Consideration of statutory demands is relatively infrequent by the appellate division of any Supreme Court in Australia.  So it is notable when the Victorian Court of Appeal, in Sceam Constructions Pty Ltd v Clyne [2021] VSCA 270, reviewed the operation of section 459G of the Corporations Act, the meaning of fair notice and what is meant by the Graywinter principle, which, apparently, is no longer a favoured term.

FACTS

The Clynes  engaged Sceam Construction Pty Ltd (‘Sceam’) to carry out renovation works at their home under the terms of a standard form ‘Simple Works Contract’.  The Clynes served a statutory demand under the Corporations Act 2001 (Cth) on Sceam for $109,514.23.  The debt is described as an amount due and owing having been certified by the architects for the project [1].

Sceam applied to the Court to set the demand aside. The application was dismissed by Associate Justice Matthews.  Her reasons are summarised at [53] – [59].

DECISION

A director of Sceam, Matthew Charles Allen (“Allen”), affirmed an affidavit which was filed with the application to set aside the demand. He deposed that he believed there was a genuine dispute about the debt because:

• the Clynes had relied on their architects as to what the defects and incomplete works were and there were design flaws in the architectural drawings, which were more of a guide than working drawings to construct and build the alterations.
• the Clynes had been told about the problems with the architectural drawings from the day construction started.
• he disagreed with the defects identified by the architects and
• he had disputed the debt from the day he received the architect’s certificate.
• the claim was  ‘invalid and disputed’ and exhibited various documents including some, but not all, pages of the contract between Sceam and the Clynes.

Allen deposed:

• at paragraph 7, [44]:

7. I believe Sceam is not indebted to the [Clynes] for the debt and the amount [comprising] the Debt claimed for the following reasons:

1. The [Clynes] have relied upon their Architects advice and subject to what he believes the disputed defects and incomplete works are.
2. The [Clynes] have been told from the day we started construction on site that the Architectural drawings from the Architect, you cannot construct this renovation to those drawings as we are continuously encountering designs flaws on a daily basis.

100. The design intent from the Architect did not work, and the Architectural drawings ended up being more of guide, than working drawings to construct and build the alterations and additions.

• about the problems with the project, at paragraphs 15 & 17 – [18], [45] & [46]:

15. Fifth problem encountered, due to the incorrect measurements from the Architectural documentation, installing the framework first floor we had to construct it to as built dimensions as the dimensions on the drawings did not work.

17. Due to the defective design of the structure from the Architect, this is why we encountered so many engineering problems and had to change engineering and come up with [new] solutions, to make the structure be able to be built.

18. All defects that have been brought to Sceam[’]s attention, we disagree with as the Architect has stated everything is defect. If everything was a defect, I would not have achieved Certificate of Final Inspection.

• about the problems with the architectural documents, at paragraphs 22, 23 and 27, [47]:

22. Ben Howard, a director at the time and still currently employed at Sceam Construction at the time of this Build has also disputed this debt.

23. I have disputed the debt from the day we received the amount from the Architect and Lawyers of $109,514.23 …

27. The [Clynes] has engaged Lawyers to represent them, I have disputed with the Lawyers that [the Clynes’] claim is invalid and disputed.

• that, [48], he tried to resolve the dispute by mediation, had sought conciliation and made application to the Victorian Civil and Administrative Tribunal and was waiting for a hearing date for that matter.
• the contract was a standard form contract, [49], and Allen exhibited the coversheet, table of contents, pages containing statutory notices and a warning and the completed schedules to the contract but not the pages containing the terms and conditions and there was no mention of:
  • the letter of demand the solicitors for the Clynes had served on Sceam,
  • the subsequent notice of default, or
  • the notice of termination [49].
• Mr Allen exhibited:
  • the statutory demand
  • the certificate of final inspection that Sceam had obtained
  • emails sent by him and Mr Howard in response to the statutory demand [50].

Mr Clyne’s affidavit in response, [51], filed outside the statutory time for setting aside a statutory demand, included:

• by exhibit, a full copy of the contract,
• correspondence between the parties,
• the letter of demand,
• the notice of default,
• the notice of termination,
• the initial assessment by the architect & Sceam’s responses to it,
• the architect’s review of Sceam’s responses;

the architect’s final certificate of the amount payable upon which the statutory demand was based.

Scean responded to Clyne’s affidavit via an affidavit made by a Mr Howard which:

• responded to  Clyne’s affidavit by way more  agreeing or disagreeing with each paragraph.
• agreed receiving the  the notices of default and that they had returned to the property to attend to any defects
• agreed that it had received the notice of termination but it ‘this was not done correctly to the building contract from Birch + Co Lawyers [the solicitors for the Clynes], they did not follow the termination procedure correctly.’
•  he disputed the initial determination of the architect and the certificate issued by the architect.

The Court undertook a lengthy review of the authorities commencing with Sundberg J’s judgment in  Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund  [11] – [37].

In  Graywinter, Sundberg J held that if an affidavit filed with the application does not satisfy the minimum requirements of s 459G(3), the court will not have jurisdiction to set aside the demand, [12]. Those minimum requirements are:

(a) the affidavit ‘must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute’;^[5]

(b) the affidavit ‘may read like a pleading’ and need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute;^[6] and

(c) neither a mere assertion that there is a genuine dispute nor a bare claim that the debt is disputed is sufficient.

The court noted that Sundberg J held that, where the supporting affidavit:

• did not meet the minimum requirements, the absence of jurisdiction could not be overcome by the filing of a supplementary affidavit after the expiration of the statutory period.
• met the minimum requirements, it could be supplemented by affidavits filed outside that period [13].

The most significant analysis however was the Court’s analysis, at [38] – [43], of the term “fair notice” and the Graywinter Principle.

The Court stated:

•  what is critical is the language in the legislation. It requires an affidavit supporting the application to be filed with the Court within the statutory period.
• in the context of a claim to set aside the statutory demand on the basis that there is a genuine dispute as to the existence or amount of the demand, pursuant to s 459H(1)(a), the affidavit must support the application by providing the basis for establishing that there is a genuine dispute.
• establishing the genuineness of the dispute requires material showing, or from which it can be inferred, that there is a real dispute.
• if the deponent describes the dispute that description will delineate the scope of the dispute which may be relied upon to set the demand aside.
• where the dispute is based purely on the construction of a written agreement between the parties, the support requirement may be satisfied by exhibiting the agreement without more.
• if something beyond the written terms of an agreement is to be relied upon, then it is highly likely that this will need to be raised in the affidavit and more than mere assertion will be necessary [38].
• whether the terms ‘fair notice’ or ‘fairly alert’ are used or whether it is said that the ground must be raised ‘expressly, by necessary inference or by a reasonably available inference’, the outcome turns on whether the affidavit supports the application.
•  ‘fair notice’ and ‘fairly alert’ is not used in a procedural fairness sense. Those phrases are shorthand for the lengthier phrase ‘expressly, by necessary inference or reasonably available inference’ which  requires that the grounds for resisting the statutory demand appear in the affidavit [39].
• the language of ‘fair notice’ and ‘fairly alert’ describes one of the key purposes of the affidavit required to be filed and served under s 459G(3)[40].
• it is preferable to avoid use of the term:
  • ‘fair notice’ as it is not used in the statute itself, and is susceptible to misinterpretation
•  ‘Graywinter principle’. It is more appropriate to use the language of the statute and to consider whether the statutory period affidavit ‘supports’ the application.
• it is clear from the authorities that an affidavit filed within time that does not identify the dispute later sought to be relied upon is not a ‘supporting affidavit’ in so far as the different genuine dispute is concerned, and that the party concerned is not permitted to rely on that different genuine dispute if it was not identified in the supporting affidavit filed within the statutory time period [43].

The Court in dismissing the appeal stated:

• the starting point is to consider whether the affidavit raised as a basis for setting aside the demand an attack on the notice of default, because that is the linchpin that would arguably bring down the termination and the architect’s certificate [88].
• there was no reference to  the notice of default nor the terms of the contract in the affidavit [89].
• while the affidavit  ‘disagreed’ with the asserted defects, nowhere was  any issue raised about whether the defects were a breach of a ‘substantial obligation’ within the meaning of the contract and  there was no description that would have enabled a legal argument to be mounted that the defects did not constitute a breach of a substantial obligation[89].
• the affidavit and the exhibited correspondence repeated the language of the statute by saying that there was a dispute about the defects and that that dispute was genuine [91].
• in order for an inference — directed to the identification of the real or genuine dispute — to be reasonably available, there must be a solid foundation from which such inference can be drawn. Almost the entire documentary foundation for the suggested inferences is absent. There is nothing from which the suggested inferences can properly be drawn. The consequence is fatal [91].
• there was nothing in the affidavit, or exhibited to it, that supported expressly, or by necessary or reasonably available inference, an argument that the time to comply with the notice of default had been altered with the effect that the termination was premature. Nor was there anything in the affidavit to suggest that the scope of the notice of default was ambiguous [92].

ISSUE

The Court of Appeal has sought to clarify what is required in 459G applications. It has eschewed the use of fair notice terms and the Graywinter principle and sought to return to merely having regard to the legislation.  It is clearly concerned that the term fair notice is being interpreted as giving rise to procedural fairness issues where the focus is always on the supporting affidavit filed within time.  It is that affidavit which identifies and sets out the basis for the genuine dispute.  It is also the scope of that affidavit which defines and confines what other material can be filed in support of the application.

The initial supporting affidavit is of critical importance.  While there are 21 days to prepare, swear/affirm, file and serve that document that can turn into quite a short time.  There can be a delay between the client providing the statutory demand to a solicitor and then there is the need to peruse documents and determine whether there is a genuine dispute at law and finally there is a need to draft a coherent affidavit.  The supporting affidavit must address the genuine dispute that will be argued before the court.  It is not a holding affidavit and is not a means to let other issues be relied upon through latter affidavits.  If a basis for the genuine dispute which will be relied upon at trial is not in the supporting affidavit the court will not have jurisdiction to hear it.  In this case the initial affidavit was lacking which meant the basis for the quite involved technical argument run by Screan.