COMPLETE HIRE AND SALES PTY LTD -v- TERRA FIRMA CONSTRUCTIONS PTY LTD [2018] WASC 138 (8 May 2018)

1. The defendant (Terra Firma) and its predecessor company, CS Industries WA Pty Ltd, undertook works for the plaintiff (CHS) under contracts for the following projects:

1. The invoices referred to in the statutory demand are not in dispute in the sense there is no allegation Terra Firma did not carry out the work or the figures in the invoices are for some reason incorrect. So, in part, CHS puts its case on the genuine dispute ground under s 459H(1)(a) of the Corporations Act 2001 (Cth). It also maintains it has an offsetting claim which is greater than the amount specified in the demand. The principles relating to when there is a genuine dispute are well understood and were not in dispute between the parties. It is enough if I refer to without quoting from the decision in Createc Pty v Design Signs Pty Ltd (2009) WASCA 85. The principles to off-setting claims are also well understood. The particular relevance in this case is quantification of the off-setting claim. In Karimbla Construction Services Pty Ltd v Alliance Group Building Services Pty Ltd (2003) NSWSC 617, Barrett J said at [28]:

Despite this clear need, according to the terms of the legislation, to quantify an offsetting claim in money terms, it is not necessary that the party seeking to have the statutory demand set aside should particularise the amount of the claim to the last dollar and cent. Particularly where the claim is of an unliquidated kind, there may be various ways of approaching the issue of assessment of damages and there may be elements of the assessment that are, of necessity, based on broad estimate. It is sufficient that there be, on the evidence, a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty as to details of calculation, can be seen to be, in any event, greater than the amount of the debt the subject of the statutory demand. Of course, the narrower the margin between the alleged debt and the plaintiff's estimate or initial quantification, the greater will be the need for particularity in asserting the "amount" of the offsetting claim.

1. In his written submissions, counsel for CHS set out the three grounds upon which the application was founded. First, he submitted CHS had an off-setting claim. Second, it was said Terra Firma had not taken into account a credit in an amount of $115,702.28. Thirdly, it was submitted the parties had agreed there would be a settlement of a series of invoices by way of a payment by the plaintiff to the defendant of the amount of $150,000 in full and final settlement of these invoices.
2. It is convenient to take these matters in reverse order. The agreement referred to is to be found in an email sent by the manager of Terra Firma, Christopher Denis Streat, to Mr Dillon on 23 May 2016. Relevantly, on the second page of the email is a table which shows CHS is indebted to Terra Firma in an amount of $506,553.57. Below the table, there appears the following:

I will accept a full and final settlement as to be out of your life as you wish of $356,553.57 inc GST, you win mate I'm done you have your 150k.

This amount must be paid on tomorrow's payment run as a condition of offer and acceptance, this means $63k is paid 8 working days early but that's neither here nor there in the scheme of this and $400k + is well overdue.

1. As I understand this agreement, Terra Firma was offering CHS a discount of $150,000 on money said to be outstanding provided certain payment terms were met. It is common ground between the parties that those terms were not met. That being so, the agreement fell away and there is no entitlement on the part of CHS to now claim an amount of $150,000.
2. In his affidavit at [40], Mr Dillon deals with this alleged agreement as to $150,000. It reads as follows:

Eventually, the Applicant and the Respondent entered into a part settlement where the Respondent, accepted $150,000.00 in full and final settlement for a series of invoices, to compensate the Applicant for its losses associated with the Project Works ("the Project Works Credit"). The Project Works Credit was taken up in a series of invoices as agreed between myself and Mr Streat for the Respondent, evidencing the Project Works Credit.

1. In my view, what Mr Dillon has to say is a clear misunderstanding of what was agreed in principle between the parties, but never carried into effect. During the course of his oral submissions, I put this to counsel for CHS. He made reference to a number of invoices and the allocation of the $150,000 to these invoices, but none of that addressed the central issue there was a conditional agreement, the conditions were not satisfied and no agreement was carried into effect. It was plain on the face of the documents that no settlement was reached and CHS is not entitled to the credit claimed.
2. Turning then to the alleged credit of $115,702.28, the only reference in Mr Dillon's affidavit to that amount is found in [24] of his affidavit. He says that a credit note had been validly issued and refers to attachment ED18. That attachment is a 'Customer Ledger' for the period 1 March 2015 to 6 January 2017. It appears to have been prepared by Terra Firma. It refers to certain sales, certain invoices, describes what those services were and then gives a transaction amount. There are three references to credit notes one on 19 February 2016, one on 2 August 2016 and one on 3 August 2016. Attachment ED10 is a bundle of documents headed 'Supplier Remittance Advice'. It appears these documents were produced by CHS and forwarded to Terra Firma. One of the documents (I am unable to provide a page number because the affidavit of Mr Dillon was not paginated) which shows a deposit date of 22 September 2016 refers to 'CN300616' and has an invoice date of '30/06/2016'. That is for the amount of $115,702.28. That appears to be the only reference in the documents to the credit note. In opposition to the application, Terra Firma relied on an affidavit of Christopher Denis Streat affirmed 1 February 2018. In [27] of that affidavit Mr Streat says he has never seen any credit note with the number referred to above. He has no idea of how this note was generated or what it was for.
3. Mr Dillon swore a responsive affidavit on 6 March 2018. In [46] of that affidavit, he refers to an email sent by Mr Streat to CHS in which there is a reference to a credit for $115,000. That email and an attachment to it are attachment ERD17 to Mr Dillon's affidavit. It is the case there is reference to a credit for $115,000. The attachment is of very poor quality, but it does appear to show an entry for 11 June 2016 which makes reference to the credit amount claimed. The fact remains that the copy of the credit note has not been provided and it is very difficult to understand how any credit is factored into the financial relationship between the parties.
4. In further support of its application, CHS relied on an affidavit of Jamie Steven Monk sworn 6 March 2018. In [11] [16], Mr Monk refers to the alleged credit. With respect, those paragraphs do little or nothing to advance the position. There is still no evidence of the credit note nor is there any indication as to why the note was issued. In summary, the evidence, such as it is, is vague and indecisive and I simply could not conclude that CHS was entitled to offset an amount of $115,702.28 against Terra Firma's claim.
5. That leaves the offsetting claim. This claim was set out in [32] [37] of Mr Dillon's first affidavit. Those paragraphs are in the following terms:
   1. The Respondent carried out work for the Applicant on a series of remote projects for Decmil Australia ('Project Work'). Some of the work carried out by the Respondent was remedial work arising from the conduct of CSWA ('Remedial Work').
   2. The standard of that work carried out by the Respondent for the Applicant for both the Project Work and the Remedial Work, was not to the appropriate standard and was not fit and proper or proper and proficient. In fact, in relation to the Project Work, Decmil raised the workmanship issues in a series of formal correspondences with the Applicant, requiring the Applicant to incur further costs by extending its bank guarantees ('Guarantee').
   3. The failure to adhere to the requisite standard was set out in a series of emails between myself and the Respondent. Annexed hereto and marked "ED-13" are some of those emails.
   4. Arising from the substandard work, the Applicant incurred costs to remedy these defects and the ongoing cost associated with the Guarantee and set out at paragraphs [36] - [37] and [39].
   5. The Applicant suffered further losses arising from the conduct of the Respondent in that:

(b) There was additional time expended by the Applicant to make good the Remedial Work and Project Work; and

(c) Arising from that conduct of the Respondent, Decmil Australia refuses to engage the Applicant on further projects.

1. It is to be noted that the only reference in these paragraphs is to Decmil Australia. There is no reference to the Wheat Stone project or to the Beadon Bay project. Counsel for Terra Firma submitted that insofar as offsetting claims in relation to these two projects were advanced in subsequent affidavits the evidence was inadmissible on what has become known as the 'Graywinter principle'.
2. Counsel relied on what was said by Barrett J in Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 [7]:

The Graywinter principle derives from the judgment of Sundberg J in Graywinter Properties Pty Ltd v Gas and Fuel Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 and may be regarded as now firmly established: see the most recent survey of the authorities in Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd [2004] NSWSC 527 (21 June 2004, White J). What it means is that the application for an order setting aside the statutory demand and the affidavit in support of that application, both filed and served within the 21 day period stipulated in s 459G(3), must fairly alert the claimant to the nature of the case the company will seek to make in seeking to have the statutory demand set aside. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss 459H and 459J for setting aside statutory demands. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.

1. In answer to that submission, counsel for CHS submitted that emails attached to Mr Dillon's first affidavit made reference to the two projects other than the Decmil Australia project and therefore any subsequent evidence which further expanded upon claims in relation to the two projects was admissible.
2. In my view, submissions put on behalf of Terra Firma should be accepted. What is important, as Barrett J noted, is that the founding affidavit established the area of controversy between the parties. Counsel for Terra Firma illustrated the point by suggesting that what was necessary was for the founding affidavit to peg out an area. Subsequent affidavits could sketch in the detail within that area, but they could not stray outside its boundaries. Broadly speaking, I think that is correct. In this case anyone reading the affidavit of Mr Dillon would assume the only complaint related to the Decmil project. That is what Mr Streat in his affidavit addressed. Consequently, any subsequent affidavit material referring to projects other than the Decmil project is, in my view, inadmissible.
3. Turning then to the Decmil project, counsel pointed out the claims were vague and unquantified. Both points are well made. In a circumstance such as this, what a party in the position of CHS needed to do was establish the contractual relationship between it and Decmil Australia on the one hand and it and Terra Firma (or its predecessor CS Industries) on the other. It then needs to establish how its contract with Decmil was breached or allegedly breached and how that plays out in the contractual arrangement between CHS and Terra Firma. Once the legal basis for the claim has been established, it can then attempt to quantify its loss. I do not mean to suggest CHS has necessarily to establish in fine detail the contractual breaches; nor am I suggesting any claim needs to be quantified to the last dollar (reflecting what Barrett J said in the Karimbla Construction Services decision). But, some attempt must be made in relation to both matters. In this case, that has not been done.
4. Furthermore, there is nothing in the evidence to suggest that Decmil Australia has taken against CHS or indeed that they have threatened to take action. What remedial work CHS may have undertaken and why it undertook that work is not specified nor quantified. In all the circumstances, CHS has not put enough flesh on the bones of any offsetting claim to allow for a setting aside of the statutory demand.
5. For these reasons, I would dismiss the application.
6. I will hear the parties as to the form of orders and as to the costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.