Eyota Pty Ltd v Hanave Pty Ltd

The parties' relationship

1. The plaintiff's business is installing and maintaining electrical equipment. The defendant, an electrical contractor, was retained in connection with a building project at Wagga Wagga Base Hospital. The plaintiff became a subcontractor to the defendant under a subcontract dated 1 August 2014.
2. The subcontract contains, under the heading "Dispute Resolution", clause 21 as follows: "(a) If any dispute or difference ('dispute') concerning the Subcontract arises between Star Electrical and the Subcontractor then either party must give the other written notice of the dispute. The notice is to detail the claims, all the entitlements giving rise to the claims, and the factual matters relevant to the dispute. (b) Within five (5) business days after the giving of such a notice the parties must confer at least once to attempt to resolve the dispute. At any such conference each party must be represented by someone having the authority to settle the dispute. (c) If the dispute is not resolved within 10 days of the parties conferring in paragraph (b), then the dispute shall be referred to expert determination. The expert shall be appointed by the Chairperson of the NSW Chapter of the Australian Institute of Mediators and Arbitrators and shall be conducted in accordance with the Australian Institute of Mediators and Arbitrators Expert Determination Rules. (d) The expert's determination shall be final and binding on the parties except where a claim by either party is in excess of $250,000."

Background - first debt

1. On 17 April 2015, the defendant wrote to the plaintiff alleging indebtedness of the plaintiff to the defendant in several respects. The allegation was made under three headings, with a sum considered by the defendant to be due set out under each. The headings and the respective amounts in the letter were: "Overpayment" ($49,201.10 "excluding GST"), "Default" ($151,524.00 "excluding GST") and "Rectification of defective work" ($31,650.30 "excluding GST"). The concluding paragraph of the letter was: "We therefore seek D&M's agreement to a payment to Star of $232,375.40 plus GST on or before 5:00pm this Monday 20 April 2015, failing which we will escalate the matter through the formal dispute process set out in the Subcontract."
2. The defendant wrote to the plaintiff again on 21 April 2015, as follows: "We refer to our claim for reimbursement of overpayments and additional costs incurred by Star Electrical as a result of the overpayments to D&M, default by D&M and termination of the Subcontract Works as set out in our letter to you dated 17 April 2015 (ref: D&M NOC 001). We have no record of receiving your agreement to reimburse those costs by close of business yesterday, as noted in the last paragraph of our 17 April 2015 letter. In those circumstances, we refer the matter to dispute pursuant to clause 21 of the Subcontract. Clause 21 requires the parties to confer at least once in the five (5) business day period following the date of this notice to attempt to resolve the dispute before referring the matter for expert determination. I will call you within the next day or two to arrange a suitable time to confer for that purpose."
3. Thereafter (and following an unsuccessful meeting of the kind required by clause 21(b)), the balance of the procedure envisaged by clause 21 was followed. Mr Bryan Ahern was appointed as expert by the Chairperson of the NSW Chapter of the Australian Institute of Mediators and Arbitrators and proceeded to receive the parties' submissions. Mr Ahern in due course delivered a written determination dated 24 August 2015. The ultimate determination was that the plaintiff was indebted to the defendant in a net sum of $72,646.75. That is the first of the elements referred to in the statutory demand.

Background - second debt

1. Clause 21(c) of the subcontract states that the "expert" (by which is obviously meant the expert determination) is to be conducted in accordance with the Australian Institute of Mediators and Arbitrators Expert Determination Rules. Rule 13 of those rules provides as follows: "1. Subject to any written agreement by the parties to the contrary, each party shall pay its own costs of or incidental to the Process. 2. Subject to any written agreement by the parties to the contrary, the parties shall be jointly and severally liable for the costs of the Process, and shall pay those costs in equal shares."
2. The evidence shows that, as at the conclusion of the process, Mr Ahern's fees were $35,345.20. At an early stage, each party had paid a sum of $5,000 on account. There was a subsequent request for further payment but the plaintiff declined to pay. It took the view that Mr Ahern's fees were excessive and pointed out his obligation under the rules to avoid unnecessary expense. The plaintiff also wrote a letter of complaint to the professional body by which Mr Ahern was appointed. It replied, in effect, that it had no way of coming to any view about the fees charged.
3. The defendant eventually paid the whole of the fees rendered by Mr Ahern over and above the initial $10,000 paid on account by the parties in equal proportions. It did so because it recognised it was under a joint and several obligation in respect of the whole of the fees.

Alleged genuine dispute - first debt

1. The plaintiff's contention that there is a genuine dispute about the existence of the debt of $72,646.75 is based on the proposition that, because of the concluding words of clause 12(d) ("except where a claim by either party is in excess of $250,000"), that clause had the effect that the determination of Mr Ahern was not "final and binding on the parties". This is because, on the view the plaintiff takes, there was "a claim" by the defendant exceeding $250,000. The plaintiff says that the defendant therefore cannot look to clause 21 and Mr Ahern's determination as a basis for any conclusion of indebtedness of the plaintiff to the defendant to the extent of $72,646.75 or at all.
2. As regards the first debt, the central issue revolves around the words "a claim" in clause 12(d). The plaintiff says that, having regard to the defendant's letter of 21 April 2015 and its express reference back to the letter of 17 April 2015, the defendant made, in clause 21(d) terms, "a claim" of "$232,375.40 plus GST", as referred to in the final paragraph of the 17 April 2015 letter and that, based on the prevailing GST rate of 10 per cent, that "claim" was "a claim" for $255,612.94 and therefore "a claim … in excess of $250,000".
3. The defendant says that this approach misconstrues clause 21 and pays insufficient attention to the words of the clause as a whole. Thus, clause 21(a) provides that, in the event of a "dispute or difference" of the kind mentioned, either party must give the other notice of "the dispute", and the notice must detail "the claims" (no doubt the "claims" of the party giving the notice), all the entitlements giving rise to "the claims" and the factual matters relevant to the "dispute". On the view the defendant takes, clause 21 as a whole envisages that a single "dispute" may involve several "claims", since the "notice of the dispute" that one party gives to the other must detail "the claims", that is, all the claims that the party makes and the "entitlements giving rise to the claims".
4. The defendant argues that, on that reading, the reference to "a claim by either party" in clause 21(d) is a reference to any one of the several "claims" detailed pursuant to clause 21(a) and that it is only if one of these "claims" exceeds $250,000 that clause 21(d) operates to cause the expert determination to be not final and binding. On that construction and since none of the three sums mentioned in the 17 April 2015 letter (with or without the addition of GST) exceeds $250,000, the exception to which clause 21(d) is subject does not operate.
5. Two matters of contract construction are in issue between the parties. One is the correct construction of clause 21 and the meaning to be given to "claim" in the concluding words of clause 21(d). The other goes to the question whether the amount of a "claim", for the purposes of those concluding words (and comparison with the stated limit of $250,000) is to be viewed on a GST-inclusive or a GST-exclusive basis.
6. On the language of clause 21(d), either postulated construction may be correct. Neither can be said to be fanciful or clearly wrong. The construction for which the defendant contends proceeds on the basis that clause 21, read as a whole, contemplates that several "claims" may be included in a dispute and that the concluding words of clause 21(d) refer to each of the several claims. The construction preferred by the plaintiff postulates a purpose of limiting the availability of a particular dispute resolution mechanism to a case where $250,000 or less is in dispute.
7. This raises the question whether, in the present s 459H(1)(a) context, the court should determine which construction is correct or merely conclude that, based on the different (and not fanciful) views concerning construction, there is genuine dispute.
8. In Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; 92 ACSR 27 at [45]-[46], the Court of Appeal said that questions of construction should generally not be determined in a s 459H(1)(a) case. The Court of Appeal of Western Australia expressed a like opinion in Pravenkav Group Pty Ltd v Diploma Construction Pty Ltd [No 3] [ 2014] WASCA 132. Although there may be rare and clear cases where such determination is appropriate, this is not such a case. In debt recovery proceedings based on the proposition that clause 21(d) had produced a binding determination, the present plaintiff's defence based on the exclusion in the concluding words might well be countered by reliance on the fact that the present plaintiff had participated in the dispute resolution process even though it was clear from the very outset that the sum involved was $232,375.40 on a GST-exclusive basis or $255,612.94 on a GST-inclusive basis.
9. The genuine dispute ground is made out in respect of the first debt.

Alleged genuine dispute - second debt

1. The plaintiff maintains that the defendant was not obliged to pay the sum of $13,296.66 to Mr Ahern and that the question of such payment was solely a matter between the plaintiff and Mr Ahern. Furthermore, the plaintiff says, its complaint to Mr Ahern about the amount claimed by him over and above the initial $5,000 each showed that it disputed the supposed debt for fees. The defendant, on the view the plaintiff takes, has taken it upon itself to pay a fee that the plaintiff disputed and has done so at its own risk.
2. The defendant was correct to recognise that, under rule 13.2 (as imported by the subcontract), the parties' liability for Mr Ahern's remuneration was joint and several. That circumstance put Mr Ahern into a position from which he could have proceeded against either the plaintiff or the defendant and, in case of recovery against one debtor alone, the other debtor would have been bound to render restitution to the first for one-half of the burden incurred. Furthermore, payment to Mr Ahern was, under the terms to which the parties had agreed, a necessary step to obtaining his determination. The circumstances are therefore the same as those considered by the Court of Exchequer Chamber in Marsack v Webber (1860) 6 H&N 1; 158 ER 1 at [6]: "We think that when two parties agree to employ an arbitrator, and one pays a sum of money to take up the award, in reason, justice and law he is entitled to recover from the other a moiety of the sum so paid."
3. The liability of the plaintiff to reimburse the defendant for one-half of Mr Ahern's fee is clear. No further investigation is warranted. The dispute the plaintiff asserts about the existence of the second debt cannot be regarded as a genuine dispute.

Disposition

1. The plaintiff's genuine dispute case has succeeded in respect of the first debt but not the second. Under s 459H(4), therefore, the court should vary the statutory demand so that the total sum is reduced by the amount of the first debt.
2. As to costs, the fact that each party has had a measure of success makes it desirable that I receive submissions on the costs order that should be made.
3. I make the following order, declaration and directions:
4. Order that the statutory demand dated 6 April 2016 served on the plaintiff by the defendant be varied by reducing the amount thereof to $13,296.66.
5. Declare that the said statutory demand has had effect, as so varied, as from when the demand was served on the plaintiff.
6. Direct that any party seeking a costs order do, by 5pm on 17 August 2016, file by delivery to my Associate and serve on the other party the terms of the order sought and brief written submissions in support of the making of the order.
7. Direct that a party so served do, by 5pm on 24 August 2016, file by delivery to my Associate and serve on the other party such submissions on costs as that party wishes to make.
8. Reserve the question of costs for decision on the papers.

Amendments 11 August 2016 - Change (NSW) to (Cth) in coverpage legislation field. 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: 11 August 2016