Map Plumbing Services Pty Limited v BB Enterprises Pty Ltd

(c) It is alleged that the majority of the water saver devices installed by BB Enterprises do not comply with the specifications, in not being installed in a proper and workmanlike manner and as requiring extensive rectification;

(d) Walter Construction Group Pty Limited, the head contractor, has a potential claim against Map Plumbing as a consequence of BB Enterprises' alleged shoddy workmanship. Map Plumbing also has a claim against BB Enterprises to have the defective work rectified. Another contractor, Jem Australia Pty Limited, has provided a quotation dated 14 July 2000 which exceeds $164,000 to do the job properly. This does not include making good what the Plaintiff alleges is the damage to apartments in the Forum building caused by BB Enterprises. 3 The Defendant disputes that there be any genuine dispute as to the amount claimed in the Statutory Demand, being $70,734, said to be due and payable by Map Plumbing to BB Enterprises; see affidavit under s459E of the Corporations Law dated 14 March 2000 by Ian Blue, a director of BB Enterprises. 4 BB Enterprises relies also upon the open offer it has made on 15 May 2000 (DX2) to the effect that it would carry out all rectification work reasonably required but insisting upon payment of $70,734 immediately. The Plaintiff contends that it is under no obligation under the contractual arrangements obtaining and in the circumstances to make such payment by way of security and whether on the basis of the open offer or otherwise. In any event, because the relevant indebtedness is genuinely disputed, the Plaintiff contends that the Defendant simply cannot maintain its Statutory Demand.

FACTUAL CIRCUMSTANCES 5 I permitted brief cross-examination within the limits appropriate to contesting a statutory demand. Set out below are the relevant factual circumstances identifying matters in dispute.

The Contract 6 On 30 August 1999 the Defendant, BB Enterprises, submitted a quotation ('the quotation") to the Plaintiff, Map Plumbing, for the installation of a water flow control system at the Forum buildings above St Leonards railway station at 201 Pacific Highway, St Leonards ("the Forum building"); see BH2 to affidavit of Barry Hibberd dated 22 May 2000, Managing Director of BB Enterprises. 7 The quotation provided for the installation of 7,163 water saver devices for a total price of $114,608. The quotation contains the following provision;- "On completion of the project, a written performance guarantee will be issued guaranteeing that the system will perform to the requirements of clause 3.6 of the tender specification". ("the specification")

It was accepted by a purchase order from Map Plumbing dated 7 December 1999 (BH3). 8 Two pages of the specification to effect the installation of the water saver devices by BB Enterprises (see annexure L to Mr Jenkins' affidavit of 5 April 2000, a leading hand with the Plaintiff) as follows:

(a) Clause 1 sets the rates of flow for taps to various appliances including relevantly: (i) showers 12 litres per minute (ii) baths 12 litres per minute (iii) basins all types 6 litres per minute (iv) sinks 9 litres per minute (v) domestic laundry tubs and machines 9 litres per minute BB Enterprises claims that it did not receive this part of the specification but could not refute that there is at least a plausible contention to the contrary. It seems indeed intrinsically implausible that it did not, given that it received other parts of the specification dealing with flow control (see (b) below) and in light of the Defendants belated denial of its receipt (see para 16(a) below).

(b) Clause 3.6 dealing with flow control is specifically referred to in the quotation. It is undisputed that BB Enterprises received this page. It provides that the Forum building will be fitted with a flow control and balancing system. Installation of the various items "shall be to the approval of Jemflow", a manufacturer of water saver devices. The flow control devices are to be made from "teflon coated dezincification resistant brass". Under the heading "Requirement", the specification provides: "The flow of water at each tap or water outlet is to be predetermined with the manufacturers of the taps to within one litre per minute and the flow control devices are to provide the pre determined flow rate and eliminate temperature fluctuations greater than 1º." [emphasis added]

9 In a facsimile transmission dated 4 February 2000 (PX1) BB Enterprises advised Map Plumbing that its normal trading conditions are: "Monthly claims presented 25 March - payment received on 25th following month ." [emphasis added]

There is no further amplification or elucidation of the terms of payment in any formal agreement or contract.

Performance of the contract 10 BB Enterprises commenced work installing the water saver devices at the Forum building in December 1999. It submitted four invoices to Map Plumbing for payment: (a) invoice number 493 dated 23 December 1999 $63,448.00 (b) invoice number 506 dated 25 January 2000 $32,328.00 (c) invoice number 518 dated 25 February 2000 $5,456.00 (d) invoice number 519 dated 25 February 2000 $ 9,390.00 Total: $110,622.00

11 Map Plumbing has made two payments to BB Enterprises: (a) on 4 February 2000 $20,000.00 (b) on 3 March 2000 $ 30,000.00 Total: $50,000.00

12 On 7 March 2000 (BH12) BB Enterprises wrote to Map Plumbing:

(b) requiring payment of the outstanding balance by Friday (10 March 2000); and

(c) advising a timetable for completion of the works: (i) the tower, by 15 March 2000; (ii) the office tower, by 31 March 2000; (iii) the mezzanine, by 31 March 2000; and (iv) the railway station, by 31 March 2000. 13 On 10 March 2000 (before completing the work as above) BB Enterprises wrote to Map Plumbing requiring payment of $70,734 made up as follows: (a) valves installed to date, 6,959 $111,344.00 (b) variations, invoice number 519 $ 9,390.00 Total: $120,734.00 Less paid $ 50,000.00 Balance outstanding: $70,734.00

14 I am satisfied that BB Enterprises were in effect demanding payment of the full contract sum ($114,608 plus an extra $6,126) prior to completion of the works. 15 On 14 March 2000 Ian Blue a director of BB Enterprises signed the statutory demand claiming $70,734 "for work done and materials supplied, as per statement dated 10 March 2000". 16 The Plaintiff correctly asserts that the amount claimed in the statutory demand ($70,734) was not due for payment either on 10 March 2000 (the date of the statement) or 14 March 2000 (the date of the statutory demand). This is because:

(a) The last two invoices (numbers 518 and 519) were both dated 25 February 2000; they claim a total of $14,846; and

(b) On BB Enterprises' normal trading conditions quoted in para 8 above, those two accounts, presented on 25 February 2000, were not due for payment until 25 March 2000. 17 I conclude that the Plaintiff at the least makes a "plausible contention requiring further investigation" (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787) which the Defendant has not dispelled that the water saver devices installed by BB Enterprises do not satisfy the specifications. It is based on the following:

(a) Clause 1 of the specifications provides specific flow rates. A copy of that page of the specifications was annexure "L" to Gregory Jenkins' affidavit sworn 5 April 2000. When that affidavit was answered by BB Enterprises witnesses, there was no suggestion that BB Enterprises were not aware of that specific and important specification. Knowledge of that specification was not denied until Ian Blue's affidavit of 13 July 2000. He makes no prior mention of it in his affidavit sworn 23 May 2000;

(b) In any case, the water saver devices do not provide for water flows which comply with clause 3.6 of the specifications which is specifically referred to in the quotation. A test of a significant number of the outlets fitted with water saver devices by BB Enterprises (see Annexure E dated 17 March 2000 to the affidavit of Gregory Jenkins of 5 April 2000) revealed that significantly less than 50 % of the taps on the two units checked comply with clause 3.6 of the specification. About 80 % of the taps have water flows which vary by more than the permitted 1 litre per minute.

(c) Then on 14 July 2000 JEM Australia Pty Limited reported to the Plaintiff as to rectification work required exceeding $164,000. It is based on an inspection of building 6 of Forum, where 75 apartments were inspected randomly out of 483 apartments They showed basin taps with flow rates which vary from 3.5 litres per minute to 12 litres per minute with only some 26 % complying with the specification of 6 litres per minute, at a tolerance either side of 1 litre per minute. Showers similarly tested in building 6 vary from between 4.5 litres per minute to 13 litres per minute with most not complying with the specified 12 litres per minute. 18 I accept the Plaintiff's contention that the large number of affidavits filed by the parties in these proceedings show clearly that there is a real dispute about the terms of the parties' conversations, not resolved by their oral evidence or limited cross-examination. Nor indeed should one expect otherwise in proceedings such as these. The documentary evidence clearly supports Map Plumbing's case that those water saver devices which were installed by BB Enterprises do not comply with the specifications and are the subject of numerous complaints by the head contractor, Concrete Constructions, now known as Walter Construction Group. 19 On 30 March 2000 BB Enterprises' solicitors, Cassidy Gibson Howlin wrote to Julie Orsini, the solicitor for Map Plumbing. The letter asserted that there was no bona fide dispute about the amounts claimed in the statutory demand. The letter contained the following paragraphs: "1. Correspondence from your client, (which was forwarded by facsimile to our office on 27 March 2000) sets out the basis of the allegations made by it and provides documentary support. However, our client believes that the facsimile from Greg Jenkins dated 7 January 2000 is false and has been created to bolster your client's arguments. As you would appreciate, this issue would be a critical factual element if any application were made by your client to the Supreme Court. ………………….. 5. The history of events (in handwriting) is an untruthful reconstruction of events, again designed to improve your client's arguments. While this is obviously an issue of fact, you are on notice that our client will adopt this approach. ………………… Accordingly, your client should very carefully consider its position . If you file the application to set aside the demand, your Mr Whitelaw and Mr Jenkins will be cross examined on any affidavit that they swear to support the application. Our client does not accept that the application can be filed on the basis you suggest." [emphasis added] (Annexure "N" to Greg Jenkins' affidavit sworn 5 April 2000).

20 The handwritten facsimile transmission of 7 January 2000 which Cassidy Gibson Howlin alleged was "false" and "an untruthful reconstruction of events" is annexure "E" to Greg Jenkins' later affidavit sworn 21 June 2000. It clearly raises issue about the quality of the work performed by BB Enterprises. It makes specific complaints about the ongoing problem with water leaks causing substantial damage and refers to numerous faxes from Walter Construction Group. Map Plumbing's facsimile records show that the fax was sent to BB Enterprises at 3.52 pm on 7 January 2000. Prima facie, I would accept it was so received, despite subsequent denial, though that can be further tested in any final proceedings. 21 BB Enterprises, through its solicitors, made the sending of the facsimile transmission of 7 January 2000 "a critical factual element if any application were made by your client to the Supreme Court". They chose to make that facsimile transmission central to BB Enterprises' contention that there was no bone fide dispute about the debt. Given my conclusion in para 19 above, it must, on the Defendant's own terms strongly support the Plaintiff's contention that not only was there water damage requiring rectification from the Defendant's defective work, but that it had been drawn to the Defendant's attention back on 7 January 2000. That supports the Plaintiff in refuting the suggestion that these complaints were intrinsically implausible, because held back until after the statutory demand. 22 These matters were raised in Julie Orsini's facsimile transmission dated 28 June 2000 to Cassidy Gibson Howlin. That facsimile transmission summarised the dispute between the parties in some detail. It concluded: "If this offer is not accepted, then a copy of this letter will be tendered in support of an application for indemnity costs which, as you know, is not unusual in successful applications to set aside statutory demands in circumstances such as these". [emphasis added]

23 Without being exhaustive there are numerous documents which clearly evidence dissatisfaction by Map Plumbing with the quality of the work performed by BB Enterprises in installing the water saver devices. Some examples from the affidavit evidence include:

(a) on 5 January 2000 Walter Construction Group sent a site instruction to Map Plumbing complaining about men working on the flow switches wetting carpet (annexure "B" John Haran's affidavit sworn 5 April 2000);

(b) on 25 February 2000 Walter Construction Group sent a site instruction to Map Plumbing complaining about the installation work;

(c) on 6 March 2000 Walter Construction Group sent a site instruction to Map Plumbing enclosing an extensive list of defective work, much of it dealing with inadequate water pressure;

(d) on 17 March 2000 Walter Construction Group's consultant, LHO Group, sent a facsimile transmission to Map Plumbing complaining that a random check of flow rates in two apartments revealed that they did not comply with the specifications (annexure "E" to Greg Jenkins' affidavit sworn 5 April 2000);

(e) on 28 March 2000 the LHO Group sent a facsimile transmission to Map Plumbing complaining: "A number of recent random checks in building 6 has shown flow rates at fixtures less than the minimum standard required after advice that these had been attended to".

(f) On 3 April 2000 Walter Construction Group sent a detailed site inspection report to Map Plumbing complaining about the installation of the water saver devices (annexure "O" to Greg Jenkins' affidavit sworn 5 April 2000). The report contains the following paragraphs: 1. [Walter Construction Group] have been testing and inspecting the wet areas for the past seven months in the mid rise and high rise at great expense to ourselves. A pattern has appeared in which the water leaks and blockages have all been eliminated up until the water savers are installed. After their installation it has been necessary to recheck with several leaks to basins, kitchen sinks, washing machine cocks been found causing substantial damage to vanities, ceilings and carpets. ………………….. 3. Floors have been left after filter installation without [BB Enterprises] cleaning their work area once completed. 4. Mid rise occupied units have had to be revisited mainly after hours by [Walter Construction Group] and [Map Plumbing] to rectify low pressures caused through poorly cleaned water savers and leaks…… 5. The pressure to the high rise has been checked randomly by our consultant, who has expressed concern along with the client that the pressure attained is not acceptable".

Without finally determining the matter, I think it more likely than not that Map Plumbing employees were passing these complaints on to BB Enterprising as they depose to in their affidavits.

RESOLUTION OF LEGAL ISSUES 24 The outstanding issues between the Plaintiff and Defendant can be distilled into two related questions:

(a) Is there a genuine dispute about the debt the subject of the Statutory Demand, that is to say whether the dispute concerning the existence of that debt is bona fide and not spurious, hypothetical, illusory or misconceived; see Spencer Constructions Pty Limited v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464, and

(b) Is there a genuine off-setting claim in respect of the debt the subject of the Statutory Demand which when deducted from that debt leaves less than the statutory minimum of $2,000, with genuineness similarly understood? 25 There is no disagreement between the parties as to the principles for determining these questions. Rather the dispute relates to their application in the particular circumstances. 26 The starting point is whether at the time the Statutory Demand was issued, the Defendant under the applicable terms of payment, was entitled then to be paid; that is to say, was payment both due and payable? As the earlier recitation of the factual circumstances make clear, the following propositions are established at least to the level of plausible contentions requiring further investigation:

(i) that the terms of payment were that if monthly claims were presented on the 25th March, payment would be received on the 25th day of the following month (see PX1);

(ii) although annexure BH13 to Mr Hibberd's affidavit of 22 May 2000 contains an invoice dated 10 March 2000 in respect of works so far completed stating a balance outstanding of $70,734, BB Enterprises' own trading conditions set out in (i) above were not satisfied as to two of the invoices comprised therein, Nos 518 and 519; these were both dated 25 February 2000 totalling $14,846 out of the $70,734 claimed.

(iii) in the affidavit of Mr Ian Blue pursuant to s459E of the Corporations Law required to verify the debt, he says in paragraph 2: "I believe that the amount of seventy thousand seven hundred and thirty-four dollars ($70,734) being the Debt specified in the accompanying Demand, is due and payable by the Company to the Creditor". [emphasis added]

(iv) the full contract sum was being demanded ($114,608 plus an extra $6,126) was being demanded prior to completion of the works (as the claim in PH13 clearly acknowledges) in circumstances where the relevant quotation constituting the contract did not provide for payment prior to completion of the works. 27 Leaving aside the issues relating to whether the work was done defectively, the Plaintiff contends there is a genuine dispute about whether the monies were then due and payable, both as to the $14,846 but also as to the total of $70,734. The Defendant contends that it was subsequently agreed after acceptance of the specification that work would be paid for in accordance with the requirement for payment within seven days as set out in the Defendant's invoices dated 23 December 1999 (BH4), 25 January 2000 (BH6), 25 February 2000 (BH7) and 25 February 2000 (BH8). In each case payment is stated as "due in seven days" and the Defendant further relies upon there being no written refutation from the Plaintiff that these were not the terms of payment. In addition, the Defendant relies upon correspondence contained firstly in the fax of 3 February 2000 referring to invoice No. 493 (BH4) in the amount $63,448 in which, in the first paragraph, is asked the question, "would you please advise what time tomorrow we can collect the cheque". The fax goes on: "It is imperative that we be paid tomorrow as agreed to meet our creditors' agreement for the supply of materials for the "forum" project. Could you please respond to-day so we can organise collection details."

28 In addition to this fax, Barry Hibberd, Managing Director of the Defendant, claims that he had a conversation with two representatives of the Plaintiff, John Whitelaw and John Haran on 25 January 2000 (para 17 of his affidavit of 22 May 2000), during which he claims that John Haran said: "I'll give you what I can by the end of the month, but your total invoices will be paid by the second Friday in February (11 February 2000)."

29 However, that alleged conversation is not consistent with Barry Hibberd's facsimile transmission to John Haran dated 3 February 2000 (BH10) in which he asserts: "Further to our telephone conversation, re payment of invoice No 493 in the amount of $63,448, would you please advise what time tomorrow [that is 4 February 2000 not 11 February 2000] we can collect the cheque."

30 Moreover, both Mr Whitelaw and Mr Haran deny that they agreed to pay within seven days or that he had agreed to pay the $63,448 claimed in the invoice BH4 of 23 December 1999. Nor should it be forgotten that the Plaintiff had by fax dated 7 January 2000 earlier complained about the quality of the work which supports the Plaintiff's case that it would not have conceded the right to receive payment while the work was unrectified. 31 That the Plaintiff did not in writing refute the claims by way of invoice for payment within seven days, was explained by the Plaintiff in cross-examination that they dealt with these matters more informally on site; see T, 10.29-.41. 32 Thus on site 25 January 2000 Mr Haran says that what he said to Mr Hibberd was, "I would get some money to him", he did not tell him that "all invoices would be paid" (see T, 12.1-.10 and .40-.49). Indeed at para 11 of Mr Haran's affidavit of 21 June 2000 he gives his version of the conversation that occurred which relevantly included the following statement by Mr Haran "Your claim's not due for payment yet. You submitted your December claim late and it will be submitted along with your January claim for approval. Payment will not be due for these claims until 10 March. Provided the work has been carried out and everything is OK , you will be paid for these claims in March in accordance with the usual practice." [emphasis added]

33 He subsequently agreed to pay $20,000 on account; see para 12 of Mr Hibberd's affidavit and T, 12.57. 34 Likewise when it comes to an account of the meeting held on 3 March 2000 between Mr Haran, Mr Hibberd and Mr Blue the accounts differ significantly; see para 16 of Mr Haran's affidavit of 21 June 2000 and compare it to Mr Hibberd's affidavit of 22 May 2000 at para 25. 35 According to Mr Hibberd's account the following was said starting with Mr Hibberd: "We have done the right thing and got this job to a level where your builder can accept it. Why can't we receive payment now?"

36 According to Mr Hibberd, John Haran replied: "I don't have any money available to pay you. I will call another Project Manager and see if I can get an early payment from that side and direct it to you. That's the Homebush job."

37 Then, according to Mr Hibberd, John Haran, said: "I'll have the cheque within seven days from the builder. If I don't have the cheque within seven days I will speak to my owner, Roger, and see if I can get special payment for yourselves."

38 According to Mr Haran's account, he demurred at making payment until he had had certification and confirmed that, "I haven't even been paid by Walter yet. You are not due for payment. Full payment will not be made."

Finally, he says, "Well if I get a cheque in, I will give you something on account and deposit it directly into your account to help you along."

39 Moreover, Mr Hibberd's account of the conversation is not consistent with one item of his correspondence, namely his letter dated 7 March 2000 addressed to John Haran (BH12) in which he asserts: "As per our previous conversation, we do need to clear up the outstanding amount. As discussed, payment from your clients [Walter Constructions] is due this Friday [10 March 2000], so we would expect to collect the cheque from you then."

40 I agree with the Plaintiff that the tenor of this letter, especially the last paragraph under the heading "Work Progress" indicates that the parties had not agreed on payment of the full amount of BB Enterprises invoices. It is written in a confrontational style clearly recording that a considerable amount of work still requires to be completed and that was not expected to occur before 31 March 2000. The letter also indicates that BB Enterprises understood that it would be paid only after Walter Constructions approved the works and paid the Plaintiff. I am satisfied, at a prima facie level, that indeed was the basis upon which the work proceeded. 41 The foregoing review of the evidence is the clearest example one could find of an attempt to buttress a statutory demand based on a debt where there was substantial evidence pointing to that debt not being due for payment either in part or whole. In any event, there could hardly be a clearer case of a direct conflict of evidence which could not be resolved until a final trial. I am satisfied that leaves the Plaintiff with at the least a plausible contention requiring further investigation insofar as the Plaintiff disputes that there was any variation to the contractual arrangements originally constituted by the acceptance of the Defendant's quotation. Merely to produce invoices by the Defendant with a different mode of payment could not, without more, refute that contractual basis for payment or establish that there was not even a plausible contention as earlier stated. 42 There is some conflict in the authorities as to what happens where part of the debt, the subject of the statutory demand, is manifestly not payable at the date of the affidavit verifying the debt under s459E of the Corporations Law. In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1,095 Bryson J held that the claim of the plaintiff that the statutory demand should be set aside on this ground was not meritorious, as the greater part of the debts covered by it were undoubtedly already due for payment. He held that it was merely fortuitous that the plaintiffs were able to point to other proponents of the claimed debt which were not due for debt, they having since fallen due for payment after the date of the affidavit verifying. 43 Here of course it is not just the two last invoice payments that were manifestly not due for payment, totalling $14,846. Even putting aside the claims in respect of defective workmanship, the work was not yet complete leaving the Plaintiff with at least a plausible contention that payment was not due as of right, until the whole work was completed, and, I would add, completed satisfactorily; that is, in the absence of contractual stipulation to the contrary. 44 In NT Resource Pty Limited v Deputy Commissioner of Taxation (1998) 16 ACLC 957 Finkelstein J was in disagreement with the decision of Bryson J and expressed the opinion (at 962) that where a creditor serves a statutory demand that related to a whole debt that is not due and payable, this is a deficiency of such a fundamental character as to invoke s459J(1)(a), namely: "Because of a defect in the demand, substantial injustice will be caused unless the demand is set aside." I would concur. 45 In Olympic Holdings Pty Limited v Interwest Investments Pty Limited (1998) 16 ACLC 1242 Master Sanderson was faced with whether or not to set aside a statutory demand where a debt was due but not yet payable. This was a deficiency in respect of the whole debt and not merely part thereof. In that case the relevant clause in the contract between the parties provided the payment could be withheld unless, after a request has been made, a statutory declaration outlining a number of relevant facts was provided by the Contractor to the Principal within two days of the request. Such a request was made in relation to the amount the subject of the statutory demand. Given that the statutory declaration was not provided, the debt though owing was not due until the statutory declaration was provided (at 1246). 46 Master Sanderson was of the opinion that the statutory demand was not to be set aside on the basis of a bona fide dispute but rather because of the defect in the demand rendering substantial injustice under s459J(1)(a). At 11 he said: "The legislative scheme of a statutory demand procedure seems to me to anticipate that the debt will be due and payable during the entire time of the period available for compliance. The fact that it is due but not payable seems to me to mean that if the statutory demand were not set aside there would be substantial injustice to the applicant. In my view, this substantial injustice arises simply from the fact that the applicant did not have the benefit of the full period for compliance. It is not necessary for the applicant to show that it has suffered particular injustice."

47 I would conclude in the present case that there is at least a plausible contention requiring further investigation that no payment was due until the work was completed, in circumstances where concededly the work had not been fully completed. In those circumstances, even apart from the $14,846 not yet payable, the whole $70,734 was not yet payable as the work was not completed; as emerges below, it was at least at the level of a prima facie case, not done satisfactorily either. 48 That leaves the issue of the deficiencies in the work carried out which, according to the Plaintiff, give rise to a rectification cost estimated by Jem Australia well exceeding the amount of the Statutory Demand, namely in the quotation amount of $160,000. In that regard, the solicitors for the Defendant's open offer (DX3) suggest (para 1) that LHO be retained to investigate and report on defective valves. It is LHO that did precisely that and reported the result in its facsimile transmission of 25 July 2000 addressed to Walter Constructions (PX4). The random check over building 6 led to the conclusion that "The variations of flow measured give a clear indication that the flow control product is either defective, or has been installed incorrectly. We are concerned that the installed flow control units obviously do not work, and that the failure of these units places the entire hot and cold water service system design in jeopardy. Assuming that our random check is a consistent trend of performance, there may be a destabilising effect, when the building is totally occupied."

49 It was Jem Australia who then provided the quotation to do that rectification work in respect of the valves and to which I have earlier made reference. 50 The evidence discloses regular complaints received from Walter Constructions and LHO. The Plaintiff's witnesses give account of several conversations with the Defendant's employees in which complaints are made. For example:

(i) John Haran's affidavit of 21 June 2000, paras 11, 16, 26(15), 26(21), 26(23);

(ii) Gregory Jenkins' affidavit sworn 21 June 2000, paras 3, 6, 8, 10, 12, 15 and 36. 51 In his fax sent 22 March 2000 to the Defendant (Annexure B to Mr Haran's affidavit of 21 June 2000) Mr Hibberd concedes that complaints had been received by the Defendant. In para 2 he asserts: "We have now checked/rectified these flaws twice and they should now be trouble free." [emphasis added]

52 The Plaintiff is entitled to put the position in one of two ways and does so. First, that the contract should be construed, with or without resort to an implied term to that effect, that payment is not to be made under these contractual arrangements until not only is the work completed but completed so as not to require further rectification. The evidence amply satisfied the requirement of a plausible contention requiring further investigation that the work has not been carried out in accordance with the contractual requirements and is defective such as to disentitle the Defendant to any further payment until rectification has occurred. 53 The Plaintiff could likewise put the position on the basis that there is an "offsetting claim" which has been shown to be "not frivolous or vexatious" but genuine; see Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. Again, the offsetting claim well exceeds the Statutory Demand. 54 Finally, I am prima facie satisfied, as I have earlier said, that the Defendant was notified by fax on 7 January 2000 of the deficiencies in the quality of the work. Its attempt to disclaim that knowledge, coupled with the clear evidence of a genuine dispute or offsetting claim, brings this case within the ambit of one where not only should the Statutory Demand be set aside but indemnity costs ordered. The solicitors for the Plaintiff in facsimiles dated 28 June 2000 and 18 July 2000 gave ample warning that it would seek indemnity costs and set out quite clearly the basis upon which the Plaintiff has been successful. 55 I do not consider that the Defendant's open offer (DX3) was in any way reasonable. It sought payment in the amount of $64,608 in return for an investigation by LHO on defective work and the Defendant then agreeing to carry out at its cost, all rectification work "reasonably required by LHO under the supervision of LHO". 56 That was already a contractual obligation to carry out the work properly which the Defendant was required to carry out without setting conditions upon it doing so and in particular without requiring that money be paid on account as some kind of security for payment of the eventual amount due.

ORDERS AND COSTS 57 The Defendant's Statutory Demand should be set aside and, as I presently see matters, the Plaintiff should not only receive its costs but should receive them on an indemnity basis. In a number of cases starting with Polaroid Australia Pty Limited v Minicomp Pty Limited (1997) 16 ACLC 529, I have warned that indemnity costs can be anticipated in appropriate circumstances, and as I presently see matters, these circumstances are indeed made out and justify an indemnity cost order. However, if the Defendant wishes I will hear further argument.

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