In the matter of Rockwall Homes Pty Limited

1. [1]

   By Originating Process filed on 29 August 2016, the Plaintiff, Rockwall Homes Pty Limited (“RHPL”) applies to set aside a creditor’s statutory demand dated 8 August 2016 (“Demand”) issued by Diligent Tiling Pty Ltd (“Diligent Tiling”) pursuant to s 459G of the Corporations Act 2001 (Cth).

2. [2]

   The Demand claims an amount of $53,227.32, which is described in a schedule as comprising four invoiced amounts. The first invoiced amount relates to an invoice in the amount of $19,449.32 in respect of a project at Arnold Avenue, Kellyville, less an amount of $5,000 paid on 30 September 2015, for a balance of $14,449.32. The second relates to an invoice in the amount of $25,278, in respect of a project at Oakes Road, Winston Hills, less a payment of $3,000 on 30 October 2015, for a balance of $22,278. The third relates to an invoice in the amount of $14,080 in respect of a project at Belford Avenue, Kellyville. The fourth relates to an invoice of $2,420 in relation to a project at Robin Street, Carlingford.

3. [3]

   The Demand is supported by an affidavit of Ms Nadia Haddad, who is there described as the bookkeeper for Diligent Tiling, and has since become the director of that entity. Ms Haddad’s affidavit refers to the total amount owing on the four projects of $61,777.32, less an amount of $8,550 paid to date, leaving a balance unpaid of $53,227.32. That affidavit annexes a table recording the history of the invoices, including paid amounts, and copies of the relevant invoices. Ms Haddad also deposes that the total of the amount of the debts claimed is due and payable by RHPL and she believes that there is no genuine dispute about the existence or amount of any of the debts.

The affidavit evidence in the proceedings

1. [4]

   RHPL relies on the affidavit of its director, Mr Mehcur, dated 25 August 2016 in support of the application to set aside the Demand. That affidavit does not take issue with the fact that Diligent Tiling undertook the work for which it issued the relevant invoices or, it appears, with the amount claimed in respect of those invoices. However, Mr Mehcur’s evidence is that RHPL had not engaged the services of Diligent Tiling; RHPL was not the builder in respect of the four projects as to which invoices had been issued by Diligent Tiling; and that Mr Mehcur believed that:

2. [5]

   Diligent Tiling relies on the further affidavit of Ms Haddad dated 21 September 2016. Ms Haddad there gives evidence of having been secretary of Diligent Tiling since its incorporation and its director since 1 May 2016. Her evidence is that Diligent Tiling provides floor and wall tiling services directly to customers and is also a subcontractor (Haddad 21.9.16 [4]) and that Diligent Tiling performed tiling work for RCPL from 2011, generally communicating with Mr Norman Haddad, who is not related to her or her husband (Haddad 21.9.16 [7]). She gives evidence of a critical, but disputed, conversation with Mr Mehcur in mid-2014, after she was advised that Mr Mehcur and Mr Norman Haddad were “having problems”; she refers to Mr Norman Haddad’s advice to her husband not to do work for Mr Mehcur because RCPL may close; and her evidence is that Mr Mehcur advised her that:

3. [6]

   Ms Haddad also refers to the receipt by Diligent Tiling of plans and other documentation from mid-2014 that had the name “Rockwall Homes”. That documentation did not refer to the full corporate name of RHPL and leaves open the question whether that name was being used to refer to RHPL or, as RHPL contends, as an unregistered business name for RCPL. Ms Haddad also refers to email communications with Mr Mehcur between 2014 and April 2016, many of which are exhibited to her affidavit. Those emails are also equivocal, since the email address used was generally “rockwall.com.au” and did not make clear whether it referred to RHPL or RCPL, and the business titles of signatories also referred to “Rockwall Homes” without indicating whether that was a reference to RHPL or RCPL. Those emails establish that Diligent Tiling undertook work for RCPL or RHPL, which is common ground between the parties, but leave open room for dispute as to which of those entities was the party to those dealings. \Ms Haddad also refers to other documents, including certificates of waterproofing issued to RHPL rather than RCPL, that might support a conclusion at a hearing on the merits that Diligent Tiling was dealing with RHPL rather than RCPL. Ms Haddad acknowledges that, during this period, she also issued some invoices to RCPL but claims that:

4. [7]

   Ms Haddad refers to a payment claim made by Diligent Tiling’s solicitors, on its behalf, to “Rockwall Homes” on 14 December 2015 under s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”). That payment claim was itself ambiguous as to the entity to which it was directed, referring to “Rockwall Homes” rather than to RHPL by its corporate title.

5. [8]

   Ms Haddad also refers to a subsequent conversation with Mr Mehcur, at some time after mid-December 2015, in which she claims Mr Mehcur said that, inter alia:

6. [9]

   Ms Haddad also leads evidence that:

7. [10]

   RHPL in turn relies on Mr Mehcur’s further affidavit dated 5 October 2016. Mr Mehcur’s evidence is that he is a director of RHPL and has been employed by it since 22 November 2012 and that he has also been employed as a “Project Director” of RCPL since May 2015. Mr Mehcur’s evidence is that RHPL was not approved for a builder’s licence until May 2014 and was not approved for home warranty insurance until 8 January 2015 and, he claims, was unable to engage in any contracts requiring home warranty insurance prior to that date. Mr Mehcur gives evidence, by way of assertion, that the first time RHPL was engaged as a builder was on 28 August 2015 (Mehcur [11]–[13]). Little may turn on that evidence, for present purposes, where the invoices in issue are dated late September and October 2015.

8. [11]

   Mr Mehcur denies the conversation with Ms Haddad, to which I referred in paragraph 5 above, in which she attributes to him an offer that Diligent Tiling should use “Rockwall Homes” and to send invoices to it. Mr Mehcur also denies that RHPL, as distinct from RCPL, sent plans or documentation to Diligent Tiling and refers to plans which he claims, in evidence admitted with a limitation under s 136 of the Evidence Act only as evidence of his understanding, were prepared for RCPL. Mr Mehcur’s evidence is that a staff member who had corresponded with Ms Haddad was an employee of RCPL, and her email bears the signature of “Rockwall Homes” because she works “inside a display home where all marketing material for [RCPL] bears the name and logo of Rockwall Homes” and that all staff members working for RCPL have business cards and email signatures bearing the name “Rockwall Homes” which has been RCPL’s business practice since May 2011 (Mehcur 5.10.16 [22]–[23]). Mr Mehcur in turn leads evidence, also of a somewhat self-serving character, of a conversation with his solicitor in which he speculated why Diligent Tiling would issue a Demand to RHPL rather than to RCPL, to the effect that Mr Norman Haddad had “told them to do that because of [RCPL’s] problems”.

9. [12]

   Mr Mehcur also refers to a telephone conversation with Ms Haddad in late August 2016, again of a somewhat self-serving character, to the effect that:

10. [13]

    Mr Mehcur’s evidence, supported by bank statements that are in evidence, is that payments to Diligent Tiling were made from RCPL’s bank account. Mr Mehcur’s evidence, admitted with a limitation under s 136 of the Evidence Act as submission only, is also that RHPL was not the builder of the several homes on which Diligent Tiling worked.

11. [14]

    By her further affidavit dated 24 October 2016, Ms Haddad accepted that she was not familiar with RHPL’s internal management, but gave evidence that she relied on the statement which she attributes to Mr Mehcur that he wanted, or would at least permit, Diligent Tiling to invoice “Rockwall Homes”. That conversation is, as I noted above, in dispute, and the other evidence to which I have referred above does not seem to me to be capable of excluding a genuine dispute as to whether that conversation occurred, or as to whether invoices were issued to RHPL rather than RCPL. Ms Haddad also repeats her observation that she was careful to distinguish work which Diligent Tiling did, as engaged by Mr Haddad, for RCPL, and work which it did for RHPL as engaged by Mr Mehcur. However, that proposition turns on an assumption, that is also in dispute, that Mr Mehcur was always acting for RHPL rather than RCPL in dealing with Diligent Tiling.

Whether a genuine dispute is established as to whether RHPL (rather than RCPL) owes the debts claimed in the Demand

1. [15]

   In written submissions, Mr Do, who appears for RHPL, submits that there is a genuine dispute about the existence of the debt claimed against RHPL in the Demand on the basis that RHPL did not engage the services of Diligent Tiling, did not accept any benefit from Diligent Tiling, does not owe any debt to Diligent Tiling and was not the correct entity to be served with the Demand. Mr Do refers to case law summarising the principles applicable to a genuine dispute under s 459H(1)(a) of the Corporations Act, including Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]–[22] and Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 at [8]. The principles applicable to determining whether a genuine dispute is established are well-known, although not always easy to apply to the facts of particular cases, and I have drawn below on my summary of those principles in Re Tetbury Pty Ltd [2017] NSWSC 37.

2. [16]

   Section 459H(1)(a) of the Corporations Act provides that a creditor’s statutory demand may be set aside when the Court is satisfied that there is a genuine dispute about the existence or amount of a debt to which that demand relates. The test for a “genuine dispute” has been variously formulated as requiring 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: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a “genuine dispute” must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at [16], Barrett J summarised the principle as follows:

3. [17]

   In Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44], Young AJA (with whom Hoeben JA and Ward J agreed) similarly noted that the question for a primary judge, in determining an application to set aside a statutory demand under s 459H(1)(a), is:

4. [18]

   In Ligon 158 Pty Ltd v Huber above at [8], Barrett AJA (with whom McColl and Meagher JJA agreed) in turn referred to Re Wollongong Coal Ltd above at [9]–[22] and summarised the relevant principles as follows:

5. [19]

   In submissions, Mr Do accepts that Diligent Tiling provided services to RCPL from at least 2011 until May or July 2014, and accepts that Diligent Tiling ceased to deal with Mr Norman Haddad, and presumably commenced to deal with Mr Mehcur, from May or July 2014. He identifies, however, the issue as being whether Diligent Tiling continued to provide services to RCPL through Mr Mehcur as an employee for RCPL or whether, from that point in time, it began providing services to RHPL. He emphasises that the only purchase order in evidence was issued by RCPL rather than RHPL and that that purchase order relates to one of the debts claimed in the Demand. He also emphasises that RCPL rather than RHPL had previously paid Diligent Tiling, to the extent that it has been paid, and there is no evidence that RHPL has previously made any payment to Diligent Tiling. He also points out that the evidence indicates that RCPL is the insured builder for the purposes of the Home Building Act 1989 (NSW) in respect of the projects on which Diligent Tiling worked, and that seems to me to be a relevant matter, although it is of course possible that RHPL undertook hose projects without the requisite insurance cover.

6. [20]

   Mr Do also submits that, where there is a dispute between Ms Haddad and Mr Mehcur as to the conversation by which he is alleged to have requested her to direct invoices to RHPL, then a plausible contention requiring further investigation exists. Mr Do points to Mr Mehcur’s evidence that RCPL’s business practice has been to use the name “Rockwall Homes”, albeit it was not a registered business name for the purposes of s 19 of the Business Names Registration Act 2011 (Cth). Mr Do rightly accepts that the evidence does not prove that RHPL was not the correct debtor, but also rightly points out that the Court is required to determine, in an application of this kind, “whether there is a genuine dispute and not to determine the merits of that dispute”: Eyota Pty Ltd v Hanave Pty Ltd above.

7. [21]

   Mr Martin, who appears for Diligent Tiling, in turn seeks to exclude a genuine dispute, by referring to the correspondence where the name “Rockwall Homes” is used. However, that correspondence has the difficulty that that term is abbreviated in a manner that leaves open the possibility that it is used as a business name for RCPL rather than as a reference to RHPL. Mr Martin also points out that it appears that subcontractors on at least one of the sites thought they were dealing with RHPL so far as they issued warranty documentation to RHPL. While I accept that proposition, it does not seem to me of a nature that is capable of excluding a genuine dispute arising from the other evidence to which I have referred above. Mr Martin submits that RHPL’s claim that the term “Rockwall Homes” was used to refer to the business of RCPL is “not satisfactory”, where RHPL was heavily involved with Diligent Tiling. I cannot accept that submission, which would require the Court to determine the merits of the underlying dispute between the parties, without a merits trial or cross-examination of the witnesses, rather than to determine only whether a genuine dispute is established so as to require that the Demand be set aside, leaving it open to the parties to pursue their claims in a merits hearing. Mr Martin also refers to ss 128 and 129 of the Corporations Act, which allow a third party to make certain assumptions in dealing with a company. None of those assumptions seem to me to assist Diligent Tiling, unless it is first established that it was dealing with RHPL rather than RCPL, since they are directed to the status of dealings with a company, not to the identification of the particular company that is party to those dealings.

8. [22]

   It seems to me that several matters to which I have referred above support the existence of a genuine dispute arising from the question whether RHPL or RCPL owes the debt claimed in the Demand, putting aside the operation of the SOPA to which I will refer below. The conversation on which Ms Haddad relies may have occurred, but it is disputed by Mr Mehcur, and that dispute cannot be determined in a summary application of this kind, typically undertaken, and undertaken here, without cross-examination. Each of the invoices attached to the Demand were addressed to ““Rockwall Homes Attn: Marley” rather than to “Rockwall Homes Pty Limited”. Although the reference to “Marley” was plainly a reference to Mr Mehcur, the use of the term “Rockwall Homes” leaves open the possibility that that term was used as an unregistered business name of RCPL, as RHPL contends. The correspondence, including the invoices issued by Diligent Tiling and even the demand issued by its solicitor under s 13 of the SOPA, is not capable of excluding a genuine dispute as to whether the contracting entity was RCPL, because reference is generally made to “Rockwall Homes” rather than to RHPL by its full corporate name. Mr Mehcur’s evidence that that term was being used by RCPL as an unregistered business name finds some support in evidence that Mr Norman Haddad, who appears to have been primarily or exclusively associated with RCPL, referred to himself as “Site Supervisor Rockwall Homes” in signing emails.

9. [23]

   There is also further evidence that supports the possibility that Diligent Tiling was dealing with RCPL rather than RHPL, at least to the point that a serious question warranting further inquiry is established. That evidence includes that Ms Haddad’s affidavit in support of the Demand attached a purchase order issued by RCPL rather than by RHPL in respect of the first invoice, for a debt now claimed against RHPL. As I have noted above, there is evidence that payments to Diligent Tiling were generally made by RCPL rather than RHPL. While Mr Martin points out that that does not exclude the possibility that those payments were made by RCPL on RHPL’s behalf, pursuant to a loan or other arrangement between those entities, it also does not establish that matter. The possibility, attributed by Mr Mehcur to Ms Haddad in the conversation to which I referred above, that Diligent Tiling is pursuing RHPL rather than RCPL for the debts because of concerns as to the financial position of the latter is not wholly implausible.

10. [24]

    It seems to me that, putting aside the operation of the SOPA to which I refer below, these matters are sufficient to raise a dispute as to whether RHPL, rather than RCPL, is liable for the debts claimed in the Demand that is not “plainly vexatious or frivolous” or “may have some substance” or involves “a plausible contention requiring investigation”. It may be that, in a hearing on the merits, a court will ultimately determine that RHPL rather than RCPL was the contracting entity and accept Ms Haddad’s evidence in preference to Mr Mehcur’s evidence in that regard. This judgment does not prevent Diligent Tiling pursing a claim against RHPL, or indeed against both RHPL and RCPL, on the basis that it appears to be common ground that one or other of them is liable to Diligent Tiling.

Diligent Tiling’s reliance on the SOPA

1. [25]

   Mr Martin initially put Diligent Tiling’s primary case in his written submissions on the basis that its claim was made under the SOPA, that RHPL had not responded to that claim by lodging a payment schedule and that s 15(1) of the SOPA applied to make the relevant debt indisputable. Mr Do submits, in reply, that the respondent to a payment claim, for the purposes of s 15 of the SOPA, can only be a person who is party to “the construction contract concerned”, for the purposes of s 13 of the SOPA, rather than a stranger to that contract. As I will note below, Mr Martin ultimately did not press the submission based on s 15 of the SOPA, and relied on the alternative submission that the evidence established that the debtor was RHPL rather than RCPL, to the extent that there was no genuine dispute or serious question to be tried as to that matter. I have addressed that alternative submission above.

2. [26]

   Sections 13–15 of the SOPA, which are relevant to this issue, provide that:

3. [27]

   It is common ground that, on or around 14 December 2015, Diligent Tiling’s solicitor issued a payment claim that was expressly made under s 13 of the SOPA, although I also pointed out above that that payment claim was made to “Rockwall Homes” rather than being specifically addressed to RHPL. It appears to be common ground that the payment claim complied with the requirements of s 14 of the SOPA, so far as it identified the construction work to which the payment claim related, by reference to each of the invoices; indicated the amount of the progress claim that Diligent Tiling claimed was due; and was not referrable to an exempt construction contract for the purposes of s 7 of the SOPA, since the work was not done for a party residing in the premises. It appears also to be common ground that s 15 of the SOPA was capable of application in that situation, with effect that the unpaid portion of the claimed amount became recoverable as a debt due by “Rockwall Homes”, notwithstanding that, by contrast with several other cases in this area, there was no subsequent adjudication and no judgment debt arose.

4. [28]

   Mr Martin refers to Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284, where a plaintiff had failed to serve a payment schedule in response to a payment claim, as is the case here. Palmer J held that a proceeding for the winding up of a corporation under Pt 5.4 of the Corporations Act was not a proceeding for the recovery of a debt, and that ss 15(2) and (4) of the SOPA did not prevent a company served with a creditor’s statutory demand from raising a genuine dispute for the purposes of setting aside that demand under s 459G of the Corporations Act. That decision was doubted by the Court of Appeal of the Supreme Court of Western Australia in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91, but subsequently approved by Brereton J in Re Douglas Aerospace Pty Ltd [2015] NSWSC 167. His Honour there observed at [76]–[77] that:

5. [29]

   It is not necessary to resolve any difference of view between Diploma Constructions (WA) Pty Ltd v KPA Architects Pty Ltd above and Re Douglas Aerospace Pty Ltd above in this case, although it seems to me that Brereton J’s reasoning has substantial force. It is also not necessary to address the subsequent observations of Robb J in Re J Group Constructions Pty Ltd [2015] NSWSC 1607; (2015) 303 FLR 139, which leave open the question of the extent to which the principles referred to by the High Court of Australia in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd above are capable of applying in respect of claims arising under the SOPA.

6. [30]

   As Mr Martin ultimately appears to have accepted, these principles do not assist Diligent Tiling, because the SOPA is only capable of applying where a payment claim is served upon the party to the construction contract and does not exclude a dispute as to whether that requirement is satisfied. In Grave v Blazevic Holdings Pty Ltd t/as Kross Building Services [2010] NSWCA 324; (2010) 79 NSWLR 132, the Court of Appeal held, in a somewhat similar situation, that a defendant’s claim that a contract was not with him, but with a company associated with him, was an “arguable defence” for the purposes of setting aside a default judgment, and was not excluded by s 15 of the SOPA, since it denied the existence of the relevant contract as between the plaintiff and the defendant. That result is consistent with the reasoning of Brereton J in Re Douglas Aerospace Pty Ltd above, so far as his Honour left open (at [77]) the possibility that a genuine dispute would be established where there was an issue as to whether the conditions of s 15 of the SOPA had been satisfied. That result also accords with good sense, since it is scarcely conceivable that the legislative intent would have been to create a situation where a third party, who had no connection with a construction contract, could become liable under a debt that was not open to dispute, when it received a payment demand under the SOPA relating to a contract of which it had no knowledge, and with which it had no connection, and did not respond to it.

7. [31]

   In further submissions made, by leave, in respect of Grave v Blazevic Holdings Pty Ltd above, Mr Martin fairly accepted that that case was binding authority for the proposition that it was always open to a party to allege, by way of defence, or a fortiori as a ground of genuine dispute for the purposes of s 459H of the Corporations Act, that it is not a party to a construction contract. Mr Martin contended that the Demand should still be set aside, because the dispute for which RHPL contends is not genuine, which in turn directed attention to whether there was a genuine issue as to whether RHPL was, as a matter of fact or law, party to the relevant contract. I have addressed that question above.

RHPL’s further contention that the amount claimed in the Demand is not a debt

1. [32]

   Mr Do also advanced a further submission that the amounts claimed in the Demand are not a “debt” as there is no agreed price or pricing mechanism to calculate the sums claimed in the invoices and the Demand does not refer to any agreement or payment terms supporting the claim for payment. Mr Do refers to the consideration of this issue by Barrett J in Vimblue Pty Ltd v Toweel t/as Carpenters Core Building [2009] NSWSC 494 at [14]–[20].

2. [33]

   Mr Martin responds that this issue is not raised by Mr Mehcur’s first affidavit in support of the application to set aside the Demand filed within the 21 day period specified under s 459G of the Corporations Act and is not open to RHPL, by reason of the “Graywinter” principle. I have drawn on my observations as to that principle in Re Geitonia Pty Ltd [2016] NSWSC 1243 in the following account of that principle. That principle is derived from the decision in Graywinter Properties Pty Ltd v Gas and Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 at 459, where Sundberg J noted that the requirement of s 459G(3) of the Corporations Act, that there be an affidavit supporting the application to set aside a statutory demand, required more than a mere assertion of a dispute or a statement that the debt was disputed, and required that an affidavit disclose “material facts” showing there was a genuine dispute between the parties. The balance of authority establishes that the Graywinter principle raises a fact-specific inquiry as to whether the affidavit in support of an application to set aside a creditor’s statutory demand in fact supports that application, and the initial affidavit will sufficiently raise a relevant ground of dispute if that ground is raised by a necessary or reasonably available inference, including from documents exhibited to that affidavit: Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 at [36]; Infratel Networks Pty Ltd v Gundry’s Telco and Rigging Pty Ltd above at [27]ff.

3. [34]

   In Homeward Bound Export Cherry Project Pty Ltd v Farm Working Hands Pty Ltd [2012] NSWCA 447 at [5], Allsop P (Macfarlan JA agreeing) observed that:

4. [35]

   In Re Australian Institute of Fitness (Vic & Tas) Pty Ltd [2016] NSWSC 1143 at [41], Barrett AJA summarised that principle as follows:

5. [36]

   It seems to me that, having regard to the fact–specific inquiry that is required by Graywinter and the cases which have applied it, Mr Mehcur’s first affidavit filed within the 21 day period under s 459G of the Corporations Act identified the basis on which the Demand was challenged, namely that RHPL was not the contracting entity. That affidavit did not raise expressly, or impliedly, any question as to the basis on which the amount was claimed or the quantification of that claim. It seems to me that it is not open to RHPL to rely on this matter for the purposes of an application to set aside the Demand. In any event, it is not necessary for it to do so, given the conclusions that I have reached on other grounds.

Orders and costs

1. [37]

   I have held above that a genuine dispute in respect of the debts claimed in the Demand is established, by reason of the dispute as to whether the relevant debts were owed by RCPL or RHPL. I order that: