IN THE SUPREME COURT OF VICTORIA	Not Restricted	
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2023 03288

IN THE MATTER of DASK ENTERTAINMENT MELBOURNE PTY LTD (ACN 655 825 031)

BETWEEN:

DASK ENTERTAINMENT MELBOURNE PTY LTD 
(ACN 655 825 031)	Plaintiff	
		
v  		
		
AUSSIE FITOUTS PTY LTD (ACN 106 965 995)	Defendant	

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JUDGE:	Efthim AsJ 	
WHERE HELD:	Melbourne	
DATE OF HEARING:	2 November 2023	
DATE OF JUDGMENT:	16 November 2023	
CASE MAY BE CITED AS:	Re Dask Entertainment Melbourne Pty Ltd	
MEDIUM NEUTRAL CITATION:	[2023] VSC 660	

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CORPORATIONS – Corporations Act 2001 (Cth) – Debts – Creditor’s statutory demand – Section 459H(1)(b) application to set aside statutory demand – Where demand based on judgment arising upon filing of adjudication certificate under the Building and Construction Industry Security of Payment Act 2002 (Vic) – Whether amenable to offsetting claim – Whether claims and issues which have previously been considered by an adjudicator can properly form the basis of offsetting claims.

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APPEARANCES:
	Counsel	Solicitors	
For the Plaintiff	A. S. Germano	Velocity Legal 	
			
For the Defendant	D. D. Keane KC with C. H. Matthews	Lawyer’d 	

TABLE OF CONTENTS

Background	1
The law	3
The Offsetting Claim	4
Conclusion	11

HIS HONOUR:
1	The plaintiff, Dask Entertainment Melbourne Pty Ltd, applies to set aside a statutory demand served on it by the defendant, Aussie Fitouts Pty Ltd, pursuant to s 459H(1)(b) of the Corporations Act 2001 (Cth) (‘the Act’).
2	The statutory demand claims that the plaintiff owes the defendant $1,290,453.24.  The amount claimed is the judgment debt of the County Court of Victoria, made on 3 July 2023.
Background
3	On 9 October 2019, the defendant entered into a contract with a related entity of the plaintiff to carry out fit-out works at 111 Constance Street, Fortitude Valley, Queensland (‘the Brisbane Contract’).  Pursuant to the Brisbane Contract, a related entity of the plaintiff was to pay the defendant on a costs-plus 15% margin basis.
4	Following the successful completion of the work, on or about 17 December 2021, a meeting was held at the defendant’s offices in Brisbane in relation to a proposed fit-out work at 263-269 Elizabeth Street and 355-357 Lonsdale Steet, Melbourne (‘the Melbourne Works’).  The defendant alleges and the plaintiff denies that the Melbourne Works would proceed on a costs-plus 15% margin basis.
5	On 15 April 2022, consistent with the defendant’s previous conduct with the plaintiff’s related entity, an email was sent to the plaintiff with a document attached entitled ‘Budget Estimate ONLY’ for Melbourne Works.
6	The works commenced in or about May 2022.
7	On 23 December 2022, the defendant emailed the plaintiff identifying that:
•	the original ‘Budget Estimate ONLY’ document was a budget, never a quote;
•	the agreement for the Melbourne Works was on similar terms to the Brisbane Contract;
•	the plaintiff was happy to work through the costs to date with the defendant; and 
•	the plaintiff had offered, on 22 December 2022, to pay $800,000 on that day, and $500,000 on 23 December 2022 
8	Scott Maxwell Peatey, director for the defendant, deposes that the plaintiff replied to that email and did not contest the representation that the agreement for the Melbourne Works was on a costs-plus basis, nor that the original ‘Budget Estimate ONLY’ document was anything but a budget.
9	The plaintiff’s director, Dafydd Llewelyn Evans, deposes that he never promised a payment of any amount given the significant increases in construction costs and not having a proper understanding of where those costs were coming from.  Mr Evans also denies that he did not contest the representation that the agreement for the Melbourne Works was on a costs-plus basis.
10	On 3 March 2023, the defendant issued a Payment Claim on the plaintiff under the Building and Construction Industry Security of Payment Act 2002 (Vic) )(’SOPA’) in the sum of $1,243,609.58.  The plaintiff did not serve the defendant with a Payment Schedule in response to the Payment Claim.
11	On or about 30 March 2023, the defendant issued a notice of suspension of works under s 16 of the SOPA.
12	On 22 May 2023, Velocity Legal, solicitors for the plaintiff, sent a letter to Lawyer’d, solicitors for the defendant, terminating the contract.
13	On 9 June 2023, Lawyer’d forwarded correspondence to Velocity Legal accepting the plaintiff’s repudiation of the contract and terminating the contract as a result of the repudiation.
14	The plaintiff applied for an adjudication under the SOPA and on 23 May 2023 Adjudicate Today Pty Ltd provided an adjudication certificate in the defendant’s favour.
15	On 3 July 2023, her Honour Judge Burchell of the County Court of Victoria made an order for judgment in favour of the defendant and against the plaintiff for the sum of $1,290,453.24, being judgment for the adjudication certificate together with interest and costs.  
The law
16	Section 459(H)(1)(b) of the Act provides:
Determination of application where there is a dispute or offsetting claim
(1) 	This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a) 	that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) 	that the company has an offsetting claim.
(2) 	The Court must calculate the substantiated amount of the demand in accordance with the formula
17	In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd, Dodds-Streeton JA (as her Honour then was), with whom Neave and Kellam JJA agreed, referred to the principles that are to be taken into account in determining a genuine dispute and offsetting claim.  Her Honour said:
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. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice.
18	The test to be applied in setting aside a statutory demand on the basis of an offsetting claim was also considered in Malec Holding Pty Ltd v Scotts Agencies Pty Ltd (in liq) where Kyrou, Ferguson and Kaye JJA said:
In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute.  This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim.  It is therefore 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.  Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.
19	An offsetting claim must also be a claim which is of an amount that can be quantified.  In No 96 Factory Bargains Pty Ltd v Kerschel Pty Ltd, Barrett J said:
The first thing to be said about the way the plaintiff puts its case is that, while the definition of “offsetting claim” in s.459H(5) refers, in general terms, to a claim “by way of counterclaim, set-off or cross-demand”, it is clearly contemplated by the section as a whole that the claim must be one capable of being quantified in money terms.  It need not be a liquidated claim but it must be one to which a monetary liability can be attached.  This is because of the directive in s.459H(2) that the court determine, among other things, “the amount of that claim” or, where there are several claims, “the total of the amounts of those claims”.  It follows that only claims sounding in debt or damages or other monetary consequences (such as may be available under the Trade Practices Act) may be taken into account for the purposes of s.459H.  I again adopt as instructive in cases of this kind the following passage from the judgment of Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743:
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.
The Offsetting Claim
20	The plaintiff’s offsetting claim is for damages for breach of contract.  It seeks from the defendant the cost to complete the Melbourne Works and the cost to remedy defects in the Melbourne Works.
21	The plaintiff calculates its loss and damages of its offsetting claim as follow:
Item	Description	Costs (incl. GST)	
A.	Contract	$5,606,428.40	
B.	Amount paid by Dask (as set out in Schedule 3 to the claim)	$4,949,112.94	
C.	Remaining balance under Agreement (being A – B)	$657,315.46	
			
D	Costs to complete the Works	$4,198,266.00	
E	Cost to complete minus remaining balance under Contract price (being D – C)	$3,540,950.54	
			
F	Costs to remedy defects	$TBC	
			
	Total damage (being E + F) 	$3,540,950.54	
22	The plaintiff submits that the damages sought in the claim is a quantifiable sum, however, to the extent that the damages are disputed, the plaintiff submits that the Court should have a pragmatic approach and not require a full particularisation of the offsetting claim to the last dollar and cent.
23	The plaintiff urges on the Court to use a broad brush approach as was utilised by Barrett J in Karimbla Construction Services Pty Ltd v Alliance Group Building Services Pty Ltd, where his Honour said:
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.
24	The plaintiff has provided a proper quantification regarding the claim for breach of contract.
25	In relation to the offsetting claim to remedy defects, there is no quantification of the costs to remedy the alleged defects.  The defects are referred to in the first affidavit of Mr Evans.  He deposes that it is the plaintiff’s intention to request the Chroma Group to inspect, satisfy itself that the defects require repair, and if so, to prepare an estimate of the costs to rectify the defects.  That has not been done.
26	The defendant submits that the plaintiff must accept:
•	there is no genuine offsetting claim in relation to the defects, where at the time of the statutory demand and to date, it has not obtained any independent expert opinion evidence which suggests any item of the works are, in effect, defective; and 
•	the plaintiff has not quantified the costs to rectify the alleged defects.
27	I agree here, the defects cannot constitute an offsetting claim simply on the basis that they not have been quantified as is required and, therefore, they cannot amount to a true offsetting claim.
28	In Demir Pty Ltd v Graf Plumbing, Campbell J held that where a statutory demand is based on an adjudicator’s determination for consequent judgment, the plaintiff may be successful in an application to set aside a statutory demand if it has an offsetting claim arising from a separate transaction that gave rise to the judgment debt.
29	His Honour said:  
The fact that there is a judgment debt is no reason to deny a claim the status of being an “offsetting claim”. The definition of “offsetting claim” is perfectly general, and it frequently happens that a company is a judgment debtor, but has an offsetting claim arising by reason of transactions separate to those which gave rise to the judgment debt.
30	The plaintiff submits that the Courts have observed that Part 3 of the SOPA is intended to create an interim payment scheme.  In support of that submission, the plaintiff refers to Grocon Constructions Pty Ltd v Planit Cocciardi Joint Venture (No 2), where Vickery J said:
… I take into account that the main purpose of the Act is to ensure that any person who carries out construction work, or provides related goods or services, is able to promptly recover progress payments.  To advance that purpose, the Act sets up a unique form of adjudication of disputes over the amount due for a claimed progress payment.  Parliament intended that a progress payment, on account, should be made promptly and that any disputes over the amount finally due should be decided in separate proceedings, either by a court or by an agreed dispute resolution procedure.  But meanwhile the claimant’s entitlement, if in dispute, would be decided on an interim basis by an adjudicator, and that interim entitlement would be paid.
For this reason the Act preserves the right of a claimant or a respondent to commence proceedings under the relevant construction contract, including proceedings in a court, arbitration proceedings or other dispute resolution process: s.47(2).  Further, in any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal is required to make allowance for any sum paid pursuant to the Act in any order which is made: s.47(3)(a);  and may make appropriate orders for the restitution of any amount paid under the Act on the interim basis provided for: s.47(3)(b).  Thus no res judicata or issue estoppel is created by reason of an adjudicator’s determination.
31	Here, the plaintiff states that it does not dispute the existence of the debt, or the underlying progress claim.  The plaintiff also does not seek to undermine the adjudicator’s decision.
32	In support of its contention that the plaintiff can raise an offsetting claim, the plaintiff relies on Re J Group Constructions Pty Ltd (‘Re J Group Constructions’), where Robb J determined that offsetting claims that had been rejected by an adjudicator could be relied as genuine offsetting claims in an application to challenge a statutory demand pursuant to s 459H of the Act.  
33	His Honour, in coming to his decision, stated:
The court does not in the present case face the difficulty that I have discussed in theory above, that would have arisen if the adjudicator had determined an adjudication amount that made an allowance for the rectification costs of defective work, so that the amount in the adjudication certificate was already a net amount of a claim and an offsetting claim. I therefore do not have to deal with the problem of how to proceed, if the adjudicator had already made an allowance for some or all of an offsetting claim made by J Group.
Instead, in the present case, the better view is that the adjudicator has rejected both offsetting claims made by J Group, so that the amount of the adjudication certificate represents the value of the work done by PGA, so that the certificate is based upon the adjudicator’s assessment of a debt that arises under the contract.
The real question that therefore arises in the present case is as to how the court should treat J Group’s offsetting claims for the purposes of s 459H(1)(b) and (2), in circumstances where they have been rejected by the adjudicator.
In my opinion, the answer to this question is that the offsetting claims remain available for the purposes of the present application, and that they are ‘true’ offsetting claims, being for damages for breach of contract: see Douglas Aerospace at [93]. Sections 23 and 25 of the Security of Payment Act may have the effect that the adjudication amount cannot reasonably be disputed by J Group, but the statutory provisions do not clothe the adjudicator’s reasoning with any finality that must be accepted by the court.
34	Halley J, in CBS Commercial Canberra Pty Ltd v Axis Commercial (ACT) Pty Ltd, in the matter of CBS Commercial Canberra Pty Ltd (‘CBS Commercial’), provided a history of the interaction between the SOPA and s 459H of the Act.  It referred to Re J Group Constructions .  His Honour was not satisfied that the decision of Robb J in Re J Group Constructions was plainly wrong and should not be followed.  His Honour said that:
I accept that there is a degree of tension between the respective statutory purposes of the Security of Payment legislation and the statutory demand procedure in Division 3 of Pt 5.4 of the Corporations Act. Significantly, however, as Robb J observed, there is no statutory procedure in the Security of Payment legislation for offsetting claims equivalent to that provided for the payment of progress claims in ss 23 and 25 of the NSW SOPA (and in the equivalent ss 25 and 27 of the SOPA).
The enforcement of payment provisions in the SOPA are directed at payment of adjudicated amounts through the provision, if necessary, of an adjudication certificate and the filing of that certificate as a judgment for a debt that can be enforced by any court of competent jurisdiction. Offsetting claims might reduce by way of set off the adjudication amount but the SOPA does not purport to provide any prohibition on subsequently seeking to rely upon or advance claims that are in truth offsetting claims rather than disputes as to the existence of the underlying progress claims the subject of the adjudicated amount.
Moreover, I respectfully agree with Robb J that there is a material distinction between policy considerations concerning the finality of a statutory debt, in particular tax debts and judgment debts based upon an adjudication of disputed progress claims under Security of Payment legislation, and offsetting claims relied upon as a set off before an adjudicator.
Contrary to the submissions of Axis, I therefore do not accept that permitting an offsetting claim that has been rejected by an adjudicator to be relied upon by a party seeking to challenge a statutory demand is antithetical to the policy of the Security of Payment legislation.
35	The plaintiff submits that Re J Group Constructions and CBS Commercial assist the plaintiff in assessing whether the claims and issues which have previously been considered by an adjudicator can properly form the basis of an offsetting claim.  It says that the defendant has various means to enforce the statutory debt, but chose the statutory demand.  By choosing to issue the statutory demand, the defendant is subject to an offsetting claim which does not require in this case that the Court risk the subversion of the statutory purposes inherent in Division 3 of Part 5.4 of the Act.  
36	Robb J, in Re J Group Constructions followed the decision of Brereton J in Re Douglas Aerospace Pty Ltd (‘Douglas Aerospace’).  Robb J said:
The most significant feature of Douglas Aerospace for the purposes of the present case is the ruling by Brereton J, following the decision of the Court of Appeal of Western Australia in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91, that where a party serves a statutory demand based upon a judgment obtained by filing an adjudication certificate following an adjudication under the Security of Payment Act, the company served with the statutory demand cannot claim that it has a genuine dispute as to the existence of the debt for the purposes of s 459H(2)(a), where the company’s only right is to assert that the underlying debt the subject of the adjudication certificate has not arisen under the contract. The company can mount an offsetting claim under s 459H(1)(b) if it has a counterclaim, set off or cross demand that does not deny the debt, but asserts a countervailing liability: see Douglas Aerospace at [98].
37	However, his Honour also stated:
It will be a matter for experience, and the available evidence in each case, as to whether the debt created by the Security of Payment Act can transparently be related to the underlying contractual entitlement of the claimant, or the relationship between the claimant’s contractual claim, and any offsetting claim under the contract available to the respondent.
38	The defendant submits that Re J Group Constructions cannot stand for any broad proposition that the plaintiff can raise any offsetting claim for costs to complete the work.  The defendant states that Robb J held that offsetting claims that had been rejected by an adjudicator in the course of undertaking a determination under the New South Wales (NSW) Payment Regime could be relied upon as an offsetting claim and expressly followed Douglas Aerospace in so finding.  I agree.
39	The defendant contends that the types of claims that were rejected by the adjudicator in Re J Group Constructions and relied upon as an offsetting claim were claims for damages for breach of contract.  That type of claim, if properly raised according to the defendant, would be an offsetting claim under the Act.
40	The defendant relies on the comments of Robb J when his Honour stated:
The present case is not one in which the adjudicator based his adjudication decision upon the existence of a contractual debt in the absence of the availability to J Group of any offsetting claim. Had that been the case, the only course available to J Group would have been to challenge the existence of the debt that underlies the statutory debt, and J Group would be faced with the prohibition against claiming that the statutory debt was genuinely disputed.
41	The defendant submits that here, the plaintiff disputes the existence of the underlying debt, namely the costs incurred by a 15% margin under the contract as found by the adjudicator.  I note that both parties made submissions to the adjudicator relating to whether the contract was that the works would proceed on a costs-plus 15% margin basis.
42	The facts in this case are different to that of Re J Group Constructions, even though the adjudicator had considered the offsetting claim, those claims did not form the basis of the adjudicator’s decision.  Re J Group Constructions and CBS Commercial are, in my view, correctly decided on their facts.  They are of no assistance to the plaintiff in this case.
43	Here, the plaintiff seems to be asking the Court to ignore the adjudication and proceed with the view that the adjudication has no effect.  The adjudication is a final decision which is binding until it has been decided that it does not reflect the true contractual rights of the parties.  The offsetting claim here arises out of the same transaction which the adjudicator had before him, and found that the parties entered into a costs-plus 15% margin contract.
44	The plaintiff here has no offsetting claim.
Conclusion
45	The application to set aside the statutory demand will be dismissed.

SCHEDULE OF PARTIES

		
	S ECI 2023 03288	

BETWEEN:		

DASK ENTERTAINMENT MELBOURNE PTY LTD (ACN 655 825 031)	Plaintiff 	
		
- v -		
		
AUSSIE FITOUTS PTY LTD (ACN 106 965 995)	Defendant