Royal Premier Pty Limited v Taleski

The offsetting demand 5The plaintiff contends that it has a claim for damages for breach of contract and other related grounds. In Ms Gough's s 459G affidavit, this was summarised as follows: TERMINATION OF CONTRACT [68] On 24 February 2012, the Plaintiff instructed its lawyers, Doyles Construction Lawyers, to issue a Notice of Termination on the Defendant... [69] It is my understanding and belief that the Defendant, having failed to show cause, delayed the project by approximately 13 weeks and performed a significant number of defect works is [sic] in breach of the Contract and has subsequently been terminated effective from 25 February 2012. DEFECTS EVIDENT AFTER TERMINATION [70] After termination of the Defendant as the Builder, Growthbuilt Pty Ltd entered into a contract with the Plaintiff on 24 February 2012, to complete the works and rectify the defects performed by the Defendant. [71] On 29 February 2012, I observed Growthbuilt Pty Ltd commence work on the site. [72] Since that time Growthbuilt have notified me of various defective works performed by the Defendant which require rectification... [73] It is my understanding and belief that as a result of the need to rectify those defects Growthbuilt have issued variation orders 1 to 11 in order to perform the rectification works associated with the defective work performed by the Defendant... DELAY AFTER TERMINATION [74] It is my understanding and belief that as a result of the variations annexed hereto..., which are ongoing and the need to rectify the defects to mitigate any delay, the project is now and will be further delayed... [75] On reviewing Growthbuilt's Program for Completion, I noted that the time for completion is now September 2012, some four months after the original completion date... PROGRESS CLAIM 6 ISSUED BY THE DEFENDANT [76] On 23 November 2011, the Defendant issued Progress Claim 5... [77] On 20 December 2011, the Defendant issued Progress Claim 6, the subject of the Plaintiff's Statutory Demand... [78] In relation to the Subcontractor Statutory Declarations, dated 23 November 2011 and 20 December 2011 respectively, I made enquiries with the Subcontractors of the Defendant. Various Subcontractors engaged by the Defendant notified me that they have not been paid what they are owed by the Defendant. [79] On or about 20 February 2012 I received various invoices from Subcontractors engaged by the Defendant, which have not been paid for by the Defendant... 6It will be seen that that affidavit propounds complaints in respect of defects that became evident after termination, and delay occasioned after termination.

The claim for rectification of defects 7So far as the defects are concerned, the affidavit annexes a copy of variation orders 1 through 11 issued by the replacement builder. Of those variations, one - that is to say, variation number 10, in the sum of $2,656.50 - is, on its face, not related to any such defect, but to a new variation with the new builder. The others are, at least sufficiently arguably, related to rectification of defects arising out of issues with the defendant as builder, or the investigation of such defects. Those variations total $88,802.37, and for present purposes I would accept the plaintiff has a genuine offsetting demand for that amount.

The claim for damages for delay 8That amount is, of course, less than the $115,854.75 in the statutory demand. The plaintiff contends there is nonetheless an offsetting claim in respect of at least the difference. One way in which that might be put is that, aside from the evidence of damage associated with defects, there is damage associated with delay. It is not difficult for the court to infer that delay in building works will cause damage, either in the nature of lost income, or from use of the property following completion, or from increased holding costs. However, it has repeatedly been held that there must be at least some evidence from which the court can see that the offsetting claim will exceed the amount of the debt the subject of the demand. 9In Royal Premier Pty Limited v Taleski [2001] WASCA 48, Ipp J, then speaking for the Full Court of the Supreme Court of Western Australia, said (at [57]): ...[T]here is no evidence of any damages that the appellant might have suffered in consequence of the alleged negligence or misleading or deceptive conduct on the part of the respondent. Of course, at this stage it is not necessary for evidence as to damages to be given in meticulous detail. But there must be at least some material upon which the court can conclude that some damage has been sustained and which will enable the court to make a reasonable assessment as to the amount thereof. In this case, however, there is simply no way of determining whether damage was suffered by the appellant in consequence of the alleged negligence or misleading or deceptive conduct, and there is no evidentiary material from which damage suffered by the appellant can be calculated. 10In Macleay Nominees Pty Limited v Bell Property East Pty Limited [2001] NSWSC 743, Palmer J said (at [18]): In my opinion, a genuine offsetting claim...means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. "Good faith" means arguable on the basis of facts asserted with sufficient particularity to enable the court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the court cannot find that there is a genuine offsetting claim... 11In Elm Financial Services Pty Limited v McDougall [2004] NSWSC 560, Barrett J, as his Honour then was, said (at [19]): It is not necessary that the parties seeking to have the statutory demand set aside should particularise the claim to the last dollar and cent. There may be various ways of approaching the issue as to assessment... It is sufficient that there be, on the evidence, a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty, can be seen to be, in any event, greater than the amount of the debt the subject of the statutory demand. Of course, the narrower the margin between the alleged debt and the plaintiff's estimate or initial quantification, the greater will be the need for particularity in assessing the amount of the offsetting claim. 12The Plaintiff referred to Grass Manufacturers Pty Limited v Sraennik Pty Limited [2003] NSWSC 95, for the proposition (at [19]) that in claims made by a plaintiff for economic loss, the court would not require a great deal of evidence to quantify with precision the amount claimed by way of set-off. The Plaintiff observed that in that case, it was sufficient evidence to prove loss to the plaintiff of a significant customer whose business was clearly of considerable value, which was arguably far greater than the amount claimed in the statutory demand. Palmer J nonetheless concluded (at [23]): There is also sufficient particularity in the plaintiff's evidence to support the assertion that the amount of damages for which the defendant could be liable on the cross-claim exceeds the amount of the debt claimed in the invoices the subject of the statutory demand. 13Recently, in V & M Davidovic Pty Limited v Professional Services Group trading as Rosier Partners Lawyers [2012] NSWSC 134, Black J, after referring to some of the cases to which I have referred, said (at [22]): The decisions in Grass Manufacturers v Straennik and Elm Financial Services v McDougall indicate that the material required to quantify an offsetting claim may not need to be substantial but do not suggest that such evidence is not required. Thus, his Honour concluded that the material filed in respect of the application did not establish a genuine offsetting claim for the reason, inter alia, that there was not sufficient evidence to establish the quantum of the damages claimed, even to the relatively undemanding standard required to establish an offsetting claim. 14In the present case, for reasons I have given, there is evidence that establishes the amount of the offsetting claim to the requisite standard, to the extent of about $88,000. But that is not sufficient to exceed the amount of the statutory demand. There is simply no evidence that enables me to conclude, by inference or otherwise, that the plaintiff's offsetting claim for delay may exceed, in value, the difference between $88,000 and $115,000.

The claim based on the related proceedings 15The plaintiff also relied on a cross-claim that it had filed in related proceedings between the parties in the Technology and Construction List. After the parties fell into dispute, there were negotiations between them, which resulted in a deed being drafted that, if completed, would have settled the dispute between them. In the related proceedings, the present defendant sues the present plaintiff on the deed, for the amount for which it is said that their disputes were compromised. The present plaintiff disputes that there was a binding and enforceable deed. 16In an earlier hearing, I held that that deed and the negotiations that led to it would be admissible in these proceedings, in exception to the without prejudice rule, because it was then the intention of the defendant to assert in these proceedings that, even if there had once been a dispute, there no longer was because it had been compromised [Macquarie Prestige Developments Pty Limited v Cavasinni Constructions Pty Limited [2012] NSWSC 778]. Ultimately, because in the related proceedings the defendant now not only disputes that there ever was a concluded agreement but, alternatively, contends, by a recent amendment, that the defendant ought not be entitled to rely, or ought be estopped from relying, on it even if it were concluded, that argument was not pursued before me.) 17By cross-claim in the related proceedings, the present plaintiff claims damages for "work done and expenses incurred as a result of the cross-defendant's breach of contract." In the relief claimed, there is a bare claim for "the minimum sum of $300,000 including GST" on that account. The pleading alleges in paragraph 15 that, as a result of the present defendant's breach of contract, the present plaintiff suffered loss or damage. But the particulars, other than asserting damages for delay, damages for defective work, damages for rectification work, additional costs of finance, interest and costs, does not descend to any quantification of the amount of that claim. There is nothing in that pleading, nor is there anything in the evidence, extensive as it is, adduced before me, to support the sum of $300,000, or to show how it is calculated. As Master Macready, as his Honour then was, said in Endeavour Film Management Pty Limited v Fox Studios Australia Pty Limited [2003] NSWSC 831 (at [13]), annexing a statement of claim to an affidavit in support of an application to set aside a statutory demand does not provide sufficient evidence as to quantum for that purpose.

Other evidence in support of the offsetting claim 18In support of the contention that there was a genuine dispute to the extent of the full amount of the debt, I was taken to an affidavit of Gregory Walker affirmed 18 June 2012, which deposed as follows: [8] The basis upon which I say there is a bona fide and real dispute between the Plaintiff and Cavasinni Constructions Pty Ltd in relation to the alleged debt of $115,845.75 is as follows: [9] I am aware that the Defendant has commenced proceedings number 2012/157742 in the Technology and Construction List of this Court against the Plaintiff (the Construction List Proceedings). [10] It is my understanding and belief that the damages sought by the Defendant, in the Construction List Proceedings, relate to and include claims made by it in respect of monies it alleges are owed to it, including progress claim #6 for $115,845.75, which is otherwise identified in the Statutory Demand as the basis for alleging the debt in these proceedings. [11] The Plaintiff denies any liability to the Defendant in the Construction List Proceedings and is contesting those proceedings. [12] It is my understanding and belief that the Plaintiff has an offsetting claim against the Defendant for breach of contract in respect of the Project. [13] It is my understanding and belief that the Plaintiff has an offsetting claim against the Defendant in respect of rectification works for defects notified prior to the termination of the cont[r]act between them. [14] It is my understanding and belief that the Plaintiff has an offsetting claim against the Defendant in respect of rectification works for defects discovered or identified after termination of the cont[r]act between them. [15] It is my understanding and belief that the Plaintiff has an offsetting claim against the Defendant for breach of statutory warranties. [16] It is my understanding and belief that the Plaintiff has an offsetting claim against the Defendant in respect of delay caused on the Project, caused as a result of the defective works performed by the Defendant and delayed progress on the project. 19It is self-evident that nothing in that affidavit demonstrates how the offsetting claim is quantified. 20I was also taken to the draft deed of settlement, to which I have referred. It was at one stage, I think, faintly suggested that the effect of that was to evidence a bona fide offsetting claim that was additional to the amount of $88,000 comprised by the variations to which I have referred, but I do not think that submission was seriously, if at all, pressed. In any event, on examination of the deed, I do not see how it can be said to illustrate a claim for an amount over and above the $88,000, particularly in the context that the deed takes into account not just progress claim number 6, but various other sums also said to be due to the present defendant.

Conclusions on the offsetting demand 21For those reasons, I am satisfied that the plaintiff has an offsetting claim to the extent of $88,802.37 only. The admitted total of the debt for the purposes of section 459H(5) is $115,854.75, and the offsetting total is $88,802.37. The substantiated amount of the demand is therefore $27,052.38.

Costs 22The question of costs is not straightforward, as there are competing considerations. First, the plaintiff has had a substantial measure of success in reducing the amount of the demand to some 25 per cent of its original amount. This was not the subject of any offer or concession until the defendant's written submissions, which more or less accepted the inevitability of that outcome; but that was only right on the eve of the trial. 23Secondly, the case and the evidence in it was substantially expanded by the tender of evidence of the compromise agreement to which I have referred, and evidence responding to that. Although the defendant contends that, until the recent amendment of the plaintiff's cross-claim in the related proceedings, it had a very strong case in respect of the whole debt, I think I know sufficient from the earlier hearing of the evidence on that question to express the view that I think it very doubtful that the defendant would have succeeded on that basis. 24Thirdly, the defendant has succeeded in sustaining the demand, although to a much reduced extent. The practical consequences of that from the point of, in due course, establishing any presumption of insolvency from non-payment, is also quite potentially significant. 25Taking into account the relatively minor extent and quantum of the defendant's ultimate success, the substantial success achieved by the plaintiff in reducing the quantum of the demand, and the extension by the defendant of the case to issues which necessarily incurred considerable costs but ultimately proved to be irrelevant, the proper outcome is that there be no order as to costs.

Orders 26I make the following orders: (1)Order pursuant to section 459H(4), that the creditor's statutory demand dated 23 February 2012 be varied by substituting for the amount of the demand the sum of $27,052.38; (2)Declare that the demand has had effect as so varied as from the date on which it was served on the plaintiff, namely 23 February 2012; (3)No order as to costs, to the intent that each party bear its own costs of the proceedings.

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: 28 September 2012