Goldcrest v Equitibuild

[2001] NSWSC 646

CITATION:	Goldcrest v Equitibuild [2001] NSWSC 646
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 1113/2001
HEARING DATE(S):	27/07/2001
JUDGMENT DATE:	27 July 2001
PARTIES :	GOLDCREST PROPERTIES N0 2 PTY LTD v EQUITIBUILD PTY LTD
JUDGMENT OF:	Master Macready at 1

COUNSEL :	P. Dowdy for plaintiff G. Colman for defendant
SOLICITORS:	Sullivans Solicitors for plaintiff MBA Lawyers for defendant
CATCHWORDS:	Corporations Law. Application to set aside statutory demand. Demand set aside. No matter of principle.
DECISION:	Paragraph 19

- 1 -

1   MASTER: This is an application to set-aside a statutory demand dated 21 December 2000 claiming a sum of $230,709.54. The amount represents progress claims under a construction management contract dated 4 February 2000 that had not been paid.

2   The plaintiff was involved in a construction project which had already had some problems with an existing builder and the project was only partly completed. The present two parties got together to complete the project. There was a course of correspondence between December and February in which the parties discussed the contract into which they would enter. The plaintiff company had at one stage on 11 January sent a letter to the defendant setting out its understanding of the type of contract that was required in these terms:

"We are pleased to advise that Goldcrest Properties No. 2 Pty Limited intends to engage Equitibuild for completion of subject project substantially on terms and conditions of your offer dated 30 December 1999, our discussions and your fax letter dated 9 January 2000 as below:

1. Fixed Preliminary/operational on-site costs (including all insurances) and 15 days delays due unforeseen circumstances (such as bad weather) $321,908.00
2. Builders/Project Management margin on construction
costs 10%
3. Practical completion 15 July 2000
4. Liquidated damages $3000/week
5. Site Mobilisation No later than 12 January 2000
6. Payments: Monthly against Bank QS certification

You are authorised to take possession of site while formal contract is executed. Goldcrest Properties No. 2 Pty Limited indemnifies Equitibuild for costs incurred in the interim."

3   The correspondence continued, the builder being very careful to include in its letters that the letters would not give rise to any contractual relationship between the parties.

4   Ultimately a construction management contract was signed on 4 February. It is quite different from what was envisaged in relation to preliminaries and markedly different in respect of the management fee which was provided for at 17 per cent in the agreement.

5   After execution the matter proceeded for some months. There were some five progress claims made and paid with a total of $221,000 paid. There was then a falling out and non-payment of some claims. Eventually the statutory demand was issued. It is necessary to see how it is said that there is a genuine dispute.

6   This follows fairly plainly from paragraphs 7 and 8 of the affidavit of Mr Jain sworn on 22 March 2001. Those paragraphs are in the following form:

"7. In early February 2000 Harry Andrews produced to me a document entitled 'Construction Management Contract,' a copy of which is annexed hereto and marked 'G', such document now bearing date
4 February 2000. At about the time Harry Andrews produced the Construction Management Contract. He said words to me to the effect of:

Andrews: 'My solicitor says that he can't incorporate the terms of the correspondence into this form of contract. It is just a matter of presentation. The financial outcome will be the same as what has already been agreed. Let's just sign it and get on with it.'

8. I did not read the contract and believe that it contained as near as possible the terms set out in the chain of correspondence. I am not legally qualified but I am an engineer by profession. I did not seek legal advice as to the contents of the Construction Management Contract. I did not believe the Construction Management Contract would contain anything other than the agreement constituted in the chain of correspondence. I signed the Construction Management Contract and affixed the company seal. The project had already been delayed one month and the Bank was exerting pressure as it wanted to see things happening."

7   This conversation referred to in paragraph 7 was not denied by Mr Andrews who also gave evidence. His evidence in fact covered the course of the negotiations, referred to this meeting, and he says that he very carefully took Mr Jain through the contract and explained it to him. However, there is no denial of this conversation.

8   The plaintiff says it is a simple case where there has been misleading and dishonest conduct under section 5 of the Trade Practices Act. They would be entitled under section 87 to have the agreement set aside. It is necessary to see whether this could be categorised as a genuine dispute in relation to the contract. The claim is made clearly under that contract.

9   I have had the benefit of a number of submissions in respect of the principles to be applied. Probably the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments in respect of the expression "Genuine dispute":

"It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s459H. 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) AC331 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.'

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 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."

10   The defendant's case has been presented carefully and they argue quite powerfully there are many circumstances that could lead me to come to the conclusion that the statements by Mr Jain are inherently improbable or to use another phrase, do not have plausibility to merit further investigation. Some of these matters include the following.

1. It is perfectly clear that during the course of the negotiations the contract which was eventually signed was submitted to the plaintiff's quantity surveyor and he was told by the builder that they were going to charge 17 per cent.
2. There were discussions between Mr Jain and Mr Andrews in which Mr Jain suggested amendments to the contract. He had a copy of the contract in his possession.
3. The actual contract itself was signed by Mr Jain and he initialled next to the provision that provided for the fee of 17 per cent.
4. Copies of the executed contract were sent immediately after execution to the plaintiff.
5. There was a course of dealings under the contract for many months. There were five claims made, all of them on their face of them claiming the amount of fee at 17 per cent.
6. There was not a complaint about this matter, the nature of the contract, until after these proceedings were commenced.

11   These are fairly powerful reasons, but the difficulty is that Mr Jain does say that he did not read it and he did not have the expertise to know. The representation relied upon is not so much as to whether it is 10 per cent plus a certain amount of preliminaries or 17 per cent and some other, but a representation that the outcome will be the same as has already been agreed. This is a somewhat different question and it may be that if the matter is debated on an application to set-aside the agreement that could by itself quite separately and apart from these differences between the 10 per cent and 17 per cent be sufficient to set it aside.

12   In these circumstances one is looking to see whether there is a dispute that is genuine.

13   In this respect I note that there is evidence from a quantity surveyor in which he does a series of calculations, looking at what the defendant might be entitled to if the arrangement foreshadowed by the plaintiff in correspondence was adopted as a contractual basis. As a result of his analysis he came to two conclusions, a highest and best case and a worst case. He concluded that the building company the defendant had been over paid $94,446.08 or $48,014 at worst.

14   Now, if the agreement is set-aside it may well be that there would not be a contract arising out of the letters themselves and it may be that what one is left with is a claim on a quantum merit. There is no evidence before me quantifying a claim on a quantum merit basis. What the quantity surveyor’s evidence suggests is that there may be some genuineness in the raising of the dispute at this stage in contrast to the other indications that I have referred to above.

15   It seems to me that on the particular representation which has been referred to the agreement might be set-aside. It may have its problems, but I think it is a triable issue and accordingly I think it is appropriate that the demand be set-aside. The demand is based solely on the contract and the genuine dispute relates to whether that contract should continue to apply.

16   Accordingly, I order that the statutory demand served by the defendant on the plaintiff dated 21 December 2000 be set aside. So far as costs is concerned this is another one of those matters where a basis for setting aside the contract did not appear until well after proceedings commenced. In fact it did not appear until the affidavit of Mr Jain was sworn on 22 March 2001.

17   In the circumstances and unless anyone wishes to make any other submissions to me I would propose to order that the plaintiff pays the defendant's costs on and from 1 April 2001.

18   I have heard further submissions that emphasise the course of correspondence which refers to the claim of the plaintiff that the contractual basis was not a signed contract but in fact correspondence in January. Notwithstanding those submissions I am still of the view that because the representation did not come to light until the affidavit of 22 March that costs I foreshadowed should apply.

19   Accordingly, I order that the defendant pay the plaintiff's costs on and from 1 April 2001 with the exception of costs of last Monday 23 July. In respect of that day I order the plaintiff to pay the defendant's costs thrown away as a result of the adjournment on that day. I order the exhibits to be returned.

Last Modified: 08/22/2001