Kheng Kok Chua v Archiworks Architects Pty Limited

Kheng Kok Chua v Archiworks Architects Pty Limited - [2009] NSWSC 411 - NSWSC 2009 case summary — Zoe

[25]

(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including: (a) costs that are reserved, and (b) costs in respect of any such application or step in respect of which no order as to costs is made, are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. (2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings. 11 It follows from the rule that, no application having been made for the Court to make an order otherwise than in accordance with its terms, there is no occasion to qualify the costs that the defendants should pay pursuant to the accepted offer. For those reasons, when I directed the entry of judgment in favour of Mr and Mrs Chua, I did so on the basis that the defendants should pay their costs, and did not qualify or derogate from the costs so payable. It seemed to me that on the proper construction of the offer, it should be taken as having been made on the terms of r 42.7. 12 At the heel of the hunt (indeed, after oral submissions had been concluded) a further issue arose. In the course of submissions, I had inquired whether Mr and Mrs Chua had sought to set off, against Archiworks' claim for fees, the amounts said by them to be owed pursuant to the contract (one of the claims they made was that they had overpaid Archiworks, and were entitled to recover the amount of the overpayment "on restitutionary principles" - see para 30(g) (where second appearing) of the further amended statement of claim (FASC) filed on 27 March 2008). I was told, I think correctly, that they had not. However, before I commenced to give reasons ex tempore, Mr Bailey sought to be further heard. He drew my attention to para 52 of Archiworks' defence to the FASC. Although para 52 is less than clearly phrased, it was common ground between Mr Bailey and Mr Ashhurst that it sought to raise, as a defence by way of set-off, the claim for outstanding fees adumbrated by Archiworks' cross-claim. Mr Bailey submitted that, judgment having been given for Mr and Mrs Chua on their claim, in circumstances where the defences raised included that to which I have just referred, Archiworks was estopped from pursing its cross-claim. It is convenient to deal with that point before turning to the separate questions.

[33]

(3) Each of Mr and Mrs Chua and the defendants may be estopped from raising any issue that could have been, but was not, raised in the proceedings and thus decided by the judgment. 24 Ordinarily, the ambit of an estoppel created by a judgment will depend on the issues that the parties propounded for the court's determination. However, where the judgment is given pursuant to a contract, it is relevant to look not only at the pleaded issues but also at the terms of the contract. For example, the contract may state expressly that particular issues are excepted from the compromise, and are not to be taken as being resolved by any judgment given pursuant to the compromise. 25 The point is illustrated by Isaacs v The Ocean Accident and Guarantee Corporation Ltd (1958) SR (NSW) 69. In that case, the majority (Street CJ and Roper CJ in Eq) had regard to terms of settlement signed by counsel to see what it was that the parties, by their express agreement recorded in those terms, intended to be resolved through the entry of judgment. Those terms were said to be "without admission of liability". Their Honours said at 75 that the terms of settlement showed that the parties had "removed from the Court's consideration any question of the liability of the plaintiff… to the … defendant". Their Honours said at 76 that "[i]n effect, the parties, by their compromise of the action, agreed that the issue of liability should not be submitted to the adjudication of the court, and the judgment, when entered, was not to be taken as establishing that the plaintiff… was in fact liable to [the defendant]". Their Honours said that the contrary conclusion "would make an estoppel operate in a manner contrary to the clear intention of the parties as disclosed by the record". 26 Mr Bailey submitted that acceptance of the offer of compromise had the effect of compromising not only Mr and Mrs Chua's claim but also Archiworks' defence of set off (or, as he put it, "set off claim".) He relied on UCPR rr 20.26, 20.27 and decisions such as Whitehouse Properties Pty Ltd v Bond Brewing (NSW) Ltd (1992) 28 NSWLR 17. It is sufficient to say that the submissions, and for that matter the authorities to which Mr Bailey referred, do not address the point arising from the decision of the majority in Isaacs, and do not detract from, or render inapplicable in this case, their Honours' analysis. 27 In this case, for the reasons that I have given, a consideration of the terms of the contract created by acceptance of the offer of compromise makes it clear that the parties' intention (objectively ascertained) was to compromise only Mr and Mrs Chua's claim, and to leave alive for subsequent resolution (if necessary, by the Court) Archiworks' cross-claim. The parties removed from the Court's consideration, and therefore from the effect of any judgment entered pursuant to the accepted offer of compromise, Archiworks' claim as advanced in its cross-claim. 28 Thus, I conclude, Archiworks is not estopped, by the terms of the judgment, from pursuing its cross-claim. The contrary position would be inconsistent with the intention of the parties, objectively ascertained (and, I might add, with the subjective understanding and intention disclosed in the letter of acceptance). 29 Mr Ashhurst also submitted that, having regard the procedural nature of statutory set-off (or a defence by way of set-off - see s21 of the Civil Procedure Act 2005), the same result would follow. He submitted that there could be no issue estoppel on a defence by way of set-off until either an order of set-off was made or, where the subject matter of the set-off was also articulated as a positive claim (for example, through a cross-claim) by a judgment on that claim. It is unnecessary to deal with that submission. Are Mr and Mrs Chua estopped? 30 It is convenient to consider this issue (number 2 in Mr Ashhurst's statement) out of sequence. The parties' submissions 31 It was common ground that all the claims pleaded by Mr and Mrs Chua had merged into the judgment (see my summary of the effect of the judgment at [23(1)] above. Mr Ashhurst submitted that the effect of the merger of the pleaded claims into the judgment, combined with the effect of the issue estoppels and extended issue estoppels created by the judgment (see at [23(2), (3)] above) was to prevent Mr and Mrs Chua from asserting that they had made any overpayments the effect of which was to reduce or extinguish any liability that they might have to Archiworks for its fees. 32 Mr Bailey acknowledged that one of the effects of the judgment was to preclude his clients from asserting any further claim, whether for damages, "on restitutionary principles" or otherwise, that had been or could have been pleaded in the FASC. However, he submitted, the judgment did not preclude them from asserting, in answer to Arhiworks' claim for fees, that they had made overpayments to Archiworks of such extent as to extinguish any further liability for fees. Mr Bailey stressed that the claim was purely defensive, and that no attempt was made to recover the amount of the alleged overpayments. Relevant terms of the contract 33 By cl 14(a), (b) of the contract, read in conjunction with schedule 5, Mr and Mrs Chua were obliged to pay Archiworks a lump sum fee, for construction management services, in the sum of $108,000.00 plus GST. That fee was to be paid by monthly instalments calculated in a specified manner. Clause 14(b) provided that the amount of the fee might vary with variations in the cost of the works. 34 The contract gave either party the right to terminate it by giving the other ten written days notice of intention to do so (cl 17). Upon such termination, any outstanding construction management fees were payable, as were any outstanding fees for preconstruction duties; and a "termination fee" in accordance with cl 19 also became payable. By cl 19(a)(i), the termination fee was stated to be, in effect, the lump sum fee of $108,000.00 pro-rated by reference to the value of construction work, compared to the estimated total cost of the works at the time termination, less all amounts paid. 35 Archiworks asserted that the cost of works executed to the date of determination was $545,000.00, and that the estimated total cost of works at that time was $899,000.00 (in each case, in round figures). It claimed an entitlement to 60.5% of the lump sum fee of $108,000.00: $65,347.00; and said that $35,000.00 of this had been paid. (In addition, Archiworks claimed reimbursement of the costs of some windows, doors and shower screens, in the total sum of about $21,000.00, that it said it had bought and paid for on behalf of Mr and Mrs Chua.) 36 Clause 16 of the contract dealt with progress payments. It required Archiworks to submit, monthly, a statement of the cost of works during the month in question and the estimate of fees due. Mr and Mrs Chua thereupon became obliged to pay within a specified time the costs incurred and the fee. It is not clear why cl 16 is relevant. The regime for payment of the termination fee is dealt with in cls 17 and 19. Clause 16 deals with something different: namely, payment for work and on account of fees during the currency of the contract. To divert a moment: Mr Bailey submitted that Archiworks was not entitled to payment of its termination fee except upon demonstration of compliance with cl 16. I do not accept that submission, for the reason that I have just given. Nonetheless, I should note that Archiworks included in its tender what it said was a certificate pursuant to cl 16 dated 9 August 2005, showing (or purporting to show) both the estimated value, as at the date of termination, of all works under the contract and the amount of all deposits and progress payments paid to it up to that date.

[34]

The restitutionary claim 37 I have already referred briefly to the nature of the claims that Mr and Mrs Chua advanced by the FASC. It is necessary to refer in a little more detail to the claim for "restitution" of the alleged overpayments made by them to Archiworks. That claim is asserted in paras 29 and 30 of the FASC. 38 Paragraph 29 alleges that Archiworks, in its capacity as construction manager, was the agent of Mr and Mrs Chua and owed fiduciary obligations to them. Paragraph 30 alleges breaches of those obligations. In particular, subpara (g) (first appearing) alleges as follows: (g) the fact that the Principals have paid to Archiworks in the order of $767,431.17, but Archiworks records show that progress payments to third-party trades is only $506,460.00; and Particulars (i) Pages 123-124 of Exhibit "DC 1" to the affidavit of Dorothy Chua sworn 27 October 2006. (ii) Schedule prepared by Archiworks dated 9 August 2005. 39 I am not sure what is the first document referred to in the particulars, but the second document referred to is the certificate of 9 August 2005 to which I have just referred. 40 The claim for recovery of the alleged over-payments is made in subpara (g) (second appearing): (g) overpayments made by the Principals to Archiworks as pleaded in the preceding paragraph were paid by mistake and are sought to be recovered on restitutionary principles. 41 The cross-claim list statement raises the claim for fees in paras 6 to 13. Only paras 10 to 13 require consideration: 10. The Chuas incurred costs for approved works totalling approximately $588,922 which were included in the estimated total cost of works. 11. Archiworks is entitled to the sum of $70,670.64 (net GST) for fees for approved works up to the date of termination pursuant to clause 19(a)(i) of the CMA. 12. As at the date of the termination the Chuas had paid to Archiworks the sum of $43,182 (net GST) in construction manager's fees. Particulars (a) Invoice dated 8 August 2005 from Archiworks to the Chuas. 13. By reason of the facts, matters and circumstances pleaded at paragraphs 6 to 12 above, the Chuas are obliged to pay to Archiworks the sum of $27,488.64 in fees for approved works up to the date of termination pursuant to clause 19(a)(i) of the CMA. 42 The document referred to in the particulars to para 12 is, as it says, an invoice delivered (or said to have been delivered) the day before the certificate of 9 August 2008 appears to have been prepared, and appears to have been based on the calculations set out in that certificate. 43 By paras 9 to 11 of their cross-claim response, Mr and Mrs Chua answered the claim for fees as follows: 9. In answer to paragraphs 9 and 10, the Chuas say that they paid to Archiworks in the order of $767,430.00, but otherwise does not admit paragraphs 9 and 10. The Chuas further say that Archiworks breached the Agency Agreement by failing to keep proper accounts. 10. The Chuas deny paragraph 11, and in doing so, refer to paragraph 9 above. In further answer to paragraph 11, the Chuas say that any obligation to pay any sums under clause 14 is conditional upon:- (a) Monies being outstanding or payable to Archiworks, and (b) Archiworks complying with the contractual pre-conditions prescribed by clauses 16(a) and (c) of the Agency Agreement, which Archiworks did not so comply. 11. In answer to paragraphs 12 and 13, the Chuas do not know and cannot admit the same, because, of the monies in the order of $767,430.00 paid by the Chuas to Archiworks, because Archiworks has failed to keep proper accounts and/or records, the Chuas do not know how Archiworks has applied these monies paid to it, as its request. The Chuas also, so far as a claim is made by Archiworks for $27,488.64, refer to the contractual preconditions in pleaded in paragraph 10 above, which were not complied with by Archiworks. Decision 44 Mr and Mrs Chua have not sought to set off, against any liability that they may have to Archiworks under its cross-claim, the amount of the judgment that they have recovered. Further, the effects of that judgment include that Mr and Mrs Chua cannot assert that Archiworks has any liability to them, under the contracts for provision of architectural and construction management services, other than the liability under the judgment. Equally, Archiworks cannot dispute that it owes that amount to Mr and Mrs Chua. 45 Thus considered, I think that this estoppel issue is in reality a false issue. For the reasons that I have given, the judgment establishes conclusively the liability of Archiworks (and the other defendants) to Mr and Mrs Chua upon Mr and Mrs Chua's claim. It does not establish the liability (or otherwise) of Mr and Mrs Chua to Archiworks under Archiworks' cross-claim. Nor, and again for the reasons that I have given, does the judgment preclude Mr and Mrs Chua from raising such defences as may be available to them under their cross-claim response to Archiworks' claim. Thus, if on a fair reading the list response asserted that Mr and Mrs Chua had paid more than enough to Archiworks to satisfy all their payment obligations to it, including for its fees as for well as the cost of construction works, the judgment entered pursuant to r 20.27(3) would not preclude them from arguing that defence. 46 It would be otherwise if Mr and Mrs Chua made an affirmative assertion of over-payment, and sought to set off, against any liability that they might have to Archiworks for fees or the value of goods purchased by Archiworks, the amount of that over-payment. In that hypothetical situation, Mr and Mrs Chua would be seeking to set off, against a claim (or cause of action) by Archiworks, a countervailing claim (or cause of action) against Archiworks. See the analysis of Hutley JA in Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd [1980] 2 NSWLR 514 at 518 (11)), (13), (16), 521 (33). That countervailing claim would not be available to them; it would have merged in the judgment that they have recovered. Have Mr and Mrs Chua alleged a defence of payment? 47 This is the question raised by the first of Mr Ashhurst's issues. 48 I have set out at [41] and [43] above the relevant terms of the cross-claim list statement and list response. In my view, it is clear that no affirmative defence of payment is "pleaded" (an inaccurate but convenient term). The closest approach to a defence of payment is to be found in para 11 of the list response. In that paragraph, Mr and Mrs Chua do no more than "not admit" the claim for the fee advanced in paras 12 and 13. They make no affirmative assertion that the amounts paid by them were sufficient (or more than sufficient) to satisfy all their payment obligations to Archiworks. On the contrary, they say that the state of the records is such that they do not know whether or not this is the case. (For the reasons that I have indicated at [36] above, the reference to "the contractual preconditions in [sic] pleaded in paragraph 10 above" - i.e., clause 16 - may be disregarded.) 49 Accordingly, I conclude, Mr and Mrs Chua are entitled to put Archiworks to proof of its claim, but are not entitled to advance a defence of payment. Onus of proof 50 This is the second of the questions - and the only question of principle - raised by the third of Mr Ashhurst's issues. It does not arise, because I have just held that the answer to the first question - have Mr and Mrs Chua raised the defence of payment? - is "no". Nonetheless, it is convenient to deal with it. 51 It was common ground that, in general, the burden of proof of a particular fact lay with the party asserting it. In Archiworks' case, the matters it would be required to be proved would include the following (what I say should not be taken as being exhaustive):

At a glance

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Judgment (43 paragraphs)

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