, unavailing because it fails to consider that sub-clause in its full context. Clause 37 is entitled “Claims and Payments”. It sets out a detailed regime for the making of progress claims by the sub-contractor, in this case Budget, and allows for a ten-business-day period of time for the builder’s representative (the builder in the present case being Grandview) to assess the progress claim and issue a payment schedule if so advised. The balance of cl 37, including, relevantly, cl 37(h), is plainly directed to deductions which the builder may make in the course of that scheduling exercise. It does not relate to offsetting claims arising many months thereafter.

30. [74]

    Therefore neither by reference to cl 39 or cl 37(h) of the Sub-Contract did Grandview have, in my opinion, any offsetting claim or contractual entitlement to raise the $1.1 million in completion costs as a credible or plausible answer to Budget’s statutory demand.

Conclusion

1. [75]

   It follows, in my opinion, that leave to appeal should be granted but that the appeal should be dismissed with costs.

2. [76]

   In written submissions filed on behalf of Budget, it was put that, in the event that leave to appeal were refused, the sum of $340,000 which Beazley P had ordered be paid into Court by Grandview as a condition for extending time for compliance with statutory demand (see Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (No 2) [2018] NSWCA 341 at [18]) should be released to Budget and that security for costs similarly paid into Could should be released to Budget. The same application is made in the event that leave is granted but the appeal dismissed. Order 3 of the orders made by Beazley P on 24 December 2018 was that “[t]he monies paid into Court pursuant to order (2) be paid out as the Court may direct upon determination of the summons seeking leave to appeal and, if leave be granted, the appeal”.

3. [77]

   In reaching her conclusion that $340,000 should be paid into Court, Beazley P considered an argument that such an order could unfairly give a creditor who had issued a statutory demand a security for what it was owed. Her Honour considered but distinguished the decisions in Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd [2004] NSWSC 877; 50 ACSR 544 and Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd [2006] NSWSC 1378; 60 ACSR 393 and adverted to the fact that, at the time of her judgment, Budget had been kept out of its monies for nearly 12 months. That period is now in excess of 12 months.

4. [78]

   In exercising her discretion, Beazley P observed ([2018]) NSWCA 341 at [17]) that:

5. [79]

   In my opinion, it is consistent with her Honour’s reasoning that an order of the kind now sought by Budget should be made in respect of the $340,000 paid into Court, viz that it should be paid out to Budget. Budget is entitled to be paid by Grandview an amount considerably greater than the amount Grandview has paid into Court. As Beazley P pointed out, Budget has been kept out of the monies due to it for a lengthy period. There is nothing in the SOP Act inconsistent with making an order for the monies in court to be paid to Budget.

6. [80]

   Moreover, the Court has a general discretion to determine the release of funds paid into Court, at least absent any specifically agreed or conditioned limitation on the purpose of the payment: Thomson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929 at [17]-[22] and [151]; see also JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501 at [101]-[112].

7. [81]

   I do not, however, consider that monies paid into Court by way of security for costs should be paid out unless and until Budget’s costs have been assessed, or an agreement is reached as to these costs.

8. [82]

   Application can then be made to the Registrar for payment out to Budget of the monies paid into Court by Grandview by way of security for costs to the extent that those monies do not exceed the assessed or agreed amount.

9. [83]

   WHITE JA: I have had the advantage of reading in draft the reasons for judgment of the President.

10. [84]

    No issue was raised either before the primary judge or on appeal as to the correctness of the decision of the Western Australian Court of Appeal in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 or the decision of Brereton J (as his Honour then was) in In the matter of Douglas Aerospace Pty Ltd [2015] NSWSC 167. These decisions stand for a proposition that a claim by a respondent in answer to a statutory demand founded on a judgment debt arising under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Security of Payment Act”) that the respondent was not truly indebted in the amount found to be due by an adjudicator is not an offsetting claim within the meaning of s 459H of the Corporations Act 2001 (Cth). Nor was any issue raised as to whether such a contention could provide some other reason for the setting aside of the statutory demand under s 459J(1)(b). Rather, Grandview propounded what were said to be “true” offsetting claims, being a claim for liquidated damages valued at $330,000, which was accepted by the primary judge as a genuine offsetting claim, a “milestone damages claim” said by Grandview to be valued at $3.816 million and a claim for loss of bargain damages.

11. [85]

    The primary judge held that the claim for milestone damages was precluded on the principle known as the “Graywinter principle” (Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; [1996] FCA 822) because the affidavit served in support of the originating process for the setting aside of the statutory demand did not identify a claim to rectify the contract (Judgment [29] quoted in the President’s reasons at [32]).

12. [86]

    I do not agree. The originating process was filed on 20 February 2018. The supporting affidavit of Mr Zhang sworn on that day referred to and annexed the building subcontract entered into between Grandview and Budget on 19 June 2017. Mr Zhang deposed that:

13. [87]

    Annexure “E” specified 27 milestones that were said not to have been reached by the milestone date that gave rise to a claim for liquidated damages of $3,816,000.

14. [88]

    This was sufficient to raise the claim in the supporting affidavit required to be served within 21 days of service of the statutory demand. How the claim would later be supported as a genuine claim, whether by a plausible contention that the subcontract on its proper construction provided for the milestones as described in Annexure E, or for the payment of such liquidated damages, or that the contract should be rectified so to provide, could be raised by later submissions (in the first case) or further evidence and submissions (in the second).

15. [89]

    No further evidence was provided that could raise a plausible contention that the contract might be rectified.

16. [90]

    It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular construction is “patently feeble” (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is “as plain as a pikestaff” that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 at [41]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; 125 ACSR 212 at [26]-[29] (“Creata”).

17. [91]

    In the present case, for the reasons given by Bell P, the construction of the subcontract advanced by Grandview that there are multiple milestone dates does not have “any element of rational controversy to it” (Creata at [26]), but is a patently feeble argument.

18. [92]

    It is because there is no plausible claim for liquidated damages resulting from Budget’s asserted failure to meet milestone completion dates that this asserted offsetting claim should be rejected. It should not have been rejected on application of the “Graywinter ” principle.

19. [93]

    I agree with Bell P that Grandview has not raised a plausible contention requiring investigation that it is entitled to damages for loss of bargain arising from its purported termination of the building subcontract on 9 April 2018. That that claim lacks any legal merit is clearly explained in the reasons of Bell P.

20. [94]

    That the claim is not genuine is also demonstrated by an email from Grandview to Budget dated 15 February 2018. Grandview proposed a payment plan to settle the two outstanding invoices by paying $150,000 per month until the full amount was paid. No mention was made of any offsetting claim. The offer was conditional upon Budget’s withdrawing its statutory demand. The email was an exhibit to Mr Samaan Habib’s affidavit of 15 March 2018 that was read without objection.

21. [95]

    In Creata Barrett AJA said (at [47]):

22. [96]

    In the present case the offsetting claims asserted by Grandview were constructed in response to the service of the statutory demand. They were not genuine.

23. [97]

    I agree with the orders proposed by Bell P.

24. [98]

    SACKVILLE AJA: I agree with the orders proposed by Bell P and with his Honour’s reasons. I add the following comment.

25. [99]

    In Mibor Investments Pty Ltd v Commonwealth Bank of Australia, [1] Hayne J identified the critical aspects of the legislation governing an application to set aside a statutory demand. The features, taken in combination, suggested that: [2]

26. [100]

    These remarks were quoted with approval by the Full Federal Court in Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (Equuscorp). [3] The Full Court endorsed the observation made by the trial Judge in that case that there had been a divergence between the statutory objectives and the conduct of the proceedings. The Full Court also endorsed the trial Judge’s suggestion that rigorous directions might be required to limit the length of affidavits and to curtail hearing times.

27. [101]

    The present case is another example of the divergence between the statutory objectives and the conduct of the proceedings. The application to set aside the statutory demand was filed on 20 February 2018, but the hearing did not commence until 24 October 2018, eight months later. In the meantime, apart from the supporting affidavit accompanying the application, the parties filed a total of nine affidavits and three expert reports. The length and complexity of the proceedings was compounded by the lack of precision in the case presented at the hearing on behalf of the appellant.

28. [102]

    The remarks of the Full Court in Equuscorp apply equally to the conduct of the present case.