In the matter of NSW (M&H) Air Conditioning Pty Ltd

[2024] NSWSC 539

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of NSW (M&H) Air Conditioning Pty Ltd [2024] NSWSC 539

Hearing dates:

2 May 2024

Date of orders:

2 May 2024

Decision date:

02 May 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Order the creditor’s statutory demand be set aside. Order that costs be awarded as against the Defendant.

Catchwords:

CORPORATIONS – Debt – Application to set aside a creditor’s statutory demand – Whether a genuine dispute or offsetting claim exists – Where terms of contract between parties are contested.

CORPORATIONS – Statutory demand – Application to set aside – whether “Graywinter principle” applies.

Legislation Cited:

- Corporations Act 2001 (Cth) s 459H

- Evidence Act 1995 (NSW) s 136

Cases Cited:

- Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] 85 NSWLR 601; [2013] NSWCA 344

- Creata (Aust) Pty Ltd v Faull [2017] 125 ACSR 212; [2017] NSWCA 300

- GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] 128 FCR 1

- Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] 99 NSWLR 397; [2019] NSWCA 60

- Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] 70 FCR 452; [1996] FCA 882

- Hopetoun Kembla Investment Pty Ltd v JPR Legal Pty Ltd (2011) 87 ACSR1; [2011] NSWSC 1434

- Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd [2012] 92 ACSR 27; [2012] NSWSC 365

- Ligon 158 Pty Ltd v Huber [2016] 117 ACSR 495; [2016] NSWCA 330

- Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896

- Re Jana Pty Ltd [2022] NSWSC 112

- Re PSR Refining Services Pty Ltd [2023] NSWSC 243

- Re Showground Corporation Pty Ltd (25 October 2022)

- Sceam Construction Pty Ltd v Clyne (2021) 64 VR 404; [2021] VSCA 270

- Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] 19 ACLC 1270; [2001] VSCA 89

- Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] 76 FCR 452 at 464; [1997] FCA 681

- TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; (2008) VSCA 70

Category:

Principal judgment

Parties:

NSW (M&H) Air Conditioning Pty Ltd (Plaintiff)
Jet Air Conditioning and Refrigeration Services Pty Ltd (Defendant)

Representation:

Counsel:
G Carolan (Plaintiff)
Q M Noakhtar (Defendant)

Solicitors:
Bilbie Faraday Harrison (Plaintiff)
Lakis & Knight (Defendant)

File Number(s):

2023/465098

Judgment – ex tempore (Revised 3 May 2024)

Nature of the application

1. By Originating Process filed on 22 December 2023, the Plaintiff, NSW (M&H) Air Conditioning Pty Ltd ("M&H") applied to set aside a creditor's statutory demand dated 30 November 2023 (“Demand”) served by the Defendant, Jet Air Conditioning and Refrigeration Services Pty Ltd ("Jet Air"). By way of background, both M&H and Jet Air are air conditioning contractors, and M&H was a subcontractor for air conditioning works on a large development in Newcastle, comprising three towers of apartments with commercial premises on the ground floor of each tower and residential apartments. M&H retained Jet Air to provide labour to install air conditioning and ventilation works for the middle tower of the project, and I will refer to the terms and conditions of the relevant contract below.

2. The Demand claimed the amount of $39,856 inclusive of GST, being debts described in a schedule, and that Demand was verified by the affidavit dated 30 November 2023 of Mr Teuma, a director of Jet Air, who indicated his belief that there was no genuine dispute about the existence or amount of the debts. The debts were in turned described, in the schedule to the Demand, as amounts owing in respect of tax invoice 2409 dated 30 September 2023 in the amount of $30,000 inclusive of GST and tax invoice 2385 also dated 30 September 2023 in the amount of $13,904 inclusive of GST, less a credit in the amount of $4,048 inclusive of GST, to derive the total amount of $39,856 inclusive of GST. Invoice 2409 dated 30 September 2023 relates to "works to be completed for air-conditioning and ventilation works as per M&H Scope of Works for Middle Tower (labour only)" and refers to work order 58679, but does not further describe, by reference to hours, rates or persons working on the project, how the amount claimed has been calculated. The same position exists in respect of invoice 2385 also dated 30 September 2023. The Demand also does not indicate the basis for the credit in favour of M&H that is included in it, but it appears, from the submissions put by Mr Noakhtar who appears for Jet Air in the application, that the credit related to a claim, or part of a claim, for defects made by M&H in respect of the work undertaken by Jet Air.

3. Although the Originating Process filed by M&H did not identify the specific provisions on which M&H relied to set aside the Demand, M&H's evidence and submissions make clear that M&H seeks to establish both a genuine dispute as to the amount claimed in the Demand and an offsetting claim against Jet Air, for the purposes of s 459H of the Corporations Act 2001 (Cth) (“Act”). I will refer to the applicable legal principles below.

Affidavit Evidence

4. M&H relies on the affidavit dated 22 December 2023 of its director, Mr Swift, filed in support of the application to set aside the Demand, which refers to M&H’s engagement of Jet Air to perform the relevant works. Mr Swift annexes a quote provided by Jet Air in respect of the relevant works, in the amount of $225,000 plus GST, totalling $247,500 (Swift 22.12.23 Annexure D). That quote contains terms and conditions, described as being terms and conditions of the quotation and a "supply/install contract", and I have been taken to aspects of those terms and conditions in the course of submissions.

5. Paragraphs 1 – 3 of those terms and conditions, where first appearing under the heading "Price and Payment", provide that M&H, as customer, will be liable for the total cost of the contract irrespective of any other arrangements between M&H and Jet Air; M&H will not withhold any monies owing to Jet Air as retentions, set-offs or hold backs or for some other reason. The specified terms of payment require payment of a deposit, which it appears was not in fact payable; progress payments on the delivery of goods to site, which do not appear to have been applicable where goods were not delivered by Jet Air; and a final payment, including extra fees and charges where applicable, on the completion of works. The evidence suggests that the parties did not proceed on that basis, but on a different basis involving regular invoicing by Jet Air, and payment by M&H. Further terms and conditions under that heading, also numbered paragraphs 1 and 2, in turn provided that:

“1. [Jet Air] shall be entitled, if it elects to do so in its sole discretion, to render to [M&H] progress claims based on a pro-rata value of goods supplied or installation works completed for projects which extend over more than seven days. Payment of such claims are to be made by [M&H] within seven (7) days from [Jet Air's] invoice.

2. [Jet Air] reserves the right to stop work until any outstanding invoices have been paid in full.”

6. I pause to note that the application of paragraph 2 would depend, in part, upon when an invoice was “outstanding”, and that would in turn depend on the terms and conditions of the arrangement and, here, possibly also on the somewhat different practice adopted by the parties in respect of the issue and payment of invoices.

7. A further provision, appearing under the heading "Default", relevantly provided that:

“If [M&H] defaults in any payment, or if in the reasonable opinion of [Jet Air], [M&H] is unlikely to meets its liability to pay one or more invoices as and when they fall due, then [Jet Air] may at its option terminate any contract in relation to...installation services which have not yet been delivered...”

8. I have omitted references to dealings with goods in this paragraph, where it is common ground that the contract did not require the delivery of any goods by Jet Air. This provision allows Jet Air a right to terminate the contract, although its entitlement to exercise that right would depend on the existence of a default in payment by M&H, presumably because payment had not been made on a date it was due under the relevant contract, or the requisite “reasonable opinion” of Jet Air that “[M&H] is unlikely to meets its liability to pay one or more invoices as and when they fall due.” There is no evidence here that Jet Air formed such an opinion, whether reasonably or otherwise, or that it elected to terminate the contract, although I will refer below to the circumstances on which it ceased work on the project.

9. Returning to Mr Swift's affidavit, he notes that M&H accepted Jet Air's quote by issuing a purchase order, and it is plainly arguable that Jet Air’s engagement then proceeded in accordance with the terms and conditions contained in that quote, to which I have referred above. Mr Swift refers to the dates of invoices issued by Jet Air, and the dates they were received by M&H, in order to establish that invoices were received well after the dates shown on them. Mr Swift noted that M&H had paid Jet Air $158,449.50 inclusive of GST in respect of relevant invoices, although I have referred above to the Demand which relates to two further invoices which are presently unpaid.

10. Mr Swift then refers to the circumstances in which Jet Air ceased work on the site and, on M&H's evidence, that took place after Jet Air had laid off a significant number of its employees, or those employees had resigned. Mr Noakhtar draws attention to correspondence which indicates an alternative account of those events, suggesting that M&H may have made offers to employ or at least use some of those persons, whether before or after they ceased work with Jet Air.

11. Mr Swift's affidavit in turn refers to the two invoices rendered by Jet Air, which are the subject of the Demand, apparently after it had ceased work on the project, and indicates that:

“[M&H] has not paid [Jet Air] for invoice numbers 2385 and 2409 because [Jet Air] abandoned site before completing its work required under the contract, without explanation or warning.”

12. That paragraph of Mr Swift’s affidavit implicitly treats the contract as imposing an obligation upon Jet Air to complete the works for which it had quoted, rather than only to provide labour on a month by month basis, and Counsel have put opposing submissions as to that question. Jet Air denies that it ceased work "without explanation or warning" as Mr Swift claims, where there was correspondence, prior to it ceasing work, indicating its dissatisfaction with delays in payments made by M&H.

13. Mr Swift’s affidavit also addressed a series of defects which he identified in works completed by Jet Air, although it appears there is a dispute, to which Mr Noakhtar draws attention, as to whether relevant work was done under the supervision of staff of M&H and, in consequence, whether Jet Air was responsible for defects in the quality of the work done by its employees, if that work was done under the supervision of supervisors provided by M&H, rather than under its own supervision.

14. Mr Swift in turn refers to work done, by M&H staff and by third party contractors, to complete the relevant works, and quantifies the cost of that work as amounting to $91,280 plus GST in respect of work done by M&H staff, and $22,687.23 inclusive of GST in respect of work done by third party contractors. Mr Swift's evidence is that, having regard to the amount paid by M&H to Jet Air, and the further amount incurred in respect of its own employees and contractors to complete the relevant works, it cost M&H an additional sum of $34,044.73 inclusive of GST over and above Jet Air's contract sum to complete the relevant works. Mr Swift also refers to additional supervision costs incurred by M&H in that respect, although Mr Noakhtar contends that those supervision costs would have been incurred under the terms of the relevant contract in any event, and to further costs incurred by M&H in addressing defects in the work done by Jet Air. An exhibit to Mr Swift's affidavit in turn includes the invoices issued by Jet Air over the relevant period.

15. Jet Air in turn relies upon the affidavit of its director, Mr Teuma, dated 1 March 2024. Mr Teuma also referred to the circumstances in which the relevant contract was formed, and to the works which were undertaken by Jet Air’s employees on site. He provides a very detailed account of relevant events, addressing the circumstances in which Jet Air ceased work on site and subsequently issued the two invoices and the Demand. Mr Teuma in turn responds to Mr Swift's affidavit, disagreeing with aspects of that affidavit. Jet Air also tenders email correspondence, referred to in Mr Teuma's affidavit, which indicates that issues had arisen, prior to Jet Air's ceasing work on the site, in respect of payment arrangements for the project. Jet Air had been raising concerns that, in its perception, it had not been paid within 30 days after the end of the month, reflecting a payment practice that Mr Teuma indicates had been agreed between Jet Air and M&H at the commencement of the project, although that is plainly not the payment regime that is contemplated by the terms and conditions to which I referred above.

16. I pause to note one difficulty which immediately arises in respect of Mr Swift’s and Mr Teuma’s affidavit evidence in chief. These proceedings are a summary application to set aside a creditor’s statutory demand, not a determination of a construction claim on its merits. In those circumstances, it is not the Court's role to determine the multiple disagreements between Mr Swift and Mr Teuma as to the relevant events nor would it be possible to do so where neither was cross-examined. Instead, the existence of those disagreements is a matter which suggests that there is a genuine dispute, so far as the events which give rise to the relevant claims are contested. I will return to that question below.

17. In reply, M&H in turn reads three further affidavits. A further affidavit of Mr Swift which is directed to establishing the dates on which Jet Air's invoices were received, as distinct from the dates indicated upon them, implicitly to establish that invoices were not due for payment by the end of the month after the date shown on them, but instead at a later point, having regard to the dates on which those invoices were issued to M&H.

18. An affidavit dated 26 March 2024 of Mr Koop-Folkes, who was employed as a project manager on the site, refers to the process which was adopted for walk-throughs to review the air conditioning work with Mr Teuma, and to the circumstances in which Mr Koop-Folkes became aware of the termination of employment, or the resignation of, employees of Jet Air. His evidence is that he was advised by Mr Teuma on 4 September 2023 that Jet Air no longer had any workers to do the job and would not be returning to the site, so that M&H would need to take over the relevant works. Mr Koop-Folkes was also not cross-examined. Again, I remind myself that the Court's role in an application to set aside a creditor's statutory demand is not, generally speaking, to determine real disputes as to events as a matter of evidence, but instead to determine, on a summary basis, whether a genuine dispute or offsetting claim exists so as to require it to set aside the creditor’s statutory demand.

19. A further affidavit dated 27 March 2024 of Mr Layer, a site supervisor also working for M&H on the project, also refers to walk-throughs on the site, and raises concerns (admitted as evidence of his understanding with a limiting order under s 136 of the Evidence Act 1995 (NSW)) as to the quality of work undertaken by Jet Air, and also refers to the circumstances in which he became aware, in late August 2023, that Jet Air had only one staff member and an apprentice on site and that its workers had either resigned or been terminated, or at least he understood that to be the case.

Whether a genuine dispute is established

20. With that somewhat complex evidentiary background, I now turn to the applicable principles as to whether a genuine dispute is established and to the parties' submissions.

21. As I noted above, the first basis on which M&H seeks to set aside the Demand is that a genuine dispute exists for the purposes of s 459H(1)(a) of the Act. The Court has power to set aside a creditor's statutory demand under that section where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of a debt to which the demand relates. The case law is well established and I summarised it, inter alia, in my decision in Re PSR Refining Services Pty Ltd [2023] NSWSC 243 (“PSR”) at [16]ff, on which have drawn below.

22. A genuine dispute is one that is bona fide and truly exists in fact, where the grounds for that dispute are real and not spurious, hypothetical, illusory or misconceived: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] 76 FCR 452 at 464; [1997] FCA 681. It is well established, as Barrett J observed in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18] that:

“Once the company shows that even one issue has a significant degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.”

23. I also have regard to the Court of Appeal's decision in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] 85 NSWLR 601; [2013] NSWCA 344 ("Britten-Norman") where the Court of Appeal undertook a comprehensive review of the cases referable to whether a genuine dispute is established and emphasised (at [46]) that:

“In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the court is not concerned to engage in an inquiry as to the credit of the deponent of the affidavit filed in support of the application.”

24. The Court also there emphasised (at [47]) that the Court's role, in such an application, was:

“To determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim.”

25. I also bear in mind Barrett AJA’s summary of the applicable principles in Ligon 158 Pty Ltd v Huber [2016] 117 ACSR 495; [2016] NSWCA 330 at [8], and the similar approach adopted by the Court of Appeal in Creata (Aust) Pty Ltd v Faull [2017] 125 ACSR 212; [2017] NSWCA 300 (“Creata”) and again in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] 99 NSWLR 397; [2019] NSWCA 60 (“Grandview”), to which Counsel drew attention.

26. It is also important to recognise that, notwithstanding a submission by Mr Noakhtar which I understood to be to the contrary, it is well established that the Court should generally not determine questions of contractual construction, at least of any complexity, in an application to set aside a creditor's statutory demand. That position was emphasised by the Court of Appeal in Creata and applied by Williams J in Re Jana Pty Ltd [2022] NSWSC 112 at [15]. In Creata, the Court of Appeal also referred to observations of the Court of Appeal of the Supreme Court of Victoria in Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] 19 ACLC 1270; [2001] VSCA 89 at [4], where Brooking and Charles JJA observed that such a question should only be determined in an application of this kind where it was "plain as a pikestaff" that a particular construction was not tenable. I followed that approach in PSR to which I referred above.

25. Here, both counsel refer to the chronology of events which I have addressed above. Mr Carolan, who appears for M&H, submits that the contract between the parties arising from Jet Air’s quotation and M&H’s purchase order was an entire contract within Finn J’s description of that concept in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] 128 FCR 1 at 164-165; [2003] FCA 50 and Mr Noakhtar contends to the contrary. Mr Carolan in turn contends that the terms and conditions to which I referred above permitted Jet Air to invoice for "progress claims" based upon a "pro-rata value" of installation works completed for projects which extended over more than seven days.

26. Mr Carolan submits that a genuine dispute exists as to whether Jet Air was entitled to the amounts claimed in the two invoices which are subject to the Demand, so far as there is a dispute as to whether they reflected the pro-rata value of the work completed. He submits that Jet Air was required to substantiate the extent to which it completed the scope of work, relative to what remained to be completed, in order to establish its entitlement to payment under those invoices and that the invoices, on their face, did not do so. I do not necessarily accept that an invoice, or indeed a creditor's statutory demand, must substantiate the basis on which an amount is claimed, or convince the debtor that, on the face of the invoice or the demand, that amount is due and payable. Having said that, it seems to me that, first, there is plainly here a genuine dispute as to the basis on which the amounts claimed by Jet Air were payable, which depends in part on the question whether Jet Air’s obligations under the contract were or were not entire obligations; and also depends on whether the parties had adopted the provision for payment on a "pro-rata" basis under the terms and conditions, or some other payment arrangement arising from the dealings between them. The underlying arrangement is obscure, where Jet Air’s invoices were paid on a regular basis until the point at which they were not, and there is plainly also a real dispute as to the extent to which the relevant work had been completed.

27. It seems to me that the evidence led by Mr Swift, so far as it refers to the work which had not been completed at the time that Jet Air left the site and the costs that were incurred in completing that work, at least raises a genuine question that the final two invoices did not reflect a pro-rata claim for the work done to date, because a larger proportion of the work remained incomplete than the invoices reflected. Mr Carolan fairly accepts that the evidence led by M&H in that respect is not conclusive of that question, and that, in a determination of the relevant issues on the merits, there may well be other factual questions and further evidence, for example, as to the rates charged by M&H to complete the work, the manner in which the work was completed, and, indeed, possibly, the extent of the work that not been completed at the time that Jet Air left the site. However, it is not necessary for M&H to prove its case at this point, in order to establish a genuine dispute, since it need only establish that there is a matter that properly warrants inquiry, so as to give rise to the need for a determination on the merits, in the usual way, in order to establish a genuine dispute. It seems to me that it has plainly done so, both by reference to the uncertainty as to the applicable contractual terms, which is a matter that the Court should not determine in an application of this kind where a genuine dispute exists in respect of it, and the dispute as to whether the two invoices which are the subject of the Demand were not issued by reference to the pro-rata value of the installation works then completed.

28. It is also plainly genuinely arguable that, if the invoices were not issued in accordance with the terms and conditions, again assuming that the parties were in fact proceeding upon that basis, then an obligation to pay them does not arise under those terms and conditions and that gives rise to a genuine dispute as to the whole of the amount of the debt claimed in the Demand. That is, in my view, sufficient basis to set aside the Demand. The subtle arguments that are put by Mr Noakhtar, as to the construction of the terms and conditions, the possibility that they were not an entire contract, the interaction of the relevant provisions in the terms and conditions and the parties’ practice, and the extent to which the parties had departed from those terms and conditions in the administration of the contract, emphasise, rather than displace, the existence of a genuine dispute in that respect.

29. I have not neglected the fact that Mr Noakhtar also contended that Mr Carolan’s submission as to this issue was not available by reference to what is sometimes referred to as the "Graywinter" principle, referring to the decision in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] 70 FCR 452; [1996] FCA 882 (“Graywinter”). I bear in mind that, as Bell P (as the Chief Justice then was) observed in Grandview, that principle depends, in large part, upon the language of the statute, and has to some extent been modified by later case law. I should add to my oral judgment that I summarised the scope of that principle in Re Showground Corporation Pty Ltd (25 October 2022) as follows:

“… I should first note that that principle is not ultimately sourced in the case law, but reflects the structure of the statutory regime to set aside a creditor's statutory demand under s 459G of the [Act]. In Graywinter Sundberg J referred to the statutory requirement in s 459G(3) of the Act that there be an affidavit supporting an application to set aside a creditor's statutory demand and noted that the affidavit must disclose material facts identifying a genuine dispute between the parties. That principle has in turn been applied to prevent reliance on matters which are not disclosed, within the 21-day period, to establish a genuine dispute.

32. The balance of authority indicates that the principle raises a fact-specific inquiry as to whether an affidavit in support of an application to set aside a creditor's statutory demand in fact supports that application, and it will do so sufficiently if that dispute is raised expressly or is a reasonably available inference: Hopetoun Kembla Investment Pty Ltd v JPR Legal Pty Ltd (2011) 87 ACSR1; [2011] NSWSC 1434. In Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd [2012] 92 ACSR 27; [2012] NSWSC 365 at [29], the Court of Appeal in turn noted that what is required to disclose a dispute may depend upon the extent of a party's knowledge. There are some cases where the principle has been treated as involving notice to the defendant of the relevant claim; however, in my view, that principle is ultimately based, not upon notice of the claim to a defendant, but upon the statutory requirement of s 459G of the Act that the claim in fact be raised within the 21-day period. I will refer below to appellate authority that is consistent with that view.

33. The Court of Appeal in turn considered the principle in Grandview, where Bell P (as the Chief Justice was then) referred to provisions in the former Federal Court Rules which provided some reinforcement of that principle. It seems to me that, as the President's reference (at [40]) to the language of the statute implies, the so called Graywinter principle had its foundation in s 459G of the Act and never depended upon the Federal Court Rules which operated in parallel with it. The provision is a matter which goes to the Court's jurisdiction and not a matter involving any element of discretion on the Court's part.

34. The scope of the principle has in turn been considered, at considerable length, by the Court of Appeal of the Supreme Court of Victoria in Sceam Construction Pty Ltd v Clyne (2021) 64 VR 404; [2021] VSCA 270 at [11]ff, where the Court observed (at [38]) that what was critical was the legislative requirement that an affidavit support the application to be filed with the Court within the statutory period and that the question for the Court is whether the affidavit “supports” the application and, if it does, then the affidavit may be supplemented by evidence filed outside the statutory period and, if it does not, there is no jurisdiction to consider material filed beyond that period (at [42]).

35. This principle requires, in substance, that the application seeking to set aside the Demand, and the affidavit evidence in support, raises the relevant issue, whether expressly or by implication. I am satisfied that Mr Swift's affidavit filed at the time the application was brought raised that issue, since it drew attention to the cost of completion of the works, and the fact that the amount already paid by M&H to Jet Air combined with the cost of completion of the work significantly exceeded the contract sum. That necessarily raised, at least by implication, the suggestion that the amount invoiced by Jet Air, including the two invoices issued after it had left site which are the subject of the Demand, exceeded the pro-rata value of the works done by Jet Air. Once that issue was raised by the evidence led in Mr Swift’s first affidavit filed within the 21 day period, then it is open to M&H to rely on it in this application.

Whether an offsetting claim is established

36. It is possible to deal with this issue more briefly, where I have already found that a genuine dispute is established, and that is sufficient basis to set aside the Demand. Again, the principles are well established. An offsetting claim, for the purposes of s 459H(1)(b) of the Act, is the amount of a claim or claims that a company has against the person who served a creditor's statutory demand by way of counter-claim, set-off or cross-demand, whether or not the amount arises out of the same transaction or transactions as the debt to which the demand relates.

37. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; (2008) VSCA 70 at [71], Dodds-Streeton JA summarised what was necessary to establish an offsetting claim, namely that the party that seeks to establish that claim:

“Is required to evidence the assertions relevant to the...offsetting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile...[it] is not necessary for the company to advance, at this stage, a fully evidenced claim. Something between mere assertion and the proof that would be necessary in a court of law may suffice.”

38. In Britten-Norman at [20], the Court of Appeal in turn observed that:

“It is settled law that s 459H requires the court to be satisfied that there is a, 'serious question he to be tried'...or 'an issue deserving of a hearing' as to whether the company has such a claim against the creditor...the claim must be made in good faith.”

39. I have also had regard to the observations of Bell P as to the content of such a claim in Grandview at [62] - [66], to which Counsel drew attention.

40. Mr Carolan here puts M&H’s offsetting claim, simply, as the additional costs which M&H contends that it has incurred in order to complete the installation of the air conditioning and ventilation work, after Jet Air withdrew from the site, as evidenced in Mr Swift's affidavit, both by way of additional costs of its own employees, additional supervision costs, and additional costs of contractors, to which I have referred above. Mr Carolan also points to the costs of rectifying defects, quantified in Mr Swift's affidavit, although Mr Noakhtar responds that at least some part of those claims were addressed by the deduction in the Demand to which I referred above.

41. It seems to me also plain that, in the relevant circumstances, an offsetting claim exists. I accept that there will be a question, at a hearing on the merits, whether Jet Air was entitled to stop work, in the relevant circumstances, on the basis that its outstanding invoices had not been paid in full. It is likely that that contention will require detailed scrutiny, among other things, of the parties’ practice in respect of the payment of invoices, and the extent to which that practice had departed from the terms and conditions to which I have referred above, but the fact that those issues will arise in the dispute does not deprive it of a genuine character. I accept that there may also be a question whether Jet Air was entitled to terminate the contract in respect of installation services, on the basis that M&H had defaulted in payment, and that will again raise questions as to the terms of the relevant contract, the extent to which the parties had departed from the relevant terms and conditions in Jet Air’s quotation, and whether, as a matter of fact, Jet Air terminated the contract, where there is no evidence that it advised M&H of any termination of the contract, as distinct from the fact that it was simply ceasing work on the relevant site.

42. Again, I recognise that Mr Noakhtar advanced detailed submissions in this respect, including contending, for example, that some of the matters on which M&H relies to establish its offsetting claim would not properly be recoverable, as a matter of contract, or because they are not losses that followed from any relevant breach. Once again, I remind myself that the Court's role is to determine whether an offsetting claim exists, in an amount that exceeds the amount claimed in the Demand, having regard to the principles to which I have referred above, and not to determine that offsetting claim. The matters to which Mr Noakhtar refers are arguments which may well be put in a determination on the merits of the relevant dispute, but they are not matters which have the capacity to deprive the offsetting claim raised by M&H of its genuine character, or of having the character of a serious question to be tried, or an issue deserving of a hearing.

Conclusion and orders

43. I should finally return to a fundamental matter in respect of applications of this kind. The creditor's statutory regime is directed to the recovery of undisputed, and not genuinely disputed, debts. There is nothing unreasonable about the proposition that, where there are complex contractual and factual issues between the parties, which are significantly disputed in the affidavit evidence, and which raise issues as to construction of a contract that has been formed in a somewhat informal way, those issues should be determined on their merits in a court of appropriate jurisdiction rather than in a summary application of this kind.

44. For these reasons, I order:

1. The creditor's statutory demand for payment of debt dated 30 November 2023 issued by Jet Air Conditioning and Refrigeration Services Pty Ltd to NSW (M&H) Air Conditioning Pty Ltd be set aside.

2. The Defendant pay the costs of these proceedings, as agreed or as assessed.

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Decision last updated: 10 May 2024