Jemzone v Trytan [2002] NSWSC 395

Reported Decision : 42 ACSR 42

New South Wales Supreme Court

CITATION : Jemzone v Trytan [2002] NSWSC 395 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 2999/01 HEARING DATE(S) : 8 April 2002 JUDGMENT DATE : 7 May 2002

PARTIES : Jemzone Pty Ltd (P) Trytan Pty Ltd (D) JUDGMENT OF : Austin J

COUNSEL : Mr F Donohoe (P) Mr M Pembroke SC with Ms T Catanzariti (D) SOLICITORS : Laurence & Laurence (P) Michell Sillar (D) CATCHWORDS : CORPORATIONS - statutory demand - genuine dispute and offsetting claim - proprietor claims variation credits and compensation for delay - genuine dispute or offsetting claim established - BUILDING & CONSTRUCTION - statutory entitlement to make payment claim for progress payment - invoice for final account held not to be claim for progress payment - requirements for valid payment claim under Building and Construction Industry Securities of Payment Act 1999 (NSW) LEGISLATION CITED : Building and Construction Industry Securities of Payment Act 1999 (NSW) ss 3, 8, 13, 14 Corporations Act 2001 (Cth) ss 459G, 459H Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 CASES CITED : Hawkins Constructions (Australia) Pty Ltd v Mac's Industries Pipework Pty Ltd [2001] NSWSC 815 Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 DECISION : Statutory demand set aside

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

TUESDAY 7 MAY 2002

2999/01 JEMZONE PTY LTD V TRYTAN PTY LTD JUDGMENT 1 HIS HONOUR: This is an application, made pursuant to s 459G of the Corporations Act by originating process filed on 8 June 2001, to set aside a statutory demand. The plaintiff alleges, under s 459H (1), that there is a genuine dispute between it and the defendant as to the existence or amount of the debt, or that it has an offsetting claim for an amount higher than the amount claimed by the defendant. The defendant denies that there is any genuine dispute or offsetting claim, and seeks to rely on some statutory provisions to prevent such matters from being raised. 2 The plaintiff is a hotel and motel developer and the defendant is a builder. The defendant carried out work pursuant to a building contract between the parties in respect of a motel property in Gundagai, dated 31 August 2000. 3 The statutory demand arose out of a claim for payment sent by the defendant to the plaintiff on 14 March 2001 in the amount of $177,960.28. The document was headed "Final Account" and was a statement setting out the balance of moneys that had become due, giving credit for payment made, and attaching a detailed summary of variations. 4 On 27 March 2001 the plaintiff responded to the Final Account by writing a letter, alleging that the defendant had failed to complete the work in accordance with the agreed program, causing the plaintiff significant revenue loss and damage. The letter estimated the revenue loss to be in the order of $66,240, although no particulars were given. It said that the damages component of the claim would be addressed subsequently. 5 The statutory demand was dated 17 May 2001 and was served on the plaintiff on 21 May 2001, claiming the amount of $177,960.28 owing to the defendant. The amount was described in the schedule to the demand as "the final progress payment" due under the contract. 6 On 30 May 2001 the plaintiff sent the defendant a letter enclosing a cheque for $90,000. The letter asserted that the amount paid did not make allowance for various claims that the plaintiff wished to make against the defendant. It said that the money was being paid before it had been established that this amount was owing, because of the time constraints imposed by the statutory demand. The payment reduced the amount claimed by the defendant to $87,960.28. 7 During the course of the building works, the plaintiff had complained to the defendant about the value of certain variations, failure by the defendant to complete the works in accordance with the construction schedule, and the type of timber used in construction of the buildings. The plaintiff decided not to rely, in the present proceedings, on the dispute about the type of timber used. Consequently the only matters for me to examine relate to variations and delay. 8 Mr Nott, managing director of the plaintiff, made some calculations with respect to variations, leading him to conclude that the plaintiff was owed $50,193.35, for variation credits. The calculations comprise 18 handwritten pages which are an exhibit to Mr Nott's affidavit of 7 June 2001, dealing item by item with claimed variations by the defendant and allowances by Mr Nott. In his affidavit made on 7 August 2001, Mr Nott revised his calculations upwards by $1295.08, and issued a revised schedule of calculations. It is unnecessary for me to set out the details, but I should record that although there is clearly some scope for argument about individual items, it cannot be said that Mr Nott's calculations are manifestly fanciful or unreasonable on their face. 9 As to delay, Mr Nott gave evidence that before the building contract was signed, he told Mr Martin on behalf of the defendant that it was of critical importance that the motel be open for the Christmas/New Year trading period. Under a schedule to the contract, the defendant was required to complete the structure for Stage 1 (for 31 motel rooms) by 26 November 2000. According to Mr Nott, this would have enabled other contractors to complete the fitting out of the rooms and other facilities. However, the defendant did not complete Stage 1 until 11 December 2000. Mr Nott said that this meant other contractors were unable to complete their work by 24 December 2000, when the building trade closed down for Christmas/New Year. The result was that the motel was not available for occupancy before the end of January 2001, and according to Mr Nott, 37 trading days were lost. He estimated that the motel would have had available to it 31 rooms for a 37 day period if the defendant had completed the Stage 1 work on time. Allowing $76 per room and a 76 percent occupancy rate, this would have yielded a revenue to the plaintiff of $66,250. He observed that during this period competitor motels displayed "No Vacancy" signs on most days. This suggests that a 76 percent occupancy rate is reasonable, allowing for the unfinished state of the premises. 10 Mr Nott says that Stage 2 of the motel, affecting an additional six rooms, was to be completed on 7 December 2000 but was not completed until 1 March 2001. Allowing for other contractors to complete their work, Stage 2 was not available for occupancy as motel rooms until 20 March 2001 and 78 trading days were lost, producing a revenue loss of $27,031.68. 11 The plaintiff's total claim against the defendant for variation credits and loss of revenue on Stages 1 and 2 is $143,475.03. It claims that the net amount owing by the defendant to it, after deducting the unpaid balance of the defendant's claim against it, is $55,514.75. 12 The motel has, since it opened for business, been carried on by Sovereign Motor Inns Pty Ltd, as the tenant of the plaintiff. Mr Nott is the managing director of Sovereign. However, his evidence is that if the motel had been completed on time, the plaintiff would have been the motel operator for the Christmas/New Year period and Sovereign would have taken over once the motel was fully completed. Consequently, according to Mr Nott, the loss suffered by the defendant's delay was the plaintiff's loss. 13 However, Mr Nott gave evidence that if, on proper analysis, the loss of revenue was Sovereign's loss rather than the plaintiff's, then the plaintiff had suffered loss of rental income from Sovereign. He said in his affidavit that the loss of rental was $24,000 for the period to 31 January 2001. But in answer to a notice to produce the plaintiff produced a letter dated 12 July 2000 stating that the rental was $26,000 per annum or $2165 per month. 14 The defendant has given evidence to refute the plaintiff's claims. Mr Martin said that the alleged delay was caused partly by wet weather, for which the contract allowed additional days, partly by variations of the scope of the works, and partly because construction workers engaged by the plaintiff on work unrelated to the defendant's work interrupted and altered the critical path of the construction program. Further, Mr Martin pointed out that approval to occupy the premises was given by Gundagai Shire Council only on 22 January 2001. Of course, this last fact does not of itself exonerate the defendant from delay, since its delay may have caused or contributed to the Council's delay in issuing the approval. 15 Counsel for the defendant contended that in his oral evidence, Mr Nott had abandoned the claim that the plaintiff was entitled to recover lost revenue for the December-March period, relying instead on loss of rental income from Sovereign. Then counsel submitted that the claim for loss of rental income was not credible, since no lease document had been produced and there was contradictory evidence about the amount of rental. He said that in light of the material produced in response to the defendant's notice to produce, the lost rental income could not be as high as $24,000. Further, there was no evidence of any rental loss after 22 January 2001, or thereabouts, when the motel became commercially operational, even though the remaining six rooms were not available. Therefore, according to this submission, the total offsetting claim would be substantially less than the balance of the defendant's claim in the sum of $87,960.28 (accepting the plaintiff's variation credits at face value of $56,637.27). 16 It is not necessary for me to decide, for the purposes of the present case, whether Mr Nott's variation calculations are correct. The dispute between the parties with respect to variations turns on the assessment of numerous specific allegations and counter allegations of a type common in building disputes. Nor is it necessary for me to decide, for present purposes, whether there were culpable delays by the defendant, having regard to the terms of the building contract and the relationship between the contract and the construction schedule. That issue also depends, in part, on disputes on matters of detail, such as whether specified wet weather days were Saturdays or Sundays. Proceedings of the present kind are totally inappropriate for the resolution of such matters. 17 The issue for me to determine is whether there is a genuine dispute or genuine offsetting claim. The standard I am to apply was stated in the well-known observations of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, where his Honour said at 787: