The variations differential
- I accept Infigo's submission that Mr Chedid's first affidavit does not support an application to set aside the statutory demand on the basis of the variations differential. It follows that the Court lacks jurisdiction to set aside the statutory demand on the basis of the variations differential, even if it were an offsetting claim. The variations differential is not an offsetting claim in any event, for the reasons explained below.
- The applicable principles are clear. An application to set aside a statutory demand under s 459G of the Corporations Act is validly made only if it is filed together with "an affidavit supporting the application" within the 21-day statutory period. [6] In the context of an application to set aside a statutory demand on the basis that there is a genuine offsetting claim, the affidavit must provide the basis for establishing the existence of that bona fide claim, expressly or by reasonably available inference. Precisely what that requires, and what might reasonably be inferred from the affidavit and documents exhibited or annexed to it, will depend on the facts of the particular case. It is necessary to bear in mind in every case the summary nature of the procedure and the limited time available for the filing of the supporting affidavit, and that the court is to determine whether a genuine offsetting claim exists, and not to determine its merits. [7]
- Linmas submitted that Mr Chedid's first affidavit supported an application to set aside the statutory demand on the grounds of the variations differential and the rectification claim by exhibiting its payment schedule and adjudication response. Linmas submitted that it was clear from the inclusion of those documents in the exhibits to Mr Chedid's first affidavit that Linmas maintained the position that it had adopted in its payment schedule and adjudication response, and that Infigo could not be in any doubt that Linmas was raising a claim that would effectively be "a re-run" of everything that was before the adjudicator.
- I reject that submission. All that could reasonably be inferred from Mr Chedid's first affidavit was that, in the context of the building contract between Linmas and Infigo, and of the adjudication process and determination which Mr Chedid summarised in paragraphs 4 to 12 of his affidavit (exhibiting the documents generated through that process), Linmas asserted the claim against Infigo described in paragraphs 13 to 17 of his affidavit under the heading "Offsetting Claim". That is the claim for damages for breach of contract and negligence referred to in paragraph 16 of the affidavit, referable to the matters referred to in paragraphs 13 to 15 of the affidavit - allegedly incomplete and defective works, an allegation that the total amount paid by Linmas to Infigo for the building works to date (excluding the unpaid amount that is the subject of the statutory demand) exceeds the value of the building works, and liquidated damages. As I have explained at [29]-[30] above, Linmas no longer relies on the overpayment claim or the liquidated damages claim described by Mr Chedid as grounds for setting aside the statutory demand. The description of the offsetting claim in Mr Chedid's affidavit makes no mention of either the variations differential or of any claim in respect of that differential.
- It follows that the Court has no jurisdiction in these proceedings to vary or set aside the statutory demand on the basis of any offsetting claim founded on the variations differential, because no application to set aside the demand on that basis was validly made in within the 21-day statutory period.
- Even if I had determined that Mr Chedid's first affidavit did sufficiently raise an offsetting claim based on the variations differential, I would have held that this was not an offsetting claim within the meaning of s 459H of the Corporations Act.
- At the hearing, counsel for Linmas initially submitted that this was a claim for restitution for overpayment of the $188,915 in circumstances where Infigo was not in truth entitled to that amount determined by the adjudicator in respect of variations. However, counsel for Linmas later conceded that an offsetting claim within the meaning of s 459H of the Corporations Act is a claim that the company presently has, and that Linmas does not presently have a restitutionary claim against Infigo in respect of the variations differential because Linmas has not paid any part of the adjudicated amount that is the subject of the judgment debt in respect of which Infigo issued the statutory demand. That concession was properly made. [8]
- Counsel for Linmas then endeavoured to formulate the claim relating to the variations differential as a claim in contract arising under two specific provisions of the building contract. However, after identifying each of the provisions on which he relied, counsel promptly and correctly conceded that they did not confer any right on Linmas that would support a claim in respect of the variations that were incorporated in the adjudicated amount, at least prior to Linmas paying the amount of the adjudicator's determination and judgment debt to Infigo.
- The third and final iteration of the alleged offsetting claim based on the variations differential propounded by counsel for Linmas during the hearing was a claim for declarations to the effect that Infigo was not entitled under the building contract to payment for specific variations, being those variations that the adjudicator had determined in Infigo's favour. It was submitted that s 32 of the SOP Act expressly permits Linmas to make such a claim, and that the claim would not be an appeal from or "direct attack on" the adjudication, because Linmas would simply be seeking declarations concerning the parties' rights under the building contract, and the claim would not even refer to the adjudication. Counsel for Linmas submitted that this claim for declaratory relief was an offsetting claim within the meaning of s 459H of the Corporations Act because the declarations, if made, would be "a complete answer" to the judgment debt for the adjudicated amount.
- I reject those submissions. After undertaking an extensive analysis of relevant authorities in In the matter of Douglas Aerospace Pty Ltd, [9] Brereton J (as his Honour then was) followed the Court of Appeal of the Supreme Court of Western Australia in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [10] in determining that an arguable claim that the adjudication does not reflect the true legal rights of the parties does not amount to an offsetting claim for the purpose of s 459H(1)(b) of the Corporations Act where there is no cross-demand for damages, and where there has been no payment and there is therefore no complete claim for restitution. As his Honour explained: [11]
"… a curial proceeding in which a party to a construction contract seeks, by way of enforcing its contractual rights, a declaration that an adjudicated amount is not truly due and payable is in a position closely analogous to one who applies to set aside a judgment, or to appeal from a judgment - essentially, the contention is that the adjudication, and thus the judgment founded on it, is wrong. Despite the width of the concept of 'offsetting claim', it has never been thought to extend to an appeal from, or application to set aside, a judgment. In the absence of payment of an amount of which restitution might be claimed, there is nothing to be set off against the judgment debt, but only a contention that the adjudication is in error. A contention that a debt does not exist is not a 'counterclaim, set-off or cross-demand'. Such a contention denies the debt, whereas a counterclaim, set-off or cross-demand admits it, but asserts that there is a countervailing liability. That the curial proceedings might produce a different result is no different from an appeal. The general principle that an appeal or application to set aside a judgment does not found a genuine dispute, or (at least without more) provide some other reason to set aside a demand, supports the conclusion that a claim that an adjudication does not reflect the true contractual rights of the parties does not amount to an offsetting claim."
- Contrary to the submissions made on behalf of Linmas in the present case, it is not to the point that the claim for declaratory relief might be framed in terms that avoid referring to the adjudication. As a matter of substance, the claim for declaratory relief would be a contention that the judgment debt does not exist, rather than a counterclaim, set-off, or cross-demand. Moreover, that contention is unsustainable. As Brereton J explained, the judgment debt is indisputable so long as the judgment stands, notwithstanding that s 32 of the SOP Act preserves to the parties the right to contend for a different result in curial proceedings, and notwithstanding that any judgment in such curial proceedings can take the adjudication into account and make any adjustment necessary to give effect to what the court finds to be the true legal rights of the parties. [12]
- For all of those reasons, the Court does not have jurisdiction to entertain Linmas' application to set aside the statutory demand on the basis that it has some offsetting claim in relation to the variations differential. However, even if I had been of the view that this ground of challenge was sufficiently identified in Mr Chedid's first affidavit to confer jurisdiction on the Court, I would have held that Linmas' foreshadowed claim for declaratory relief in respect of the parties' true contractual rights in relation to variations is not an offsetting claim within the meaning of s 459H of the Corporations Act, assuming for present purposes that Linmas' contention as to the parties' true contractual rights is arguable. I would therefore have declined to set aside or vary the statutory demand on account of that foreshadowed claim.