Roluke Pty Ltd v Hennessy trading as P J Hennessy & Co [2006] NSWSC 814

New South Wales Supreme Court

CITATION : Roluke Pty Ltd v Hennessy trading as P J Hennessy & Co [2006] NSWSC 814

HEARING DATE(S) : 27/06/06, 10/08/06

JUDGMENT DATE : 15 August 2006

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

DECISION : Statutory demand set aside

CATCHWORDS : CORPORATIONS - winding up - statutory demand - application for order setting aside - whether genuine dispute - whether offsetting claim

LEGISLATION CITED : Corporations Act 2001 (Cth), ss.459G, 459H

Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 CASES CITED : Jesseron Holdings Pty Ltd v Middle East Trading Consultants (1994) 122 ALR 717 Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411

PARTIES : Roluke Pty Limited - Plaintiff Paul James Hennessy t/as P J Hennessy & Co - Defendant

FILE NUMBER(S) : SC 1831/06

COUNSEL : Mr J.S. Drummond - Plaintiff Mr A.R. Martin, Solicitor - Defendant

SOLICITORS : Booth & Boorman - Plaintiff Martin Legal - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

TUESDAY, 15 AUGUST 2006

1831/06 ROLUKE PTY LIMITED v PAUL JAMES HENNESSY t/as P J HENNESSY & CO JUDGMENT 1 By an originating process filed on 13 March 2006, the plaintiff makes application under s.459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendant. In doing so, the plaintiff relies on both of the grounds made available by s.459H, namely, the existence of a genuine dispute between the plaintiff and the defendant about the existence or amount of the debt to which the demand relates (s.459H(1)(a)) and the existence of an offsetting claim on the part of the plaintiff (s.459H(1)(b)). 2 The statutory demand is dated 17 February 2006. It relates to an alleged debt of $12,518 described as: "Tax invoice dated 8 December 2005 No 341096". 3 The tax invoice No 341096 dated 8 December 2005 was rendered by the defendant (trading as P J Hennessy & Co, Chartered Accountants) to the plaintiff. The total of $12,518 is made up of a fee of $11,380 and GST of $1,138. The fee component is described as "Costs from 8 June 2004 to 11 November 2005" with the following narration: "Final fee account in respect of our investigation into the preparation of an expert witness report quantifying damages in the matters Roluke Pty Limited & Or vs Lamaro Consultants Pty Limited & Or, including court appearances." 4 It is common ground that the defendant was retained by the plaintiff to provide professional services of the kind thus described; that, pursuant to the retainer, the defendant prepared a report for use in proceedings to which the plaintiff was a party in the Technology and Construction List of this Division; that the report was served and became part of the evidence in those proceedings; and that the defendant gave oral evidence before Nicholas J on 9 November 2005, he having been required by subpoena to attend. 5 In contending that there is a genuine dispute as to the amount or existence of the debt the subject of the statutory demand (being a debt in the amount claimed by the tax invoice to which I have referred), the plaintiff points in the first instance to a letter of 19 November 2003 from the defendant to the solicitors acting for the plaintiff in the litigation in respect of which the defendant's services were required. The letter begins: "Further to our meeting on 18 November 2003, we take this opportunity to document the service arrangement we verbally agreed with you and seek your written acknowledgment of these arrangements as evidence of our agreement …" 6 There following a description of the scope of the services to be provided. Under the heading "Staffing and Billings" appeared the following: "Each litigation report is unique in its preparation and presentation. It is therefore not possible for us to furnish a precise estimate of our final costs as they will be subject to many factors. Our fees are based upon the time necessarily spent on the assignment by professional and secretarial staff with the appropriate level of skill and experience. Costs relating to the work performed by the people assigned to the engagement are charged on the basis of time units of six minutes. This method of time costing applies to all attendances, such as conferences, telephone calls, attendances at court and travelling and waiting time. The current hourly rate for all professional and secretarial staff on the engagement is as follows: $ Paul Hennessy 375 plus GST Andrew Steere 275 plus GST Secretarial 100 plus GST Disbursements such as photocopying, courier, facsimile, telephone, search fees and travelling expenses will be itemised separately and charged as incurred. Based on our understanding of the work that we have been asked to undertake at this time, we estimate that our fees may be in the vicinity of $15,000 to $25,000 plus GST payable for the services provided. This estimate of our fees excludes the cost of disbursements and any additional work undertaken by us at your request in the future. Fee accounts are payable fifteen days after issue. Consistent with our discussion yesterday, we attach our first fee account in respect of this engagement. As we have stated above, this is an estimate only and could vary for any number of reasons. This estimate does not amend or replace our basis of charging as set out above but is indicative only and subject to additional work being undertaken during the course of our investigation, as deemed necessary by ourselves, the plaintiff, or plaintiff's solicitors." 7 In a section headed "Service Agreement with P J Hennessy & Co ('PJH')", there are set out the "commitments" on either side. Among the "commitments" of the client is: "You will pay your account in accordance with our agreed payment terms." 8 Thereafter, the defendant rendered seven "instalment accounts" to the plaintiff's solicitors. The last of these was expressed to be for costs "from 17 April to 7 June 2004". The aggregate amount of these invoices (including GST) was $84,915.62. 9 The expert report that the defendant had been retained to prepare was filed in the Technology and Construction List proceedings on 14 May 2004. The hearing of those proceedings commenced on 7 November 2005. The defendant gave evidence on 9 November 2005. The transcript shows that he was sworn at 3.10 pm and continued to give evidence until the court adjourned at 4 pm. The evidence also shows that he had been at court since 12.45 pm and had conferred with counsel in the interval between his arrival and his going into the witness box. He may therefore be taken to have been occupied for 3.25 hours. 10 On 30 November 2005, the defendant wrote to the plaintiff's solicitors. The letter began: "Please find attached information providing background to the accumulation of costs. You will note that our time costs come to $17,717 which, in the main, represents 32.1 hours of my time." 11 The letter went on to say: "They also include 7.5 hours attending court, 5 hours meeting with Andrew Steere [an employee or, at that point, former employee of the defendant] for the purpose of up-dating our knowledge of the industry and the companies. The balance of my time represents some 12 hours re-familiarising myself with the report that was written some 18 months ago." 12 The letter concluded: "I am anxious to settle the costs and look forward to your advice. If I have not heard from you I will take the liberty of calling you on Tuesday next, 6 December." 13 Attached to this letter was a document "Narration for Final Invoice". It set out details of the sum of $17,717 referred to in the body of the letter. That sum was entirely time based, being 32.1 hours for the defendant at the rate of $475 per hour, five hours for Mr Steere at the rate of $350 per hour and six hours for Ms Hayward (secretary) at the rate of $120 per hour. GST of $1,772 was additional. 14 On 8 December 2005, the defendant wrote direct to the plaintiff enclosing "our final fee account in respect of the subject litigation". The letter went on to say that there had been a reduction in the time charged in the period June 2004 to 11 November 2005 such that the 32.1 hours for the defendant was reduced to 20 hours, the five hours for Mr Steere was reduced to four hours and the six hours for Ms Hayward was reduced to four hours. There was then some comment about particular items. Attached was the tax invoice referred to in the statutory demand. 15 It appears from the evidence that the defendant wrote to the plaintiff on 6 February 2006. However, no such letter is in evidence. Its existence may be inferred from the opening paragraphs of a letter of 21 February 2006 from the plaintiff to the defendant: "We refer to your letter dated 6 February 2006 and apologise for the delay in responding. With respect we find it almost impossible to believe that you have no idea what our issues with your most recent account are. There is clear evidence to suggest that you knew that the subject account would be problematic right from the start." 16 I infer from these paragraphs that the defendant had said to the plaintiff in a letter of 6 February 2006 that the defendant had no idea what issues the plaintiff had with the defendant's tax invoice dated 8 December 2005. 17 The plaintiff, in its letter of 21 February 2006, said that "the amount that you now claim is due remains, in both our estimation, [the plaintiff's and its solicitors'], excessive in the extreme". The letter also says: "Against this background you suggest in your letter of 8 December 2005 that you personally needed to spend the mere equivalent of 5 full 7 hour days to prepare for the hearing, a claim that was reduced by your 'substantial discounting' to one of just under 3 full 7 hour days. The purported level of your revision was on either basis unnecessary and certainly not undertaken on our instruction. We understand that your actual 2 hour appearance in Court on 9 November 2005 was as a result of a subpoena to attend issued by the solicitors acting for the Defendants (i.e. the other side). While it seems that you also attended Court the following day, our advice is that you were not requested or required to do so by either side. To put your current account in its overall context, it comes as the final instalment in a series of accounts that we have already paid and that already totals $77,196.02 (plus GST). This amount combined with your current account needs to be viewed against your original estimate of your fees of up to $25,000 plus GST. While we accept the point that each litigation matter is unique, we consider your error in the estimation of your fees by more than a factor of 3 to be completely unacceptable. For comparative purposes we note that the total of your accounts to date in this matter is more than twice the total cost to us of our specialist Consultant Engineers, the principal expert witnesses we used in what was after all a professional negligence claim against another engineer! By any objective measure your firm has been very well paid for its work to date. To avoid any possibility of the issue of the payment of your current account developing into a legal dispute between us, we are on a without prejudice [sic] prepared to pay and enclose our cheque in an amount of $2,200 (including GST) in full and final settlement of your account. If you also wish to quickly resolve this matter, simply bank the enclosed cheque. We will treat its banking as evidence of a full and final release of us by your firm in respect of both your final account and the Scope of Services agreement generally." 18 The cheque for $2,200 was never banked. The letter from which I have just quoted was, as I have said, dated 21 February 2006. The statutory demand is, as I have said, dated 17 February 2006. The only direct evidence of the time of service of the statutory demand appears in the affidavit of the plaintiff's financial controller. He says that the demand was served at the registered office of the plaintiff "on February 2006". No day is specified. There is, however, in evidence a letter from the plaintiff to the defendant dated 3 March 2006 which acknowledges receipt of the statutory demand and says: "We note that this Demand appears to have crossed with our own letter dated 21 February 2006, a copy which [sic] is enclosed for your information." 19 In the absence of any other evidence on the subject, I take this statement about the letter and the statutory demand having "crossed" as indicating that the statutory demand had not been served or, at least, had not come to the notice of the writer of the 21 February 2006 letter, at the time that letter was written and sent. 20 The letter of 3 March 2006 was sent by the plaintiff to the defendant's solicitor. It said: "We believe your client to be ingenuous [sic] in the extreme when he says in his affidavit that he believed that 'there is no genuine dispute about the existence or the amount of the debt'. To the contrary, it is plain from his conduct and the number of our advisors that he contacted in the vain attempt to garner their support, that he always knew his entitlement to submit a further invoice and claim an additional payment was near groundless." 21 The plaintiff's letters of 21 February 2006 and 3 March 2006 – the former apparently written and sent before the statutory demand had come to the notice of responsible officers of the plaintiff and the latter sent shortly after service of the statutory demand and in knowledge of it – show clearly that the plaintiff did not accept that the defendant had any legal right to charge the sum of $12,518 (including GST) claimed by the invoice No 341096 dated 8 December 2005. The plaintiff says, in summary, that the defendant and the members of his staff could not realistically have worked for the numbers of hours reflected by that invoice in performing, in relation to the actual hearing, the services supposedly rendered. The defendant himself spent 3.25 hours at court. Even allowing for reasonable time for preparation and re-familiarisation with the written report (which was by then more than a year old), the defendant, in the plaintiff's estimation, could not possibly have spent 20 hours on the assignment. Furthermore, the plaintiff cannot see how Mr Steere and Ms Hayward would have needed to be involved at all when it was simply a matter of the plaintiff personally giving evidence and preparing himself to do so. In addition to that, the hourly rates on which the invoice of 8 December 2005 is based substantially exceed those set out in the service agreement of 19 November 2003. 22 The defendant's response is that the agreement of 19 November 2003 set out the "current" hourly rates and that there was nothing in the agreement to prevent their being changed. Furthermore, the defendant says, the correspondence that took place before submission of the invoice of 8 December 2005 was in the nature of a negotiation by which the defendant proposed increased hourly rates and indicated the number of hours for which he proposed to charge. In addition, the plaintiff's lack of objection to the new rates and the defendant's own reduction in the number of hours ought to be regarded as indicating acceptance by the plaintiff of the charges made. 23 The principles upon which the present application is to be determined are not in doubt. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq considered the expression "genuine dispute" where it occurs in s.459H. His Honour said at p.787: