New South Wales Supreme Court CITATION : Marine v Kinsley [2001] NSWSC 948 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 2216/01 HEARING DATE(S) : 18/10/01 and 19/10/01 JUDGMENT DATE : 19 October 2001 PARTIES : Marine & Finance Industries of Australia Pty Ltd v Kinsley & Associates JUDGMENT OF : Master Macready at 1 COUNSEL : M. Ashhurst for plaintiff J. Duncan for defendant SOLICITORS : Hewitts Commercial Lawyers for plaintiff Tress Cocks & Maddox for defendant CATCHWORDS : Corporations Law. Application to set aside statutory demand under s459G of the Corporations Act. Demand set aside. No matter of principle. DECISION : Paragraph 25 - 1 - MASTER: This is an application under s 459G of the Corporations Act to set aside a statutory demand served by the defendant on the plaintiff for $142,002.32 dated 19 March 2001. 2 The plaintiff is a company doing a redevelopment of a shopping site at Edgeworth, New South Wales, a major tenant in which was Coles Supermarkets Australia Pty Limited. The defendant was a firm of architects engaged by the plaintiff to do plans and obtain development consent from the local council. They apparently had been keeping in touch with the plaintiff as they did work for Coles on a lot of their jobs. 3 The plaintiff says that there is a genuine dispute about the claim or alternatively that it has an offsetting claim for negligence of the defendants. 4 At the time of the commencement of these proceedings no consent had been obtained. A genuine dispute was said to arise because there had been a total failure of consideration in respect of the work said to have been done by the defendants in submitting the applications for consent. The architects had, according to the plaintiffs, agreed that consent would be obtained by 16 July 2000. 5 Subsequently after the commencement of the proceedings consent was granted on 24 April 2001 and accordingly there would be no total failure of consideration. That was the only way the claim for genuine dispute was put. It fails and I move to the offsetting claim. 6 It is useful to note the extent to which an offsetting claim must be established under s 459H of the Act. As has been pointed out in Jesseron v Middle East Trading 13 ACSR 455, or 12 ACLC 490, the amount of the offsetting claim must be quantified. The claim does not have to be proved as if there were proceedings brought to enforce it. The level of satisfaction required was discussed by Santow J in Edge Technology Pty Ltd v Lite-On Technology Corporation 18 ACLC 576. At 581 the Court said the following: "The alternative basis for the demand to be set aside or reduced by reason of an offsetting claim involves, as I have said, a different test. The question is not whether there is a genuine dispute in the above sense against the offsetting claim. The question is rather whether the 'offsetting claim' can be shown to be 'not frivolous or vexatious'; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. That places a heavier onus on the party seeking to maintain its statutory demand, than if it merely had to establish the reciprocal of a genuine dispute against the offsetting claim." 7 The offsetting claim was for the holding costs which were incurred by the plaintiff as a result of delays by the defendants in lodging applications with a the council and obtaining approval. 8 The plaintiff suggests in his evidence that the defendant indicated he would lodge the application by 17 April 2000 and that it would expect approval within 80 days, ie by 16 July 2000. The application was not lodged until 28 November 2000 and consent was not forthcoming until 24 April 2001. The holding costs were $157,908.19 from 16 July 2001 to 31 December 2000 and continued thereafter at about $30,000 per month. Up until April the offsetting claim for the holding costs would amount to about $270,000. 9 There was evidence from Mr Ahrens, an architect called on the part of the plaintiff as to the negligence alleged against the defendants. He reported on five heads of negligence which he referred to in his report. The first was a Submission to the Consent Authority of a Combined Application for Development Approval and Construction Certificate. The defendants had adopted this course and the matter itself was a development which was fairly complex. It was for a large supermarket and it involved the redevelopment of an existing supermarket. 10 In discussing the matter Mr Ahrens refers to his reasons for coming to his conclusion that the preferable course would have been to apply for a development application and subsequently apply for approval of a BA or construction certificate. 11 The second matter concerns the provision of car parking. There was quite a change over the period of the car parking requirements and there was continuous negotiation with the council. The view expressed by Mr Ahrens is that the protracted negotiations using RTA guidelines only served to delay the application and that that was a fruitless attempt to force council to change its existing policy. 12 He then referred to the preparation of an acoustic report. He suggested that there was some delay because this should normally have been dealt with after the development approval was obtained. There was then a matter to do with location of pedestrian access ramp and it appears that part of the structure of the plan was shown to be erected on council land. The architects continued to try to maintain the position for this until almost up until obtaining of consent but then gave the matter away. 13 Another matter which he raised was the invitation to tender on construction trade packages. He thought that this was a waste of time and effort and it might also have delayed the process. 14 The defendants themselves also called an expert architect to counter what was said by Mr Ahrens. He was Mr Hassall. His report is in evidence and he differed from or took issue with Mr Ahrens on most of the matters which he had raised. He also raised other matters and in particular actions of the plaintiff causing the delay in the relevant period. There were three main matters advanced in respect of this delay. 1. The plaintiff telling the defendants on 6 April 2000 not to do any further work until funding was in place. 2. The delay of the plaintiff's lessee, Coles, in submitting plans for their ultimate layout. The final plans were to have been submitted in March but were not finally submitted until 7 June 2000. 3. Failure of the defendants to sign the agreement between the plaintiff and the defendant for provision of architectural services until October 2000. 15 On the first issue the plaintiffs are at issue about the conversation on 6 April. According to the plaintiffs and the officer concerned the construction was not to stop work but only to stop work on work other than the development approval. According to the plaintiff the defendants were to continue to proceed with the development approval and obtain that separately. 16 It is important to note that according to the defendants the work on the plans were resumed by them after payment of some fees outstanding to them on 16 September 2000. It appears to have stopped work about 6 April 2000. It would seem therefore that the failure to sign the fee agreement would not prima facie be a reason for delay. There perhaps is an arguable delay of some 13 weeks caused by the late submission of the Coles plans. This would reduce the offsetting claim by $95,000 down to $175,000, still in excess of the amount of the demand. 17 There is of course the question of how far one goes into the merits of an offsetting claim when taking these into account for the purposes of s 459H. 18 Resolving conflicts between expert architects is not appropriate. I should accept their sworn evidence showing that there are differing views on the matters relating to the negligence alleged. 19 So far as the suggestions of delay is caused by the plaintiff are concerned, unless they are very clear cases I would not think it appropriate to investigate them in detail in order to see whether the offsetting claim is frivolous or vexatious. 20 In respect of the delay said to be caused by the stop work order or failing to pay the defendants invoices I note that: 21 The plaintiff and the defendants are at issue as to the stop work order itself. 22 It will be a question as to whether the parties' relationship was governed by the agreement which was ultimately signed in October. That arguably contains some provisions which provided for the work to continue, notwithstanding non-payment of fees. Presumably unless it was terminated and there is no suggestion of termination here in this case. 23 These questions about delay and the surrounding facts are somewhat complex and I do not think it is appropriate for me to come to some view in order to further reduce the amount of the offsetting claim. One must not lose sight of the fact that the losses are real and there is a live issue on liability. 24 The extent of the overall delay between when the approval was originally anticipated to be obtained and when it was actually obtained is also a substantial matter of fact. 25 I am satisfied that there is an offsetting claim for $175,000. Accordingly I order that: 1. The statutory demand served on the plaintiff by the defendant dated 19 March 2001 be set aside. 2. The defendants to pay the plaintiff's costs. 3. I order the exhibits be returned. oOo Last Modified: 10/25/2001 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.