Statutory demand - Application to set aside statutory demand - Genuine dispute - Genuine offsetting claim - The nature of evidence required to satisfy a court of the existence of a genuine dispute or level of an offsetting claim - Sale of goods - Measure of damages where goods converted into other product and on­sold

Corporations Act 2001 (Cth), s 459G, s 459H

Sale of Goods Act 1895 (WA), s 11, s 14, s 35, s 52

Trade Practices Act 1974 (Cth), s 4B, s 71

Alucraft Pty Ltd (in liq) v Grocon Ltd (No 2) [1996] 2 VR 386

Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59

Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2007] VSCA 121; (2007) 63 ACSR 300

AX Business Systems Pty Ltd v Quality Image Pty Ltd [2004] FCA 724

Azed Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54

Bence Graphics International Ltd v Fasson UK Ltd [1998] QB 87

Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37

Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85

Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306

Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452

Jarpab Pty Ltd v Winter t/as Boldon Haulage (1994) 14 ACSR 255

John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250

Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743

Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290

Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320

ORH Contracting Pty Ltd v CGS Solutions Pty Ltd [2009] WASC 273

Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601

Reale Bros Pty Ltd v Reale [2003] NSWSC 666; (2003) 179 FLR 427

Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347

Royal Premier Pty Ltd v Taleski [2001] WASCA 48

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272

Theo Holdings Pty Ltd v Hockey [2000] FCA 665; (2000) 99 FCR 232

Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294

Westpoint Management Pty Ltd v Goakes [2002] WASCA 317

1 The applicant has applied by originating summons filed 6 April 2009 to set aside a statutory demand against it dated 17 March 2009, pursuant to s 459G of the Corporations Act 2001 (Cth) (the Act). The statutory demand claimed the sum of $295,603.41, in respect of goods supplied by the respondent to the applicant in the period 22 October 2008 to 29 January 2009. The applicant alleges that the debt is genuinely disputed and, or in the alternative, that it has offsetting claims.

2 The bases upon which the debt is disputed ranged over a number of grounds involving various aspects of the contractual relationship and claims under the Trade Practices Act 1974 (Cth).

3 The applicant's affidavits contain much assertion and conclusion. They are, on significant issues, vague, rambling, and lacking in detail and specificity. They also contain inadmissible statements although no objections were taken by the respondent to the applicant's evidence. Certain annexures in the applicant's affidavits have been repeated for no apparent reason (although the repetition adds to the 'bulk' of the affidavit material), within the one affidavit and between affidavits. The unsatisfactory nature of the applicant's evidence is particularly relevant to its alleged offsetting claim. Too often in these kinds of applications the legal threshold for establishing a genuine dispute or a genuine offsetting claim is taken, wrongly, as a licence to put on vague and even inadmissible evidence, and bulk is mistaken for cogency. It is inappropriate, in my view, for a party to put on vague and ambiguous evidence on the basis that it may be deployed in argument to convey any meaning which is then seen to be most favourable to that party's position, bearing in mind the relatively low threshold to be applied in applications of this nature. The applicant in this case was given ample opportunity to, and did, put on additional evidence beyond its first affidavit sworn in support of the application to set aside the demand.

4 Despite the deficiencies in its evidence, I have concluded, nevertheless, that the applicant has an offsetting claim to the level of $210,000.

5 The expression 'genuine dispute' connotes a plausible contention requiring investigation: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [44]. The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds: Createc v Design Signs [45]; Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 [35]. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie: Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 [30]. The court will not attempt to weigh or examine the merits of any dispute: Createc v Design Signs [46]; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290, 295.

6 Any claim by the company in dispute of the debt must be one which is 'genuinely believed [by the company] to exist': John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250, 253.

7 This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable in itself: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787; Createc v Design Signs [4]. Nor does it require the acceptance of a 'patently feeble legal argument' or 'matters of fact unsupported by evidence': Eyota v Hanave (787); Jarpab Pty Ltd v Winter t/as Boldon Haulage (1994) 14 ACSR 255, 261.

8 In that context, Lockhart J said, in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, 39:

The notion of a 'genuine dispute' ... suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the Court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime.

9 Similarly, in Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347, 353, Lindgren J said:

Paragraph (a) of subs459H (1) and the definition of 'admitted amount' in subs459H (5) both refer to the existence of a 'genuine dispute', and the definition of 'offsetting claim' in subs459H (5) refers to the existence of a 'genuine claim'. Plainly, the intention is to refer to something more than the mere 'raising' of a dispute and the mere 'making' of a claim. The provisions assume that the dispute and offsetting claim have an 'objective' existence the genuineness of which is capable of being assessed. The word 'genuine' is included to sound a note of warning that the propounding of spurious disputes and claims is to be expected but must be excluded from consideration. (original emphasis)

10 The dispute must exist at the time of the hearing of the application to set aside a statutory demand, and not at some other time: Mibor Investments Pty Ltd v Commonwealth Bank of Australia (293). Likewise, the amount of any offsetting claim is to be considered as at the time the court is determining an application under s 459G, not as at the date of demand: Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675, 697.

11 The onus is on the recipient of the demand to establish a genuine dispute: Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320, 324; AX Business Systems Pty Ltd v Quality Image Pty Ltd [2004] FCA 724 [22]; Azed Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54, 57; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2007] VSCA 121; (2007) 63 ACSR 300 [140].

12 The affidavit required by s 459G(3) to support an application to set aside a statutory demand must set out the material facts on which the applicant intends to rely to show a genuine dispute. The scope of that obligation may vary according to the precise nature of the application in question. That 'supporting' affidavit might read more like a pleading than a story, and need not detail in admissible form all the evidence that supports the contention of a genuine dispute. The evidence sufficient to support a contention of a genuine dispute must nevertheless be available at the hearing of the application to set aside the demand. To that end, further affidavits beyond the 'supporting' affidavit are often allowed. The further affidavits may not, however, raise new grounds beyond those contained in the 'supporting' affidavit. See Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306, 313 - 317; Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452, 459 - 460.

13 Materials relied on at the hearing of the application to set aside the statutory demand should be admissible: Graywinter Properties v Gas & Fuel Corporation (460); Financial Solutions Australasia v Predella (314). A party who fails to object to inadmissible evidence may, however, be regarded as having waived the requirement of admissibility: Cross on Evidence (loose-leaf) [1645] - [1680]. The applicant is not confined to materials contained in its own affidavits, and the court will consider the question of whether there is a genuine dispute having regard to all the evidence, including the respondent's affidavits: Reale Bros Pty Ltd v Reale [2003] NSWSC 666; (2003) 179 FLR 427 [33]. There is debate as to whether hearsay evidence may be admissible: ORH Contracting Pty Ltd v CGS Solutions Pty Ltd [2009] WASC 273. It is not necessary to decide that point for the purpose of these proceedings, but if hearsay evidence is admissible, it must be in proper form if it is to be relied on: Westpoint Management Pty Ltd v Goakes [2002] WASCA 317.

14 Where the debt is disputed on a number of grounds, the genuineness of each ground must be considered, unless and until one is found that raises a genuine dispute. If the company establishes a genuine dispute with respect to only one of its grounds, that is sufficient to set aside the demand.

15 In relation to offsetting claims, the test to be applied is whether the court is satisfied that there is a serious question to be tried that an applicant has an offsetting claim: Mibor Investments v Commonwealth Bank; Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601. In the latter case, Thomas J said (605):

There is little doubt that Division 3 is intended to be a complete code which prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a 'genuine dispute' and whether there is a 'genuine claim'.

...

The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).

16 In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 [17] - [18], Palmer J said:

In my view, a 'claim' for the purposes of CA s459H(1) and s459H(2) means not just a cause of action, so that once a genuine cause of action for unliquidated damages is shown by a plaintiff, the Court is compelled to accept at face value the damages claimed by the plaintiff as the amount of the offsetting claim for the purpose of the calculation required by s459H(2). As has been said in Jesseron Holdings Pty Ltd v Middle East Trading Consultants (1994) 12 ACLC 490, an action for damages will often include what is described as an 'ambit claim', that is, a sum which is in excess of what the claimant realistically expects to recover.

In my opinion, a genuine offsetting claim for the purposes of CA s459H(1) and s459H(2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s459H(1) and s459H(2).

17 In relation to the need for the applicant to adduce evidence of the basis of the claim and the manner in which it has been calculated, Ipp J in Royal Premier Pty Ltd v Taleski [2001] WASCA 48 [57], said:

There is another supervening and fundamental problem with the appellant's contentions, namely, there is no evidence of any damages that the appellant might have suffered in consequence of the alleged negligence or misleading or deceptive conduct on the part of the respondent. Of course, at this stage, it is not necessary for evidence as to damages to be given in meticulous detail. But there must be at least some material upon which the court can conclude that some damage has been sustained and which will enable the court to make a reasonable assessment as to the amount thereof. In this case, however, there is simply no way of determining whether damage was suffered by the appellant in consequence of the alleged negligence or misleading or deceptive conduct, and there is no evidentiary material from which damage suffered by the appellant can be calculated. This absence of evidence as to damage is itself fatal to the appellant's arguments.

18 The background facts are, in many respects, not in dispute. There is no dispute that goods comprising windows, doors, cyclone screens and associated materials were supplied by the respondent to the applicant, and that goods were used by the applicant for the purposes of constructing houses in the north-west of the State. There were two contracts, one was for the supply of windows and associated goods for 11 houses being constructed by the applicant for the Department of Housing and Works (the Department) in Port Hedland (the first contract). The other was for the supply of windows and associated goods for six houses being constructed by the applicant for Fortescue Metals Group in South Hedland (the second contract). The goods under the first contract were installed into the 11 houses being constructed by the applicant for the Department. The houses have been handed over to the Department. By 28 - 29 July 2009, the Department had paid the applicant approximately $6.3 million for the houses constructed, less a 2.5% retention sum of approximately $159,000, which has been retained for a defects liability period under the contract between the applicant and the Department.

19 The goods under the second contract have been received by the applicant, but not yet unpacked. The applicant, by Mr Trainer's affidavit sworn 8 May 2009, says that 'it does not know their condition or whether it needs to make any claim' against the respondent under the second contract. Accordingly, no dispute, let alone a genuine dispute, presently arises with respect to the second contract. The applicant's position is, however, that its offsetting claim under the first contract exceeds the debt alleged, including that part of the debt referrable to the second contract.

20 The applicant executed the respondent's 'credit application form and terms of trading agreement 30 day account' on 22 September 2008, which contained the respondent's usual terms for the supply of goods on credit (the terms of trade). It is not in dispute that the terms of trade applied to both contracts. The terms of trade included provisions to the effect that 'goods ordered' by the applicant should be paid in full on or before the last working day of the month following the month in which the goods were invoiced (cl 2, read with the definition section in cl 1); that the risk should pass to the applicant upon dispatch of the goods from the place of business of the respondent (cl 14); and that to the extent that they were capable of being excluded, any warranties or guarantees established by legislation or common law or equity and deemed to form part of the agreement were thereby excluded (cl 17). I will return to the alleged operation of these terms, and other contractual questions, later in these reasons.

21 The terms of trade also contained an exclusion clause with respect to consequential loss or damage (cl 16), but, despite mentioning it, the respondent did not make any submissions about the potential operation of that term on the facts.

22 The goods in respect of the first contract, apart from security doors, were fabricated and made available for collection in batches between mid-September 2008 and early November 2008. As each batch was made available, the respondent notified the applicant that the goods were ready for collection and issued tax invoices. The applicant then organised a transport company to collect the goods for transport to the north-west. The security doors were ready and made available under the first contract for collection between 14 - 29 January 2009.

23 The goods in respect of the second contract were first made available for collection between 7 - 18 November 2008. Invoices were raised by the respondent in respect of goods supplied under the second contract in the sum of $155,204.

24 Prior to the goods being transported under the second contract, a dispute arose in relation to goods which the applicant found to be damaged upon arrival in Port Hedland under the first contract. By a series of emails in late November 2008, the applicant alleged instances where glass was broken, frames were chipped and bent, and windows had been installed upside down. Mr Trainer in his affidavit sworn 6 April 2009 (par 9) says that 65 of the windows and doors were damaged. In a schedule attached to the applicant's email to the respondent dated 25 November 2008, 35 were specifically identified. Five required replacement glass, 13 required 'retouch', and five required replacement. The remainder were referred to as bent or chipped but no action was specified in the schedule for their remedying, although Mr Trainer in par 23 of his affidavit of 6 April 2009 referred to the respondent 'straightening' various windows. Certain of these windows also did not have weepholes built into them, an issue which arose later, as discussed in [28] below.

25 The applicant alleged at the time that the damage was the result of negligent packaging by the respondent. The applicant also alleged that it had not received certain certification in respect of the goods that it said was required under the contract.

26 The respondent, for its part, alleged in effect that the damage had occurred in transit, for which it was not liable, and placed reliance on cl 14 of the terms of trade regarding the passing of risk upon dispatch of the goods. The respondent nevertheless offered to provide materials in the form of replacement glass and touch-up paint, but not labour, in an endeavour to assuage the applicant's concerns with respect to the goods damaged in transit. The respondent also agreed to repackage the goods in a different way for the purposes of collection under the second contract, although it denied that the previous form of packaging was inadequate. The respondent also subsequently provided a certificate regarding the structural design of the goods.

27 In mid-December 2008 the parties exchanged emails regarding the replacement or re-supply of certain goods. On 9 December, the respondent quoted a sum of $2,971 to replace certain cracked glass, to supply parts, to replace obscure glass with clear glass in certain windows and to supply certain louvres and flyscreens. The applicant also complained of certain windows having been installed upside down, as to which the respondent advised that the windows could be reversed by removing the screen mounting frame and turning it upside down by drilling out the rivets.

28 Also, by about 9 December 2008, the applicant had noticed that certain louvred windows which had been supplied under the first contract leaked when they were washed. The applicant raised the matter with the respondent, who suggested that weepholes be drilled into the windows to allow the water to escape. On 16 December 2008 the applicant emailed the respondent in these terms:

After further discussions with our management, we have come to the conclusion that if we start tampering with your product by drilling 10mm weep holes into the sills of the louvered windows and also by applying silicone to the louvre sill and stud frame ... we will be beetching [sic] the integrity of your product. To overcome this situation we suggest you send one of your service/maintenance personel [sic] to our sites here in [P]ort Hedland to rectify this problem. By us (20*20) attempting to solve the serious nature of this leaking problem, and if the problem still exists afterwards, we will therefore ultimately inherit the problem.

29 Mr Erren of the respondent, in an affidavit dated 29 April 2009, says that on 17 December 2008 he met with Mr Trainer and Mr Viney of the applicant and that an arrangement was reached by which the respondent agreed to resupply items that were damaged in transit, the applicant agreed to be responsible for the labour costs of installing the items, and the applicant agreed to a payment schedule in amounts due to the respondent. The payment schedule involved a down payment of $88,371 in respect of the first contract; payment of the balance of the first contract by 15 January 2009; payment of 50% of the second contract by 31 January 2009; and payment of the balance of the second contract by 28 February 2009. The discussion is not denied by the applicant in its affidavits. The arrangement for payment was confirmed in the applicant's email to the respondent dated 17 December 2008, and the applicant made the down payment of $88,371 on that day in accordance with the arrangement.

30 The respondent arranged for Mr Scott, one of its subcontractors, to carry out the drilling of weepholes in the louvred windows in early 2009. Mr Scott also carried out other works as set out in a schedule attached to an email dated 28 April 2009. The applicant says that it, also, carried out certain repair works in relation to the items of which it had complained in late 2008.

31 The applicant did not pay the balance of the money under the first contract by 15 January 2009. When the non-payment was raised by the respondent, Mr Trainer of the applicant indicated that works were being finalised for inspection with the Department, and that he expected to make payment in full after the inspection.

32 Then, there was no payment made by 31 January 2009 in respect of the second contract. Mr Trainer of the applicant, in an email dated 5 February 2009, informed the respondent, in effect, that the applicant was hoping to receive payment from the Department the following week, thereby enabling payment to be made by the applicant to the respondent at that time. Mr Trainer indicated also that he expected the respondent to rectify outstanding maintenance problems as soon as possible, including the weepholes.

33 At around this time, in an inspection report dated 11 February 2009, the Department included reference to a few windows and doors which required replacement, touch-up, or powdercoating.

34 On 18 February 2009, Mr Erren of the respondent says that he met with Mr Trainer again and requested payment. He says that Mr Trainer said that the applicant was meeting the bank the next day to finalise a loan facility, and that Mr Trainer expected to pay the respondent within 48 hours of that occasion. That conversation is not denied by Mr Trainer. Mr Trainer emailed Mr Erren on 18 February 2009 confirming the meeting with the bank and indicating that he expected to have the matter formalised and settled within 48 hours of meeting the bank.

35 No further payments were, however, made by the applicant and the respondent issued its statutory demand on 17 March 2009.

36 According to the applicant (Mr Austin's affidavit sworn 29 June 2009, par 4), Mr Scott was on site by 16 February 2009. Mr Scott had completed drilling the weepholes by about 21 April 2009 and at or about that time, Mr Rassmussen, one of the applicant's supervisors, signed a form indicating that the work had been completed to his satisfaction.

37 On 29 April 2009 Mr Scott emailed the respondent and advised that insofar as he was aware, there remained to be undertaken the replacement of cracked glass on five sliding door panels, and the replacement of opaque for clear glass in a bedroom window.

38 Mr Trainer's affidavit of 1 July 2009 also annexed communications from the Department in relation to inspections of the houses built by the applicant. The respondent adduced in evidence a letter from the Department to the effect that one of the annexures, relating to 'Pretty Pool #96186/2008' relates to Lot 577 Panjya Parade and is not one of the 11 houses built for the Department (Ms McAulay's affidavit sworn 13 August 2009). On the other hand, the applicant (by Mr Rassmussen's affidavit of 29 June 2009), includes '577 Panjla' [sic] as one of the relevant houses. The annexures refer to some items with respect to doors and windows being outstanding, as well as many other items of outstanding work. There is no itemisation of the cost of work relating to doors and windows, nor is it clear how much of it relates to the alleged deficiencies in supply by the respondent.

The terms of the contracts - background to the claimed genuine dispute

39 In addition to the terms of trade, the applicant, as I understand it, says that the contracts included terms to the effect that:

• the windows, or at least certain windows, would contain weepholes;
• the goods would be finished in powdercoating;
• the respondent would provide 'a certificate that its widow products satisfied the design criteria including the requirements of cyclonic Region Category D' (the 'certificate term');
• the goods would be of merchantable quality and fit for purpose; and
• the goods would be packaged with reasonable care.

40 The first three of those terms are said to be express, and to arise from the terms of the respondent's quotations which were accepted by the applicant. The fourth and the fifth terms are said to be implied by law.

41 As to the first two of the three alleged express terms, the respondent's quotation referred to the goods complying with Australian Standards, and being approved by the Department. The first two terms are said to arise from the contents of the Australian Standard Specifications and/or specifications or approvals issued by the Department. The applicant did not annex any specifications or documents with regard to Australian Standards or the Department's requirements. Mr Trainer of the applicant in an affidavit of 6 April 2009 (par 33(a)), stated, however, that the weepholes were 'required'. It is manifestly unsatisfactory, as a matter of principle and practice, for an applicant to rely on the written terms of a contract arising from documents it does not adduce in evidence. Nevertheless, the respondent did not object to Mr Trainer giving that evidence in that form, and Mr Scorer, in his affidavit for the respondent dated 29 April 2009, said that weepholes were 'necessary'. Accordingly, I accept the applicant's contention that there is an arguable case that the contract contained a term requiring the provision of certain louvred windows containing weepholes.

42 As regards the alleged certificate term, again no document or extract of document from the Department or Australian Standards is adduced in evidence by the applicant. The matter is simply stated as, in effect, a requirement of the contract by Mr Trainer in his affidavit of 6 April 2009 (par 10(a)), and his evidence in that form is not objected to. Further, the respondent, in its affidavit of Mr Scorer, also stated that window certification was 'required' and annexed emails passing between the applicant and the respondent in November 2008 which in effect, indicated that a certificate was expected to be given.

43 Again, notwithstanding the unsatisfactory nature of the applicant's evidence. I accept that there is an arguable case that the certificate term alleged by Mr Trainer in par 10(a) of his affidavit of 6 April 2009 was a term of the contract.

44 As to the third alleged express term, the respondent's quotation stated that the respondent's products were 'finished ... in a durable powdercoated surface'. I accept that it is arguable that the third express term alleged was a term of the contract.

45 As to the fourth implied terms, of merchantable quality and fitness for purpose, the applicant alleged that they are implied by virtue of s 14 of the Sale of Goods Act 1895 (WA) and under s 71 of the Trade Practices Act. As to the former, such implied terms may be expressly excluded by the parties in their contract: s 54 of the Sale of Goods Act. They were here: cl 17 of the terms of trade. As to the latter, s 71 of the Trade Practices Act applies to goods supplied to a 'consumer'. A person is a 'consumer', in accordance with the definition in s 4B of the Trade Practices Act, if certain criteria are satisfied. One concerns an acquisition where the price of the goods does not exceed, relevantly, $40,000. That criterion does not apply here. The other is where the price exceeds that figure, if the goods are of a kind ordinarily acquired for household use, and the person does not acquire the goods for, inter alia, the purpose of resupply. Windows and doors are goods of a kind ordinarily acquired for household use, but where they are acquired by a builder for building work, they are acquired for the purpose of resupply: Theo Holdings Pty Ltd v Hockey [2000] FCA 665; (2000) 99 FCR 232 [27]. Accordingly, s 71 of the Trade Practices Act has no arguable application to the contract. The applicant has not shown that the alleged implied terms raise a plausible contention requiring investigation.

46 The fifth term alleged is that the goods would be packaged with reasonable care. This is said to arise from a combination of express and implied terms. There is an express term in the quotation that goods would be 'packaged'. The exercise of reasonable care with respect to the packaging is said to be a term implied by operation of law. Again, the respondent relies on cl 17 of the terms of trade to exclude such an implied term. It is not necessary to examine that contention further, because the substance of this claim also finds expression in other causes of action, referred to below [56], from which cl 17 would arguably provide no protection.

47 For its part, the respondent contends that the arrangement made on 17 December 2008 constituted a binding agreement varying the contracts between the parties. It alleges that the parties reached a binding compromise of their then existing disputes and agreed that payment should be made in accordance with the timetable discussed between the parties on 17 December 2008 and confirmed by the applicant's email dated 17 December 2008. It says that whatever disputes may have existed, they were clearly compromised and there remains no genuine dispute now. The applicant denies that the arrangement was a binding agreement and contends that even if it were, it was subject to the respondent rectifying 'outstanding maintenance items' as subsequently referred to in Mr Trainer's email of 5 February 2009.

48 In my view it is not possible to conclude on the affidavits that the arrangement on 17 December 2008 constituted a binding agreement. Although it is said by counsel for the respondent to be a binding agreement of compromise, Mr Erren in his recounting of the events of 17 December 2008, does not depose to any compromise with respect to the weephole issue. On the evidence, the discussion related to the damage apparently occurring in transit. Also Mr Trainer's email of 5 February 2009 is arguably capable of shedding some light on the nature of the oral arrangement, and that email refers to Mr Trainer's expectation that the respondent would, in effect, satisfactorily carry out certain rectification work. Accordingly, given the nature of these proceedings, I am unable to find that the evidence discloses, with sufficient clarity and certainty, either the existence of a concluded agreement on 17 December 2008, or the precise scope and nature of all its terms.

Findings on whether there is a genuine dispute

49 The applicant says that the evidence discloses a genuine dispute to the alleged debt, and the existence of offsetting claims. As to the former, counsel for the applicant contended that there was no obligation on the applicant to pay for the goods supplied pursuant to the invoices issued by the respondent in that the goods supplied under the first contract were not 'goods ordered' within the meaning of cl 2 of the terms of trade and that, accordingly, the respondent had no accrued entitlement to demand payment for the goods.

50 The applicant contends that the goods supplied by the respondent under the first contract were not 'goods ordered' by the applicant in the following respects. First it is alleged that certain windows did not contain weepholes; secondly it is said that goods were not finished in a powdercoated surface; thirdly it is alleged that the required certificate was not supplied; and fourthly it is said that goods were not fit for purpose or of merchantable quality. I have found that the fourth basis depends on an implied term which has no arguable application. It remains to consider the first three bases relied upon by the applicant.

51 As to the first alleged basis, the applicant, by Mr Trainer's first affidavit (par 18), deposes that 43 windows were provided without weepholes. This was out of 164 windows, doors and other accessories supplied by the respondent under the first contract, according to Mr Trainer in his first affidavit (par 6). By mid December 2008 the applicant became aware of the absence of weepholes, and required the respondent to drill weepholes in the windows. The respondent agreed to do this and had its contractor, Mr Scott, carry out that work in early 2009. The windows have been installed in houses which have been built and handed over to the Department, for which the applicant has been paid, subject to the 2.5% retention. Accordingly, in my opinion, it cannot plausibly be contended that the 43 windows supplied without weepholes were not accepted by the applicant: s 35 Sale of Goods Act. The applicant may thus only treat the failure with respect to those 43 windows as a breach of warranty: s 11(3), s 52 Sale of Goods Act. In doing so it may set up the breach of warranty in diminution or extinction of the price, and, if further damage is suffered, maintain an action with respect to such damage: s 52(4) Sale of Goods Act.

52 Accordingly, the claim regarding the windows without weepholes may constitute a genuine dispute with respect to the debt alleged only insofar as it involves a claim for breach of warranty. The applicant's claim with respect to the windows without weepholes falls to be considered as an offsetting claim for damages, discussed later.

53 In relation to the alleged dispute based on alleged lack of certification, the respondent, in an email of 28 November 2008, said that it would obtain 'official test reports in regard to these window frames, this will comply fully with the requirement for a signature "by a professional engineer"' (Mr Scorer's affidavit, par 13, annexure 'TNS5'). The respondent subsequently supplied official test reports (Mr Scorer's affidavit, annexure 'TNS5'). The evidence discloses no further complaints in that regard. Moreover, according to Mr Trainer's affidavit of 6 April 2009 (par 10(a)), the respondent eventually provided the applicant with the required certificate. Accordingly, the applicant has not satisfied me that this is a claim requiring further investigation which it genuinely believes to exist.

54 Further, the applicant has since handed over the houses and been paid, subject to a 2.5% retention. Again, in my view, it is clear that the goods supplied and invoiced by the respondent under the first contract have been accepted by the applicant, notwithstanding any dispute about the adequacy of the certification. If (contrary to my finding above) there remains a claim with respect to the certificate, it also falls to be considered in the context of an offsetting claim. It does not provide a genuine dispute to the whole of the debt asserted by the respondent.

55 In relation to the powdercoating, the applicant's counsel contends first that by reason of the weepholes that had been drilled into the window frames, and secondly by reason of certain other matters referred to in Mr Erren's affidavit (par 52) for the respondent, concerning the assembly of the window frames, the respondent has failed to supply windows finished with powdercoating. The latter complaint was not the subject of any evidence or written submission by the applicant and was raised for the first time by counsel for the applicant in oral argument. Also, the applicant had adduced reports from a consulting forensic and materials scientist dated 22 and 24 September 2009, on the issue of powdercoating. The first report of the applicant's expert indicates that the powdercoat finish on the goods is appropriate, except in relation to where the weepholes have been drilled. Accordingly, I am not satisfied that the second part of the applicant's contention raises a claim which is 'genuinely believed [by the applicant] to exist': John Holland Construction v Kilpatrick Green (253). As to the powdercoat defect arising from the drilling of the weepholes, this falls to be considered, as I have said, as part of the offsetting claim regarding weepholes.

56 The applicant's alleged offsetting claim is to be considered in the context of the applicant's evidence that 164 windows, doors and accessories were supplied under the first contract. The applicant says it has claims for damages for breach of contract and claims for damages under the Trade Practices Act, in respect of the respondent's 'unworkmanlike and negligent packaging of goods'. The applicant did not articulate which provisions of the Trade Practices Act were allegedly contravened. I will accept, nevertheless, that it may have arguable claims requiring investigation in that regard under s 52 and/or s 53 of the Trade Practices Act based on implied representations (cf Createc v Design Signs [54]).

57 In relation to the alleged offsetting claim, the applicant makes two principal contentions. First, it says that it has incurred expenditure in carrying out rectification works in respect of certain of the goods which arrived in Port Hedland under the first contract in a damaged condition.

58 The applicant, by Mr Trainer's affidavit (par 39) says that out of 65 damaged windows, 25 had been repaired by 'either' the respondent's contractor or the applicant. The applicant says that the respondent's contractor has attempted to repair the other 40 windows, but that they require replacement because of damage to the powdercoating and integrity of the windows through the drilling of holes. In Mr Trainer's first affidavit (par 40), he says of these windows:

Even though the windows appear repaired, upon close inspection you can see the repair work. But, the real risk is created because the powder coating has been breached. The aluminium in the window frames that has been exposed to salt air has already started to corrode in some places.

59 By reason of the following matters, in my opinion, the applicant has not shown a genuine offsetting claim with respect to the 25 windows on which the applicant says that 'either' it, or the respondent, carried out the repair work.

60 In relation to any claim for its rectification costs (including rectifying the goods allegedly damaged in transit), there is no satisfactory evidence of an amount claimed by the applicant in good faith.

61 The applicant does not give any particularity as to how many of the 25 windows were repaired by the applicant's staff, as opposed to the respondent's contractor. To say that repairs were effected by 'either' the applicant or the respondent is to say nothing about the scope of the applicant's work, and hence nothing about its rectification costs. Nor does the applicant give any indication of what work it carried out, or any particularity as to the labour and material cost it in fact expended on such repair work.

62 Also, insofar as the applicant provides evidence as to expenditure in allegedly repairing windows, it is conflicting and vague. Mr Trainer, in his affidavit dated 6 April 2009 (par 35) stated that the applicant had spent $55,000 in labour and materials in repair costs. No breakdown was given to support this figure and no business records were annexed to provide primary evidence of the expenditure. Mr Trainer's statement is no more than an assertion of fact unsupported by evidence.

63 The figure of $55,000 is to be contrasted with the next figure mentioned by Mr Trainer in his subsequent evidence.

64 The other evidence of expenditure appears in Mr Trainer's affidavit of 25 September 2009. In that affidavit Mr Trainer said that his 'estimate' of the applicant's labour costs in carrying out repair work is $199,311. That estimate is said to be based on the applicant's average labour costs of $82.36 x 220 hours per house in carrying out rectification work multiplied by the 11 houses into which the respondent's products were installed for the Department.

65 The figure of 220 hours rectification work per house is said to be based on Mr Rasmussen's affidavit of 25 September 2009. In that affidavit, Mr Rasmussen, a building supervisor with the applicant, provides what he says is an 'estimate' of the repair work involved - in effect, 220 hours per house. He referred in this regard to his earlier affidavit of 29 June 2009 in which he said that he knew that Andy Bennett, another building supervisor, had completed repair work 'on some of [the respondent's] window frames' prior to Mr Scott coming on site (on 16 February 2009). He also said that he had the applicant's carpenters 'repair various window and door frames'. This latter evidence, which suggests that the applicant's repair work had been done by 29 June 2009, which accords with the handover in July 2009, gives no indication of the amount of work undertaken by the applicant. There is no connection articulated between the limited nature of the work conveyed by Mr Rasmussen in his affidavit of 29 June 2009, and his bare assertion of an 'estimate' of 220 hours per house in his affidavit of 25 September 2009.

66 There is no evidence explaining how the applicant's alleged repair costs were allegedly $55,000 at 6 April 2009 and were allegedly nearly $200,000 at 29 June 2009. At 6 April 2009, if the applicant had repaired the whole 25 windows (and there is no evidence of that), the average rectification cost to it per window was $2,200. By the hearing, if the same 25 items are being referred to, the cost is said to be nearly $8,000 per window. The latter figure is more than the alleged replacement cost per window of $6,000 (see [70] below). If other items are being claimed as the subject of additional repair, there is no cogent evidence of what they are, and what repair work was being carried out so as to make up a total repair cost of nearly $200,000. Counsel for the applicant said in oral submissions that the difference between the figures reflects the fact that the volume of the repair work had escalated between April and June. There was no evidence from the applicant explaining the escalation contended for in its submissions. Having regard to the applicant's own evidence, in my view, this claim for nearly $200,000 is to be regarded as inherently improbable.

67 Further Mr Trainer's and Mr Rasmussen's affidavits, insofar as they depend upon the figure of 220 hours per house, lack particularity and cogency.

68 In relation to the cost of materials, the applicant, in Mr Trainer's affidavit of 25 September 2009, has annexed invoices for touch-up paint for approximately $300. These invoices are put forward as providing evidence for the claim that the applicant has expended about $199,500 in rectification work. Mr Trainer says that the invoices are only examples, and that in order to ascertain the full cost, the applicant would need to undertake an audit of all its hardware costs and invoices and mark up the items attributable to that repair. Mr Trainer says that this exercise would take an estimated 100-plus man hours. Again, in my view, this estimate lacks cogency as the basis for it is not articulated. Further and in any event, the applicant has given no evidence of the magnitude of the cost of materials, or any evidence to suggest that the cost of touch-up paint and other such materials is substantial relative to the cost of labour. Any difficulty in identifying material costs does not explain the insufficiency of the evidence in relation to labour costs.

69 In my view the applicant's evidence on this point ultimately lacks cogency and particularity, and is insufficient to quantify any amount as being a genuine amount in respect of the rectification works allegedly carried out by the applicant to date (cf Macleay Nominees v Belle Property East [24]).

70 The applicant's second contention is to the effect that the applicant will need to replace windows supplied without weepholes which have since been drilled by the respondent's contractor. It says that the replacement cost is approximately $6,000 per window. The respondent does not contend that the applicant's calculation of $6,000 per window lacks adequate detail. (It is to be noted that this is an estimate of the cost of future remedial work, unlike the claim for alleged historical costs referred to above.)

71 There is conflicting evidence regarding the number of windows which had weepholes drilled in them. At par 39 of his affidavit of 6 April 2009, Mr Trainer states that 40 windows would require replacement due to the unsatisfactory effect of drilling weepholes post-manufacturing. Mr Scorer, for the respondent, in his affidavit of 29 April 2009 states at par 18 that 36 of 47 louvred windows supplied required weepholes. At par 20, he states that he contracted Mr Scott to drill weepholes in 36 windows. The applicant did not file any affidavit responsive to Mr Scorer's affidavit. Mr Scott attaches to his affidavit a schedule of work completed in relation to drilling weepholes ('JWS1'). There are 33 ticks which indicate that in 33 specified rooms of the houses, weepholes had been drilled in windows. It is not clear on the evidence how many windows were drilled. In response to a query by the court in an email to the parties on 5 November 2009, the respondent submits that 33 windows have been drilled. The respondent submits that this is evidenced by attachment 'JWS1' to Mr Scott's affidavit and by Mr Austin's affidavit, in which he swears to checking the work completed by Mr Scott. Then, at 'the eleventh hour', after being notified of the listing date for the delivery of reasons, the applicant, in response to the court's email of 5 November 2009, submits that 33 windows have had weepholes drilled in them and that two additional windows require weepholes as they are 'exposed to the elements', being located in an alfresco area.

72 In light of the parties' submissions, I will proceed on the basis that the number of windows exposed to the weather and requiring weepholes is 35.

73 The respondent says, however, that the applicant's claim to replace the windows on account of the drilled weepholes is a recent invention, in that it was not raised by the applicant prior to the issue of the statutory demand. It also says that the claim is spurious as the evidence is that the houses have been handed over to the Department without any demand from the Department that the windows be replaced.

74 I accept that a late complaint of this kind could, in certain circumstances, raise a suspicion of a want of bona fides. However, ultimately the question is whether the evidence as a whole reveals that there is now a genuine offsetting claim: Mibor Investments v Commonwealth Bank (293).

75 In this case, the lateness of the complaint is, in my view, of no real significance when regard is had to the following three matters. First, as I have found, it is to be accepted for the purposes of this application that it was, arguably, a term of the contract that weepholes be inbuilt. Secondly, there is the apparently uncontested evidence that at least certain windows leaked without the weepholes. Thirdly, there is the expert evidence referred to below.

76 The reports from the applicant's consultant forensic and material scientist, dated 22 and 24 September 2009 stated, inter alia:

The consequence of drilling holes through the aluminium frame and breaching the powdercoat seal is clearly understood in the industry. The powdercoat film is the only level of protection afforded to the aluminium against salts and weathering corrosion. There have been many cases in the past where minor breaches of the powdercoat finish have lead to corrosion sites and where the corrosion has propagated under the film to cause larger areas of failure and coating delamination. If it is necessary to penetrate the frame and breach the powdercoat protection, it is essential that some form of seal to the aluminium is reinstated. In the case of holes, the broken powdercoat edges should be sealed with a colour matched epoxy paint.

...

Small windows appear to have 2 or 3 holes in the sills whereas larger windows have 5 or more holes. In all cases, the photographs show that the holes have not been cleaned or sealed and the powdercoat finish has been compromised. Raw aluminium is clearly visible.

The correct method of installing sill drainage is to machine slotted drain holes in the sill sections at the factory prior to powdercoating the frames. The slotted holes provide greater drainage and by machining them in the factory, the entire aluminium surface can be sealed during the powdercoating process. If it is necessary to install the holes on site after the windows have been installed then the holes should have been cleaned of burrs and swarf and then sealed with an appropriate colour-matched epoxy paint. Leaving the holes untreated provides a point of attack for corrosive deposits and can lead to localised powdercoat blistering and premature failures.

This evidence indicates that untreated weepholes provide points of attack for corrosion and may lead to premature failures.

77 The respondent contends that there is no ground for thinking that the affected windows may need to be replaced. Rather, it says, the applicant's expert evidence suggests that the holes need only to be treated and sealed.

78 In his affidavit sworn 6 April 2009, Mr Trainer for the applicant states:

Exposing the aluminium to the weather creates a likely risk that the windows will corrode within their expected life. If so, each of the affected windows will need to be replaced.

The aluminium in the window frames that has been exposed to salt air has already started to corrode in some places.

79 Bearing in mind the nature of these proceedings, in my view there is no 'clinching evidence at [this] initial stage' (Jarpab v Winter (264)), that there is no prospect that the applicant may not be, or become, liable to the Department to replace those windows.

80 This leads to a consideration of the respondent's next point. The respondent contends that the claim for replacement costs is spurious by reason of the handover to the Department.

81 In my view, the fact of handover itself does not necessarily preclude any claim for damages by the applicant: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272. At least arguably, the correct measure of damages where goods have been converted in a manner contemplated by the parties and on-sold is the buyer's liability to the subsequent user of the product: Bence Graphics International Ltd v Fasson UK Ltd [1998] QB 87. Where no claim has been made by the third party, the buyer may nevertheless, at least arguably, be entitled to damages for the chance or risk that the third party will make such a claim: Alucraft Pty Ltd (in liq) v Grocon Ltd (No 2) [1996] 2 VR 386 (although in that case the contract was for materials and services, and not just for the sale of goods).

82 Whilst there is no claim by the Department against the applicant for the removal of the windows with weepholes drilled in them, it is to be inferred that no final release has been given by the Department, in that the Department has retained $159,000 as a retention sum.

83 In Alucraft v Grocon, there was no claim on foot by the end-user when the supplier sued for its debt. Four years had passed since the defects were apparent, although the final certificate was not conclusive and the head-contractor remained theoretically at risk to an action by the proprietor. The court discounted the cost of rectification work substantially on account of the low risk that the head-contractor would ever be required to carry out rectification work.

84 Having regard to the nature of this application, it is not possible to fix upon a discount to be applied to the cost of rectification work in proceedings of this kind. The limited time in which the defects have been known sufficiently distinguish this case, on at least an arguable basis, from Alucraft v Grocon, so as to make it unsafe, absent a full investigation of the facts, to assume that there would be any material discount applied to the figure arrived at for the cost of remediation (cf Alucraft v Grocon (400)).

85 Accordingly, in my opinion, there is sufficient evidence of an offsetting claim with respect to the 35 windows exposed to the weather in which weepholes needed to be drilled. The level of the offsetting claim is represented by the risk of the applicant being liable to the Department to replace those windows at a cost of $6,000 each, to $210,000.

86 In relation to the certification issue, even if there remained a genuine claim, there is no evidence that the applicant has suffered any damage from the alleged failure to provide appropriate certification since the provision of the test reports.

87 For these reasons, I find that there is no genuine dispute to the whole of the alleged debt, but that the applicant has an offsetting claim to the extent of $210,000. For the purposes of s 459H(2) of the Act, the substantiated amount of the demand is $85,603.41.

88 I would order that the respondent's demand pursuant to s 459E of the Act dated 17 March 2009 be varied such that the demand be in the sum of $85,603.41.

89 I will hear the parties on final orders and costs.