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Mayaman Developments Pty Ltd v TQ Constructions Pty Ltd QSC 144
SUPREME COURT OF QUEENSLAND
Mayaman Developments Pty Ltd v TQ Constructions Pty Ltd  QSC 144
MAYAMAN DEVELOPMENT PTY LTD
Application to set aside statutory demand
Supreme Court of Queensland
12 June 2009
11 February 2009; 5 March 2009
1. That the statutory demand dated 20 November 2008 issued by the respondent to the applicant be varied by amending the amount claimed there under to be $747,686.40
CONTRACT – BUILDING, ENGINEERING AND RELATED CONTRACT – REMUNERATION – STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS – where contract nominated a specific architect to administer the contract – where contract provided for the architect to assess a claim for a progress payment and to issue to the parties a certificate setting out any payment due to the contractor – where construction stopped before completion because the applicant’s financier went into receivership – where there were four certified progress claims unpaid by the applicant at the time the work stopped – where the unpaid progress certificates founded a statutory demand served by the respondent on the applicant, which the applicant sought to set aside – where amount claimed in statutory demand excessive – where applicant argued there was a genuine dispute between the parties about the existence of the debt claimed under the statutory demand – where applicant filed and served supporting material after the 21 day period prescribed by s 459G of the Corporations Act 2001 (Cth) – whether the statutory demand should be set aside
Corporations Act 2001 (Cth)
Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1998) 14 BCL 215, cited
Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd  NSWSC 638, applied
Daysea Pty Ltd v Watpac Australia Pty Ltd  QCA 49, applied
Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452, cited
Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd  2 Qd R 521, applied
Sabemo Pty Ltd v de Groot (1991) 8 BCL 132, cited
Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR, applied
P O'Shea SC and P Travis for the applicant
S B Whitten for the respondent
Creevey Russell Lawyers for the applicant
Connollys Lawyers for the respondent
- By a building contract dated 8 May 2007, and generally in the form of the ABIC MW-1 2003 Major Works Contract, the applicant, as owner, contracted with the respondent, as contractor, for the construction of a resort complex at Agnes Waters. The contract price, before adjustments allowed for under the contract, was some $19,000,063 (inclusive of GST). The contract nominated a specific architect to administer the contract.
- Special Condition N4, in Schedule 2 to the contract, set out the scheme for progress payments under the contract. Conformably with contracts of this nature, it provided (Clause N4.1) for the architect to assess a claim for a progress payment and issue to the parties a certificate setting out, relevantly, any payment due to the contractor. The architect was to issue this certificate within 10 business days after receiving the claim for progress payment, and the certificate was required to identify the amount of GST included (Clause N4.3). Special Condition N6 then required that the amount stated by the architect as owing in a certificate “must be paid within 15 days after the earliest of the date of submission to the architect of a claim for a progress claim ...”.
- It is well established that such progress payment certificates have effect as “warrants for payment”, notwithstanding that the payments under those certificates should be regarded as provisional and on account of a final reckoning between the parties at the time of completion of the contract – in that regard, it is sufficient to refer to the judgment of Williams JA, with whom the other members of the Court of Appeal agreed, in Daysea Pty Ltd v Watpac Aust Pty Ltd, and the previous judgment of the Court of Appeal in Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd. In that latter case, McPherson JA referred to the principal under such a contract being bound to pay the amount certified regardless of claims which the principal might have which are not covered by the certificate and which are to be resolved at the stage of final resolution of any dispute between the parties (at 527). See also, to similar effect, Sabemo Pty Ltd v de Groot and Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd.
- In mid-2008, the construction of the resort stopped before completion because the applicant’s financier went into receivership. At the time work stopped, there were four certified progress claims unpaid by the applicant. These unpaid progress certificates founded the statutory demand dated 20 November 2008 served by the respondent on the applicant, and which the applicant now seeks to set aside. The amounts claimed under the statutory demand were:
-$844,075.98, said to be the balance owing under the respondent’s Invoice No 303, which was the subject of Progress Certificate 14 issued by the architect and dated 17 March 2008;
-$1,334,700.16, being the whole amount owing under the respondent’s Invoice No 306, which was the subject of Progress Certificate 15 issued by the architect and dated 10 April 2008;
-$801,780.30, being the whole amount owing under the respondent’s Invoice No 312, which was the subject of Progress Certificate 16 issued by the architect and dated 30 April 2008; and
-$623,884.48, being the whole amount owing under the respondent’s Invoice No 313, which was the subject of Progress Certificate 17 issued by the architect and dated 3 June 2008.
- I interpolate here that the progress certificate numbers I have just referred to are those which appear on the face of the respective progress certificates. There is, in the material before me, some confusion in relation to the progress certificate numbers, due to the fact that the first progress certificate (applicant’s certificate no 1) was a claim solely by the applicant, but in assigning numbers to the progress certificates issued by the architects, the architects did not take that first certificate into reckoning when numbering the certificates.
- It is also convenient to note here that the respondent conceded in submissions before me that the amount claimed in the statutory demand for the first of these items (i.e. the balance owing under the respondent’s Invoice No 303) was excessive for failing to take into account other part payments which had been made by the applicant. The respondent conceded that the amount owing in respect of that invoice was $390,356.21.
- Only one affidavit in support of the application to set aside the statutory demand was filed and served within the 21 day period prescribed by s 459G of the Corporations Act, that being an affidavit of Alan Gray, a director of the applicant. In that affidavit, Mr Gray:
(a)took issue with the amount alleged to remain owing under the respondent’s Invoice 303, asserting that the amount which had been part paid in respect of that invoice was $364,466.54, and that the balance unpaid was $520,355.80 (including GST);
(b)confirmed that payment had not been made under any of the progress certificates relating to the respondent’s Invoices 306, 312 and 313;
(c)said that on 25 November 2008, the applicant commissioned Mr Lincoln Ganter of NPR Valuers Pty Ltd “to review the progress payments claimed by the respondent”. I observe parenthetically that this retainer of Mr Ganter to undertake this review occurred only after service of the statutory demand, which had been served on 21 November 2008;
(d)contended that, by reference to Mr Ganter’s report (to which I will refer in some more detail shortly), there was a difference between the amount quoted by the respondent for the various trade cost codes and trades and the amount invoiced for those cost codes and trades, that being the difference between $6,218,742 and $4,233,950.75;
(e)said that he had been informed by the applicant’s project manager that Mr Ganter had only dealt with particular cost codes and trade items “due to time restraints to meet the timing of the statutory demand”;
(f)asserted further that “due to the time constraints there has not been enough time to get a complete analysis done of the progress claims made by the respondent;”
(g)then deposed as follows:
“31.I believe that Lincoln Ganter’s opinion that the progress claims have been overstated by approximately $2.4 million in relation to the particular cost codes and trades is correct. Because of the nature and extent of the overstatement the applicant is concerned that the overstatement is not accidental. I have no reason to believe that the overstatement in the progress claims is restricted to the particular cost codes and trades examined by Lincoln Ganter. I believe that if a full analysis of the progress claims is done the amount by which the progress claims have been overstated will exceed the amount claimed in the statutory demand.
32.The applicant relies on Lincoln Ganter’s report in support of its contention that there is a genuine dispute about the debt claimed to be owing by the applicant to the respondent. Alternatively the applicant relies upon Lincoln Ganter’s report in support of its contention that the applicant has an offsetting claim which exceeds the debt claimed to be owing by the applicant to the respondent.
33.The overstatement of the progress claims has caused the applicant other loss and it has resulted in the applicant paying additional interest to its lender on the amount from time to time of the overstatements.
34.Further, on the material referred to in the statutory demand and the affidavit that accompanied that statutory demand there is no contractual basis upon which these progress claims have to be paid.
35.On the basis of the matters set out in this affidavit there is a genuine dispute about the whole of the debt claimed to be owing by the respondent or alternatively the applicant has an offsetting claim against the respondent for an amount which is at least equal to the amount of the debts claimed by the respondent in the statutory demand.”
- A report by Mr Ganter was exhibited to Mr Gray’s affidavit. Mr Ganter examined the property on 5 December 2008. He described the site and his observations of the constructions thereon. He then gave an assessment of the degree of completion, or “stage of construction”, of the various elements within each of the buildings in the complex, expressing the view that “overall the subject site is considered to be between 45% and 50% complete”. He then undertook an assessment of “certain of the components of the amount invoiced and claimed by the builder”. Specifically, Mr Ganter undertook an assessment of the components for which certification had issued under claim 17, and concluded:
In relation to the components which I have assessed, progress claim 17 shows that the builder claimed payment for $4,233,950.75 in respect of these components.
My assessment of the work done in relation to these components is that the amount properly payable, calculated by multiplying the “Quote Amount” by my assessment of “Actual %” completed, in respect of these components is $1,830,916.
In summary it appears from these preliminary investigations that based on my inspection and the information provided to MPR, an approximate amount of $2,403,034.75 has been over claimed by the builder (TQ Constructions) in relation to these components of progress claim no. 17.
I note that the above figures do not include unfixed items.
Additional Stock on-Site
It was clear from our inspection that the site has unfixed, construction items, fixtures and fittings. These include:-
- Roof and wall framing
- Air-condition ducts
- Kitchen cabinets
- Outdoor vacuum systems
- Pool filtration systems
- General piping
We also note that several locked rooms were located in the basement to which no access was gained.
I emphasise that my assessment within this report should be used as a guide only and NPR advises for a more definite financial account of what is in place then MPR should be provided with all the necessary documentation for further analysis.”
- An affidavit by Mr Anthony Stephens, director of the respondent, was filed in response to the application. Mr Stephens recited the contractual relationship between the parties, and the mechanism by which the architect assessed each of the progress claims submitted by the respondent. He said that, in addition to the architect’s assessment, a quantity surveyor scrutinised the claim, and reported to the applicant owner and its lender. He exhibited to his affidavit a full copy of the quantity surveyor’s Progress Assessment No 18, part of which had been exhibited to Mr Gray’s affidavit. He also exhibited to his affidavit full copies of each of the relevant architect’s progress certificates. In relation to Invoice 303, he effectively confirmed the need for there to be an accounting in respect of part payments resulting, as I have observed above, in a concession that the amount owing in respect of Invoice No 303 was $390,356.21. He then took issue at some length with the matters raised in Mr Ganter’s report, noting that the first time the respondent had become aware of any such dispute was when it received the application and the affidavit of Mr Gray. The basis for disputing Mr Ganter’s report included, for example, that it was limited by its assumptions and lack of access to areas in the project, such as the basement, which Mr Stephens said contained floor tiles, air conditioning, kitchens and joinery, plumber’s hardware and fittings, and the fact that Mr Ganter did not appear to have access to all of the services associated with the development site, such as hydraulic services, storm water management, fire services, sewerage, electrical ground work, basement pumps stored off-site, pool filtration rooms and units stored. He also reviewed at some length the correspondence which had passed between the parties during the second half of 2008.
- Well after the 21 day period prescribed by s 459G, the applicant filed and served further affidavits, and sought to rely on them in the hearing. Those were:
(a)An affidavit by Bruce Rodgers, formerly the respondent’s construction manager on-site, who deposed to, among other things:
(i)conduct on the part of the respondent by which it was claiming payment for work which he said had not actually been performed;
(ii)his agreement with Mr Ganter’s assessment of the percentage of work completed, but saying that the work was about 60 per cent complete on-site; and
(iii)the disposition of some of the plant and equipment (such as air conditioning) which had been delivered to the site for use in the project, but which was subsequently removed.
(b)A further affidavit by Mr Gray, in which he deposed further to the dealings between the parties and said:
“When the financier went into liquidation, we were forced to negotiate with TQ to try and work together to complete the project. I had no reason to doubt the claims TQ had made to date. It was not until we were served with the Statutory Demand dated 20th November 2008 that it became necessary to calculate exactly what owed.”
(c)An affidavit by Stephen Thomas, a principal of and project manager for the applicant, who inspected the site on 28 and 29 January 2009 and described his observations of the degree of completion of the project, including:
“In my experience, I would estimate that the actual project is only 50 to 55% completed but TQ have claimed an approximate average amount of sum 78.96%. For instance the foreman’s wages are 90% completed and paid yet the project in TQ’s view is 78.96% completed on average as stated in their progress report for claims. See QS certification number 18 which reflects this figure direct from TQ’s paper work lodged for payment.”
(d)An affidavit by Mr Ganter, exhibiting a further, and much more extensive, report than that exhibited to the original affidavit filed in support of the application, and in which Mr Ganter made a critical assessment of all of the progress claim certificates by reference to the quantity surveyor’s progress assessment report as at June 2008 (when construction ceased), and stated the opinion that “the construction company has over-claimed the developer between $4,768,470.77 and $5,721,620.77 inclusive of GST”.
- The respondent largely objected to the receipt of this further material, principally on the basis that it had not been filed and served within the prescribed 21 day period, and further that it raised grounds for setting aside the statutory demand beyond those stated in, or discernible from, the material which had been filed and served within time, i.e. it offended the so-called “Graywinter principle”.
- The applicant contended that the material evidenced a genuine dispute about the existence of the debt asserted under the statutory demand, or at least a genuine offsetting claim in an amount greater than the demand. As to the first point, the applicant (obviously relying on all the material which it had filed) submitted that the evidence raised questions as to whether the relevant progress claim certificates were vitiated by fraud and that:
“21.In this case, the evidence of Mr Rogers creates a genuine dispute as to the validity of the certificates obtained by the Builder. Without certificates, the amount, if any, owed to the Builder would require an investigation into the amount of work actually performed by the Builder. Given the evidence of Mr Ganter, that there has been over claims by the Builder between $4.8 and $5.7 million, a genuine question is raised as to the existence of the debt in the Builder’s demand. At the very least, further investigation is warranted to determine the extent of the Builder’s over claiming to which Mr Rogers deposes.”
- In support of its offsetting claim, the applicant pointed to the later evidence, particularly that of Mr Ganter, to submit:
“26.Thus, if the Court accepts that the Builder holds valid unpaid certificates entitling it to payment of $3,150,721.15 (contrary to the Developer’s submissions) the Developer nonetheless has a genuine claim for between $4.7 million and $5.8 million against the Builder. This claim is based on the evidence of Mr Rogers, Mr Ganter and Mr Thomas, which indicates a genuine claim to an amount in excess of any amount that the Court may consider to be substantiated by the Builder. Certainly, the Developer’s evidence in support of its Application warrants further investigation.”
- Section 459H of the Corporations Act provides:
“459H Determination of application where there is a dispute or offsetting claim
(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula where:
“admitted total” means:
(a)the admitted amount of the debt; or
(b)the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
“offsetting total” means:
(a)if the Court is satisfied that the company has only one offsetting claim – the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims – the total of the amounts of those claims; or
(c)otherwise – a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a)varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5)In this section:
“admitted amount”, in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt – a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt – so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c)otherwise – the amount of the debt.
“offsetting claim” means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
“respondent” means the person who served the demand on the company.
(6)This section has effect subject to section 459J.”
- The applicant’s argument that there is a genuine dispute between the parties about the existence of the debt claimed under the statutory demand is founded on the contention that the progress certificates are vitiated by fraud. In that regard it is important again to note that the debts claimed under the statutory demand are debts due pursuant to the “warrants for payment” constituted by the progress certificates. It is also important to note that the long-standing approach to such progress certificates, in the broader context of a construction contract, is that the amounts certified under the certificates are payable, with any dispute as to the correctness of the amounts certified to be referred for determination pursuant to the relevant dispute resolution procedure under the particular contract and accounted for as part of the final reckoning between the parties. Thus, in the present case, it is not enough for a party in the position of the applicant to say that there is a dispute as to the amount which was certified in respect of each of the payment certificates. Rather, the applicant needs to impugn the certificates themselves. The applicant has sought to do so by reference now to allegations of fraud in connection with the issuing of the certificates. Those allegations of fraud, however, were only made for the first time in material which was filed and served after the 21 day period prescribed by s 459G.
- I have set out above the relevant paragraphs of the affidavit of Mr Gray which was filed and served within the 21 day period. At its highest, this affidavit raised concerns as to there being overstatements in the progress claims on which the progress certificates were founded. But that contention, namely that there has been an “over-claiming” in the certificates, is a far cry from an assertion that the certificates themselves ought be vitiated for fraud. The applicant, in supplementary submissions delivered to me, conceded that, on the hearing of the application, the applicant was restricted to advancing the grounds “which can be discerned” from material filed within the 21 day period. In that regard, reference may be made to the very useful summary by Barrett J in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd.
- In my view, the ground now sought to be relied on by the applicant, namely that there is a genuine dispute between the applicant and respondent about the existence of the debt founded in the contention that the progress certificates may be vitiated by fraud, is not one which was discernible from the material filed by the applicant within the 21 day period. The applicant is therefore, not entitled for the purposes of the present application to rely on the affidavit material filed after the 21 day period in which that ground is sought to be raised.
- Accordingly, there is no basis in the material on which the applicant may rely for the present application to support its contention that there is a genuine dispute about the existence of the debt to which the demand relates.
- In relation to the contention that there is an off-setting claim, the applicant seeks to rely on the second report of Mr Ganter to say that there were over-claims by the respondent of between (in round figures) $4.8 million and $5.7 million, which would yield an “offsetting total” under s 459H sufficient to extinguish the amount claimed under the statutory demand.
- The difficulty for the applicant, however, is that this quantum of offsetting amount is derived from evidence of Mr Ganter which was filed and served for the first time only long after the 21 day period had expired.
- True it is that in the affidavit of Mr Gray filed in support of the application, he referred in general terms to a belief that “if a full analysis of the progress claims is done the amount by which the progress claims have been overstated will exceed the amount claimed in the statutory demand”. However, neither his affidavit, nor the first report of Mr Ganter exhibited to that affidavit, gave any detail as to the quantum, beyond that which was referred to by Mr Ganter as quantification of an overstatement of about $2.4 million.
- In Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd, Gzell J said:
“In this case, the applicant sought to read affidavits by Peter Poulos, which in part sought to remedy the void. I indicated that I would not admit paras 16, 18 and 19 of Mr Poulos’s affidavit sworn on 9 June 2005 and paras 6 to 13 of Mr Poulos’s affidavit sworn 20 June 2005. I indicated that I was prepared to admit the affidavit of Graham Fleet sworn 9 June 2005 since a copy of his report was annexed to the statutory affidavit.
In my view, the task required of a court by the Corporations Act 2001 (Cth), s 459H(2) requires evidence to be put on within the statutory 21-day period enabling the Court to make a determination of the offsetting total. That means that some evidence of quantum must be contained in the affidavit to enable the Court to take that course.
Minimum requirements of an affidavit in support of a disputed debt under the Corporations Act 2001 (Cth), s 459H(1)(a) were described by Sundberg J in Graywinter Properties at 459:
An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify.
It was submitted that an affidavit in support that is more than a mere assertion but less than final proof is insufficient. In my view it is insufficient if it does not contain material from which a Court, in a case under the Corporations Act 2001 (Cth), s 459H(1)(b), can make an estimate of the amount of an offsetting claim.
I was invited not to follow my decision in National Telecoms Group. I decline that invitation.
In Fords Principles of Corporation Law, Butterworths, Australia, 2000 at p 27, 162 the authors say this:
Because the court is required by s 459H(2) to determine “the amount of the claim” or “the total of the amounts of those claims”, a company which alleges that it has an offsetting claim must adduce some evidence to show the basis upon which its loss is said to arise and how that loss is calculated.
That does not mean that a party is required to swear to matters of final proof. What it does require is sufficient material indicating the nature of the offsetting claim and the way in which it is calculated to enable the statutory exercise under the Corporations Act 2001 (Cth), s 459H(2) to be carried out by the Court.
In this case, there is no evidence in the statutory affidavit that answers that requirement and I have excluded evidence by supplementary affidavit to fill that void. The consequence must be that the applicant has failed. I dismiss the originating process.”
- In my view, the same considerations apply in the present case. Whilst the material filed within the 21 day period indicated the nature of the offsetting claim, it certainly did not contain anything like the calculations to enable the statutory exercise under the Corporations Act to be carried out by the Court in the manner now contended for by the applicant in reliance on the subsequent report of
- On the basis of those findings, therefore, the calculation of the “substantiated amount” under s 459H calls for a reduction in the total amount of the statutory demand to $3,150,721.15 (to take account of the conceded part payments in relation to Invoice No 303) and then to offset against that the amount of $2,403,034.75, being the extent of the over-claim quantified in Mr Ganter’s first report. That yields a substantiated amount of $747,686.40.
- Pursuant to s 459H(4), I would order:
(a)that the statutory demand dated 20 November 2008 issued by the respondent to the applicant be varied by amending the amount claimed thereunder to be $747,686.40.
- I will hear the parties as to any further conditions which might be sought and as to costs.
- Published Case Name:
Mayaman Developments Pty Ltd v TQ Constructions Pty Ltd
- Shortened Case Name:
Mayaman Developments Pty Ltd v TQ Constructions Pty Ltd
 QSC 144
12 Jun 2009
- White Star Case: