ANGELSTAR Pty Ltd v Dovetails Enterprise Pty Ltd - [2008] WASC 200

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ANGELSTAR PTY LTD -v- DOVETAILS ENTERPRISE PTY LTD [2008] WASC 200

CORAM: MASTER SANDERSON

HEARD: 27 AUGUST 2008

DELIVERED : 18 SEPTEMBER 2008

FILE NO/S: COR 84 of 2008

BETWEEN: ANGELSTAR PTY LTD (ACN 070 044 870)
Plaintiff
AND
DOVETAILS ENTERPRISE PTY LTD (ACN 085 966 981)
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand - Turns on own facts

Legislation:

Nil

Result:

Demand set aside

Category: B

Representation:

Counsel:

Plaintiff: Mr A P Hershowitz
Defendant: Mr M A Maclennan

Solicitors:

Plaintiff: Feinauer & Associates
Defendant: Lavan Legal

Case(s) referred to in judgment(s):

Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACLC 1062

MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The demand is dated 13 June 2008. A copy of the demand appears as annexure SH1 to the affidavit of Simon John Hogan sworn 3 July 2008. In the schedule to the demand, under the heading 'Description of The Debt', there appears the following:
The sum of $34,101.05 representing the undisputed portion of monies owing to the Creditor by the Debtor pursuant to invoice 108/2598 [sic] rendered by the Creditor for work completed on the Debtors place of business located at 23a Napoleon Street Cottesloe, Perth, in the state of Western Australia.
The relevant facts can be summarised in this way. The plaintiff trades under the name of Special Eyes Optical and carries on the business of optometrists at Perth, Subiaco and Cottesloe. In March 2007, the plaintiff engaged Mark William Lodding of ML Design as a consultant on the fit‑out of its business premises in Cottesloe. ML Design provided the design and specifications to the plaintiff in September 2007. ML Design was also contracted to manage the fit‑out.
The fit‑out included the provision of new cabinets. These cabinets were to be used to display spectacles offered for sale by the plaintiff. In response to the calls for tender, the defendant provided a quote. That quote was dated 24 October 2007 and appears as annexure SH2 to Mr Hogan's affidavit. The amount of the tender was $81,880.88. The tender was accepted by the plaintiff.
Mr Hogan says that shortly after the defendant commenced work on the fit‑out, it became apparent that there were significant issues with the quality of the defendant's workmanship. The nature of those problems is not relevant to this application. For the purposes of this application (and only for that purpose), the defendant is prepared to accept that the workmanship was defective. It is common ground between the parties that if there was any defective workmanship on the part of the defendant, no third party has been engaged to rectify the problems. In other words, the fit‑out now is as it was when the defendant ceased involvement with the fit‑out.
On 7 January 2008, the defendant rendered to the plaintiff, through ML Design, an invoice in an amount of $86,668.41. That is invoice 108/2588 referred to in the statutory demand. A copy of that invoice appears as annexure SH3 to Mr Hogan's affidavit. The invoice shows that an amount of $20,000 was paid by way of deposit prior to the work commencing. The actual amount of the invoice is greater than the original quote because some additional work was undertaken by the defendant at the plaintiff's request. There is no issue about the amount of the invoice.
Put simply, the plaintiff says it has an offsetting claim which is greater than the amount it owes to the defendant. In his affidavit, Mr Hogan quantifies this offsetting claim in two ways. First, he says that the standard of workmanship on the part of the defendant and the resulting poor quality of the fit‑out means that remedial work will have to be undertaken. He concludes (par 28):
… I am advised by Mark Lodding and verily believe that these costs (of remedying the defects) together with the remedial costs referred to above is in excess of $80,000.
Second, it is alleged that as a result of the defective workmanship, the plaintiff 'was delayed in its opening of the business'. It is alleged that the agreed schedule re‑opening date was 8 December 2007, but that because of the poor workmanship and remedial work required, the business re‑opened approximately two weeks later than scheduled. Mr Hogan says that this resulted in a reduction in turnover for the business. He says that the turnover in December 2006 was $125,111.75. However, the turnover for December 2007 was $36,164.70. He says that the loss in turnover was directly attributable to the number of days that the business was unable to trade during the December period. He goes on to say that the other two businesses in Subiaco and Perth generated almost identical figures in December 2006 and December 2007. He then concludes (par 31):
I say that the actual turnover loss from delays during December 2007, during which the business was unable to trade as a result of the Respondent's acts and omissions, was approximately $89,000 which in turn results in lost income, after expenses, of $40,000 ‑ $45,000.
The third head of loss claimed relates to an inability to display the number of pairs of sunglasses anticipated by the design. Mr Hogan puts the position in this way (at par 32):
… Whereas the cabinets were supposed to be built to display a particular amount of sunglasses side by side, they were unable to display approximately 180 pairs of glasses and sunglasses.
Mr Hogan says that it is difficult to quantify the losses attributed to the inability to display the glasses. He says, however, based upon 'trends in previous years', he estimates the loss of profit at between $40,000 and $45,000. There is no indication at all as to how this amount is calculated.
In opposition to the application, the defendant relies on an affidavit of Nigel Clark affirmed 16 July 2008. Mr Clark is the sole director of the defendant. From documents annexed to the affidavits of Mr Hogan and Mr Clark, it is apparent that difficulties arose with the fit‑out soon after it commenced. It is unnecessary, for present purposes, to detail what passed between the parties, Mr Lodding and eventually the solicitors. What is of importance is a letter dated 6 May 2008 from ML Design to the defendant's solicitors (annexure SH8 to Mr Hogan's affidavit). This letter was sent in response to a letter sent by the defendant's solicitors to ML Design dealing with the issues between the parties and proposing a means of resolution. Mr Lodding says that after discussions with the plaintiff, he has reached the view that the defendant is unable to rectify the problems with the fit‑out. He then goes on as follows:
My client has always been willing to pay the outstanding dues, when the work is completed to a satisfactory standard and as specified in the plans.
My client has obtained a quotation to rectify all the items that require attention. This quotation is for $29,794. My client would like to offer to pay Dovetails the balance of what is owing less this amount that will be used to rectify the cabinets. Or if Dovetails prefer my client will organise 2 more quotations clarify [sic] what the costs will be.
Both parties agreed that this letter amounted to a settlement offer by the defendant. Both parties also agreed that the offer was not accepted. What the defendant says is that the letter amounts to an admission that the invoiced amount less the cost for rectification - $29,794 - is owing by the plaintiff to the defendant. That is why the amount of the demand is expressed in the schedule to the statutory demand in the way that it is. It is the plaintiff's contention that this letter is but one link in the chain of correspondence that is in no way decisive. It says that absent any agreement between the parties and given the nature of the dispute, the amount of any offsetting claim is arguably greater than the defendant's entitlement. That should lead to the statutory demand being set aside.
Also filed in support of the application is an affidavit of Mark William Lodding sworn 3 July 2008. Mr Lodding confirms that on 19 February 2008 he obtained a quote from Sympari Furniture to rectify the defective fit‑out. The quote was for $29,794. A copy of that quote appears as annexure ML3 to Mr Lodding's affidavit. Mr Lodding then says (at par 16):
I have made enquiries with Sympari Furniture again on 3 July 2008 and, as a result of those enquiries and my experience, I verily believe that in order for the works to be rectified, which at this stage will include the replacement of a substantial number of components to the standard contemplated at the outset, those costs would be in the vicinity of $80,000.
Counsel for the defendant objected to the admissibility of that paragraph. He submitted that it was hearsay and that it could not be relied upon to establish that in fact the cost of rectifying the works would be $80,000.
In dealing with that objection, it is important to remember that what must be established in an application such as this is that there is a serious question to be tried as to whether the plaintiff has an offsetting claim. Whether or not that claim succeeds, is to be determined by another court at another time. So what a plaintiff must establish is the existence of the serious question to be tried. That being so, I am satisfied that par 16 can stand. Mr Lodding has been told by Sympari Furniture that the cost of rectification would be 'in the vicinity of $80,000'. There is no warrant for doubting that he was in fact told just that. The question then is whether that evidence, accepted at face value, is sufficient to establish that there is a serious question to be tried. When that question is considered, the weight to be attached to the statement is relevant. There is a quote for $29,747.30 issued in writing and dated 19 February 2008. Some four months later the quote had jumped to $80,000. But the quote is not in writing, there is no explanation as to why the price has increased, nor is there any detailed explanation as to what was said by Mr Lodding to Sympari Furniture in the course of the conversation which led to the higher quote. Given that affidavit material, even if accepted, does not have to be accepted uncritically, all of these matters must be weighed in the balance.
The defendant submitted that the letter of 6 May 2008 to which I have referred, taken together with the correspondence which preceded that letter, made it plain that there was, in reality, no dispute as to the $34,101.05 claimed in the statutory demand. It was said that reference to an offsetting claim was nowhere mentioned prior to the service of the statutory demand and was, in effect, a 'recent invention' which ought be completely disregarded.
In applications to set aside a statutory demand the claim that the alleged genuine dispute or alleged offsetting claim is a 'recent invention', is all too common. To make that submission misses the point. This issue was dealt with by Hayne J (when his Honour was a member of the Supreme Court of Victoria) in Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACLC 1062. His Honour said:
Whether the defences can be described in the sense used in the bank's submissions as 'recent inventions' does not in my view bear upon the existence in this matter of a genuine dispute. That is to be judged according to whether there is now a genuine dispute about the alleged debt - not according to how recently that dispute may have arisen (1064).
What is really being said when it is submitted that evidence should be ignored because it was not articulated prior to the issue of the demand is that the deponent putting forward the evidence should not be believed. In other words, the submission calls for a conclusion as to the credibility of a particular deponent. That is not the function of a court in an application such as this. Of course, if evidence is inherently incredible, it can be ignored; a court is not required to accept uncritically everything contained in an affidavit. But to allege that evidence should be ignored simply because a matter was not raised prior to the issue of the statutory demand misses the point.
It is convenient to deal first with the plaintiff's claim that as a consequence of the fit‑out not being completed by the agreed date, it has suffered loss and damage. As I mentioned above, Mr Hogan in his affidavit of 3 July 2008 says that the agreed schedule re‑opening date was 8 December 2008 (this is incorrect - it should be 2007) (par 29). It is not immediately apparent either from the affidavit evidence or the documents annexed to the various affidavits when agreement was reached as to the re‑opening date. It is not mentioned in the defendant's quote. Nor is par 29 dealt with by Mr Clark in his affidavit. The position is further obscured by the correspondence. On 2 December 2007, Mr Lodding sent an email to the defendant (annexure NC1 to Mr Clark's affidavit). Mr Lodding says:
As per the schedule, the floor sanders were to go in this Sunday to sand the floors and cabinets to be installed from Friday 6th. At this stage you can actually install the cabinets from Thursday the 6th.
Where this schedule may have come from and whether it represents the alleged agreement between the parties is not clear. However, prior to that email on 30 November 2007, the defendant had sent to Mr Lodding an email which contained the following:
As you are so far off from being ready for our installation it would have been courteous of you to let us know so that we can re‑arrange workloads. As we moved this project forward at your request we have now filled the original timeslot and will have to try and fit you in elsewhere, although at this stage I cannot guarantee the completion will be by the 10th December.
The matter need be taken no further. It is clear, in my view, that some agreement had been reached as to the date by which the installation was to be completed. It may well be the case that there were variations to this agreement so that the completion date was pushed out. Alternatively, the defendant may not have been able to meet the completion date as a consequence of failures on the part of the plaintiff. But, in my view, it is arguable that the defendant was in breach of its contract with the plaintiff and that as a consequence the plaintiff has suffered loss and damage.
Once that point is reached, it is a question as to whether or not the amount of the damage claimed is arguable. There is no documentary evidence to back up the plaintiff's claim that it lost between $40,000 and $45,000. But what evidence there is, is more than a mere assertion. Mr Hogan has been prepared to go on oath detailing with precision the turnover of the Cottesloe store in December 2006 as compared with December 2007. He has also said that the turnover for the Perth and Subiaco stores for the relevant periods remained almost identical. In my view, without more, that is sufficient to give rise to a serious question to be tried.
Having reached that conclusion, I need not deal with the other matters raised by the plaintiff.
The statutory demand ought be set aside. I will hear the parties as to the precise form of orders and as to costs.