Chadwick Industries (South Coast) P/L v Condensing Vaporisers (Aust) P/L t/as R J Tinker Engineering

[1994] FCA 122

JUDGMENT No. ........ ........ .. ........ .... ,211 ,qv

I"

LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3292 of 1993

)

GENERAL DIVISION )

BETWEEN :  CHADWICK INDUSTRIES (SOUTH
COAST1 PTY LIMITED

Applicant

18 MAR 1994

FEDERAL COURT OF AND : CONDENSING VAPORISERS 1AUST)

AUSTRALIA

PRINCIPAL	PTY LIMITED t/as R J TINKER
REDISTRY	ENGINEERING

Respondent

18 FEBRUARY 1994

REASONS FOR JUDGMENT

LOCKHART J.

The application being heard today is to set aside a statutory demand pursuant to section 459G of the Corporations Law. The new regime relatingto statutory demands was introduced into the Corporations Law fairly recently. It has been the sublect of some judicial comment, including a judgment of mine in Topfelt Pty Limited v State Bank of New South Wales Limited

459H(l)(b). An offsetting claim is defined by S. 459H(5) as

meaning: 

(7 December 1993), though the precise point that has arisen in

this matter did not arise in Topfelt. I there referred to the

division at some length and analysed many of its provisions.	I
need not repeat what I said.

In an application like the one today the Court must be
satisfied that the applicant has an offsetting claim: S.

A genuine claim t h a t the company has agalnst the respondent by way o f counter-claim set o f f or cross-demand even i f i t does not ar ise out o f the same transaction or circumstances a s a debt t o which the demand re la tes .

So, t he question for decision today i s whether t h e Court i s s a t i s f i e d tha t t he applicant has a genuine counter-claim or

cross-demand agalnst t he respondent.	The expression "genuine
claim" has been considered b y several judges.	I t was a question

t h a t arose before Hayne	J . o f t he Supreme Court	o f V ic tor ia , i n
Mibor Investments Pty Limited	v Commonwealth Bank	o f A u s t r a l i a

(1993) 11 ACSR 362. His Honour examined the meaning o f those

words a t 366 and 367 and considered them i n the l i g h t o f some

f i v e matters t o which he referred a t 366. I t i s he lp fu l t o

repeat what he said because I agree with it:

. . . any application t o se t aside a

s ta tutory demand must be made very quickly:
i t must be made within 21 days.	Second, the

s ta tu t e contemplates a summary procedure, the only outcome o f which w i l l be an order a f f e c t i n g the s tatutory demand, not an order or judgment declaring a debt t o be owing or not t o be owing or ordering payment o f any money sum. T h i r d , the only signif icance that the s tatutory demand has i s that i f there i s a fa i lure t o comply with it then the company i s deemed t o be insolvent . Thus the demand i s no more than a precursor t o an Fourth, an application t o wind up i n application for winding up i n insolvency.

insolvency must be determined within 6 months (unless the court i s s a t i s f i e d that

special circumstances j u s t i f y an extension

o f t h a t t ime) : S . 459R. F i f t h , on the

hearing o f the application t o wind u p , the company may not oppose the application on grounds t h a t i t might have taken i n any application t o set aside the demand, unless those grounds are material t o proving that the company i s solvent.

His Honour said t h a t :

These matters, taken i n combination, suggest that a t l eas t i n most cases, i t i s not expected that the court w i l l embark upon any extended inquiry i n order t o determine whether there i s a genuine dispute between the parties and certainly w i l l not attempt t o weigh the merits o f t h a t dispute. A l l that the leg is la t ion requires i s that the court conclude that there i s a dispute and t h a t it i s a genuine dispute.

The point was also considered b y Thomas 3. i n the Supreme Court o f Queensland l n Morris	Caterlng	( ~ u s t r a l i a )	Pty Limited
( 2 8 September	1 9 9 3 , unreported) where h i s Honour	said	a t pages
7 and 8 :

There i s l i t t l e doubt that Division 3 i s

prescribes a formula that requires the Court	intended t o be a complete code which
t o assess the position between the parties and preserve demands where it can be seen that there i s no genulne dispute and no s u f f i c i e n t genuine o f f s e t t i n g claim. That i s not t o say that the Court w i l l examine the merits or s e t t l e the dispute. The speci f ied l i m i t s o f the Court's examination are the ascertainment o f whether there i s a 'genuine dispute' and whether there i s a
'genuine c laim' .

He went on:

"It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than the other. The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it). "

Beazley J. considered the matter in this Court in Scanhill Pty Limited v Century 21 Australasia Pty Limited (15 December 1993, unreported) at pages 26 and 27, where her Honour referred to the passages to which I have just referred in Thomas J. 'S ludgment and also to Haynes J.'s judgment in Mibor. Her Honour then went on to propound the appropriate test, for the purposes of S. 459H, to determine the correct approach to be made by a court in deciding whether there is a genuine clam.

The test that appealed to her Honour is whether the Court the applicant has an offsetting claim, a test well known with	is satisfied that there is a serious question to be tried that
respect to interlocutory injunctions. Whether her Honour's test is common to all the judgments to which I have referred, may be an arguable question. However, what appears clearly enough from all the judgments is that a standard of satisfaction which a court requires is not a particularly high one. I am for present purposes content to adopt any of the standards that are referred to in the cases: Haynes J.'s judgment, Thomas J.'s judgment or
Beazley J.'s judgment. The highest of the threshold is probably the test enunciated by Beazley J., though for myself I discern no inconsistency between that test and the statements in the other cases to which I have referred. However, the application of Beazley J. 'S test will vary according to the circumstances of the case.
Certainly the Court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute. The notion of a "genuine dispute" in this context suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the Court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, lt would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing
upon the applicant contains in the schedule thereto a description this new regime. I turn to the facts. The demand served by the respondent of the amount of the debt which the respondent says the applicant owes him. The amount is some $7750 and it is said to arise from a contract between the parties made in March 1993, the amount of the contract being $24,500. The amounts that have been paid by the company are said to be $16,750, leaving a balance due from the applicant to the respondent of some $7750.
There is some evidence of dispute as to the precise amount that has been paid by the applicant to the respondent, but nothing seems to turn on that for present purposes, as the area of dispute is fairly fine, the applicant saying it has paid $17,655.60, a difference of roughly $1000. The applicant claims that under a contract made on 17 March 1993 it agreed with the respondent for the respondent to design and supply a prototype platform trolley for materials to handle roofing components on the roof of a building to be constructed and known as the Aquatic Centre at the Homebush Bay Olympic Centre, for a price of $24,500.
It asserts that the prototype platform trolley in fact designed and supplied by the respondent was defective and was not suitable for its intended purpose. The applicant says that the defects were such that it required extensive engineering
modifications associated with design and checking of the trolley for Workcover Authority certification and that rectification works were necessary before the trolley could be used for its
intended purpose.
The applicant says that, by reason of the alleged default of the respondent, it incurred expenses in employing other contractors and time spent by its own officers and staff in rectifying the problems arising from the alleged faulty design and alleged defective trolley. It also claims it lost the benefit of the moneys it paid to the respondent pursuant to the contract.
The applicant has specified 12 categories of expenditure which it says it has incurred. I need not relate them all; they include engineering costs, staff costs and electrification work, access scaffolding, trolley storage and administration costs. The claim is for $61,210.84.
The evidence in support of the applicant's case leaves something to be desired. I realise it is difficult for a party to prepare its case in a short time and to prepare an affidavit of the kind required by S. 4596. It is difficult for a company which alleges faulty design of prototype machinery to organize its case into any proper state in a short time.
The matter came before the Court last year and I adjourned the filing of evidence and affidavits by the parties, and the then stood, was admittedly deficient. I gave directions as to ~t on the applicant's application, because the evidence, as it
matter came on today for final hearing. Affidavits were filed by the applicant. However, they suffered from some of the defects of the initlal affidavits. I acceded to the request of counsel for the applicant and allowed him to call oral evidence today from Mr Fitzgerald, who is a project manager of the applicant and held that position at all times relevant to this
claim.
The evidence as to the contract between the parties, on which the claim of the applicant is based, and the evidence of the alleged defective design of the workmanship and the expenses incurred by the applicant totalling its claim of $61,000-odd, is somewhat slight. Nevertheless, last Tuesday, 15 February, albeit at the eleventh hour, it filed in the District Court of New South Wales a statement of liquidated demand where it sets out its claim. In due course the District Court will hear the applicant's case and any motions that may be brought by the respondent with respect to it.
Whether the claim is found to be made out is a matter for the Distrlct Court; it is not for this Court to determine that matter. There is evidence from Mr Fitzgerald of a kind which, if it is accepted, suggests that there were substantial problems with the prototype platform that may emanate initially from design faults. Whether the defects are ultimately proved to exist, and if they are, whether they are the fault of the respondent, I do not know, and it is not appropriate to examine
that question on an application such as this.
In my opinion, this is not a case of a frivolous or vexatious clam by the applicant against the respondent. It is one which may or may not ultimately have substance; but in the light of the evidence, including Mr Fitzgerald's oral evidence, I am satisfied that there is a genuine claim in the sense in
which that expression is used in ss. 4596 and H of the Corporations Law. Whether the applicant will establish its claim in the District Court, is a matter on which I say nothing. For present purposes, it will be sufficient for the applicant to succeed to say that the claim is one which may be more than $7,750, whlch is the amount of the debt which the respondent is owed by the applicant.
Bearing in mind that the contract value of the machinery was $24,500, it is not beyond the bounds of reality that if there is a claim that is ultimately proved by the applicant, it may be a figure of at least $7750. I must emphasize again that I am not determining the merlts of any claim of the applicant against the respondent, nor am I determining the credibility of Mr Fitzgerald's oral ev1dence;but it was not suggested by counsel for the respondent that he was other than a credible witness.
the substantiated amount of the demand in accordance with the I should add that S. 459H(2) requires the court to calculate formula of admitted total minus offsetting total. In this case
the admitted total is $6,344, the offsetting total would be $61,210.84; but to comply with the section strictly one would have to deduct the larger from the lesser figure, which is a most odd requirement. I doubt if it is one intended by the section in those circumstances, but if it is, then the deduction of the greater from the lesser is the amount of the demand that is required by the section.
Accordingly, the Court orders that the statutory demand served by the respondent upon the applicant on or about 21 September 1993 be set aside.
The questlon arises as to what should be the appropriate order for costs. On 17 December the Court ordered that the applicant pay the respondent's costs of that day for the reasons which I then gave and need not repeat. The applicant sought an adjournment because its case was not in proper shape. It then had the benefit of directions to file and serve affidavits, but those affidavits were themselves defective. It was not until today, in particular not until Mr Fitzgerald gave oral evidence, that the Court was persuaded that there is a genuine claim of the kind to which ss. 4596 and H is directed.
In all the circumstances, the appropriate order for costs be no order for the costs of either party of today. Accordingly proceeding up to, but not including today, and that there should is that the applicant should pay the respondent's costs of the I make that order.

I certify that this and the preceding nine

(9) pages are a true copy of the reasons for

judgment herein of the Honourable Mr.

Justice Lockhart.

Associate a 4	P&
Dated:	18 February 1994

Counsel for the Applicant	Mr P Walsh
Solicitors for the Applicant :	O'Connor Filewood & CO
Counsel for the Respondent	Mr P Parsons
Solicitors for the Respondent :	Lassidy Gibson Howlin
Date of Hearing	18 February 1994
Date of Judgment	18 February 1994