Karolaw Pty Ltd v Gadsden Signs Pty Ltd

Case •

[2000] QSC 79

•

14 April 2000

SUPREME COURT OF QUEENSLAND

CITATION: Karolaw Pty Ltd v Gadsden Signs Pty Ltd [2000] QSC 079
PARTIES:

KAROLAW PTY LTD ACN 078 716 275
(applicant)
v
GADSDEN SIGNS PTY LTD ACN 067 325 660
(respondent)

KAROLAW PTY LTD ACN 078 716 275
(applicant)
v
BRACKENDEEN PTY LTD ACN 010 796 460
(respondent)
FILE NOS: S2548 of 2000 Brisbane Registry
S2550 of 2000 Brisbane Registry
DIVISION: Trial Division
DELIVERED ON: 14 April 2000
DELIVERED AT: Brisbane
HEARING DATE: 31 March 2000
JUDGE: Mullins J
ORDER:

1.  S2548 of 2000
That the creditor's statutory demand for payment of non-judgment debt in the sum of $52,177 served by Gadsden Signs Pty Ltd (ACN 067 325 660) on Karolaw Pty Ltd (ACN 078 716 275) on 29 February 2000 be set aside pursuant to section 459G(1) of the Corporations Law.

2.  S2550 of 2000
That the creditor's statutory demand for payment of non-judgment debt in the sum of $112,964 served by Brackendeen Pty Ltd (ACN 010 796 460) on Karolaw Pty Ltd (ACN 078 716 275) on 29 February 2000 be set aside pursuant to section 459G(1) of the Corporations Law.
CATCHWORDS:

CORPORATIONS LAW – STATUTORY DEMAND – Application to set aside – agency of contractor in making subcontract – s459G Corporations Law.

s459G, 459H(1)(a) Corporations Law

Dabbs v Seaman (1925) 36 CLR 538
John Goss Projects Pty Ltd v Thiess Watkins White Constructions Ltd (in liquidation) (unreported, Court of Appeal (Qld), 28 April 1992)
B&B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227
COUNSEL: Mr I R Perkins for the applicant
Mr M D Martin for the respondents
SOLICITORS: Minter Ellison for the applicant
Tucker & Associates for the respondents

  1. MULLINS J:  On 29 February 2000 each of the respondents served on the applicant a creditor's statutory demand for payment of a non-judgment debt.  In the matter of Brackendeen Pty Ltd ("Brackendeen"), the amount of the debt claimed was $112,964.  In the matter of Gadsden Signs Pty Ltd ("Gadsden") the amount of the claimed debt was $52,177.    

  1. In each matter the applicant has filed an application pursuant to s459G(1) of the Corporations Law seeking an order setting aside the statutory demand. Both applications were heard together, as identical issues arise in each application. The applicant seeks to show that there is a genuine dispute between it and each respondent about the existence of the debt to which each demand relates, as required by s459H(1)(a) of the Corporations Law.

  1. The applicant as trustee for the Morningside Central Trust is the registered owner of the Morningside Shopping Centre.  The Morningside Shopping Centre required various refurbishments and construction works.  On 13 April 1999 the applicant entered into a building contract based on AS2124 – 1992 with Northbuild Constructions Pty Ltd ("Northbuild") for a lump sum price of $3.6 million.  It appears that a dispute arose under that contract which was settled by the parties entering into a new contract.  That new contract is entitled "Construction Management Contract" and dated 30 July 1999 ("the Agreement").  In the Agreement the applicant is designated as the Client and Northbuild is designated as the CMC. 

  1. In connection with the project, on 28 September 1999 Northbuild entered into a subcontract with Brackendeen which is described on the document itself as "Sub-Contract No. 293S60" and on 29 October 1999 Northbuild entered into a subcontract with Gadsden which is described on the document itself as "Sub-Contract No. 293S88". 

  1. Each respondent claims that Northbuild entered the subcontract as the agent of the applicant.  The debt claimed by each respondent is in respect of goods and services provided under the subcontract.  The applicant claims that the traditional three tier structure of proprietor, builder and subcontractor applied to the parties' relationship, so contends that Northbuild is liable to pay the debts claimed by the respondents.

  1. Each respondent relied on affidavits of Ms Barbara Anne Mason and Mr Paul Boddington.  Ms Mason is the managing director of the Building Industry Credit Reference Service Pty Ltd which acts on behalf of subcontractors in the recovery of debts owed to them.  Mr Boddington is a director of Northbuild.  No person from either respondent swore an affidavit. 

  1. Northbuild claims to have terminated the Agreement with the applicant on 11 February 2000.  The applicant and Northbuild are in dispute about payments under the Agreement.  

  1. Prima facie each subcontract in form appears to be a subcontract between Northbuild and the named subcontractor.  The applicant is not named as a party.  There are no obligations imposed on the applicant under the terms of the subcontract. 

  1. What each respondent relies on are the recitals to the subcontract and the fact that each subcontract has been signed on behalf of the applicant as principal.  The recitals to the subcontract are as follows:

"AThe Contractor has been appointed the Construction Manager an agent of the Principal for the purposes of providing construction management services for the completion of the redevelopment of the Morningside Central Shopping Centre ('the Works') in accordance with the Contract between them ('the Head Contract').

BThe works the subject of this subcontract are a part of the

Works under the Head Contract.

CThe Contractor enters this Subcontract as agent of the Principal.

DThe Parties wish to record the following terms and conditions

under which the Subcontractor agrees to execute and complete
the works the subject of this Subcontract."

  1. The recitals in a contract are usually statements of fact which set the foundation of the transaction between the parties to that contract:  Dabbs v Seaman (1925) 36 CLR 538, 549. The statement in the recitals of the contract that Northbuild enters the subcontract as agent of the principal is a statement which has effect as between Northbuild and each subcontractor, as the parties to that subcontract. It can affect the legal position of the applicant only if Northbuild was, in fact, acting as agent of the applicant in entering into the subcontract.

  1. It is therefore necessary to determine on this application whether there is a dispute that is genuine between the applicant and each respondent, as to whether or not Northbuild was contracting with each respondent as the agent of the applicant.

  1. The matter is not resolved by simply looking at the subcontract.  On the one hand, the signing of the subcontract by the applicant raises an issue whether the applicant has adopted the recitals to the subcontract, but on the other hand, the form, the parties and terms of the subcontract are consistent only with a true subcontract relationship between Northbuild and each respondent.  Mr Perkins of Counsel who appeared on behalf of the applicant relied on cls 4, 9(a), 9(b), 9(f), 17, 21 and 32 of the general conditions and cls 1(a) and 1(b) of the special conditions of the subcontract as consistent only with the usual three tier arrangement.  In particular, the requirement under cl 9(b) of retentions being held by Northbuild and the incorporation of obligations under the "head contact" pursuant to cl 18 of the subcontract are difficult to reconcile with the notion of Northbuild being merely the agent of the applicant. 

  1. It is therefore necessary to consider whether the Agreement resolves the issue of whether Northbuild was acting as the agent of the applicant in entering into the subcontracts.

  1. Recital C of the Agreement refers to Total Project Control Pty Ltd being appointed by the applicant as the project manager of the project.  Total Project Control Pty Ltd is referred to as "the PMC" throughout the Agreement.  Under cl 3.01.04 of the Agreement the PMC is expressed to be the agent and representative of the Client in all matters relating to the Agreement.

  1. The extent of the works under the Agreement is set out in the drawings listed in schedule C1 of the Agreement and the Construction Cost Budget for the construction of the works as estimated by the CMC is $3,627,880. 

  1. There is a definition of "Sub-Contract" in cl 2.01.15 of the Agreement.  It is defined to mean "a subcontract entered into by the CMC with a sub-contractor as agent of the Client". 

  1. Clause 3.09.2 of the Agreement provides:

"3.09.2  No subcontract is to be entered into, order placed, or commitment undertaken by the CMC which will cause the total expenditures against a particular Trade Package Budget or, any separately identified expenditure category within that budget, to be exceeded without the prior approval of the PMC, which shall not be unreasonably withheld, PROVIDED THAT, the CMC is entitled to enter such subcontracts or place such orders or commitments at any time after two (2) working days' request to the PMC for such approval whether such approval is given or communicated to the CMC."       

  1. Clause 5.01 of the Agreement provides:

"5.01  The CMC is HEREBY APPOINTED the agent of the Client for the purpose of providing construction management services required by this Agreement and shall perform all construction management and consultant builder services, to a level of skill that would be expected from a Construction Manager experienced in the construction management of Projects of the nature of the present Project."

  1. The services to be provided by the CMC in performing the obligation set out in Clause 5.01 of the Agreement are set out in the Agreement and include those then set out in Clause 5.02.  One of the services is as follows:

"5.02.4  Construction Supervision.  The CMC must ensure that construction of the Works is performed and carried out in a good and workmanlike manner and in conformity with the Contract Documents, and legal requirements."

  1. Under cl 5.05 of the Agreement there is an express statement that the Agreement does not oblige the CMC to guarantee the completion of the works by the contract date for overall practical completion, the completion of the works within the Construction Cost Budget and the completion of the works without design deficiencies. 

  1. Clause 14 of the Agreement deals with solicitation of bids from subcontractors.  Under cl 14.01 the CMC is to prepare and issue invitations for bids or requests for proposals for all subcontracts, unless the PMC was to otherwise require.  Clause 14 deals with the process of dealing with the bids, but does not deal with the making of subcontracts with the successful bidders.  

  1. Clause 16.01 of the Agreement provides that the CMC is to coordinate and provide general direction of the work of the subcontractors.  Clause 16.02 provides that the CMC is to inspect the work performed by the subcontractors to ensure conformity with the requirement of their respective subcontracts.

  1. Under cl 21 of the Agreement the CMC is responsible for the proper administration of variations to the subcontracts.  Under cl 21.01.3 no variation work may be commenced under a subcontract before the CMC issues a written variation order.    

  1. Clause 26.01 of the Agreement relevantly provides:

"26.01  Without limiting the general obligations of the CMC described in Clause 5, the CMC is to perform the following services in accordance with this Agreement: 
26.01.1  ...

26.01.9  Subcontractors' Payments – Review and process all applications by Subcontractors for progress payments and final payments and approve appropriate payment by the Client in accordance with this Agreement.  The responsibility for controlling all payments to Subcontractors rests with the CMC and approvals given or payments made by the Client or the PMC on the recommendation of the CMC is to not be construed as having relieved the CMC of such responsibility in part or in whole."

  1. Clause 28 of the Agreement deals with reimbursable costs payable by the Client to the CMC.  They include the actual costs of construction set out in Schedule E and one of those items is the cost of all subcontract work including all sums payable to subcontractors engaged in the execution of the works.  Under cl 29.01 of the Agreement the Construction Management Fee which is payable to the CMC is fixed at $110,000. 

  1. Clause 30 of the Agreement deals with payment.  Clause 30.02.4 provides:

"30.02.4  The Subcontractors shall be paid by the CMC as agent for the Client strictly in accordance with their respective SubContracts and the Progress Payment Procedures outlined in Clause 30.03 of this Agreement."

Clause 30.03 of the Agreement deals with monthly progress claims.  The progress claims include payments to be made under the subcontract claims. 

  1. One of the obligations that the CMC has under cl 30.06.1 of the Agreement, when the CMC is of the opinion that final completion (defined as meaning the total completion of the works in accordance with the contract documents) has been reached, is to deliver to the PMC a summary of the position concerning the subcontractors which shall include details of all disputes outstanding with the subcontractors, all banker's undertakings and retentions held in respect of subcontracts and a reconciliation, in a form approved by the PMC, of the amounts paid to all subcontractors.   

  1. Under cl 37.01 of the Agreement the Client can determine the Agreement upon giving the CMC 30 days' notice in writing.  Under cl 37.03 of the Agreement the Client indemnifies the CMC against any loss, costs, damages, expenses, claims and proceedings of whatsoever nature by any subcontractor as a result of such termination.

  1. Clause 52.01 provides that the CMC must ensure that all bids are submitted on the basis of the Standard Subcontract set out in schedule H unless otherwise directed by the PMC in writing.  The Standard Subcontract is actually set out in schedule I to the Agreement.

  1. The subcontract entered into by Northbuild with each of Gadsden and Brackendeen conforms with the Standard Subcontract set out in the Agreement. 

  1. The express statement of agency in cl 5.01 of the Agreement and the reference to agency in cl 2.01.15 is only one factor to be taken into account in determining whether or not a true agency relationship between the applicant and Northbuild was created by the Agreement for the purpose of Northbuild's entering into the subcontracts.  Such references to agency have to be considered in the light of the Agreement as a whole.  Compare the approach of the court in John Goss Projects Pty Ltd v Thiess Watkins White Constructions Limited (in liquidation) (unreported, Court of Appeal (Qld), 28 April 1992) at pp 3-4. 

  1. The selection of provisions from the Agreement which I have set out in these reasons indicates that there are many which are consistent with the usual three tier arrangement rather than with the notion of Northbuild simply contracting with each respondent as the agent of the applicant.  Mr Perkins relied particularly on cl 28.01.1 and item (i) of schedule E of the Agreement.  In addition, apart from cl 3.09.2 of the Agreement, the process for entry into the subcontracts appears to have been left to Northbuild.  The provisions of the Agreement which give control of the subcontractors to Northbuild and the manner of payment of the subcontractors including the retentions does not sit easily with the contention that the applicant was contracting directly with each respondent.

  1. I am therefore satisfied that the terms of the Agreement are ambiguous about the nature of the relationship between the applicant and Northbuild when Northbuild entered into the subcontracts. 

  1. That means that it may be appropriate to consider the circumstances surrounding the making into of the Agreement, in order to ascertain the true intention of the applicant and Northbuild as to the nature of their relationship:  B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227, 233-236, 245.

  1. To the extent that extrinsic evidence about the entry into the Agreement was adduced on the application in the affidavits of Mr Pugliese on behalf of the applicant and Mr Boddington on behalf of the respondents, it was in dispute. 

  1. The issue of the true nature of the relationship between the applicant and Northbuild, if not answered by reference to the Agreement, is not suited to summary determination on these applications. 

  1. The ambiguity of the Agreement gives rise to a genuine dispute about whether or not Northbuild was acting as agent of the applicant in entering into each subcontract with each respondent.

  1. Even if there were no ambiguity in the Agreement about the nature of the agency relationship for the purpose of the subcontracts, the applicant claims that the parties, in fact, acted as if they were participating in a traditional three tier construction arrangement.  The question of whether there was a change in relationship (if the Agreement were found to provide for an agency relationship) is also a matter not suited to summary determination.

  1. The applicant also made submissions to the effect that there was evidence to support a claim of rectification to remove the references to agency in the recitals to each subcontract.  In view of the decision I have reached about there being a genuine dispute about the agency relationship, it is not necessary to deal with these submissions.   

  1. I will therefore order that each respondent's statutory demand for payment be set aside pursuant to s459G(1) of the Corporations Law.

  1. Mr Martin of Counsel who appeared on behalf of the respondents submitted that if the court were satisfied about a genuine dispute, there should be an order that the amount the subject of the demand be paid into court.

  1. The court has power under s459M of the Corporations Law to impose conditions on the order made setting aside the demand.

  1. This is not an appropriate case for the imposition of a condition requiring payment of the disputed debt into court in respect of any proceedings commenced by the respondent to recover the amount of the debt.  The non-payment of the debts is related to the dispute between the applicant and Northbuild.  It is likely that any proceedings commenced by either respondent would be against both the applicant and Northbuild.  The state of accounts under the Agreement between the applicant and Northbuild is not clear. 

  1. I will hear the parties on costs.    

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