Statutory demands and commercial reasonableness?
The two step review process required to issue a compliant statutory demand was recently confirmed by the Supreme Court of New South Wales in in the matter of Matrix Group Co Pty Ltd  NSWSC 1042.
TPS Group Services Pty Limited (TPS), as a building subcontractor to Matrix Group Pty Limited (Matrix), claimed that, after issuing an invoice for works completed in the amount of $46,485.45, the parties had agreed to settle the invoice for the amount of $40,000, such agreement being supported by a payment schedule issued under section 14 of the Building & Construction Industry Security of Payment Act 1999 (NSW). Subsequent discussions between TPS and Matrix reflected that Matrix would assess TPS’s claim as $40,000 on “two conditions”, being that TPS returned to site as soon as possible and that TPS remove the payment default against Matrix (Agreement).
Matrix argued that TPS did not return to site to complete the works and so the conditions of the Agreement were not met, disentitling TPS to the payment of the $40,000.
TPS issued a creditor’s statutory demand against Matrix in the amount of $40,000.
The primary reasons as to why statutory demands should not be issued by a creditor are where:
- there is a genuine dispute between the parties as to the existence of the debt; or
- if there is no dispute as to the existence of the debt, where there is a dispute as to the amount of the debt; or
- there is an offsetting claim.
The Court considered that there was a genuine dispute as to the existence of the $40,000 claimed as a debt. The “acceptance” by Matrix of the debt in the amount of $40,000 was not unconditional and therefore was not binding on the parties, to the extent that the conditions had not been met.
The Court highlighted the well-trodden principles in Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452 at 464 as to determining whether a bona fide dispute exists. A conditional offer by a party is not a guarantee of payment nor is a party entitled to the funds until such time as they meet the conditions of an agreement. The Court otherwise accepted that TPS may be correct that, if the debt did exist, there would be no dispute as to its amount of the debt.
Ultimately, the Court set aside the creditor’s statutory demand.
Creditors should carefully consider whether issuing a statutory demand is the appropriate avenue to pursue payment of a debt, particularly where there are payment plans or have been compromises on the debt value. Such agreements do not disentitle a creditor employing a creditors’ statutory demand; however, the loose ends on such agreements need to be addressed prior to the issue of a creditors’ statutory demand. Failing which, it is susceptible to being set aside by the Court upon application by the debtor, which leads to costs consequences for the creditor.