Diddy Boy v Design

SOLICITORS : Mr David Hawlins appeared in person for plaintiff Chamberlains Law Firm Pty Ltd for defendant

• 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

WEDNESDAY 4 FEBRUARY 2009 4981/08 DIDDY BOY PTY LIMITED v DESIGN ENVIRONMENT PTY LIMITED

1 HIS HONOUR: This is an application to set aside a statutory demand served by the defendant on the plaintiff dated 5 September 2008 for $43,803 33. The demand was in respect of an amount due under a Local Court judgement. The plaintiff company was doing a real estate development, and the defendant was an architectural company which provided some design work and drawings for a section 96 application to the local council by the plaintiff company. 2 The plaintiff originally commenced proceedings by a solicitor but that solicitor ceased to act. Mr Hawkins, the sole director of the plaintiff company, sought leave to appear for the company. I granted him that leave and as a term of that leave Mr Hawkins was joined as a plaintiff in the proceedings. 3 The plaintiff company seeks to assert: (a) a genuine dispute, and (b) an offsetting claim. 4 The genuine dispute concerns the adjudication process under the Building and Construction Security of Payments Act which occurred over the Christmas break in December 2007. It led to an adjudication which was subsequently registered as a judgement and was the foundation for the statutory demand. 5 Put simply, the plaintiff's case was that it was not given a fair go and in particular given no opportunity take part in the adjudication process. Mr Hawkins was the relevant person. He says he did not know of the adjudication action due to his absence on holidays during the building industry shutdown over the Christmas and early January periods. He said for this reason he could not participate in this process by making submissions. 6 The merits aspects which he says he was precluded from making submissions on were:

(a) an alleged breach of the agreement as to which person in the architects office would perform the work. (b) whether the work was performed within time. (c) the identity of the company which had contracted with the defendant. (d) the appropriateness of the work performed. 7 It is necessary to give some history and detail of the steps leading up to and including the adjudication process. On 27 July 2006 the defendant set out in a letter to the plaintiff the services that the defendant could provide in relation to a property at 16 Gasworks Rd, Wollstonecraft which the plaintiff intended to acquire. In mid to late October 2006 the plaintiff acquired the property. 8 On 25 October 2006 the defendant sent a letter to the plaintiff offering to provide the services set out in the 27 July 2006 letter for a fixed sum of $80,000 plus GST. The letter broke this sum into three phases of work as follows: Phase 1: brief and concept design development, 30%, $24,000. Phase 2: design and development, 50%, $40,000. Phase 3: final handover and all documentation, 20%, $20,000. Total fees (excluding GST) $80,000. 9 The letter stated that the fees would be invoiced monthly as tasks had been completed and that an application, which the plaintiff intended to make under section 96 of the Environmental Planning and Assessment Act, 1979 to amend the development approval, would be made. It said this work was urgent, and that work would commence on the drawings and other material to accompany that application as soon as Mr Hawkins provided his instructions. This letter had a space for Mr Hawkins to sign in order to give those instructions. 10 On Friday 3 November 2006 Kathleen Bowen, the senior designer supervising the defendants work on the project, sent an e-mail to Mr Hawkins chasing him for the signed instructions. She explained to him that it was a requirement of the defendant that signed instructions be provided before work could commence. She also said that she had Mr Kurt Schilling, an architect and one of her colleagues, ready to start work on the project "first thing Monday". 11 On Thursday 9 November 2006 Mr Hawkins faxed back a signed copy of the fee agreement of 25 October 2006, thereby providing his written instructions to commence the work. In his covering letter he stated that all future correspondence should be in the name of the plaintiff as the registered owner of the property and on the fee agreement itself he stated that he was signing the letter in his capacity as the director of the plaintiff. 12 This correspondence, and the defendants acceptance of this position by starting work immediately, makes it plain that the agreement was with the plaintiff and not with another company which was asserted to be the contractor by Mr Hawkins after the dispute arose about payment of the fees. 13 After being commissioned on 9 November the drawings were completed and made available on 29 November 2006. The section 96 application was lodged by the plaintiff on 19 January 2007 and a request for further copies to be lodged with the Council was complied with promptly. 14 An invoice for $34,000 plus GST was sent on 30 November 2006 immediately after the supply of the drawings. On 18 February 2007 Mr Hawkins addressed the payment of this invoice in these terms: "3. What I said back in December was that I would not be able to settle your invoice until I was able to settle the re-Finance of this project, and that I expected that to be done in early February. I understand that the settlement will not take place until mid-March for reasons unrelated to this project and so I would ask that you notify your accounts people accordingly. 4. That was last year's message.

5. I have lodged the section 96 for this project and it appears that I am going to have issues with North Sydney Council on the matter of the balcony moving from one side to another; and in relation to car parking -- I can handle both issues.

6. However, I am concerned that this project will now not support the continued retention of the IA Group and that I am going to have to request termination of your retainer -- this has been driven by the anticipated end realisation price review provided to me recently by an agent, so the anticipated profit has been reviewed downwards and costs will have to be cut including those two consultants, and I just cannot justify an outlay of $38K for section 96 drawings even if this is part of the overall fee for the project.

7. I will contact your office as soon as settlement of the re-finance occurs to settle your invoice."

15 Importantly, no adverse comments on the work were made. Indeed, in an earlier e-mail Mr Hawkins, when he saw the plans, responded by saying "Great work, thanks." 16 On 31 October 2007 the defendant sent a further invoice to the plaintiff for the amount of $36,000 plus GST. The invoice was expressed to be for all of Phase 1 of the work ($24,000) and a progress claim for Stage 2 for "works completed to the point of Designed Environments ' termination', as advised in your e-mail of 18 February 2007". The invoice was expressed to be made under the Act. This invoice was also not paid. 17 That invoice was the relevant payment claim under the Act and, on the evidence before me, was served on 14 November 2007, not earlier as the adjudicator seems to have noted in his determination. 18 On 23 November 2007 the defendant sent the plaintiff a letter noting non- payment, no submission of a payment schedule and giving notice of an intention to apply for an adjudication under the Act. 19 It is questionable whether the time had then expired for this payment schedule. It is 10 business days -- but not even 10 days were really given. Probably the re-service of the claim the next day with a covering letter correcting some addresses would not help on this point. 20 On 4 December 2007 the plaintiff responded saying it did not wish to adjudicate the matter and would prefer to litigate it. In any event, it knew that the defendant was intent on adjudicating the matter. 21 The next matter of importance is the service of the adjudication application on the plaintiff. The process server, Frank Hoare, deposed to having left it at the registered office of the plaintiff at 7:50 p.m. on 20 December 2007. The evidence of the conversation he had with Sandra Tarrant at the time is disputed. However, what is not in dispute is that she took the documents and put them in her husband, Mr Hawkins, office. She had no discussion with him about them. 22 Mr Hawkins at mid-day on 21 December closed his office and took annual leave until 14 January 2008. 23 I accept for the purposes of determining whether this was adequate service that the documents did not come to his attention. The relevant provision for service is section 109X (1) (a) which allows service by "leaving it at… the companies registered office." 24 In Falgat Constructions Pty Limited v Equity Australia Corporation Pty Limited to[2006] NSWCA 259 Hodgson J. A. said: "62 There remains the question of whether the time at which service or provision has taken effect is also the time at which a document is received, for the purposes of s.17(3)(b) (and see also s.17(2)(b) and s.21). I note that the word "receive" is also used in s.31(2), but used in the context of "received at that place". In my opinion, mail delivered to a registered office or place of business is received at that place when it is put into the mail box of that registered office or place of business, without the necessity of anyone actually seeing it. 63 In my opinion, the word "receive" in s.17(3)(c) does not necessarily require that the document come to the notice of a person authorised to deal with the document on behalf of the claimant. In general, in my opinion, it would be satisfied once the document has arrived at the claimant's registered office or place of business and is there during normal office hours. There may be circumstances in which service or provision has been effected within s.109X of the Corporations Act or s.31 of the Act, but the document has not been received, but I find it difficult to identify any such circumstances." 25 As indicated in Firedam Civil Engineering v KJP Construction [2007] NSWSC 1162 this resolved an outstanding first instance issue on this aspect. 26 Thus the adjudication application was served within the time limit and on 21 December 2008 given the time of service of 7:50 p.m. on 20 December 2008. 27 It is necessary for the adjudicator to serve notice of his acceptance of his application on the parties. The plaintiff accepts that the facsimile of 21 December 2007 from the Institute, and the facsimile of 2 January 2008 from the adjudicator, were at his office when he returned from annual leave on 14 January 2008. He gave evidence that these facsimiles were sent at 5:46 p.m. on Friday 21 December 2007 and at 12:46 p.m. on Wednesday 2; January 2008 respectively. 28 Thus, bearing in mind the definition of 'business days' which takes into account Saturdays, Sundays, public holidays and 27 to 31 December, he would have had until 8 January to lodge any response. He did not as he was on holidays and the adjudicator had no power, absent consent from the other party, to consider a late response (see Section 21 (2)). Absent a payment schedule the plaintiff's response could well have not been relevant (see Section 20 (2B) of the Act). 29 The course of events after the issue of the adjudication is of significance. On 8 February 2008 the plaintiff commenced proceedings in this Court seeking that "the adjudication determination be set aside." On the return day, 19 May 2008, the matter was set down for hearing on 5 September 2008 before Young CJ in Eq. 30 About the same time the defendant registered the adjudication as a judgement and notified the plaintiff after it had done so. It took no steps to enforce the judgement before the hearing fixed for 5 September 2008. 31 The plaintiff company did not appear before Young CJ in Eq on 5 September because, according to Mr Hawkins "I had inadvertently noted the date of the hearing in my diary as 15 September 2008." 32 On 5 September his Honour dismissed the proceedings and ordered the plaintiff to pay the defendant's costs. 33 Despite having threatened to do so, no application has been made by the plaintiff company to set aside the order dismissing the proceedings. Given that there was no contact by the defendant or its lawyers to see why he was not at Court, one could be forgiven for thinking that at least on the question of explanation he would have had a good case to set it aside. 34 The point which I have mentioned, namely, the premature service of the notice under section 17 (2) of the Act, goes to the substance of the claim to set it aside. Mr Hawkins made no submission on the point and the defendant merely contented itself with noting this matter rather than addressing the point. I think, given that Mr Hawkins has had no legal training, that I should address the point. 35 In Brodyn Pty Limited t/as Time Cost and Quality v Davenport and another [2004] 61 NSWLR me 421 Hodgson JA addressed the question to the extent to which natural Justice is required in these terms: "57. The circumstance that the legislation requires notice to the respondent and an opportunity to the respondent to make submissions (ss.17(1) and (2), 20, 21(1), 22(2)(d)) confirms that natural justice is to be afforded to the extent contemplated by these provisions; and in my opinion, such is the importance generally of natural justice that one can infer a legislative intention that this is essential to validity, so that if there is a failure by the adjudicator to receive and consider submissions, occasioned by breach of these provisions, the determination will be a nullity. On this basis, I agree with the result reached in Emag Constructions Pty. Limited v. Highrise Concrete Contractors (Aust) Pty. Limited [2003] NSWSC 903. I note there is some controversy as to whether denial of natural justice generally results in voidness or voidability (see for example Ridge v. Baldwin [1964] AC 40, Durayappah v. Fernando [1967] 2 AC 337, Banks v. Transport Regulation Board (Vic) (1968) 119 CLR 222 at 233, Calvin v. Carr [1980] AC 574 at 589-90, Minister for Immigration v. Bhardwaj (2002) 209 CLR 597 at 630-34); but in my opinion, in cases such as this where there is a disclosed legislative intention to make a particular measure of natural justice a pre-condition of validity, failure to afford that measure of natural justice does make the determination void. I61. Where the adjudicator's determination is void for one of the reasons discussed above, then until it is filed as a judgment, proceedings can appropriately be brought in a court with jurisdiction to grant declarations and injunctions to establish that it is void and to prevent it being filed. However, once it has been filed, the resulting judgment is not void. An application can be made to set aside the judgment; and as noted above in pars.[41] and [42], it is not contrary to s.25(4)(a)(iii) to do so on the basis that there is in truth no adjudicator's determination." 36 Plainly the giving of the appropriate notice under section 17 (2) was premature and did not comply with the requirements of section 17 (2) (b) to give an opportunity to provide a payment schedule to the claimant within five business days after receiving the claimant's notice. If this step in compliance with the requirements of the legislation had been taken by the architectural company the course of this litigation might have been quite different. There would have been an opportunity and a reminder to Mr Hawkins that he needed to file a payment schedule. There would thus be some grounds for complaint about the breach of the rules of natural justice in this case. 37 In this case, without telling the plaintiff they intended to do so, the defendant registered the determination as a judgement. In the absence of any claim to restrain that activity they were entitled to take that course. 38 In Brodyn Pty Limited the result is mentioned in paragraph 41 and it has to be seen in the light of what his Honour said at paragraphs 40 to 42 of his judgement which are in these terms: "40. In my opinion, this irregularity could be a ground for setting aside the judgment: plainly, such a judgment can be set aside on appropriate grounds, whether this be considered as being authorised by rules of court allowing for the setting aside of judgments obtained in the absence of the other party, or implied by s.25(4) itself. If the judgment were set aside, the fact that the determination had been quashed or declared void would preclude the obtaining of another judgment by subsequent compliance with the requirements of ss.24 and 25. Accordingly, such an order would have utility. 41. Further, in my opinion an order of the Supreme Court quashing the determination or declaring it to be void could itself support the setting aside of the judgment. In my opinion, if the determination was quashed or declared void, reliance on there being no determination to support the judgment would not be to challenge the adjudicator's adjudication within s.25(4): this wording assumes that there is a determination which is challenged.

42. Indeed, even in the absence of such an order quashing the determination or declaring it void, the respondent could in my opinion seek to have the judgment set aside on the ground that there never was a determination. If for example a respondent could show that the document that was filed as being an adjudicator's determination was a forgery, that would not be challenging the adjudicator's determination. Similarly, in my opinion, if the respondent could show that for some other reason recognised in law a purported adjudicator's determination did not amount to an adjudicator's determination within the meaning of the Act, that would not be challenging an adjudicator's determination: this, as indicated above, assumes that there is such a determination to be challenged. Conceivably, the availability of that remedy could itself be a ground for refusing relief in the Supreme Court, on the basis that the same matter could more conveniently be relied on in an application to set aside the judgment; but that was not a matter relied on by the primary judge." 39 This tends to indicate that there would still be utility in getting the adjudication quashed to enable an application to set aside the judgement to be made to the Local Court in the way his Honour envisaged. 40 Whatever might be the merits of this claim, there is one insuperable problem for the company and that is the question of setting aside the determination that has been dealt with by this Court. The plaintiff company has lost. They are now bound by the result as a matter of res judicata. Even though it was a judgement by default it will, unless and until set aside, conclude between the parties the matters decided by its operative and declaratory parts (see Res Judicata by Spencer-Bower & Turner paragraphs 46 and 79 and the cases there referred to). 41 The fact that there might be an appeal in the future is of no help. In Barclays Australia (Finance) Pty Limited v Gaffikin Marine Pty Limited 21 ACSR 235 McLelland CJ in Eq said: "The assertion that there is a genuine dispute about the existence of the debt is in turn based on two grounds. Of the first relies on the existence of the undetermined appeal, in which orders are sought by Dan (inter alia) that the proceedings brought by Gaffikin Marine be dismissed and that Gaffikin Marine pay the cost of those proceedings. If the appeal succeeds, it is possible that the costs orders of 16 July 1995 (including the order against Barclays, although it is not an appellant) may be set aside. The answer to this submission is that the possibility that a presently existing and enforceable debt may be set aside in the future pursuant to a subsisting appeal does not give rise to a genuine dispute about the existence of the debt within the meaning of section 459H; see eg Hoare Bros Pty Limited v DCT (1995) 16ACSR 213; ;13 ACLC 358; Wilden Pty Limited v Greenco Pty Limited (1995 13 ACLC 1039. The position would of course be different if there were a stay of proceedings under, or stay of execution of, the costs order against Barclays, but there is not, and in the absence of any such stay and notwithstanding the pendency of the appeal, the costs orders of 16 July 1995 against Barclays (together with the judgement of 16 may 1996) unless and until set aside on appeal, operate as res judicata determining the matter of Barclays costs liability to Gaffikin Marine; see Spencer-Bower & Turner Res Judicata 2nd ed p 144; Lahoud v B & M Quality Constructions (22 July 1994, SC(NSW) McLelland C J in Eq, unreported)." 42 In this case there has not been an application to set aside the judgement. In my view there is no genuine dispute as the question of the setting aside of the judgement has been determined by his Honour. Offsetting claim 43 The complaints which the plaintiff company wished to raise in the adjudication were also said to amount to an offsetting claim. There was some evidence given of loss and damage suffered by the plaintiff company, being: (a) six months interest at $12,000 per month for delay. (b) another architects costs of $10,000. (c) loss of profit and re-sale of $1,550,000. (d) additional expenses and $15,000. 44 In BBB Constructions Pty Limited v Frankipile Australia Pty Limited [2008] NSWSC 982 Brereton J had this to say: "The test for determining whether there is a genuine offsetting claim is whether the Court is satisfied that there is a serious question to be tried that a party had an offsetting claim ( Scanhill Pty Limited v Centure 21 Australasia (1993) 47 FCR 451; 120 ALR 173; 12 ACSR 341) or that the claim is not frivolous or vexatious: Chadwick Industries (South Coast) Pty Limited v Condensing Vaporisers Pty Limited B(1994) 13 ACSR 37. In other words, the claim must be bona fide and a truly existing fact and not spurious, hypothetical, illusory or misconceived: Ozone Manufacturing Pty Limited v DCT (2006) 94 SASR; [2006] SASC 91 at [46]. In Macleay Nominees Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743 ( Macleay Nominees ), Palmer J put it in the following terms (at [18]): 'In my opinion, a genuine offsetting claim for the purposes of [ Corporations Act ] section 459H (1) and (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 was not fanciful. In a claim for a liquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff produces 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 section 459H (1) and (2).'" 45 Unfortunately for the plaintiff company there was no admissible evidence of any breaches of contract which would found some right to claim these amounts as offsetting claims. The affidavits contain merely rolled up allegations with not even the hint of a factual basis to support the allegation. For instance, under delay the only allegation was "the work was not performed on time." 46 The evidence I have already referred to and the estimates of the work performed suggest quite to the contrary. Once Mr Hawkins decided after waiting for some time to commit himself, the plans were produced in 14 days. How that could lead to a six-month delay was not even explained. There was no evidence, for example, of any term in the engagement that a particular person in the office was to do the work. 47 Having regard to the lack of evidence I am not satisfied that there is an offsetting claim. In the circumstances, I dismiss the proceedings and order the plaintiffs to pay the defendant's costs. I direct the exhibits be returned. **********

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