The offset or cross claim
29CES also claims that it is entitled to an offset by reason of:
(1)Delays in the delivery of equipment,
(2)Defects in the equipment supplied,
and their consequential effect.
30CES puts its claims on two bases. One is that it has contractual rights based on breach of terms express or implied by virtue of the Sale of Goods Act 1923 (NSW) for delivery within the specified time, or within a reasonable time. The second is that CES has a claim under s 18 of the Australian Consumer Law Act (Cth), Schedule 2 of the Competition and Consumer Act 2010 (Cth) for misleading and deceptive conduct.
31CES points out that a party to a sale of goods contract which has been breached by the vendor is entitled to loss to his reputation and can claim economic loss resulting there from: see Liftronic Pty Ltd v Hyuandai Elevator Co Ltd (BC9303629, unreported New South Wales Supreme Court, 1 September 1993, Giles J (as his Honour then was)) and Flamingo Park Pty Ltd v Dolly Dolly Creations Pty Ltd (1986) 65 ALR 500, at 522 per Wilcox J.
32Mr Assaf also relies on Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95 Palmer J and in particular [20] - [22] which case he submits is very similar to the present case.
33Mr Pritchard challenges the bona fides of CES and its claimed dispute on the following bases:
(1)GO Electrical has already deducted $234K the total of the claimed losses referred to in CES letters of September 2012.
(2)Up until 7 May at least (the date of Mr Assaf's written submissions) CES was claiming that it was entitled to between $16M to $30M from GO Electrical for loss of income plus $939K for goods claimed not delivered, $1.6M for defective works and $230K for rectification costs.
(3)CES has not led evidence to the effect that it has not been paid its entitlement under its contract with Cockram, and it has not established that it has ceased to receive work from Cockram. It has not led evidence of contracts that it has bid for and not obtained from Cockram.
(4)The $939K claim is itself is bogus and to be contrasted with the $50K estimate which Mr Alati gave in his first affidavit.
(5)There is evidence which points to CES being insolvent:
(a)The profit and loss statement to 30 June 2012 shows a loss for the financial year of 3.1M (see Exhibit A, p 194).
(b)There is no balance sheet for June 2012. None had been prepared as at December and none has been prepared even by the date of the hearing. The balance sheet for June 2011 coupled with the June profit and loss statement for June 2012 point to financial difficulties since the total equity as at 30 June 2011 was $2.8M sustained by $10.2M of "trade and other receivables" less current liabilities of $7.5M and no significant other assets.
(c)When Mr Alati proposed his repayment plan on 22 November he stated that he had not been paid by Ikea, apparently as an explanation of why he had paid only $200K of the total debt.
(d)From all the plans for repayment, and before Cockram's letter of October 2012, only $200K was ever paid.
(e)The offer in the letter of 22 November 2012 was made after the October letters from Cockram had been received.
(f)CES has brought no proceedings against GO Electrical for its $16M or $30M claim or indeed any part of it.
34Mr Pritchard submits that the Court can have no confidence in Mr Alati and CES claims and he contends that there is no material to support the claimed loss of income.
35It was agreed that solvency is relevant only in the sense that establishing solvency (or insolvency) is capable of contributing to an assessment of the genuineness of the dispute and whether or not the claimed dispute is contrived: Reavill Farm Management Ltd v Ashford Properties Pty Ltd [2010] NSWSC 1128, [28] per Barrett J.
36Mr Pritchard also raises the question of what is supposed to be the misleading and deceptive conduct in which GO Electrical is said to have engaged.
37Mr Assaf submits that the threshold is a low one and this Court should not examine closely whether the assertions made by the plaintiff are made out only whether the plaintiff has established that there is a serious question to be tried.
38In relation to the misleading and deceptive conduct claim, Mr Assaf referred to s 4 of Australian Consumer Law and said that GO Electrical's promise to deliver the goods within the specified period of time was a representation that it could do so, and that GO Electrical has the burden of establishing that it had a reasonable basis for making the representation.
39In Fuliban Catering Services Ltd (inc in PNG) v Compass Group (Australia) Pty Ltd [2008] FCAFC 53, Heerey, Sackville and McKerracher JJ said at [91]:
It is clear that to make a promise which is not performed or a prediction which is not fulfilled is not, without more, misleading or deceptive: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82, at 88, per curiam; Bill Acceptance Corporation Pty Ltd v GWA Ltd (1983) 50 ALR 242. It is only where the making of a promise or prediction contains an implied representation of present fact, such as a representation that the promisor is capable of performing the promise, that the promise or prediction can be misleading or deceptive. Alternatively, if the promise can be construed as a representation with respect to a future matter, and the promisor does not have reasonable grounds for making the representation, it is taken to be misleading: TP Act, s 51A(1). In this case, the promisor, unless it adduces evidence to the contrary, is deemed not to have had reasonable grounds for making the representation: s 51A(2).
In Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217, a case relief on by Mr Assaf, Ormiston J said at p 239:
It would seem on the authorities that, at the least, a contractual promise would amount to an implied representation that the promisor then had an intention to carry out that promise. If it can be shown that he had no such intention he would be guilty of misleading or deceptive conduct. Likewise it would seem that such a representation connotes a present ability to fulfil that promise which, if shown to be untrue at the time of making, would likewise characterise the implied representation as misleading or deceptive.
Futuretonics does not assist CES and Fuliban seems to be dealing with a different situation to that under consideration here.
40I do not need to dwell on the misleading and deceptive claim however because the sale of goods claim is a different category. The material presented, in my view, demonstrates that CES has grounds for a claim against GO Electrical based on GO Electrical's failure to deliver goods in a timely fashion, and notwithstanding the fact that on what has been presented GO Electrical has not itself been responsible for the delay by its suppliers of electrical equipment. I am also satisfied that CES has a claim that Famco energy packs which, it appears, should have been and were not supplied, again notwithstanding GO Electrical itself, on the evidence before me, having done nothing to cause that departure from what was ordered. There appears to be a real question about the quality of some of the other items that were supplied by GO Electrical to CES.
41There is an issue in relation to the contractual claim as to whether the terms precluded any claim for damage of the kind asserted here. Mr Assaf points to the fact that CES disputes that the purchase orders are governed by the trading terms since incorporation is an issue. In view of the authorities in this area, I think I am precluded from delving into the merits of these arguments, and I proceed on the basis there is a serious question to be tried as to whether GO Electrical is liable to CES for failing to deliver on time and for defective goods and that is sufficient I think to establish that it is has a genuine claim.
42The only remaining question is whether CES has established there is a realistic prospect that its claim is equal to or exceeds $1.83M.
43In Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743 Palmer J had to grapple with a similar problem, of the amount of the plaintiff's alleged offsetting claim, his Honour remarked at [16]:
The position is by no means as easy where the claim is a claim for unliquidated damages and the damages are said to be economic loss suffered by the plaintiff.
His Honour referred to Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717; (1994) 13 ACSR 787; (1994) 12 ACLC 490 in which the prospect of "ambit" claims were recognised and Palmer J went on to say:
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).
See also Grass Manufacturers Pty Ltd v Sraennik [2003] NSWSC 95 where Palmer J dealt with a similar position at [19] -[22].
44In paragraph 27 of his first affidavit, Mr Alati sets out, in effect, the heads of claim. Some of these refer back to other paragraphs and incorporating those references the list can be discerned as:
(1)Lost income from Cockram.
(2)The withholding of monies from Cockram (as set out in its letters of 10 and 11 December 2011).
(3)CES has been excluded from insurance cover of suppliers which has had a substantial adverse effect on CES credit facilities "impacting upon the plaintiff's ability to carry on its business in the normal course of events" (reference made to Exhibit A pp 196- 197).
(4)GO Electrical's failure to provide electrical equipment as specified and free of defects.
(5)The invoicing of the plaintiff for electrical equipment not supplied.
45I shall deal with these in reverse order.
46In relation to item (5), if this is intended to reflect the $939, 298.91 claim I have already dealt with it. I am not satisfied that there is a serious question to be tried save in relation to the Famco emergency packs which would really seem to be part of (4). In relation to (4) the cost of those items has already been allowed by GO Electrical.
47In relation to (3), the correspondence to which Mr Alati refers does not appear to support his contention that CES has been taken off insurance policies.
48In relation to (2), I think there is sufficient evidence to indicate that Cockram has withheld and is intending to withhold money. The letter of 11 December 2012 states:
As you are aware [Cockram] are withholding a substantial amount of money from [CES] on the project and the cost of the audit and replacement of the faulty fittings will be withheld from your outstanding monies.
Mr Alati in his third affidavit put a figure of $316, 090 on that. However, the letter of 1 February 2013 and the documents from SMH indicate that Cockram's claim is likely to be much higher than what has been retained - in the order of $1.6M.
49Given that Cockram, by its letters of 11 December 2012 and 1 February 2013, has foreshadowed a claim for rectification costs, has obtained a quote for those costs at $1.637M, has indicated that it has appointed "others" to do the rectification work and threatened to take action to recover all of its losses in respect of the rectification work, it is not difficult to contemplate that CES's claim could well exceed $1.8M in all the circumstances. Also, I find that it is not unrealistic to anticipate that if CES is successful in its claim against GO Electrical it will establish damages to its reputation and good will for which it might recover a significant sum of money.
50In so far as lost income is concerned there is little put forward to support the claim that contracts tendered for have not been granted, but Cockram's letter of 11 October 2012 (see [21] above) gives some support for the claim. If lost income were the only component of CES offset it would be very difficult to estimate what is the realistic figure for it.
51I need be satisfied only that there is a genuine claim to an offsetting amount of at least $1.83M and, on the face of the material presented in relation to Cockram's potential claim against CES as articulated in its letters to CES and the likelihood of a claim for damage to goodwill dealt with in [48] and [49] above, I am so satisfied.
52Accordingly, in my view, the Statutory Demand should be set aside.