Re Wallace Building Systems Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2023 06017

IN THE MATTER of WALLACE BUILDING SYSTEMS PTY LTD (ACN 624 257 370)

BETWEEN:

WALLACE BUILDING SYSTEMS PTY LTD (ACN 624 257 370)	Plaintiff
v
INVENIO PTY LTD (ACN 007 305 231)	Defendant

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JUDGE:	Hetyey AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	26 April 2024, further material filed 10 May 2024 and 24 May 2024
DATE OF JUDGMENT:	12 December 2024
CASE MAY BE CITED AS:	Re Wallace Building Systems Pty Ltd
MEDIUM NEUTRAL CITATION:	[2024] VSC 767

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CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4 – Insolvency – Statutory demand – s 459G – Application to set aside – Demand claims unpaid amounts owing under payment plan agreement – Plaintiff company agreed not to apply to set aside statutory demand issued by defendant creditor – Whether purported waiver or contracting out of right to bring s 459G application enforceable in context of public policy objectives of Part 5.4 – Whether s 459G affidavit supports certain grounds argued at hearing – s 459H(1)(a) – Whether genuine dispute about existence and/or amount of debt – s 459H(1)(b) – Whether genuine offsetting claims – Whether offsetting claims can include declaration that amount claimed in demand not owing – Offsetting claims must offensively assert a right of recovery.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Korman of counsel	Wyndham Partners
For the Defendant	Mr A Di Stefano of counsel	Becketts Lawyers Pty Ltd

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Background......................................................................................................................................... 1

Procedural history and material relied upon.............................................................................. 11

Statutory provisions and legal principles................................................................................... 11

Grounds advanced........................................................................................................................... 15

Evidence............................................................................................................................................. 18

Plaintiff’s evidence...................................................................................................................... 18
Defendant’s evidence................................................................................................................. 20
Plaintiff’s evidence in reply....................................................................................................... 22
Defendant’s supplementary evidence..................................................................................... 23

Consideration.................................................................................................................................... 23

Anterior issue – whether waiver of right to make s 459G application enforceable.......... 24
First ground – breach of contract for failure to render services with due care and skill. 36
Second ground - no work performed or services delivered................................................. 43
Third ground - holiday pay and notice period....................................................................... 45

Conclusion......................................................................................................................................... 48

HIS HONOUR:

Introduction

By originating process dated 19 December 2023, Wallace Building Systems Pty Ltd (‘Wallace’ or ‘plaintiff’) applies under s 459G of the Corporations Act 2001 (Cth) (‘Act’) to set aside a statutory demand dated 5 December 2023 (‘statutory demand’ or ‘demand’) served on it by Invenio Pty Ltd (‘Invenio’ or ‘defendant’) for the sum of $105,000.00 in connection with unpaid amounts owing pursuant to a document styled ‘Payment Plan Agreement’ and entered into by the parties on 20 October 2023 (‘PPA’). The plaintiff seeks to set aside (or alternatively vary) the demand on the grounds of both genuine dispute and offsetting claims under s 459H of the Act. Among other things, the defendant argues that by virtue of the terms of the PPA the plaintiff has waived or contracted out of its right to make its s 459G application.

For reasons of public policy, I consider the Court should not recognise or enforce the plaintiff’s purported waiver or contracting out of its right to make an application under s 459G of the Act. However, I am ultimately not satisfied that the plaintiff has demonstrated sufficient grounds to set aside the defendant’s statutory demand. The plaintiff is strictly prevented from raising one ground (involving an allegation the defendant failed to render services with due care and skill) because it was not raised in its affidavit filed in support of the application within the 21-day statutory period. Even if that conclusion is incorrect, the ground is not advanced on a bona fide basis. I will explain how I have reached these conclusions in the reasons that follow.

Background

The plaintiff is a ‘multi-faceted’ engineering company in the process of developing a number of projects, including a building system that allows for the quick construction of homes and the design and fabrication of an efficient heating, ventilation, air-conditioning and cooling system that operates on tap water. The defendant is a specialist recruitment consultant which, among other things, offers recruitment services for both temporary and permanent workers in the engineering industry.

The plaintiff has previously utilised the defendant’s software; a computer aided design software program called ‘Solidworks’. In addition, between September 2022 and June 2023, the defendant entered into the following temporary services agreements with the plaintiff:

(a) two agreements for the services of Mr Mattias Kowal, one dated 15 September 2022, for the period from 10 October 2022 until 9 March 2023 (‘first Kowal contract’) and the other dated 28 February 2023, for the period from 10 March 2023 until 9 September 2023 (‘second Kowal contract’); and

(b) an agreement for the services of Mr Mitchell Ottow dated 4 April 2023 (‘Ottow contract’), for the period from 4 April 2023 until 3 October 2023.

(I will collectively refer to these engagements as the ‘contracts’ and to Mr Kowal and Mr Ottow as the ‘temporary workers’).

The contracts involved work in connection with implementing the Solidworks software, using that software to carry out design tasks, and other hardware integration tasks.

The relevant rates under the contracts were:

(a) for the first Kowal contract, $110.00 per hour (excl. GST), inclusive of ‘Superannuation, Casual Loading, Pay Roll Tax, Workcover, and also all Contract House charges, Insurance Overheads and Administration Costs’, as well as ‘hardware and access to Solidworks Standard for 6 months’. Weekends, public holidays and shifts were expressly excluded in the rate, but the ‘relevant Award penalty’ applied;

(b) for the second Kowal contract, $100.00 per hour (excl. GST), inclusive of the same items, except for the provision of hardware or access to Solidworks. Again, weekends and public holidays were expressly not included, but the ‘relevant Award penalty’ applied; and

(c) for the Ottow contract, $92.00 per hour (excl. GST), inclusive of ‘Superannuation, Casual Loading, Pay Roll Tax, Workcover and all Contract House charges, Insurance Overheads and Administration Costs’, as well as hardware and access to ‘Solidworks Premium’. Again, weekends and public holidays were excluded, but the ‘relevant Award penalty’ applied.

Each contract incorporated by reference Invenio’s ‘Terms of Business’ (‘terms of business’). The terms of business refer to the provision of temporary personnel (variously described as ‘Temporaries’ or a ‘Temporary’) to a ‘Client’ (in this case, the plaintiff) and relevantly includes the following:

(a) under cl 1.1, unless otherwise stated, any amount outstanding under the terms of business is payable within 14 days of Invenio rendering an invoice for that amount;

(b) pursuant to cl 8.1, ‘Invenio can provide Temporaries as required by the Client to provide services in accordance with the verbal or written job description given by the Client for a particular temporary assignment’;

(c) under cl 9.3, ‘if the Client would be liable to pay persons who are or could be the Client’s temporary employees performing the same work as a Temporary for a public holiday, which falls on a day during the period in which the Temporary provides services to a Client, the Client is liable to pay Invenio for the Temporary for that day’;

(d) under cl 9.4, the Client must pay Invenio a ‘Temporary Fee’, ‘according to the number of hours worked by a Temporary for the Client’. Invoices are to be ‘produced weekly based on the actual hours worked by the Temporary as evidenced by an authorised timesheet’;

(e) by cl 10, Invenio was responsible for the payment of remuneration, tax, superannuation and workers’ compensation for the Temporaries;

(f) according to cl 11.1, the Client has ‘direct supervision and management of the Temporary in the performance of each job for the Client. The Client directly controls the conditions under which the assignment is performed and the outcome of the Temporary’s performance’;

(g) pursuant to cl 13.1, ‘the Client may terminate a Temporary Assignment by giving 10 work days’ notice of its intention to terminate’. However, under cl 13.2, ‘the Client is required to pay the Temporary Fee for all hours worked by the Temporary up to the time the Temporary leaves the assignment’;

(h) by cl 14, Invenio guarantees that if the Client ‘is not satisfied with a Temporary’, it will endeavour to find a replacement without charging for the first Temporary. Clause 20 also provides certain guarantees to the Client in the event the Australian Consumer Law applies, subject to purported limitations of liability;

(i) under cl 17.2.3, Invenio purports to exclude liability for any ‘loss, damage, costs or compensation (whether direct or indirect) which may be suffered by the Client … arising from … the performance of Temporary assignments’. Clause 17.3 also provides that the Client will indemnify Invenio ‘on a full indemnity basis’ for ‘all losses, liabilities, costs, penalties or claims’ arising from or related to, among other things, ‘the actions or omissions of a Temporary performing an assignment for the Client’ (cl 17.3.1), ‘any failure or alleged failure of a Temporary to duly perform his or her obligations’ (cl 17.3.2), and ‘the performance by a … Temporary of his or her obligations’ (cl 17.3.4); and

(j) under cl 21.2, Invenio may charge compound interest on any amounts that are overdue for more than seven days under the terms of business at a rate calculated at 4% above the Reserve Bank of Australia cash rate, which the Client agrees to pay.

Until March 2023, all invoices issued by the defendant to the plaintiff in accordance with the contracts were paid in full.

On 5 May 2023, Mr Jamie Meizer, an ‘Engineering Group Manager’ at Wallace, emailed Ms Audrey Cai, an accountant at Invenio, with questions regarding how Mr Ottow’s timesheets should be submitted, and whether Mr Ottow would be paid for public holidays. Mr Ryan Trinh, a Recruitment Manager, responded the same day on behalf of Invenio, confirming that Mr Ottow was on a casual contract arrangement and would only be paid for hours actually worked. If Wallace wished to pay Mr Ottow for a public holiday not recorded in his timesheet, Mr Trinh stated it could be added to the next pay cycle. Further, Mr Trinh stated that Mr Ottow should record his actual hours worked to ensure he was correctly remunerated.

On 6 June 2023, Mr Meizer emailed Mr Trinh and Ms Cai (copying Mr Ottow) in the following terms:

Hi Ryan,
Following up from our phone discussion in May I would like to approve some changes to Mitchell Ottow’s reported hours, including some backpay to be invoiced to Wallace in the next pay cycle if possible.
Specifically, I would like to approve that Mitchell can submit his standard hours on a public holiday.
I believe there are two remaining public holidays in the duration of Mitchell’s initial contract with us until October (Monday 12^th June, and Friday 29^th September ), however, as previously discussed, I am happy to also approve backpay to be invoiced to Wallace for the public holidays already covered under the current contract. These would include;
a.Easter Friday (April 7^th)
b.Easter Monday (April 10^th)
c.Anzac Day (April 25^th)[1]

[1]Empasis in the original.

Invoice 00222989 was subsequently issued by Invenio to Wallace, including a component of $2,208.00 in respect of ‘back pay for Easter Friday 07-Apr, Easter Monday 10-Apr and Anzac day 25-Apr [2023]’.

On 26 June 2023, Mr Joseph Sawyer of Wallace sent an email to Mr Manjushri Sovitkar of Invenio, stating that Wallace was ‘winding down its operations’ and that both Mr Kowal and Mr Ottow would be impacted. He observed that both Mr Kowal and Mr Ottow had ‘really worked well and added value to the team.’

On 19 July 2023, Mr Ottow sent an email to a representative of the defendant, in which he stated ‘Wallace confirmed they would be paying [him] for a 4 week notice period’. The next day, Ms Cai emailed two invoices to the plaintiff, including an invoice issued in respect of Mr Ottow’s ‘four weeks[‘] notice period as agreed’. However, on 10 August 2023, Mr Joseph Basile, CEO of Wallace, sent an email to Ms Cai stating he did not believe a four week notice period was correct; rather, Mr Ottow was entitled to 10-days’ notice under cl 13 of the terms of business. Mr Basile further stated that, pursuant to that agreement, ‘[Wallace] are happy to pay the 10 days[‘] notice’ which he believed Mr Ottow had already received’, and requested the relevant invoice (which he described as ‘Invoice 223246’) be cancelled. Later that day, Ms Cai sent an email providing an ’updated invoice to reflect two weeks’ notice which [Invenio] paid to [Mr Ottow] already’. It appears the updated invoice to which Ms Cai referred may be Invoice 00223246, notwithstanding it bears the earlier date of 20 July 2023. That invoice records an amount owing of $8,096.00. Interestingly, Wallace produced an alternative version of Invoice 00223246 which denotes an initial amount of $16,192.00 owing for four-weeks’ notice in respect of Mr Ottow, to which a credit of $8,096.00 is applied, which results in the amount of $8,096.00 owing.

On 17 August 2023, Mr Basile finished his tenure as CEO at Wallace and sent an email to Ms Cai requesting that she correspond with James (who I take to be a reference to Mr James Sackl) on behalf of Wallace for ‘all open matters’. He also ‘thank[ed] the Invenio team for [the] support they [had] given to Wallace over the past year and look[ed] forward to crossing paths in the future.’

As an aside, there is evidence that, at the relevant time, Mr Sackl was an undischarged bankrupt and disqualified by the Australian Securities and Investments Commission from managing corporations as a result of the failure of a number of companies, two of which Ms Yittong Tang (the sole director and secretary of the plaintiff) had also been appointed as director.

On 28 August 2023, Ms Cai sent an email to ‘James’ (again, whom I infer is Mr Sackl), attaching the defendant’s unpaid invoices and requesting they be ‘settled as a matter of urgency’.

Between 5 September 2023 and 12 October 2023, Ms Cai and Mr Sackl exchanged a series of emails in relation to the payment of the defendant’s outstanding invoices. On 4 October 2023, in response to a number of repeated requests for payment, Mr Sackl sent an email proposing a payment plan over eight months while Wallace ‘balance[d] its cashflows’.

Ms Cai then responded later that day in the following terms:

Hi James,
We are sorry to hear about your situation.
While we are sympathetic to your situation, unfortunately, invenio [sic] is not a financial institution and cannot provide loans.
Below are the missing invoices on previous payment and are currently overdue in the account. Please proceed in making immediate payment for these invoices:
Please confirm that this total amount will be paid within the next 14 days.

I will refer to the amounts listed in the above table as the ‘unpaid invoices’.

Following a further exchange of emails, on 9 October 2023, Mr Sackl sent an email to Ms Cai proposing a payment plan ‘for the worst case scenario of 6 months in equal instalments’. On 12 October 2023, Ms Cai responded and said Invenio was considering the payment plan and preparing documentation of the agreement.

From around 19 October 2023, Ms Tang communicated with Invenio on Wallace’s behalf concerning the unpaid invoices. On 19 October 2023, Ms Cai sent an email to Ms Tang seeking to resolve the terms of a payment plan, including payment ‘in good faith’ of an upfront amount and reserving Invenio’s right to pursue recovery of the debt owed.

After a further exchange of emails and discussions, the PPA was eventually signed on 20 October 2023 by Mr Ivan Meisel, a director and secretary of Invenio, on behalf of the defendant, and by Ms Tang, as the sole director and secretary of the plaintiff. The PPA is a short document by which Wallace:

(a) ‘admits that it is liable to pay to Invenio the total amount of $111,235.30 remaining outstanding in respect of the Invoices as at the date of [the PPA] (Outstanding Amount)’;

(b) agrees to pay the Outstanding Amount in six instalments, as follows:

Number

Payment Date

Payment

1

Within 2 working days

$6,235.30

2

15 November 2023

$45,000

3

15 December 2023

$15,000

4

15 January 2024

$15,000

5

15 February 2024

$15,000

6

15 March 2024

$15,000

(c) in the event of its default, Wallace:

(i) ‘irrevocably consents to Invenio commencing proceedings against it for recovery of the unpaid portion of the Outstanding Amount’;

(ii) ‘consents to judgment being entered against it in the proceedings’;

(iii) ‘agrees not to defend the proceedings or any application for judgment made by Invenio in the proceedings’; and

(iv) ‘consents to Invenio serving upon it a statutory demand for the unpaid portion of the Outstanding Amount (which Wallace agrees it will not seek to set aside)’ (‘PPA waiver’).

The PPA waiver assumes a matter of considerable importance in this case.

The plaintiff paid the first agreed instalment of $6,235.30 on 24 October 2023 in accordance with the PPA. However, it did not pay any further instalments, leaving a total of $105,000.00 owing.

On 20 November 2023, after the second instalment under the PPA fell due without payment, Ms Cai emailed Ms Tang, querying whether the plaintiff had received a ‘lump sum’ amount it had apparently been expecting, and whether the defendant could be paid ‘earlier’. Ms Tang responded on 24 November 2024 stating that the plaintiff had been informed by the Australian Taxation Office (‘ATO’) that an expected refund would be delayed by one or two months, and that she did not believe the plaintiff would be in a position to make its scheduled payment by the end of that month.

On 27 November 2023Ms Cai responded by email to Ms Tang stating, among other things:

This is very frustrating and puts us in a difficult position. We already agreed a revised payment plan to give you some additional time to collect your tax refund from the ATO. We agreed this in good faith based on the representations you provided us and your assurance you would receive a lump sum by the end of November.

Ms Cai also said that prior to agreeing to any variation to the PPA, the defendant required the plaintiff satisfy a number of conditions, including: payment of the outstanding instalment of $15,000.00 by 30 November 2023; the provision of evidence of the amount of the anticipated refund from the ATO and the reason for its delay; and confirmation that the full amount outstanding under the PPA would be paid upon receipt of the refund. Ms Cai concluded her correspondence with the following statement:

At this stage, it is fair to say that we have lost trust in your ability and desire to repay us the amounts that are due and are questioning your motivations around repayment. We will give you one final opportunity to remedy this to our satisfaction.

Later that day, Ms Tang responded by attaching a screenshot of an email exchange with the ATO, which suggested that an issue had been escalated, but provided little detail or context. Ms Tang also said she could not guarantee the ATO refund would be completed before 30 January 2024 and was not in a position to pay the outstanding $15,000.00 before 30 November 2023. She suggested the maximum amount that could be paid by way of instalment was $5,000.00, as the defendant was ‘struggling to survive till ATO refund [sic].’ Ms Cai responded by email the following day, relevantly stating:

At this stage we have no comfort that what you have said is in fact true, or if you are using this as a tactic to avoid payment. If you would like to put us in touch with your accountant so we can discuss this directly with him, please pass on his details, but we want to understand how much you are expecting to receive and when before we commit to any alternative arrangement.
As for the quantum and timing of the payment of the $15k – this is non-negotiable. If the company has insufficient cash to make this payment, then we suggest you consider obtaining funding from the company’s shareholders or directors to assist with the short term cashflow requirements of the business.[2]

[2]Emphasis in original.

It does not appear any further correspondence was exchanged between the parties. On 6 December 2023, Invenio then served its statutory demand on Wallace. The demand claims the sum of $105,000.00 as an amount due and payable to Invenio pursuant to the PPA. The basis upon which the debt is claimed is confirmed by the affidavit which accompanies the demand and which is affirmed by Mr Meisel.

Procedural history and material relied upon

On 12 February 2024, the Court made timetabling orders for the filing of affidavits on which the parties rely and written submissions. The matter was heard before me on 26 April 2024, at which time I made orders requiring the parties file short further submissions on the question of whether, having regard to the terms of the PPA, the right to make an application to set aside a statutory demand under s 459G of the Act can be the subject of a contracting out or waived by agreement.

In support of its application, the plaintiff relies upon: the affidavit of Ms Tang affirmed 19 December 2023 (‘first Tang affidavit’, or ‘s 459G affidavit’); the affidavit of service of Ms Stephanie D’Andrea affirmed 16 January 2024; the affidavit of Ms Tang affirmed 3 April 2024 (‘second Tang affidavit’); written submissions filed 5 April 2024; and supplementary written submissions filed 24 May 2024.

In resisting the application, the defendant relies upon: the affidavit of Mr Meisel affirmed 6 February 2024; the affidavit of Ms Cai affirmed 17 April 2024;[3] written submissions filed 18 April 2024; and supplementary written submissions filed 10 May 2024.
[3]The Court’s timetabling orders made on 12 February 2024 required the defendant to file any additional affidavit material by 13 March 2024. Ms Cai’s affidavit was filed on 17 April 2024 and is strictly out of time. The defendant sought leave to rely on the affidavit at the hearing and it was read into evidence. To the extent the Court did not formally grant the defendant leave to file the affidavit out of time, it does so now.

Statutory provisions and legal principles

Section 459G of the Act states:

(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within the statutory period[4] after the demand is so served.
(3) An application is made in accordance with this section only if, within that period:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

[4]The term ‘statutory period’ is defined in s 9 of the Act as: ‘(a) if a period longer than 21 days is prescribed—the prescribed period; or (b) otherwise—21 days’.

As a condition of the Court’s jurisdiction, the plaintiff’s affidavit made in support of an application under s 459G of the Act within the 21-day statutory period must contain sufficient facts to support its case.[5] The affidavit must also identify expressly, or by necessary or reasonable inference, the grounds upon which the statutory demand is sought to be set aside.[6] As the Court of Appeal explained in Sceam Construction Pty Ltd v Clyne:[7]

It is … appropriate to use the language of the statute and to consider whether the statutory period affidavit ‘supports’ the application. If it does, then that affidavit may be supplemented by evidence filed outside the statutory period. If it does not, then there is no jurisdiction to consider material filed beyond that period.[8]

[5]Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, 459 (Sundberg J).

[6]Sceam Construction Pty Ltd v Clyne (2021) 64 VR 404, 415 [38], 421 [62] (Ferguson CJ, Sifris and Walker JJA) (‘Sceam’). See also Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393, 400 (Barrett J, as his Honour then was).

[7](2021) 64 VR 404.

[8]Sceam, 417 [42].

What is needed to satisfy this requirement must be assessed in the context of the particular application.[9]
[9]Ibid, 415 [38].

Section 459H(1) of the Act is in these terms:

(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.[10]

[10]An ‘offsetting claim’ is defined in s 459H(5) of the Act to be a ‘genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)’.

In Re Haidi Holdings Pty Ltd[11] (a decision referred to by the parties), I stated:
[11][2023] VSC 739.

The following well-established principles concern the nature of a genuine dispute under s 459H(1) of the Act:
(a)for a dispute to be ‘genuine’, it must be ‘bona fide and truly exist in fact’;
(b)‘the grounds for alleging the existence of a dispute … [must be] real and not spurious, hypothetical, illusory or misconceived’;
(c)the dispute must 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 … Something “between mere assertion and the proof that would be necessary in a court of law” may suffice’;
(d)a genuine dispute may involve a ‘plausible contention requiring investigation’ and raising the same sort of considerations as the ‘serious question to be tried’ test that applies in the case of interlocutory injunctions;
(e)the Court should not uncritically accept statements about an alleged genuine dispute that are ‘equivocal, lacking in precision, inconsistent with undisputed contemporary documents … or inherently improbable …’; and
(f)if the dispute appears to be something ‘merely created or constructed in response to the pressure represented by the service of the statutory demand’, then it is not advanced in good faith and will not be regarded as genuine.

The principles set out above apply equally to an application to set aside a statutory demand on the basis of an offsetting claim. In the case of an offsetting claim, the following additional principles are applicable:
(a)a genuine offsetting claim ‘means a claim on a cause of action advanced in good faith, for an amount claimed in good faith’. In this context, ‘good faith’ means arguable on the basis of the facts asserted, with sufficient particularity to enable the Court to determine that the claim is not fanciful;
(b)there must be some evidence to indicate the nature of the offsetting claim and the way in which it is calculated, including any loss which is said to arise;
(c)whilst it is not necessary to particularise the offsetting claim to the last ‘dollar and cent’, the evidence should be sufficient for the Court to make an estimate of the amount of the offsetting claim, which must be capable of being quantified in monetary terms; and
(d)in practical terms, there must be a mutuality in the identity or capacity of the creditor who served the demand and the person who has the offsetting claim.[12]

[12]Ibid, [14]-[15] (Hetyey AsJ) (citations omitted).

While the underlying nature of the dispute about the existence of a debt ‘must be exposed’, the Court, in determining an application to set aside a demand, will not deal with the merits and nothing of substance will be decided.[13] Although a proceeding brought under s 459G of the Act is not ordinarily an occasion for the Court to construe a contract where its meaning is in dispute,[14] limited exceptions may apply. In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd,[15] White JA explained the principle in this way:

It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular construction is 'patently feeble' (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is 'as plain as a pikestaff' that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 at [4]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [26]-[29]).[16]

[13]Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd [2004] FCA 111, [4] (Finkelstein J). See also Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330, [48] (Kyrou, Ferguson and Kaye JJA).

[14]Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 92 ACSR 27, 34 [46] (Young AJA, with whom Hoeben JA and Ward J agreed); Broadspectrum (Australia) Pty Ltd v Centauri Business Services Pty Ltd [2016] NSWSC 1045, [22] (Barrett AJA); Re Litigation InsurancePty Ltd [2017] NSWSC 334, [31] (Gleeson JA); Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212, 219 [29] (Barrett AJA, with whom Gleeson and White JJA agreed) (‘Creata (Aust) Pty Ltd v Faull’).

[15](2019) 99 NSWLR 397.

[16]Ibid, 417 [90] (White JA). See also Re Aurora Funds Management Ltd [2021] VSC 690, [44] (Gardiner AsJ).

The case of Creata (Aust) Pty Ltd v Faull[17] involved consideration of the terms of a deed in the context of an application to set aside a statutory demand. In discussing the question of construction, Barrett AJA (with whom Gleeson and White JJA agreed) made the following observations:

The grounds of appeal raise squarely the question of the extent to which it is open to the court to decide questions of construction in s 459H(1)(a) cases. In every such case, the issue is, of course, merely whether it has been shown that a “genuine dispute” exists. In determining that issue, the court is neither required nor expected to avoid all issues of construction. Where a contract contains a simple and unambiguous promise to pay, the court embarks on a task of construction (albeit not a difficult or controversial one) in determining that that promise creates a debt and no argument to the contrary is plausible. But where the question of construction has any element of rational controversy to it, the court must exercise particular restraint.[18]

[17](2017) 125 ACSR 212.

[18]Ibid, 218 [26].

Whilst the bar for establishing a genuine dispute or offsetting claim is a relatively low one, an applicant must nevertheless satisfy the Court that such a dispute (or offsetting claim) exists on the balance of probabilities.[19]
[19]See Farid Assaf, Assaf’s Winding Up in Insolvency (LexisNexis, 3^rd ed, 2021), [6.25] (‘Assaf’s Winding Up in Insolvency’), citing Re Speedy Loans Pty Ltd [2014] VSC 273, [17] (Gardiner AsJ); Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320, 324 (Ryan J); Southern Canola Producers Pty Ltd v Painter Griffith & Associates (1997) 15 ACLC 956; BC9703025, 7-8 (Santow J) and Sterling Estates (SA) Pty Ltd v Bradley (2000) 34 ACSR 177, [16] (Hamilton J).

Grounds advanced

During the course of the proceeding, Wallace changed the way in which it articulated the grounds in support of its application to set aside the demand. In the first Tang affidavit, Wallace identified three grounds to set aside the demand:

(a) grounds concerning fees charged by Invenio for work not proven to be completed,[20] namely:
[20]First Tang affidavit, [17]-[22].

(v) ‘an off-setting claim of $76,236.30 against Invenio, being a claim for the refund of all payments that have been made for Mr Kowal’s charged-out labour for which no identifiable work output has been provided’;[21] and
[21]Ibid, [22].

(vi) ‘a genuine dispute in respect of the amount of $104,758.00, being the total unpaid invoices for which no identifiable work output has been provided by Invenio to Wallace’; [22]
[22]Ibid.

(b) grounds concerning holiday and notice-period pay,[23] namely:
[23]Ibid, [23]-[27].

(i) an offsetting claim of $10,525.00 on the basis that Invenio has incorrectly charged Wallace for holiday pay and notice-period (redundancy) pay in respect of Mr Ottow;[24]
[24]Ibid, [25].

(ii) on the presumption that such amounts were also billed by Invenio in respect of Mr Kowal, and paid by Mr Wallace, an offsetting claim for the same amount;[25]
[25]Ibid, [25]-[27(a)].

(iii) in the event that such amounts were billed by Invenio in respect of Mr Kowal, and were not paid by Mr Wallace, there is a genuine dispute in the amount of $10,525.00;[26] and

(c) an offsetting claim ground whereby Wallace seeks a refund of $33,026.00 for incorrect billing by Invenio of hardware and software used in connection with the engagement of Mr Kowal and Mr Ottow.[27]

[26]Ibid, [27(b)].

[27]Ibid, [28]-[31].

However, in its written submissions dated 4 April 2024, Wallace confirmed that it no longer pursued the offsetting claim regarding incorrect billing for hardware and software.[28] Importantly, in its written and oral submissions, Wallace sought to recast its remaining grounds. Although there was some ‘shifting sands’ in how the grounds were articulated, the grounds now sought to be advanced, as best as I understand them, are as follows.
[28]See plaintiff’s written submissions dated 4 April 2024, fn 1.

First, in its oral submissions, Wallace contends it has an offsetting claim for breach of an implied contractual obligation on Invenio to render its services with due care and skill in the selection and supply of appropriately qualified temporary workers.[29] The offsetting claim has two components:
[29]Transcript of Proceedings, Re Wallace Building Systems Pty Ltd (Supreme Court of Victoria, S ECI 2023 06017, Hetyey AsJ, 26 April 2024) (‘transcript of proceedings’ or ‘transcript’), 5-6, 75-76.

(a) an offsetting claim of approximately $76,899.00 by way of a refund for payments made, less an amount representing five hours actually worked by the temporary employees; and

(b) a declaration that $105,000.00 is not owing to Invenio.

Alternatively, in view of the above matters, there is said to be a genuine dispute in relation to the entire debt the subject of the demand. I will refer to the offsetting claim and genuine dispute components of this ground collectively as the ‘first ground’.[30]

[30]Ibid, 8, 10, 23-26.

In essence, the first ground relates to defective work. Wallace alleges the temporary employees were incompetent and, instead of taking five hours to perform the work, as would ordinarily be expected, they took approximately 1,000 hours. Wallace seeks to imply the contractual obligation to render services with due care and skill under common law.[31] It also relies on the statutory requirement of quality or fitness for purpose found in ss 19(a), (b) and (c) of the Goods Act 1958 (Vic) (‘Goods Act’) as a condition of the contracts.[32] Wallace contends that if Invenio is correct in submitting that the PPA is the relevant agreement underpinning the debt claimed in the demand, the ground is pressed as an offsetting claim. Put differently, Wallace maintains it has a free-standing offsetting claim, irrespective of the operation of the PPA.[33] However, if Invenio is wrong in its contention about the primacy of the PPA, then Wallace maintains this ground as both an offsetting claim and a genuine dispute.[34]
[31]Citing J W Carter, Contract Law in Australia (7^th ed. 2018), 244 [11-24].
[32]Transcript, 5-6.
[33]Ibid, 2.
[34]Ibid, 11-12, 25-26.

A second ground advanced by Wallace invokes an offsetting claim and/or genuine dispute (depending on the applicability of the PPA) on the basis that no actual work was performed or services delivered (‘second ground’).[35]
[35]Ibid, 12-14.

The argument appears to be that less hours were actually worked by the temporary workers than the hours purportedly worked and charged for. Wallace contends if the hours said to be worked were not in fact worked, Invenio has breached its contractual obligations. Wallace seeks reimbursement for the hours paid, less the five hours the tasks would realistically have taken to be completed. Again, Wallace contends that if Invenio is correct in submitting that the PPA is the critical agreement underlying the claimed debt, the ground is only pressed as an offsetting claim (and not also as a genuine dispute).

Finally, Wallace maintains a third ground being an offsetting claim and/or a genuine dispute (depending on the applicability of the PPA) in the amount of $10,525.00 in respect of hours charged for, but not worked by Mr Ottow, on a number of public holidays (comprising $2,429.00 for holiday pay in respect of Good Friday, Easter Monday and ANZAC Day in 2023, and $8,096.00 in respect of a 10-day notice period) (‘third ground’).[36]
[36]Ibid, 14-18, 26-27.

The plaintiff says it is unclear whether the $10,525.00 was in fact paid by Wallace. If the amount was not paid, the plaintiff seeks a declaration that the amount is not owing. Again, if the PPA is held to be the document supporting the debt claimed in the statutory demand, the third ground is only pressed as an offsetting claim (and not also as a genuine dispute).

Evidence
Plaintiff’s evidence

I have already explained how the grounds to set aside the statutory demand are framed in the first Tang affidavit.

By way of background, Ms Tang exhibits a spreadsheet which shows the total amount paid by Wallace to Invenio was approximately $1.52 million (including GST). This comprised payments for the Solidworks software and the temporary workers. In respect of the work undertaken by the temporary workers, Invenio charged a total of $181,899.30, of which $76,899.30 has been paid and $105,000.00 purportedly remains owing. She identifies unpaid invoices referrable to this claim of $105,000.00, which corresponds to the amount claimed in the statutory demand. Ms Tang deposes that after the parties entered into the PPA, the plaintiff sought to verify the debt was owed, including by considering the temporary workers’ actual output. The task was made more difficult due to the absence of timesheets.

Ms Tang says the only identifiable work output completed by Mr Kowal comprises a drone video clip depicting the placement of one of the plaintiff’s houses and a generic training manual for the Solidworks software. She estimates the time required to produce these two pieces of work would have been no more than three hours. She says that Mr Ottow’s sole task was to produce design files. However, because the plaintiff does not have any design files authored by Mr Ottow in its possession, this work does not appear to have occurred at all. The only identifiable work output attributed to Mr Ottow comprises five documents, including a PowerPoint presentation. Ms Tang estimates the time required to produce this work would have been no more than two hours. She says Invenio was only entitled to charge for the ‘time-value of the work output provided’.

Ms Tang confirms the debt claimed in the statutory demand of $105,000.00 is subject to a genuine dispute in the amount of $104,758.00, but that the residual amount of $242.00 is wholly set-off by the plaintiff’s alleged offsetting claim in the amount of $76,899.30.[37]
[37]Ms Tang variously refers to this offsetting claim as being in the sum of $76,899.30 and $76,236.30.

Ms Tang also deposes that because Wallace did not employ the temporary workers, it had no obligation to pay them other than their hourly rates for time spent actually providing the work they were requested to perform. She asserts the defendant incorrectly charged the plaintiff for holiday pay and for a redundancy/notice period in respect of Mr Ottow, despite no work being completed by him on those days, and presumes the same issue arose in respect of Mr Kowal.

As mentioned earlier, in the first Tang affidavit the plaintiff also made a further offsetting claim for compensation for incorrect charges on equipment and software licenses in respect of the temporary workers. This claim is now abandoned.

Defendant’s evidence

In Mr Meisel’s affidavit affirmed 6 February 2024, he denies there is any genuine dispute about the debt the subject of the statutory demand and says there is no basis for the offsetting claims put forward by Wallace.

Mr Meisel deposes the statutory demand was based upon Wallace’s default under the PPA and not the unpaid invoices, which were superseded by the PPA. He notes the PPA’s key terms, including the Outstanding Amount Wallace agreed to pay by way of instalments and the PPA waiver. He believes that prior to Wallace filing its application to set aside the demand, Wallace had never disputed any part of the unpaid invoices or the PPA.

Mr Meisel explains the contracts were subject to Invenio’s terms of business and notes a number of the operative clauses which I have already set out. He states the sole factor which determined the Temporary Fee payable was the number of hours recorded in each temporary worker’s authorised timesheet. He emphasises each contract was a services agreement for the provision of a worker for a certain period, not an agreement that certain work outputs would be generated, or that milestones would be met. He directly contradicts Ms Tang’s evidence that the contracts were for the provision of particular work done by the temporary workers. Mr Meisel deposes the defendant met its responsibility to manage the payment of remuneration, superannuation, tax and worker’s compensation in respect of the temporary workers, in accordance with cl 10 of the terms of business. As consideration for these services, the plaintiff was required to pay the Temporary Fees based on the number of hours worked by each of the temporary workers, as evidenced by timesheets, and the defendant was entitled to invoice the plaintiff accordingly.

Mr Meisel states the plaintiff was, on repeated occasions, expressly made aware of the payment arrangements in respect of the temporary workers and, in that regard, notes the following:

(a) each of the contracts refer to an hourly ‘Invenio Pty. Ltd. charge-out rate’ and expressly state the terms of business apply;

(b) the plaintiff received fortnightly invoices showing the number of hours worked by each employee in a column labelled ‘QTY/UNITS’, which were approved and paid until March 2023;

(c) on 5 May 2023, Mr Trinh of the defendant emailed Mr Meizer of the plaintiff indicating that Mr Ottow was paid for hours actually worked and that Mr Ottow should record his actual hours worked to ensure he was correctly remunerated; and

(d) it was never represented that, despite the express terms of the contracts, the plaintiff had an obligation to pay the defendant based on the work output of the temporary workers.

Mr Meisel deposes there were two variations in relation to the Ottow contract. First, as a result of a direct request by the plaintiff following the email from Mr Meizer on 6 June 2023, the plaintiff approved a variation to Mr Ottow’s pay schedule to enable him to submit his standard hours and be paid for work completed on public holidays. Consequently, the defendant ‘backpaid’ Mr Ottow for his hours of work on Good Friday, Easter Monday and ANZAC Day in 2023, and charged to the plaintiff the applicable amount of Temporary Fees (being $2,208.00 plus GST) in Invoice 00222989 dated 1 June 2023. Second, after Mr Ottow was informed by the plaintiff that he would be paid for a four-week notice period, Mr Basile emailed the defendant requesting this to be amended to a 10-day notice period, consistent with cl 13.1 of the terms of business. To account for this variation, the defendant invoiced the plaintiff for a two-week notice period in Invoice 00223246. Mr Meisel states the amount ultimately invoiced by the defendant factored in an offset in respect of Mr Ottow’s amended notice period. Mr Meisel notes the competing versions of Invoice 00223246 produced by the parties and states that, regardless of which version is relied upon by the Court, the amount invoiced by the defendant factored in an offset of Mr Ottow’s amended notice period from four weeks to two weeks.

Plaintiff’s evidence in reply

In her second affidavit, Ms Tang reinforces that at the time Wallace entered into the PPA, it had not investigated whether the work had in fact been performed by Mr Kowal and Mr Ottow. She says that it was only after the demand had been served on the plaintiff that such investigation was conducted.

Ms Tang further states that Wallace entered into the PPA and consented to its terms because it had been ‘misled’ by the invoices and assumed the relevant unpaid invoices were correct. Had Wallace known the invoices were incorrect, it would not have entered into the PPA and would not have consented to its terms. Further, she says Wallace did not dispute any of the unpaid invoices prior to the issuing of the statutory demand because, until that time, it was not aware the invoices were incorrect and misleading.

Although the defendant objected to the above aspects of the second Tang affidavit on the basis that it raises a new ground to impugn the demand outside the 21-day statutory period, it is my view that Ms Tang is simply responding to Mr Meisel’s evidence about the circumstances concerning the negotiation and execution of the PPA. I will allow the evidence and deal with it in the course of my reasons.

Ms Tang contends that Mr Meizer, as ‘Engineering Group Manager – Electrical Systems’ for Wallace, did not have authority to approve the variation to Mr Ottow’s contract in respect of holiday pay and notice periods. She asserts any such approval was therefore not binding on the plaintiff. Ms Tang states the only persons with authority to approve such arrangements were herself and Mr Basile, in their respective capacities as director and CEO of Wallace. Similarly, Ms Tang asserts Mr Sackl has not played any management role in Wallace.

Defendant’s supplementary evidence

In Ms Cai’s affidavit affirmed 17 April 2024, she deposes she was directly involved in the preparation of the unpaid invoices and Invenio’s attempts to seek payment of those invoices. She says the defendant had no control over the amount or type of work completed by the contractors it supplied to Wallace, nor any means of recording or verifying the time spent by the temporary workers performing work, beyond their completed timesheets. Ms Cai emphasises ‘Wallace controlled what work the contractors did, and when, and supervised that work’.

It is Ms Cai’s evidence the temporary workers recorded their hours into two online programs, and Invenio used the information in these programs as the basis for the invoices issued to Wallace. Ms Cai extracts and exhibits specific data, including timesheets, from the online programs, which she compares to the unpaid invoices. Her comparison reveals a ‘slight discrepancy’ between the total hours worked by Mr Kowal and the hours recorded in the relevant program. This occurred because the maximum amount that could be inserted into the program for each work day was 7.6 hours, whereas Mr Kowal worked and was paid for 40 hours per week (being 8 hours per day), between 1 April and 14 May 2023, pursuant to his employment contract.

Ms Cai says neither Mr Sackl, Ms Tang, nor anyone purporting to act on behalf of Wallace, had asked for copies of timesheets or other information to support the unpaid invoices at any time prior to the commencement of this proceeding. Ms Cai confirms Invenio did not initially charge Wallace for Good Friday, Easter Monday and ANZAC Day in respect of Mr Ottow; however, after Wallace indicated it would pay for these public holidays, they were included in Invoice 00222989. She also clarifies that, whilst Invenio paid Mr Kowal for these public holidays and annual leave, the costs were not passed on to Wallace. She refers to specific invoices to make good that assertion.

Consideration

Before considering the specific grounds sought to be advanced by the plaintiff to set aside the demand, it is necessary to first deal with an anterior issue raised by the defendant concerning the effect of the PPA waiver.

Anterior issue – whether waiver of right to make s 459G application enforceable

In their written submissions and at the hearing, the defendant contended that by force of the PPA waiver, the plaintiff is, or should be, ‘restrained’ from bringing its application under s 459G to set aside the demand.[38] Notably, the defendant has not brought an application to injunct the plaintiff from bringing this or any other s 459G application. However, it asks the Court to give recognition to the operation of the PPA waiver, or alternatively it relies on the PPA waiver as a means of contesting the genuineness of the grounds raised by the plaintiff.[39] The defendant’s contention about the PPA waiver raises the important question of whether a company may contract out of, or waive, its statutory right under s 459G of the Act to apply to set aside a statutory demand served on it by a creditor. The issue was not fully canvassed at the hearing and so the parties filed written supplementary submissions on the question.
[38]Defendant’s written submissions dated 18 April 2024, [3(b)], [25]; Transcript, 40-42.
[39]Transcript, 40-41.

Both parties referred to the case of Commonwealth of Australia v Verwayen (‘Verwayen‘).[40] The case stands for the proposition that, subject to questions of public policy, a person may contract with another person not to exercise or rely on a right (including a statutory right), or may waive that right.[41] For a right to be waived, a party must have unequivocally and deliberately renounced the right.[42] However, as Mason CJ observed, there are statutory rights which operate as a condition precedent to a court’s jurisdiction.[43] Critically, some rights may be conferred for reasons of public policy so as to preclude contracting out or abandonment by the person concerned.[44] Provisions which are procedural rather than substantive in nature may indicate they are capable of waiver.[45] Ultimately, it is necessary to examine the relevant statutory provision in question to ascertain whether it is susceptible to extinguishment.[46]
[40](1990) 170 CLR 394 (‘Verwayen’).
[41]Ibid, 404-406 (Mason CJ).
[42]Ibid, 472- 474 (Toohey J), 482 (Gaudron J).
[43]Ibid, 404 (Mason CJ).
[44]Ibid.
[45]Ibid, 406.
[46]Ibid, 404.

As French CJ, Crennan, Kiefel and Bell JJ held in Westfield Management Ltd v AMP Capital Property Nominees Ltd:[47]

It is the policy of the law that contractual arrangements will not be enforced where they operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone. The courts will treat such arrangements as ineffective or void, even in the absence of a breach of a norm of conduct or other requirement expressed or necessarily implicit in the statutory text.[48]

[47] (2012) 247 CLR 129 (‘Westfield’).

[48]Ibid, 143–144 (French CJ, Crennan, Kiefel and Bell JJ) (citations omitted). See also Karpik v Carnival plc (2023) 415 ALR 491, 508 [61] (Gageler CJ, Gordon, Edelman, Gleeson and Jagot JJ).

Their Honours also observed that some statutes, by their nature and purpose, more readily suggest an inconsistency with the forgoing of statutory rights.[49] Statutes which have a regulatory and protective purpose may fall into this category.[50]
[49]Westfield, 145 [50].
[50]Ibid.

In Price v Spoor,[51] Kiefel CJ and Edelman J adopted Mason CJ’s identification in Verwayen of the ‘critical question’ of ‘whether the benefit is personal or private or whether it rests upon public policy or expediency.’[52]
[51](2021) 270 CLR 450.
[52]Ibid, 461 [15] (Kiefel CJ and Edelman J), citing Verwayen, 405 (Mason CJ).

In Viterra Malt Pty Ltd v Cargill Australia Limited,[53] the Court of Appeal (comprising Sifris, Walker and Whelan JJA) considered the question of whether the Australian Consumer Law confers the right to sue for damages under s 236 in the public interest, rather than for the benefit of an individual alone. Having determined the public policy principles underscoring s 236, and also s 18 — which prohibits a person ‘in trade or commerce, [from engaging] in conduct that is misleading or deceptive or is likely to mislead or deceive’ — the Court held that a party cannot contract out of s 236 in advance of any misleading or deceptive conduct having occurred.[54] Further, to allow a party ‘to prevent liability for such a claim ever arising’[55] would remove an important aspect of the enforcement of s 18 and undermine ‘the important public policy of ensuring the fair treatment of those engaged in trade and commerce’.[56]
[53](2023) 74 VR 1.
[54]Ibid, 90 [447] (Sifris, Walker and Whelan JJA).
[55]Ibid, [449].
[56]Ibid, [447].

In Horne v Chester & Fein Property Developments Pty Ltd (‘Horne v Chester’),[57] a liquidator sought directions from the Court about whether he was required to distribute assets of the company in accordance with the pari passu principle (that all creditors should share equally in the available assets of an insolvent company), notwithstanding an agreement between certain creditors calling for a different distribution. Justice Southwell held that the policy underpinning the insolvency laws in question (s 440 of the then Companies (Victoria) Code) did not prevent the liquidator from giving effect to an agreement freely entered into between creditors, so long as other creditors were not adversely affected;[58] that is, the relevant agreement ‘[could] in no way affect the entitlement of creditors not a party to that agreement’. His Honour was satisfied that creditors not a party to the relevant agreement were unaffected by its operation and that the liquidator should be permitted to distribute funds in accordance with the agreement.[59]
[57][1987] VR 913 (‘Horne v Chester’).
[58]Ibid, 917 (Southwell J).
[59]Ibid, 919.

In International Air Transport Association v Ansett Australia Holdings Ltd (‘IATA v Ansett’),[60] the High Court considered the operation of a clearing house arrangement between contracting airlines in respect of mutual debts. The external administrators of the defendant airline had denied the efficacy of the clearing house agreement and made demands directly on other contracting airlines for debts alleged to be owing. The administrators also alleged that certain clearing house regulations were invalid and contrary to public policy arising from Pt 5.3A of the Act by undermining the pari passu principle. The majority of the High Court (comprising Gleeson CJ, Gummow, Hayne, Heydon, Crennan and Kiefel JJ; Kirby J dissenting) upheld the clearing house arrangements and regulations. On the question of public policy, Gleeson CJ concluded the agreement, on its ‘true construction’, did not give rise to debtor and creditor relationships between the participating airlines and, therefore, there was no attempt to circumvent the effect of insolvency laws.[61] However, in discussing the question of public policy, his Honour relevantly observed it was ‘important to identify what exactly is said to be against public policy, and what the consequences of such a conclusion might be.’[62]
[60](2008) 234 CLR 151 (‘IATA v Ansett’).
[61]Ibid, 168-169 [28] (Gleeson CJ).
[62]Ibid, 168 [26].

It is therefore necessary to consider the question of public policy as it applies to the machinery of Pt 5.4 of the Act, of which s 459G forms an ‘integral part’.[63] Part 5.4, which is headed, ‘Winding up in insolvency’, was originally introduced into the then Corporations Law by the Corporate Law Reform Act 1992 (Cth). The provisions of Pt 5.4 constitute a legislative scheme for the ‘quick resolution of the issue of solvency and the determination of whether [a] company should be wound up without the interposition of disputes about debts, unless they are raised promptly.’[64] Section 459E of the Act provides for the service by a creditor of a statutory demand on a company.[65] As already explained, a company may make an application under s 459G to set aside a statutory demand within the 21-day statutory period after service. Importantly, it is the making of an application in accordance with s 459G that confers jurisdiction on the Court to determine the application. Conversely, where an application under s 459G is not filed and served within the statutory period, the Court has no jurisdiction to consider the application and it will be dismissed as incompetent.[66] Section 459C(2)(a) of the Act essentially provides that a company is presumed to be insolvent if, during or after the three months ending on the day when an application for winding up was made, the company fails to comply with a statutory demand. If the presumption applies, a creditor may make an application under ss 459A and 459P(1)(b) to wind up the company in insolvency. Accordingly, the function of the statutory demand procedure is not a mechanism for the recovery of a debt, but rather a means of ‘facilitating proof of insolvency in a winding-up application by creating a presumption of insolvency if the demand is properly served and not met’.[67] However, where a debtor company raises a genuine dispute or an offsetting claim of equal or greater value than the debt claimed by the creditor, an inference that a failure to pay one debt arises from an inability to pay debts generally cannot be safely made.[68]
[63]David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, 278 (Gummow J, with whom Brennan CJ, Dawson, Gaudron and McHugh JJ agreed) (‘David Grant’).
[64]Ibid, 270.
[65]Ibid, 271.
[66]Ibid, 276-277. See also Carinda Homes Pty Ltd v Highlands Austral Pty Ltd [2003] FCA 275, [6]-[7] (Lindgren J); Renegade Rigging Pty Ltd v Hanlon Nominees Pty Ltd [2010] VSC 385, [2] (Ferguson J, as her Honour then was); Autumn Solar Installations Pty Ltd v Solar Magic Australia Pty Ltd [2010] NSWSC 463, [4] (Barrett J, as his Honour then was).
[67]Equipped Constructions Pty Ltd v Form Architects Pty Ltd [2006] NSWSC 500, [24] (Austin J).
[68]Bakota Holdings Pty Ltd v Bank of Western Australia Ltd [2011] NSWSC 1277, [25] (Barrett J, as his Honour then was).

Pursuant to s 459C(3) of the Act, the presumption of insolvency operates unless the contrary is proved, and a company may seek to rebut the presumption in a winding up application. Section 459S(1) of the Act provides that, in a winding up application that relies upon a failure to comply with a statutory demand, the company may not, without leave of the Court, oppose the application on any ground it could have relied on to set aside the demand. The provision operates to preclude a defendant company from challenging the plaintiff’s standing as a creditor or disputing the debt relied upon.[69] Section 467(1) of the Act relevantly provides that, on hearing a winding up application, the Court may: adjourn the application; make any interim or other order it thinks fit; or dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up. The Court’s discretion under s 467(1) must be exercised judicially, taking into account all relevant considerations, including the interests of justice, fairness to the parties and the interests of creditors.[70]
[69]Re Vangory Holdings Pty Ltd [2015] NSWSC 1809, [10] (Brereton J); Re Slodyczka & Farren Pty Ltd [2022] VSC 19, [55] (Hetyey AsJ).
[70]T-S Capital Partners LLC v Paltar Petroleum Ltd (administrators appointed), in the matter of Paltar Petroleum Limited(No 1) [2019] FCA 635, [55] (Stewart J).

Two overarching policy objectives underpin the provisions contained in Pt 5.4. The first is to ensure strict compliance with the provisions of Pt 5.4, including the making of any objections to a statutory demand within the 21-day statutory period.[71] Accordingly, any challenge to a statutory demand is to be made promptly, prior to the determination of a winding up application and, where possible, disputes are to be resolved on the application to set aside the demand itself.[72] The second objective is the efficient and prompt winding up of insolvent companies as a matter of public interest,[73] in order to minimise the risk that an insolvent company continues to trade in the public arena, thereby incurring debts which it might not be able to satisfy.[74] As is apparent, this second object has a regulatory or protective character.
[71]Re Vangory Holdings Pty Ltd [2015] NSWSC 546, [10] (Black J); Re NA Investment Holdings Pty Ltd – Perpetual Nominees Ltd v NA Investment Holdings Pty Ltd [2011] NSWSC 282, [49] (Ward J).
[72]Australian Securities and Information Commission vLanepointEnterprises Pty Ltd (receivers and managers appointed) (2011) 244 CLR 1, 13 [27] (Gummow, Heydon, Crennan, Kiefel and Bell JJ) (‘Lanepoint’), 13 [27].
[73]See Kelly v J Stockwell & Co Pty Ltd [2007] NSWSC 214, [11] (Barrett J, as his Honour then was); Equititrust Ltd v Willaire Pty Ltd [2012] QSC 206, [90] (McMurdo J). See also the decision of the majority of the High Court in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314, 323 [14] (Gleeson CJ, Hayne, Crennan and Kiefel JJ) and Lanepoint, 13 [27]; Re Kornucopia Pty Ltd (No 4) [2020] VSC 7, [90] (Sifris J, as his Honour then was) (‘Kornucopia (No 4)’).
[74]Re Kornucopia Pty Ltd (No 4), [90].

Importantly, a winding up proceeding is not ordinary inter partes litigation by which a creditor may pursue a debt and obtain a judgment.[75] Nor does it constitute a process of enforcement of a judgment.[76] Rather, it is a proceeding brought for the benefit and protection of all creditors of a company, including existing and future creditors.[77] Put differently, it is a collective or representative process for the good of all creditors, rather than an individual creditor, where the central issue is the insolvency of the debtor company.[78] This principle finds statutory recognition in s 471 of the Act which provides that ‘[a]n order for winding up a company operates in favour of all creditors and contributories of the company as if it had been made on the joint application of all creditors and contributories.’ At the same time, pursuant to s 471B, a person cannot begin or proceed with a proceeding in a court against a company being wound up in insolvency or by the Court, nor can a person begin or proceed with an enforcement process in relation to the company’s property, except with the Court’s leave. Instead, creditors are required to lodge proofs of debts or claims in accordance with the procedure in Div 6 of Pt 5.6 of the Act and share rateably in any distribution of the company’s property. The making of a winding up order also enlivens the statutory powers of a liquidator to locate and take control of the company’s assets, ascertain the company’s rights and liabilities and bring proceedings against directors and officers, along with claims for the recovery of voidable transactions for the benefit of creditors. It follows that a winding up order may be properly regarded as a judgment in rem, rather than a judgment made in personam. It binds not only the plaintiff and defendant but third parties, including other creditors.
[75]Re Syncordia Group Operations Pty Ltd [2021] VSC 732, [25] (Hetyey AsJ) (‘Re Syncordia’).
[76]O’Mara Constructions Pty Ltd v Avery (2006) 151 FCR 196, 212-213 [56]-[57] (Heerey, Dowsett and Conti JJ); Re Syncordia, [25].
[77]Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523, 527 (Heerey J); South East Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465, 472 (Ryan J); Re Erfanian Developments Pty Ltd [2018] VSC 342, [8] (Hetyey JR, as his Honour then was); Re Vitamin Co Pty Ltd (ACN 614 680 367) [2019] VSC 540, [97] (Hetyey JR, as his Honour then was).
[78]See In re Lines Bros Ltd (in liq) [1983] Ch 1, 20 (Brightman LJ) and In re Criggleston Coal Co, Ltd [1906] 2 Ch 327, 330-332 (Buckley J); Re Syncordia, [25].

While there do not appear to be any authorities which squarely consider the question of whether, as a matter of public policy, a party can waive or contract out of its rights to apply to set aside a statutory demand, the issue has arisen tangentially and by way of obiter dicta.

In Seaham Air Pty Ltd v Australian Aerospace Ltd,[79] a debtor company accepted it owed the debt the subject of a statutory demand, but alleged it had a genuine claim for damages against the creditor that eclipsed the value of the debt. Justice White found that while the debtor’s claim for damages could not be set-off against the debt at general law, it amounted to an offsetting claim for the purpose of ss 459H(1)(b) and 459H(5) of the Act.[80] His Honour also observed that, ‘unless the plaintiff [was] precluded by estoppel or waiver from relying on s 459H, [it would be] entitled to an order setting aside the demand.’[81] Even though his Honour accepted that representations made by the plaintiff, and relied upon by the defendant, might have precluded the plaintiff from asserting any set-off against a claim for the debt, this was irrelevant to the existence of an offsetting claim under s 459H which could be set against the admitted debt (as distinct from being set-off against the debt on an action for recovery of the debt).[82] Justice White concluded:

There [could] be no implication from the plaintiff’s promise to pay that the plaintiff would not rely on its cause of damages in answer to a statutory demand. Even if, as a matter of principle, an estoppel or waiver could arise by inference or implication from what is expressly stated, no such inference or implication arises in this case to preclude the plaintiff from relying on its offsetting claim.[83]

[79][2006] NSWSC 1241.

[80]Ibid, [13], [18] (White J).

[81]Ibid, [19].

[82]Ibid, [24].

[83]Ibid, [25].

Accordingly, it would seem that White J’s comments about the potential availability of waiver in a statutory demand context were strictly obiter because the issue was ultimately irrelevant to the existence of the offsetting claim in question.

In the later case of Property Builders Pty Ltd v Carlamax Properties Pty Ltd,[84] White J similarly concluded that a prior contract by which a party agreed to pay its debt without set-off, counterclaim or deductions, did not prevent it from relying on a cross-demand for damages or equitable compensation as an offsetting claim for the purpose of s 459H.[85] In doing so, his Honour respectfully declined to follow earlier New South Wales Supreme Court authorities[86] which he considered had been incorrectly decided.[87] Instead, his Honour followed the Full Court of the Federal Court in John Shearer Ltd v GEHL Company,[88] which had found that an unliquidated claim for damages could constitute an ‘off-setting claim’ within the meaning of s 459H, notwithstanding it could not be relied on as a set-off at general law.[89] The same approach to the issue was taken by Barrett J in Bakota Holdings Pty Ltd v Bank of Western Australia Ltd[90] when considering the effect of a guarantee.[91]
[84](2011) 85 ACSR 595 (‘Property Builders v Carlamax’).
[85]Ibid, 602-603 [36] (White J).
[86]See Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd (2006) 205 FLR 432 and Blue Hills Village Management (Liverpool) Pty Ltd v Babcock & Brown International Pty Ltd [2009] NSWSC 699.
[87]Property Builders v Carlamax, 603-604 [37]-[41].
[88](1995) 60 FCR 136.
[89]Ibid, 143 (von Doussa, Hill and Tamberlin JJ).
[90][2011] NSWSC 1277.
[91]Ibid [20]-[26] (Barrett J, as his Honour then was).

More recently, in Re Eatertainment Group Pty Ltd,[92] Gardiner AsJ gave consideration to whether a release contained within a deed of settlement (in the context of an application to set aside a prior statutory demand) barred the plaintiff from raising offsetting claims in an application to set aside a demand under s 459G of the Act. In construing the deed, Gardiner AsJ determined the release was conditional on payment in full by the plaintiff and, as this had not occurred, the plaintiff was not prevented from raising its offsetting claim.[93] Although the deed contained a default clause by which the plaintiff irrevocably consented to judgment and accepted the defendant could issue a fresh statutory demand, unlike in the present case, the deed of release did not contain a clause by which the plaintiff purported to give a wholesale waiver of its right to make an application under s 459G.
[92][2024] VSC 512.
[93]Ibid, [122]-[123] (Gardiner AsJ). While the decision is currently under appeal (proceeding S EAPCI 2024 0111), the grounds of appeal/cross-appeal do not appear to take issue with his Honour’s construction of the release clause.

Likewise, courts are reluctant to construe an agreement as restricting a creditor from issuing a statutory demand. For example, the existence of an arbitration or mediation clause in a contract will not likely result in a court restraining a party from issuing a statutory demand.[94] That is because the statutory demand is not a ‘dispute’ or a ‘proceeding’ so as to engage the relevant clause of the contract, but rather part of the procedure of winding up an insolvent company.[95] In any event, the nature of the arbitration or mediation clause will likely arise for consideration in assessing whether a genuine dispute exists between the parties on an application to set aside the demand.[96]
[94]See Reinsurance Australia Corporation Ltd v Odyssey Re (Bermuda) Ltd (2000) 36 ACSR 348, 359-360 (Macready M) (‘Reinsurance Australia’); SMEC International Pty Ltd v CEMS Engineering Inc (2001) 38 ACSR 595, 603 (Austin J) (‘SMEC’); 2 Roslyn Street Pty Ltd v Leisure Inn Hospitality Management Pty Ltd [2011] NSWSC 512, [106]-[107] (Ward J); Kenjad Pty Ltd v Anzius Holdings Pty Ltd;Kenjad Pty Ltd v French Family Holdings Pty Ltd [2020] VSC 295, [90] (Gardiner AsJ) (‘Kenjad’).
[95]Reinsurance Australia, 360; Kenjad, [90].
[96]SMEC, 603.

In Re Syncordia, I rejected an argument that a settlement deed required a creditor to obtain judgment prior to issuing a statutory demand.[97] This was because of the construction of the deed itself[98] and in view of the distinct purpose of statutory demands in facilitating proof of a company’s inability to pay its debts by creating a rebuttable statutory presumption of insolvency.[99] I also remarked, by way of obiter, that it would have been surprising had the settlement deed purported to restrain the defendant from invoking the statutory demand procedure under Pt 5.4 of the Act, and that it was unclear whether any such restraint would be enforceable.[100]
[97]Re Syncordia, [21].
[98]Ibid, [21]-[22].
[99]Ibid, [24].
[100]Ibid, [26].

Having regard to the above principles and the legislative purposes of Pt 5.4 of the Act, I consider that a company’s right to make an application under s 459G is not susceptible to waiver or contracting out. Despite the fact that Pt 5.4 does not contain any express prohibition on a person contracting out of the exercise of any right, including under s 459G, to allow such a contracting out would defeat or circumvent the important statutory purposes of Pt 5.4. It follows that the PPA waiver is ineffective, unenforceable and cannot operate to restrain the plaintiff from bringing its application to set aside the demand now before the Court. I will explain my reasons for arriving at that conclusion further.

Because the commencement of an application under s 459G is a condition precedent to the granting of jurisdiction to the Court, any purported waiver or contracting out would impermissibly deprive the Court of that jurisdiction. The agreements under consideration in Horne v Chester and IATA v Ansett did not give rise to this consideration.

There are significant implications for a debtor company in the event of its non-compliance with a statutory demand, or the ultimate dismissal of its application to set the demand aside. In addition to creating a statutory presumption of insolvency under s 459C(2)(a) of the Act, non-compliance with a demand sets in train a process which may result in the company being wound up by the Court and a liquidator being appointed to take control of the company’s property and affairs. The right to make an application under s 459G may therefore be regarded as substantive, rather than procedural in nature, which supports the conclusion that it is not capable of waiver.

Importantly, because the protective object of a winding up application (of which the issuing of a creditor’s statutory demand under s 459E is a precursor) is the efficient and prompt winding up of an insolvent company in the marketplace, it is inevitable that the making of a winding up application, and the Court’s determination of any such application, will affect the rights and interests of not only the company and the individual creditor, but other existing and future creditors, along with the company’s members and employees. Although an application made by a company under s 459G to set aside a statutory demand is one step removed from the winding up application itself, it has the potential to ultimately affect the same third parties, albeit less directly. Whether the Court sets aside the demand in question will determine whether the creditor can rely on the demand as a basis to apply to wind the company up. For these reasons, I reject the defendant’s argument that the right to seek to set aside the demand is a purely personal one held by the company served with the demand. Nor do I accept the defendant’s submission that the right to apply to set aside a statutory demand is not materially distinguishable from the right to rely on a limitation period, which operates as a personal defence. Instead, the right to bring a s 459G application is a right which operates in the public interest and rests upon considerations of public policy.

Further, s 459G is an integral and indivisible part of the legislative scheme contained within Pt 5.4 of the Act and cannot be abrogated by private agreement. To do so would undermine the policy objectives of the scheme. By way of example, if a company was restrained from making a s 459G application, it may be impelled to commence an action in another forum, including by bringing a substantive proceeding that would meet the definition of an offsetting claim, or seeking declaratory relief. This may give rise to an application to adjourn, stay or even dismiss a winding up proceeding pursuant to the Court’s discretion under s 467(1) of the Act, in the interests of justice and fairness to the parties. Alternatively, if a company is shut out from the s 459G procedure, it may seek leave to raise grounds in the nature of a genuine dispute or offsetting claim by way of an application under s 459S, made during the course of a later winding up proceeding. These scenarios may result in the ventilation of disputes and offsetting claims outside the statutory demand framework, the potential for a multiplicity of proceedings, and a delay in the speedy determination of any winding up application. In addition, to restrain a company from making a s 459G application on the basis of a purported waiver or contracting out would challenge the principle that a presumption of insolvency should not arise from non-payment of a due debt where the debtor has a genuine dispute or offsetting claim for an equal or greater sum. In other words, the non-payment of the demand would no longer be a reliable indicator of the company’s insolvency.

There are other practical problems associated with recognising the effect of a waiver or contracting out of the rights in s 459G of the Act. Suppose a statutory demand claims not only the debt in issue at the time the waiver is given, but also another debt. Would the waiver operate to preclude the plaintiff from raising a dispute or offsetting claim in respect of that separate debt? What if the statutory demand issued by the creditor potentially suffers from a defect causing substantial injustice within the meaning of s 459J(1)(a) of the Act, or arguably falls to be set aside under s 459J(1)(b) for ‘some other reason’, including for conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice?[101] New circumstances may have arisen since the waiver was given or contracting out was made that a company should be permitted to draw to the Court’s attention.
[101]See Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 58 ATR 456, 460 [27] (Crispin P, Gray and Marshall JJ).

I accept that the PPA waiver is unequivocal in its language and was given by the plaintiff deliberately. However, because the statutory demand machinery in Pt 5.4 of the Act cannot be circumvented by agreement between the parties for reasons of public policy, the plaintiff cannot properly be regarded as being ‘restrained’ from bringing its s 459G application because of the PPA waiver. The PPA waiver is ineffective. That said, the existence and content of an agreement may be a relevant factor to be taken into account by the Court in assessing the genuineness or otherwise of an alleged dispute or offsetting claim raised by a company under ss 459G and 459H of the Act. I will therefore consider the existence and terms of the PPA, including the fact of the PPA waiver, rather than its effect, in assessing the genuineness of the grounds sought to be advanced by the plaintiff in this case.

First ground – breach of contract for failure to render services with due care and skill

As previously explained, in response to the statutory demand Wallace raises an offsetting claim for breach of contract, or alternatively a genuine dispute, on account of an alleged failure by Invenio to render services with due care and skill in the supply of appropriately qualified temporary workers, which is said to be a contractual obligation implied at common law. It is also said that pursuant to ss 19(a), (b) and (c) of the Goods Act, there were conditions implied into the contracts as to quality or fitness for purpose. Wallace alleges the temporary employees performed their work incompetently because what took 1,000 hours of work could ordinarily have been completed in five hours. However, if the Court finds it is the PPA, rather than the contracts, which supports the debt the subject of the statutory demand, the ground is put as an offsetting claim only.

As a preliminary matter, I accept Invenio’s contention that Wallace is prevented from raising the first ground as it was not identified expressly, or by reasonable inference, in the s 459G affidavit filed in support of the application within the 21-day statutory period.[102] The first Tang affidavit contains no mention of any failure by Invenio to supply its services with due care and skill. Nor does it mention the Goods Act. Rather than focusing on the quality of Invenio’s work in selecting the temporary workers, or the quality of the work undertaken by the temporary workers, the first Tang affidavit directs its attention to the quantity of work produced by the temporary workers. In particular, para [22] of the first Tang affidavit refers to an offsetting claim (in the sum of $76,236.30 or $76,899.30) and a genuine dispute on the basis that ‘no identifiable work output has been provided by Invenio to Wallace’. Whilst para [22] of the first Tang affidavit also makes passing reference to Invenio being ‘only entitled to charge for the time-value of the work output provided’, I do not consider this is sufficient to raise, by necessary inference, a complaint that the services provided by Invenio or the temporary workers lacked due care and skill.
[102]Sceam, 415 [38], 417 [42].

At the hearing, counsel for Wallace submitted that the ground set out in para [22] of the first Tang affidavit was ‘withdrawn’.[103] Counsel submitted that his client was not prevented from correcting an argument, so long as it is based on the same facts set out in the s 459G affidavit. I understand the correction to be the formulation of the first ground advanced at the hearing. Somewhat confusingly, however, Wallace continued to rely on the contents of the ‘withdrawn’ para [22] in support of its second ground (which I will address shortly). Regardless, I consider the change sought to be made goes beyond mere correction. It seeks to introduce an entirely new ground that was not apparent from the underlying facts set out in the s 459G affidavit or its exhibits. It follows that the first ground is not supported by the s 459G affidavit filed and served within the 21-day statutory period and therefore the Court has no jurisdiction to consider it.
[103]Transcript, 9.

In the event I am wrong in my conclusion that the first ground was not raised by the s 459G affidavit, it is necessary to consider whether it rises to the level of a genuine dispute or offsetting claim for the purpose of s 459H(1) of the Act. For the following reasons (many of which also have application to the remaining grounds), I am unconvinced that it does.

First, as is apparent from the statutory demand and its supporting affidavit, the debt claimed by Invenio arises under the PPA and not the contracts which governed the placement of the temporary workers. The PPA records an agreement by which Wallace unambiguously undertook to pay the unpaid invoices (which are annexed to the PPA) in a number of instalments on certain dates and in particular amounts. The PPA was executed by Wallace through its director, Ms Tang. There is no suggestion in either of Ms Tang’s affidavits that the PPA was not properly executed or that it was incapable of supporting the debt claimed in the statutory demand. In her second affidavit, Ms Tang confirms at para [4] that Wallace consented to the terms of the PPA (but says it was ‘misled’ by the invoices to which it related). Wallace’s written submissions also specifically state that the existence of the PPA is not contested.[104] It follows that, insofar as Wallace’s first ground raises a purported genuine dispute about the debt claimed in the demand, it is misconceived because it erroneously focuses on the contracts and the unpaid invoices rendered under those contracts.
[104]Plaintiff’s written submissions dated 4 April 2024, [2].

At the hearing, Wallace’s counsel developed a new submission that the PPA was not a binding contract because there was ‘no consideration going both ways.’[105] Rather, ‘there was just a string of promises from the debtor [(Wallace)] to…pay the creditor [(Invenio)]’[106] in circumstances where the creditor had given nothing in return.[107] This is not a plausible contention requiring investigation but, respectfully, a ‘patently feeble’[108] construction of the PPA. On a plain reading of the terms of the PPA, Invenio relinquished the right to rely on the terms of business governing the contracts, including its right to the prompt payment of the unpaid invoices which were otherwise payable within 14 days (in accordance with cl 1.1 of the terms of business), and which had already fallen due over a period spanning April to July 2023. In doing so, it permitted Wallace to pay the Outstanding Amount in instalments over almost five months. Invenio also relinquished the right to claim compound interest on the unpaid invoices under cl 21.2 of the terms of business. In exchange for these concessions, Wallace admitted its liability for the debt, agreed to make payment by defined instalments and, in the event of its default, irrevocably consented to judgment against it for the Outstanding Amount (as defined in the PPA) and agreed not to seek to set aside any statutory demand issued by Invenio for the Outstanding Amount. I accept Invenio’s submission that, upon entry into the PPA, the contractual rights and liabilities of the parties in respect of the contracts and the unpaid invoices were superseded and had merged into the PPA.[109]
[105]Transcript, 11.
[106]Ibid.
[107]Ibid, 20.
[108]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 (McLelland CJ in Eq).
[109]Defendant’s submissions dated 18 April 2024, [20]-[21]; Transcript, 39, 42-43, citing Deputy Commissioner of Taxation & Anor v Bourke & Williams [2018] VSC 113, [25(h)] (Derham AsJ).

For the same reasons, I cannot accept Wallace’s additional argument that the PPA is unenforceable because it is an agreement to pay a debt (or part of a debt) that is already due and owing and, therefore, lacks consideration.

Secondly, I do not consider that the first ground raises in good faith an offsetting claim for breach of an implied term of due care and skill. As will be recalled, Wallace seeks to advance an offsetting claim of $76,899.00 by way of a refund for payments made, less an amount representing five hours actually worked by the temporary employees. Additionally, it seeks a declaration that $105,000.00 is not owing. The offsetting claim identifies a cause of action for breach of an implied term in the contracts of due care and skill in the selection of appropriately qualified temporary workers. While the plaintiff also invokes implied conditions as to quality or fitness for purpose under ss 19(a), (b) and (c) of the Goods Act, I do not see how the contracts in question involve the provision of ‘goods’[110] so as to engage those provisions. The contracts purport to be contracts for services. While there is evidence the contracts involved work in connection with the implementation of the Solidworks software, the carrying out of design tasks using that software, and certain hardware integration tasks, this would not transform the contracts into contracts for the supply of goods.
[110]Under s 3 of the Goods Act: ‘“goods” includes all chattels personal other than things in action and money. The term includes emblements and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.’

The focus then turns to the claim made for breach of the implied term of due care and skill at common law. Implicit in this claim is the notion that Invenio was responsible for the quality of the work performed by the temporary workers. However, this appears to be inconsistent with the terms of business which are expressly incorporated into the contracts. The terms of business suggest that Wallace (as the Client) had responsibility for the direct supervision and management of the temporary workers and directly controlled the conditions under which their assignment was performed, as well as the outcome of the temporary workers’ performance (cl 11.1). In addition, the only precondition on Invenio issuing an invoice was for the temporary workers to complete their timesheets (cl 9.4). The terms of business also purport to exclude any liability of Invenio for any claims relating to any failure of the temporary workers to perform their obligations under the contracts (cl 17.2.3), with Wallace indemnifying Invenio for, among other things, any alleged failure of a temporary worker to duly perform their obligations (cl 17.3.2).

Further, there is no evidence that Wallace ever sought to avail itself of the remedies that existed under the terms of business with respect to any poor performance of the temporary workers. For example, there is no evidence it sought to procure replacement personnel from Invenio (cl 14), or terminate the contracts (cl 13.1) prior to effectively doing so on 26 June 2023, ostensibly on the basis that it was winding down its operations. This speaks against the likelihood that Wallace was dissatisfied with the performance of the temporary workers.

Thirdly, Wallace’s complaint about the quality of the work undertaken by the temporary workers lacks detail and is unsupported by the contemporaneous record. In particular:

(a) Wallace entered into the second Kowal contract approximately five months after it had first engaged Mr Kowal. Without any apparent objection being raised about the quality of services provided by Mr Kowal, Mr Ottow then commenced work for Wallace approximately one month later;

(b) it is common ground that Wallace paid all of Invenio’s invoices up to March 2023, without raising any issues about the services provided by Invenio or the temporary workers;

(c) on 5 May and 6 June 2023, Mr Meizer advocated for Mr Ottow to be paid for public holidays;

(d) on 26 June 2023, Mr Sawyer sent an email to Invenio stating that both Mr Kowal and Mr Ottow ‘really worked well and added value to the team’. Although the email brought the contracts for the temporary workers to an end, this occurred on the basis that Wallace was ‘winding down its operations’, and not because of any concern with respect to the performance of Mr Kowal or Mr Ottow; and

(e) on 17 August 2023, Mr Basile, the CEO of the plaintiff, sent an email to the defendant ‘thank[ing] the Invenio team for their support’.

Equally, there are no contemporaneous documents to give the alleged offsetting claim made in the first ground a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. For example, there is no contemporaneous record or communication to suggest Wallace was in any way dissatisfied with the quality of the services provided by Invenio, Mr Kowal or Mr Ottow. It appears the offsetting claim was first raised in response to the service of the statutory demand.

Fourthly, it strains credulity for the plaintiff to assert that the temporary workers took over 1,000 hours to produce work which would have only occupied five hours of time. It is difficult to see how such significant underperformance could go unnoticed by those who supervised the temporary workers (such as Mr Meizer). Instead, there is no evidence of the supervisors ever raising concerns about the performance of the temporary workers, either internally or with the defendant.

Fifthly, Wallace’s actions in engaging with Invenio regarding the unpaid invoices and in negotiating the PPA militate against the conclusion that the offsetting claim component of the first ground is genuine and made in good faith. From late August to October 2023, the parties exchanged extensive correspondence about the unpaid invoices. At all relevant times, Mr Sackl and Ms Tang confirmed that Wallace would pay the invoices once funds became available and sought to negotiate a payment plan on that basis.

The content of the PPA, which included not only an unqualified admission that Wallace was liable to pay the unpaid invoices, but also the PPA waiver, further undermines the genuineness of this offsetting claim. There is no evidence that Wallace ever sought to reserve its position in relation to the PPA so as to later challenge the invoices.

As already noted, in the second Tang affidavit, Ms Tang variously states that Wallace:

(a) had not investigated the work performed by the temporary workers at the time it entered into the PPA;

(b) entered into the PPA, and consented to its terms, because it had been ‘misled’ by the unpaid invoices which were incorrect; and

(c) did not dispute any of the unpaid invoices prior to the issuing of the statutory demand because it was not, until that time, aware that the invoices were incorrect and misleading.

With respect, I regard these statements to be spurious and self-serving. Given Wallace was responsible for the day-to-day supervision and management of the temporary workers, it is inherently improbable that it would not have identified any problems with the quality of their work during the period of their engagement from mid-September 2022 to late June 2023. Further, Ms Tang’s statement that Wallace was ‘misled’ by the relevant invoices lacks precision. Even if the invoices are in some way incorrect, she does not explain how Wallace was misled and why it did not more fully interrogate the invoices at the relevant time.

Further, on 24 October 2023, Wallace paid the first instalment under the PPA. Following its failure to pay the November 2023 instalment, rather than challenging the enforceability of the PPA or raising an offsetting claim about the invoices, Ms Tang sought to re-negotiate the payment plan with Ms Cai and indicated that Invenio would be paid once the plaintiff received a refund from the ATO.

Lastly, the plaintiff did not properly explain the basis upon which it seeks, as part of its offsetting claim, a declaration that $105,000 is not owing to the defendant. It is unclear how such declaratory relief would form part of a claim on a cause of action advanced by the plaintiff in good faith. In Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd,[111] Barrett J (as his Honour then was) explained the essence of an ‘offsetting claim’ for the purpose of ss 459H(1)(b) and 459H(5) of the Act to be:

the ability of the claimant to assert in an offensive way a right which, if found to have substance, will result in the actual recovery by that claimant of a sum of money which, if not precisely quantifiable to the last dollar and cent, can be seen to be of a fairly quantifiable or calculable amount.[112]

[111][2010] NSWSC 1017.

[112]Ibid, [13] (Barrett J, as his Honour then was) (emphasis added). See also Re Electrical Energy Pty Ltd [2019] NSWSC 547, [18] (Rees J) and the discussion in Assaf’s Winding Up in Insolvency, [7.4].

It seems to me that, in seeking the declaration, the plaintiff is not offensively asserting a right of recovery. Instead, the declaration appears to be used by the plaintiff defensively and as a proxy for disputing the unpaid invoices or the Outstanding Amount under the PPA. As I have already made clear, given the primacy of the PPA, it is misconceived for the plaintiff to allege a genuine dispute about the unpaid invoices.

Second ground - no work performed or services delivered

I turn then to the second ground advanced by the plaintiff, by which the plaintiff invokes an offsetting claim and/or genuine dispute (depending on the applicability of the PPA) on the basis that no actual work was performed or services delivered. Under this ground, the plaintiff seeks reimbursement for the hours paid, less the five hours it says the tasks would realistically have taken.

I have already explained that the PPA provides the contractual basis for the debt claimed in the demand. Therefore, it is only necessary to consider the offsetting claim aspect of the second ground. I accept the plaintiff’s submission that the s 459G affidavit contains the allegation that the temporary workers only completed five hours of work. At paras [19] and [20] of the s 459G affidavit, Ms Tang calculates that the limited tasks apparently performed by the temporary workers would have occupied an approximate total of five hours.

However, I do not consider this offsetting claim to be bona fide and advanced in good faith. It can be disposed of for largely the same reasons as the offsetting claim made under the first ground. In particular, under the terms of business incorporated into the contracts, the plaintiff had responsibility for directly supervising and managing the temporary workers, and the terms excluded any liability of the defendant for any claims relating to any failure of the temporary workers to perform their obligations under the contracts. The plaintiff never exercised its rights under the terms of business on the basis that less hours were actually worked by the temporary workers than the amounts invoiced. There is no evidence the plaintiff ever requested copies of the timesheets completed by the temporary workers to interrogate the time apparently spent on certain tasks. The complaint that the temporary workers did not perform any work, other than tasks which would have occupied no more than five hours, is wholly unsupported by any contemporaneous document. In fact, the contemporaneous record suggests the plaintiff was satisfied with the work undertaken by Mr Kowal and Mr Ottow. I refer in this regard to Mr Meizer’s request on 5 May and 6 June 2023 for Mr Ottow to be paid for public holidays, and Mr Sawyer’s commendation of the work undertaken by Mr Kowal and Mr Ottow on 26 June 2023. I also note that Ms Cai has produced timesheets which prima facie demonstrate the hours worked by Mr Kowal and Mr Ottow.

In circumstances where Mr Kowal worked for approximately nine months, and Mr Ottow for around three months, under the direct supervision of representatives of the plaintiff, it is inherently implausible that they produced no work of any kind, other than the incidental pieces of work the plaintiff says would only have taken five hours. Evidence given by Ms Tang of the work the temporary workers did complete does not, of itself, support an allegation that the contractors did not complete any other work during the relevant period. The allegation lacks a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion.

Moreover, the fact that the plaintiff entered into the PPA, which included not only the PPA waiver, but also an admission that the unpaid invoices were payable, strongly tells against the existence of a genuine offsetting claim as framed under the second ground.

Third ground - holiday pay and notice period

As previously explained, Wallace puts forward a third ground by way of an offsetting claim and/or a genuine dispute (depending on the applicability of the PPA) in the amount of $10,525.00 in respect of hours charged for but allegedly not worked by Mr Ottow. The amount comprises $2,429.00 for holiday pay in respect of Good Friday, Easter Monday and ANZAC Day, and $8,096.00 in respect of a 10 day notice period. Each element relates to invoices itemised in the PPA. Wallace says it is unclear whether the $10,525.00 has in fact been paid. If the amount has been paid, it contends it has an offsetting claim for breach of contract in respect of the amount paid and seeks a refund by way of damages. Alternatively, if the amount has not been paid, Wallace argues it has an offsetting claim by which it seeks a declaration that the amount is not owing.

I will deal with the 10 day notice aspect of Wallace’s third ground first. Pursuant to cl 13.1 of the terms of business, Wallace was entitled to terminate the contracts by giving 10 work days’ notice and, in accordance with cl 13.2, it was required to pay the Temporary Fee for all hours worked by the temporary workers up to the time they left their assignment. Whilst Wallace may have informed Mr Ottow it would pay him for four weeks’ notice, and was invoiced by Invenio on that basis, following Mr Basile’s email dated 10 August 2023 (where he objected to four weeks’ notice but accepted liability for 10 days’ notice), Invenio rendered an updated invoice (Invoice 00223246) which only claimed 10 days’ notice in accordance with the terms of business. Although the parties have produced competing versions of the invoice, both versions confirm an amount of $8,096.00 owing, which equates to 10 days’ notice.

In my view, this part of the third ground is equivocal, illusory and misconceived, regardless of whether it is put on the basis of a genuine dispute or offsetting claim. Invoice 00223246 was one of the unpaid invoices referred to in the PPA, in respect of which Wallace explicitly admitted liability. The short point is: any potential dispute about the invoice was overtaken by the execution of the PPA. But even if that analysis is wrong, there is still no genuine dispute or offsetting claim in respect of Invoice 00223246 and the 10 days’ notice period. As is apparent, the Ottow contract contemplated Mr Ottow working until 3 October 2023; however, Wallace gave notice of its intention to terminate the relevant contracts by email dated 26 June 2023 from Mr Sawyer to Mr Sovitkar at Invenio. Although Wallace now submits it is not liable to pay for 10 days’ notice of intention to terminate under cll 13.1 and 13.2 of the terms of business, on the basis they were for hours that were not worked,[113] it has not identified any credible evidence to suggest that Mr Ottow did not in fact work through his period of notice. Mr Basile might have resisted payment of 10 days’ notice had he believed the period had not been worked. He did not. But even assuming Mr Ottow had not worked during the 10 day notice period, Ms Tang has given evidence in her second affidavit that Mr Basile, as CEO of Wallace, had authority to approve variations to the contracts (such as payment for public holidays). Further, while Wallace submitted at the hearing that Mr Basile was mistaken about the operation of cll 13.1 and 13.2 of the terms of business, there is simply no evidence of this. It is not a plausible contention requiring investigation.
[113]Plaintiff’s written submissions dated 4 April 2024, [18]-[19].

Because Wallace has not adduced any credible evidence to suggest it has paid Invoice 00223246, it cannot seek a refund by way of an offsetting claim. Additionally, I repeat my earlier observation that a declaration is unlikely to form part of an offsetting claim because it does not entail the claimant offensively asserting a right of recovery.

With respect to the $2,429.00 public holiday pay charged to Wallace in Invoice 00222989, Wallace contends that such amounts are not payable under the terms of business. However, Mr Meisel has given evidence on behalf of Invenio that a variation to Mr Ottow’s contract was approved by Mr Meizer in his email dated 6 June 2023. Conversely, in the second Tang affidavit, Ms Tang deposes that Mr Meizer had no authority to approve variations to the parties’ contractual terms and conditions on behalf of Wallace. Further, Wallace submitted that it never held out Mr Meizer as having such authority, and his title — ‘Engineering Group Manager, Electrical Systems’ — suggests he was responsible for managing practical matters relating to electrical systems, rather than personnel and contracts. Additionally, Wallace submits that Invenio provided no consideration for Mr Meizer’s unilateral offer to pay for time that was not worked.

At the hearing, Invenio’s counsel developed a new submission that a variation to the terms of business was not in fact necessary because Wallace could be charged for public holidays worked by the temporary workers pursuant to: (a) cl 9.3 of the terms of business; and (b) the covering pages of the contracts themselves which state that while public holidays were not included in the rates, relevant award penalties applied. I accept that cl 9.3 of the terms of business, and the language of the contracts, suggest Invenio’s claim for payment of the holiday pay had at least an arguable contractual foundation. However, it would first be necessary to ascertain that:

(a) in accordance with cl 9.3, Wallace ‘would have been liable to pay persons who are or could be its temporary employees performing the same work’ as Mr Ottow for the relevant public holidays; and

(b) the relevant public holidays were in fact worked by Mr Ottow.

The parties did not fully address those matters in their evidence and submissions and I consider there may be some doubt as to whether the relevant contractual terms were engaged in the circumstances.

However, I am ultimately not satisfied there is a bona fide dispute about the $2,429.00 public holiday pay claimed in Invoice 00222989. Under the PPA, Wallace clearly admitted that such amount was owing. Further, even if the contracts and terms of business did not create a liability to pay for the public holidays, the evidence suggests the Ottow contract was varied by agreement, as recorded in Mr Meizer’s email of 6 June 2023. There is no record of Wallace ever questioning Mr Meizer’s authority to bind it to contractual variations or contending any such variation was invalid for want of consideration, prior to the commencement of this proceeding. Moreover, it appears that it was Mr Meizer who in fact signed the Ottow contract on behalf of Wallace. For Wallace to now suggest he lacked the authority to vary the same contract does not appear to be a bona fide contention. The alleged dispute about the holiday pay appears to be constructed in response to the pressure created by the statutory demand.

I am also unconvinced that Wallace has a genuine offsetting claim on the basis that Invoice 00222989 arises from an unauthorised or invalid variation. There is no evidence Wallace ever paid the invoice, and its inclusion in the PPA suggests it remains unpaid. That being the case, Wallace cannot bring its offsetting claim seeking a refund of $10,525.00 by way of damages. For the reasons I have already set out, nor can it seek a declaration that such an amount is not owing (as part of an offsetting claim).

Conclusion

In view of the above matters, the plaintiff has not discharged its onus in demonstrating the existence of any of its grounds of genuine dispute and/or offsetting claims in response to the statutory demand issued by the defendant. I will dismiss the plaintiff’s originating process and hear the parties on the formulation of appropriate orders, including as to costs.

Number	Payment Date	Payment
1	Within 2 working days	$6,235.30
2	15 November 2023	$45,000
3	15 December 2023	$15,000
4	15 January 2024	$15,000
5	15 February 2024	$15,000
6	15 March 2024	$15,000

[2024] VSC 767

12 December 2024