The s.459H claims
41 I proceed now to examine the substance of DCL's contentions of genuine dispute and offsetting claim the asserted basis for which, as advanced in Mr Green's affidavit, has already been described.
42 So far as the genuine dispute ground made available by s.459H(1)(a) is concerned, probably the most often quoted guidance is that provided by Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 and by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785. The salient points emerge from the judgment of Lander J in the recent case of Eltin Open Pit Operations Pty Ltd v Warekim Pty Ltd [2001] SASC 377 (14 November 2001):
"In Mibor Investments Pty Ltd & Ors v Commonwealth Bank of Australia (1994) 2 VR 290 Hayne J considered the court's role in determining whether there is a genuine dispute between the parties. He said after referring to a number of factors which identified the summary nature of the procedure:
'These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark on any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.'
In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 McLelland CJ in Eq said at 787:
'It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs in s.450H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. 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" (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of facts unsupported by evidence": cf South Australia v Wall (1980) 24 SASR 189 at 194.'
The application does not mean that there should be a trial to determine the question of genuine dispute. The Court must simply satisfy itself that on the information before the Court there is a genuine dispute. The inquiry is as to whether a dispute exists. It is not to determine the dispute."
43 A similarly useful recent statement of the appropriate approach in a case where an offsetting claim is asserted appears in the judgment of Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 1088 (27 August 2001):
"In my opinion, a genuine offsetting claim for the purposes of CA s.459H(1) and s.459H(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 s.459H(1) and s.459H(2)."
44 While the court's task on an application such as this is to apply the statutory criteria and to give effect to s.459H, that task is undertaken in a context where the ultimate issue is whether non-payment of the debt claimed in the statutory demand is in truth such a clearcut issue as to allow the presumption of insolvency to operate. The onus borne by a company asserting genuine dispute or offsetting claim is not a particularly demanding one.
45 The basis on which DCL asserts both genuine dispute and offsetting claim is the "back-to-back" proposition identified in Mr Green's affidavit and attacked in Mr Cohen's submissions quoted above. When submissions in relation to the contract between DCL and Tolco and its relevance to that "back-to-back" proposition were advanced, reference was made to a number of provisions some of which it is relevant to note. The first is in clause 35. It deals with progress claims and payments. Clause 35 contains the following subclause 35.7:
"Any payment due to the Subcontractor by DCL ENGINEERING under this Clause shall only be made after DCL ENGINEERING has received monies under its contract with Leighton which include the amount in respect of such payment."
46 It is true that this provision refers to the head contractor "Leighton" when DCL's direct contractual relationship appears to be with Leighton's subcontractor Alstom rather than with Leighton. But that apparent error (or, at least, unexplained feature) does not, upon an inquiry such as the present, detract from the reality that clause 35.7 supports, to the extent necessary and relevant to such an inquiry, the possibility that there is some plausible contractual basis to an assertion by DCL of the "back-to-back" regime it asserts as a basis for resisting payment of sums demanded by Tolco.
47 Reference may also be made to clause 38.1(a) by which Tolco "expressly warrants" that
"all goods, materials and workmanship satisfy the specified requirements, are free from all defects and comply with all relevant warranties expressly or impliedly available at law."
48 Clause 38.2, referring to the warranty just quoted and to the others in clause 38.1 then says that "such warranties … shall be in the form in Attachment No 4". This perhaps implies that the things Tolco "expressly warrants" in particular terms in clause 38.1 are somehow subject to modification or elaboration by reference to one of multiple documents making up the 63 or so pages of Attachment No 4, being an unexecuted form of deed among the Roads and Traffic Authority, a company called Airport Motorway Limited, Leighton, Alstom and DCL. The precise way in which the warranties work may be the subject of some argument. But there is still a reasonably clear indication that, if Tolco did install retaining angles incorrectly and that was the source of defect and damage, a warranty claim may lie against it.
49 Provisions of clause 42 are also relevant. Clause 42.2(a) deals with the case where Tolco "commits an act, default, omission or breach of the subcontract" which is not remedied as stated in the clause and DCL "considers that damages may not be an appropriate remedy". In such a case, DCL may "withhold any or all monies which are then or which may become due and payable to the subcontractor until the act, default, omission or breach is remedied. A similar right to withhold money is conferred by clause 42.3(a) where, consequent upon a matter referred to in clause 42.2(a), DCL elects to take out of Tolco's hands the whole or any part of the uncompleted works. There is scope for cogent argument that one of these provisions applied in the circumstances under discussions.
50 By letter dated 30 August 2001 sent to Tolco's solicitors, the solicitors for DCL canvassed numerous issues relevant to the claims in Tolco's statutory demand. Various provisions of the contract were mentioned and opinions were expressed about their operation and effect. The validity of those claims was denied on the basis of the analysis set out in the letter. Tolco's solicitors replied by letter dated 7 September 2001. They disagreed with certain of the contentions about the meaning of provisions of the contract and also said that, in the light of events as they had actually happened, provisions identified by DCL's solicitors did not operate in the way asserted. There is nothing irrational or fanciful in the contentions of either firm. The letters serve to demonstrate that there are plausible arguments both ways - more significantly, for present purposes, that there are plausible arguments in favour of the position for which DCL contends.
51 As to possible quantum and the sustainability of DCL's attempt to put in issue a total of $154,456.95 (or $153,699.95), it is appropriate to quote in full a letter from Alstom to DCL dated 8 February 2000 which is in evidence:
"On Thursday, 3 February 200, ALSTOM's site personnel were notified that acoustic insulation material was being discharged from the South Ventilation Building stack.
As a result, the acoustic insulation material was deposited on or about residential and commercial properties in the immediate vicinity. ALSTOM commenced clean-up of the deposited acoustic material immediately.
Initial inspection of the ventilation systems indicated that the acoustic silencer pods on the discharge side of the exhaust fans, showed signs of rivet failure along the joints of the perforated aluminium sheeting. This failure allowed the joints in the perforated sheeting to open and thus permitted the acoustic insulation material to be forced into the air passage and discharged to atmosphere via the ventilation stack.
Closer investigation revealed that the retaining angles, at the top of each silencer paid, had not been installed in accordance with drawing N641/D/ME/11758/CD Rev 2 (M138/DG7/11758). The installation of the works associated with this detailed drawing formed part of your subcontract works.
It is estimated that the costs of repair and rectification of this problem will be in excess of $500k.
ALSTOM holds DCL Engineering accountable for all rectification, rebuilding and consequential costs that will be incurred as a result of your company's failure to construct the works in accordance with the subcontract documentation.
Should you, or your insurers, wish to further inspect the damage, please contact Mr Peter Valeontis on phone number 9380 7195.
Thank you for your co-operation in relation to the above matter."
52 Having regard to the whole of the evidence, I consider that the submissions made for DCL as to both genuine dispute and offsetting claim involve plausible, rather than fanciful, contentions requiring investigation. They indicate a serious question to be tried which can be asserted and pursued in good faith. DCL and Tolco are parties to a voluminous and in some respects complex contract relating to construction work involving technical issues of fault and allocation of responsibility obviously requiring detailed assessment in an appropriate forum, whether under the dispute resolution provision in their contract or otherwise. It is also clear, even from what is said in Mr Green's affidavit, that the claims DCL may have against Tolco are not necessarily confined to claims under or in relation to their contract and that issues of duty of care may arise.
53 There exist, in relation to Tolco's statutory demand, countervailing factors of the kind with which s.459H is concerned which not only pass the tests referred to in the above extracts from Eltin Open Pit Operations and Macleay Nominees but also entail sums making it clear that the "substantiated amount" is, at most, the sum of $1,279.98 to which reference has already been made.