Contract Law - dispute arising from agreement to hire building equipment - breach of contract - application for summary judgment successful at first instance - appeal.

Practice And Procedure - summary judgment - necessary pre-conditions - relief sought should only be refused where it is clear there is no real question to be tried - examination of terms of agreement leading to dispute required - agreement purported to permit summary judgment where default notice not complied with - need for agreement to be construed consistently with Magistrates' Court (Civil Jurisdiction) Act - insufficient evidence to support application for summary judgment - examination of possible cross-claim or set-off matters - appeal upheld - summary judgment set aside - matter remitted to the Magistrates' Court for determination.

Magistrates Court (Civil Jurisdiction) Act 1982 (ACT)

Dobbs v The National Bank of Australia Ltd [1935] HCA 49; (1935) 53 CLR 643

Cook v Bank of NSW (1982) 2 BPR 9580

LU Simon Builders Pty Ltd v AD Forbes [1992] VicRp 60; (1992) 2 VR 189

Bulk Chartering v T and T Metal (1993) 114 ALR 189

Counsel for the Respondents: Mr G. Richardson SC

1. The appeal be allowed

2. Summary judgment set aside

3. Proceedings be remitted to Magistrates Court to be determined

according to law

HIGGINS J On the 8th day of November 1994, Magistrate Dingwall ordered the entry of judgment for the plaintiffs (respondents) against the defendant (appellant) in the sum of $48,803.20 plus costs. The plaintiffs had applied for summary judgment.

2. The plaintiffs had commenced proceedings to recover that sum ($47,533.40 plus interest) by Special Claim dated 8 September 1994.

3. The dispute arose out of an agreement made between the parties on 18 July 1994. It arose out of the hire by the plaintiffs of formwork materials and equipment (the "equipment") allegedly "belonging" to them for use by the defendant in the construction of stage 1 of the Department of Foreign Affairs and Trade building at York Park.

4. The agreement itself arose out of a dispute with the plaintiffs.

5. The defendant had, originally, hired the equipment in question from Pasdale Pty Ltd. On 7 July 1994 that contract was cancelled. The plaintiffs then notified the defendant that they were "the proprietor of the equipment". They sought its return to them. The defendant wanted to continue to use it and disputed the plaintiffs' entitlement to the relief they sought.

6. That dispute was resolved when the parties entered into the agreement of 18 July 1994. The plaintiffs contended that the terms of that agreement precluded the defendant from raising any defence cross-claim or set-off to dispute its liability so that they were entitled to summary judgment.

7. Summary Judgment may be entered pursuant to s.136(1) of the Magistrates' Court (Civil Jurisdiction) Act 1982 (ACT) - (MC(CJ)Act). The necessary pre-conditions for that relief are as set out in s.136 1(a) and (b), namely that

"(a) there is evidence of the facts on which the claim for that

relief is based; and

(b) there is evidence given by or on behalf of the plaintiff that,

to the belief of the person giving the evidence, the defendant has

no defence to that claim for relief or has no defence except as

regards the amount of any damages claimed."

8. His Worship correctly recognised that, even if these conditions are satisfied, the relief sought should be refused unless it is clear that as to the whole or a specified part of the sum claimed, there is no real question to be tried.

9. In his Worship's view, the proper construction of the agreement of 18 July 1994, precluded the defendant from raising any defence to the plaintiffs' claim, whether by way of dispute as to the facts upon which the claim was based or upon some cross-claim or set-off otherwise open He, therefore, granted the plaintiffs' application.

10. The claim had been for one week's hire of the equipment plus interest calculated according to the agreement.

11. To indicate that the claim was seriously in dispute, the defendant relied upon the affidavit of Peter Anthony Scanlon.

12. As to the effect of that evidence, his Worship concluded that,

"If the defendant were permitted in these proceedings to file a

defence, set-off or cross-claim, there is no question that the

material in Mr Scanlon's affidavit establishes an arguable defence,

set-off or cross-claim. In a usual case, the plaintiffs'

application would fail."

13. A reading of Mr Scanlon's affidavit supports that opinion. The agreement provided the defendant was not to be liable to pay hire fees in respect of items of equipment made available, after due notice, for removal by the plaintiffs. The defendant alleged that the plaintiff's claim included charges in respect of items which had, pursuant to the agreement, ceased to attract hire charges. Some such errors in prior invoices had been notified by the defendant to the plaintiffs. Some of these had been conceded by the plaintiffs, others had not. It also was alleged that not all the equipment included in the initial hire was the property of the plaintiffs. The defendant claimed that some of the equipment belonged to another party. It is not clear whether that fact would entitle the defendant to refuse to pay hire charges to the plaintiffs in respect of that equipment or simply to claim an indemnity in respect of any claim by the true owner. There was, therefore, a dispute as to whether the sum claimed pursuant to the invoice in question was correctly calculated. There were also matters of possible cross-claim or set-off insofar as adverse claims by third parties might be established in respect of some of the equipment.

14. Neither party sought to question his Worship's finding as to the effect of Mr Scanlon's affidavit.

15. The issue, therefore, is as to the proper construction of the agreement of 18 July 1994.

16. The intention of the parties is to be ascertained by construing the terms of the agreement in the context in which it appears.

17. That the agreement arose out of and in settlement of a legal dispute between the parties is a relevant consideration. It puts the agreement in context. It is also relevant to bear in mind that the parties to the agreement were each represented by solicitors throughout the negotiations. The agreement is evidenced by correspondence between those solicitors. It may, therefore, be assumed that where terms have an accepted legal meaning that was the intended meaning. However, that does not imply as rigorous a process of construction as would be required in statutory interpretation. The agreement has to be understood in its commercial context and to have been intended to be applied by the parties to it without the need to constantly refer to legal advice as to its construction.

18. The agreement was intended to provide for hire charges to be payable by the defendant to the plaintiffs. It was also intended to provide for the return of items hired as the defendant ceased to need them. It, therefore, purported to set out a process for fixing that point of time at which equipment no longer required would cease to attract hire fees. Finally, the agreement sought to regulate the mechanism for the levying and recovery of hire fees.

19. The relevant provisions of the agreement are as follows:

("your client" = defendant : "our clients" = plaintiffs)

(6) "The period of hire is to conclude at the time of delivery of

our clients' equipment and materials to Coddlestone's yard at

Beenleigh, Queensland, provided that in the event that notice as

required by Item 12 is given by your client to our clients the

period of hire will conclude:-

(i) In the event that the materials are not removed from the site

within five days of the date of that notice, and

at the expiration of the five day period; or

(ii) In the event that the materials are removed from site within

the five day period and at the expiration of two days from the

date of their removal.

(7) That the equipment and material to be hired by your client from

our clients is that equipment and materials located in the building

as at 15 July 1994 which equipment and materials have been counted

by the parties representatives by close of business Friday, 15 July

1994. In the event that any Item or Items belonging to our clients

has not been identified, but are nevertheless utilised by your

client hire charges will apply, together with these terms and

conditions;

(8) That your client pay to our clients hire charges on a weekly

basis;

(11) That your client stack and pack any equipment and material

which it no longer requires in such a manner and in such volume as

required to comprise a full semi-trailer load;

(12) That your client provide our clients with at least five days

notice in writing that a full semi-trailer load of equipment and

materials is available for transport;

(19) In the event that your client fails to make payment of our

clients' hire charges within seven (7) days of the date of an

invoice being delivered then our clients be entitled to interest at

the rate of 12.5% to the date of payment;

(20) In the event that your client does not make payment of our

clients' hire charges and such failure is not remedied within

fourteen days of notice in writing specifying the default and

requiring its remedy within seven days then our clients be at

liberty to enter Judgment in the Magistrates Court of the Australian

Capital Territory for the full amount of the outstanding charges

together with costs and that the Affidavit of Solicitors on behalf

of our clients be sufficient evidence of this agreement and the

default and failure to remedy;"

20. The plaintiffs contended that the effect of the above clauses, particularly having regard to the terms of clause 20, is that once the plaintiffs had delivered an invoice claiming hire charges in and for a week or specified number of weeks then, should the amount claimed not be paid as and when due for payment, the plaintiffs were entitled to give a default notice under clause 20. The default notice was to require remedial action, in this case payment, within 7 days from delivery of that notice. Once default had continued for 14 days from delivery of the notice, the plaintiffs were to be "at liberty to enter judgment" in the Magistrates' Court.

21. It is, of course, clear that clause 20 does not, and cannot, prescribe the procedure by which the entry of judgment is to be effected. The entry of judgment in civil claims is the province of the MC(CJ) Act. That would be well-known to the solicitors for the parties who concluded the agreement in the terms expressed in it. The agreement needs to be construed consistently with that Act.

22. It seems to me, therefore, that the reference to liberty given into the plaintiffs to enter judgment is a contractual entitlement for the plaintiffs to sue for the then outstanding charges (including interest pursuant to clause 19) as if for a debt then due and owing. That is procedurally to be achieved by the issue and service of a "Special Claim" if the matter falls within the civil jurisdiction of the Magistrates Court.

23. The remainder of clause 20 deals with the sufficiency of evidence necessary to support an application for judgment on that claim. The plaintiffs' solicitor's affidavit specifying the agreement, the default and the failure to remedy the same was to be "sufficient evidence" to support the application.

24. In support of the application for summary judgment, Mr Pennicott, solicitor for the plaintiffs, deposed to the terms of the agreement. He further deposed that, on 15 August 1994 at 9.40 a.m., an invoice claiming hire charges for 8/8/94 to 14/8/94 was delivered by facsimile to the defendant.

25. On 24 August 1994 a default notice was sent by letter. That letter complained that the sum claimed pursuant to the invoice of 15 August 1994 had been due for payment on 22 August 1994. Mr Pennicott did not depose to whether the default notice was delivered by ordinary post or otherwise. The invoice had demanded payment within 7 days. The agreement did not expressly address that question but that demand was consistent with clause 19.

26. It may, therefore, be assumed that each invoice was to be paid within 7 days of its delivery. If so, then a notice pursuant to clause 20 was authorised once such default had continued for 7 days after the notice had been given. The entitlement to sue arose if default continued for a further 14 days after the delivery of that notice.

27. The invoice was delivered on 15 August 1994. There would be default in payment of it unless the sum claimed was paid on or before 22 August 1994. It was not. Thus the plaintiffs became entitled to deliver a default notice on or after 23 August 1994. The alleged default should have been remedied on or before 31 August 1994, in order for there to have been compliance with the notice, if in fact, the default notice was delivered on 24 August 1994. If it was delivered in the ordinary course of post it would have been received no earlier than 25 August 1994. However, it is to be expected that the parties would have intended that the provisions of s.29 MC(CJ) Act would be applied by analogy. That would presume delivery on 26 August 1994 - see s.29(2).

28. Thereafter, the plaintiffs were at liberty to commence proceedings for judgment based on non-compliance with that notice on or after 10 September 1994, or earlier if earlier delivery of the default notice was proved.

29. Proceedings were in fact commenced on 8 September 1994. The affidavit in support was sworn on 7 September 1994. It deposed, inter alia, (para 9.)

"I am informed by Mr Hoss Heinrich on behalf of the first and second

plaintiffs that to the date of swearing this affidavit no payment

has been received from the defendant pursuant to invoice No. 005".

30. It is at least seriously arguable that non-payment before the expiry of 7 September 1994 did not, on any view of it, constitute default under the notice. Payment tendered at any time on 7 September 1994 would have prevented a default enabling action for judgment. The evidence presented to his Worship did not unarguably establish that the defendant had not paid the invoice on 7 September 1994 save time after the swearing by Mr Pennicott of his affidavit.

31. That affidavit formed the basis for the application for summary judgment, granted on 8 November 1994. There was no other evidence supporting that application. The cause of action pleaded alleged non-payment as at 8 September 1994. That allegation was arguably not verified by Mr Pennicott's affidavit. It was not established, beyond serious argument, that the cause of action did not arise until 10 September 1994.

32. It follows that the evidence before his Worship was not sufficient to enable summary judgment to be entered.

33. That is enough to set aside the summary judgment. It would, however, have been open to Mr Pennicott, or another solicitor on behalf of the plaintiffs, to have attested that no payment was received by the due date.

34. As that issue was not addressed in argument, it is necessary to consider whether assuming the preconditions for judgment prescribed by clause 20 were satisfied, the defendant was precluded from raising any defence whether by way of cross-claim, set-off or otherwise.

35. The proposition that an invoice or other demand produced by one party to a claim for debt may be taken as evidence of that debt is well known. That result may follow from statute or from an agreement between the parties.

36. In Dobbs v The National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643 a guarantee given to the Bank had contained a clause to the effect that the certificate of the manager should be "conclusive evidence" of the indebtedness of the principal debtor.

37. Rich, Dixon, Evatt and McTiernan JJ noted that the clause did not purport to make the production of such a certificate a condition precedent to recovery. Their Honours said

"The promise remains a promise to pay the amount owing; it does not

become a promise to pay the amount owing if certified or a promise

to pay only what is certified as owing. The bank could recover

without the production of a certificate if, by ordinary legal

evidence, it proved the actual indebtedness of the customer. But

the clause, if valid, enables the bank by producing a certificate to

dispense with such proof. ... Perhaps such a clause should not be

interpreted as covering all grounds which go the validity of a debt;

for instance, illegality ... But the manifest object of the clause

was to provide a ready means of establishing the existence and

amount of the guaranteed debt and avoiding an inquiry upon legal

evidence into the debits going to make up the indebtedness."

Whilst to make that certificate "conclusive" would prevent the matters covered by it from being challenged as to their existence and amount, that was not, their Honours held, invalid as an ouster of the court's jurisdiction.

38. In Cook v Bank of NSW (1982) 2 BPR 9580 Wootten J observed that a certificate such as that given in Dobbs case could be defeated by estoppel. His Honour also queried whether such a clause might now be subject to relief under such legislation as the Contracts Review Act 1980 (NSW) if it operated unjustly.

39. In LU Simon Builders Pty Ltd v AD Forbes [1992] VicRp 60; (1992) 2 VR 189, Smith J had to construe an agreement to pay moneys claimed for progress payments under a building contract. The defendants sought to raise possible set-offs and cross-claims in answer to an application for summary judgment.

40. The contract provided for the architect engaged by the proprietor to certify the sum due pursuant to progress certificates. There was no provision for the proprietor to dispute any progress certificate. There was, however, a process prescribed for dealing with disputes as to the final certificate. The amount of the final certificate was calculable by reference to the amount properly payable in toto. Thus, even if some progress certificates had overstated the sum then due, that would be adjusted on the final certificate.

41. At 193, his Honour gave reasons for concluding that cross-claims and set-offs were not to be raised in a dispute concerning a progress certificate. His Honour said,

"It will be essential for the practical viability of any contract

that the builder continue to receive progress payments pending

resolution of any dispute and thus be enabled to perform its

obligations under clause 13(6) (to proceed with the works pending

resolution of any dispute referred to arbitration). Without

progress payments, the intent of the parties that the builder

continue will be put at risk and, in many cases, will be frustrated

because of the inability of the builder to finance the works.

Further, if the builder is not rendered bankrupt by non-payment of

progress payments, its efficient performance of the contract will be

put at risk, and, in many cases, frustrated. Such consequences

cannot have been the intention of the parties. The entitlement to

progress payments is clearly the quid pro quo for the obligation to

continue working while the parties are in dispute."

42. Although the terms of the agreement in this case are, in some ways, analogous to the terms of the building agreement construed by Smith J in LU Simons Builders, the context is materially different. The plaintiffs do not have to continue with any works. Nor does it appear that they will be unable to perform their side of the bargain, or be prejudiced in so doing, if any particular invoice is subject to legal challenge.

43. Not even the final invoice is, under the agreement, to be treated differently from any preceding invoice. The defendant is equally liable to pay it, if properly verified, as for any preceding invoice. That is a further distinction from the contractual arrangement in LU Simons Builders.

44. It is difficult to find in this case an intention to postpone all disputes, whether by way of cross-claim, set-off or otherwise, until after the final invoice has been delivered and paid. It is of course, relevant that the agreement was in settlement of a dispute. The parties may be assumed to have desired finality and the avoidance of further disputation or uncertainty.

45. Bulk Chartering v T and T Metal (1993) 114 ALR 189 was a case in which, to avoid further dispute, the parties agreed that the decision of a nominated arbitrator should be final. The majority of the Court of Appeal (NSW) concluded that this provision did not oust the jurisdiction of the Courts. This made the award binding.

46. In the present case, if there is a dispute as to the correctness of the charges claimed in the invoice, no mechanism is provided for the resolution of that dispute. The plaintiffs' contention, if accepted, would permit them to make and enforce their own determination of the amount due. It would enable them to recover that sum whatever the dispute as to the validity of that determination absent only lack of good faith. The defendant could dispute what had been paid or adjudged to be paid only at some unspecified time into the future and in other proceedings. There would be no guarantee that the taking of those proceedings would prevent or delay recovery by the plaintiffs of the sum or sums for which they had obtained judgment.

47. It is difficult to accept that the defendant intended that degree of trust to be reposed in the plaintiffs.

48. The agreement allows that the plaintiffs' solicitors' affidavit shall be "sufficient evidence" of the matters referred to in clause 20 of the agreement. I have no difficulty accepting that it was the intention of the parties that the plaintiffs' claim should stand unless a challenge to it by the defendant was successful. I also accept that it was intended that the defendant should bear the onus of demonstrating that the claim should be rejected in whole or in part, once it had been appropriately verified.

49. A counter-claim or cross-claim, of course, is not established unless the party asserting it proves it. That is consistent with the intention of the agreement as I perceive it. However, such a claim might well relate to some circumstance affecting the performance of the agreement as a whole rather than a claim for one particular week's hire fees.

50. It may well be, therefore, that to be available in these proceedings as a defence, only counter claims or set-offs related to the particular week's hire charges claimed would be available but no others. It may be that any cross-claim or set-off which had by then arisen could be relied upon. Either proposition is seriously arguable.

51. It seems to me to be seriously arguable that, if established, errors in the calculation of the hire charges claimed by the invoice in question would form a valid defence, at least in part, to the plaintiffs' claim. At least some of the matters complained of in Mr Scanlon's affidavit fall into that category. It may be that, as each invoice forms part of a running account, errors in previous invoices may be brought to account in calculating the correct amount of the invoice in question. That proposition is, at least, seriously arguable.

52. It follows that even had the plaintiffs' solicitor's affidavit properly verified their cause of action, summary judgment should have been denied.

53. In the result, the appeal should be allowed. Summary judgment will be set aside and the proceedings remitted to the Magistrates' Court to be determined according to law.