Masters in Building Training Pty Limited v State of New South Wales

Supreme Court of NSW|2021-06-22|Before: Parker J

Judgment - EX TEMPORE Revised from transcript; issued 24 June 2021

Before the Court is an application for interlocutory relief consequent upon an earlier granted injunction. The plaintiff seeks an order, the effect of which would be to compel the defendant to pay moneys claimed by the plaintiff under a contract between the parties.
The context for the parties' dispute is a vocational education and training subsidy program administered by the defendant, the State of New South Wales. The program is administered by the State through an organisation called Training Services NSW, which is part of the NSW Department of Education. In the remainder of this judgment I will refer to the defendant as "the Department".
The vocational education and training program in question operates in the building industry and is called the "Smart and Skilled" program. The actual education and training is provided by registered training organisations ("RTOs"). The cost of the program to the trainees is subsidised under the subsidy program. Each RTO which provides subsidised training enters into a written contract with the Department, known as a Smart and Skilled contract.
The plaintiff, to which I will refer as "Masters", is an RTO which has been providing subsidised education and training under the Smart and Skilled program since late 2014 or early 2015. Over that time, the contract has been renewed on several occasions. The most recent renewal was signed in May last year. It took effect on 1 July and was to continue until 30 June this year.
Under the program, the RTO (referred to as a "Provider") is entitled to a specified subsidy for each training program delivered. Certain types of trainees (for example, long-term unemployed or trainees located in remote areas) attract an additional loading.
Clause 2 of the contract deals with its purposes and objectives. Subclause (a) provides: The Contract sets out the terms and conditions for the payment of Subsidies and Loadings to the Provider for Training delivered by the Provider to Enrolled Students under a Smart and Skilled Program or the School Based Apprenticeships and Traineeships Program (Subsidised Training).

Background and procedural history

The present application follows an earlier contested application by Masters for an interlocutory injunction which was heard by Kunc J. His Honour made orders on 12 April and delivered reasons for those orders on 30 April: Masters in Building Training Pty Ltd v State of New South Wales [2021] NSWSC 454. At [19]-[60], his Honour set out the factual background and procedural history to that point. A summary of what his Honour said, and an account of subsequent events, is set out below.
The dispute between the parties goes back at least as far as 13 December 2019. On that date, the Department, acting under the previous contract (which it seems was relevantly the same in its terms as the current contract), issued a notice of suspension to Masters based on alleged events of default.
This notice was followed by negotiations between the parties and a notice partially relaxing the suspension. This took place over a period of several months. The contract was then renewed, as I have stated, in May last year.
On 13 July the Department issued a further notice of suspension with respect to four of the qualifications which were the subject of courses offered by Masters to its trainees. This was based on a suspension which had been issued by the federal regulator, the Australian Skills Quality Authority ("ASQA"). Later, in October, ASQA lifted the suspension, although it asserted that Masters remained non-compliant.
Meanwhile, on 11 September, the Department had issued a suspension with respect to all of the course qualifications offered by Masters. The notice of suspension resulted in representations by Masters and extensive further debate which took place over the ensuing months. In the meantime, it seems that Masters continued to conduct its courses and the trainees continued to receive training covered by the subsidy program. Payments also appear to continue to have been made over this period.
Then, on 4 March 2021, the Department issued Masters with a formal notification of events of default. This notice referred to the defaults identified in the notice of 13 December 2019, but added further alleged events of default. Further discussions took place, but on 25 March the Department issued a formal termination notice.
The notice, as well as formally purporting to bring the contract to an end, referred to the Department's powers to withhold subsidies and loadings. The letter purported to invoke the power to suspend in the following terms: Overpayment of Subsidies The Department exercises its right under clause 21.1(c)(ii) of the Contract to withhold, in whole or in part, any Subsidies and Loadings payable to the Provider, while it determines: (a) the extent to which, if at all, there are presently any Subsidies payable to the Provider, having regard to the Events of Default sustained by the Department; and (b) the extent of any entitlement to set off overpayments (as described in clause 22 of the Contract) against any Subsidies and Loadings due to the Provider.
Masters reacted to the termination notice by commencing these proceedings. Masters' summons was filed urgently on 31 March and, as I have indicated, an application for an interlocutory injunction was made to Kunc J as Duty Judge.
Following a hearing on 12 April, his Honour made orders in favour of Masters. The principal order was: Upon provision of the Plaintiff of the usual undertaking as to damages, the Court orders the Defendant to continue to perform the Agreement between the parties entered into on or about 15 May 2020 and effective 1 July 2020.
His Honour also made consequential orders for the notification of trainees and their employers. I will refer to those orders in more detail below.
On the day after these orders were made, Masters' solicitors wrote to the Department's solicitors. Masters' solicitors stated that the Department had approved subsidies and loadings totalling $326,000, of which $180,000 were beyond the 28 days. It seems that as a matter of practice the Department did not formally notify acceptance of Training Data, and the assertion in the letter that the Data had been approved was presumably based on the Department not having raised any query about it. The letter sought immediate payment of the $180,000 and confirmation that the remainder of the $326,000 would follow in due course.
The Department's solicitors responded on 21 April. Their letter asserted an entitlement to withhold the $326,000 on the basis that there were amounts owing from Masters to the Department. By way of explanation it stated: The effect of [Kunc J's] order was to revert the parties to the status quo that existed prior to or at the time of the termination of the Contract. Relevantly, this included the suspension of your client pursuant to clause 21.2(c)(i) of the Contract as a result of the notices of suspension served by our client on 13 July 2020 and 11 September 2020. Those notices of suspension had the effect of permitting our client to withhold payment of any subsidies and loadings payable to your client pursuant to clauses 21.2(c)(ii) and 21.6 of the Contract, all of which was confirmed in our client's letter of 25 March 2021. To date, neither of these suspensions have been lifted. … Respectfully, the order does not affect our client's rights under the Contract as exercised under the Contract.
The Department followed up this letter by notice of motion which was filed on 11 May. The application in the notice of motion was expressed to be made pursuant to the liberty to apply granted by Kunc J on 13 April, or alternatively, "the Court's jurisdiction to supervise orders for specific performance". The Department sought an "order" that it was entitled to withhold subsidies and loadings under the contract, either accruing up to 25 March, or accruing up to 30 June. Alternatively, the Department sought an order that it be permitted to pay the $326,000 into court.
In support of its application, the Department identified two separate bases for repayment by Masters. The first was an obligation to repay amounts that had been paid to Masters pursuant to what is described as the payment continuity strategy. This was a program adopted by the Department during the COVID-19 emergency under which it appears moneys were advanced to Providers. That program has now been terminated and arrangements put in place requiring repayment. It does not appear to be disputed that the sum of $413,000 is repayable or that Masters has not been repaying it in accordance with the timetable imposed by the Department.
Secondly, the Department alleged that there had been overpayments made to Masters for amounts by way of training to which it was not entitled. According to counsel, this involved "ghost" trainees, the suggestion being that Masters had claimed for payments for trainees who were not actually undertaking training or perhaps did not even exist. These overpayments are the subject of a police investigation which is known as "Operation Fish". The Department had quantified its alleged entitlement to repayment as $107,000. Of that, $60,000 was acknowledged as correct by Masters.
Kunc J dealt with the application on 27 May. He did so by adopting the Department's alternative proposal of paying money into court (on the basis that legal entitlement to it would be decided at the final hearing). By the time his Honour dealt with the application, the amount being claimed by Masters had increased to $459,000. His Honour relevantly made the following orders: (1) Orders, on a without admissions basis, that the sum of $459,038.85 (Payment) be paid by the Defendant into Court pending the final determination of the substantive proceedings within 7 days of these orders. (2) Notes that the Payment concerns an amount demanded by the Plaintiff on 25 May 2021 alleged to be owing to it by the Defendant, which the Defendant disputes and otherwise says it is entitled to withhold by reliance upon clauses 21.2(c)(ii), 21.6(b) and 22 of the Contract dated 1 July 2020 entered between the parties.
As I will describe in more detail below, in the course of the hearing counsel for Masters complained that no payments had been made since March and suggested that this was contrary to his Honour's order of 12 April. His Honour was not able to deal with this and, as foreshadowed at the hearing, on the following day Masters filed the notice of motion with which I am concerned.

Application for interlocutory relief

Prayer 1 of Masters' notice of motion seeks the following order: Upon provision by the Plaintiff of the usual undertaking as to damages, an order that until further order of the Court, the Defendant be restrained from withholding Subsidies and Loadings due and payable to the Plaintiff in the performance of its obligations under the agreement between the Defendant and the Plaintiff entered into on or about 15 May 2020 and effective 1 July 2020.
Counsel for Masters presented the application as a working out of the orders already made by Kunc J on 12 April. Counsel submitted that the payment of subsidies and loadings was an essential (actually, the essential) obligation of the Department under the contract. Counsel submitted that an order was necessary requiring the Department to make payments so as to give effect to that order.
Counsel acknowledged that the orders of 27 May had qualified the position somewhat. But, in counsel's submission, the qualification was limited to recognising an entitlement on the part of the Department to withhold moneys up to the amount claimed (or perhaps acknowledged by Masters) to be due from Masters back to the Department.
The evidence in support of the application contained updated accounting figures from Masters. According to those figures, claims totalling more than $1.5 million are now outstanding, of which $809,000 is beyond the 28 day period. Counsel submitted that even if the amount paid into court was fully allowed, together with another $60,000 representing the limit of the amount currently claimed by the Department, there was still approximately $300,000 which should be paid now, and further large amounts could be expected to be payable over the next few weeks.
Counsel for the Department resisted the making of any order, although he did make an open offer to which I will refer in due course.

Application for summary judgment?

Counsel's first point was that Masters' application was effectively an application for summary judgment. Counsel pointed out that the test for establishing an entitlement to summary judgment is difficult to satisfy and would require the plaintiff to demonstrate that there was no viable ground of defence.
Counsel submitted that Masters could not possibly satisfy this test. In particular, counsel pointed to the fact that on the Department's case it has not even reviewed many of the claims by Masters. Furthermore, the investigation under Operation Fish is said to be ongoing. Although the Department has currently quantified a claim of only $107,000, it may be that that figure will increase. Counsel submitted that there was no way in which the Court could conclude that Masters was currently entitled to any particular amount by way of payment.
I agree that it is not possible at present to place any figure on the amount claimed by Masters from the Department, and it would be inappropriate to enter summary judgment. But I do not accept the premise of counsel's submissions.
The orders sought in this application are prohibitory in form, but mandatory in substance. For practical purposes the grant of relief is akin to the grant of specific performance. In such circumstances, the Court may need to be satisfied that the plaintiff has a strong claim for final relief: see the classic exposition of McLelland J in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535-536, quoted by Kunc J at [96] (in particular, the final quoted paragraph).
But this does not mean that the grant of relief is actually, in law, an order in the nature of specific performance or for summary judgment. If I make the order sought by Masters, no judgment will have been given and no rights will have been determined. If Masters is not entitled to any moneys which are paid over pursuant to any interlocutory order the Court may make, the Department will be entitled to restitution in due course. The fact that it may then be difficult to recover those moneys does not alter the nature of the jurisdiction which Masters seeks to have the Court exercise. It remains an interlocutory jurisdiction.

Re-litigation of earlier interlocutory decision?

Counsel's next point relied upon the principle that the Court will not, unless the circumstances are exceptional, permit the re-litigation of an interlocutory decision. The principle was stated by McLelland J in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46: The private injustice and public undesirability of permitting the relitigation of matters already litigated once is recognised in a number of principles of law, notably the rules relating to res judicata and issue estoppel, the more flexible rules under the rubric of vexation and abuse of process illustrated in such cases as Stephenson v Garrett [1891] 1 QB 677 and Hunter v Chief Constable, West Midlands Police [1982] AC 529 ; [1981] 3 All ER 727 , and the restrictive provisions governing the adducing of further evidence on the hearing of an appeal even by way of rehearing: see, for example s 75A(8) of the Supreme Court Act 1970 (NSW). Interlocutory orders, of their very nature, create no res judicata or estoppel, and the court retains jurisdiction to set aside, vary or discharge an interlocutory order up to the time of the final disposition of the proceedings. However the general rationale of the principles last referred to applies even in the case of interlocutory orders. It would be conducive to great injustice and enormous waste of judicial time and resources if there were no limit on the power of a party to have any interlocutory application or order relitigated at will. The overriding principle governing the approach of the court to interlocutory applications is that the court should do whatever the interests of justice require in the particular circumstances of the case. In giving effect to that general principle, and in recognition of the public and private interests earlier referred to, rules of practice have been developed in accordance with which the discretionary power of the court to set aside, vary or discharge interlocutory orders will ordinarily be exercised. Not all kinds of interlocutory orders attract the same considerations. For present purposes one may put to one side orders of a merely procedural nature … and injunctions (or undertakings) made or given by agreement and without contest "until further order" …
Counsel for the Department characterised the present application as an infringement of this principle. Counsel argued that it had been decided by Kunc J on 27 May that the Department was not obliged to make any payments by way of subsidy or loading (beyond, of course, the payments into court). In his submission, Masters was now trying to re-contest that point.
On the other hand, as I have already indicated, counsel for Masters presented the application as giving effect to the orders made by Kunc J on 12 April. On that view, the principle against re-litigation of interlocutory decisions would operate in Masters' favour rather than against it.
Resolution of this issue is critical for the outcome of this particular application. Already there have been two hearings before Kunc J. The considerations of public policy to which McLelland J referred mean that I must refuse to be drawn into arguments which were, or should have been, raised before his Honour. I therefore see myself in this application as being required to identify what his Honour has decided and to resolve the application in a way consistent with what I discern to have been his Honour's original intentions, subject to any subsequent events which might lead to a different outcome.
The starting point is, therefore, his Honour's order of 12 April as quoted above (see [21]). The text of the order is broad. It requires the Department, until further order, to comply with the terms of the contract. Strictly speaking, if the Department's view is ultimately sustained and it is successful in upholding the notice of termination, then the contract will have ceased to bind either party on 21 March. But I think the intent of his Honour's order is quite clear; both parties are required to conduct themselves as if the notice of termination was ineffective and they remained subject to the obligations imposed on them under the contract.
In my view, counsel for Masters is correct to submit that a critical, if not the critical, obligation of the Department under the contract was the payment of subsidies and loadings. It is true that the Department was required to administer the program and for that purpose to receive and analyse data presented by Masters. But the point of the program was the training of trainees and this was done by Masters. The Department's essential obligation was to pay Masters the amounts to which it was entitled under the subsidy program for conducting that training. This was reflected in clause 2(a) of the contract which I have already quoted (see [6] above).
This conclusion is supported also, in my view, by the ancillary orders made by Kunc J. His Honour ordered: (2) Order the Defendant to communicate to any and all students to whom it communicated previously the following by 5 pm on 13 April 2021: "We refer to our previous communication to you in relation to your funded training in NSW through Masters in Building Training Pty Ltd (MIBT). On 12 April 2021 the Supreme Court of NSW has ordered that the funding arrangement between the NSW Smart and Skilled and MIBT continue. Accordingly, this means that you are entitled to continue your subsidised training with MIBT should you wish. Subject to any further order of the Court, the NSW Smart and Skilled funding arrangements with MIBT will come to an end on 30 June 2021. Your employer has been sent a similar email." (3) Order the Defendant to communicate to any and all employers to whom it communicated previously the following by 5 pm on 13 April 2021: "We refer to our previous communication to you in relation to your employment of an apprentice or trainee who is undertaking funded training in NSW through Masters in Building Training Pty Ltd (MIBT). On 12 April 2021 the Supreme Court of NSW has ordered that the funding arrangement between the NSW Smart and Skilled and MIBT continue. Accordingly, this means that your employee is entitled to continue his or her subsidised training with MIBT should they wish. Subject to any further order of the Court, the NSW Smart and Skilled funding arrangements with MIBT will come to an end on 30 June 2021. Your employee has been sent a similar email."
Further explanation of what his Honour contemplated is found in [7] of his judgment, where he summarised his conclusions: The Court recognised that the relief sought by Masters was, in practical terms, tantamount to final relief. It was satisfied that there was a serious question to be tried as to whether the Department had breached implied obligations of good faith and to afford Masters a reasonable time to respond to matters alleged to be Events of Default under the Contract, such that the Department had not been entitled to terminate the Contract. The Court was satisfied that Masters had strong prospects of success in relation to the serious question to be tried. Furthermore, given the Department's primary role under the Contract was to provide funding, in considering the balance of convenience the disruption to some 800 students of having their studies peremptorily terminated strongly favoured the relief being granted.
In the body of his judgment, his Honour expanded on the point. At [65]-[67] his Honour set out the submissions by counsel for Masters: Mr O'Neill submitted that the balance of convenience strongly favoured requiring the Department to continue to perform the Contract because of the effect the termination had on over 800 students. Unless the students were able to fund their training with Masters themselves, they had without warning been put into a position where they would need to look elsewhere, if they could, to complete their training. In practical terms, all that requiring the Department to honour the Contract really required it to do was to continue to provide funding, as opposed to actively managing or providing services. Funding would not require the Court's supervision. It was Masters who wanted to provide services to its students. Accepting that the Department was not going to renew the Contract in any event, the Department's actions had deprived the students of what would have been an orderly opportunity to complete their studies with Masters or transfer in an orderly fashion to alternative training providers. Having regard to clause 6(a) of the Contract, both Masters and its students would have had at least two months' notice that the Contract was going to come to an end on 30 June 2021. This is because the notice required to invite renewal of the Contract had to be given at least two months before the expiry of the Contract. The Department's purported termination had deprived Masters, and more importantly, the students, of the benefit of what would have been at least eight weeks' notice. Instead, the students' courses had been precipitously terminated and, notwithstanding the Department's promises of assistance, there was no guarantee that satisfactory solutions would be found to enable the students to continue their studies with the benefit of whatever level of achievement they had reached in the course of their studies with Masters. Finally, there was no real prejudice to the Department by ordering continued performance of the Contract. Assuming Masters' students were able to make alternative arrangements, the Department would still be making payments in respect of those students undertaking their studies with alternative training providers rather than with Masters. In other words, the Department's outflow of funds for Masters' students would continue in any event, but paid to another provider.
His Honour returned to these submissions when analysing the balance of convenience. His Honour said at [99]-[100]: Turning to the balance of convenience, I accepted Mr O'Neill's submissions set out at [65] to [67] above. In particular, the position of the students was a factor which weighed heavily in favour of granting the relief sought. There was evidence from one student of the disadvantage he would suffer if he was unable to continue with the courses that he was undertaking with Masters, which were due to be completed on 15 April 2022. His evidence was there was no suitable alternative provider in his region. I accept that this was the evidence only of one student. However, there was also evidence from Mr Lawrence of the general disruption that would be suffered by more than 800 students, many of whom were in areas where there were no alternative providers. I was not persuaded that Mr Tabone's evidence for the Department about arrangements being put in place to assist Masters' students (which I readily accept was being done) was a sufficient answer to neutralise in the balance of convenience what was an abrupt disruption to the students who were, in terms of the dispute between the Department and Masters, entirely innocent third parties.
In my view, it is clear from these parts of his Honour's decision that his Honour was proceeding on the basis that if the Department did not pay the amounts of subsidies and loadings to which Masters was contractually entitled, then Masters would terminate its courses, to the disadvantage of the trainees. His Honour referred repeatedly, and in particular in [7], to the need to ensure the provision of "funding" so as to avoid that consequence. The ancillary orders for notification leave me in no doubt that his Honour contemplated that the order he had made would ensure that such funding would be made available.
In my view therefore, the position at the time his Honour made the orders of 12 April was clear. It now becomes necessary to consider the effect of his Honour's later decision on 27 May.
His Honour did not deliver formal reasons for the orders he made. I was taken to correspondence between the parties setting out their positions in advance of the hearing and their rival contentions as to the form of the orders which should be made. I was also taken to passages in the transcript.
In my view, it is tolerably clear from the prior correspondence that, in this application, the Department was not attempting to launch a frontal assault on his Honour's decision of 12 April. Rather, the Department was raising an issue which it seems had not been raised, or at least had not been fully dealt with, on 12 April; namely, its entitlement to receive moneys back from Masters.
While his Honour accepted that the Department should not have to pay amounts that were claimed to be due from Masters (or at least amounts that were acknowledged as such), nothing in his Honour's orders purported to disturb Masters' own entitlement to be paid subsidies and loadings by way of "funding". In effect, I see the Department's application as a successful assertion of a right of set-off. But there is a possible qualification to this.
In the course of debate, his Honour was pressed by counsel for Masters with an argument that, in its letter of 21 April (quoted at [24] above), the Department had repudiated any obligation to pay subsidies and loadings at all. Counsel asserted that the Department had failed to comply with the orders of 12 April. Counsel foreshadowed a motion to seek unspecified "declaratory relief" as a result. It was also foreshadowed as a possibility that the motion might involve an application to pay out moneys paid into court by the Department.
In response, his Honour said: Mr O'Neill, as I said the other day, the question of the legitimacy of withholding things was never determined by the Court. Really, all that happened as far as I am concerned, and another Judge may take a different view, but as far as I am concerned the contract continues to run as though the Notice of Termination was not given. That says nothing about whatever rights may have been extant or able to be acted upon by either party at the time of the Notice of Termination or since then. If you want to have a fight about those other things then you will have to, as you foreshadow, bring on some motion. I am not going to pre-judge an issue of contempt, but for what it's worth it seems to me if you want orders for payments out and declarations that the current non-payment of subsidies and loadings is somehow something that you can overcome by getting an order that is a matter for you but I don't think I can do any more, given it is the defendant's motion that I am dealing with, than deal with its motion in the way that the defendant now proposes, and there will be money in Court and you may be able to make an application about that if your client is so advised.
I have been troubled by this passage. Taken on its own, it does lend some support for the Department's contention that the effect of the orders of 12 April was limited to reinstating the contract and that payment obligations were separate.
In the end, however, I do not think that the passage is sufficiently clear and unequivocal to disturb the conclusion which I have reached based on his Honour's reasons for judgment in support of the 12 April orders. I think that the passage must be understood in the light of two contextual matters. First, the suggestion that some application for further orders was made came from counsel, not his Honour. Counsel also suggested that the order might involve a payout of moneys in Court which would undoubtedly involve a challenge to the set-off. Secondly, as his Honour pointed out, the only application before him was the application by the Department which, I consider, related to a separate issue, namely set-off.
For these reasons, I have concluded that the orders on 27 May did not alter the overall intention behind his Honour's decision of 12 April, namely to reinstate the Department's payment obligations. It was that decision which, in my view, was the relevant interlocutory decision for the purposes of the principle stated by McLelland J in Brimaud. With that in mind, I now turn to the other arguments presented by counsel for the Department.

Prima facie case

The first of those other arguments was that there was insufficient strength to Masters' claim for payment to establish a prima facie case. Counsel advanced four arguments in support of this contention. I will deal with them in turn.
First, counsel observed that the Department's letter of 25 March both terminated the contract and, separately, purported to invoke the right to suspend the payment of subsidies and loadings. Moreover, counsel contended that the earlier suspensions from July and September last year remained in place. Counsel argued that this was sufficient to support the Department's refusal to pay subsidies and loadings, even if the Department was not entitled to rely on its purported termination of the contract.
There are some technical difficulties with the notice of 25 March considered as a notice of suspension of subsidies and loadings. The first is that it is clumsily expressed. It refers to suspension in whole or in part, without specifying (if the suspension is a partial one) what part is being suspended. More importantly, it is difficult to read it as anything other than the suspension of payments accrued up to the date of the letter since, on the Department's view of the world, the contract ended at that point and, accordingly, no rights could accrue after that date. But I will pass over these difficulties and assume that the notice indicated a clear intention not to pay subsidies and loadings, which is distinct from the consequences of the purported termination notice.
I accept that, technically, the right to suspend payments of subsidies and loadings is a different thing legally from the termination of the whole contract. But in my view, this is an argument which, if it was to be advanced, should have been advanced before Kunc J. Indeed, insofar as the argument relied upon earlier alleged rights of suspension, it was part of the background which his Honour considered in making the order which he made. For reasons which I have given, I consider that his Honour must be taken to have rejected the argument.
Counsel's second submission was based on the overpayments arising from the alleged "ghost trainees" and the COVID-19 advances. Counsel relied on clause 22 of the contract, which provided: Repayment The Provider must repay monies received that the Provider is not entitled to, including monies received based on incorrectly reported Training Activity Data or otherwise, under or arising out of this Contract. The Department may, in its absolute discretion, by notice to the Provider: (a) require the monies to be paid back within a specified period of time; (b) set-off the monies against other monies due to the Provider under this Contract; or (c) deal with it in another manner as directed by the Department.
As I understood it, counsel for Masters did not contest that the Department had an effective right of set-off for the amounts repayable by way of COVID-19 advances ($413,000), and for the conceded amount for overpayment for non-existent trainees ($60,000). Therefore, there would be no obligation to pay subsidies and loadings until the Department had withheld or set aside that amount.
For reasons I have already given, this right of set-off is quite independent of the right to withhold subsidies and loadings because of alleged breaches. Although the amount of the set-off will need to be acknowledged in any order which I make, it is not of itself a bar to the making of such an order.
Counsel's third point concerned the allocation of risk. Counsel relied on clause 27 of the contract which provides: The Provider accepts all risks connected to the Contract and its performance of the Contract, including the risk of: (a) the Contract not continuing beyond the current Activity Period; (b) not receiving enrolments for any or all of places available in the Approved Qualifications within its Financial Caps; (c) receiving an application for enrolment for Subsidised Training from a Prospective Student which does not proceed to Commencement; (d) the withdrawal from Approved Qualifications by Enrolled Students; (e) not receiving any or all of the Fees or any other amounts due, at any time, from Enrolled Students for the Subsidised Training provided by the Provider; (f) the Department varying the Contract in accordance with clause 21.3; (g) having to refuse an application for enrolment for Subsidised Training because it would exceed a Financial Cap; or (h) exceeding a Financial Cap and not receiving any amount in excess of the Financial Cap. The Provider will not make any claim against the Department in respect of these matters or any other related matters. The Provider will perform its obligations under the Contract at its own cost. The Department's only payment obligation to the Provider in relation to the performance of the Provider's obligations under the Contract is to provide Subsidies and Loadings in accordance with the Contract.
Initially counsel relied on one of the subparagraphs, but this was not pressed. Counsel, however, pressed the contention based on the final paragraph of the clause that the making of this claim by Masters disturbed the contractual risk allocation.
I do not accept this submission. The "risk" of the Department not paying the subsidies and loadings was not referred to in any of the specified subparagraphs. Those subparagraphs were concerned with aspects of Masters' business which it was able to control. The receipt of subsidies and loadings was quite different. It formed part of (indeed the critical part of) the Department's obligations.
To accept counsel's argument would be to accept that it would be open to the Department simply to refuse to pay for any of the training subsidies. This would deprive the contract of its whole point and render it completely illusory. The last sentence of the clause indicates that that cannot have been the intention. Rather, it reinforces the idea that the Department is obliged to pay subsidies and loadings as they fall due, subject of course to other specific rights under the contract.
Fourth and finally, counsel relied on a letter sent on 1 June by Masters to its trainees. In that letter, Masters complained about the Department's failure to pay moneys and urged the trainees to contact the Department's solicitors if they were concerned about completing their training. It appears that a number of trainees in fact did so.
However frustrated Masters may have been by the Department's approach, it was deplorable for Masters to try to enlist their trainees in putting pressure on the Department and, still more, on the Department's legal advisors. However, the letter was withdrawn three days later. In the letter Masters had suggested that the trainees may have to pay their own fees, but no fees were in fact paid. In the circumstances, I consider the letter to be insufficiently substantial to deprive Masters of a prima facie entitlement to the subsidy payments it had earned by providing training services.
Accordingly, I reject the submission that Masters has failed to establish a prima facie case. Indeed to put the proposition in those terms may be too favourable to the Department. In my view it is sufficient that Masters satisfied the requirements of a prima face case, so far as Kunc J was concerned. I do not consider that anything that has happened since his Honour gave his decision has been such as to call the ongoing validity of that decision into question.

Unclean hands

The next group of arguments from counsel for the Department centred on unclean hands on the part of Masters. Unclean hands was argued before Kunc J based on the prior conduct of Masters, but that was rejected by his Honour and there was no attempt to challenge his Honour's reasoning.
Counsel instead relied on two subsequent events. The first was the filing of the notice of motion itself, which was said to be an act contrary to the agreed contractual allocation of risk. I have already rejected that argument as a matter of construction, at least for the purposes of this application. In any event, I find it hard to accept that the making of any court application (unless, perhaps, lacking in good faith, which was not suggested here) could ever be considered by the Court to be a form of unclean hands.
The second alleged act of unclean hands concerned the overpayments. As I have indicated, the principle that Masters must give credit for overpayments is not in dispute. I do not consider that this gives rise to any proper defence of unclean hands either.

Balance of convenience

Next counsel addressed the balance of convenience. Counsel submitted, based on evidence from Masters itself, that Masters' financial position was now precarious and it lacked, or potentially lacked, the means of repayment of moneys which might be due to the Department. A related point was that damages would be an adequate remedy. It was said that Masters' claim is simply one for money (in fact, as counsel for Masters confirmed, it is in substance a liquidated claim for subsidies and loadings ultimately found to be due and after allowing for any proper set-off).
Counsel observed that there were only eight days left to run on the contract. Therefore, counsel submitted, there was little if any ongoing concern, as a matter of the balance of convenience, for the position of Masters' trainees.
It may be accepted that the contract now has only a short time to run and the services provided for the trainees are now almost complete. But to my mind it simply reinforces the undesirability of moving the goalposts after Kunc J's decision of 12 April.
As already indicated, I think that his Honour's judgment reflects a contemplation that, unless leave was granted, Masters would terminate its contract with the trainees and their training would be interrupted. I think Masters would have reasonably concluded from his Honour's decision that its position was protected and it need not proceed with terminating its training arrangements. Furthermore, the evidence shows that Masters has entered into a deferral arrangement with the trainers who it employs to conduct the training and that those trainers are waiting for payment from the Department.
In my view, to accept counsel's argument would give rise to a justified sense of grievance on the part of Masters, as well as its trainers. Furthermore, there is apparently a little more chargeable training to be undertaken. The contract (or the parties acting as if bound by the contract) will continue and that will mean that the Department will have to pay for the training which has already been done. But this is subject to the set-off and it is unclear to me what further detriment the Department is likely to suffer. I think that in effect this is acknowledged by the open offer which was made, to which I now turn.

Department's open offer

The background to the open offer was said by counsel to be that the Department had verified, by reference to Training Data supplied, that Masters was entitled to $205,000 by way of subsidies and loadings. The further $646,000 of the Data Claim had been queried, with the balance (approximately $1 million) still to be reviewed.
On this basis, an open offer was made to pay the sum of $205,000. I suggested that this could be the basis of an agreed resolution between the parties, if it was accompanied by some sort of agreed regime under which the Department would review the further claims (to the extent contractually permissible) and pay the amounts found due. However, this was not acceptable to Masters.

Conclusions and orders

For the reasons which I have given, I reject the Department's defences to Masters' application. Accordingly, I will make an order broadly along the lines of the orders sought by Masters, but some variation of the wording will be required.
First, it must be clear that the restraint imposed will be one which relates to the exercise, or purported exercise, of contractual rights concerning subsidies and loadings. It will not affect the Department's rights under clause 22 with respect to repayment, either by repayment, set-off, or imposition of some other arrangement (see sub-clause 22(c)). I should say that I regard the orders for payment into court as being, in effect, an alternative arrangement of that kind.
It is also clear that I cannot, at this stage, specify any particular amount. All that the Department has conceded is $205,000, which is less than the amount of the accepted set-off. Of course, under the orders made on 12 April, the Department's obligations continue and that includes the obligation to consider the claims for payment made by Masters, and if those claims are justified, to make payment accordingly (subject of course to any set-off).
On the evidence, I am in no position to make any assessment of whether the Department's position on the amount outstanding, or Masters', is correct. Indeed, as I have said, the Department is under an implied obligation to decide whether to accept the claims within a reasonable time, and that reasonable time may already have passed for some of the claims which the Department says are still under review. I also have no verification of the statement by counsel for the Department (and this is not a criticism) that queries have been made for as much as $646,000. The working out of the parties' rights in this regard will simply have to proceed in accordance with the order made by Kunc J on 12 April and the further order which I will now make. (Parties addressed on the form of orders and costs)
The orders of the Court are: 1. Upon provision by the Plaintiff of the usual undertaking as to damages, an order that until further order of the Court, the Defendant be restrained from exercising or purporting to exercise the right to withhold payment of Subsidies and Loadings due to the Plaintiff in accordance with the terms of the agreement between the Defendant and the Plaintiff entered into on or about 15 May 2020 and effective 1 July 2020 (Agreement). 2. The order above is not intended to disentitle the Defendant from withholding or requiring monies to be paid back to it in accordance with clause 22 of the Agreement. 3. The money paid into Court by the Defendant on 3 June 2021, namely the sum of $459,038.85 is to be released to the Defendant. 4. The costs of the Plaintiff's motion filed 28 May 2021 be the Plaintiff's costs in the cause. 5. The matter be listed before the Expedition List Judge on 20 August 2021. 6. The parties have liberty to apply on 3 days' notice.

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: 24 June 2021

(2019) 101 NSWLR 679

At a glance

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Judgment (11 paragraphs)

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