Offsetting claim
15Site Foreman also seeks to set aside the Demand on the basis that it has an offsetting claim under s 459H of the Corporations Act . That section provides that, where the Court is satisfied that the company has an offsetting claim, it must set aside the demand if the substantiated amount (as defined) is less than the statutory minimum. An "offsetting claim" for the purposes of s 459H(1)(b) of the Corporations Act is the amount of a claim or claims that the company has against the person who served the statutory demand by way of counter claim, set-off or cross-demand, whether or not that amount arises out of the same transaction or circumstances as the debt to which the demand relates: s 459H(5).
16The case law in respect of offsetting claims is well-known. A company can establish an "offsetting claim" if there is a "serious question to be tried" or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor and that claim is made in good faith and is arguable and not frivolous or vexatious: Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 356-7. The effect of that case law was recently summarised in Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [23], where Barrett J observed that s 459H(1)(b), read in conjunction with the definition of "offsetting claim" in s 459H(5):
"... requires the court to consider whether the plaintiff has a 'genuine' claim against the defendant in respect of the matter raised. It is also necessary to ascribe an 'amount' to any 'genuine' claim in order to determine, under s 459H(2), the 'offsetting total' which plays a central part in determining whether the 'substantiated amount' is less than the statutory minimum of $2,000. The court's task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried ( Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith ( Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious ( Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37)."
17The offsetting claims on which Site Foreman relies are, in short, that Mr Brand's alleged breach of implied terms requiring the exercise of care and skill in the contract between Site Foreman and Mr Brand gave rise to losses in respect of Site Foreman's dealings with its clients, which Site Foreman claims to be entitled to recover against Mr Brand.
18Site Foreman engaged Mr Brand under contracts dated 7 August 2007 and 2 November 2007 (Moore 1 Annexures B, C). The contract dated 7 August 2007 between Site Foreman and Mr Brand relevantly provided:
" Employment Contract
You are employed as a contractor and as such you will be responsible for your own workers compensation insurance and superannuation. You will also be responsible for your motor vehicle, mobile phone and the associated running costs of the same.
You will be paid for results achieved in accordance with the scheduled rates detailed below. These payments are inclusive of GST and are paid upon production of a tax invoice in accordance with our standard trading terms ...
3/ Project Management
Project management services to our clients include a weekly site meeting, progress claim assessment, variation assessment, defect monitoring and generally acting as the agent and advisor between the client and the builder. The overall objective of the project manager is to achieve an on budget, on time project.
The project manager is paid a fee equal to 25% of that which is received by The Site Foreman."
19A subsequent contract dated 2 November 2007 contained similar terms but also included the additional paragraph:
"As divisional manager all project management works for construction in NSW will be directed to you. You are to use your discretion as to how this work is carried out and what staffing resources are required to complete the work."
20Site Foreman in turn contracted to provide project management services for a client in respect of residential construction works at Roseville ("Roseville project") and Mr Brand was nominated as Site Foreman's representative under its contract with its clients for the Roseville project (Moore 1 Ex SM-1). Site Foreman contends that defaults on the part of Mr Brand led to losses in respect of that project.
21Mr Moore's evidence is that Mr Brand failed to advise Site Foreman's clients in a timely way of a significant increase in the costs of rock excavation in respect of the Roseville project. Mr Moore's evidence is that it is inappropriate practice in the building industry, particularly in respect of supervision of residential projects, to fail to inform the clients of such a matter.
22Mr Moore gives evidence of a meeting, after this issue had arisen, attended by Mr Brand, the builder, two directors of Site Foreman and Site Foreman's clients in which those clients complained that the cost of rock excavation associated with the Roseville project had increased from an initial estimate of $64,000 to about $300,000. The builder stated that he had advised Mr Brand of the substantial amount of rock being extracted and that Mr Brand had instructed the builder to keep going with that excavation and the clients had also complained as to a lack of contact with Mr Brand in respect of the project. Mr Moore's evidence is that, during the meeting, Mr Brand accepted that he had been at fault. Mr Moore's evidence is that the clients expressed the position in the meeting that, had they been told of the escalating cost of rock excavation, they would have concentrated on the excavation necessary for the house and not undertaken additional excavation. Mr Moore also gives evidence of a subsequent complaint concerning Mr Brand's continuing lack of involvement with the project and of his subsequent removal from the project.
23The builder in respect of the Roseville project also gave evidence of discussions with Mr Brand expressing concerns about the extent of the rock excavation work and the likely cost for the clients, in which Mr Brand had advised him that the clients were aware of the issue; of Mr Brand's failure to attend the site despite conversations in which the builder had expressed concern about ongoing rock excavation; and of Mr Brand's comment at the meeting with the clients to the effect that "I stuffed up". That evidence was consistent with Mr Moore's evidence in this regard.
24Mr Brand's evidence was that he did not quote for rock excavation removal in respect of the Roseville project and was not aware of the costing for that work and he denied that he was present at conversations between Mr Moore, the clients and the builder.
25Mr Moore's evidence is that, after the clients complained of the need to fund the additional excavation charges, Site Foreman offered to waive the 8.8% fee that it was entitled to charge in respect of the variation in relation to those additional charges. By email dated 10 November 2010, Mr Moore advised Mr Brand that, inter alia, there would be no variation charge for the rock excavation from Site Foreman and the absence of that charge is reflected in the tax invoice issued by Site Foreman to the clients in respect of that variation. Mr Moore's evidence is that Site Foreman has not recovered any variation fees in respect of the Roseville project, other than a fee on a first variation which occurred prior to the problem concerning excavation. Mr Brand's evidence is that he was not aware of the arrangements which Site Foreman subsequently made with the clients in this regard.
26Mr Moore contends that Site Foreman lost at least $25,168 (being 8.8% of the additional excavation charges) by reason of Mr Brand's alleged failure to correctly assess the amount of rock excavation required or to take action to prevent excavation work from proceeding without instructions from the clients.
27Site Foreman also contends that defaults on the part of Mr Brand also led to its loss of a cancellation fee in respect of another client's termination of a contract in respect of a project at North Curl Curl ("North Curl Curl project"). Mr Brand was also nominated as Site Foreman's representative under the contract in respect of that project (Moore 1 Ex SM 2). Mr Moore's evidence is that it was Site Foreman's obligation to obtain an amended construction certificate before proceeding with further work on that project; that Mr Brand was appointed by Site Foreman as project manager for that project; and that he was required to, and undertook to, arrange for the amended construction certificate in that capacity. Mr Moore's evidence is that the customer subsequently terminated the contract with Site Foreman by reason of a failure to make progress in respect of the project during the period when he was overseas and that the reason for such lack of progress was because of Mr Brand's failure to obtain the amended construction certificate.
28There is a contest between the evidence of Mr Moore and Mr Brand as to whether the true cause of the delays in respect of the North Curl Curl project was the absence of approval for the variation of the works or the client's absence overseas. Mr Brand's evidence is that work on the North Curl Curl project ceased because there were major problems with an excavation and Mr Brand could not obtain the client's instructions while the client was overseas and would not authorise the builder to carry on without those instructions and that the absence of an amended construction certificate had no bearing on the work ceasing.
29Mr Moore's evidence is that Site Foreman was unable to properly claim the cancellation fee of $25,000 which would otherwise have been payable on the client's termination of the contract relating to the North Curl Curl project in these circumstances and, by email dated 9 December 2010, Mr Moore emailed the client agreeing to release the client from any contractual obligations to Site Foreman. Mr Moore also gives evidence of lost earnings in respect of the balance of the project, and estimates a loss of profit on the project to Site Foreman as $25,000.
30Mr Brand was also nominated as Site Foreman's representative in respect of a project at Summer Hill under a contract between Site Foreman and its client. Mr Brand takes objection to Site Foreman's reliance on this matter on the basis that no reference was made to that claim in Moore 1: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581. In my view, that objection is well-founded and it is not open to Site Foreman to establish an offsetting claim in respect of this project.
31There is also a dispute as to whether Mr Brand ceased involvement with Site Foreman by reason of dissatisfaction with his performance (as Mr Moore claims) or because he had not been paid the amounts due to him (as Mr Brand claims). Mr Brand's evidence is that he had not been advised of any dissatisfaction with his work and that the failure to pay him had been explained as a result of a large tax bill payable by Site Foreman. Mr Moore contests that evidence. Mr Brand also denies that he caused loss or damage to Site Foreman.
32In my opinion, and subject to the additional issue concerning the application of the Employees Liability Act 1991 (NSW) to which I refer below, Site Foreman can establish the essential elements of an offsetting claim against Mr Brand arising from the facts for which it contends. It is reasonably arguable that the terms of Mr Brand's engagement contained an implied term that he would exercise reasonable care and skill in respect of the matters for which he had responsibility: Bolton Gems Pty Ltd v Gregoire (unreported, 10 November 1995, Young J). The matters alleged in respect of Mr Brand's conduct in respect of the Roseville project and the North Curl Curl project arguably establish a breach of that duty, and it is also arguable that Site Foreman could recover the loss which it has incurred in seeking to address the respective clients' complaints against Mr Brand in a contested hearing of its claims. Although there is a contest as to the relevant facts between Mr Moore's evidence (supported, in respect of the Roseville project, by the builder's evidence) and Mr Brand's evidence, I am satisfied that there is at least a "serious question to be tried" or "an issue deserving of a hearing" as to these claims and that they are made in good faith and are arguable and not frivolous or vexatious.