Progroup v Metro

1 MASTER: This is an application to set aside a Statutory Demand pursuant to s 459G of the Corporations Law. The demand was dated 9 May 2000 and served on 17 May 2000. It claimed the sum of $214,571.37 in respect of 83 invoices from the defendant to the plaintiff. 2 The plaintiff is a contractor which has a head contract to the Public Works Department to do maintenance work on the Department of Education's schools. The defendant is a sub-contractor who does work from time to time pursuant to a contract with the plaintiff. 3 The relevant contracts at the commencement of the relationship between the plaintiff and the defendant with which I am concerned were dated 17 and 19 September 1998. The first contract relates work to be done in three regions being Hornsby, Parramatta and the Northern Beaches and covers a wide variety of maintenance work. The latter relates to painting for one particular area. The contracts are in almost identical terms. 4 It is worth noting a number of the terms of the contract. 5 The subcontracts stated that the subcontractor will "Supply Facilities Maintenance Services as set out in the Scope section of the contract, or requested by Official Works Orders issued by the main contractor from 1998 to 30 April 1999 for remuneration as set out in the Contract documents", but a payment schedule annexed as annexure A to the subcontracts provides for claims to be submitted up to 21 August 1999. Taking the earlier subcontract, the scope of contract is on page 2. It states on the middle of the page that "the period of this contract… may be extended by negotiated agreement between both parties in one year intervals".

6 By clause 8 the working hours are Monday to Friday excluding public holidays and may not be varied without prior approval of the plaintiff. The purpose of this provision is no doubt to ensure the availability of supervisors.

7 By clause 9 claims for payment were to be accompanied by statutory declarations by the subcontractor in the prescribed form. Clause 10 deals with claims generally and disputes. Clauses 10.2 to 10.4 provide a mechanism whereby if after 28 days of the defendant submitting a claim to the plaintiff for payment under the contract the plaintiff has not made a decision on the claim, it is deemed to have been rejected: 10.2. If the defendant does not request a review within a further 14 days of the rejection, the claim is deemed to have been abandoned and the claim shall be barred: 10.3. If the plaintiff has not made a decision on the review within a further 28 days the claim is deemed to have been rejected: 10.3. If the defendant does not give the plaintiff a formal notice of dispute within a further 14 days of the rejection, the claim is deemed to have been abandoned and the claim shall be barred: 10.4. Clause 10.6 provides that any overpayment may be recovered. 8 By clause 13 the defendant's servants were required to report their presence, and it is submitted that it must follow, their departures, to the school principal.

9 A schedule of rates and rules for hourly rates work are set out at pages 17 and 18 of the earlier subcontract. By those clauses entries were to be completed daily, recording hours worked, people on site and materials used. The entries were to be signed off daily by a nominated school officer or field manager (not defined in the contract, but there is no disagreement as to what the term meant, only as to the scope of his authority). It states "The sheet requires the field manager's signoff (sic) before any claim will be processed." Lower down it states "Invoice copies are to be provided for materials purchased from a single supplier over $200.00". 10 The parties are at issue on the question of whether the sub-contracts continued to apply after 30 April 1999. The defendant in the evidence of its witnesses suggested that a slightly different system applied. That system seemed comprehend the use of an order form which had been used under the previous system which like the order forms in the previous system had a "Job not to Exceed" figure. The suggestion about this system is that this seemed to be used as a minimum amount rather than using the recording mechanism which was in place under the subcontracts. It was also suggested that in respect of one major contract, namely, the roof and gutter cleaning that this was for a lump sum of $79,820. This was said to have resulted from discussions at a meeting on 27 January 1999. 11 At this stage it is useful that I remind myself that one of the matters to be determined is whether a genuine dispute exists as to the contractual basis upon which the parties continued their dealings after 30 April 1999. 12 I had the benefit of having a number of submissions in respect of the expression "genuine dispute" and I think probably the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments 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, lacking 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 those 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) 11 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 offsetting 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 simply - to 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." 13 There is ample evidence that the plaintiff continued to issue its standard service report incorporating the work order and weekly time sheet document to the defendant and that the defendant continued, at times, to comply with at least some of its requirements well after the supposed date of termination of the subcontract. See for example the report dated 17 August 1999 behind divider 1 in exhibit 1, being the exhibits to the affidavit Roy Sayah. Even the issue of the order for painting at Freshwater High School dated 28 June 1999 (and signed by Mr Sayah) is on the standard form. It was submitted that the parties simply continued their arrangement after April 1999 as though nothing had changed. Although the subcontracts provided strict requirements as to claiming hourly rates for work as referred to above, by a memo dated 8 December 1998 from Bill Pearce a contract manager of the plaintiff, in relation to signing off on job sheets those rules were relaxed somewhat. That memorandum provided for three variations in the way in which the sign off could occur. With that qualification it was submitted that the terms of the old contract continued beyond April 1999. 14 Exhibit 7 is a letter from the plaintiff to the defendant of 16 April 1999 which noted that the current contracts terminated on 30 April 1999 and went on to deal with administrative matters concerning the contracts. Its terms do not preclude the parties thereafter conducting themselves in accordance with the provisions of the minor works contract. Annexure A shows that the parties contemplated the agreement continuing beyond 30 April as on page 2 in the middle of the page there appear the words "the period of this contract… may be extended by negotiated agreement between both parties in one year intervals". There was no evidence of such a negotiated agreement for extension but this would not prevent a new subcontract coming into existence on such terms as were not inconsistent with the old subcontract: Elrington v Judd (1964) 64 SR (NSW) 150, Dougal v McCarthy [1893] 1 QB 736. These cases are both landlord and tenant holding over cases but the principles would be quite applicable to the present case. The parties continuing with the old sign off procedure is not inconsistent with the old subcontract. It was submitted that the reality was that the parties continued as though nothing had changed. 15 I would have thought that the plaintiff's contentions are clearly arguable on the evidence before me. I am satisfied that there is a genuine dispute in respect of whether the two subcontracts continued to apply to the work the subject of the demand. 16 The importance of the same arrangement continuing lies in the terms of the provisions of clause 10 of the contract which a requires a procedure for the lodgement of claims accompanied by the appropriate documentation as set out in the schedule of daily rates. In the absence of a decision by the plaintiff on such claim the contract provides for a regime which requires re-submission and if there is still no agreement the submission of the dispute to an appropriate expert for determination. Those procedures have not been followed with the result that arguably the claims are barred. It was submitted that this point under clause 10 of the subcontract is not available to the plaintiff as it was not raised in the affidavit filed within time being that of Mr Andrew Wise of 1 June 2000. Paragraphs 7 to 11 of the affidavit, in my view, do articulate in a general way such a claim. Parts of those paragraphs were rejected on the hearing but this makes no difference to the matter because all that is required is that the affidavit should advance the case that is sought to be made. It does not have to do it in terms of admissible material. See Sunberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund 21 ACSR 581 at 587-588. In any event it is not necessary for the affidavit to set out propositions of law. See Callite Pty Ltd v Adams [2001] NSWSC 52. 17 It is worth noting the progress of the matter now in terms of communications between the parties once they fell into dispute which clearly occurred before the demand was issued in this matter. The plaintiff prepared a detailed schedule a copy of which has now become Exhibit F in the proceedings which sets out the dispute it has with the defendant on a number of invoices which have been issued by the defendant. There was a detailed letter from the plaintiff to the defendant on 20 December 1999 which raised the problems the plaintiff perceived and enclosed a spread sheet giving the details of the invoices in dispute. That produced a fairly detailed response from the defendant's solicitors of 10 February which was followed by a reply from the plaintiff on 25 February. In a letter dated 4 March 2000 which may have been actually sent on 4 April 2000 the plaintiff wrote back to the defendant on a "Without Prejudice" dealing with the defendant's letter of 21 March noting a number of different matters which still had to be attended to to satisfy it in respect of the dispute. It did, however, enclose a cheque made out to the defendant for $118,325. That cheque was enclosed no doubt because the spread sheet which had been sent indicated that in respect of all the claims that the spread sheet addressed the claims were approved in the amount of $118,325 and were disputed in respect of $189,282. 18 In respect of the sum of $189,282 it included two large claims. One was for $71,838 for various work to roof and gutters. This is the claim which I have already referred to as one where it was alleged that there was a lump sum contract. Ultimately in their written submissions the defendant conceded that there was a genuine dispute in respect of this amount. It is obvious on the evidence that there was such a genuine dispute. Accordingly, this is another reason why this amount is the subject of a genuine dispute. 19 The other large claim was one for painting Freshwater High School. That claim was approved as to $12,960 and was included in the payment. The excess, namely, $43,083 was rejected in the spread sheet because the invoice value exceeded the job not to exceed value on the order with no authorisation given for the value to be exceeded. There was also a claim that there were no invoices presented for materials used. All the defendants sought to do in respect of rejection of this amount was to suggest that one of the plaintiff's witnesses a Mr Nelson conceded that to complete the work would have taken $3,000 to $4,000. Accordingly, they suggested $3,500 should be allowed. It should be appreciated however that such comments appeared in Mr Nelson's affidavit in the context of Mr Nelson refusing to sign off the time sheets presented to him because the job "not to exceed" limit had been exceeded. In these circumstances it would seem to me to be still open to the plaintiff to argue that the contractual provisions applied and therefore I do not consider that this allowance should be made. 20 It will be recalled that the amount of the demand was for $214,571.37. The spread sheet which I have been considering disputed a series of numbered invoices in an amount of $189,282. This led to the defendants making a submission about a number of invoices which were not addressed in the evidence filed for the plaintiff. These invoices were said to total $27,662.04. In fact after deleting invoice 100128 which was so addressed the amount is $25,677.04. It is not quite the exact difference between the two figures I have just quoted. The plaintiff in their submissions refer to the fact that Mr Wise who filed the principal affidavits in support denied the whole of the claim. It was suggested that the defendant had not produced these particular invoices and the general denial should apply to them. That is not the way to deal with this type of application. The statutory demand dealt with a series of clearly defined invoices and amounts said to be owing and the plaintiff has in its evidence dealt with a substantial number of them but not 24 of the invoices referred to in the defendant's statutory demand. In these circumstances it seems to me that there is no genuine dispute established in respect of those invoices. 21 There was a further submission by the defendant in paragraphs 28 to 31 of the their submissions which relate to the value of materials. It was suggested that by the defendant serving its evidence in this case it has provided evidence to substantiate its materials' claims. It was submitted that the whole amount of the material claims, provided they did not exceed the "Job Not to Exceed" limit, should be allowed. The short answer to this claim is that the contractual arguments as to liability may well apply and, accordingly, there is a genuine dispute in respect of this amount. 22 Subject to one matter it can be seen from this review that I have found that there is a genuine dispute in respect of the whole of the claim except for those invoices which have not been addressed in the plaintiff's evidence which total $27,662.04. 23 In these circumstances the plaintiff has made a submission that because of the concession made in respect of its claim for $71,838 I can conclude that the affidavit supporting the demand was false and accordingly was defective. It is submitted that this should lead to the Court setting aside the demand under s 459 J of the Act. 24 In Equuscorp Pty Ltd v Perpetual Trustees WA Ltd unreported Federal Court 5 December 1997 the Full Court said:- "The discretion to set aside a notice of demand is not to be exercised as a punitive response to a discrepancy between the amount claimed in the notice and the amount found to be owing on an application to set aside the notice. If a notice of demand has been drawn with a view to damaging the alleged debtor by wilfully claiming an amount substantially higher than that known to be due or recklessly demanding such a sum then that would be tantamount to a fraudulent or abusive use of the process and would ordinarily require the notice to be set aside in the public interest to maintain confidence in the law and the administration of justice. There may be other cases in which a demand is made so far in excess of any admitted sum and for such collateral purposes or with such carelessness as to be frivolous or vexatious or an abuse of process. These could all constitute "some other reason" for setting aside the notice." 25 In the present case the concession in respect of the $71,838 was only made in submissions after the parties had put on all of their evidence and come to issue on that aspect. The general contractual issue in this matter was seriously contested by the parties during the course of their evidence and that matter has been decided adversely to the defendant. In these circumstances it seems to me that there has not been any abuse of process such as that referred to by the Full Federal Court. 26 In these circumstances I would decline to set aside the whole of the demand. 27 Accordingly I find that the substantiated sum is $25,677.04 and I order:-

That the demand dated 9 May 2000 served by the defendant on the plaintiff for $214,571.37 be varied by reducing it to $25,677.04 to take effect from 21 days after service of the demand. 28 I will hear the parties on costs.

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