Michael Davies Associates v Woolacott

• 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2030/02 - MICHAEL DAVIES ASSOCIATES PTY LIMITED v WOOLACOTT HALE CORLETT & JUMIKIS CONSULTING ENGINEERS PTY LIMITED

1 MASTER: This is an application under s 459G of the Corporations Act. The application is to set aside a statutory demand dated 2 March 2002 served by the defendant on the plaintiff which claims the sum of $27,746. 2 There are eighteen invoices set out in the schedule claiming various amounts. Quite a number of these have been paid subsequently, or the dispute has been abandoned. The defendant has abandoned its claim for GST in respect of its invoices and in the result only three invoices are now in dispute. 3 The invoices in dispute are as follows: Invoice 11166 for $2242 excluding GST Invoice 11134 for $1587.50 excluding GST Invoice 11315 for $1542.50 excluding GST

4 The total of the amount in dispute in this matter is now only $5372.00. The plaintiff is an architect involved in various projects for the Department of Transport, the principal contractor for which was Fletcher Constructions Australia Limited. There was a design team led by the plaintiff as project manager which included the defendant consulting engineers. 5 No agreement covering the defendant's employment as a consultant engineer was tendered, apparently, as there was no such written agreement. It is clear, however, that the contractual relationship was between the plaintiff and the defendant. All invoices for fees were issued by the defendant to the plaintiff. In addition, the plaintiff itself saw the contractual relationship as being between itself and the defendant. For example, in a letter of 18 May 2001 it had the following to say to the defendant: "We have received your letter dated 17 May 2001. We have no defence to most of the comments you have made. We would remind you however that, whether you like it or not, Woolacotts are employed by Michael Davies Associates and the matter of your fees has absolutely nothing to di with Fletchers. Your raising the matter with them is therefore not constructive.

Our own view is that the sooner this nonsense of architects tendering fees and employing consultants goes out of fashion the better. We have no margin on your fees and from our point of view it is just another impost in an environment where we are battling to make ends meet ourselves.

You should also be very aware that in circumstances where we have either not been paid by Fletchers or where there is a dispute in relation to variation claims, you will not be paid until like sum is received from Fletchers, since recent legislation does not apply to this contract.

We recognise it is probably of no interest to you nor indeed is it your problem, but we currently have two clients who collectively owe us almost $1 million, which is making our life very difficult. Notwithstanding this, we are enclosing a cheque for $11,323,59, which represents the balance of your first invoice for Stage 2, and will continue to make regular payments as we are able.

You should also be aware that according to Fletcher, the final construction cost is likely to be less than that currently estimated and you should make allowance for this in your future invoicing." 6 It is plain from the first two paragraphs that clearly the relationship is directly between the plaintiff and the defendant. The latter paragraphs deal with payment and, given the matters in the last two paragraphs, it is abundantly clear what is said in the third paragraph is just simply a statement about when payment will be made and I do not see this as in any way affecting the contractual relationship. 7 The plaintiff did not tender its contractual documents with the client and there was some evidence about Mr Davies' belief of the position that the head contract applied in some way in relation to the consultants' contracts with him. There was some evidence that in the past the plaintiff had only paid the defendant once it had received payment from the head contractor. That does not, of itself, prove that a term of the employment of the defendant by the plaintiff was that the defendant would only be paid once the plaintiff was paid by the head contractor. 8 There is reference to a letter of 4 June 2001 throughout the evidence, which was a letter to the defendant from the plaintiff that dealt with the mode of processing claims and was in the following terms: "We refer to your recent telephone conversation with Catherine Woodward of this office in connection with variations to the above project, in which she requested that you provide background information for each variation, your final claim for each variation and timesheets to support each claim. You were specifically requested not to send tax invoices.

We have recently been instructed by Fletcher Construction Australia Ltd that the procedure for claiming variations is now tripartite, as follows: .In the first instance, the design team is required by the contract to notify Fletchers/NSW Department of Transport of a variation within 5 days of the circumstances arising. (We are quite happy for you to copy to Fletchers the variation advices you provide to us, as you have in your correspondence of 6 February and 27 April 2001, for example)

The design team is then required to send a variation claim advising the final cost (once known), together with supporting documentation (timesheets), for approval by the Department. On advice of the final amount approved by the Department, the design team is then required to send a tax invoice in the approved amount. Please note that this procedure should be followed with respect to all further variations on NSW Department of Transport projects. The reason given by Fletchers for this method of processing variation claims is that, in the event that the Department does not approve a variation claim in the full amount (which, as you are no doubt aware, is unfortunately a regular occurrence), the need for adjustments to internal accounting (ie issuing credit notes, etc) is obviated and a tax invoices is only ever issued in the approved amount, which simplifies the reporting requirements to the ATO. We return herewith your invoices numbered 11158 to 11167 inclusive and reiterate our request that you provide the following advice for each variation: .background information, including your reasons why the action constitutes a variation and what work was undertaken (this information will be used to justify each claim to the Department, so the more detail you can Provide the better);

.your final claim in 'variation claim' format rather than 'tax invoice' format'. We have taken copies of the timesheets provided with your tax invoices so there is no need for you to send this information again. We have also noted the quantum of each claim to be included in our variation claims to Fletchers/the Department, which are being prepared concurrently. We apologise for any inconvenience that compliance with this procedure may cause and hope that same compliance will expedite approval and payment of the design team's claims. Should you have any queries please do not hesitate to contact the undersigned." 9 The parties appear to have conducted themselves on the basis of this letter and this may have affected the terms of the contract between the plaintiff and the defendant, at least insofar as the procedure for claiming variations is concerned. It does not purport on its face to deal with the terms of payment. I mention that all invoices are for fees claimed by the defendant and are for professional services which were rendered in relation to variations. One would assume perhaps that if the variations were never approved, unless there was some other particular circumstance, that the fees for the work involved in the variations may not be payable. I mention these matters because some of the areas that are said to raise a genuine dispute and touch on these matters. 10 I am here concerned with whether or not there is a genuine dispute in respect of the matters claimed in the three invoices. I had the benefit of having a number of submissions in respect of the principles to be applied and I think the most useful summation of what is a genuine dispute is that provided by McLelland CJ in Eq in Eyota Pty Limited v Hanave Pty Limited (9914) 12 ACLC 669. At p 671 his Honour made the following comments in respect of the expression "genuine dispute": "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacing in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194). But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.' In Re Morris Catering (Australia) Pty Limited (1993 11 ACLC 919 at 922: (1993) ACSR 601 at 605 Thomas J said: 'There is little doubt that Division 3..prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine off-setting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim". It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simple - identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).' I respectfully agree with those statements." 11 In this case there was also raised a question of jurisdiction. It was said that in many cases the relevant dispute was not raised in the initial affidavit sworn by Mr Davies on 26 March 2002, which was the one filed within the twenty-one day period. There is no doubt that it is possible to supplement material filed in time by a later affidavit, and the principles in this regard have been set out by Sunberg J in Graywinter Properties Pty Limited v Gas & Fuel Corp Superannuation Fund, 21 ACSR 581 at 587. 12 There has been a clear dispute on the cases as to whether or not, provided there has been a supporting affidavit filed within the twenty-one day period of the application, that it may be amended by allowing additional grounds raised after the twenty-one day period. In Civil Systems Pty Limited v BT Constructions Pty Limited, a decision of mine on 15 December 2000, I drew attention in para 11 to the different first instance decisions to which I had been directed at that time. 13 The matter has been dealt with further by a judge of this Court and also the Full Court of Western Australia. In Process Machinery v ACN 057 260 590 (2002) NSWSC 45, Barrett J decided that a new ground could not be raised in such circumstances. At para 16 and following his Honour expressed his views as follows: "Furthermore, the applicant is confined to the grounds shown by the application and supporting affidavit filed and served within the 21 day period to which s 459G refers. This last point is important. It was recently confirmed by the Full Court of the Supreme Court of Western Australia in Energy Equity Corp Ltd v Sinedie Pty Ltd (2001) WASCA 419 (20 December 2001). Wallwork J (with whom Steytler J and Olsson AU agreed) quoted the following passage from the judgment of Perry J in D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1975) 15 ACLC 1794 (in which the opening words refer to an observation of Gummow J in David Grant ): 'It seems to be implicit in that observation and from the terms of s 459G(3) that if an affidavit is to be used in support of the application, it must be filed within the defined period of 21 days.

It seems to me then that the affidavit of Mr Savvas having been filed and served well after the expiration of the period of 21 days, insofar as it raises any ground offered in support of the application not identified in the affidavit of Mr Gerovasilis filed within time, could not be taken into account in determining the application. Furthermore, David Grant is authority for the proposition that there is no ability to extend the time limit.' Wallwork J also quoted from the judgment of Mandie J in Missay Pty Ltd v Seventh Cameo Nominees Pty Ltd (In liq) (2000) VSC 397: 'I think that there is another reason for refusing special leave because it seems to me that the interpretation of the Corporations Law contained in D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794 at 1798 is applicable and should be followed by this Court. If a ground in support of an application to set aside a statutory demand is not identified within the period provided by the Corporations Law, then it seems to me that it cannot be relied upon out of time upon appeal.' Wallwork J's conclusion was then stated: "In my view it now seems to be accepted that an affidavit filed outside the 21 day period which raises a new ground or grounds to set aside a statutory demand (as opposed to an affidavit which expands on grounds in an earlier affidavit which has satisfied the threshold test) cannot be used in an application of this nature. The Corporations Law operates throughout Australia and uniformity of approach is desirable.' This is consistent with the conclusion reached earlier in the same year by Wilson J of the Supreme Court of Queensland in Raffles Corporation Pty Ltd v Cech (2001) QSC 129: 'Under s 459G "an affidavit supporting the application" must be filed within the 21 days. The affidavit must disclose facts showing a genuine dispute, but it need not go into evidence: as Sundberg J held in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 14 ACLC 1703, the supporting affidavit filed within the 21 days may read like a pleading. It may be supplemented in the sense that a further affidavit containing evidence proving the facts asserted in that affidavit may be filed after the 21 days. Indeed, on the hearing of the application only admissible evidence can be relied upon. However, evidence supporting some other grounds not raised in the affidavit filed within the 21 days may not be relied upon. See also Eden Bay Pty Ltd v Bennett (1997) 15 ACLC 1634. Accordingly, the present applicant may not rely on grounds not set out in the affidavit filed within the 21 days.' This raises a question about the nature and extent of definition or assertion required. In Energy Equity Corp the company sought to rely on an offsetting claim in the form of a cause of action in negligence. It was not permitted to do so because this "was not specifically referred to in the first affidavit". D & S Group of Companies was also a case in which a particular offsetting claim was raised for the first time after the expiration of the 21 day period. In Raffles Corporation , the company wished to argue, as part of an asserted genuine dispute, an alleged oral agreement varying the operation of a lease, an alleged termination of that lease and a calculation of interest in a way said not to be consistent with the lease terms. This was in circumstances where the affidavit dealt only with the identity of the lessor and a particular deduction of $2500 and did not foreshadow in any way the additional objections later advanced. It is thus reasonably clear that the relevant concept or 'raising' or 'identifying' a particular ground involves some verbal delineation of that ground in the s 459G(3)(a) affidavit. If a debt of $10,000 were claimed as one year's interest under a contract providing for interest at the rate of 9% per annum on a principal sum of $100,000, it would not, in my opinion, be sufficient for the affidavit to annex the loan agreement and say no more. It would have to refer at least to the connection between the contract and the debt claimed and put in issue the calculation of interest - even if it merely said, 'The debt does not accord with the annexed contract.' The real point is that the application and affidavit filed and served within the 21 days period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss 459H and 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within that period." 14 Having regard to his Honour's reasoning and the cases to which he referred, I think that the better view is as decided by his Honour, namely, that unless the particular dispute is raised in the affidavit filed within time, it cannot be dealt with in later affidavits. This is subject to the qualification, of course, that a genuine dispute arising out of a matter of law which does not require evidence to support it would, of course, always be available to be argued. See Callite v Peter John Adams & Ors 2001] NSWSC 52. Invoice 11315 for underpinning to the pier footings. 15 The genuine dispute that was said in written submissions to exist was the amount had not been approved by Fletcher Constructions Australia Limited. If one looks at the first affidavit at para 22.13 one sees the only discussion about this claim. That paragraph sets out extracts from correspondence dealing with work required for the actual variation itself rather than the fees in connection with it. In para 22.13.6 the plaintiff set out facts in which it seemed to concede they would have to proceed with the services and fight about it with the head contractor later. 16 What is missing in the affidavit is a claim that the fees were not approved. There is absolutely nothing said about that. It would seem, therefore, this ground is not available. Other matters such as non receipt of payment, although not referred to in submissions, were raised in a later affidavit filed by Mr Davies on 6 May 2002. This, in my view, is also something that is not raised in the first affidavit and is not available. In my view there is no genuine dispute in respect of this invoice. Invoice 11313 for amendments for a retaining wall. 17 The genuine dispute is said to be: (1) work not authorised by the plaintiff; (2) failure to follow invoicing procedures; (3) payments not authorised or made by Fletcher Constructions. 18 The matter is dealt with in para 22.12. 19 The only matter that seems to be raised in that paragraph is what is in 22.12.7, namely, that the plaintiff did not request a tax invoice and the letter of 4 June 2001 referred to payments of variations. 20 Having regard to the correspondence, it seems to be a claim that there was perhaps insufficient documentation. The only evidence that there is in relation to the documentation is a series of letters which commenced with the letter of 28 June 2001, which asks whether there has been time spent on the variation and, if so, provide details with timesheets to substantiate it. Although that apparently was supplied on 4 July 2001 and the plaintiff responded on 9 July 2001 thanking the defendant for the information and said that enabled the claim to be submitted to Fletcher Constructions, there has been no suggestion in correspondence that there has been any other non-compliance. 21 The evidence before me does not raise any dispute about this substantiation. There has been a request for substantiation put forward but there has been no complaint that the actual substantiation has been insufficient. 22 In my view there is no genuine dispute in respect of this area. Other matters relating to payment has been raised in a later affidavit but I do not think they are available to be dealt with. Accordingly, I am not satisfied that there is a genuine dispute in respect of this claim. Invoice 11166 Changes to retaining wall RWI. 23 The genuine dispute said to arise from this claim is: (1) the plaintiff did not authorise this work; (2) Fletchers did not authorise the variation and (3) there has been no payment. 24 The first ground was clearly raised in the first affidavit of Mr Davies, i.e. that the plaintiff did not authorise the work. The second matter was also clearly raised in the first affidavit. The last matter was not raised and, therefore, cannot be taken into account at this stage. 25 The first matter seems to me to be a matter of some substance, particularly as the contract appears to be between the plaintiff and the defendant. The defendant strongly urged that a course of correspondence that commenced with the letter of 27 April 2001 indicated a series of advices to the plaintiff by the defendant that it was proposing to charge and it assumed that the matter was approved. The various letters, as I say, started with one of 27 April 2001 and were then 8 May 2001, 30 May 2001, 4 June 2001, 26 June 2001, 28 June 2001 and 4 July 2001, together with a further letter of 9 July 2001. 26 Without summarising each of the letters, that course of correspondence was, as I said, to show there had never been in fact a demur by the plaintiff to the defendant proceeding with the work. That may be so but the other thing that stands out about the correspondence is that there is in fact no approval in that correspondence of the particular variation. As I said earlier, there has been a sworn statement that there is no such approval. Certainly in this respect I think there is a dispute and the real concern is whether it may be genuine. 27 In this regard the defendant relies upon some correspondence that occurred between the plaintiff and the head contractor. The first was a letter of 4 July 2001 in which the plaintiff was complaining to the head contractor that the work had been done by itself and by the defendants in good faith in order to keep the project moving. That apparently did not produce much response because one finds quite some time later, on 11 March 2002, that this variation again was included in a letter written by the plaintiff to the head contractor. Page 2 of that letter said: "All the variations were requested by Fletcher and were carried out by MDA and subconsultants with consideration for the project programme, in good faith in the expectation that we would be paid. Despite having waited up to eight months for payment MDA has maintained what we consider to be our professional responsibility to provide services as to the project and have not, nor even threatened to, withhold those services even though we have had every justification for doing so.

In circumstances where MDA has commercial responsibility to subconsultants, yet has to wait up to eight months for payment from you, our exposure to loss and damage is untenable. A significant portion of the quantum of the variations has been claimed on behalf of Woolacotts, who were frequently instructed direct by Fletcher to carry out the work and have now issued a 'Statutory Demand for Payment' against MDA. Woolacotts' position is that they have been instructed to carry out the work, the services have been provided and it is now MDA's responsibility to pay them. Indeed our position in relation to Fletcher is the same: Fletcher instructed us to undertake the variation work, the services were provided and invoiced, and the legal obligation is now on Fletcher as our client to pay for those services. The Department's opinion/response in relation to the variations does not have any impact on the validity of our claims to Fletcher and is therefore largely irrelevant.

There is no doubt in our mind that were the matters to be determined by a Court, both Fletcher and the Department respectively would be found liable for the full amount of the debt. Our waiting hitherto patiently for the last eight months has been out of goodwill and consideration for the project. In circumstances where we are being threatened by a winding-up order you will understand that our patience is now at an end. The goodwill continues for the moment." 28 I would classify the submissions which are set out in the above letter as a very earnest attempt to shame the builder into making a payment. If one looks carefully at the words, the plaintiff is carefully putting the defendant's position but does not actually concede it. Taking this view of the correspondence, I think that the current dispute is a genuine one and accordingly I am satisfied there is a genuine dispute as to the sum of $3130.00 which amount is greater than the statutory minimum. Accordingly, the order I make is as follows: 29 I vary the statutory demand dated 2 March 2002 by reducing it by $3,130.00 to $1,242 with effect from twenty-one days after service of the demand.

COUNSEL ADDRESSED ON THE QUESTION OF COSTS 30 I have heard argument now for some time on the question of costs. The defendant seeks that the plaintiff pay its costs of the proceedings and the plaintiff submits that the appropriate order is each party pay its own costs. I have received detailed written submissions by the defendant and they can stay with the file so they are available, together with the authorities which are referred to. 31 There are a few matters which stand out about this particular matter. Firstly, the demand was originally served for the sum of $27,746.00. As a result of factors intervening, some of which relate to payment, the actual amount that was to be debated before me was in respect of a demand which was only for $5372.00. There is thus a substantial difference between the situation when the demand was served and the hearing. 32 The other thing about it is that part of the reason is that there is in fact, the defendant concedes, a dispute in respect of GST in respect of all the invoices, which is probably some ten per cent on them, and also the plaintiff has been successful in respect of only one invoice that would be considered to be a genuine dispute. 33 The situation is far from the plaintiff being successful. Effectively, a lot of the matters have gone away after service of the demand and there has been some payments and the plaintiff has only succeeded in a small amount. There was also a settlement offer made on the morning of the hearing. That offer by the defendant was the demand be set aside and the defendant pay the plaintiff's costs up to and including 6 May 2002 as agreed or assessed. Certainly the demand has not been set aside and it still stands. It is suggested I should assume in relation to costs that it has done better and the result is better than that, but I find that difficult. It is also difficult to give credence to it because it was served on the morning of the hearing and all costs I am sure were incurred by that time. 34 In my view the appropriate order is the plaintiff pay one-half of the defendant's costs and I so order. 35 The exhibits may be returned. **********

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