Steelfab Engineering Pty Ltd v BMS Group Australia Pty Ltd - [2015] WASC 299

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: STEELFAB ENGINEERING PTY LTD -v- BMS GROUP AUSTRALIA PTY LTD [2015] WASC 299

CORAM: MASTER SANDERSON

HEARD: 6 AUGUST 2015

DELIVERED : 13 AUGUST 2015

PUBLISHED : 14 AUGUST 2015

FILE NO/S: COR 69 of 2015

MATTER :Section 459G of the Corporations Act and Steelfab Engineering Pty Ltd

BETWEEN: STEELFAB ENGINEERING PTY LTD
Plaintiff
AND
BMS GROUP AUSTRALIA PTY LTD
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand - Offsetting claim not yet fully quantified

Legislation:

Corporations Act 2001 (Cth)

Result:

Demand set aside

Category: A

Representation:

Counsel:

Plaintiff: Mr D Taylor
Defendant: Mr K L Christensen

Solicitors:

Plaintiff: DTS Legal
Defendant: CCSG Legal Pty Ltd

Case(s) referred to in judgment(s):

Deancrest Nominees Pty Ltd v Nixon [2007] WASC 304
Karimbla Construction Services Pty Ltd v Alliance Group Building Services [2003] NSWSC 617
Royal Premier Pty Ltd v Taleksi [2001] WASCA 48

MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The application raises a short but important point in relation to applications to set aside a demand based on an offsetting claim.
The application was supported by an affidavit of Phillip John Furey sworn 25 March 2015. A copy of the statutory demand appears as attachment PJF1 to the affidavit. In the schedule to the demand under the heading 'description of the debt' there appears the following:
Monies due and owing by Steelfab Engineering Pty Ltd for goods and services provided by BMS Group Australia Pty Ltd between the dates of 27 March 2014 and 28 November 2014.
The amount of the debt is said to be $146,252.25.
The plaintiff is a steel fabricator specialising in the manufacture of bolted lined metal tanks for holding water and other fluids, such tanks being produced for domestic and commercial use. The tanks vary in size depending on the requirements of customers. They require a liner impervious to liquids. The plaintiff supplies liners with its tanks. The liners are fabricated from liner material supplied by third parties such as the defendant. It is critical the liners do not taint the fluids contained in the tanks and it is also critical that the liner material not fail by either becoming brittle or by shrinkage.
The liner product supplied by the defendant to the plaintiff was described as 'Elvaline'. It contained product known as 'dupont elvaloy'. At all material times the defendant advised the plaintiff that all products supplied by the defendant to the plaintiff was reasonably fit for the purpose of lining tanks.
From June 2012 onwards, the plaintiff made approximately 594 tanks which were lined with Elvaline. The plaintiff alleges that the material used in the liners and supplied by the defendant was not fit for the purpose intended - that is to say there is a real prospect that the liner will taint the fluid contained in the tank and will fail either because of shrinkage or cracking.
It is not necessary to take the question of whether or not the materials supplied were faulty or why the fault occurred. At the commencement of the hearing, counsel for the defendant conceded - and conceded quite properly - that on the material contained in the affidavit evidence, the plaintiff had raised an arguable case the liner material supplied by the defendant to the plaintiff was faulty. It was the defendant's position that the plaintiff had not quantified its claim as was required by s 459H(2) of the Corporations Act 2001 (Cth).
Section 459H is in the following terms:
Determination of application where there is a dispute or offsetting claim
(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.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula:
where:
'admitted total' means:
(a)the admitted amount of the debt; or
(b)the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
'offsetting total' means:
(a)if the Court is satisfied that the company has only one offsetting claim--the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims--the total of the amounts of those claims; or
(c)otherwise--a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a)varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5)In this section:
'admitted amount', in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt--a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt--so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c)otherwise--the amount of the debt.
'offsetting claim' means 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).
'respondent' means the person who served the demand on the company.
What counsel for the defendant was actually submitting is that the plaintiff had not established 'the amount of that claim' under par (a) of the definition of 'offsetting total'.
In par 35 of his affidavit, Mr Furey says the cost of replacing a liner in the most common tanks is $3,000. Counsel for the defendant accepted the evidence was sufficient to establish it was arguable it would cost $3,000 to replace the liner on each tank. Based upon that concession and the evidence that 594 tanks with the defective liner had been supplied, the plaintiff maintained it had an offsetting claim in an amount of $1,782,000.00. As that amount was far greater than the amount of the demand it was submitted the statutory demand ought be set aside.
It would seem that as yet, very few of these liners have been replaced. The evidence in relation to precisely how many of the liners had been replaced is somewhat muddled - it appears to be somewhere between 6 and 15. Certainly there is no suggestion that enough of the liners have been replaced to take the amount of the offsetting claim above the amount demanded. While counsel for the defendant accepted the amount of the demand should be reduced, he maintained the failure of the plaintiff to establish an offsetting total of greater than the amount demanded was fatal to the plaintiff's application.
When the plaintiff sells its tanks, it offers a warranty of between 10 and 15 years. Once again the evidence on this point is muddled, but it appears clear that a warranty of at least 10 years on each tank sold. Based upon testing undertaken to date the plaintiff says that while in most cases the liners of the tanks have not yet failed they will eventually fail and will have to be replaced. Although it is not in the evidence, from the bar table, counsel for the plaintiff said that steps had not yet been taken to replace all the liners because it would be financially ruinous to the plaintiff if it did so. Given what Mr Furey says could be the disastrous consequences of liner failure, the wisdom of that course is open to doubt. But for present purposes it can be assumed all of the liners will fail. Be that as it may, counsel for the defendant argued that at present most of the liners had not failed meant that the required calculation of the offsetting amount could not be made.
The basic statement of principle in this area is found in the decision of Barrett J in Karimbla Construction Services Pty Ltd v Alliance Group Building Services [2003] NSWSC 617, his Honour said:
Despite this clear need, according to the terms of the legislation, to quantify an offsetting claim in money terms, it is not necessary that the party seeking to have the statutory demand set aside should particularise the amount of the claim to the last dollar and cent. Particularly where the claim is of an unliquidated kind, there may be various ways of approaching the issue of assessment of damages and there may be elements of the assessment that are, of necessity, based on broad estimate. It is sufficient that there be, on the evidence, a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty as to details of calculation, can be seen to be, in any event, greater than the amount of the debt the subject of the statutory demand. Of course, the narrower the margin between the alleged debt and the plaintiff's estimate or initial quantification, the greater will be the need for particularity in asserting the "amount" of the offsetting claim [28].
In this jurisdiction, there have been a number of statements to similar effect including the decision of Ipp J in Royal Premier Pty Ltd v Taleksi [2001] WASCA 48, Deancrest Nominees Pty Ltd v Nixon [2007] WASC 304, Newnes J.
In my view, the proper approach to this case is to accept all of the liners will need to be replaced. That seems to me to be consistent with the evidence. It may well be some of the liners will not fail or if they do fail they will fail after any warranty period. There may be other cases where the purchaser of the tank simply does not make a warranty claim. But, as matters stand at the moment, the plaintiff arguably has an obligation to replace the liner in each and every tank it sold. It knows the liner is defective and the purchaser of the tank did not get what they paid for. Although a limited number of tanks may have been repaired to date, properly viewed the plaintiff has a present liability and that is the figure for the offsetting claim.
In my view, the plaintiff has established it does have an offsetting claim greater than the amount of the demand. On that basis the demand ought be set aside. I will hear the parties as to costs.