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Violet International Pty Ltd v Grandwood Homes Pty Ltd

 

[2004] QSC 152

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

19 May 2004

DELIVERED AT:

Brisbane

HEARING DATE:

20 April 2004

JUDGE:

Mackenzie J

ORDER:

1.The statutory demand dated 17 February 2004 is set aside.

2.The costs of the application shall be paid as follows:

(a) if the applicant succeeds against the respondent in proceedings in the Supreme Court of Western Australia described as CIV 1519 of 2004, the respondent shall pay the applicant’s costs, including reserved costs, if any, of and incidental to the application, to be assessed.

(b)otherwise, the applicant shall pay the respondents’ costs including reserved costs, if any, of and incidental to the application, to be assessed.

CATCHWORDS:

CORPORATIONS – WINDING UP – WINDING UP BY COURT – GROUNDS FOR WINDING UP – INSOLVENCY – APPLICATION TO SET ASIDE DEMAND – GENUINE DISPUTE AS TO INDEBTEDNESS – OFFSETTING CLAIM – where joint venture to develop land in Western Australia – whether progress payment claims certified – whether offsetting claim entitling applicant to orders under Trade Practices Act

Corporations Act 2001 (Cth), s 459G, s 459H
Trade Practices Act 1974 (Cth), s 87

COUNSEL:

J B Sweeney for the applicant
C Wilson for the respondent

SOLICITORS:

Hickey Lawyers for the applicant
Phillips Fox for the respondent

[1] MACKENZIE J:  This is an application to set aside a statutory demand under sections 459G and 459H of the Corporations Act 2001 (Cth).  The demand is in respect of the sum of $1,276,669.08.  The applicant entered into a joint venture with Mercedes Developments Pty Ltd, (“Mercedes”) the name of which was First State Zorzi (WA) Joint Venture.  The purpose of the joint venture was to develop land in separate locations in Western Australia as commercial and retail premises. 

[2] The respondent is a company associated with the same interests as Mercedes which contracted with the joint venture to construct buildings on one of the parcels of land, at Rockingham.  A significant amount of building work was done by it under the contract.  The debt described in the statutory demand is a sum comprised of amounts allegedly due under progress payment 9 (“PP9”) and progress payment 10 (“PP10”) and interest, less monies already received on account of the joint venture by the creditor and set off against the debts due under PP9 and PP10.  It is alleged that PP9 was due and payable on 31 December 2003 and PP10 on 3 February 2004.

[3] There are two grounds upon which the applicant seeks to set aside the statutory demand.  The first is that payments under the progress payment claims are not yet due and payable because they have not been certified by the owner’s representative in accordance with clause 10(b)(1)(c) of the contract.  The second is that there is an offsetting claim entitling the applicant to orders under s 87 of the Trade Practices Act 1974 (Cth) relieving the joint venture or the applicant of the obligation to make the payments or, alternatively, entitling the joint venture to compensation exceeding any amount owing.

[4] A fundamental allegation in this regard is that in early 2003 Mr Adam Zorzi informed Mr Gordon, a director of the applicant, that use approval for the building to be constructed had been given when it had not been given by the local authority.  Works were done in consequence of this false statement.  Had Mr Gordon known of the true position, he would not have signed the building contract and the building work would not have been done.  It is also a critical factor in this argument that Mr Adam Zorzi was acting on behalf of the respondent or that, if he was not, the respondent, through him, was knowingly concerned in the alleged contravention of the Trade Practices Act.

[5] Action was commenced in the Supreme Court of Western Australia on 19 April 2004, the day before the hearing of the present application, against Mercedes, Mr Adam Zorzi and the respondent.  One matter to be noted is that the relief sought does not specifically include a reference to s 87.  Whether, by its terms, s 87 renders it unnecessary to do so or whether the omission has significance need not be pursued in disposing of the present application; the amount of the claim for damages, if successful, would entitle the applicant to succeed in the present application.

[6] The endorsement to the writ in Western Australia discloses that the plaintiff, the present applicant, claims against Mercedes for breach of the joint venture agreement, breach of fiduciary duty arising from the joint venture agreement, negligence and misleading and deceptive conduct.  The claims are said to arise out of the first defendant’s conduct in failing to keep the plaintiff promptly and accurately informed or misleading the plaintiff as to the status of the usage approval for the relevant development.

[7] The claim against the second defendant, Adam Zorzi, is based on breach of fiduciary duty and misleading and deceptive conduct.  The claim against the third defendant, the present respondent, is for misleading and deceptive conduct in relation to the continued provision of construction services to the joint venture. 

[8] Before passing on to the issues in more detail it is convenient to mention that a special condition in the head contract refers, in the paragraph relating to costs, to “the owners’ representative (W Zorzi)” in connection with approval of changes and variations under the contract.  Clause 10 of the head contract provides that all claims for progress payments were to be certified by the owners’ representative.  Both of these provisions are handwritten additions to the contract.

[9] According to Mr Gordon the reason for the inclusion of the latter provision was that notwithstanding Mr Wally Zorzi being referred to as the owners’ representative, Mr Gordon actually performed that role because of concern over the connection between and commonality of directors and shareholders of the other joint venture partner, Mercedes, and the respondent.  After the first progress claim had been reduced significantly as a result of Mr Gordon checking its detail, according to Mr Gordon, Mr Wally Zorzi took no further part in the process. 

[10] This version of events was disputed by Mr Wilde, project manager for the respondent.  He said that throughout construction of the premises, Mr Wally Zorzi had acted as the owners’ representative for variations of works.  He said that Mr Gordon had never instructed him as the owners’ representative.  There is no direct evidence on the subject from Mr Wally Zorzi himself. 

[11] There is also a dispute in this connection as to whether at a meeting on 5 February 2004 Mr Gordon told Mr Wilde that he would authorise payment of PP 9 and PP 10 provided an audit of them was undertaken.  Mr Gordon says that, upon his expressing concerns about the accuracy of the progress payment claims, Mr Wilde agreed to have an audit performed.  However, Mr Gordon says that he did not agree to pay the claims.  According to Mr Wilde, at the meeting he went through queries raised by Mr Gordon with respect to the claims.  Mr Wilde told Mr Gordon that the respondent would be prepared at its own cost to have an independent audit of claims done, provided the joint venture paid the agreed amount by the following Monday.  He says that Mr Gordon was satisfied with the answers he gave to the queries and said he would authorise payment provided the respondent undertook an audit. 

[12] It should also be noted that there is evidence that Mercedes does not dispute that the debt in the amount claimed by the respondent is due and payable. 

[13] By way of overview of the respective cases, Mr Adam Zorzi accepted that he and Mr Bridge, who worked for the applicant coordinating the purchase of properties in Western Australia and subsequent development of them, were given the task of obtaining relevant local government approvals but denied that he represented the respondent.  The respondent pointed to clause 28 of the contract, an additional clause, in which it was acknowledged it was not the builder’s responsibility to obtain approvals.  It was the responsibility of the joint venture to do so.  Mr Wilde supported this position.  He said that at all times he represented the respondent and Mr Adam Zorzi represented the joint venture.  Mr Wilde said it was he who carried out negotiations with Mr Gordon and signed the building contract on behalf of the respondent. 

[14] The respondent also relied on correspondence between the applicant and Mercedes as evidence that the complaints were directed to the conduct of Mercedes, not that of the respondent.  It was not suggested that the builder was responsible for the failure to obtain approval.  The respondent also relied on the inclusion in the contract of the provision absolving the respondent from responsibility for obtaining the relevant approval.  Reliance was also placed on the fact that the representations relied on by Mr Gordon as the basis for his belief that the necessary approvals had been obtained were allegedly made about two months before the contract was signed with that clause in it.

[15] The applicant’s case, according to the affidavit of Mr Gordon, is that Mr Adam Zorzi blurred the distinction between acting as the joint venture’s representative and acting as the respondent’s representative in negotiating the building contract.  He had a close relationship to both Mercedes and the respondent.  He had a financial interest in each.  According to Mr Gordon, Mr Adam Zorzi conducted most of the building agreement negotiations on behalf of the respondent.  According to Mr Gordon the final building price was negotiated by him on behalf of the joint venture and by Mr Wally Zorzi, Mr Adam Zorzi and Mr Wilde on behalf of the respondent.  The applicant also pointed to what it said was evidence of a lack of distinction between the joint venture and the building company in reports generated during the course of the project. 

[16] The applicant also relied on the evidence of Mr Bridge that in dealings with Mr Adam Zorzi, Mr Zorzi acted as a conduit for information to pass between each of the three parties.  He gave as an example the fact that once a tenant had agreed to lease a portion of the premises, Mr Adam Zorzi arranged for the respondent to do the fit out. 

[17] The applicant’s case concerning the alleged misrepresentation by Mr Adam Zorzi is that about two months before the building contract was signed, Mr Zorzi told Mr Gordon, in answer to an enquiry whether the council had approved the relevant use, that it had.  Mr Gordon says that he understood that this meant that a document had issued in that regard.  He also says that he asked Mr Zorzi for a copy of the document.  Mr Zorzi replied that there had been some slight delays in getting the document from the council but had also said that it was under control and that he would get it from the council.  The making of the initial representation to that effect is supported by Mr Bridge.  Mr Bridge also deposes that in about September 2003 he received a telephone call from a director of Mercedes who said that council inspectors had attended the site and claimed there was no use approval for the particular use intended.  Mr Bridge deposes that he went to Mr Adam Zorzi’s office to discuss the approval with him.  Mr Adam Zorzi said that a mistake had been made by the council and that it was going to be reversed.

[18] The applicant submitted that the making of the representation was supported by other statements and documents implying that approval was not a problem. 

[19] To illustrate the respondent’s case in more detail it is desirable to summarise aspects of the evidence, particularly that of Mr Adam Zorzi, called on its behalf.  Mr Adam Zorzi deposed that he was formerly a director of Mercedes and its manager of property development.  At the time of swearing his affidavit he was no longer a director.  He and Mr Wally Zorzi represented Mercedes in negotiations with Mr Gordon in relation to the formation of the joint venture and signed the contract on its behalf.  He referred to the joint venture agreement providing that construction of the project would be carried out by “the construction company related to Mercedes”, provided that the tender was competitive and otherwise beneficial to the joint venture.  He deposed that he never represented the respondent in the formation of the building contract between it and the joint venture.  His role was limited to representing the joint venture.  Mr Wilde represented the respondent. 

[20] He had agreed with Mr Gordon that Mr Wally Zorzi would be the owners’ representative, which was reflected in the special conditions of the contract.  At the time of the contract, development approval had been granted for the relevant site but usage approval had not.  Mr Bridge, on behalf of the applicant, and he were given the task of obtaining the necessary planning approval.  At the meeting with the town planner who was to assist with obtaining planning consent, it was agreed by Mr Bridge that the town planner could liaise with Mr Adam Zorzi alone on behalf of the joint venture.  Mr Zorzi denied telling Mr Gordon in early March 2003 or at all that usage approval had been given. 

[21] Preliminary contact was made with the local authority by the town planner and a status report was, according to Mr Adam Zorzi, faxed to Mr Gordon about 18 March 2003.  With respect to the usage approval, the report stated that Mr Adam Zorzi and the town planner would be responsible for obtaining it, but, to that time, no written responses had been received from the council with respect to the relevant site.  On 20 March 2003, Mr Zorzi said, he faxed a letter stating with respect to it that council had advised that they had no concerns and approval was imminent. 

[22] On 25 March 2003, a letter was sent by council to the town planner, the terms of which suggested that there might be limitations upon what usage approval could be given under the applicable zoning.  A progress report, which Mr Adam Zorzi deposes was sent to Mr Gordon by email, seems to put a rather more optimistic spin on the letter than was warranted.  Nevertheless, the correspondence made it plain that approval had not yet been given. 

[23] A progress report dated 11 April 2003, which Mr Adam Zorzi deposes was faxed to Mr Gordon, noted that development approval had been given but that there had been no further correspondence about usage approval.  The joint venture’s town planner had sent a fax to Mr Adam Zorzi on 1 April 2003 advising that council staff had said that formal application could be made.  The faxed letter repeated the point of concern raised in the council’s earlier letter and suggested a strategy to gain approval.  Instructions were given by Mr Adam Zorzi on 17 April 2003 to prepare a formal application.  A copy of the application for signature by the applicants was sent on 24 April 2003 and, according to Mr Adam Zorzi, faxed to Mr Gordon for signature. 

[24] According to Mr Zorzi it came back apparently signed by Mr Gordon.  It was submitted to council on 26 May 2003.  Mr Gordon claims that he did not sign the development application.  It can confidently be said that the signature on the document bears no resemblance to that of Mr Gordon in his affidavit and the exhibits thereto.  The building contract was signed by Mr Gordon on 30 May 2003 and by the respondent of 14 June 2003.  On 30 September 2003 the council advised that the usage application was refused. 

[25] An absolutely critical issue with respect to the trade practices claim which is said to provide the offsetting claim, at least in part, is whether the faxes and the email about the progress of the usage application, which Mr Adam Zorzi deposes he sent to Mr Gordon, were in fact sent to him.  Mr Gordon denies having received them or having had them brought to his attention.  He says that the documents are not in his files.  This evidence is critical because, had those documents been sent to Mr Gordon, they would have disabused him of any belief he may have had that the necessary approvals had been received.  As the evidence stands, it is essentially word against word since there is no documentary evidence supporting or disproving the sending of the faxes or the email. 

[26] While the signature on the development application raises another set of issues, I am not prepared to treat it as corroborative of the evidence of Mr Gordon as to not receiving the critical faxes and email.  Whether the development application was sent to him is one aspect of this broader issue.  Another aspect is who actually signed the document.  The fact that the signature does not appear to be Mr Gordon’s ordinary signature does not necessarily mean that it was signed by someone connected with the respondent.  As the evidence stands the issue of the signature on the application may or may not be related to the issue whether the communications were sent to Mr Gordon.

[27] Subject to what follows, a fundamental disputed fact with respect to an alleged outstanding debt would usually provide a proper basis for setting aside a statutory demand.  However, one of the respondent’s points is that even if the applicant made out a case of misleading or deceptive conduct, it is still necessary to fix the respondent with the consequences of such conduct if there is to be an offsetting claim against it.  That is to say, the applicant may have a case against Mercedes but not against the respondent, since there is a body of evidence, including evidence of deponents and the terms of the contract, supportive of the respondent’s case suggesting that Mr Adam Zorzi was acting only on behalf of Mercedes in relevant events.

[28] On the other hand, the respondent relies on the “blurring” of the role played by Mr Adam Zorzi and the association between Mercedes and the respondent, both of which have been referred to earlier.  The applicant also relies, as a fall-back position, on the proposition that even if the conduct alleged was not engaged in by the respondent through Mr Adam Zorzi, there are grounds for arguing that because of the links and the blurring, the respondent was at least knowingly concerned in contravention of the Trade Practices Act if the proscribed conduct is made out.

[29] Because of the complex of issues raised, I am satisfied that there is a serious question to be tried in that regard.  There were other arguments directed to whether any dispute about the quantum of PP 9 and PP 10 could be pursued at this point or whether the contractual terms as to time for disputing items precluded the applicant from doing so at this time.  There is also the issue of certification of claims which depends on disputed evidence as to whether Mr Gordon took over the role from Mr Wally Zorzi to whom the role was assigned by contract.  Mr Gordon says he did; there is evidence from other deponents, but not Mr Wally Zorzi himself, that Mr Wally Zorzi retained the role in relation to approving variations.  That factual issue is incapable of being resolved on the evidence before me.

[30] The remaining issue to which reference should be made is that of the basis upon which it is said that the combination of reduction in amounts of PP 9 and PP 10 and relief under the Trade Practices Act would overtop the amounts due to the respondent.  The applicant’s written submissions are that relief moulded to suit its case would give it compensation for losses consequential on the changed circumstances in which it found itself because of its reliance on the conduct complained of.  While the calculation performed in the applicant’s written submission may not ultimately be wholly sustained, there is an arguable case that an offsetting claim may equal or exceed any debt currently due and payable. 

[31] I conclude by saying that in proceedings like the present, it is difficult to be confident that a decision reached on the limited available evidence will represent abstract justice between the parties, since critical versions are diametrically opposed and both cannot be accurate.  Where the credibility of key witnesses is crucial and the evidence is so limited as to make it impossible to gain any clear impression of where the truth lies, the test required by the Corporations Act has the consequence that the statutory demand should be set aside. 

[32] With regard to costs, the principal issue between the applicant and the respondent is that which will be litigated in the Western Australian proceedings.  The other issues to be determined, if the applicant fails in those proceedings against the respondent, are relatively minor and somewhat peripheral to the fundamental dispute.  In my view, rather than reserve the costs and impose a need to apply again once the Western Australian proceedings are concluded, I should make an order which is, in effect, disposing of them as if they were costs in the cause in those proceedings.  The costs of the present application should be paid by the respondent to the applicant in the event that the applicant succeeds against the respondent in the Western Australian proceedings.  Otherwise, the applicant should pay the respondents’ costs, in each case on the standard basis, to be assessed. 

Orders

1.The statutory demand dated 17 February 2004 is set aside.

2.The costs of the application shall be paid as follows:

(a) if the applicant succeeds against the respondent in proceedings in the Supreme Court of Western Australia described as CIV 1519 of 2004, the respondent shall pay the applicant’s costs, including reserved costs, if any, of and incidental to the application, to be assessed.

(b)otherwise, the applicant shall pay the respondents’ costs including reserved costs, if any, of and incidental to the application, to be assessed.

Close

Editorial Notes

  • Published Case Name:

    Violet International v Grandwood Homes

  • Shortened Case Name:

    Violet International Pty Ltd v Grandwood Homes Pty Ltd

  • MNC:

    [2004] QSC 152

  • Court:

    QSC

  • Judge(s):

    Mackenzie J

  • Date:

    19 May 2004

Litigation History

No Litigation History

Appeal Status

No Status