In Re Straightline Construction Co Pty Ltd [2022] VSC 708 the Supreme Court, per Gardiner AsJ, considered an application to set aside a statutory demand on the grounds that the applicant was not a party to the agreement giving rise to a liability which formed the basis of a statutory demand.  This is quite a common issue where parties are involved in the building and construction industry.  It is not uncommon for builders to work through multiple entities, many of whose names are quite similar.   As this case demonstrates, it is not simply enough for the Applicant to allege that the wrong party was served with a demand as another entity was a party to the contract. As this case shows such a contention can be successfully challenged if the respondent has contemporaneous documentation and concessions by representatives of the applicant .

FACTS

 On 9 December 2021, Hansen Yuncken Pty Ltd (‘Hansen Yuncken’), as head contractor, engaged Straightline Civil Pty Ltd (‘Straightline Civil’), as subcontractor, (‘the Hansen Yuncken Contract’) to carry out retention and foundation piling works as part of a large residential construction project at Bills Street, Hawthorn (‘the Project’) [6]

Straightline Construction’s evidence was that:

• it defined the issue as

[Straightline Construction] disputes that the debt claimed in the Statutory Demand is due and payable, by reason of there being a genuine dispute that the debt is owing as the Company is not the entity which contracted with [Browns] to perform the services detailed in the Invoices, and the debts have not been sufficiently particularised.

•  Straightline Construction was incorporated in March 2020
• Straightline Construction performs civil construction works in metropolitan Melbourne, partiuclarly in  Brighton and Clayton
• there are various ‘Straightline’ entities with different controllers, each having its own role in different projects & that Straightline Construction is not involved in the Hansen Yuncken contract at all [38]
• where it is said that Browns had dealings with ‘Straightline’ for several years, it was in fact engaged by four separate Straightline entities depending on the project and the entity involved in the Project was Straightline Civil, not Straightline Construction [40].
• a direction should have been issued to make it clear that invoices were to be issued to Straightline Civil and not Straightline Construction [41] invoices addressed to Straightline Construction should have been requested to be reissued to Straightline Civil.
• on 20 September 2022, Peter Greenstreet, an Operations Manager of Browns, sent an email enquiring as to whom the invoices for the remaining works on the Project should be issued to & Oltan Yemez, representing Straightline Civil, responded, stating that all invoices should be issued to Straightline Civil [42].
• an ASIC search of Straightline Civil  records Tarkan Gulenc as the sole director & the correspondence referred to between Mr Gulenc and representatives of Browns confirms that Straightline Civil admits it owes the debt [43]
• in regard to correspondence relied on by Browns to support their proposition that Straightline Construction owes the debt, the reference to intentions to pay  does not refer to Straightline Construction being liable to pay the debt [46].
• the communications containing promises to pay in the text message exchanges on 8 July 2022 were in the context of a statutory demand having been served by Browns approximately one month before and no reference to the identity of the contracting party as Straightline Civil [47]
• an agreement has been reached (which he refers to as the ‘Tri-Partite Deed’) between representatives of Hansen Yuncken, Straightline Civil, and Browns in relation to the payment of outstanding amounts, whereby Hansen Yuncken agrees to pay progress payments due to Straightline Civil in respect of the Project directly to Browns, in satisfaction of outstanding invoices rendered by Browns in relation to the Project (including those the subject of the Demand) and that a total of $193,775.56 has been paid to date, being the payment of $105,739.93 (including GST) in relation to the July Payment Schedule and $88,035.63 (including GST) in relation to the August Payment Schedule [51] – [52].
• Staightline Construcion has never been contracted to perform subcontract work on any sites in Hawthorn [12]

The respondent’s evidencewas that:

•  its sole director, Browns, provided a quote on 20 December 2021 which was dated 17 December 2021 to a customer identified as ‘Straightline’ for piling works at the Project and  was emailed to the address Oltan@slecon.com.au [15].
• Oltan  emailed the respondent on 20 December 2021 with his email signature as ‘Project Manager’ of ‘Straightline’ and said ‘I hope this can work, if so let’s agree and lock this one in. It would be nice to see Browns on our job again.’[16]
• on 20 December 2021, Straightline and Browns agreed via email correspondence on the final quotation price in respect of the piling works and confirmed that Browns would undertake the works [17].
• Browns commenced the piling works on the Project on or around 17 February 2022 and on 12 April 2022 completed a the first stage of the Project and demobilised from the site [18].
• Browns has had dealings with the Straightline Group for several years & on 31 March 2020, Straightline Construction wrote directing all future invoices and correspondence dating from 1 April 2020 be made out to Straightline Construction. The letter appears to be a circular letter to contractors [19] and was signed by eonie Darling, who was described as the Account Manager [20].
• prior to the commencement of the work on the Project, Browns did not receive any further direction or requests from Straightline regarding the identity of the entity in the Straightline Group to whom invoices were to be issued & issued 3 invoices to Straightline Construction [22] being:

(a) invoice P2202 dated 21 February 2022 (‘February Invoice’);

(b) invoice P2202-1 dated 20 March 2022 (‘March Invoice’); and

(c) invoice P2202-2 dated 20 April 2022 (‘April Invoice’) [23]

• the March and April Invoices have not yet been paid and are the subject of the claim made in the Demand [23].
• on 17 May 2022,  Mr Gulenc responded to an enquiry for payment from the address tarkan@slecon.com.au to Ms Limnios copied to Mr Craig Vickerman, the General Manager of Browns) confirming payment of March invoice by “end of this month on 31/1 June” [25] – [26] would get back to Browns in the next week [27]
•  on 19 May 2022, the director of Straightline Construction, texted Vickerman, stating “Sorry Craig we tried our best yesterday trying to collect late payments so we can pass them on. Unfortunately with not much luck. You will be paid as per Tarkan’s email.” [30]
• the Construction Director of Hansen Yuncken advised that it paid ‘Straightline’ for all the piling works undertaken on the Project [32].
• on 7 June 2022 a statutory demand on Straightline Construction in respect of the unpaid invoices was emailed by his solicitors to Mr Parissis and Mr Gulenc [33].
• it was only after the Demand was issued that Straightline Construction and the Straightline Group allege the invoices for the Project were issued to the wrong entity in the Group [34] and on 1 July 2022, Brown’s soliciotors wrote to  Straightline Construction’s solicitors stating:

(a) your client expressly instructed Browns Piling to issue its Invoices to Straightline Construction Co;

(b) your client then proceeded to pay the first invoice for the work undertaken by Browns Piling on the site (invoice dated 21 February 2022, number P2202);

(c) your client (including its director) agreed that the Invoices were due and payable to Browns and committed to paying the Invoices; and

(d) your client has failed to pay the Invoices and has since engaged in avoidance and delay tactics

• in consideration for undertaking the additional works on the Project, Hansen Yuncken agreed to redirect payment to Browns of monies that were otherwise payable by Hansen Yuncken to Straightline under the July and August payment schedules issued by Straightline Civil to Hansen Yuncken. The monies paid to Browns by Hansen Yuncken were $105,739.93 including GST in relation to the July payment schedule and $101,341.56 in relation to the August payment schedule [57] and as a result of the payments made by Hansen Yuncken, the remaining debt owed to Browns in respect of the unpaid invoices is now $866,087.51 (‘the remaining statutory demand debt’) [58].
• the agreement reached with Hansen Yuncken does not concern the remaining statutory demand debt and Hansen Yuncken has not undertaken to make any further payments to satisfy the balance owing on the remaining statutory demand debt [60].

Straightline Construction’s submissions:

• focused on the issue of the identity of the contracting party [67]
• emphasised quotations issued by Browns for the piling works at the Project being addressed to ‘Straightline’ without specifying which legal entity was being referred to. Browns then rendered three invoices in respect of the Project, addressing them to Straightline Construction.
• regarding the direction issued by Straightline Construction on 31 March 2020 that all invoices were to be directed to it, this direction was one and a half years before the quotation [68]
• contend that the communications between Mr Parissis and Browns in relation to the debt occurred because Mr Gulenc was ‘unavailable’ and instructed Mr Parissis to respond on Mr Gulenc’s behalf in relation to Straightline Civil [71]
• emphasise that the process does not require a court to go any further than to determine whether there is a genuine dispute or not , not to determine the merits or resolve the dispute, or to decide any issues of fact. The genuine dispute must be ‘bone fide’ and ‘truly exist in fact’ and ‘the grounds are real and not spurious, hypothetical, illusory or misconceived’. Straightline Construction contends that the evidence demonstrates that there is substance to Straightline Construction’s position that it has an arguable case and that further investigation is warranted [72]
• the acceptance of payments by Browns from Straightline Civil through Hansen Yuncken under the Tri-Partite Deed in satisfaction of monies owed in the invoices the subject of the Demand put it beyond doubt that Straightline Construction is not the correct entity to which the Demand should have been issued and that Browns is aware of this fact [73].

Brown’s submissions:

• referred to the circular letter of 31 March 2020 requiring that ‘all future invoices and correspondence from 1 April 2020 … to be made out to Straightline Constructions Co Pty Ltd’ [74]
• referred to assurances that the invoices issued to Straightline Construction would be paid, being:
  •  on 16 May 2022, an email was sent by Browns to Mr Gulenc, the General Manager of Straightline, stating that Straightline’s office and accounts manager had advised that payment of the March invoice would be received by 13 May 2022;
  • on 17 May 2022, Mr Gulenc sent an email to Mr Vickerman, Browns’ General Manager, stating that the March invoice would be paid ‘at the end of May/1 June 2022’ and the April invoice at some unspecified later date
  • on 19 May 2022, Mr Parissis, the director of Straightline Construction, sent a text message to Mr Vickerman, confirming the contents of Mr Gulenc’s emai; and
  • Mr Gulenc sent a text message to Mr Vickerman stating that payment was ‘unlikely to be before the end of June with the way the circumstances are looking. As soon as I am able to forecast a payment date, I will let you [know]’ [77].
• referred to the principle considered by the Court of Appeal in Sceam Construction Pty Ltd v Clyne (‘Sceam’) that an affidavit in support of an application under s 459G of the Act necessarily requires that the material facts supporting the ground on which the application is made must have arisen before the expiry of the 21 day period stating the subsequent documents and communications relating to the negotiation of the agreement with Hansen Yuncken would not be admissible to construe the earlier contract under which the invoices were issued [83].
• there is no plausible contention requiring further investigation that Straightline Construction was the correct entity to issue the invoices to [86].

DECISION

The court described the issue for determination is whether, on an application of the relevant legal principles, there is a genuine dispute concerning the identity of the party that contracted with Browns in respect of the piling works. Straightline Construction contended that Browns contracted with Straightline Civil, whereas Browns contends that it contracted with Straightline Construction.

The Court summarised the principles by stating:

• in Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd, the Court of Appeal stated that the phrase ‘a genuine dispute’ uses ordinary English words and its meaning in any particular set of circumstances must be a question of fact, although its application is illuminated by the authorities [93] 
• Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) summarised the approach as follows:

The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.

The court is not required to accept uncritically every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.

• in Ligon 158 Pty Ltd v Huber, Barrett AJA stated:

The issue for the court is not whether the company would succeed on those grounds in defending a debt recovery action brought against it by the person who served the statutory demand. Rather, the court must decide whether the grounds of dispute delineated by the affidavit are grounds which, when viewed in the whole of the circumstances emerging from the evidence, indicate a plausible defence propounded in good faith and not one merely constructed in response to the pressure represented by the statutory demand. Issues of credibility will generally be confined to the question whether the asserted grounds are of that quality, as distinct from questions going to the ultimate merits of the postulated defence itself. …

• in Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Ptd Ltd the Court of Appeal observed:

In determining an application under s 459G, the Court’s function is to identify whether a genuine dispute or offsetting claim exists, not to determine any such dispute or claim. This means that the applicant under s 459G is required only to establish a ‘plausible contention requiring investigation’ of the existence of a genuine dispute or claim. The application will fail only if the contended dispute or claim is ‘so devoid of substance that no further investigation is warranted’. The resolution of the application should generally not involve the deciding of disputed questions of fact, but might require determination of short points of law.
In one sense, the question in the present matter is not so much whether there are genuine disputes or offsetting claims, as whether the respondent is precluded from advancing those disputes and claims by virtue of the deed of settlement. However, that issue in itself is germane to whether the disputes and offsetting claims are genuine — indeed, having regard to the applicant’s concession, it is determinative of that question.

• the threshold for establishing a genuine dispute is a low and by no means difficult or demanding one [98].
• while the Court will not embark upon any extended enquiry and will not attempt to weigh or assess the merits of the dispute, it does not preclude the Court from investigating the factual basis of a claim [99].
• in Britten-Norman Pty Ltd v Analysis and Technology Pty Ltd, the New South Wales Court of Appeal observed that contemporaneous documents are not necessarily sufficient to displace the existence of a genuine dispute or offsetting claim, notwithstanding that they might pose difficulties for the ultimate proof of the claim [101].
• in Creata Aust Pty Ltd v Faull, Barrett AJA drew a distinction between a genuine dispute concerned with the identification of a serious question to be tried or a plausible contention requiring investigation, and:

Another aspect, no less important, [which] requires that the serious question or plausible contention not be something merely created or constructed in response to the pressure represented by the service of the statutory demand. If the dispute is of that quality and is accordingly not advanced in good faith, it is not ‘genuine’ [103].

The Court noted:

• Straightline Construction failed to discharge the onus of establishing that the dispute it relies upon is genuine based on an analysis of the facts evidenced by contemporaneously generated communications and documentation passing between the parties during (and indeed after) [105]
• the only relevance of the Tri-Partite Deed is that, by reason that Hansen Yuncken directed payments that were otherwise payable to Straightline Civil under the Hansen Yuncken contract to Browns, this reduced the amount claimed under the Demand [122].
• there was no evidence that Browns was aware of the identity of the party with whom Hansen Yuncken had contracted with [123]
• Mr Brown’s evidence that the reason for entering into the Tri-Partite Deed was a means by which Browns could be paid at least part of the amount owing to it is plausible and consistent with the terms of the Tri-Partite Deed [123]
• Gulenc, the director of Straightline Civil, the entity said by Mr Parissis to be liable for the debt, who is also the General Manager of Straightline Construction, has not gone on affidavit in this application to explain his involvement in the matter [126]
• it was not credible that a party that has received invoices for over $1,000,000.00 would not have immediately taken issue with the identity to whom the invoices were directed to if its position was that another entity was liable for their payment [127]
• even if the dispute that Straightline Construction contends exists was arguable the cout accepted Brown’s submission that the dispute that Straightline Construction contends for is spurious and not genuine and ‘something merely created or constructed in response to the pressure represented by the service of the statutory demand’ [128].

The court dismissed the application with costs, including reserved costs [129].

ISSUE

This case highlights the importance of contemporaneous documentaiton which can defeat a claim about a wrong party being sued.  The respondent, Browns, was able to produce documents which not only undermined the applicant’s claim about the wrong party being sued but confirmed that invoices were to be sent to the respondent.  Claims that this directive was old and irrelevant without substantiation did not go far.