Re Datlas-Rahme Construction Pty Ltd

[2016] NSWSC 1833

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Datlas-Rahme Construction Pty Ltd [2016] NSWSC 1833
Hearing dates:	6 December 2016
Decision date:	16 December 2016
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Court orders that the Plaintiff’s application to set aside the creditor’s statutory demand be dismissed with costs.
Catchwords:	CORPORATIONS — Winding up — Application to set aside creditor’s statutory demand under s 459H of the Corporations Act 2001 (Cth) – where plaintiff contracted with defendant for the defendant to perform painting works on a third party’s property – where plaintiff contended defendant caused damage to third party’s property – where plaintiff contended that costs of remedying defects caused by defendant constituted offsetting claim – whether there was contract between plaintiff and third party under which plaintiff may be contractually liable to rectify damage caused by defendant – whether offsetting claim under s 459H of the Corporations Act 2001 (Cth) established.
Legislation Cited:	- Building and Construction Industry Security of Payments Act 1999 (NSW), ss 23, 25 - Corporations Act 2001 (Cth), ss 459G, 459H, - Home Building Act 1989 (NSW), ss 7, 10, 18B, 48MA, 92
Cases Cited:	- Advance Ship Design Pty Ltd v DJ Ryan t/as Davies Collision Cave (1995) 16 ACSR 129 - Al Raied v Minister for Immigration & Multicultural Affairs [2000] FCA 1357 - BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982; (2008) 68 ACSR 1 - Beauty Health Group Ltd v Sholl [2011] NSWSC 77 - Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 - Bull v Lee (No 2) [2009] NSWCA 362 - Carr v Finance Corporation of Australia Ltd (No 1) [1981] HCA 20; (1981) 147 CLR 246 - Collier Nominees Pty Ltd v Consolidated Constructions Pty Ltd (Supreme Court of New South Wales, Santow J, 3 July 1998, unreported) - Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 - Douglas Aerospace Pty Ltd v Indistri Engineering Albury Pty Ltd [2015] NSWSC 167 - J Group Constructions Pty Ltd v PGA Rendering Group Pty Ltd [2015] NSWSC 1607 - Jackson v Conway [2000] FCA 1530 - Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6; (2015) 255 CLR 62 - Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 - Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 - Mizzi v Reliance Financial Services Pty Ltd [2007] NSWSC 37 - Notaras v Waverley Council [2007] NSWCA 333 - Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd - Re Australian Property Custodian Holdings Limited (in liquidation) (recs and mgrs apptd) (as responsible entity of the Prime Retirement Aged Care Property Trust) [2012] NSWSC 679 - Re Diveva Pty Ltd [2015] NSWSC 509 - Re Pages Sales Pty Ltd [2016] NSWSC 616 - Royal Premier Pty Ltd v Taleski [2001] WASCA 48 - Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 - Tennant Ltd v Flomin Inc [2009] NSWSC 1246 - Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 - Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363
Category:	Principal judgment
Parties:	Datlas-Rahme Construction Pty Ltd (Plaintiff) Mohammad Nasir Zabih trading as Shine Painting (Defendant)
Representation:	Counsel: J D Beck (Plaintiff) C Bolger (Defendant)   Solicitors: Forum Law (Plaintiff) G & S Law Group (Defendant)
File Number(s):	2016/214468

Judgment

1. By Amended Originating Process filed on 7 September 2016, the Plaintiff, Datlas-Rahme Construction Pty Ltd (“DRC”) applies to set aside a creditor’s statutory demand dated 24 June 2016 (“Demand”) served by Mr Mohammad Zabih trading as Shine Painting (“Shine Painting”).

Factual background and affidavit evidence

2. By way of background, the claim by Shine Painting reflected in the Demand, and an offsetting claim on which DRC relies to resist the Demand, arise out of an arrangement for Shine Painting to perform painting work on a substantial residential construction in 2014 and 2015. As will emerge below, there is lack of clarity as to the parties to the contract with Shine Painting, since much of the correspondence between the parties was in the name of Mr Rahme or the Datlas-Rahme Construction Group, rather than in the name of any particular entity in that Group. On 13 June 2014, Shine Painting provided an initial quote addressed to Mr Rahme for painting work on the property ( Mohammad Zabih 17.8.16, CB 495–501). On 12 July 2013, another entity, A&D Rahme Constructions Pty Ltd (“A&DRC”), contracted with the owners of the property, Mr & Mrs Kaltoum, for the construction works and A&DRC then issued a scope of works to Shine Painting (Rahme 14.7.16, Annexure H). By email dated 25 July 2014, Mr Rahme accepted a quote from Shine Painting for the work (Rahme 14.7.16, Annexure H, CB 129).

3. A&DRC was placed in administration on 2 March 2015, an event which has substantial significance for the issues which I address below. Mr Rahme’s affidavit evidence in these proceedings (although he took a different position in an adjudication to which I refer below) is that DRC then “took over the job the subject of these proceedings” from March 2015 (Rahme 15.9.16 [8]). Mr Kaltoum’s evidence (Kaltoum 16.9.16 [8]) is that:

“In March 2015 A&D[RC] had a liquidator appointed and David Rahme’s other company namely [DRC] took over the running of the job.”

That evidence provides no real assistance in identifying the means by which DRC assumed any responsibility for the building works and whether that involved anything more than DRC commencing work on the site after A&DRC was placed in administration.

4. There is contemporaneous evidence to support the existence of issues as to the quality of the painting work undertaken by Shine Painting, including an email dated 30 June 2015 from Mr Rahme to one of Mr Zabih’s sons (Rahme 14.7.16, Annexure B) (after A&DRC was placed in administration) seeking to have Shine Painting return to the site to rectify defects to the painting work, on the basis that Mr & Mrs Kaltoum would otherwise engage another painter to carry out rectification work and deduct the cost from what was owed to Shine Painting.

5. On 22 September 2015, Shine Painting brought a payment claim against Mr Rahme under the Building and Construction Industry Security of Payments Act 1999 (NSW) (“SOPA”) (Rahme 14.7.16, Annexure C). Although that claim was brought against Mr Rahme, the adjudicator determined that DRC had entered a contract with Shine Painting, although the head contract for the construction of the residence was between A&DRC and Mr & Mrs Kaltoum, and the adjudication decision dated 8 October 2015 required DRC (rather than Mr Rahme) to pay $64,966 to Shine Painting. On 4 February 2016, the Local Court of New South Wales entered judgment in favour of Shine Painting against DRC in the amount of $73,912.98 including interest based on that adjudication decision.

6. The Demand claimed an amount of $73,912.98, described in the schedule as the amount of the judgment debt in the Local Court of New South Wales dated 4 February 2016. The Demand was verified by an affidavit of Mr Mohammad Zabih dated 24 June 2016 which referred to the judgment debt and confirmed that the debt was due and payable by DRC and that Mr Mohammad Zabih believed there was no genuine dispute about the existence or amount of that debt.

7. The application to set aside the Demand was in turn supported by an affidavit of Mr David Rahme, who is the sole director of DRC, dated 14 July 2016. Mr Rahme’s evidence (contrary to the position that he took in the adjudication) is that DRC entered into a contract with Shine Painting for it to supply and perform painting services in respect of the residence. Mr Rahme’s evidence is that he communicated DRC’s dissatisfaction with the quality of the works to Shine Painting during the course of the project, and I have referred above to contemporaneous correspondence which supports that evidence.

8. Mr Rahme refers to an application that has since been filed by DRC in the New South Wales Civil and Administrative Tribunal (“NCAT”) in relation to alleged defects in the works performed by Shine Painting. That application proceeds on the basis that DRC “entered into a contract with” Shine Painting by which Shine Painting was to supply and perform painting services at the residence and alleges that those works were defective. DRC brings a claim in respect of defective works for an amount in excess of $143,278.39, made up of amounts of $13,904.79 inclusive of GST paid to third party suppliers to date to rectify defects and a further claimed amount of $129,373.60 inclusive of GST to be paid to third party suppliers to rectify defects. (The question whether a claim is available on a basis inclusive of GST, where DRC would ordinarily receive a tax input credit, was not addressed by Counsel in submissions and is not material to the determination of this application.) Mr Rahme’s evidence is that he believes that DRC has an offsetting claim as contained in the application to the NCAT for defective works undertaken by Shine Painting which he estimates in the amount of about $143,278.39 (as noted above) and a further claim for failure to complete the works.

9. DRC also relied on a further affidavit of Mr Rahme dated 15 September 2016, which responded to affidavits of Mr Mohammad Zabih sworn 17 August 2016 and Mr Mike Zabih sworn 18 August 2016 on which Shine Painting relied. Mr Rahme’s evidence in that affidavit is that DRC took over the relevant project from March 2015, when A&DRC was placed in liquidation. Mr Rahme also sets out, at some length, his dealings with Mr Mohammad Zabih and one of his sons, Mr Atif Zabih, in respect of the painting works on the residence. Mr Rahme also refers to a meeting with, inter alia, Mr Mohammad Zabih of Shine Painting on 2 June 2015 at which complaints are said to have been made as to the cost of painting timberwork in enamel, the cost of other variations, the quality of the work and that there were too few painters on site to complete the work. I will refer to Mr Rahme’s evidence as to the particular matters alleged to give rise to an offsetting claim below. Mr Rahme also refers to a further meeting on 6 July 2015, at which a further conversation took place concerning defects in the work, including scratches on glass window panes that were alleged to have been caused by Shine Painting.

10. Mr Rahme also refers to a schedule of payments and rectification work sent to Mr Mohammad Zabih on 31 July 2015 (Rahme 15.9.16, Annexure “D”). The cost of rectification work claimed in that schedule is limited, referring to a deduction for replacement hinges in the amount of $1650, rectification of internal defects in the amount of $5654 and external defects in the amount of $1500 and cleaning of overspray in the amount of $2500, totalling about $11,300. That amount is much less than is now claimed by way of offsetting claim by DRC. That schedule does not refer to rectification of the scratches on glass window panes which are now a substantial component of the offsetting claim, which had (according to Mr Rahme’s and Mr Kaltoum’s evidence) been identified in July 2015 and which are alleged to have resulted from removal of masking tape and paint overspray (Rahme 15.9.16 [26]; Kaltoum 16.9.16 [11]). Mr Rahme seeks to explain that omission by the fact that the full extent of the cost to rectify those scratches on the windows was not then known (Rahme 15.9.16 [29]). His evidence is that 702 panes of glass were scratched in this fashion and he refers to a quote by a third party to supply and install new panes of glass totalling $61,776 plus GST, to which I will refer below (Rahme 15.9.16 [30]).

11. DRC also relies on an affidavit of Mr Kaltoum, dated 16 September 2016, whose evidence is that he and his wife entered into a contract for the construction of the house with A&DRC and that he instructed A&DRC to accept Shine Painting’s quote to paint the house. Mr Kaltoum also refers to a payment he claims to have made to Shine Painting of $25,000 in cash, which is in dispute, and to issues as to the quality of the painting work and damage to door hinges and to glass window panes, to which I will refer below.

12. Shine Painting relied on Mr Mohammad Zabih’s affidavit dated 17 August 2016 and the affidavit of his son, Mr Mike Zabih, dated 15 August 2016. Those affidavits were substantially identical in several portions and that matter would at least have reduced the extent to which Mr Mike Zabih’s affidavit could provide any real corroboration of Mr Mohammad Zabih’s evidence. However, the present application is summary in character, and not a hearing on the merits, where the Court would seek to reach findings of credit as to the relevant witnesses. As I will note below, all that I am presently required to do, or properly should do, is to determine whether the matters raised by DRC are genuinely arguable or raise matters that warrant further inquiry, and it is not necessary or appropriate to form any view as to the weight that would be given to the Messrs Zabih’s evidence at a final hearing for that purpose. Shine Painting also relies on Mr Mohammad Zabih’s further affidavit dated 24 October 2016 and further affidavits of his sons, Mr Mike Zabih and Mr Atif Zabih, also dated 24 October 2016. Those affidavits deny liability in respect of defective work alleged against Shine Painting and set out a detailed factual account of the dealings between Shine Painting and Mr Rahme.

13. Ms Beck, who appears for DRC, rightly pointed out, although only in closing submissions and after the affidavits of the Messrs Zabih had previously been read, that there were difficulties with the attestation of each of those affidavits, which purported to be made on oath but omitted the jurat and were merely signed by the deponent before a solicitor. Had that objection been taken to those affidavits, before they were read, I would not have permitted them to be read unless each deponent had first adopted the affidavit, on oath, as his sworn evidence. It may be that this matter should also be treated as reducing the weight to be given to the affidavits. In the event, nothing turns on that matter, where the resolution of these proceedings does not turn upon whether the evidence of the Messrs Zabih should be preferred to the evidence of Mr Rahme and Mr Kaltoum. It is not the Court’s role in a summary application of this kind to determine contested questions of fact on the merits, rather than to determine whether a serious question to be tried or a matter warranting further inquiry is established in respect of the offsetting claim.

The applicable legal principles

14. DRC rightly did not seek to establish a genuine dispute in respect of the existence of the debt claimed by Shine Painting, where it is not open to it to do so as long as the judgment reflecting the adjudication under the SOPA remains in force. DRC also did not seek to establish an offsetting claim relating directly to the amount which would be payable under the adjudication under the SOPA, where such a claim would also not be available to it on the balance of the authorities: Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91; Douglas Aerospace Pty Ltd v Indistri Engineering Albury Pty Ltd [2015] NSWSC 167; J Group Constructions Pty Ltd v PGA Rendering Group Pty Ltd [2015] NSWSC 1607.

15. DRC seeks to establish an offsetting claim referable to the costs of remediation of defective work allegedly undertaken by Shine Painting. The authorities indicate that an offsetting claim, in respect of a defect in work done by a contractor, is available to resist a creditor’s statutory demand relying on an adjudication under the SOPA and a consequential judgment debt: BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982; (2008) 68 ACSR 1 at [2]; Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd above at [69]. In J Group Constructions Pty Ltd v Indistri Engineering Albury Pty Ltd above, Robb J held that, although ss 23 and 25 of the SOPA may prevent a dispute of the adjudication amount, it was open to the party subject to the adjudication to rely on a separate offsetting claim which it was prosecuting in the District Court of New South Wales, which was distinct from a challenge to the validity of the debt, and varied the creditor’s statutory demand by the amount of the plaintiff’s offsetting claim established in that case.

16. I now turn to the principles applicable to establishing an offsetting claim under s 459H(1)(b) of the CorporationsAct, and have drawn on the summary in my decision in Re Pages Sales Pty Ltd [2016] NSWSC 616 in that regard. An “offsetting claim” for the purposes of that section 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 counterclaim, set-off or cross-demand, whether or not that amount arises out of the same transaction or circumstances as the debt to which the demand relates: s 459H(5) of the Corporations Act. If the court is satisfied that a company has an offsetting claim, then the court is required to calculate the “substantiated amount” of the demand by deducting any offsetting claim from the admitted amount of the debt: s 459H(2) of the Corporations Act.

17. A company can establish an “offsetting claim” if there is a “serious question to be tried” or “an issue deserving of a hearing” as to whether the company has such a claim against the creditor and that claim is made in good faith and is arguable and not frivolous or vexatious: Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 356–7. In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at [18], Palmer J observed that:

“A genuine offsetting claim … means a claim or cause of action advanced in good faith for an amount claimed in good faith. ‘Good faith’ means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful.”

18. The test for an offsetting claim was summarised by Brereton J in BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd above at [4] as follows:

“The test for determining whether there is a genuine offsetting claim is whether the court is satisfied that there is a serious question to be tried that a party has an offsetting claim (Scanhill Pty Ltd v Century 21 Australasia; (1993) 47 FCR 451; 120 ALR 173; 12 ACSR 341) or that the claim is not frivolous or vexatious Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. In other words, the claim must be bona fide and a truly existing fact and not spurious, hypothetical, illusory or misconceived (Ozone Manufacturing Pty Ltd v DCT (2006) 94 SASR 269; [2006] SASC 91 at [46]). In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 (Macleay Nominees), Palmer J put it in the following terms (at [18]):

In my opinion, a genuine offsetting claim for the purposes of [Corporations Act] s 459H(1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. “Good faith” means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s 459H(1) and (2).”

19. In Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [23], Barrett J (as his Honour then was) similarly observed that s 459H(1)(b) of the Corporations Act, read in conjunction with the definition of “offsetting claim” in s 459H(5) of the Corporations Act:

“… requires the court to consider whether the plaintiff has a ‘genuine’ claim against the defendant in respect of the matter raised. It is also necessary to ascribe an ‘amount’ to any ‘genuine’ claim in order to determine, under s 459H(2), the ‘offsetting total’ which plays a central part in determining whether the ‘substantiated amount’ is less than the statutory minimum of $2,000. The court’s task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried (Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith (Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious (Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37).”

20. In Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 (“Britten-Norman”) at [30]–[31] and [39]–[55], the Court of Appeal in turn referred to the relatively low minimum requirements for demonstrating an offsetting claim. The Court of Appeal there noted at [30] that:

“It is settled law that s 459H requires the court to be satisfied that there is a ‘serious question to be tried’: see Scanhill v Century 21 Australasia at 467, or ‘an issue deserving of a hearing’ as to whether the company has such a claim against the creditor: see Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd [1995] FCA 1208; 17 ACSR 128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 84 FCR 454 per Emmett J (as his Honour then was). The claim must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd. In that case, Palmer J observed, at [18], that good faith, in this context, meant that the offsetting claim was arguable on the basis of facts that were asserted ‘with sufficient particularity to enable the court to determine that the claim is not fanciful’.”

21. In Britten-Norman above at [36], the Court of Appeal also observed that, although there must be evidence that satisfies the court that there is a serious question to be tried or an issue deserving of a hearing or a plausible contention requiring investigation as to the existence of an offsetting claim:

“evidence sufficient to satisfy this test, given the time period in which the affidavit must be filed, cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable.”

The Court of Appeal also observed (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 enquiry as to the credit of the deponent of the affidavit filed in support of the application.”

The Court of Appeal summarised the position (at [47]) as being that the court’s role is:

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

22. At the same time, in Re Diveva Pty Ltd [2015] NSWSC 509, I observed (at [26]) that:

“I do not understand the Court of Appeal’s approach in Britten-Norman above to require the Court to eschew any evaluative exercise as to whether there is a plausible basis for an offsetting claim, where such an evaluation is contemplated by the earlier cases to which they refer, and seems to me to be necessarily required by any determination of whether there is a serious question to be tried, an issue deserving of a hearing, or a plausible contention requiring investigation.”

23. Ms Beck also refers to the decision of the Court of Appeal of the Supreme Court of Victoria in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 (at [47]–[50]) which described the applicable principles as follows (omitting citations):

“The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.

In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim. It is therefore 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 another. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.

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.”

24. It is necessary for DRC to establish a seriously arguable case not only as to liability, but also as to quantum, in respect of its offsetting claim. In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743, Palmer J noted (at [18]) that this required that the claim be arguable "on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful." In Royal Premier Pty Ltd v Taleski [2001] WASCA 48 at [57], Ipp J in turn noted that “there must be at least some material upon which the court can conclude that some damage has been sustained and which will enable the court to make a reasonable assessment as to the amount thereof”. In Douglas Aerospace Pty Ltd v Indistri Engineering Albury Pty Ltd [2015] NSWSC 167 at [40], Brereton J observed that:

“While the full amount of an offsetting claim is to be deducted from the admitted total to ascertain the substantiated amount [Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263], that applies only to the extent that the offsetting claim is genuine. Thus a company relying on an offsetting claim must adduce evidence that enables the court to ascertain the amount of the genuine claim to the extent necessary to apply the formula in s 459H. If the offsetting claim must plainly exceed the amount of the demand, it is unnecessary that it be precisely quantified. But where that is not clear, the court must be able to quantify an offsetting claim, and if the evidence does not permit it to do so, will attribute to it only a nominal value [Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 1) (1994) 13 ACSR 455].”

Whether DRC can assert a claim against Shine Painting

25. The first issue arising from Counsels’ submissions is whether DRC has standing to assert, or is party to, any claim that may be available against Shine Painting. There is a degree of inconsistency in both parties’ positions in that regard. As I noted above, Mr Rahme contended in the adjudication that DRC was not party to either the contract with Mr & Mrs Kaltoum or the contract with Shine Painting, and DRC, relying on Mr Rahme’s evidence, now reverses that position to adopt the position which the adjudicator found against it that it is party to the contract with Shine Painting. On the other hand, Shine Painting, having succeeded in an adjudication on the basis that its contract was with DRC and not A&DRC or Mr Rahme, contends that DRC was not party to the contract with Mr & Mrs Kaltoum, or at least was not party to that contract when any defective work was done by Shine Painting and has no claim against it in respect of that defective work. It was at least common ground between the parties, consistent with the result in the adjudication and the premise of the Demand, that DRC is party to the contract with Shine Painting. It follows that DRC is able to claim in breach of contract for any loss that it has suffered as a result of defective painting work by Shine Painting.

26. The more difficult question is whether DRC can establish a seriously arguable claim or a matter warranting further investigation that it, as distinct from A&DRC or Mr & Mrs Kaltoum, has suffered any loss as a result of Shine Painting’s defective work that can support an offsetting claim. I now turn to address that question, before dealing with whether a serious question to be tried as to liability and the amount of any offsetting claim is established. As I noted above, A&DRC was party to the contract with Mr & Mrs Kaltoum, so that any claim by Mr & Mrs Kaltoum for breach of that contract would initially lie against A&DRC or the residential home insurance scheme where A&DRC is now in liquidation; DRC now contends (by contrast with the position taken by Mr Rahme in the adjudication) that it “took over” the project in March 2015; and there is no evidence that DRC has suffered any other monetary loss or assumed any other liability to undertake remediation work.

27. By way of further background to this issue, by letter dated 6 July 2016 (Rahme 14.7.16, Annexure “F”), DRC’s solicitors referred to loss and damage incurred by DRC, which included estimated and quoted costs of replacing glass panels, installing timber beads for windows, rectification of paintwork for window bars after removal of damaged glass for 50 windows and doors, costs paid for replacement hinges and labour, and costs paid to rectify defective paintwork. I will refer to the detail of those works below. That letter did not say, and Mr Rahme’s affidavits also do not say, whether DRC, Mr Rahme or Mr & Mrs Kaltoum had incurred those costs, to the extent that they may have already been incurred in respect of hinges and some rectification of defective paintwork, or would incur the future costs of rectification works that had not yet been undertaken. That letter, and Mr Rahme’s affidavits, also did not commit DRC to undertaking the works to which those future costs related.

28. The application filed by DRC in the NCAT on 11 July 2016 (Rahme 14.7.16, Annexure “H”) claimed that DRC “has been required to rectify the defective works” performed by Shine Painting, in an estimated amount of $143,278.39, stated that $13,904.79 of those amounts had been paid by the “applicants” (although DRC was the only applicant in the NCAT) and referred to other amounts “to be paid by the applicants” to third party suppliers totalling $129,373.60. The basis of an obligation on the part of DRC to incur those costs, or any commitment given by DRC to Mr & Mrs Kaltoum to do so, was not identified in that application. The basis of an obligation on the part of DRC to incur remediation costs or any commitment given by DRC to Mr & Mrs Kaltoum to do so was also not identified in Mr Rahme’s affidavits in these proceedings.

29. I now turn to Counsel’s submissions as to these matters. In oral submissions, Ms Beck identified the basis of DRC’s claim, on several occasions, as being that it had an “obligation to fix the work” or had been “left with defective work for which it is responsible” (T11), although she did not identify, with any clarity, any matter which gave rise to any such obligation on DRC’s part. She pointed in that regard to the fact that the adjudication had held that a contract exists between DRC and Shine Painting. It does not follow from the existence of that contract that a breach of it necessarily gives rise to loss on DRC’s part, unless DRC was not paid monies due to it or had an obligation to repair defective work undertaken by Shine Painting, where the building contract was initially between A&DRC not DRC, or (a matter which the parties did not address, which I will note below) it was entitled to bring such a claim on behalf of A&DRC. Ms Beck’s submissions appeared, at times, to assume that DRC need only establish that it had brought a claim or (as she put it) a “valid claim” against Shine Painting in NCAT (T11). However, the commencement of proceedings asserting a claim does not in itself establish an offsetting claim for the purposes of s 459H(1)(b) of the Corporations Act: Advance Ship Design Pty Ltd v DJ Ryan t/as Davies Collision Cave (1995) 16 ACSR 129 at 135.

30. Ms Beck’s submission in this application, which is starkly inconsistent with Mr Rahme’s position in the adjudication, is that DRC became party to the contract with Mr & Mrs Kaltoum after A&DRC was placed in liquidation by an undocumented “assignment” of that contract from A&DRC to DRC, presumably in March 2015 when DRC “took over” the works. That proposition does not seem to me to be seriously arguable since, whether or not there is a seriously arguable case that such an undocumented assignment existed, it could have extended only to the benefits of the contract with Mr & Mrs Kaltoum and not its burdens, including any liability of A&DRC for defective work previously undertaken by Shine Painting. Ms Beck sought to meet that difficulty by a later submission (that extended beyond the leave granted for supplementary submissions) that DRC had assumed A&DRC’s liabilities by an undocumented novation of the contract between A&DRC and Mr & Mrs Kaltoum to it; however, that submission had the equally fundamental difficulty that, as Mr Bolger (who appeared for Shine Painting) responded (also in a submission that extended beyond the leave granted), there is no evidence that the administrator or liquidator of A&DRC had consented to an arrangement by which DRC would assume either the benefits or the burdens of the contract between A&DRC and Mr & Mrs Kaltoum. It does not seem to me that a seriously arguable case is established that DRC has assumed any liability to Mr & Mrs Kaltoum arising under the contract between A&DRC and Mr & Mrs Kaltoum.

31. Ms Beck also submitted that, irrespective of whether a contract existed between DRC and Mr & Mrs Kaltoum, DRC would be liable to Mr & Mrs Kaltoum under s 10 of the Home Building Act 1989 (NSW), and is subject to an obligation to Mr & Mrs Kaltoum to perform works, including the painting works, on the property, in accordance with the implied warranties under s 18B of the Home Building Act that work will be done with due care and skill. Section 18B of the Home Building Act implies warranties in every contract to do residential building work including a warranty that the work will be done with due care and skill. The existence of any implied obligation under s 18B of the Home Building Act, attaching to DRC rather than A&DRC, would necessarily depend on the existence of any contract between DRC and Mr & Mrs Kaltoum. It seems to me that that section would arguably be sufficient to allow a claim by Mr & Mrs Kaltoum against DRC, if a seriously arguable claim had been established that a contract had been formed between DRC and Mr & Mrs Kaltoum when it “took over” the works in March 2015. However, DRC did not submit that any such new contract had been formed, or identify its terms, as distinct from relying on an assignment or novation of the contract between A&DRC and Mr & Mrs Kaltoum. Section 10 of the Home Building Act in turn preserves DRC’s liability to damages to the owner in respect of a breach of contract with the owner, even if that contract is not in writing. That section would preserve Mr & Mrs Kaltoum’s claim against DRC, if the building contract is not in writing, but would only assist DRC if it could first establish that there was a seriously arguable basis for the existence of such a contract with Mr & Mrs Kaltoum.

32. In written submissions, Mr Bolger submitted that DRC was not the builder of the property and did not enter into the principal contract with Mr & Mrs Kaltoum and that A&DRC was the party which contracted with Mr & Mrs Kaltoum. Mr Bolger submits that, to the extent that DRC refers to an assignment of the contract, there is no written assignment and also refers to the requirement under s 7 of the Home Building Act that a contract to perform residential building services must be in writing and signed by the parties. Mr Bolger also refers to the requirement that home warranty insurance be obtained by a builder under s 92 of the Home Building Act and points out that the home warranty insurance in respect of work performed at the property was issued in the name of A&DRC rather than DRC. Mr Bolger emphasises that there is no evidence of a claim for defective work made by Mr & Mrs Kaltoum against A&DRC, the home warranty insurance policy or against DRC. Mr Bolger also submits that the majority of the work which is the subject of a claim by DRC was undertaken by Shine Painting prior to March 2015, when A&DRC rather than DRC was conducting the building works, and refers to Mr Mohammad Zabih’s evidence that practical completion of the work by Shine Painting was achieved in late May 2015 (Zabih 17.8.16 [28]). Mr Bolger made clear in oral submissions that Shine Painting’s position was that Mr & Mrs Kaltoum’s recourse for defective work was against the builder A&DRC, rather than against DRC, notwithstanding the finding in the adjudication that DRC subcontracted the painting work to Shine Painting (T21).

33. In oral submissions, Mr Bolger also relied on s 48MA of the Home Building Act, which provides that a court or tribunal determining a building claim involving an allegation of defective residential building work by a party to the proceedings is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome, and points to an offer by Shine Painting, in the proceedings in the NCAT, to remedy defective work if, contrary to its position in those proceedings, that work is found to be defective. That section does not seem to me to be applicable, in its terms, to these proceedings, since I am not determining a building claim, or any question as to how defective building work should be rectified, but the question whether an offsetting claim is established under s 459H of the Corporations Act. In any event, I would not proceed on any assumption that the NCAT would accept a submission that contemplated that Shine Painting should be permitted to return to Mr & Mrs Kaltoum’s residence, given the history of the dealings between the parties. It seems to me that any question of the costs of rectification work must be addressed in money terms, rather than on the basis that that work would be performed without charge by Shine Painting.

Conclusion as to whether DRC has established a seriously arguable claim that it has suffered loss to support an offsetting claim

34. It seems to me that, in order to establish a seriously arguable case for an offsetting claim, DRC must establish that it (as distinct from A&DRC or Mr & Mrs Kaltoum) has a seriously arguable case for loss suffered as a result of defective work by Shine Painting. It seems to me that such a seriously arguable case could have been, but was not, established on several bases.

35. First, a seriously arguable case that DRC was able to recover loss suffered as a result of defective works by Shine Painting may have existed if DRC held its rights under the contract with Shine Painting on trust for A&DRC in the manner contemplated in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107. The adjudication found DRC was the party to the subcontract with Shine Painting, in circumstances that A&DRC was party to the contract with Mr & Mrs Rahme until at least March 2015 and, as to the period after March 2015, Mr Rahme and DRC have variously contended (in the adjudication) that Mr Rahme had personally provided assistance to Mr & Mrs Kaltoum on a voluntary basis rather than on a contracted basis and (now) that DRC had “taken over” the works and the contract. Neither party contended, as they might have, that a claim was available to DRC on the basis that it entered the subcontract with Shine Painting as trustee for A&DRC, in which it could recover substantial and not nominal damages, under the principle in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd above. That case allows a qualification to the principle of privity of contract, with effect that a party to a contract may hold, on trust for a third party, the benefit of a contractual promise to confer a benefit on that third party: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd above; Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363 at 368–375; Mizzi v Reliance Financial Services Pty Ltd [2007] NSWSC 37 at [72]; Re Australian Property Custodian Holdings Limited (in liquidation) (recs and mgrs apptd) (as responsible entity of the Prime Retirement Aged Care Property Trust) [2012] NSWSC 679 at [23]–[24]; Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6; (2015) 255 CLR 62.

36. I consider that I should not address this claim where it was not put, although it would have addressed the apparent difficulties arising from a lack of identity of the contracting parties. First, DRC may have good reason not to put that claim, since it may not wish to accept that it holds any benefits of the contract with Shine Painting, including any recoveries, on trust for A&DRC (now in liquidation) so that they would be made available to A&DRC’s creditors. Second, DRC may have recognised that it would be difficult, to say the least, to move from Mr Rahme’s position in the adjudication that there was no contract between DRC and Shine Painting not only to the position that there was such a contract (as he now contends) but also to the position that that contract was held on trust for A&DRC. Third, the legal issues involved in such a contention are complex and Counsel have not addressed them.

37. Second, a seriously arguable case that DRC was able to recover loss suffered as a result of defective works by Shine Painting may have existed if DRC had, as it contended, been assigned the obligations of A&DRC under the contract with Mr & Mrs Kaltoum from March 2015, or the benefits and obligations under that contract had been novated to it. I have held above, in dealing with Ms Beck’s submissions, that these propositions are not seriously arguable since obligations under a contract cannot be assigned and there is no evidence that the administrator or liquidator of A&DRC consented to a novation of its contract with Mr & Mrs Kaltoum to DRC. It may also be that, as I noted in submissions, Mr & Mrs Kaltoum might have had a claim in tort against DRC even if there were no contract between DRC and Mr & Mrs Kaltoum, which might in turn have supported a claim by DRC against Shine Painting for any loss that DRC had suffered. However, I need not pursue that possibility further where DRC did not put its offsetting claim on that basis; there is no suggestion that Mr & Mrs Kaltoum have threatened such a claim; and Counsel did not address whether a claim by Mr & Mrs Kaltoum in tort against DRC could subsist in parallel to a contractual claim by Mr & Mrs Kaltoum against A&DRC.

38. Third, a seriously arguable case that DRC was able to recover loss suffered as a result of defective works by Shine Painting may arguably have existed if DRC had in fact incurred such rectification costs, whether or not it was contractually obliged to do so. It does not seem to me that there is sufficient evidence to rise to the level of a seriously arguable case that DRC has itself incurred the limited remediation costs that have already been incurred, to which I will refer below.

39. Fourth, a seriously arguable case that DRC was able to recover loss suffered as a result of defective works by Shine Painting may arguably have existed if DRC had committed to incur such rectification costs, or was subject to a requirement by Mr & Mrs Kaltoum to undertake such works, whether or not it was contractually obliged to do so, subject to the question (which I will address below) whether costs of such work that had not yet been incurred may support an offsetting claim. It does not seem to me that there is sufficient evidence to rise to the level of a seriously arguable case that DRC has itself made such a commitment or been the subject of such a requirement. Although Messrs Rahme and Kaltoum gave affidavit evidence and attached quotes (to which I refer below) that may relate, in part or whole, to the costs of rectification work arising from defects in the work done by Shine Painting, they do not say that Mr & Mrs Kaltoum have required DRC to undertake further rectification works or that DRC has committed to undertake such works. I cannot infer any of these matters, in the absence of evidence of them, particularly given the uncertainty in the evidence as to whether DRC had any contractual or other relationship with Mr & Mrs Kaltoum and a suggested family relationship between Mr Kaltoum and Mr Rahme, which may or may not affect Mr Kaltoum’s approach to these matters.

40. Fifth, it may have been open to DRC to establish a serious question to be tried that it had suffered loss by reason of defective work by Shine Painting if Mr Kaltoum had withheld monies due to it. DRC’s offsetting claim was not put on that basis and there was no evidence that had occurred. Neither Mr Rahme or Mr Kaltoum give evidence that Mr Kaltoum had withheld any payment due to DRC (or, indeed, to A&DRC) by reason of any issues as to the painting works. Sixth, it may have been open to DRC to establish a serious question to be tried that it had suffered loss by reason of defective work by Shine Painting, if the liquidator of A&DRC has asserted any claim against it, as party to the contract with Shine Painting. There is also no evidence that has occurred.

41. It may be that Mr & Mrs Kaltoum would have a claim against A&DRC or Shine Painting for a diminution in the value of their property or for the cost of rectification works that they may undertake, but it does not seem to me that DRC has an arguable basis for such a claim for the reasons noted above.

Whether a serious question to be tried as to liability and quantum is established

42. A further issue that arises is whether there is a serious question to be tried as to liability on the part of Shine Painting and as to the amount of the loss on which DRC relies to establish an offsetting claim. It is strictly not necessary to address that question given the finding that I have reached that DRC has not established that it, as distinct from A&DRC or Mr & Mrs Kaltoum, has a claim against Shine Painting, although I will do so against the contingency that an appellate court takes a different view as to that question.

43. The first loss relied on by DRC to support the offsetting claim relates to the costs of replacement of hinges alleged to have been damaged by Shine Painting. Mr Rahme’s evidence is that some 87 door hinges were damaged by Shine Painting in the painting works and were replaced and he refers to tax invoices dated 23 April 2015, 27 April 2015 and 11 May 2015 for the supply and installation of the new hinges. The amount now claimed for those hinges is substantially larger than that set out in the email of 31 July 2015 to which I referred above. Shine Painting disputes that it has any liability for the alleged damage to door hinges or the costs of their replacement and that matter is addressed in Mr Mohammad Zabih’s affidavit (Zabih 17.8.16 [31]–[34]). Shine Painting goes so far as to submit that this matter involves an attempt to “foist” the costs of replacement of old hinges upon it. Shine Painting also raises questions as to the status of the quotes for the replacement of the hinges. These are factual disputes and not capable of determination in this application. It is, however, more significant that there is no direct evidence whether any payment for the hinges was made by DRC, as distinct from Mr & Mrs Kaltoum or Mr Rahme personally, after A&DRC was placed in administration. On balance, but with substantial hesitation, I would have held that, putting aside whether DRC had itself suffered loss which I have addressed above, a serious question to be tried or a matter warranting further investigation had been established as to liability and as to the amount of the loss. I would have reached that result only by reason of the appellate authorities, to which I have referred above, emphasising the low threshold for such a claim.

44. DRC also relies on an offsetting claim arising from defective painting works. DRC relies on an invoice for painting work already done, issued by A & R Isaac Pty Ltd (“ARI”) dated 27 July 2015, which was addressed to Datlas-Rahme Group rather than specifically to DRC. Mr Bolger rightly points out that this invoice appears to extend to work that does not involve repair of defective painting work, and that it includes patching and repair work for walls, ceilings and light fittings that are water damaged. No explanation is given of that matter in the evidence led by DRC. There is also no evidence as to who paid that invoice, or whether it was paid. A second invoice, also issued by ARI dated 17 August 2015 was addressed to Datlas-Rahme Group Pty Ltd, another entity, rather than DRC and refers to patching, sealing and repair of damaged doors, columns and walls, although there is no indication as to the source of the damage. There is again no evidence as to who paid that invoice, or whether it was paid.

45. DRC also relies on defective painting work that is not yet alleged to have been rectified. DRC relies on a report dated 10 July 2016 of Mr Roia in relation to rectification of painting work, which quantified the costs of that work in the amount of $20,328.40 (or, correcting a possible calculation error, $20,310.40) (Kaltoum 16.9.16, Annexure C) and on a quote from ARI for paint work of $26,620 (Rahme 14.7.16, CB 80). Mr Bolger advances a criticism of lateness of service in respect of the report of Mr Roia, which does not seem to me to be material for present purposes, where that report was served with Mr Kaltoum’s affidavit. Mr Bolger also raises a question, which the evidence is not capable of answering, as to overlap between the work referred to by Mr Roia and the work performed by ARI and included in amounts already invoiced by ARI.

46. There are plainly difficulties with the evidence on which DRC relies including the fact that invoices for work done appear to extend to works beyond rectification of painting work. Nonetheless, it seems to me that the evidence, including contemporaneous correspondence, at least of defects in the painting work would be sufficient to establish a serious question to be tried, or a matter warranting investigation, as to the prospect that Shine Painting breached its contract in respect of the painting works, in respect of the quality of the work done, so as to be exposed to a claim by a person who suffered loss although I have held that a seriously arguable claim that DRC (rather than A&DRC or Mr & Mrs Kaltoum) suffered such loss is not established. With substantial hesitation, I would have also held that DRC had established a serious question to be tried or a matter warranting further investigation as to the amount of that loss, but only by reason of the appellate authorities, to which I have referred above, emphasising the low threshold for such a claim.

47. DRC also relies on an offsetting claim arising from scratches on window glass panes, which are alleged to have occurred when the painters removed tape and paint overspray, which constitute a substantial part of the offsetting claim on which DRC relies. DRC relies on a report of Mr Nash-Smith dated 18 July 2016 in relation to the damage to the window panes and the cost of rectification work in that regard. Mr Bolger also complains of a delay in respect of the service of Mr Nash-Smith’s report, which also does not seem to me to be material where that report was served with Mr Kaltoum’s affidavit. Mr Bolger also submits that Mr Nash-Smith’s report is not an expert report and was not prepared for the purpose of use in Court proceedings, as it makes clear. However, this application is not directed to determining the existence of the alleged defects on the merits, but whether a serious question to be tried in respect of them is established. I should also observe that Mr Nash-Smith’s report recorded that Mr & Mrs Kaltoum then intended to pursue a claim for rectification against A&DRC, rather than as against DRC, noting that they intended to use the report:

“in negotiation with the builder, A & D Rahme Constructions, to complete the works and to rectify any defective work”.

48. DRC also relies on a quote from Diamond Tannous dated 21 December 2015 for removal and replacement of 702 window panels in the amount of $67,953.60 (Rahme 14.7.16, CB 82). Mr Bolger points out that there is no evidence that directly links that number of window panes to be replaced with the damage alleged to have been caused by Shine Painting, and also refers to possibly inconsistent information provided by DRC, by its solicitors, by letter dated 6 July 2016 which referred to the repair of 50 windows, although that reference may be to windows rather than individual window panes or panels. Shine Painting also advances a speculative suggestion that damage to the windows or window panes may have been caused by cleaners engaged by Mr & Mrs Kaltoum to perform cleaning work after the completion of the building works.

49. There are plainly also difficulties with the evidence on which DRC relies including inconsistencies in the evidence as to the extent of damage to the glass windows. However, it seems to me that the evidence as to the damage to the glass windows would be sufficient to establish a serious question to be tried, or a matter warranting investigation, as to the prospect that Shine Painting breached its contract in respect of the damage to the glass windows, so as to be exposed to a claim by a person who suffered loss although I have held that a seriously arguable claim that DRC (rather than A&DRC or Mr & Mrs Kaltoum) suffered such loss is not established.

50. I recognise that Shine Painting has led evidence that seeks to displace any liability on its part, but the case law to which I have referred above makes clear that it is not the Court’s role in a summary application of this character to determine that question on its merits. That is a matter which would properly be determined in another forum, here the NCAT. If DRC had established that it had a seriously or genuinely arguable case that it (as distinct from Mr & Mrs Kaltoum or A&DRC) had suffered loss as a result of Shine Painting’s defective work, I would have been satisfied that a serious question to be tried, or a matter warranting further investigation, was established as to whether Shine Painting was liable for the cost of remediation work in respect of at least defects in the painting work and damage to glass windows at the property. Again with substantial hesitation, I would have also held that DRC had established a serious question to be tried or a matter warranting further investigation as to the amount of the loss, but only by reason of the appellate authorities, to which I have referred above, emphasising the low threshold for such a claim.

51. I note, for completeness, that Ms Beck placed weight on the fact that Shine Painting had notified a claim under its insurance policy to its insurer in respect of the proceedings brought by DRC in the NCAT. I give little weight to that matter, which would ordinarily be an essential step in preserving Shine Painting’s insurance cover irrespective of the merit of any claim against it.

An amount allegedly paid by Mr Kaltoum

52. In oral submissions, and without leave in supplementary submissions, Ms Beck also submitted that Shine Painting had claimed an amount twice, on the basis that Mr Kaltoum had previously paid an amount of $25,000 in cash to Shine Painting, and that DRC could rely on a set-off by way of restitution for money already paid. It seems to me that any such claim for restitution for money already paid could only be available to Mr Kaltoum, who paid it, and not to DRC. To the extent that DRC pursues an offsetting claim by reason of an amount that it is required to pay under the adjudication, that claim does not presently exist, because DRC has no claim to recover an amount which it has not yet paid, and may never pay, and is in any event not available on the authorities to which I referred in paragraph 14 above.

A further question and supplementary submissions

53. A further and wider question is whether DRC could have relied on future costs referable to remedial work which it had not yet undertaken to support an offsetting claim, if it was required to undertake or had committed to undertake such work. It is not strictly necessary to address that question, where I have held above that there is no seriously arguable case that DRC has assumed liability under the contract with Mr & Mrs Kaltoum and there is no evidentiary basis for a finding that it has been required to undertake or has committed to undertaking such remedial works. I will, however, briefly address that question since I requested, and Counsel made, further submissions as to that question.

54. Ms Beck submits that “it is apt to confuse to speak of future loss or future conduct or future liability” and:

“it introduces unwarranted complexity and error into the proceedings that erroneously seeks to make [DRC’s] ability to sue Shine Painting contingent on [DRC’s] liability to the owner. In this case [DRC] has, and is proceeding with a prosecution in NCAT.”

With respect, it seems to me that that submission misses the point. Whether DRC could establish an offsetting claim within the meaning of s 459H(1)(b) of the Corporations Act, which it must do in this application in order to set aside the Demand, depends on whether DRC has suffered loss, including loss that it will only suffer if and when it performs any remediation works. Ms Beck points out that the term “cross-demand”, which is one of the categories of claim that comprises an “offsetting claim”, extends to a claim for damages that exists at the time the application to set aside the statutory demand is made, and is for a monetary amount capable of quantification whether or not it arises out of the same transaction or circumstances as the debt to which the statutory demand relates. However, that proposition does not assist in answering the question whether such a cross-demand can extend to loss that has not yet been suffered.

55. It is well established that an offsetting claim under s 459H of the Corporations Act must relate to a cause of action which has already accrued by the time the application under s 459G of the Corporations Act is heard. It seems to me that, if DRC had established a seriously arguable case that it was liable for or had incurred rectification costs, then a claim for loss suffered by DRC would have accrued. That would, however, leave open the question of whether the quantum of that loss extended to rectification costs that had not yet been incurred. In Advance Ship Design Pty Ltd v DJ Ryan t/as Davies Collision Cave above, Master McLaughlin held that an offsetting claim could not be established in respect of damages to which the plaintiff was not presently entitled. Master McLaughlin observed (at 135) that:

“The claim must be one which exists at the present time, and it must be one which, if the plaintiff is able to prove the factual matters alleged in the pleading … would result in the plaintiff being presently entitled to the damages claimed.”

56. In Collier Nominees Pty Ltd v Consolidated Constructions Pty Ltd (Supreme Court of New South Wales, Santow J, 3 July 1998, unreported), Santow J held that an offsetting claim could not be established, where a party would probably be sued by a third party, and would then be entitled to bring a cross-claim for indemnity against the second party in tort or for breach of contract, where that was merely a “possible future claim”. In Tennant Ltd v Flomin Inc [2009] NSWSC 1246, Forster J dealt with the position where a plaintiff sought to establish an offsetting claim on the basis of losses which had not yet been sustained by the plaintiff and where there was no evidence that those losses would definitely, or even probably, be sustained. His Honour held that such claims did not constitute grounds for setting aside a creditor’s statutory demand. The decision of the Court of Appeal of the Supreme Court of Western Australia in Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd above does not assist as to this issue, because it appears (at [19]) that all invoices and costs for remediation works that were in issue in that case had already been paid.

57. It seems to me arguable that, had it been established that it was seriously arguable that DRC was liable for the costs of rectification work, or had assumed such liability, then the offsetting claim could presently extend only to the costs of remediation work that DRC had in fact incurred and not to the costs of future remediation work that DRC had not yet undertaken. However, it is not necessary to express a final view as to that matter where DRC has not established a seriously arguable case that it is liable for, or has assumed liability for, such costs.

58. I should note, for completeness, that Ms Beck’s supplementary submission also travelled beyond the leave that was granted for supplementary submissions and Mr Bolger, while protesting that approach, then took the same approach. The courts have repeatedly emphasised that that approach is inappropriate: Carr v Finance Corporation of Australia Ltd (No 1) [1981] HCA 20; (1981) 147 CLR 246 at 257–258, where Mason J observed that the hearing is the time and place to present argument, whether it be wholly oral or oral argument supplemented by written submissions; see also Al Raied v Minister for Immigration & Multicultural Affairs [2000] FCA 1357 at [41] per Branson J; Jackson v Conway [2000] FCA 1530 at [28] per Branson J; Notaras v Waverley Council [2007] NSWCA 333 at [147] per Tobias JA, with whom Mason P and Hodgson JA agreed; Bull v Lee (No 2) [2009] NSWCA 362 at [8]. I have referred to one issue raised by Ms Beck without leave, the possibility of a novation of the contract with Mr & Mrs Kaltoum in favour of DRC above, for completeness. The proper course is otherwise for me to disregard those further written submissions that were outside the leave granted and I have done so.

Orders and costs

59. DRC’s application to set aside the Demand should therefore be dismissed. I note, for completeness, that it does not necessarily follow from that finding that a winding up application brought by Shine Painting founded on the Demand could not be adjourned pending the determination of the NCAT proceedings, at least on terms that DRC paid the amount that was claimed by the Demand into Court or otherwise secured that payment. However, that will be a matter for the Judge determining any such application.

60. Accordingly, I order that the Plaintiff’s application to set aside the creditor’s statutory demand issued by the Defendant be dismissed with costs.

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Decision last updated: 23 December 2016