BP Refinery (Westernport) Pty Ltd v Hastings Shire Council

Solicitors: Lou Baker and Associates (Plaintiff) Henry William Lawyers (Defendant) File Number(s): 2019/123028

Judgment

1. HER HONOUR: This is an application to set aside a creditor's statutory demand on the basis of a genuine dispute as to the existence of the debt or an offsetting claim within the meaning of section 459H of the Corporations Act 2001 (Cth). The defendant, Edgewin Holdings Pty Ltd, issued the demand for some $125,000, being the last payment due to be paid by the plaintiff, CF Mellick Pty Ltd, under an agreement to buy units in a trust.
2. The people standing behind these companies, being Kevin O'Shea and Charles Mellick respectively, had undertaken a property development in Zetland, albeit through different corporate vehicles. The trust owns the apartments in the completed development. A problem is said to have arisen with the fitness for occupation of the apartments as it has emerged that they are clad in flammable material. CF Mellick has commenced proceedings in the District Court seeking redress in respect of the issues sought to be agitated on this application. Whilst, at a high level of generality, the suggested dispute between the parties sounds plausible, once scrutinised in the manner required on such an application, the suggested claim between these parties arising out of the cladding is not.

Facts

1. Mr Mellick is an experienced property developer. His company is CF Mellick. Mr O'Shea is involved in construction. His company was Trico Constructions Pty Ltd. Mr O'Shea was the "Nominated Supervisor" on Trico's builder's licence. Edgewin Holdings is another company owned by Mr O'Shea, and is trustee of the O'Shea Family Trust.
2. In 2010, Mr Mellick and Mr O'Shea joined forces. Mr Mellick became a director of Trico and, in 2012, an equal shareholder in Trico with Mr O'Shea. Mr Mellick described Mr O'Shea as the managing director of Trico, whose role included the selection of materials. In 2013, Mr Mellick and Mr O'Shea set up the trust. AIL Property Group Pty Ltd (the Trustee) was incorporated, with Mr Mellick and Mr O'Shea as directors and shareholders. The AIL Property Group Trust (the Trust) was settled and the Trustee appointed. At the time of the events in question, one third of the units in the Trust were held by each of CF Mellick as trustee for CF Mellick Holding Trust, Edgewin Holdings as trustee for the O'Shea Family Trust and Powertec Pty Ltd as trustee for the Kapalua Property Trust, a company and trust associated with Michael Barakat. In October 2014, Mr Barakat also became a director of the Trustee.
3. The Trust was established to acquire the ground and first floor levels of a property in Zetland, which the Trust acquired in 2014. The Trustee retained Trico to construct 30 residential apartments at Zetland. It was intended to retain the apartments once constructed and rent them out. The building had two further levels above those purchased, called "The Lofts". The Trust also acquired five apartments in The Lofts.
4. In August 2015, construction was approaching completion and agents were appointed to begin leasing the apartments. Mr Mellick asked Mr O'Shea to complete the outstanding certifications for the building so that an occupation certificate could be obtained. On 28 September 2015, Mr O'Shea signed three certificates on behalf of Trico, of which only one is relevant, certifying that works had been completed in accordance with Standards of Performance, in particular: Measure and / or system Standards of Performance Lightweight construction (fire rated) BCA2014 Specifications C1.8 and A2.3 and AS 1530.4-2005

1. The Building Code of Australia at the relevant time included Section A, "General Provisions", including Specification A2.3, "Fire-Resistance of Building Elements", which set out the procedures for determining the fire-resistance level (FRL) of building elements. Section C of the Building Code, "Fire Resistance" included Part C1, "Fire Resistance and Stability", and Specification C1.8, "Structural Tests for Lightweight Construction". Clause C1.8 provided, relevantly (emphasis original): C1.8 Lightweight construction (a) Lightweight construction must comply with Specification C1.8 if it is used in a wall system - (i) that is required to have an FRL; or (ii) for a lift shaft, stair shaft or service shaft or an external wall bounding a public corridor including a non fire-isolated passageway or non fire-isolated ramp, in a spectator stand, sports stadium, cinema or theatre, railway station, bus station or airport terminal. … Where "lightweight construction" was defined as follows: Lightweight construction means construction which incorporates or comprises - (a) sheet or board material, plaster, render, sprayed application, or other material similarly susceptible to damage by impact, pressure or abrasion; or (b) concrete and concrete products containing pumice, perlite, vermiculite, or other soft material similarly susceptible to damage by impact, pressure or abrasion; or (c) masonry having a thickness less than 70 mm. "Wall system" was not defined; "external wall" was defined as an outer wall of a building which is not a common wall; and "public corridor" meant "an enclosed corridor, hallway or the like …".
2. On 11 December 2015, a Final Occupation Certificate was issued. The apartments were let. In August 2017, Mr Mellick ceased to be a director of Trico. In October 2017, Trico's building licence expired. In November 2017, a voluntary liquidator was appointed to Trico.

Trust Unit Sale and Purchase Agreement

1. By mid-2018, a dispute had arisen between the Mellick and Barakat interests, on the one hand, and the O'Shea interests, on the other, in respect of a number of property developments they were doing together. On 19 July 2018, Mr Barakat made a 'final offer' to Mr O'Shea to buy out his interest in two property developments, which was not accepted, but Mr Barakat's offer attached a spreadsheet which estimated the value of the 30 apartments in the Zetland development and five "Lofts" apartments, less bank debt, to be some $6 million, with Mr O'Shea's one-third interest being worth some $2 million.
2. On 26 July 2018, the parties signed the AIL Property Group Trust Unit Sale and Purchase Agreement (the Agreement) to effect what was described as a "corporate divorce". So far as these proceedings are concerned, the Agreement provided that Edgewin Holdings agreed to sell its units in the Trust to inter alia CF Mellick for some $375,000 to be paid by three instalments, of which the last instalment of $124,999 was to be paid on or before 30 March 2019. Clause 4.6 of the Agreement provided: All payments to be made by [CF Mellick] … under this Agreement will be made on the due date in same day cleared funds in the manner free of any deduction, withholding, set-off or counterclaim. …
3. Various warranties were given by Edgewin Holdings in the Agreement, but none concerned the state of the building constructed by Trico. The Agreement also contained an entire agreements clause which provided, … No party can rely on an earlier written document or anything said or done by another party, or by a director, officer, agent or employee of that party, before this Agreement was executed, save as required by law.
4. Mr Mellick says he formed an idea of how much to pay for Edgewin Holdings' units in the Trust by reference to Mr Barakat's spreadsheet but, unless the apartments could be rented, then his estimate of value was wrong. Mr Mellick says he would not have purchased Edgewin Holdings' units if he had known that there were building defects or that the Final Occupation Certificate could be called into question, although in cross-examination Mr Mellick agreed that he was an experienced property developer and appreciated that, when entering into the Agreement, there was a risk of defects with the underlying property. CF Mellick paid the first instalment of the purchase price.
5. On 14 November 2018, the Owners Corporation of The Lofts held its Annual General Meeting. The Owners Corporation's solicitors prepared a Position Paper for the meeting which set out substantial difficulties experienced with the builder who constructed The Lofts and efforts to remedy defective building work. The Position Paper proposed a timetable for further remediation, as well as contemplating suits against the Owners Corporation's former solicitors (who had settled proceedings brought against the builder and insurer), the experts retained, and the remediation builders. It would appear that, at the meeting, it was resolved to adopt the advice of the Owners Corporation's fire safety experts and solicitors that The Lofts should not be occupied until a suitably qualified person certified that The Lofts were fire safe and fit for occupation.
6. Apparently, the Trustee was then in the process of registering a strata plan in respect of its development and marketing the apartments for sale. Interested purchasers, on becoming aware of the problems with the common property of The Lofts, are said to have lost interest. In January 2019, CF Mellick paid the second instalment of the purchase price for Edgewin Holdings' units.

First proceedings

1. In February 2019, Mr Mellick caused the Trustee to commence proceedings in the Technology and Construction List of this Court against the Owners Corporation of The Lofts. Defects in the common property of The Lofts were said to have resulted in water leaking into the newer apartments below such that the Trustee had been unable to sell the apartments, which were said to have lost value. The water was said to have inter alia caused a number of fire safety issues in The Lofts including damaging the integrity of fire rated boards in the internal walls between apartments. Penetrations throughout the common property were said to have not been properly sealed to prevent the spread of fire such that the apartments in The Lofts were uninhabitable. Damage was alleged to have been caused to the Trustee as the owner of five apartments in The Lofts due to water damage and fire safety defects including loss of value and rental income. These proceedings are still on foot. Mr Mellick said the damages sought are some $5 million.
2. On 20 March 2019, Mr Mellick was given the Position Paper referred to at [12]. While Mr Mellick deposed that the Paper alleged that the cladding on the face of the building was non-compliant and that the Owners Corporation sought to test the cladding, he accepted in cross-examination that the Position Paper did not refer to cladding and the document had "nothing to do with" alerting him to the issue with external cladding on the ground and first floor levels.
3. In any event, Mr Mellick engaged Lewis Barakat of Greenbrook Constructions to urgently test the cladding. Greenbrook Constructions retained CETEC Professional Scientific Solutions which, on 27 March 2019, took samples of Aluminium Composite Panel (ACP) and sarking from behind the ACP from the façade of the building. It is not entirely clear what prompted Mr Mellick to test the cladding on the building. It may be that, given the allegations made in the Summons filed in the Technology and Construction List, Mr Mellick came upon the problem in the course of looking into fire safety issues referred to in those proceedings. CETEC's report also referred to "recent multi-level building fires in Australia and overseas have resulted in the Federal and State governments enquiring into non-conforming and non-compliant building products, especially building facades comprising of … ACP." But it was not suggested to Mr Mellick in cross-examination that he commissioned the report in an effort to thwart Edgewin Holdings' entitlement to its final payment under the Agreement.
4. On 30 March 2019, the final payment of $124,999 was to be paid by CF Mellick under the Agreement, but was not paid. On 1 April 2019, Edgewin Holdings served CF Mellick with a statutory demand in respect of the final payment. On 12 April 2019, CETEC issued a "Building Façade Material Investigation Report" with the results of laboratory tests conducted on the ACP samples, concluding that the ACP fell within Category "A" as defined by the Insurance Council of Australia, that being the highest category of flammability.

Second and third proceedings

1. At 1.43 pm on 19 April 2019, CF Mellick commenced proceedings in the District Court against Edgewin Holdings, pleading: 1. It was an implied term of the Agreement that the building was fit for use as a residential occupation, and it was not by reason of the flammable cladding. 2. The certificates signed by Mr O'Shea on behalf of Trico were false, the building is not fit for occupation and the Final Occupation Certificate is liable to be revoked. CF Mellick must incur costs to rectify the non-compliant cladding as described in CETEC's report (why CF Mellick had to incur these costs when it was a unitholder but not the Trustee was not laid bare). 3. Edgewin Holdings was said to have known about the non-compliant cladding through its director, Mr O'Shea, and did not disclose this to CF Mellick and thus engaged in misleading and deceptive conduct by silence. 4. CF Mellick was said to have suffered loss and damage by reason of the cost of replacing the cladding and loss of rental income in the meantime. (Again, it is not explained why CF Mellick, as opposed to the Trust, would suffer such losses). The cost of rectification works was claimed as a set-off to the amounts payable under the Agreement. Mr Mellick verified the pleading, deposing that he believed that the allegations in the Statement of Claim were true.
2. At 2.38 pm the same day, CF Mellick commenced these proceedings to set aside the statutory demand. In his affidavit in support of the Originating Process, Mr Mellick identified the genuine dispute as arising because CF Mellick sought to set off the claim in the statutory demand against the damages suffered by defective and non-complying buildings works. He was not aware of the defects when he agreed to buy the units from Edgewin Holdings and, now being aware of it, considered the value of the units to be much less than he agreed to pay for them. Further, he sought to set off the claim against the monies claimed in the District Court proceedings, being the costs to rectify the defective and non-complying building works. Mr Mellick deposed that he also expected that these monies would be claimed against the company by a cross-claim foreshadowed in the Technology and Construction List proceedings. This tends to confirm that Mr Mellick became aware of the problem with the external cladding as a result of those proceedings.
3. On 7 May 2019, CF Mellick obtained a report from a quantity surveyor, assessing the cost of replacing the cladding at $664,763 plus GST. On 8 May 2019, CF Mellick filed an Amended Statement of Claim in the District Court to claim damages in that amount. On 18 June 2019, CF Mellick obtained a report from a building surveyor, who opined that the sarking and ACP should not have been installed on a residential building. Having regard to the certificate signed by Mr O'Shea referred to at [5], he opined: The ACP and sarking as installed was not complaint with the Clause 2.4 contained in Specification C1.1 of Building Code of Australia ("BCA") as in force at 28 September 2015.
4. It will be noted that Clause 2.4 in Specification C1.1 was not referred to in the certificate signed by Mr O'Shea on behalf of Trico. Specification C1.1 is entitled "Fire-Resisting Construction" and Clause 2.4 provides (emphasis original): 2.4 Attachments not to impair fire-resistance (a) A combustible material may be used as a finish or lining to a wall or roof, or in a sign, sunscreen or blind, awning, or other attachment to a building element which has the required FRL if - (i) the material is exempted under C1.10 or complies with the fire hazard properties prescribed in Specification C1.10; and (ii) it is not located near or directly above a required exit so as to make the exit unusable in a fire; and (iii) it does not otherwise constitute an undue risk of fire spread via the façade of the building. (b) The attachment of a facing or finish, or the installation of ducting or any other service, to a part of a building required to have an FRL must not impair the required FRL of that part.
5. In response to this report, Mr O'Shea deposed that, when he signed the certificate, he had no regard to the properties of the cladding or sarking on the building as he considered that the purpose of the certification was to verify that the dividing walls between the apartments would retard the spread of fire. The certificate referred to the Standards of Performance in Specifications C1.8 and A2.3 of the Building Code of Australia 2014, along with the interpretation provisions in Part A1. None of these provisions referred or related to cladding or sarking. He did not consider Clause 2.4 of Specification C1.1 when signing the certificate as it was not nominated as a Standard of Performance in the certificate. He did not certify the cladding or sarking material. With respect, I cannot fault Mr O'Shea's logic: it is apparent from the certificate that he did not certify compliance with Specification C1.1.
6. On 12 July 2019, Edgewin Holdings filed a Defence in the District Court proceedings, denying the existence of the implied term or misleading and deceptive conduct, and asserting that CF Mellick was not the proper plaintiff, it not being the owner of the building. The District Court proceedings are still on foot.
7. As at the date of hearing, the parties agreed that the apartments in the Zetland development continue to be occupied, and, when not occupied, they continue to be advertised for lease. Mr Mellick's evidence is that the apartments will nevertheless need to be vacated in order to replace the cladding.

The Law

1. Section 459H provides that, on an application under section 459G, the Court may set aside a demand where there is a genuine dispute about the existence or amount a debt or where there is an offsetting claim in an amount greater than the debt. The principles relating to both genuine disputes and offsetting claims are well-settled. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal (Beazley P, Meagher and Gleeson JJA) said in the context of an offsetting claim, at [30]-[31]: It is settled law that s 459H requires the Court to be satisfied that there is a "serious question to be tried": see Scanhill v Century 21 Australasia at 467, or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor: see Chase Manhattan Bank Australia Limited v Oscty Pty Limited [1995] FCA 1208; 17 ACSR 128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 84 FCR 454 per Emmett J (as his Honour then was). The claim must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd. In that case, Palmer J observed, at [18], that good faith, in this context, meant that the offsetting claim was arguable on the basis of facts that were asserted "with sufficient particularity to enable the Court to determine that the claim is not fanciful". Their Honours make it clear that a similar standard of proof is required whether an offsetting claim or a genuine dispute is alleged.
2. It is not for the Court to engage in an assessment of a deponent's credit on an application such as this: Britten-Norman at [46]. What is called for is an assessment of the kind described by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; (1994) 12 ACLC 669 (approved in Britten-Norman at [46]). At 787 (citations omitted): 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, it may be" not having "sufficient prima facie plausibility to merit further investigation as to [its] truth", or "a patently feeble legal argument or an assertion of facts unsupported by evidence".
3. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, Dodds-Streeton JA, with whom Neave and Kellam JJA put the test in the following terms, at [71]: As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should 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. …
4. Often cited is the judgment of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, which provides useful guidance where an offsetting claim is put forward: It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. 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). The parties also referred me to Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362; Spencer Construction Pty Ltd v G & M Alderidge Pty Ltd (1997) 76 FCR 452; [1997] FCA 681 and my own decision of The MCF Group Pty Ltd v G.J.B. Legal Pty Ltd trading as Byles Anjos Lawyers [2019] NSWSC 333.

No application to strike out

1. CF Mellick submitted that, in light of the fact that Edgewin Holdings has joined issue by filing a Defence in the District Court proceedings, it has conceded that there is a serious question to be tried in those proceedings. In circumstances where Edgewin Holdings had not put on an application to strike out the Statement of Claim or for summary dismissal, CF Mellick submitted that the Court should be satisfied that there is a genuine dispute as to the existence of the debt the subject of the statutory demand, since the genuine dispute is put in the same way. Edgewin Holdings submitted that their failure to file a strike out motion could be explained by a number of things, such as the cost of the motion or strategic considerations. It further submitted that the exercise to be undertaken by this Court is different to that on an application to strike out, since there is a distinction between a claim as pleaded, which would be taken at its highest, and its evidentiary underpinning, including sufficient evidence as to the quantum of the offsetting claim.
2. There is a theoretical distinction between a strike out application and an application to set aside a statutory demand, even if the two are couched in similar terms. However, it is perfectly possible to plead a coherent cause of action which would not be liable to be struck out, while having an insufficient evidentiary basis for the asserted claim to meet the low threshold to set aside a statutory demand. The fact that no application to strike out proceedings has been filed may suggest that the defendant accepts that there is a genuine dispute, but it is not determinative of an application to set aside a statutory demand.

Implied term

1. CF Mellick submitted that the Agreement contained an implied term that the building was fit for residential occupation and that it had been awarded a Final Occupation Certificate. It is said that CF Mellick would not have purchased the units in the Trust, where the only asset of the Trust was the apartments at Zetland, if it had known that the apartments were not fit for occupation. It is said to be a common sense proposition that CF Mellick would not have paid valuable consideration for the assets in circumstances where the Trust could derive no income from selling or letting the apartments.
2. The implied term argument was not expressly raised in CF Mellick's submissions until hearing. Edgewin Holdings' primary submission was that I should not entertain it, on the basis of the Graywinter principle, after Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; (1996) 21 ACSR 581. This was because the issue was not clearly raised until the last affidavit of Mr Mellick, which was made and served outside the 21-day period prescribed by section 459G of the Corporations Act. I recently set out the relevant principles in In the matter of AA Management Co Pty Limited [2019] NSWSC 1443 at [49]-[51]. In admitting that evidence at the hearing, I considered that the issue was sufficiently raised by the first affidavit of Mr Mellick, which was served within the prescribed period, as well as inferentially by the annexed Statement of Claim filed in the District Court proceedings. Although the legal characterisation of an implied term was not squarely put in the body of the affidavit, the underlying factual material did emerge and the legal characterisation was supplied by the annexed Statement of Claim. This is sufficient for the issue to fall within the principle enunciated in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143 and the authorities which follow it.
3. Edgewin Holdings submitted that I should not find that there was an implied term in the Agreement in a transaction analogous to a contract for the sale of land, because of the principle of caveat emptor. It is said the same principle should apply here where the transaction is for the sale of units in the Trust whose only asset is land. In reply, CF Mellick argued that the doctrine of caveat emptor had no role to play where there was a positive representation, said to be contained in the Final Occupation Certificate.
4. Much was made, by each party, of the clauses dealing with a "bar to proceedings". These submissions were made in respect of both the availability of an offsetting claim and a genuine dispute. From CF Mellick's written submissions, it would appear that these clauses were contained within a document styled "Joint and Several Guarantee" of 26 July 2019. However, the document was not in evidence. Edgewin Holdings also relied on clause 4.6 (set out at [10]) as raising a bar to the claim made by CF Mellick, relying on Hausman v Abigroup Contractors Pty Ltd (2009) 29 VR 213; [2009] VSCA 288.

Consideration

1. Neither party referred to any authority in respect of implied terms. I defer to the classic statement of the Privy Council for the conditions for implying a term in fact in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-3: … for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
2. Having regard to the Amended Statement of Claim in the District Court, the assertion of an implied term is, with respect, hopeless. The only particular provided in support of the assertion of the existence of an implied term is: The building had been awarded a Final Occupation Certificate No. 14/1700/02. It is entirely unclear how the existence of a Final Occupation Certificate, without more, satisfied or could possibly satisfy the conditions referred to in BP Refinery necessary for the implication of a term.
3. What is in evidence, and not disputed so far as I could tell, are the circumstances in which the Agreement was executed being: 1. The building was constructed by Trico, a company of which Mr O'Shea and Mr Mellick were directors and equal shareholders. This was not a case where Mr O'Shea knew everything and Mr Mellick knew nothing. Whilst the evidence suggests that Mr O'Shea was primarily responsible for the building activities of the company, Mr Mellick did not suggest that he was uninvolved or ignorant of the company's activities. 2. The building had been completed three years before the Agreement and occupied by tenants during that time. There is no suggestion that, when the parties were negotiating the Agreement, there was anything wrong with the building or that the state of the building formed part of their discussions. 3. At the time of the Agreement, Mr O'Shea and Mr Mellick were in dispute. The Agreement effected a "corporate divorce". Whilst Edgewin Holdings gave various warranties in the Agreement, none concerned the state of the building, but were concerned with Edgewin Holdings' good title in the units. The Agreement said nothing about the building. The Agreement was directed to the sale of the units in the Trust which, as I understand it, was involved in several ongoing property developments in addition to the completed development in Zetland. This was not a case of CF Mellick buying an interest in a property which happened to be held by a trust but a case of parties involved in a range of property developments parting ways. 4. The Agreement contained an entire agreement clause and clause 4.6, which obliged CF Mellick to make all payments on the due date "free of any deduction, withholding, set-off or cross-claim". 5. There is nothing to suggest - and certainly nothing pleaded in the District Court - that the characteristics of the contracting parties, or the individuals standing behind them, necessitated the implication of such a term. So far as CF Mellick was concerned, its principal, Mr Mellick, was an experienced property developer who appreciated that, when entering into the Agreement, there was a risk of defects with the underlying property.
4. I am struggling to see how the implied term was necessary to give business efficacy to the contract. Rather, the matters referred to above lead me to conclude that the suggestion of an implied term in the Agreement is a patently feeble legal argument lacking sufficient prima facie plausibility to merit further investigation as to its truth. I do not consider that there is a genuine dispute as to whether the Agreement contained an implied term in the form alleged in the District Court proceedings which Edgewin Holdings breached such that CF Mellick is not obliged to make the final payment under the Agreement.

Misleading and deceptive conduct

1. The bulk of the parties' submissions were directed to a claim for misleading and deceptive conduct by Edgewin Holdings which was said to be an offsetting claim of sufficient quantum to set aside the demand. The claim is said to arise in the following way. Mr O'Shea, as "nominated supervisor" of Trico, had responsibility for executing material compliance certificates to ensure that the building was compliant with building codes and standards. In this capacity, he signed the three certificates on 28 September 2015. Those certificates were required to obtain the Final Occupation Certificate. The building surveyor's report indicates that the Lightweight Construction certificate was falsely executed. The Final Occupation Certificate is therefore liable to be revoked until remediation works are undertaken, following Cessnock City Council v Laila Investments Pty Ltd [2012] NSWLEC 206.
2. CF Mellick submitted that the knowledge of Mr O'Shea personally should be imputed to both Trico (of which he was managing director), but, critically, also to Edgewin Holdings, of which he is the sole director: Lennards Carrying Company Ltd v Asiatic Petroleum Co Ltd [1915] AC 705; Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (in liq) (1999) 169 ALR 419; [1999] FCA 1820 (Full Court). Edgewin Holdings therefore has "knowledge of the false attestations of the certificates", which is misleading and deceptive within the meaning of the Australian Consumer Law. CF Mellick submitted that, looking at the transaction for the sale of units in the Trust as a whole, it would be found that Edgewin Holdings' conduct was misleading, relying on Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [109]. In circumstances where the real value in the units was the Trust's interest in the apartments, an omission relating to their viability for lease or sale should be regarded as undermining the whole transaction. Any final determination of an issue of this nature was not possible on an application to set aside a statutory demand, since all of the circumstances have to be carefully weighed by the court finally determining these issues, whereas such fact-finding would be impermissible in this Court. The loss alleged by CF Mellick is said to be the amount it needs to expend to get what it bargained for. It says that this loss is the amount of the rectification works, as identified by the quantity surveyor's report. These rectification works will allow CF Mellick to get full value out of its unitholding as the Trustee will be able to let and sell the apartments as was anticipated in the contract with Edgewin Holdings. It was said that the "bar to proceedings" clause did not preclude a claim for misleading and deceptive conduct: Hausman at [30].
3. Edgewin Holdings submitted that the claim under the ACL has no merit. It says that the allegation that it had relevant knowledge is not "conduct" within the meaning of section 2 of the ACL. It says, rather, that the claim by CF Mellick must be understood as an allegation that Edgewin Holdings failed to do something. It says that CF Mellick has failed to identify precisely what it has refrained from doing. It says that there was no conduct by which Edgewin Holdings could be said to have made a representation as to the accuracy of the certificates or the validity of the Occupation Certificate. Relying on Miller & Associates Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31 at [20] and [91], it says that silence would not be misleading in these circumstances, having regard to Mr Mellick's experience as a property developer, his knowledge of the property and the Trust and his ability to make enquiries. It says that the building is occupied, and can continue to be occupied, in circumstances where an Occupation Certificate issued by a private certifier remains in place. It submits that reliance on the building surveyor's report is misplaced, because it does not specifically say that the certificate signed by Mr O'Shea was wrong.
4. Edgewin Holdings submits that any loss caused by the defects should be properly attributed, not to Edgewin Holdings, but to Trico, a company of which both Mr O'Shea and Mr Mellick were directors, and which now is in liquidation. It says, in any case, that CF Mellick as a beneficiary is not liable to pay for this loss, by reference to general principles of trust law and clause 16.1 of the Trust Deed, which provides: 16.1 Liability of Unitholder limited to its investment 16.1.1 Subject to paragraph 16.1.2. and any agreement or acknowledgement entered into or made in writing by a Unitholder: (a) the liability of each Unitholder is limited to the amount (if any) which unpaid in respect of the Units held by the Unitholder; and (b) a Unitholder is not required to indemnity the Trustee if there is a deficiency in the Assets or to meet the claim of any creditor of the Trustee in respect of the Trust. 16.1.2 The Trustee, on its own account and on account of the Trust, is entitled to be indemnified by each Unitholder for any amount of Tax, bank fees or charges referable to the Unitholder and any amount of Tax that the Unitholder is or is expected to be primarily liable to pay and that has been paid out of the Trust or by the Trustee.

Consideration

1. I have great difficulty with the offsetting claim for five reasons. First, CF Mellick relies on the certificate provided by Trico on 28 September 2015 set out at [5]. I fail to see, having regard to the evidence on this application, why that certificate was "false". Trico certified that the "lightweight construction" had been completed in accordance with the Standards of Performance provided in Specification C1.8, "Structural Tests for Lightweight Construction". The certificate said nothing about Specification C1.1. There is no plausible contention in these proceedings that Trico was, by that certificate, certifying the external cladding of the building. The starting point for the claim of misleading and deceptive conduct is not present.
2. Second, any misleading and deceptive conduct in respect of the certificate was engaged in by Trico, a company of which Mr O'Shea and Mr Mellick were directors. If there was a problem with the certificate, then the Trustee may have a cause of action against Trico, but Trico is in voluntary liquidation and CF Mellick is not the Trustee.
3. Third, assuming for the moment that Mr O'Shea's knowledge of any falsity of the certificate may be imputed to Edgewin Holdings, misleading and deceptive conduct by silence arises in circumstances where there is a duty to speak: Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 at 32 (Full Court). The circumstances in which the Agreement was executed is the classic case of a commercial negotiation where the law does not require a party to volunteer information which may assist the other: Miller & Associates Insurance Broking per French CJ and Kiefel J at [22]. Whilst the circumstances of a particular case may give rise to a reasonable expectation that, if a fact existed, it would be disclosed (Rafferty v Madgwicks (2012) 203 FCR 1; [2012] FCAFC 37), it is not suggested that any such circumstances existed here.
4. Fourth, it is not clear why CF Mellick has standing to sue Edgewin Holdings for loss and damages in circumstances where any loss is that of the Trust, to be pursued by its Trustee. Fifth, where any loss would appear to be, at the moment at least, contingent or speculative, any cause of action may not yet be complete. There is no suggestion that the Trustee is obliged to replace the cladding; no evidence that Council has required that it be done or that the Trustee has taken it upon itself to do so. Any cause of action for misleading and deceptive appears, at present, to be nascent.
5. In sum, the offsetting claim alleged by CF Mellick against Edgewin Holdings does not have sufficient prima facie plausibility to merit further investigation. It is a patently feeble legal argument or assertion of facts unsupported by evidence.

Orders

1. For these reasons, I make the following orders: 1. Dismiss the Originating Process filed on 19 April 2019. 2. Plaintiff to pay the defendant's costs of the proceedings.

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