New South Wales Supreme Court CITATION : Tinbyr v K L Special Projects [2003] NSWSC 63 HEARING DATE(S) : 14/02/03 JUDGMENT DATE : 14 February 2003 JURISDICTION: Equity Division JUDGMENT OF : Master Macready at 1 DECISION : Paragraph 18 PARTIES : Tinbyr Investments Pty Limited v K L Special Projects Pty Limited FILE NUMBER(S) : SC 5136/02 COUNSEL : Ms E Glover for plaintiff Ms N Obrat for defendant SOLICITORS : O'Neill Marengo Lawyers for plaintiff D Mosca for defendant - 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY FRIDAY 14 FEBRUARY 2003 5136/02 - TINBYR INVESTMENTS PTY LIMITED v K L SPECIAL PROJECTS PTY LIMITED JUDGMENT 1 MASTER: This is an application to set aside a statutory demand dated 24 September 2002 in the sum of $39,657.40. The demand relates to a contract for the fees for drawing engineering plans for a building development. The defendant is the engineer and the plaintiff was the building developer. 2 They entered into a contract on 23 November 2001 providing for $4,323 per unit as the price. Given the number of units, this was a total price of $99,429. There were payments on account during the period of the work and the balance owing is the amount which has been claimed in the statutory demand. 3 The contract contained a clause in these terms: "2. PROGRESS AND SCHEDULE OF PAYMENTS Week 2 10% of fee Week 4 1st progress payment 30% of fee Week 8 2nd progress payment 30% of fee Week 12 3rd progress payment 30% of fee (3rd Progress payment on the final completion of work if before week 12)" 4 Clause 1 provided for the schedule of work and clause 3 dealt with acceptance. On an ordinary reading of clause 2 it indicates that it deals with two matters, one is a program and the other is a schedule of payments. There is at least an available inference that the work was to be completed within at least 12 weeks. This would put the time for completion of the supply of the plan into the middle of February 2002. 5 A number of plans were provided by the defendant. They were what have been described as preliminary plans but it is clear that not all plans had been provided. There was a need for the plans obviously for the development to proceed. The plans were necessary in order to get the appropriate certificates from the Water Board and a Construction Certificate. It is apparent from the letter of 21 March 2002 that the building contract was accepted in the sum of some millions of dollars. That was with a firm known as TQM Design and Construct. 6 The evidence of the parties shows a clear divergence between what was said between them as to progress of drawing the plans. The plaintiff's evidence is full of conversations in which it is made plain that the plans were behind time, they had to be provided and that the plaintiff was anxious to attain them. These were denied by the defendant in a general way. Accordingly, the parties are at issue. However, it is notable clause 2 does not make time of the essence and the plaintiff never made time of the essence. 7 The matter came to a head when at the end of May as a result of discussions it was plain that the balance of the plans were not then available. On 31 May the plaintiff's solicitor wrote a letter claiming that the conduct of the defendant amounted to a repudiation of the contract and accepted that repudiation. It indicated that it would proceed to have the plans completed by the builder who was obviously capable of doing the design. On 3 June it engaged a builder to do the drawing of the plans. They were completed on 24 June and thereafter used to progress the project. 8 The cost of doing the plans, in other words completing what still had not been supplied, was $35,200. The final plans, according to the evidence of the defendant, had in fact been completed in the last week of May, but he concedes that he never told the plaintiff that they were ready. Immediately after the notice terminating the contract for accepting the alleged repudiation, the defendant's solicitors refused to make available the plans unless the amount was paid. 9 The question which I have to decide is whether there is a genuine dispute or any offsetting claim. I will first deal with the question of whether there is an offsetting claim. The court's task in assessing an offsetting claim has been dealt with in a number of cases. For instance, in Edge Technology Pty Limited v Lite-on Technology Corp (2000) 18 ACLC 576, Santow J had the following to say at paras 24 and 25: "It is here again true (as it was in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456) that it "is not my task in the present proceedings to seek to resolve the competing claims of the Plaintiff and the Defendant": per Austin J at 462. Rather, it is to "resolve whether, for the purposes of s 459(H)(1)(a), there is a genuine dispute between the Plaintiff and the Defendant about the existence or amount of the debt to which the Defendant's statutory demand relates": Austin J at 462. Or alternatively, whether there is a genuine counter-claim, set-off or cross-demand against the Defendant and if so, in what amount. In particular, how should it be quantified; at a nominal $1 or at a large figure and if the latter, how is the quantification to be arrived at? The latter question essentially asks whether the counter-claim or set-off is fictitious or merely colourable; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Limited (No 2) (1994) 12 ACLC 490; 13 ACSR 787. In that context, to come up with a plausible contention to (sic) requiring further investigation which, if later established, would preclude there being an offsetting claim. That would not establish that the counter-claim or set-off was fictitious, or merely colourable. In that sense, the counter-claim or set-off is not the reciprocal of the statutory demand debt. Rather it is a means of offsetting the statutory demand debt with a genuine counter-claim or set-off. I adopt the approach of the Full Federal Court in Spencer Constructions Pty Limited v G&M Aldridge Pty Limited (1997) 15 ACLC 1,001 at 1,011, (1997) 76 FCR 452 at 464; that a genuine dispute requires that "the dispute be bona fide and truly exist in fact" and that the "grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived". The same applies to the counter-claim or set-off. One asks: Is it bona fide, is it real and not spurious?" 10 He later went on to say:- "For the demand to be set aside on the basis of the demand debt being genuinely disputed, it must be established by the Plaintiff that the dispute concerning its existence is bona fide and not spurious, hypothetical, illusory or misconceived: Spencer's Case (supra). In other words, there must be a plausible contention requiring further investigation which genuinely puts in dispute the debt which grounds the statutory demand. But the merits are not now to be determined beyond the preliminary testing as to whether there is a serious question to be tried. 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." 11 What I have to do is to assess whether the offsetting claim, which is a claim for damages, can be shown to be not frivolous or vexatious. The claim, in my view, is clearly one which is not frivolous or vexatious. The fact of the matter is that the plans were drawn by TQM and the plaintiff was charged for it. It was suggested that this was some device perhaps to obtain the plans more cheaply, but all the available evidence points to a conclusion that, in fact, the plans were done because of the inability of the plaintiff to get the defendant to progress the matter. 12 The suggestion that there was no hurry because a certificate had not been issued by the Water Board, which was put forward by the defendant, appears to be blatantly absurd. In the circumstances, I am certainly satisfied that there is an offsetting claim in the amount of $35,200 because there appears to be a possible claim for damages. Obviously the court cannot in a matter of this nature determine the question of whether there was a repudiation, whether there was thus an acceptance of it or, in fact, as the defendant would say, a substantial breach by the plaintiff in the terms of the contract. 13 The defendant points out that if one looked at, for instance, the 12-week schedule the plaintiff itself was substantially behind in the amount of the contract payments which had to be made, according to the contract. Such arguments would no doubt have to take into account the amount of the plans and the quantity of work that had been produced to see whether the relevant percentage of work had been produced. What is also apparent is that there has been no notice making time of the essence. The resolution of that dispute is one which is certainly not an appropriate one in these applications. There is certainly a very live issue between the two parties about the ultimate end of the contract. 14 The other matter that has to be determined is whether, in fact, there might be a genuine dispute as to the remaining amount of $4,457.40, which is the difference between the offsetting claim and the amount in the demand. This is truly the question of whether or not there is a genuine dispute about the liability of the plaintiff to pay that amount. The question of how one considers a genuine dispute is dealt with by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At p 671 his Honour made the following comments: "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 most 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.' 15 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." 16 The question is one which involves some interpretation of the contract. On one view of it on the defendant's evidence there is an allegation that the work had been completed by the end of May, which was before there was either a repudiation or an acceptance of a repudiation of the contract. What would have to be determined is whether, in fact, the plans had to also be delivered. It is apparent from the correspondence that occurred immediately after 31 May that the defendant took the position that it was not going to hand over the plans that had been prepared until such time as it was paid the balance of its fees by way of bank cheque. Given the steps that had been taken by the plaintiff that obviously did not happen. 17 The contract itself is not clear on whether payment has to be made before the plans are handed over. One would think perhaps that there has to be a completion of the work before the amount is due. The question is what does the completion of the work mean. Does completion include the delivery of the plans or is it only the drawing of the plans. Certainly there is nothing in the agreement between the parties to deal with that aspect. Accordingly, it will have to be resolved in any proceedings. The matter, I think, is one which is not clear because of the terms of the written contract. In these circumstances, I think there is a genuine dispute in respect of the balance of the amount now claimed in the notice. 18 The parties became at issue about this matter in May 2002 and ultimately the notice was issued some months later. There have been a number of submissions put to me as to why I would not infer that any dispute is genuine. Suffice it to say that the actions taken by the plaintiff in actually terminating the contract, I think, demonstrated the existence of a genuine dispute. I would not infer that it was merely a ruse to have the building company do the plans. This is quite contrary to the obviously continued efforts, at least on the part of the plaintiff to get the plans from the defendant. Accordingly, the orders that I make are order 1 and order 3 in the application. I order the exhibits to be returned. 19 There has been an application for indemnity costs. Notice was given that indemnity costs have been sought. It seems to me that in this matter there are no special circumstances calling for indemnity costs. The matter has been debated. It has been argued for some hours and accordingly costs will be on a party and party basis. ********** Last Modified: 02/21/2003 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.