Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd

Evidence on the application

1. The Company relied upon an affidavit of Mr Anthony Gleeson sworn 1 August 2019, the sole director and secretary and also managing director of the Company. He is a qualified carpenter and clerk of works. The Company is a builder of architecturally designed homes and luxury/high-end apartments in and around Sydney.
2. On or about 6 April 2018, the Company entered into a sub-contract agreement (the sub-contract) with Kimbo pursuant to which Kimbo agreed to provide labour and materials to carry out rendering works for a project involving the construction of six units at Bower Street, Manly (the Project). The contract sum was specified as a lump sum of $305,000 plus GST.
3. The scope of the works are identified in the sub-contract as follows: SCOPE OF WORKS The works generally are, but not limited to the following: … Scope of Rendering Works • Wet Areas • All Other Internal Walls • Internal Common Walls from Ground floor to Level 4 (inclusive) • External Walls from Ground Floor to level 4 (inclusive) • All internal Stairwell walls (no ceilings or sides of risers) • Concrete columns, edges, slab edges (inclusive concave or curved) & parapet walls … This work is to be carried out in accordance with our Construction Programme and to the Site Foreman's instructions.
4. The Company adduced evidence of the Construction Programme for the Project which included line items recording that the rendering works were to be completed by 19 July 2018. However, a latter document dated 16 October 2018 suggests that the rendering works were to be completed by 3 December 2018. Whether the Construction Programme was revised is unclear on the evidence, although the director of the Company deposed that Kimbo never requested and the Company never approved any extension of time pursuant to cl 11 of the sub-contract.
5. The relevant terms of the sub-contract included: 6 Indemnity by the Subcontractor The Sub-contractor shall forever indemnify the Builder, its servants, employees and agents and the Principal against any claims, expenses, demands, suits, actions, damages and costs that the Builder or its servants, employees or agents or the Principal sustain or incur as a result of, whether directly or indirectly arising out of or in connection with or as a consequence of the carrying out by the Sub-contractor of the Subcontract Works. … 13 Variations a. The Builder's Representative may instruct the Sub-contractor to carry out Variations. b. All variations shall be agreed to by the Builder's Representative before the Variation Works commence. c. The Sub-contractor will not be entitled to claim and shall have no claim for the cost of executing extra work or supplying extra materials or goods not required by the Subcontract Documents unless the Builder's Representative has agreed to the variation with the Sub-contractor. d. Unless otherwise agreed, Variations shall be valued as the cost to the Sub-contractor inclusive of a percentage allowance for Overheads and Profit. … 15 Setoff The Builder may deduct from moneys due to the Sub-contractor any money due from the Sub-contractor to the Builder.
6. Over the course of the Project, Kimbo issued claims for variations totalling $204,420.90. The Company disputed many of the variation claims. The Company says that it has paid Kimbo $405,742.59 comprising $319,000 paid under the sub-contract and $86,742.59 paid for variations approved and allowed under the sub-contract.
7. On 15 March 2018, Kimbo served a payment schedule under the Security of Payment Act in an amount of $162,845.40 comprising a number of claims for payment: claim 8 and variation claims 1, 4, 5, 6, 7, 8 and 10 (incorrectly referred to in the director's affidavit as variation 9). In response, the Company served a payment schedule dated 8 April 2019 which valued the work at $142,745 and proposed to pay this amount by instalments subject to Kimbo agreeing to complete the work, which the Company asserted was incomplete. The adjudication certificate dated 21 June 2016 in the total amount of $171,235.65, comprised Kimbo's payment claim of $162,845.40 plus interest and the adjudicator's costs.

Delay

1. The director of the Company deposed that numerous meetings were held and emails sent to Kimbo raising concerns about the slow progress on site and lack of personnel. The director said that on many days through the months of July and August 2018 only two workers from Kimbo were on-site, and that Kimbo delayed completion of the works by about six months. The premise of this latter contention seems to be that the date specified in the Construction Programme for completion of the rendering works was 19 July 2018.
2. The Comany says that as a consequence of Kimbo's delay, follow-on trades were not able to commence work on time and this resulted in delay of the Project generally which has caused it to suffer substantial financial penalties. The Company points to the liquidated damages claim for delay in completion of the Project made against it by the principal, CAM No 2 Pty Ltd, on 19 July 2019. The principal has claimed the amount of $1,218,000 for 348 days from 5 August 2018, at $3,500 per calendar day.
3. The Company contends that Kimbo is responsible for eight weeks of the 50-week delay period, which amounts to $196,000 of the liquidated damages claimed by the principal. The Company seeks payment of this sum from Kimbo pursuant to the indemnity in cl 6 of the sub-contract.
4. Kimbo says that the indemnity claim for delay damages does not have sufficient prima facie plausibility to merit further investigation. First, Kimbo says that no supporting evidence has been adduced by the Company to corroborate the assertion by the director of the Company that contemporaneous complaints of delay were made by the Company to Kimbo. Next, Kimbo points to the Company's response to the payment claim on 8 April 2019 which does not allege that delays have caused it to be exposed to a liquidated damages claim to the principal. Finally, Kimbo says that there is no evidence that the Company has taken any steps to articulate or bring an indemnity claim against Kimbo.

Disputed variation - curved slab edge

1. The director of the Company deposed that there is 425 lineal metres of curved slab edge in total and that Kimbo has charged a total of 3,306.50 hours, being 7.78 hours per lineal metre which equates to approximately $389 per lineal metre. The director deposed that the cost of the work claimed by Kimbo is excessive and does not represent fair value for the work performed. The director estimated that it should have taken two hours per lineal metre to complete each lineal metre of curved slab edging. Based on 425 lineal metres of curved slab and applying the rate charged by Kimbo, which is $50 per hour, the director said that the Curved Slab Edge Variation Claim by Kimbo of $165,353 should be reduced by $122,852 to $42,500 (excluding GST) or $46,750 (including GST).
2. At the hearing, the Company revised the value of this alleged offsetting claim after Kimbo pointed out that the variation claims 1, 4-8 and 10 relating to the Curved Edge Variation Claim are the subject of the judgment debt obtained by Kimbo upon filing of the adjudication certificate. It was correct to do so. The asserted restitutionary claim by the Company in respect of these variations is not a true counter claim or set-off or cross-demand because it denies the existence of the debt arising out of the adjudication certificate.
3. As Brereton J (as his Honour then was) explained in Re Douglas Aerospace Pty Ltd [2015] NSWSC 167 at [97], citing Pullin J in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 at [77], a party in the position of the Company cannot raise a genuine offsetting claim merely by contending that it is not "in truth, indebted for the amount" determined as due and payable or that, despite the determination, the contractor was not "contractually entitled" to the amount determined or certified to be due by the adjudicator: see also Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 at [84] (White JA).
4. The Company's revised restitutionary claim is limited to variation 3, which is also part of the Curved Edge Variation Claim, but not the subject of the adjudication certificate dated 21 June 2019. On the evidence, variation 3 has been paid by the Company. By reference to the evidence given by the director of the Company referred to at [16] above, the Company submitted that the labour component of variation 3 of $33,050 should be reduced by a factor of 3.89 (calculated as the total labour cost of $165,352 for the Curved Edge Variation Claim divided by the Company's estimate of the reasonable labour costs of $42,500) being an amount of $8,496.14, giving an offsetting claim of $24,553.86.
5. While not accepting the premise of this alleged offsetting claim, namely that the labour cost component of variation 3 was unreasonable, Kimbo did not challenge the methodology of the Company's calculation of the amount of the asserted offsetting claim.

Claim for costs to complete incomplete work and rectify defects

1. There is evidence that the Company has engaged Mix Mud Pty Ltd (Mix Mud) to complete what it says are incomplete works and to rectify defects caused by Kimbo. The Company has paid Mix Mud $28,708.38 in respect of such works undertaken in May, June and July 2019 and has received a further invoice from Mix Mud dated 11 August 2019 in the amount of $14,870 for works done in July and August 2019. The Company says that the total costs incurred in respect of completing the incomplete works and rectifying defects is $43,872.
2. Kimbo submitted that this claim suffers from a lack of contemporaneous documents, a consistent course of conduct or corroborating documentation: in particular, that the invoices from Mix Mud do not contain clear explanation of what and how the works undertaken by it arose out of the fault of Kimbo.

Damages to apartments 3 and 4

1. In his second affidavit sworn 20 September 2019, the director of the Company deposed to damage to glass panels within the doors to apartment 4 and the glass window in the kitchen of apartment 3 caused by a scraper used by Kimbo's tradesmen to remove splattered or sprayed cement render. The estimated replacement cost of the glass panels in apartment 4 is $30,000, based on a verbal quote received by the director from Vitrosca Windows. The estimated replacement cost of the window in apartment 4 is $3,596.65, based on an invoice from Aneeta Window Systems (Vic) Pty Ltd.
2. Kimbo objected to the Company's reliance on this damages claim as a "new ground" relying upon the so-called Graywinter principle: see Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. Although the particulars of this damages claim were not included in the first affidavit of the director filed in support of the s 459G application, the director's second affidavit dealing with this claim was admitted on the basis that it was a particular of the offsetting claim for defective work which was a claim included in the director's first affidavit. On this basis, the matter can be raised consistently with the requirements of s 459G, as applied by the Graywinter principle: In the matter of Spartan Sporting Goods Pty Ltd [2017] NSWSC 1146 at [10] (Black J).
3. Kimbo accepted that there is contemporaneous evidence relating to a complaint of damage to glass panels in apartment 4 but says there is no reliable evidence as to its cost. Kimbo seemed to accept in its submissions that there is an offsetting claim in respect of the replacement cost of the window in apartment 4 valued at $3,596.65.

Relevant principles - offsetting claim

1. The relevant principles are not in dispute as to what is required to establish an offsetting claim. The test is whether the Court is satisfied that there is a serious question to be tried that the party has an offsetting claim. The claim must be made in good faith and be arguable and not frivolous or vexatious. Good faith in this context means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful: Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 (Macleay Nominees) at [18]. In Macleay Nominees, Palmer J went on to observe at [18]: … 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 (2).
2. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 (Britten-Norman) at [36], the Court of Appeal accepted that the evidence need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable. The Court at [46] approved the following statement of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787: 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 331at 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.
3. In Ligon 158 Pty Ltd v Huber [2016] NSWCA 330, the Court of Appeal summarised at [9] several important points from Britten-Norman at [30]-[31] and [39]-[55] about the forensic approach to be adopted in s 459G proceedings as follows: (1) While there must be evidence showing a serious question to be tried or an issue deserving of a hearing, that evidence cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable. (2) The short time allowed by s 459G(2) for the preparation of the affidavit supporting the claim for an order setting aside the demand militates against the presentation of the fullest and best evidence in some cases. (3) In determining whether there is evidence of a genuine dispute regarding the debt, the court is generally not concerned to engage in an enquiry as to the credit of the deponent of the supporting affidavit. At the same time, it is not required to accept uncritically every statement in the affidavit that is inconsistent with undisputed contemporary documents, is inherently improbable, does not have sufficient prima facie plausibility to merit further investigation or is an assertion of facts unsupported by evidence. (4) Inconsistent contemporaneous documents are not necessarily sufficient to defeat the company's challenge even though they might pose difficulties for the ultimate proof of the case that it would advance if the dispute were litigated.
4. In Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [18]-[19], Barrett J made the following observations concerning the nature of the evidence of the quantum of an offsetting claim that is required: [18] There is then, however, the question of quantification. It is necessary, in view of the definition of "offsetting total" in s 459H(2) and its reference to "the amount of that claim", that the party alleging the existence of an offsetting claim, as a basis for an order setting aside a statutory demand, takes steps to quantify it. The matter is dealt with in Jesserson Holdings Pty Ltd v Middle East Trading Consultants (1994) 12 ACLC 490. In No 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146, I referred to that necessity in these terms: 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. [19] 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. There may be various ways of approaching the issue of assessment at this early stage. 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, 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 assessing the amount of the offsetting claim.
5. In Re Douglas Aerospace Pty Ltd [2015] NSWSC 167, Brereton J observed at [40]: … a company relying on an offsetting claim must adduce evidence that enables the court to ascertain the amount of the genuine claim to the extent necessary to apply the formula in s 459H. If the offsetting claim must plainly exceed the amount of the demand, it is unnecessary that it be precisely quantified. But where that is not clear, the court must be able to quantify an offsetting claim, and if the evidence does not permit it to do so, will attribute to it only a nominal value. …

Decision

1. Accepting that the threshold for genuineness for an offsetting claim is relatively undemanding "… to identify the genuine level of an offsetting claim (not the likely result of it)": Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605, I am satisfied, contrary to Kimbo's submissions, that the evidence adduced by the Company does rise above the level of bare assertion.

(1) Indemnity for delay claim

1. The factual basis for the indemnity claim is the claim by the principal against the Company for liquidated damages for delay, which was first made on 19 July 2019. That was after the date of the Company's response to the payment claim on 8 April 2019. In the circumstances, the absence of a complaint of delay in the Company's response to the payment claim, specifically, that delay by Kimbo had caused the Company to be exposed to a liquidated damages claim by the principal, does not cast doubt on the genuineness of the indemnity claim. I reject Kimbo's submission that the indemnity claim was created in response to the demand.
2. Further and importantly, the Company's response to the payment claim asserted that the works by Kimbo were incomplete. The statement by the director of the Company in his first affidavit that Kimbo "delayed completion of the works by about six months" is consistent with the Construction Programme which specified completion of the rendering works by 19 July 2018. The invoices submitted by Kimbo demonstrate that Kimbo was undertaking rendering work after this date up until 21 February 2019, which was the subject of variation claims 7, 8 and 10.
3. The assessment by the director of the Company that Kimbo is responsible for eight weeks of the 50-week delay period is plausible and coherent, taking into account the apparently revised date for completion of the rendering works by 3 December 2018. The quantification of the indemnity claim by reference to the claim against the Company by the principal for liquidated damages for delay at $3,500 per calendar day is logical. While the Company initially sought to agitate the indemnity claim in these proceedings, it accepts that it is inappropriate to join such a claim to the s 459G application, and that its claim will require separate proceedings.
4. The indemnity claim is not spurious or lacking in bona fides. It is an issue deserving of a hearing as to whether the Company has such a claim against Kimbo. That does not constitute a finding that the claim is a good one, or that it has been made out.

(2) Restitutionary claim for disputed variation - curved slab edge

1. As indicated, the Company's revised restitutionary claim is limited to the disputed cost of the labour component of variation 3 which is part of the Curved Slab Edge Variation Claim. The evidence does not support the view that this claim was created in response to the demand. The director of the Company gave evidence of a conversation with the representative of Kimbo in mid-January 2019 in which complaint was made that the claim for works relating to the slab edge appeared to be excessive. As to the quantification of the claim, Kimbo does not challenge the methodology by which a reasonable sum for such works has been assessed by the director of the Company, who is an experienced builder.
2. There is a plausible contention deserving of a hearing that the amount charged by Kimbo in respect of the labour component for variation 3 is unreasonable. The restitutionary claim to recover the alleged overpayment to Kimbo valued at $24,553.86 is not spurious or lacking in bona fides. Again, this does not constitute a finding that the claim is a good one, or that it has been made out.

(3) Damages claim for costs to complete incomplete work and rectify defects

1. Whilst the invoices issued by Mix Mud to the Company for repairs and patch work covering the months of May, June, July and August 2019 do not contain a detailed description of the work undertaken, those invoices are to be read together with the evidence of the director of the Company that Mix Mud was engaged to complete the incomplete rendering works and rectify defects caused by Kimbo. That Kimbo had left the site and does not know what work has been undertaken by Mix Mud does not undermine the genuineness or seriousness of this claim.
2. The claim for incomplete work was first raised in the Company's payment schedule sent to Kimbo on 8 April 2019. That the assertion of a damages claim for incomplete and defective work is plausible and cogent is supported by the photographs annexed to the director's affidavit (Court Book, pp 73-85). Although the photographs adduced in evidence were undated, they were unchallenged by Kimbo. This claim is not spurious or lacking in bona fides.
3. The offsetting claim may be quantified for present purposes in the amount of the invoices issued by Mix Mud to the Company reflecting the costs of the work undertaken by Mix Mud. That amount is $43,580.38.

(4) Damages claim for replacement cost of glass in apartments 3 and 4

1. I am satisfied that the offsetting claim for the replacement cost of glass in apartments 3 and 4 is plausible and deserving of a hearing, and that the value of the claim is not fanciful. There is contemporaneous evidence in relation to the damage to the glass panels in apartment 4. There is no challenge to the evidence given by the director of the Company of the verbal quote for supply of replacement glass of approximately $30,000 received from the supplier.
2. Although there is no evidence of a contemporaneous complaint by the Company in relation to the similar damage to the glass window in apartment 3, there is no reason to doubt the evidence of the director of the Company concerning the cause of the damage to the glass window in apartment 3. There is no challenge to the reasonableness of the replacement cost claimed of $3,596.65.

Conclusion and orders

1. The Company has established that the total of the amounts of its four offsetting claims exceed the amount claimed in the statutory demand. Accordingly, the demand should be set aside. There is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
2. The Court makes the following orders: 1. That the statutory demand dated 9 July 2019 served on the plaintiff by the defendant be set aside. 2. Otherwise dismiss the Amended Originating Process filed 20 September 2019. 3. The defendant to pay the plaintiff's costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 October 2019