Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd

1 The plaintiff ("Metro") applies under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 3 June 2010 served on it by the defendant ("CRI"). 2 The statutory demand relates to a judgment debt in the sum of $546,706.41 arising from a District Court judgment of 1 June 2010. The judgment was entered pursuant to s 368 of the Legal Profession Act 2004 in consequence of the filing of a certificate of determination of a costs assessor. 3 Metro says the statutory demand must be set aside (or, as a fall back position, reduced) because Metro has an offsetting claim against CRI. Reliance is thus placed on s 459H(1)(b). 4 Metro relies on two offsetting claims, one said to be for $1.3 million and the other not precisely quantified but said to be of the order of $110,000. If the first of these is established, s 459H(3) will require the statutory demand to be set aside, whereas if only the second offsetting claim is established in the suggested amount, it will be open to the court to make an order under s 459H(4) reducing the amount of the demand. 5 It is necessary to address the two alleged offsetting claims separately. The claim in the sum of $1.3 million arises from events related to an agreement entitled "Retail Development Agreement" between Metro, CRI and others relating to a significant development at the Chatswood transport interchange. The agreement made provision for a parcel of land designated Lot 13 to be, in effect, added to the project with the subsequent agreement of a Government instrumentality by which it appears Lot 13 was acquired. It was provided that, if certain conditions were satisfied, the so-called "Lot 13 works" would form part of the "retail base works". One of the conditions was that Metro pay to CRI the cost of the Lot 13 works estimated at $1.3 million. That sum was paid and the other conditions were satisfied so that the Lot 13 works came to form part of the retail base works. 6 It is necessary to refer next to certain proceedings in the Technology and Construction List that have become known as the "settlement date proceedings". The dispute there is as to whether the Retail Development Agreement has been terminated because of an event of default. Metro is the plaintiff in those proceedings. It maintains there has been no termination of the Retail Development Agreement and that that agreement continues on foot. CRI, on the other hand, takes the attitude in the settlement date proceedings that there has been termination of the agreement. 7 The consequences of termination upon which CRI relies in the event that it is correct in its contention that the agreement has been terminated are provided for in complex documentation. They are, in essence, that resort can be had to other parties for a total of $83 million. If those parties performed their payment obligations, that would be an end of the matter; but if they did not do so, CRI might conceivably have a damages claim against Metro. It is to this damages claim or potential damages claim that CRI may have against Metro that Metro points in alleging its $1.3 million offsetting claim against CRI. 8 Metro's principal position in the settlement date proceedings is, as I have said, that the agreement has not been terminated; nor does CRI in those proceedings or otherwise make any claim for damages against Metro. But Metro says that if, contrary to Metro's own position, the agreement has been terminated and if CRI did make a damages claim against Metro (which at this point CRI does not), then the $1.3 million paid by Metro would be a negative factor in the calculation of the damages awarded against it. In other words, Metro says it has a right of some kind to have the $1.3 million taken into account in its favour in any overall assessment of the state of the account between itself and CRI. 9 CRI's position is that there is no offsetting claim in respect of the $1.3 million to the extent that Metro argues, in effect, that it received nothing for the $1.3 million payment. CRI points to the clear terms of the agreement which spell out the consequences of the satisfaction of the three stated conditions concerning Lot 13 including that Metro should pay to CRI the cost of the Lot 13 works estimated at $1.3 million, namely, that the Lot 13 works will form part of the retail base works. If the three conditions were satisfied, CRI says so that this consequence occurred and benefit thereby flowed to Metro. 10 It is of particular significance that the settlement date proceedings are now in progress between these parties with respect to the contract out of which or in relation to which Metro says the claim of $1.3 million relied on these current proceedings arises, yet in those proceedings Metro does not pursue any such claim. Indeed, it takes a stance totally inconsistent with any such claim. Its position there is that CRI has failed to perform obligations it should have performed and the completion date therefore has not occurred and the Agreement remains on foot. But none of these claims has anything to do with the $1.3 million. 11 CRI maintains, and I accept, that Metro has not shown any basis on which it could bring an action against CRI in which a claim for $1.3 million was maintainable. No cause of action for recovery of $1.3 million is postulated by Metro. The most Metro says if CRI ever sued Metro for damages, which it has not done in the settlement date proceedings, or at any point threatened to do, and if CRI were successful then Metro might show a basis on which the $1.3 million paid by it under the agreement should play a part favourable to it in assessment of the damages it was required to pay. 12 The definition of "offsetting claim" in s 459H(5) is as follows: " 'offsetting claim' means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)." 13 The essence of the "offsetting claim" concept is the ability of the claimant to assert in an offensive way a right which, if found to have substance, will result in the actual recovery by that claimant of a sum of money which, if not precisely quantifiable to the last dollar and cent, can be seen to be of a fairly quantifiable or calculable amount. 14 Metro does not seek to put forward any such right of recovery in respect of the $1.3 million and, to the extent it says that it has received nothing for the $1.3 million payment, the proposition is inconsistent with the provision of the agreement which caused that and two other events to operate to make Lot 13 part of the retail base works. 15 The first offsetting claim relied on by Metro is, therefore, not established. 16 I turn, therefore, to the second offsetting claim alleged by Metro which, as I said, will at most activate s 459H(4). The second offsetting claim comes from yet another proceeding in which Metro and CRI were parties referred to as the "preliminary discovery proceedings". In those proceedings, an order for costs was made on 10 October 2007. The order was that CRI pay 80 percent of Metro's costs of the proceedings. There has been no assessment of costs nor have the parties agreed the amount of the costs. 17 Metro approaches this aspect of the case in the following way: Its solicitors say that Metro's total costs as actually billed and charged by the solicitors were approximately $162,000. If one assumes that this would be reduced by 25 percent on assessment, the costs figure is $121,875 and 80 percent of this is $97,500. To that should be added $13,463.10 of particular disbursements, so the total claim is $110,963.10. 18 Metro contends, and CRI does not dispute, that a liability under an order for costs not yet quantified by assessment or taxation represents an offsetting claim for the purposes of s 459H, although the statutory scheme makes it necessary for some figure to be attached to the offsetting claim so the necessary comparison with the amount of the statutory demand can be made. 19 Reference was made in that connection by counsel on both sides to the decision of Hely J in Fleur de Lys Pty Ltd v Jarrett [2004] FCA 1357; (2004) 53 ACSR 238, at paragraphs [29] and [30]: "The order made by Dillon SM on 5 September 2003 gives the plaintiff a genuine claim against the defendant. The authorities establish that a claim for unliquidated damages can be an offsetting claim, although the company must adduce some evidence to show the amount of the claim or claims, otherwise the offsetting total component of the formula for the calculation of the substantiated amount (see s 459H(2)) would be a nil amount. See, generally, Ford's Principles of Corporations Law at 27160-27162.

An 'offsetting claim' is not confined to a debt which is presently due and payable. Even if the section were so confined, there is some authority, albeit in a different statutory context, which suggests that the fact that costs have not as yet been taxed does not necessarily prevent the costs from constituting a debt: The Tubby Trout Pty Ltd v Sailbay Pty Ltd (1996) 63 FCR 530 (but see Re Elgar Heights Pty Ltd (1985) 9 ACLR 846). Whether this be so or not, the evidence of Mr Vine satisfies me that the plaintiff has two offsetting claims against the defendant, and that the total of the amounts of those claims exceeds the admitted amount of the debt due by the plaintiff to the defendant. As the substantiated amount is a negative number the Court is required by s 459H(3) to make an order setting aside the demand." 20 In the Fleur de Lys case the court was satisfied that, although the costs had not been taxed, their quantum exceeded the amount of the statutory demand. 21 Here there can be no such submission. The asserted sum of $110,963.10 for the unassessed costs is much less than the sum specified in the statutory demand, which is $546,706.41. This is, accordingly, a case in which the best outcome that Metro can achieve as plaintiff is an order under s 459H(4) varying the amount of the demand. 22 But the court's power to make such an order is exercisable only if the substantiated amount is as great as the statutory minimum of $2,000. The substantiated amount is to be calculated under s 459H(2). One of the components is the "amount" of the offsetting claim. The amount of an offsetting claim was said in Jessoron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 787 at 790 to be the amount claimed in good faith so long as that claim is not fictitious or merely colourable on this basis. 23 On one view, the court should concern itself only with an appraisal of the sum the plaintiff attaches to its offsetting claim, so that, if the plaintiff fails to make good the proposition that its chosen sum has the necessary stance, then the task of quantification will be found not to have been performed. 24 I think that is probably too mechanistic and strict an approach. Once the plaintiff has adduced evidence going to quantification, I think it is open to the court to come to its own view on the question of the figure, if any, in relation to which a genuine claim has been shown to be maintainable. 25 In this case, the plaintiff, Metro, has adduced evidence in the form of memoranda of costs and disbursements from its solicitors. These were tendered in circumstances where they had not been previously been seen by CRI. Moreover, they were tendered without being annexed to any affidavit and without any explanation of their content except such as the documents themselves show. There is an unsatisfactory aspect to the memoranda of costs in that they omit the narration showing the work done. This, coupled with the circumstances in which they were tendered as I have described, obviously compromises their usefulness. 26 It is necessary to refer also to other aspects of the solicitors' bills. The first point to note is that each of the bills carries a file reference or file number and that the same file reference or number appears on each of them. This suggests there is some common foundation to all bills. There are ten bills in all. In the first four the client is known as "Precision Group of Companies Pty Limited" and a description of the matter is "Precision Group v CRI - Metro Chatswood Shopping Centre Pty Limited". The plaintiff, as I have said, has chosen simply to tender these bills without any evidence from anyone about the work to which they relate and with the narration which one might expect would have described the work omitted. On their face these first four relate to work done for Precision Group of Companies Pty Limited, albeit in some context that involves Metro Chatswood Shopping Centre Pty Limited and warrants a description "CRI". In the absence of the evidence that these billings represent claims by the solicitors on Metro and embody costs rendered by the solicitors to Metro, there is no proper basis to regard them as relevant to the assessment of costs to be made pursuant to the order of 10 October 2007. 27 The other six bills describe the client as "Metro Chatswood Pty Limited" and the matter as "Metro Chatswood Pty Limited v CRI Chatswood Pty Limited". There are not the same problems in relation to these. They may be accepted as reflecting costs rendered by the solicitors to Metro in relation to the proceedings in which the costs order was made. 28 It was pointed out on behalf of CRI, however, that the last four bills (that is, all but two of the six to which I have just referred), bear dates after the making of the costs order on 10 October 2007. The seventh bill is dated 19 October 2007, the eighth 27 November 2007, the ninth 22 February 2008 and the tenth 6 May 2008. 29 As to the seventh bill, however, it is clear that it was for counsel's fees rendered before the costs order was made. I am prepared to accept also that the eighth bill, dated 22 November 2007, related to relevant work since it included substantial profit costs in circumstances where profit costs had last been charged in July 2007, albeit in one of the bills involving the Precision Group of Companies Pty Limited, which I have said cannot be connected to the relevant proceedings. On that basis, the bill of 27 November 2007 would be taken to cover the only profit costs charged to that date and, therefore, to be referable to the proceedings to a point before the making of a costs order on 10 October 2007. 30 The ninth bill includes both profit costs and disbursements but is dated some four months after the costs order was made and some three months after the rendering of substantial profit costs on 27 November 2007, itself more than a month after the making of the costs order. No evidence is given or explanation proffered about how further costs came to be charged in respect of the proceedings after they had been concluded. 31 The tenth bill is dated 6 May 2008 and is for disbursements only. It was rendered more than seven months after the costs order was made and in circumstances where several earlier bills rendered after the making of the order had also included disbursements. Again, there is no evidence to tie the disbursements to the proceedings and the costs order. 32 Apart from the matters mentioned, there are also items of disbursement proved for court fees, an amount paid to a subpoenaed party and an amount paid to a document preparation company, which I am satisfied are related to the proceedings and relevant to the costs order. 33 In the upshot, therefore, Metro has put forward documents which, in the absence of any explanation from anyone, shows costs and disbursements as follows incurred by Metro and within the ambit of the costs order in its favour: first, the fifth invoice dated 15 August 2007 for $8,910 all of which is disbursements, plus $891 GST; second, the sixth invoice dated 25 September 2007 for $20,900 which is wholly disbursements, plus $2,090 GST; third, the seventh invoice dated 19 October 2007 which is for $9,700, wholly for disbursements' plus $970 GST; fourth, the eighth invoice dated 27 November 2007 which shows profit costs of $56,961.55 and disbursements of $2,941.84, plus total GST $5,939.76; fifth, the court fees of $2,614; sixth, the subpoenaed party's expenses of $1,315.71; and, seventh, the document preparation company's fees of $13,493.70 including GST. 34 I have not added up these items. I am satisfied, however, that Metro should be regarded as having put forward a sufficiently articulated claim referable to the costs order of 10 October 2007 for 80 percent of two-thirds of the profit costs total of the items I have mentioned and 80 percent of the whole of the disbursements total derived from the items I have just mentioned. The sum so calculated will be regarded as the amount of the offsetting claim. 35 The result under s 459H(4) will be that there is an order that the statutory demand be varied by reducing its amount by the calculated sum of the offsetting claim just mentioned (with the reduced sum of the demand being stated in the order); and a declaration that the demand is to have effect as is so varied as from when it was served. 36 In addition and as in the Fleur de Lys case, the order will, pursuant to s 459M, be made subject to a condition that Metro does within 28 days initiate a costs assessment application in respect of the costs the subject of the order of 10 October 2007. 37 My inclination is to ask the parties to work out the figures and to prepare a form of order giving effect to what I have said.

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