Cenric Group Pty Ltd v Ziegler as trustee for the Doris Gayst Testamentary Trust

[2019] NSWSC 1586

Supreme Court

New South Wales

Medium Neutral Citation:	Cenric Group Pty Ltd v Ziegler as trustee for the Doris Gayst Testamentary Trust [2019] NSWSC 1586
Hearing dates:	12 November 2019
Decision date:	14 November 2019
Jurisdiction:	Equity
Before:	Leeming JA
Decision:	1. Set aside the statutory demand issued by Ms Ziegler to Cenric dated 27 August 2019.  2. Ms Ziegler to pay Cenric’s costs, excluding (a) Cenric’s costs of preparing Mr Tambouras’ affidavit made on 7 November 2019, and (b) ¾ of Cenric’s costs of preparing the court book.
Catchwords:	CORPORATIONS - statutory demand - offsetting claim - whether debtor confined to legal formulation of claim - where application included all material facts relied on, and quantified the claim - statutory demand set aside - Graywinter principle, considered.
Legislation Cited:	Corporations Act 2001 (Cth), s 459G Legal Profession Uniform Law Application Act 2014 (NSW), ss 71(3), 88(3), cl 4 of Schedule 2 Uniform Civil Procedure Rules 2005 (NSW), r 42.1
Cases Cited:	Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; [2000] HCA 25 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Calandra v Murden [2015] NSWCA 231 Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300 Francis v Lyon (1907) 4 CLR 1023 Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; 286 ALR 768 Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372 Ligon 158 Pty Ltd v Huber [2016] NSWCA 330
Texts Cited:	M Briggs, “Equity in Business” (2019) 135 LQR 567
Category:	Principal judgment
Parties:	Cenric Group Pty Ltd (Plaintiff) Carolyn Ziegler as trustee for the Doris Gayst Testamentary Trust (Defendant)
Representation:	Counsel: C Wood SC (Plaintiff) M Christie SC, A Hammond (Defendant)   Solicitors: MDW Law (Plaintiff) Blackstone Waterhouse Lawyers (Defendant)
File Number(s):	2019/00287206
Publication restriction:	Nil

Judgment

1. LEEMING JA: The main issue in this application to set aside a statutory demand concerns the extent to which an offsetting claim can properly be discerned from the affidavit supplied within the 21 days specified by s 459G of the Corporations Act 2001 (Cth) in support of the originating process. For the reasons I shall provide below, it is tolerably clear that the plaintiff debtor, Cenric Group Pty Ltd, has a sufficiently arguable offsetting claim, which in certain respects resembles that articulated in the affidavit, insofar as it is said to be a consequence of an acceptance of the defendant creditor’s repudiation of a contract and her non-payment of amounts withheld by her. However, it is also clear that some aspects of that claim have been deficiently articulated. Is that fatal?

2. A further issue arose because of attempts by Cenric to adduce, after the expiry of the 21 day period, a swathe of further evidence, much of which was directed to claims more or less distinct from that contained in the material originally supplied. This in turn gave rise to a large debate as to the application of what was described as the “Graywinter principle” (by reference to Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452).

Background facts

3. The parties entered into a written contract pursuant to which Cenric would perform certain demolition and construction works on land in Oxford Street, Paddington owned by the defendant, Ms Carolyn Ziegler as trustee under a testamentary trust. Nothing turns for present purposes on the capacity in which Ms Ziegler owned the land. Ms Ziegler is, however, also the trustee of a separate trust, established pursuant to the contract, which is central to Cenric’s offsetting claim. All references to a trust in what follows are references to this separate trust.

4. The contract as originally entered into was for a fixed sum of $4,468,294 exclusive of GST. The contract was later varied to take into account variations and adjustments and some other matters, which are not presently relevant. A deal of work was done on the premises before the parties fell into dispute. There was uncontested evidence that the total payments made by Ms Ziegler to Cenric were in the sum of $5,584,133.87.

5. The contract permitted Ms Ziegler to withhold 10% of each payment to Cenric, up to a maximum of 5% of the original contract price. If Ms Ziegler did so, the contract required that she hold the amounts withheld in a separate bank account as trustee for Cenric. The hearing proceeded on the basis that Ms Ziegler held the sum of $255,106.50 (being 5% of the original contract price including GST) as a cash retention pursuant to the contract (there may also have been bank fees and interest, but if there were, there was no evidence of their quantum).

6. In late November 2018, Ms Ziegler purported to terminate the contract, by notice of termination dated 23 November 2018. It is accepted that she took possession of the site on around 25 November 2018 and excluded Cenric from the site.

Ms Ziegler’s statutory demand

7. There must have been a deal of litigation between the parties, the details of which were not in evidence before me, which led to Cenric being ordered to pay Ms Ziegler’s costs in separate proceedings. The costs order was assessed, and the assessment was reviewed by a panel. The result was a certificate determining the costs which Cenric was obliged to pay Ms Ziegler in the amount of $246,058.58, and a separate certificate in the amount of $3,997.13 in respect of costs incurred in the costs assessment. Those certificates were lodged in the Supreme Court of New South Wales and thereby were “taken to be a judgment” of that Court: see Legal Profession Uniform Law Application Act 2014 (NSW), s 71(3) read with s 88(3) and see (for the cognate regime which formerly applied) Calandra v Murden [2015] NSWCA 231.

8. Ms Ziegler’s statutory demand was based on those deemed judgments in the amount of $253,566.91. The statutory demand was served on 27 August 2019 and Cenric’s originating process was filed on 13 September 2019, well within the time provided by s 459G. Cenric does not seek to raise any genuine dispute concerning the judgment debt on which Ms Ziegler’s statutory demand is based. There is no issue as to service.

Cenric’s application to set aside the statutory demand

9. At the time the statutory demand was issued, there was pending proceedings in the Supreme Court between the parties. Nevertheless, within the 21 day period following service of the statutory demand, Cenric commenced proceedings in the District Court of New South Wales seeking to recover the $255,106.50 held by Ms Ziegler as the retention sum.

10. The supporting affidavit (and there was only one) accompanying Cenric’s originating process is very short. It was made by Mr Steven Tambouras, a Construction Manager of Cenric, and dated 13 September 2019.

11. Paragraphs 1-8 are introductory. Paragraphs 9-14 articulated the grounds for setting aside the statutory demand. Paragraph 9 referred to the (unamended) contract, which is annexed to the affidavit; I shall summarise some of its provisions below.

12. Paragraph 10 stated, uncontroversially, that Ms Ziegler held the sum of $255,106.50 including GST as retention monies.

13. Paragraph 11 identified work performed by Cenric on the site between 18 July 2016 and 1 February 2018.

Cenric’s request for release of security

14. Paragraph 12 referred to an email sent by Cenric to Ms Ziegler on 19 February 2019 attaching a letter requesting the release of the retention monies. The letter was attached to an email which stated “I attach a letter outlining the formal request for the release of retention currently withheld”. Much emphasis was placed upon the terms of the formal letter, which was on Cenric’s letterhead and was titled “Request for Release of Security”. After identifying Ms Ziegler and the architect retained under the contract and the site, it provided as follows:

“Dear Carolyn,

We refer to the Simple Works Contract between Carolyn Helen Ziegler ATF the Doris Gayst Testamentary Trust ‘The Owner’ and Cenric Group Pty Ltd ‘Contractor’ dated 21st July 2016 (herein referred to as ‘the Contract’).

Release of Security

Pursuant to Clause C ‘Security’ of the Contract, the Contractor hereby submits the formal request for release of retention.

The Contractor refers to Table 1 for the current balance of retention currently withheld including the GST applicable on the amount.

Table 1: Retention Receivable Report

Current Retention Receivable Balance	$231,915.00
GST	$23,191.50

Procedure for the Owner and the Architect

Pursuant to Schedule 1 Item 10, the period for payment of certificates and for release of security is stated as 10 business days after delivery of this notice, being by no later than 5th March 2019.

Regards

George Manis

CONTRACTS ADMINISTRATOR

Cenric Group Pty Ltd”

Cenric’s Statement of Claim in the District Court

15. Paragraph 14 referred to Cenric’s commencement of proceedings in the District Court and annexed a statement of claim. Once again, considerable submissions from both parties were addressed in the statement of claim, which may be summarised as follows.

16. First, the relief claimed was “an order that the Defendant pay the Plaintiff the sum of $255,106.50”, together with interest, costs, interest on costs and “any further or other orders that this Honourable Court deems fit”. Pausing there, it may be noted that (a) damages were not claimed and (b) the form of the first prayer for relief was that of a mandatory injunction, rather than a judgment. I shall return to this below. The pleading contained headings “Background”, “Contract”, “The Works”, “Termination”, and “Release of Retention Monies”.

17. The background identified the parties and the ownership of the land. The section described as “Contract” (paragraphs 5-18) identified the contract and its amendment. Paragraphs 7-15 identified a series of express terms of the contract, relating to the price, the provision of security by way of a cash retention sum to be held by Ms Ziegler on trust for Cenric, and alleged that Ms Ziegler had nominated to obtain security by withholding a cash retention sum and held $255,106.50 as that sum. Paragraphs 16 and 17 referred to the appointment of the architect to administer the contract, who was Ms Ziegler’s agent for some purposes but otherwise was to act independently.

18. Paragraph 18, which was the last paragraph in this section of the pleading, provided that “it was a term of the Contract that the period for payment of certificates and for release of Security by the Defendant to the Plaintiff was 10 business days” and particularised clauses C6, N6, N13 and Item 10 of Schedule 1.

19. Paragraphs 19 and 20, under the heading “The Works”, alleged that on or about 18 July 2016, Cenric commenced works on the site and summarised what they were.

20. Paragraphs 21 to 25 followed the heading “Termination”. Those paragraphs were as follows:

“Termination

21   On or about 23 November 2018, the Defendant served a notice of substantial breach (Notice of Substantial Breach) upon the Plaintiff.

Particulars

Notice of Substantial Breach dated 26 October 2018

22   The Notice of Substantial Breach asserted that the Plaintiff had purportedly breached the Contract by:

a. Not doing the necessary work under the Contract with due diligence and within the time stipulated in the Contract or within a reasonable time;

b. Failing to meet a substantial obligation in that the Defendant failed to complete the Works in the contract period or within a reasonable time.

23   On or about 23 November 2018, the Defendant served a Notice of Termination upon the Plaintiff and purported to terminate the Contract.

Particulars

Letter dated 23 November 2018 from the Defendant to the Plaintiff

24   The Defendant evinced an intention to no longer be bound by the terms of the Contract and therefore repudiated the Contract by:-

a. Wrongfully purporting to terminate the Contract;

b. Wrongfully taking possession of the Site on or around 25 November 2018 and thereafter wrongfully excluding the Plaintiff from the Site; and

c. Wrongfully defacing and removing the Plaintiff's details from the signage at the Site.

25    The plaintiff elected to accept the Defendant's repudiation of the Contract and issued a notice of termination to the Defendant on or about 28 November 2018.

Particulars

Letter from the Defendant to the Plaintiff dated 28 November 2018”

21. Finally, paragraphs 26 to 29 were under the heading “Release of Retention Monies” and provided as follows:

“Release of Retention Monies

26   On 19 February 2019, the Plaintiff sent a letter to the Defendant requesting that the retention monies in the sum of $255,106.50 (including GST) be released by the Defendant to the Plaintiff.

27   The Defendant refused to release the retention monies to the Plaintiff.

28   The sum of $255,106.50 (including GST) remains outstanding and is due and payable by the Defendant to the Plaintiff.

29   The Plaintiff claims:-

a.   Judgment in the sum of $255,106.50;

b.   Interest;

c.   Costs;

d.   Interest on costs; and

e.   Any further or other order this Honourable Court deems fit.”

22. The statement of claim was verified by Mr William Tambouras, a director of Cenric. It was also certified by a solicitor, whose signature is illegible but who was described as the “Solicitor on Record”. He gave a certification purporting to comply with cl 4 of Schedule 2 of the Legal Profession Uniform Law Application Act 2014 (NSW) that there were reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law “that the claim for damages in these proceedings has reasonable prospects of success”.

23. It is convenient to note the following matters concerning the pleading.

1. First, in light of the express claim for judgment in the sum of $255,106.50 in paragraph 29(a) of the pleading, the prayer which took the form of a mandatory injunction, referred to above, is fairly to be construed as seeking judgment in a fixed sum.

2. Secondly, although various terms of the contract are the subject of pleaded allegations, nowhere is there any allegation of breach of contract, or of loss suffered by reason of some breach. Instead, the pleader has made allegations that the contract was terminated by Cenric accepting the repudiation on the part of Ms Ziegler.

3. Thirdly, notwithstanding the certification by Cenric’s solicitor, there is no claim for damages. There is a claim for an amount in a sum certain, plus interest and costs.

4. Fourthly, although Cenric demanded payment of $255,106.50 following the termination of the contract, the pleading contains no express formulation of the legal basis upon which it is alleged that the amount is one which is due and payable by Ms Ziegler.

5. In particular, there is an allegation that Ms Ziegler in fact held the cash retention in the sum of $255,106.50, followed immediately by the allegation that it was an express term of the contract that she did so as trustee for Cenric. However, there is no allegation of breach of trust, or any explicit claim that Cenric as beneficiary is entitled to the sum. If the pleading were to be construed as extending to such a claim, then it would be difficult to see how the claim fell within the jurisdiction of the District Court.

6. The evidence did not disclose whether any particulars were ever sought of any part of the statement of claim.

Further evidence upon which Cenric sought to rely

24. In addition to the foregoing, Cenric had served, but only after the 21 day period, further evidence directed to the basis upon which Cenric contended that the termination by Ms Ziegler was invalid. It will be seen below that the conclusion I have reached on the statutory demand is unaffected by any of the subsequent evidence. The tender was controversial, because much of the evidence was supplied late, and much of it was said by Ms Ziegler to collide with the “Graywinter principle”. For present purposes, it suffices to note that I admitted over Ms Ziegler’s objection evidence that Cenric contended that the termination was invalid because (a) the Notice of Substantial Breach was not served in accordance with the contract, (b) Cenric had not failed to meet a substantial obligation under the contract, and (c) Cenric had not breached or repudiated a fundamental term of the contract. I admitted evidence that in pending proceedings in the Supreme Court between the same parties, Ms Ziegler had stated that the validity of her purported termination was a likely issue between the parties. I also admitted, albeit on a limited basis, parts of an adjudication determination in which an adjudicator concluded that Ms Ziegler had not validly terminated the contract. The approach I took was informed by the fact that Mr Christie (who with Ms Hammond appeared for Ms Ziegler), confirmed that it was not suggested that Cenric’s claims that Ms Ziegler had invalidly terminated the contract in November 2018 were lacking in substance or made otherwise than in good faith (T30.19). It is not clear whether that position had been stated by Ms Ziegler at some earlier time. Indeed, it is not clear whether Ms Ziegler had served any substantive evidence in response. She ultimately tendered no evidence at the hearing before me, and made no application to cross-examine any of the deponents whose affidavits were read by Cenric.

25. There was also evidence that consideration had been given to transferring the proceedings in the District Court to the Supreme Court, and that, quite recently (in late October 2019), Cenric had proposed to amend its pleading in the District Court. I mention this because of a fall-back submission advanced by Cenric.

26. The proposed amended pleading alters the relief sought. It seeks damages in the amount of $255,160.50 on account of retention, and substantial damages on other accounts (including demobilisation costs, loss of profits and loss of opportunity). It also seeks a quantum meruit for the value of works performed by the plaintiff, estimated at $652,048. In response to Ms Ziegler’s objection, and there having been no suggestion of claims for demobilisation costs, loss of profits, loss of opportunity or a quantum meruit in the affidavit accompanying Cenric’s originating process, I did not allow Cenric to rely upon those bases to sustain an offsetting claim. I made an order limiting the reliance that could be placed on the proposed amended statement of claim to two paragraphs elaborating Cenric’s claim for the release of retention monies, formulated in proposed paragraphs 25B and 25C as follows:

“25B Further, or in the alternative, pursuant to clause M8.1, practical completion was deemed to have occurred on 25 November 2018 when the Defendant took possession of the site.

25C By reason of practical completion having been achieved, pursuant to clause M8.1 of the Contract, the Architect was required to issue a notice of practical completion.”

27. I did not give formal reasons during the hearing for those rulings. I took that course because I had acceded to Mr Christie’s application that I first deal with his “Graywinter objection”, and then, separately, deal with an objection based on prejudice. As it happens, no separate objection based on prejudice was ultimately pressed, and also as it happens, nothing material turns on any of the material whose tender was disputed. Nonetheless, I should record what I expect would have been reasonably clear from the transcript, that I took the view that the material accompanying the originating process was directed to a claim for the $255,106.50 withheld by Ms Ziegler, relying on various contractual terms but also relying on an allegation that she had repudiated the contract by wrongfully terminating it and locking Cenric out, which repudiation Cenric had accepted. Claims for other heads of loss fell outside what had been provided in the “affidavit supporting the application” (to use the words of s 459G(3)) and were not raised as a “necessary or a reasonably available inference”, to use the formulation of principle by Ward J in Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; 286 ALR 768 at [36], which both sides expressly embraced:

“There need not be an explicit articulation in the supporting affidavit of the ground(s) on which the application to set aside is to be raised, provided the ground is raised expressly or by necessary or a reasonably available inference.”

28. Evidence going to the way in which Ms Ziegler’s purported termination was wrongful was admitted, but on a limited basis, having regard to her concession that the claim of wrongful repudiation was made bona fide. I regarded evidence of the later proposed reformulations by Cenric of its claim to the $255,106.50 as capable of bearing upon whether it had advanced a genuine offsetting claim.

Overview of the position

29. The essential position, then, is that within the time specified by s 459G, Cenric had pointed to an offsetting claim by it, which had been the subject of a formal request to Ms Ziegler in a fixed amount for the return of the retention monies. That claim was the subject of proceedings commenced in the District Court by verified statement of claim. However, there were, as Mr Wood SC, who appeared for Cenric, also with commendable candour readily accepted, deficiencies in the way the statement of claim had been pleaded (“It’s almost self-evident from the way in which the District Court proceedings are poorly expressed that they called for amendment”: T31.33). In particular, the Request for Release of Security referred to Clause C “Security” and a 10 day period pursuant to Item 10 of Schedule 1, but did not otherwise explain the basis of the request. The pleading was opaque as to the basis on which it was said that Cenric was entitled to be paid the retention monies. The thrust of Ms Ziegler’s submission was that the claim made by Cenric was hopeless on the basis articulated, and that was sufficient for its originating process to be dismissed.

30. In order to understand the possible nature of Cenric’s claim, and to assess the force of Ms Ziegler’s submissions, it is necessary to turn to the provisions of the Contract.

The Simple Works Contract

31. The “Simple Works Contract” between the Parties occupies 72 pages. It substantially follows the form of the Australian Building Industry Contract issued by the Australian Institute of Architects (ABIC SW-2008 H NSW). It provides in cl A6 for an architect to administer the contract, who is the owner’s agent for the purpose of giving instructions to the contractor, but while acting as assessor, valuer or certifier is to act independently and not as the owner’s agent (cl A6.3). The owner is required to ensure that the architect when acting as assessor, valuer or certifier complies with the contract.

32. Clause C2 permits, in cases where security is provided in the form of a cash retention, the owner to withhold up to 10% of each progress payment until the value held equals the nominated 5% cash retention. The litigation was conducted on the basis that this occurred, as a result of which Ms Ziegler was holding the full 5% provided by the contract (in Item 8 of Schedule 1). Clause C2.2 provides:

“The owner must hold the cash retention, including interest earned on it, less any bank fees or charges on the account, as trustee for the contractor in a separate bank account designated as a trust account.”

33. In applications of this nature, it is ordinarily undesirable to construe a contract: Infratel Networks Pty Ltd v Gundry’s Telco and Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372 at [46]; Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300 at [37]. Accordingly, it is sufficient to observe that prima facie that clause is apt to give rise to a valid express trust of the money retained from time to time by the owner. Where in a formal contract the parties have chosen to use the language of trust, ordinarily that will be its legal effect: see Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; [2000] HCA 25 at [35]. When the contract was entered into, provision was made for the creation of a trust if and when Ms Ziegler elected to withhold amounts otherwise due to Cenric. As and when those amounts were withheld by her, a completely constituted trust would arise: see Associated Alloys at [28]. The fact that Ms Ziegler is obliged to keep the amounts retained in a separate account, styled a trust account, strengthens the position. No submission was made that Ms Ziegler did not hold the sum as trustee for Cenric.

34. There is good reason for such a provision in the contract. The builder thereby obtains a measure of security against the possibility that the owner might become bankrupt. The owner likewise enjoys a measure of security in the event that there is, towards the end of the performance of the contract, a dispute as to whether completion has been achieved or whether there are defects.

35. The trustee and beneficiary are parties to the contract which creates it. It would ordinarily follow that the trust is subject to the other terms of the contract. Those terms make provision, in certain specified circumstances, for monies held on trust to be “released” (eg cl C6 and C7) or “drawn on” (eg cl C4). That language would typically be used of a deposit, but is a little awkward in connection with a trust. It would seem that, insofar as the owner was entitled to “draw on” amounts held by her as trustee, that amounted to a power to appropriate for her own benefit all or part of the trust property. But all that is necessary for present purposes is to observe that the use of such language (a) does not detract from the analysis based on trust, and (b) may also be apt to give rise to rights at law pursuant to the contract in relation to the trust property. There is “no difficulty in recognising the co-existence in one transaction of legal and equitable rights and remedies”, as Lord Wilberforce noted in a not dissimilar context of overlapping debt and trust in Barclays Bank Ltd v Quistclose investments Ltd [1970] AC 567 at 581.

36. Clause C6.1 provides that where the architect issues a notice of practical completion, “the contractor is entitled to the release of 50% of the amount of the security then held”. Item 10 of Schedule 1 (to which references were made in the request and the pleading) provided for payment of certificates and release of security after 10 business days. Clauses N6 and N13 (which were also particularised in the pleading) also referred to obligations to pay after certification.

37. Clause C6.1 was relied upon by way of a fall-back argument by Cenric (developed at some length at T43-48), because of a deeming provision in cl M8.1 which provided:

“If the owner takes possession of the works before the architect issues the notice of practical completion, the works are to be treated as having reached practical completion. The architect must issue to the contractor and to the owner a notice of practical completion within 5 working days after being notified in writing that the owner has taken possession, unless clause M4 applies.”

It was not suggested that cl M4 applied. It will be seen that the proposed amendments to the District Court pleadings relied on cl M8.1. It is convenient to deal with this immediately.

Cenric’s fall-back submission

38. According to Cenric, when Ms Ziegler retook possession on around 25 November 2018, cl M8.1 was invoked, and the architect became subject to an obligation to issue a notice of practical completion, which in turn entitled Cenric, pursuant to cl C6, to the release of 50% of the amount. Cenric acknowledged in oral submissions that this only gave it a partial offsetting claim; hence this was a secondary argument.

39. Ms Ziegler initially relied upon cl M8.2, but ultimately accepted, in my view correctly, that the power conferred by that subclause upon the contractor to make a claim to adjust the contract was alternative to the rights conferred by cl M8.1, and thus was no answer to a claim based on cl M8.1. Ms Ziegler’s further submission was that it had not been established that the architect had been notified in writing that Ms Ziegler had taken possession, so that the obligation to issue a notice of practical completion had not been crystallised. Ms Ziegler relied upon substantially the same reasoning on the necessity to establish that the preconditions of the clause had been satisfied, as may be found in Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372 at [53] and [58].

40. To my mind there is a larger difficulty with this aspect of Cenric’s case, which falls within the scope of Ms Ziegler’s overriding objection to it (“our primary point is this is light years away from the original District Court claim”): T49.1. Although some attempt has been made to articulate it in the proposed amendments to the statement of claim in the District Court, I find it difficult to see how a contractual claim to half of the retention sum is to be discerned from the material accompanying the originating process. In that material there is no mention of any of these clauses, or of a deemed practical completion and the contractual rights thereafter. Rather, and inconsistently with that, it is said that the contract came to an end by Cenric’s acceptance of Ms Ziegler’s repudiatory conduct. And still further, there is no suggestion of any fall-back claim of a partial offsetting claim.

41. True it is that a debtor may in an appropriate case advance alternative bases on which one or more offsetting claims are propounded. But I incline to the view that Cenric’s belatedly advanced secondary case for an offsetting claim falls outside what it is permitted by statute to advance, having regard to what was put forward in its affidavit supporting its originating process. For the reasons given below, it is not necessary for me to reach a concluded view on this.

42. Various other clauses in the Simple Form Contract impose obligations to pay amounts, in all cases following the provision of a certificate by the architect. But the contract is, so far as I can see, entirely silent upon what happens to the money held on trust in the event that a contractor exercises a non-contractual entitlement to terminate the contract following repudiation by the owner. I raised this (T17.33-45) during the hearing, but was not directed to any provision which was expressed to survive termination by acceptance of a repudiation, and Mr Christie ultimately advised that there was none (T 26.14). True it is that various clauses expressly contemplate the possibility of wrongful repudiation by the owner which is accepted by the contractor. That may be seen, for example, in cll Q15 and Q16. But the contract seems to be entirely silent as to the effect of its termination upon the separate institution, namely the trust of the retention sum, created by cl C2.2 and the retention from progress payments of 10% throughout the performance of the contract.

Ms Ziegler’s submissions

43. Focussing upon the terms of the contract which had been pleaded and, in particular, the reference in the 19 February 2019 Request for Release of Security to Item 10 of Schedule 1 and a period of 10 business days after delivery of this notice, Ms Ziegler submitted that the claim was one which was palpably bad in law and so could not qualify as a genuine offsetting claim. She said that there was no claim for damages, and that the clauses referred to in the request and in the pleading did not support the claimed entitlement to be paid the retention. As Mr Christie put it, “Any fair reader of the affidavit, the certificate and the pleading would think this is a claim for release of the security under the contract pursuant to the clauses pleaded, not a claim for unliquidated damages” (T26.45).

44. As I pointed out during the hearing, that characterisation of Cenric’s claim gives no weight to the section headed “Termination” reproduced above. Centric made it clear in written and oral submissions that at the heart of its demand was a claim that Ms Ziegler had wrongly repudiated the contract, which repudiation it had accepted, following which it was entitled to the retention amounts. I think it is fair to say that the precise basis upon which that entitlement rested was not articulated in the written materials. As will have been seen above, a moderately elaborate contractual entitlement, based upon a deemed practical completion and an obligation upon the architect, was the subject of the proposed amendment, and was developed orally as a fall-back claim giving rise to an offsetting claim of half of the retained funds.

45. An alternative reading of the (unamended) pleading was that the pleader had alleged that the contract had been brought to an end by Cenric accepting Ms Ziegler’s wrongful repudiation, as a result of which Cenric was entitled to be paid the retention monies. That reading is supported by the allegations relating to wrongful repudiation being accepted by Cenric immediately prior to the allegations concerning release of the retention monies. It also involves the proposition that many of the allegations as to the terms of the contract are unnecessary. I understood Mr Christie to accept this to be an available reading of the pleading (T23.12-23), if I was against him on his main point, which was that:

“If the plaintiff is saying it nails its flag to the mast and says with its request for security we want this back by reason of clause C6, I don't think, given the clear and unambiguous nature of that representation annexed to the affidavit, that one ought read the pleading which alleges repudiation as claiming it on some other basis, and in any event we would not accept the proposition that in the case of an alleged valid termination there is a crystallised entitlement to the return of the security.” (T27.50-28.6).

46. Ms Ziegler, very properly, was focussed upon the claim which had been articulated in support of Cenric’s originating process, rather than the broader question whether Centric had any claim at law or in equity to be paid the retention. I understood her to deliberately eschew any submission that Cenric could not have a claim on any basis. Hence, by reference to the material supplied by Cenric, there was the following exchange:

HIS HONOUR: [O]bviously I'll hear [from] Mr Wood but we’ve got all these allegations of terms, none of which are breached. There’s no claim for breach. There’s no claim for damages. So a lot of it is probably embarrassing in a technical sense. But somehow it’s said that as a consequence of the contract coming to an end, there’s a debt owing by you to it of a quarter of a million dollars.

CHRISTIE: Yes.

HIS HONOUR: That’s the thrust of this.

CHRISTIE: With great respect, it's impossible to see how that could be. Now, can I take your Honour to

HIS HONOUR: So the contract terminates and you just get to snaffle the quarter of a million dollars, as night follows day.

CHRISTIE: No, not necessarily, your Honour.

HIS HONOUR: You said it was impossible to see how you could owe that money to the plaintiff.

CHRISTIE: Sorry, on the pleading. I'm sorry, your Honour.” (T19.23-45)

47. Ms Ziegler’s cautious approach, confined to the pleaded case, was appropriate. It seems to me, for example, to be plainly arguable that Cenric has rights in equity as the beneficiary of the trust established by cl C2.2. It may even be that those rights entitle it to obtain the entirety of the retained sum. Test the matter this way: suppose (because of some event entirely unrelated to the present proceedings) Ms Ziegler were made bankrupt. It would seem, to say the least, plainly arguable that Ms Ziegler’s trustee in bankruptcy would not have beneficial ownership of the trust money. But it is likewise difficult to conclude that a claim based in equity upon Cenric’s rights as a beneficiary of the trust was asserted in the District Court, notwithstanding the two paragraphs dealing with Ms Ziegler holding the amount claimed on trust to which I have earlier referred.

48. In a sense, the fact that the contract provides for Ms Ziegler to hold the retained amounts as trustee is a distraction, because I doubt that Cenric’s rights are purely equitable. If the contract had provided merely that she retained the funds, without constituting herself as a trustee of them, then it would be a matter of some surprise for the legal position to be that she, having wrongfully repudiated the contract which repudiation having been accepted by Cenric, was entitled in point of law to retain the entirety of the retention sum. In some respects, the position is analogous to that of a deposit or part payment of the price to a vendor who wrongly repudiates an executory contract. If the repudiation is accepted, the purchaser is plainly entitled to be repaid. As Isaacs J said in Francis v Lyon (1907) 4 CLR 1023 at 1043; [1907] HCA 12, where the vendor repudiated his contract for sale:

“It does not signify whether the £250 was a deposit or a part payment only, because in either view it is impossible in the circumstances of this case that the defendant should be allowed to keep it.”

49. The matter reduces to this. Cenric has done work, but has been underpaid to the extent of some $250,000, with Ms Ziegler holding the underpayment. Prior to the termination of the contract, Ms Ziegler was entitled to retain up to 10% of the amounts due to Cenric, to a maximum of $255,106.50, being 5% of the original contract price. The litigation has been conducted on the basis that that is what occurred. Cenric puts forward, by way of a concededly bona fide claim, the allegations that Ms Ziegler wrongfully repudiated the contract, which repudiation it accepted. Cenric has demanded that it be paid the amounts retained by Ms Ziegler. Her entitlement to retain those amounts was founded in the terms of the contract, but through her repudiatory conduct accepted by Cenric, those rights have been brought to an end.

50. It seems to be reasonably arguable, to say the least, that Cenric is entitled to claim a legal entitlement to the unpaid price of the price for the works that it has done and in respect of which Ms Ziegler is no longer authorised to decline to pay as to 10% of the price.

51. True it is that the demand made by Cenric for repayment identified clauses of the contract which were no longer in existence, and its pleading in the District Court to be paid the same amount failed to identify the legal basis. I do not regard that as determinative. It has at all times been plain that Cenric contends that it was wrongfully kept out of the building site, and that Ms Ziegler wrongfully repudiated the contract and that the contract was brought to an end by its acceptance of her repudiation. At all times it has been plain that Cenric claims to be paid the amounts retained.

52. Ms Ziegler sought to rely, by analogy, on the rejection by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 of a belated claim by the debtor based on rectification in equity. This was rejected on the bases that “no evidentiary foundation whatsoever was laid to make out that there was a genuine or arguable case for rectification” and that the affidavit “did not set out any material facts that could sustain a claim to rectify the contract”: at [38] and [39]. But the opposite is true of the present case. The only material facts are the written contract between the parties, the wrongful repudiation of the contract by Ms Ziegler, Cenric’s acceptance of that repudiation, and the retention by her of part of the price otherwise payable for work done by Cenric.

53. Ms Ziegler’s submission amounted in substance to an insistence that Cenric be bound to the precise way in which its entitlement to the retention amount had been articulated:

“Now, pleading problems in the context of Graywinter are serious problems, as Grandview Construction indicates. There, rectification was not pleaded. It was too late to raise it later on.

In our respectful submission, when one looks at this District Court pleading, there is no rational basis in our respectful submission to justify the claim for the return of the retention other than on the basis of the certificates expressly - the certificate provisions expressly particularised.” (T39.24-31).

54. I think this sets the bar too high. One way of testing this is to look at the practical reality of the position 21 days after the statutory demand had been served, when Ms Ziegler had to decide whether to contest Cenric’s application to set it aside. She knew that she was facing a claim that she had wrongly terminated the contract, and wrongly kept Cenric off site, and that Cenric had demanded the payment of the amounts withheld by her for work done. (Of course there are other claims between the parties, but they are not presently relevant.) As it happens, she also knew, if properly advised, that there were deficiencies in the legal basis of Cenric’s claim as articulated. But the material facts on which that claim was based were clear, and were contained in the material supplied within 21 days. That is, at least in the circumstances of this case, sufficient.

The Graywinter principle

55. A great deal of submissions were directed to a “Graywinter analysis” and the “Graywinter principle”. To be fair, Mr Wood acknowledged that such references tended to “distract from the statutory language”. But that is but one reason why the lack of precision in such labelling should be discouraged.

56. Lord Briggs recently said, in a speech now published as “Equity in Business” (2019) 135 LQR 567 at 569, that:

“One of the unfortunate habits of lawyers, which continues to make the law (including equity) impenetrable to anyone other than themselves, is their tendency to label remedies, principles and rules by reference to the reported case in which they were first formulated, or the section of the CPR in which they are laid down. Words and phrases like Mareva, Walsh v Lonsdale and Pt 36 unlock whole warehouses full of meaning to lawyers, but the doors remain fully bolted to everyone else.”

57. I agree with his Lordship’s observation, and with the effect that it contributes to making the law more inaccessible than it otherwise might be. It may also encourage imprecise thinking and increase the capacity for disputation in an area of litigation where the applicable rules and principles should be clear. I note the specific discouragement in the judgment of Bell P in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 at [40]:

“It may be observed in passing that the continued use of the shorthand label “the Graywinter principle” is perhaps unfortunate or at least should be employed with some caution for at least three reasons. First, it has a tendency to distract attention from the language of the statute. Secondly, as this Court pointed out in Infratel Networks Pty Ltd Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372 at [28], subsequent decisions, including of intermediate appellate courts (Graywinter being a decision of Sundberg J of the Federal Court sitting at first instance), have modified it: see, for example, Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51. Thirdly the Federal Court rule by reference to which Sundberg J framed his judgment in Graywinter has since been repealed and, as Robertson J observed in Independent Portable Buildings Pty Ltd v Modular Building Systems Pty Ltd [2011] FCA 511 at [48], there appears to be no equivalent provision in either the Corporations Act or the Federal Court (Corporations) Rules 2000 (Cth).”

58. With all that I respectfully agree. I do not see why, many years after the repeal of a rule upon which Graywinter was based, litigants should make submissions based on a “Graywinter principle”. Irrespective of whether the limitations in the scope of what a debtor is permitted to advance pursuant to s 459G(3) are treated as going to admissibility or the ultimate issue whether there is a genuine dispute or an offsetting claim, it would surely be better to use the language of the statute or else to identify a principle contained in a decision based on the statute. Invoking the name of a case which is on any view no longer applicable (if it ever was applicable) to such a proceeding simply begs the question “What precisely do you mean by that rule or principle?” and deflects analysis from the basis on which it is contended that the debtor is precluded from advancing some aspect of its case.

Conclusion

59. The position may be analysed as follows. There is evidence that Cenric performed demolition and construction work on Ms Ziegler’s land, and rendered claims for payment of some $5,000,000. Ms Ziegler withheld an amount now totalling slightly more than $250,000 in a separate trust account (the contract entitled her to withhold rather than pay 10% of the first $2.5 million of payments to Cenric). Cenric claims that Ms Ziegler wrongly repudiated the contract when she purported to terminate and locked it out from the premises, and that Cenric was entitled to accept her repudiation and bring the contract to an end. Ms Ziegler disputes that, but accepts that Cenric’s claim is advanced bona fide. In those circumstances, Cenric requires payment of the outstanding $250,000 owed by Ms Ziegler for work previously done and invoiced. I have outlined above reasonably arguable bases for Cenric being entitled, at law and in equity, in support of that claim. Cenric’s claim turns merely on the contract, the fact that Ms Ziegler has retained part of the agreed price, and Cenric’s acceptance of her repudiation.

60. As Mr Christie emphasised, those claims were not articulated in their legal detail, although they were adopted with appropriate opportunism during the course of the hearing by Cenric. Further, as Mr Christie emphasised, a different legal basis was articulated in the request for the return of the retention monies and in the District Court pleading.

61. But it was quite clear from the outset that Cenric was insisting that Ms Ziegler could not retain beneficially the $250,000 she had not paid Cenric. Indeed I did not understand Mr Christie to dispute that she had to account for it, one way or another, to Cenric. Of course her ultimate point is that her own claims for defective work would have the effect that she could answer Cenric’s demand to be paid in full. That may or may not be so, and cannot presently be determined, just as Cenric’s claim that Ms Ziegler repudiated the contract cannot presently be determined. But it is no answer to the much more limited issue which arises in this proceeding, namely, does Cenric have a genuine claim offsetting its acknowledged undisputed indebtedness to Ms Ziegler on the costs judgment?

62. I have concluded that Cenric does have a reasonably arguable claim, and in my view it was sufficiently articulated in the affidavit accompanying the originating process. In effect it was “Pay me in full for the work which you have only partly paid me for, now that I have validly terminated the contract which permitted you to retain 5% of the contracted amount”. The fact that there are difficulties in the precise way in which that claim had been articulated does not detract from its gravamen having been made out in the supporting affidavit.

Orders

63. For those reasons, the statutory demand dated 27 August 2019 should be set aside. That is the “event” for the purposes of the ordinary exercise of the discretion as to costs. However, in one respect I would depart from the general rule in UCPR r 42.1.

64. Cenric served a very substantial affidavit either one or two working days before the hearing. This was contrary to the (already extended) timetable. The affidavit sought to develop bases for an offsetting claim which went outside that advanced in the material accompanying its originating process. In response to Ms Ziegler’s objection, Cenric did not press the tender of around 1,000 pages of the exhibit (which was most of it). Much of what was pressed I rejected. What little remained did not significantly go beyond material already in evidence. The costs of preparing that affidavit, and reproducing it in the court book (most of which was occupied by it), are discrete and non-negligible, so much so that I think a special costs order is warranted. In formulating that costs order, a broadbrush approach is appropriate, so as to prevent further disputes as to costs. I will exclude from the order as to costs which Ms Ziegler must pay (a) Cenric’s costs of preparing Mr Tambouras’ affidavit made on 7 November 2019, and (b) ¾ of Cenric’s costs of preparing the court book.

65. I make the following orders:

1. Set aside the statutory demand issued by Ms Ziegler to Cenric dated 27 August 2019.

2. Ms Ziegler to pay Cenric’s costs, excluding (a) Cenric’s costs of preparing Mr Tambouras’ affidavit made on 7 November 2019, and (b) ¾ of Cenric’s costs of preparing the court book.

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Decision last updated: 14 November 2019