In the matter of Forte Sydney Construction Pty Ltd

By Originating Process filed on 18 June 2025, the Plaintiff, Forte Sydney Construction Pty Ltd (“Forte”), applies to set aside a creditor’s statutory demand (“Demand”), issued by JS Plumbing Group Pty Ltd (“JSPG”). The basis identified in the Originating Process to set aside the Demand appears to have been either the existence of an offsetting claim, which was the position ultimately pressed in submissions, or alternatively an order under either limb of s 459J(1) of the Corporations Act 2001 (Cth) (“Act”) that the Demand be set aside. No reference was made to the latter matter in oral submissions and I assume that it is not pressed.

The Demand was made by JSPG against Forte for the amount of $198,039.82, being the total of several amounts set out in a schedule. Those amounts reflect three judgments in the Local Court of New South Wales, which appear to result from the registration of adjudications, and interest on those judgments. The Demand was verified (as it was required to be so far as it included claims for interest on the judgments) by an affidavit dated 27 May 2025 of Mr Swinburne, the sole director and secretary of JSPG, who there set out the judgments which gave rise to the relevant claims and the basis on which the interest was calculated.

I now turn to the affidavit evidence led in respect of the application, and the voluminous evidence led, at least by Forte, in respect of the application, although only a relatively small part of the evidence that was tendered was relevant to the application.

Forte reads the affidavit dated 18 June 2025 of its director, Ms Li, who refers to matters relating to the service of the Demand, which I need not address further when no point was taken as to that matter. She addressed her experience in the construction industry, referring to the fact that she holds a builder’s licence, had obtained a bachelor’s degree in construction management and in quantity surveying from the University of New South Wales, and claims to have extensive experience in construction and property development, by reference to the development of numerous residential properties, three of which are in issue in these proceedings.

Ms Li refers, first, to a project at Jannali, where Forte was engaged as builder and head contractor in about June 2019, and she refers to the entry into a design and construct contract under which JSPG was to carry out hydraulic works for the Jannali project. That contract is in evidence, and I will refer to it below. She refers to a report delivered in August 2022 by the Commissioner of Fair Trading, prepared by Mr Harper of Eagle Eye Building Consulting, which identified various defects and non-complying works in that project as at August 2022. Ms Li also refers to a schedule contained in the exhibit to her affidavit, which appears to have been prepared by identifying the criticisms made in expert reports, which may or may not relate to plumbing and associated works, and then attributing a cost to the rectification of those works. I will return to the issues which arise from the attribution of rectification costs to those works below.

Ms Li then says, in a form which is repeated in respect of the three projects in issue in the proceedings, that:

Ms Li in turn refers to aspects of a negotiation with the developer of the Jannali project, in respect of the position in relation to the building bond for the project. Ms Li also refers to proceedings brought by the Jannali owners in NCAT and refers to reports that were led in evidence in those proceedings, which Forte again adopts, in respect of relevant defects, as being true in these proceedings. She there refers to an anticipation that the NCAT will in future order that Forte rectify alleged defects in respect of the Jannali project, on which the owners have relied. Importantly, and subject to what I will note below in respect of a second affidavit, Ms Li does not there identify defects that have been rectified, or costs that have been incurred in respect of rectification of those defects, and does not suggest that such an order has presently been made. Ms Li then makes a further statement, in a similar form to that noted above, which estimates the total cost of rectifying defects attributed to JSPG in respect of the Jannali project as $80,300, although the schedule in the exhibit to her affidavit suggests that that figure includes the amount of $22,000 to which I have referred above.

Ms Li also refers to the previous issue of a building works rectification order in respect of the Jannali project by the Building Commissioner, but also recognises that that order has been revoked. She expresses the view that there is nothing to prevent the Building Commissioner from issuing a new building work rectification order, but, importantly, does not there identify works done or costs incurred in respect of an order that does not now exist but might be issued in the future that would be capable of supporting an offsetting claim. Ms Li in turn there says that JSPG has not rectified all of the relevant plumbing defects in respect of the Jannali project but, importantly, it appears that Forte has only done so to the extent noted in Ms Li’s second affidavit, which I address below.

Ms Li in turn refers to a second project, the Qube project, where Forte was also the builder and head contractor, and also entered a hydraulic works contract with JSPG. She refers to the issue of a draft building work rectification order by the Building Commissioner; which was apparently superseded by a final building work rectification order issued by the Building Commissioner; although she also refers to a subsequent audit report issued by the Building Commissioner, which she suggests reintroduced rectification of some of the matters contained in the draft report, and again contemplates that the Building Commissioner might issue a further building work rectification order in the future. Again, she does not there identify works done or costs now incurred in respect of a wider order that might be issued in the future that is capable of supporting an offsetting claim.

Here, Ms Li gives evidence, in similarly general terms, that:

Again, I note that it is not apparent that Forte has in fact rectified those defects as at this point so as to incur the costs which are claimed by way of the offsetting claim, other than as set out in Ms Li’s second affidavit below.

Ms Li then refers to the La Porta project, where Forte was again engaged as builder and head contractor and again entered into a design and construct contract for hydraulic works with JSPG. She there refers to a report issued in respect of the building bond scheme for the La Porta project in August 2022, which Forte deploys as an accurate account of the defects in issue in these proceedings, in the manner that I note below. She also refers to proceedings now commenced by the owners corporation in respect of the La Porta project, and to the reports on which the owners corporation relies in those proceedings, which Forte now accepts accurately record the relevant defects in the building.

The exhibit to Ms Li’s first affidavit is voluminous and includes hydraulic subcontracts in respect of the three projects in issue, which provide, broadly, for JSPG to undertake the design of the Subcontract Works (as defined) and to execute and complete the Subcontract Works as defined. I was taken to the scope of works, which are somewhat differently described in the relevant contracts, but are in relatively broad scope, including, for example, stormwater and sewer drainage, plumbing, hot and cold water services, gas services, and fire hydrant and hose reel systems, subsoil drainage systems and downpipes.

I was also taken to the several reports on which Forte relies, to which I have referred above, and to the particular items contained in those reports, which were, in some cases relatively clearly, and in other cases doubtfully, associated with works within the scope of JSPG’S scope of works. It will ultimately not be necessary to address the detail of those items in order to determine this application, so far as the existence of an arguable claim for breach by JSPG is concerned, or to identify the difficulties with quantification of the loss relied on by Forte to establish an offsetting claim which I address below.

By a second affidavit dated 15 December 2025, which was admitted notwithstanding a qualified guillotine order and its extreme lateness, where no objection was taken to it by JSPG, Ms Li updates the position in respect of a claim made by the owners corporation in respect of the La Porta project. She also addresses the position in respect of defects and the extent to which work has been done to rectify defects in a manner that leaves unclear the extent of costs incurred in rectifying defects by Forte.

In respect of the Jannali project, she indicates that certain fire safety defects were rectified by a contractor on behalf of Forte between August and December 2025, but leads no evidence as to the actual costs incurred in doing so, or whether those actual costs were greater or less than her estimate of them in the exhibit to her affidavit. She indicates that another defect was rectified by Forte, but again does not identify the actual costs of the rectification. She indicates that several other defects have not been rectified, by reason that the owners corporation has refused access to Forte or its subcontractors, with the result that Forte has, apparently, not now incurred the costs of rectifying those defects.

In respect of the Qube project, Ms Li indicates that Forte has itself or by a subcontractor rectified three defects, although she does not indicate the actual costs incurred in doing so or whether those actual costs were greater or less than her estimate of them in the exhibit to her affidavit. She indicates the Building Commissioner did not press one defect, although the cost of that defect appears to still be relied upon as part of the offsetting claim although they have not been incurred. She indicates that other defects are “soon to be rectified” or are “in the progress of being rectified” [sic], although she does not indicate which are complete, or what costs have been actually incurred or are now expected to be incurred, to the extent that the work has now commenced, as distinct from the costs previously estimated in the exhibit to her affidavit before such work was commenced.

In respect of the La Porta project, Ms Li indicates that Forte is “soon to be or in the progress of” [sic] rectifying four defects. She indicates that Forte has rectified several other defects, but again does not indicate the actual costs incurred in doing so or whether those actual costs were greater or less than her estimate of them in the exhibit to her affidavit. Importantly, she indicates that the Building Commissioner has confirmed that other defects were either rectified by JSPG or not required to be rectified but makes no allowance for this development in quantifying the offsetting claim asserted by Forte.

JSPG reads the affidavit dated 19 August 2025 of Mr Houchar, a solicitor acting for JSPG in the proceedings, who outlines the background to the relevant dispute and the position in respect of previous proceedings as between Forte and JSPG, which were ultimately dismissed after Forte did not provide security for costs in them. Mr Houchar also refers to a schedule prepared by Mr Swinburne, a director of JSPG, which he contends provides a detailed response to the alleged defects referred to in Ms Li’s schedule of defects. Mr Ratnam, who appears for JSPG, did not rely on the detail of that schedule in respect of particular items. I admitted that schedule, notwithstanding that it was likely hearsay in character, where an objection to it not notified by Forte in advance of the hearing as required by the Court’s directions, and only raised in the course of the hearing, and that approach would have deprives JSPG of an opportunity to address that objection, by, for example, leading direct evidence of Mr Swinburne.

In the event, Mr Ratnam relies on that schedule only to develop JSPG’s wider contentions that the matters on which Forte relies are arguably not defects; have been rectified; do not relate to JSPG’s works; or are defects resulting from damage caused by third parties, such as other contractors engaged by Forte, and not by JSPG. Had that been the only issue with Forte’s claim, I would likely have held that an offsetting claim was established so far as it would have simply identified the fact that any claim brought by Forte, in respect of those items, would be contested by JSPG on those bases.

I pause here to note a significant aspect of Forte’s approach in the application, which has wider ramifications. A significant part of Forte’s case depended upon the tender of reports obtained by parties in an adverse interest to Forte, including, relevantly, the Commissioner of Fair Trading, the Building Services Commissioner and owners corporations which have brought proceedings against Forte in the New South Wales Civil and Administrative Tribunal (“NCAT”) and in this Court.

Mr Campbell, who appears for Forte, confirmed, on instructions, that Forte accepts that, with one exception, all of the defects identified in those reports on which it relies in these proceedings exist. Plainly, that is an important admission; it is adverse to Forte’s interests; and, as Mr Campbell rightly accepted in the course of submissions, it will bind Forte in any proceedings brought by third parties against it, so far as it would likely constitute an abuse of process for Forte to maintain, in these proceedings, that these defects exist, and then not admit them or deny them in other proceedings brought by third parties. This is a matter of particular significance so far as the owners corporation for the La Porta development has brought proceedings against Forte, and any question of Forte denying, or not admitting, defects in respect of hydraulic or plumbing works on which the owners corporation relies in those proceedings appears to be excluded by the choice that Forte has consciously made to deploy the owners corporation’s evidence (or proposed evidence) in those proceedings as evidence in Forte’s case in these proceedings, and assert that the matters alleged against it by the owners corporation in those proceedings are true, so far as the defects in issue in these proceedings are concerned.

I now turn to the applicable principles, which are well established, and which I summarised in my judgment in Re Savemore Wholesale Pty Ltd [2021] NSWSC 307 (“Savemore Wholesale”), on which I have drawn for the summary which appears below. An offsetting claim, for the purposes of s 459H(1)(b) of the Act, is the amount of a claim or claims that a company has against a person who served a creditor’s statutory demand by way of counterclaim, set off or cross-demand, whether or not that amount arises out of the same transaction or transactions as to the debt to which the demand relates. If the Court is satisfied that a company has an offsetting claim, then the Court is required to calculate the substantiated amount of the demand by deducting any offsetting claim from the admitted amount of the debt, as defined.

An offsetting claim is established if there exists a “serious question to be tried”, or an issue deserving of a hearing, as to whether the company, relevantly Forte, has such a claim against the creditor, and that claim is made in good faith, and is arguable and not frivolous or vexatious: Re Morris Catering (Australia) Pty Ltd [1993] 11 ACSR 601 at 605; Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 356–357; [1993] FCA 951. I should add to my oral judgment that, in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] 66 ACSR 67; [2008] VSCA 70 at [71], Dodds-Streeton JA summarised what was necessary for an offsetting claim, noting that the company that seeks to deploy such a claim:

The Court of Appeal in turn explained the applicable test for an offsetting claim in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601 at [30] as requiring that there is a “serious question to be tried” or “an issue deserving of a hearing” as to whether the company has such a claim against the creditor, which “must be made in good faith.” The Court also there emphasised (at [47]) that the Court's role is “to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim.” Although the Court there referred to the genuine dispute ground, the same principle applies in respect of an offsetting claim.

The Court of Appeal also addressed the applicable principles in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 at [8] and [62]–[66], in the judgment of Bell P, with whom Sackville AJA agreed (at [98]).

I should also add to my oral judgment that, at least implicitly, the parties proceeded on that basis that it was here not open to Forte to challenge the result of the adjudications in favour of JSPG, so far as they were now reflected in judgments which had been entered in the Local Court. However, it is open to Forte, notwithstanding the Building and Construction Industry Security of Payments Act 1999 (NSW), to assert a "true" offsetting claim such as a claim for breach of contract against JSPG in respect of the relevant works: Re Douglas Aerospace Pty Ltd [2015] NSWSC 167 at [93] (“Douglas Aerospace”).

I also recognise that Act requires that the Court be able to calculate the substantiated amount of the Demand, by deducting the offsetting claim from the admitted amount of the debt, and that draws attention to the necessity to quantify the amount of the offsetting claim: Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743. In Douglas Aerospace at [40], Brereton J observed that:

I adopted the same approach in Savemore Wholesale at [36]ff, to which I referred above. I return to the significance of that matter below.

I have noted above that it is at least arguable that some of the relevant defects on which Forte relies would create an issue deserving of a hearing, so far as they appear to relate to plumbing or hydraulic works within the potential scope of JSPG’s work, and so far as there is evidence in the expert reports which third parties have led adverse to the interests of Forte, and which Forte now adopts as true, to support the existence of defects in the work.

Importantly, however, Mr Ratnam here submits that:

This submission requires further review of the affidavit evidence, which I have addressed above, and the exhibit to Ms Li’s first affidavit. As I noted above, Ms Li’s first affidavit, in several relatively short paragraphs, refers to her experience and knowledge in building and construction, and then “estimates” the costs of rectifying relevant building works in specified total amounts. There is some further detail in respect of that approach in the exhibit to Ms Li’s first affidavit, which was in turn adopted as a schedule to the submissions made by Mr Campbell for Forte in the proceedings. The structure of that exhibit and that schedule to Mr Campbell’s submissions is in each case to identify the relevant defect contained in the relevant report and, in a right-hand column, to indicate an estimated cost of rectification, exclusive of GST, usually in rounded figures in excess of $2200.

It is notable, first, that the exhibit to Ms Li’s affidavit and Mr Campbell’s schedule discloses no underlying reasoning process, in respect of any of those items, to indicate how those estimates have been derived. So, for example, a first defect in respect of the Jannali project, relating to fire safety measures, is said to have an estimated cost of rectification exclusive of GST of $5,500. However, Ms Li does not say what inquiries or assessment she has made to derive that figure, or what assessment she has made as to what work will be done, or who will do it, or what labour or materials costs will be incurred in doing it, or how long will be spent to do it. That is only one item, but those items are then multiplied, item by item, with a similar lack of intervening reasoning between the identified defect and the asserted cost of rectification.

Even those amounts for which very large amounts are claimed, by way of rectification costs, have no identification of the basis on which those large amounts have been calculated. So, for example, a need to move a diesel exhaust pipe is identified in respect of the Qube project, and it is assumed, although not demonstrated, that that defect is within the scope of works of JSPG as the plumbing or hydraulic contractor, and a cost of rectification of $55,000 is attributed to it. Again, there is no explanation of how that figure has been derived. Similarly, in respect of the La Porta project, defective building works by way of overflows to balconies are identified and attributed to JSPG as the plumbing or hydraulic contractor and a cost of rectification of $27,500 is identified, again with no identified reasoning to support it.

These figures, as identified in the schedule to Ms Li’s affidavit and in turn adopted in Mr Campbell’s submissions, turn entirely upon the estimate of rectification costs without intervening reasoning to support the amounts estimated. They are then summed, to provide the total amounts to which Ms Li refers, by reference to her expertise and knowledge of the project, again without indicating what assessment, if any, she has made of the work that will be done in respect of the multiple separate items or the basis on which it will be done. That is the first, and fundamental, defect with the quantification of Forte’s offsetting claim.

The second defect with that qualification is, as I noted above, that Ms Li’s second affidavit, of 15 December 2025, makes a first attempt to distinguish which works have been done by Forte or a subcontractor other than JSPG; which works have not been done; which works have been done by JSPG; and which works are no longer required, because, for example, the Building Commissioner no longer requires them. However, no attempt is made to adjust the offsetting claim for works that, for example, are now acknowledged to have been previously done by JSPG, or are no longer required by the Building Commissioner, or have not in fact been done by Forte, so as to allow a quantification of any present loss which could be the subject of an offsetting claim in respect of work has been done by Forte. No attempt is also made to identify the actual cost of doing works that have now been done, so as to indicate whether the cost actually incurred for the relevant work had any relationship with the cost previously estimated by Ms Li in her schedule and adopted in Mr Campbell’s submissions, to which I have referred above. The Court should infer, in those circumstances, that the evidence of the costs that were actually incurred in doing the work would not have assisted Forte in establishing its offsetting claim.

I recognise that, in order to establish an offsetting claim, it is not necessary for Forte to lead all of the evidence which would ultimately be necessary to be led at a final determination of that claim on its merits. It is, however, necessary to at least lead sufficient evidence to identify a rational basis for the calculation, and that the calculation requires more than the arbitrary allocation of a figure to works by a person associated with the company that seeks to set aside a creditor’s statutory demand. If that were not the case, then any creditor’s statutory demand, particularly in the building industry, could be set aside by pointing to evidence of defects and then merely asserting a cost of rectification that was large enough to exceeded the amount claimed in the relevant demand.

Here, it seems to me that the Court is left in the position that it is likely that an offsetting claim would exist, at least if Forte had done the relevant rectification works and incurred costs in doing them, although for a significant number of defects that has not yet occurred. To the extent that costs are recoverable, they are not adequately quantified, because they turn on no more than Ms Li’s assertion, without adequate reasoning, of estimated rectification costs. Where the Court cannot, consistent with the approach identified by Brereton J in Douglas Aerospace, quantify the offsetting claim, then the proper course is to allow it only a nominal value.

For these reasons, Forte’s application to set aside the Demand is dismissed with costs.