ECS Services Pty Ltd v DGA Holdings Pty Ltd

Judgment 1HIS HONOUR: This is a disappointing case as I have concluded that the magistrate for the second time has failed to comply with his obligation to provide an adequate statement of reasons for his decision to find for DGA Holdings Pty Ltd (DGA) who was the plaintiff in the Local Court. The result is unfortunate as Harrison AsJ in ECS Services Pty Ltd v DGA Holdings Pty Ltd [2012] NSWSC 1058 said at [56]: "It is my view that the Magistrate failed to give adequate reasons and that this failure amounted to an error of law. In particular there was a failure to consider the oral evidence of the witnesses as to who DGA contracted with. If the Magistrate was unable to reconcile this evidence he should have explained why. His Honour bases his decision upon the exchange of invoices and emails. The two significant invoices are contradictory. The Magistrate did not explain why he came to the conclusion he did in the light of this inconsistent evidence. The result is that the appeal is upheld". 2Her Honour was referring to the magistrate's ex tempore judgment of 9 December 2011 which she set aside and remitted to the Local Court at Fairfield to be determined according to law. It is the magistrate's reserved judgment of 29 January 2013 that is the subject of the present appeal by ECS Services Pty Ltd (ECS). ECS was the defendant in the Local Court. 3ECS seeks an order that the judgment be set aside. Orders are also sought to set aside the magistrate's interlocutory judgments delivered on 13 November 2012 in ECS's motion for leave to file further evidence and on 29 January 2013 when his Honour refused to disqualify himself for apprehended bias. However, the focal point of the appeal is the adequacy of his Honour's reasons in the reserved judgment of 29 January 2013. 4Section 39 of the Local Court Act 2007 provides that a party who is dissatisfied with a judgment or order of the Local Court may appeal to the Supreme Court, but only on a question of law. The onus is on ECS to demonstrate that there is error of law. 5Section 40(2) provides that a party to proceedings before the Local Court sitting in its General Division who is dissatisfied with an interlocutory judgment or order of the court may appeal to the Supreme Court, but only by leave. The order made on 13 November 2012 dismissing ECS's motion for further evidence to be filed and his Honour's refusal to disqualify himself are interlocutory in nature and the leave of this court to appeal is required. 6The summons identifies seven grounds of appeal that specifically relate to the adequacy of the reasons of the reserved judgment. They are that the magistrate erred in law in failing to: (i)give proper or adequate reasons for his judgment having regard to the judgment of Harrison AsJ; (ii)give any reasons for disregarding the evidence of a 14 January 2010 quote issued by DGA to Cornish, the second defendant in the Local Court prior to the commencement of the works; (iii)give any reasons for disregarding the evidence of the payment of that quote by Cornish to DGA on 15 January 2010; (iv)give any reasons for apparently relying (it is unstated in his reasons) on invoices issued to ECS after completion of the works as evidence of the alleged contract between ECS and DGA; (v)give any reasons for disregarding the affidavit of debt sworn by DGA in support of an application for judgment by DGA against Cornish sworn in September 2011; (vi)give any reasons for disregarding the evidence of inconsistencies in the evidence of DGA as to the alleged issue of the invoice 765 to ECS on 1 June 2010; (vii)for giving an unjust decision. The Local Court proceedings 7By an amended statement of claim, DGA as the plaintiff claimed against ECS as the first defendant and Cornish Property Services Pty Ltd (Cornish) as the second defendant the sum of $78,649.64 for damages for breach of contract, or alternatively the sum of $78,649.64 on a quantum meruit claim. 8The background to the proceedings was that Cornish had contracted with the New South Wales Government to do work which included the refurbishment of toilet blocks at five schools in country New South Wales. Agreed facts in the Local Court proceedings included that Cornish had subcontracted part of the works to ECS, that ECS undertook building works on all five sites from 15 December 2009 until 5 March 2010 and Anthony Luck on behalf of ECS had spoken with George Azzi on behalf of DGA in or about 15 December 2010 concerning the prospect of DGA providing tiling services in relation to various schools. Further agreed facts were that DGA undertook the tiling part of the works at four of the country schools on or after 5 January 2010 to on or about 3 February 2010; that DGA forwarded progress claim reference "Quote 00000769" dated 14 January 2010 to Cornish; and Cornish paid to DGA the progress claim of $6,600 on 15 January 2010. 9DGA pleaded that it had entered into an express oral contract with ECS (either on its behalf, or as an agent for Cornish as an undisclosed principal) to provide tiling services at the four schools and that it had not been paid for the work. 10In an amended defence, ECS denied that it was indebted to DGA and to the best of its knowledge ECS said that the agreement was entered into between DGA and Cornish for the performance of the tiling work. 11The real issue for consideration was whether the contract was between DGA and ECS, or alternatively, whether the contract was between DGA and Cornish: ECS Services Pty Ltd v DGA Holdings Pty Ltd at [20]. Cornish had been placed in liquidation on 26 August 2011. 12I do not propose to detail all of the evidence that was before the magistrate during the Local Court hearing that occupied two days in December 2011 and proceeded by way of affidavit and oral evidence. Harrison AsJ reviews the affidavit evidence in ECS Services Pty Ltd v DGA Holdings Pty Ltd at [23]-[54]. The witnesses were Anthony Luck, the project manager for ECS, John Morrison who had been Cornish's General Manager, George Azzi, a director of DGA, and Sung Kim, a tiler. 13A matter of difference between Mr Azzi and Mr Morrison was that Mr Morrison deposed that ECS introduced Mr Azzi "as being suitable tilers to undertake the tiling work on the Five Schools": affidavit 8 September 2011 ex A TB 30 p 193 par 8. Another factual difference was that Mr Morrison maintained he had supervised DGA's work until completion. In his oral testimony Mr Azzi said he had never met Mr Morrison and when he visited the work sites there was no-one there, except his tilers: ex A TB 21 p 47 L20-26. He testified that Mr Luck had never provided him with an introduction to Cornish: ex A TB 21 p 70 L19-24. Mr Kim in his oral testimony said that he had never met Mr Morrison and had not seen him at any of the sites when carrying out tiling work: ex A TB 21 p 42 L28-48. In his affidavit, Mr Kim states that he had a conversation in late 2009 with Mr Azzi who said "I've got a big job in Gundagai, Junee, Nangus and Condoblin (sic)": ex A TB 24 p 94 par 7. He had met Mr Azzi about 13 years ago and DGA provided him with about 90 per cent of his work. He said that a man named Steve and Anthony Luck instructed him how they wanted the works to be completed and he only ever conferred with them. He knew that Mr Luck was employed by ECS. He did not know who Cornish was. 14In referring to the affidavit evidence of Mr Luck and Mr Azzi, I gratefully adopt Harrison AsJ's summary at [28] - [45]: Mr Luck's (ECS's) version of events Anthony Luck is the project manager of ECS. On 29 November 2009, John Morrison of Cornish asked him to inspect the bathrooms at the schools that Cornish had secured the contract to upgrade. On 8 December 2009, Mr Luck visited the sites again to undertake measurements in order to prepare a quote. Also on about 8 December 2009, Mr Luck says that he had a conversation with Mr Azzi who wanted to know who to charge for the work. Mr Luck informed him that he had not worked out the contract terms with the head contractor Cornish but when they had been agreed he would get back to Mr Azzi. On 15 December 2009, before Mr Luck had completed the quotes for each school, he had a conversation with Allan Raad from Cornish. Mr Raad asked if they could get the jobs started straight away. Mr Luck agreed to do so. Mr Luck says that no agreement was reached concerning Cornish's payment to DGA. On 17 December 2009, Mr Luck spoke to Allan Raad in words to the following effect: "... We need you to pay the deposit on the bathroom partitions, as Raj does not agree to funding them with the current debt." Mr Raad said he would speak to Raj. On 20 December 2009, Mr Raad telephoned Mr Luck and said, "We will pay you $15,000 immediately. Go ahead and order the partitions." Mr Luck ordered the partitions but received no moneys and the manufacturer would not commence the work until a deposit was paid. On 27 December 2009, they again spoke by telephone. Mr Raad said that they needed to have the tilers onsite over the Christmas/New Year break. Mr Luck told him that the tilers were "ready to go we just need to give them some money." Mr Raad said he would get the money sorted and it was safe. Mr Luck says that he telephoned George Azzi and said words to the effect: "Luck: Cornish wants tilers to commence in the first week in the New Year. We still have not sorted the money and it is probably quicker and easier if you deal with Cornish direct. Cornish will supply the tiles and accommodation has been booked by Cornish at Condobolin and Gundagai. Cornish will take care of all your site induction and OH&S compliance. George: Okay I will send a team out but they will not start until I get a deposit. Luck: That is understandable." On about 4 January 2009, payment still had not been made by Cornish to DGA. Mr Luck understood that Cornish had not paid a deposit to the tilers to commence work but understood that discussions had taken place between Allan Raad and George Azzi concerning payment of the tilers by Cornish as Allan Raad said to him that, "We will pay the tilers and all you need to do is to manage and supply labour." Mr Luck believes that DGA's first progress claim, described as quote 769 and dated 14 January 2010, was prepared by DGA and addressed to Cornish after Cornish had paid DGA $6,600. Mr Azzi's (DGA's) version of events Sometime in December 2009 Mr Luck offered Mr Azzi a job. A few days later Mr Azzi met with Anthony Luck at a factory on Briens Road Westmead. When he arrived at the premises he had a conversation with Anthony Luck in words to the following effect: "Anthony Luck: The schools are going to be in Gundagai, Junee, Nangus and Condobolin. The job I want you to do is the tiling of the toilet blocks [Mr Azzi]: How do you want to do this? Should I send the boys and do day charges. Anthony Luck: Yeh, it has to be by the day. There's loose tiles coming off, so we can't do contract. We have accommodation there that your boys can stay in." Mr Azzi took this to mean that a lump sum figure would not be paid for the work, but that DGA would be paid on a "do and charge" basis. Mr Azzi said, "Okay, I'll charge our usual rate" to which Mr Luck responded that that was fine. Mr Azzi asked, "When do you want us to start?" to which Mr Luck responded "You can start during the school holidays." The standard rate charged by DGA at the time was $55 per person per hour plus GST, plus a 15% margin plus materials. Then Mr Azzi spoke with Sung Sub Kim of Double S Tiling in relation to the job. DGA subcontracted some work to Sung Sub Kim trading as Double S Tiling. He told Sung Sub Kim that Mr Kim would need about five workers plus Mr Kim. On 5 January 2010 Sung Sub Kim and his employees commenced work at Gundagai South Public School. On or about 6 January 2010 Mr Azzi called Mr Luck on his mobile phone and had a conversation with him in words to the effect of: "Mr Azzi: Anthony I need to pay my boys, we need payment. Mr Luck: Send me the invoice" He then emailed Anthony Luck a tax invoice for $6,600.00. A short time later he received a telephone call from Mr Luck. He said: "Can you change the invoice from ECS Services to Cornish Property Services. If you can you won't have to wait, you can get paid straight away." On about 14 January 2010 Mr Azzi amended the details on the tax invoice, that was stored on his computer, from ECS Services to Cornish Property Services. He sent the amended tax invoice to Anthony Luck at ECS. On about 14 January 2010 Mr Azzi received a telephone call from Alan Raad of Cornish. Mr Raad said "What are your bank account details so I can transfer you the money?" He informed Alan Raad of his bank account details. This he says is the only conversation he had with Alan Raad during the course of the works being completed. On 15 January 2010 he received $6,600 from Cornish Property via internet transfer into his company bank account. 15I would add to her Honour's summary of Mr Luck's affidavit evidence, his statement (at ex A TB 29 p 140 par 23) that "[a]part from those conversations set out above I had no conversations with the plaintiff directors or employees concerning payment of the plaintiffs' services." 16During his oral testimony, Mr Azzi said that the first time he heard of the existence of Cornish was "when Anthony called me and said I can't pay you that invoice you have to go through Cornish so you can get paid a bit quicker": ex A TB 21 p 50 L45-46. 17Mr Azzi was asked in cross-examination: ex A TB 21 p 69 L20-30: "Q. Did you ever swear an affidavit that Cornish was indebted to DGA for the amount of these invoices? A. Sworn against Cornish? Q. Yes. You've never sworn an affidavit like that? A. That Cornish owes me money, no. Q. Cornish owes DGA the money? A. No." 18Mr Azzi was then shown an affidavit that he had sworn in support of a motion to enter a default judgment against Cornish in the amount of $81,450.33. In this affidavit (at ex A TB 27 p 131), Mr Azzi deposed: "... 2. The source of my knowledge of the matters contained in this affidavit concerning the debt is tax invoice dated 2 April 2010 in the sum of $15,477.00 and tax invoice dated 2 April 2010 in the sum of $63,172.64. ... 4. The amount owing to me at the time of the commencement of the proceedings in respect to the cause of action for which the proceedings were commenced was $78,649.6". 19When cross-examined on this affidavit, Mr Azzi gave the following evidence T 21 p 69 L49-50 p 70 L1-13: "Q. Did you read that affidavit? A. Yes. Q. And its in support of a judgment against the second defendant? A. Against the second defendant? Q. Yes, against Cornish? A. Well Cornish they don't owe me any money. Q. They don't owe you any money? A. Not Cornish. Q. So insofar as you've sworn an affidavit that they (sic) you $81,000 that's incorrect, is that what you're saying now? A. Well yeah Cornish doesn't owe me no money, that's all I know. I know ECS owes me the money." 20Mr Azzi was cross-examined on his evidence that "[o]n about 14 January 2010 [he] amended the details on the tax invoice, which was stored on [his] computer, from ECS Services to Cornish Property Services": ex A TB 25 p 100 par 17. There were differences in the invoices that were explored at length in Mr Azzi's cross-examination. 21In discussions with counsel, the magistrate referred to the evidence of the affidavit by stating (at ex A TB 21 p 72 L14-17): "...the situation seems to have been that once Mr Azzi got a lawyer the lawyer could see this alternative line of attack and added in a second defendant is what seems to happen, isn't it." 22His Honour seemed to confine the significance of this evidence to "the adoption of the second defendant into his claim": ex A TB 21 p 72 L7-8, but Mr Southwick put to the magistrate that it was on Mr Azzi's instructions that a judgment was obtained and Mr Azzi had denied swearing an affidavit. 23There was in evidence a letter dated 15 June 2010 from James Legal Pty Ltd (the solicitors for ECS) to Glass Conveyancing and Legal Services (the solicitors for DGA): ex A TB 28. In short, the contents of the letter included a denial of liability by ECS and the assertion that DGA had contracted with Cornish. 24I should mention that there was no evidence that supported the suggestion that the affidavit of debt was sworn by Mr Azzi because his lawyers could see an alternative line of attack. There is nothing in the letter dated 15 June 2010 that supports such an inference being drawn. According to Mr Azzi, the source of his knowledge of the indebtedness of Cornish was the two tax invoices dated 2 April 2010: see [18.2] above. ECS served a notice to produce upon DGA on 30 November 2011 that required production of copies of all invoices issued by DGA to ECS and Cornish in respect of the work. Peter James, the solicitor for ECS, states in his affidavit dated 23 October 2012 that the two invoices were not produced. 25Mr Luck agreed in cross-examination that he contacted Mr Azzi in December and was comfortable that Mr Azzi would do a good job for him. He accepted that by 14 January, the tilers arranged by DGA had been on site "from the order of nine days": ex A TB 22 p 80 L1-4. He denied that Mr Azzi spoke to him again throughout January regarding payment, but said that he had spoken to Mr Azzi in relation to Cornish making payments in February. He was cross-examined about paragraph 23 of his affidavit and agreed that he had not referred to the February conversation in the affidavit. 26There was further cross-examination about the lack of mention in Mr Luck's affidavit about introducing Mr Azzi to any particular person at Cornish. He responded that he believed it did happen, but agreed it was not in his affidavit. He denied receiving emails in February from Mr Azzi and said that he had not received two invoices from Mr Azzi in May. He denied that he had supervised Mr Kim. Mr Luck said that the deal with Cornish was independent of tiling. 27The emails and invoices that were in evidence included the following: 6 January Bill/Tax Invoice issued by DGA to ECS, and described as for $6600.00. Bill emailed to Anthony Luck at his email. 14 January Bill/Tax invoice reissued to Cornish Property Services with description "progress Claim for item (Jo 5396, 5397, 5398 and 5399"for $6600.00 and emailed to Mr. Luck. 15 January DGA receives payment of $6600. 16 February Email from George Azzi to Anthony Luck with a breakdown of the number of tilers and days worked. 16 February Email from George Azzi to Anthony Luck with a breakdown of cost of material used and enquiring about travel and away allowance. 2 May George Azzi attaches invoices 786 for $15477.00 and 785 for $63172.64 to an email to Anthony Luck at 11:48am 2 May George Azzi attaches invoices 786 and 785 to an email to Anthony Luck at 3:41pm