Lumina Bpo Pty Limited v ELB Pty Ltd (No 2)

Case •

[2020] NSWDC 712

•

01 September 2020

No judgment structure available for this case.

District Court


New South Wales

Medium Neutral Citation: Lumina BPO Pty Limited v ELB Pty Ltd (No 2) [2020] NSWDC 712
Hearing dates: 29, 30, 31 July; 3, 6, 11, 26, 27 and 28 August 2020
Date of orders: 1 September 2020
Decision date: 01 September 2020
Jurisdiction:Civil
Before: P Taylor SC DCJ
Decision:

(1)   Judgment for the plaintiff against the defendant in the sum of $189,335.51 including interest.

(2)   Costs reserved.

Catchwords:

CONTRACTS - construction and interpretation - whether contract a "fixed price" or a "do and charge" contract – contract for accounting services – whether a maximum fee was specified – whether work needed to be completed – whether contract required completion within three months – whether work outside the retainer was performed

Cases Cited:

Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 4) [2006] FCA 446

Cherry v Steele-Park [2017] NSWCA 295

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79

Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Jones v Dunkel (1959) 101 CLR 298

Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11

Lumina BPO Pty Limited v ELB Pty Ltd [2020] NSWDC 710

Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305

Manufacturers’ Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cases 60-853

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25

Newey v Westpac Banking Corporation [2014] NSWCA 319

Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28

Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (t/a Uncle Bens of Australia) (1992) 27 NSWLR 326

Category:Principal judgment
Parties: Lumina BPO Pty Limited (plaintiff)
ELB Pty Ltd (defendant)
Representation:

Counsel:
Mr D Neggo (plaintiff)
Mr M T Keene (defendant)

Solicitors:
Watson Mangioni Lawyers Pty Ltd (plaintiff)
John de Mestre & Co Solicitors Pty Ltd (defendant)
File Number(s): 2019/228108
Publication restriction: None

Judgment

A. Introduction

  1. By signing a written Engagement Letter, ELB Pty Ltd retained a firm of accountants known as Lumina BPO Pty Limited. The first monthly invoice by Lumina was paid, but the second and third invoices, totalling $151,643.06, were not. Lumina claims this sum as money payable for work done at ELB’s request.

B. Issues

  1. The real issues in the proceedings may be listed as:

  1. Did the Engagement Letter provide for a maximum fee, [1] or in any other way constrain Lumina from charging its fees at specified hourly rates;

  2. Was the “Closing Book Task” required to be completed within the initial three-month period, and if so, did any damages result from any failure in Lumina to do this; and

  3. Were any of the items in the invoices issued by Lumina for work outside the terms of the Engagement Letter. [2]

    1. Amended Defence [1(e)]; Defendant’s Schedule of Issues [1(b)], [1(d)].

    2. Amended Defence [1(j)]; Defendant’s Schedule of Issues [2], [5], [6].

C. Pleadings history

  1. The original verified defence denied all allegations, but in further answer to the claim:

  1. pleaded that the fees were excessive because the invoices included some 102 disputed items; and

  2. alleged a failure to notify that the fees would exceed the estimate which, if notification was received, would have caused ELB to terminate the retainer before incurring the excess fees.

  1. In May 2020, a little more than two months before the trial date, ELB, by leave, filed an Amended Defence which deleted all of the existing defence. The Amended Defence alleged that Lumina “undertook to complete” certain tasks in the agreement contained in the Engagement Letter “for an amount of or less than $189,024 inclusive of GST unless otherwise agreed”.

  2. The Amended Defence also asserted that the obligation to “Close 2017 and 2018 books”, one of the tasks listed in the Engagement Letter, was not completed in the first three months of the agreement, and that ELB consequently incurred further costs. Although not expressly asserted in plain terms, this indicated an alleged term that Lumina was to complete this Closing Book Task within the first three months. The parties treated this as an issue between them.

  3. The Amended Defence also asserted that the 102 disputed items were outside the terms of the Engagement Letter.

  4. Other non-admissions in the Amended Defence potentially raised an argument about whether ELB was obligated to pay Lumina’s fees within 14 days, whether Lumina could suspend the work, and whether interest at 15% per annum was payable on unpaid invoices, but ultimately these matters did not mature into issues of significance. They are, in any event, dealt with briefly in this judgment.

D. Background

  1. ELB was a large proprietary company of a size attracting certain reporting obligations. It had in 2018 revenue exceeding $23 million and net assets exceeding $97 million.

  2. By September 2018, the financial controller of ELB gave notice of his departure. ELB, in consultation with PwC who audited the ELB accounts, determined to outsource much of its accounting work.

  3. Lumina provided an Engagement Letter to ELB dated 4 October 2018 with an estimate of fees which “assumed a very heavy involvement” of Lumina. [3]

    3. Exhibit B, p 10.

  4. Marie Bolton, the sole and managing director of ELB, proposed some changes to the Engagement Letter with the result that, in the agreement that eventuated, two additional charges were included in the “Scope of Work” (tasks numbered 5 and 8), an additional component of “Job costing and work in progress” was added to task number 2, and the scope of work embraced work to be done for five entities additional to ELB, comprising three related companies and two related family trusts. The estimate of the fees did not change.

  5. On 9 October 2018 John Williams, the Managing Partner of Lumina, and Ms Bolton, for ELB, signed an engagement letter dated 8 October 2018. The Engagement Letter provided that Lumina would provide services to ELB and the related entities with a “Scope of work” comprising the following tasks:

“1. Act as CFO of the Group supervising the overall policies, procedures and performance of the accounting team with the aim of providing accurate, useful and timely management reporting. If required, providing guidance on a turnaround strategy, providing insight into direction of the business. Assisting the Board in identifying areas in need of attention and defining its goals, assisting with developing a plan to rectify these areas and to achieve goals, including attendance at meetings thereon;

2. Assess existing policies, procedures and accounting systems. Specifically, redesigning policies and procedures for:

- Accounts payable and banking;

- Sales and accounts receivable;

- Warehouse, inventory management and stock obsolescence;

- Payroll;

- Month-end procedures, including prepayments and accruals;

- Job costing and work in process;

- Provision of statutory compliance information to PwC; and

- Make recommendations of changes utilising either Lumina or inhouse software.

3. Understand the Board’s objectives and plans, provide feedback and recommendations thereon. Develop a budgetary model which reflects the organisational goals and is consistent with sales objectives/budgets that have been established;

4. Design a quality monthly management report which provides focus on the kay financial drivers of the business successes and objectives, from a balance sheet, profit and loss and other indicators;

5. Understand accounting and finance team structure and ability level, identify any full-time resources required;

6. Implement and supervise changes to be adopted and train ELB staff, so the reliance on Lumina staff is reducing over time;

7. Meeting regularly with ELB management to review and interpret results, identify areas requiring attention and assess the performance of the business against defined goals; and

8. Close 2017 and 2018 books including preparation of year end file and liaison with PwC thereon.” [4]

4. Marie Bolton affidavit, 24/1/20, pp 15-16.

  1. The Engagement Letter noted that subject to change by Lumina six persons comprised the “specific team responsible” for the work, namely, John Williams, Managing Partner; Daniel Connolly, Partner; Joshua Hogan, Finance Manager; Samantha Kent, Senior Accountant; Jonathan Venter, Graduate Accountant; and Nicole Finlay, Personal Assistant.

  2. The Engagement Letter also provided:

“Professional Fees

Our fees are based upon time incurred to complete each assignment. In respect of each assignment, we allocate staff according to their experience based upon our assessment of the expertise required.

Fees will be charged at a 20% discount to our standard charge out rates. A standard fee rate schedule is included in the attached Terms of Trade.

We estimate our charges over the initial 3 months to be approximately:

Rectification of accounting system

Hours

Rate

Total

John Williams (Managing Partner)

60

695

41,700

Joshua Hogan (Finance Manager)

120

475

57,000

Samantha Kent (Senior Accountant)

180

395

71,100

Johnathon Venter (Graduate Accountant)

180

250

45,000

214,800

Discount

20%

(42,960)

171,840

We require our fees to be paid strictly within 14 days.

Note all amounts referenced in this engagement letter exclude goods and services tax (GST).” [5]

5. Marie Bolton affidavit, 24/1/20, pp 17-18.

  1. The Engagement Letter included attached “TERMS OF TRADE”, which “form part of the conditions of” the retainer, and also terms for acceptance of the offer, and provided for acceptance by signature and:

“You can also confirm you agree to our terms by separate letter, email or by telephone or by continuing to ask us to do work for you.” [6]

6. Marie Bolton affidavit, 24/1/20, p 18.

  1. The Engagement Letter expressed confidence of a “mutually rewarding long-term relationship” and was signed by Mr Williams and Ms Bolton on 9 October 2018. [7] Prior correspondence indicated that Lumina would “reconcile/review” the 2019 accounts after doing so in respect of 2017 and 2018. [8]

    7. Marie Bolton affidavit, 24/1/20, p 19.

    8. Marie Bolton affidavit, 24/1/20, Annexure C.

  2. The Terms of Trade relevantly provided:

“16. Fees and billing arrangements

As noted in the attached engagement letter, our fees for are based upon time incurred to complete each assignment. In respect of each assignment we allocate staff according to their experience based upon our assessment of the expertise required.

Note all amounts exclude goods and services tax (GST). The roles of individual staff members are subject to change without notification to you and we reserve the right to change the staff responsible for the performance of the Services without notification to you.

Currently our rates are as follows:

(a) Fee rate schedule:

Position

Hourly rate

Managing Partner/Partners

$645-$695

Executive Directors

$560-$625

Senior Managers/Finance Managers

$445-$550

Supervisors/Group Accountants/Senior Accountants

$325-$420

Management Accountants/Intermediates/Assistant Accountants

$235-$325

Undergraduates/Graduate Accountants

$185-$250

Accounts Officers/Bookkeepers/Senior Bookkeepers

$155-$190

Administration/Shared Services

$115-$260

…

(c) Estimate of fees

Note that time is recorded in 5 minute intervals and accordingly a minimum of 5 minutes will be charged in performing any task. Any estimate of fees or expenses is based on the information we have at the time the estimate is made. Moreover, the estimate assumes:

i) all parties have understood and accepted the commercial undertaking;

ii) the parties with whom we deal act in a professional and reasonable manner; and

iii) all information we need is made available to us and in a timely manner.

(d) Invoices

Invoices are produced monthly covering our fees and expenses and payment is due within 14 days from invoice date. You may request a copy of an invoice at no charge and may request a statement of billed and unbilled but accrued charges at any time. All invoices include a full description of the work involved.

(e) Interest

We retain the right at our discretion to charge interest on any overdue amounts at the rate of 15%. If we need to take action against you for non-payment of your account, we may disclose to our debt collection agent any relevant personal information they may need to collect the overdue amounts.

(f) Disputes with our fees

John Williams has overall responsibility for our service delivery to you, including the overall cost of the work we perform. Please feel free to contact John Williams if you have any questions regarding the work or its costs.” [9]

9. Marie Bolton affidavit, 24/1/20, pp 23-25.

  1. On 10 October 2018 Lumina commenced work for ELB. [10] On 31 October 2018 ELB received from Lumina a “Memorandum of Fees and Disbursements, Tax Invoice” dated that day which was for a total amount of $102,744.76. The invoice noted that the services provided were:

“Review of existing processes and adherence to policies in accounts receivable, accounts payable, inventory management, project tracking and account reconciliations;

Reconciliation of account balances for 30 June 2017 and development of working papers to be used for future years;

Adjustments to accounting as required;

Training of ELB accounting staff; and

Meeting and discussions with Marie Bolton to discuss progress and recommended course of action.” [11]

10. Marie Bolton affidavit, 24/1/20, Annexure C.

11. Marie Bolton affidavit, 24/1/20, p 32.

  1. The invoice referred to attached a “work in progress report”, which was a schedule identifying the date, task, employee, hours, charge and information about each of about 75 items, which together calculated to the invoiced amount. ELB paid the invoice on 15 November 2018.

  2. On 22 November 2018 ELB received correspondence from the Australian Securities and Investment Commission seeking the lodgement of certain 2017 financial statements, and on 6 December 2018, after discussions the previous day with Ms Bolton, Lumina provided to ELB a letter headed “Proposal For Outsourced Accountancy Services”. Ms Bolton understood that the work under the proposal involved:

“(a) Preparation of stand-alone statutory financial statements, including set-up of template for the first year at $8,000.00;

(b) Assistance with audit management and liaison at $3,500.00;

(c) Preparation of special purpose financial statements for Maradaca Family Trust at $2,500.00; and

(d) Preparation of special purpose financial statements for Radaca Family Trust at $3,500.00”,[12]

and that the annual fee for the first year to undertake that work would be $17,500 exclusive of GST.

12. Marie Bolton affidavit, 24/1/20 at [28].

  1. In about early December 2018, Mr Williams’ partner, Daniel Connolly, spoke to Ms Bolton about the fees exceeding the estimate. [13]

    13. T30/7/20, p 116/24-28; T31/7/20, p 167/46-50.

  2. On 12 December 2018 ELB received the second invoice for $100,269.77, which was in the same form as the first, with the work in progress record attached. It was attached to an email which said:

“Hi Marie

I look forward to meeting on Monday. Please find attached our November fee for your review and payment.

We are over our initial estimate due to the amount of work involved in the group, however I’m more than happy with progress.

Kind regards

John”. [14]

14. Marie Bolton affidavit, 24/1/20, Annexure K, p 51a.

  1. The invoice was for work done by Lumina in November 2018. A further similarly formatted invoice for $51,457.49 was received on 9 January 2019 for work done in December 2018, including some work under the ASIC-related proposal. Neither of these last two invoices was paid.

  2. At some stage, a meeting was held concerning the fees. [15] On 10 January 2019 Lumina forwarded an email to ELB as follows, apparently prematurely referring to having “2 months outstanding” given that the invoice for December was sent the previous day:

“Hi Roger

I have sent you the November fee that was sent to Marie.

Yes our fees are over our estimate as we did not understand the extent of work required at the time we gave the estimate. This is primarily because of the time period that required investigation and rectification being much greater than we anticipated; as an example we have been finding large unreconciled balances in 2017 that related to the 2016 year. We also did not increase the time estimates after including a significant number of additional entities in the scope, and there has been significant work on these additional entitles.

The resources required by the firm have been increased to match the needs of the job, and attempting to achieve a tight timetable.

We now have 2 months outstanding after 3 months of work, if you can kindly urgently arrange the payment of the November invoice. We will pause on further work for the time being until this is sorted out.

Kind regards

John”. [16]

15. Marie Bolton affidavit, 24/1/20 at [35].

16. Exhibit A.

  1. Thereafter, Lumina did no further work for ELB. As at 10 January 2019, neither the work contemplated under the December Proposal, nor the work contemplated in items 4 and 8 of the October Engagement Letter, were concluded. There was no evidence of requests, complaints or other correspondence after 10 January 2019.

E. The nature of the retainer

  1. ELB submitted that the retainer agreement in the Engagement Letter constituted a maximum price agreement, whereby Lumina was obliged to complete the tasks for a total sum of no more than $171,840 plus GST. There was, however, no submission that explained the basis of this construction of the Engagement Letter. On the other hand, there were several items that pointed against this construction.

  2. First, the Engagement Letter referred to the figure of $171,840 being an “estimate” of Lumina’s “charges over the initial 3 months”. The normal meaning of an estimate was reinforced by the reference to the estimate being “approximately” the specified sum. Without more, an “estimate” would not ordinarily reflect a fixed maximum sum. There was no reference in the Engagement Letter to a “maximum” or “fixed” fee.

  3. Secondly, the Engagement Letter specified the rates at which various persons would charge out their time. Similarly, the attached terms of trade specified a range with which persons holding various positions would charge on a time-based system. Although a time-based charge does not preclude a maximum fee, it tends to indicate that the fees would be according to the hours worked and rate charged. This basis of charging is supported by the terms of the Engagement Letter that “Our fees are based upon time incurred to complete each assignment.” [17] The Engagement Letter also refers to “Fees will be charged at a 20% discount to our standard charge out rates”, which also reinforces a time-based charging arrangement in accordance with the specified rates.

    17. Engagement Letter, p 3.

  4. Thirdly, the “Fees and billing arrangements” in [16] of the “Terms of Trade” attached to the Engagement Letter reiterates that fees are time-based. The Terms of Trade repeatedly use the term “estimate”. [18] It identifies the assumptions on which the estimate is based. It provides that “Invoices are produced monthly covering our fees and expenses”. It reiterated that “payment is due within 14 days from invoice date”, reinforcing the obligation stated earlier in the Engagement Letter that fees were to be paid “strictly within 14 days”, and it referred to the subject of “Disputes with our fees”, which sits more comfortably with a time-based charging regime involving an uncertain quantum of fees than fees of a fixed amount.

    18. Marie Bolton affidavit, 24/1/20, p 25 at [16(c)].

  5. Fourthly, although professionals, such as accountants, may sometimes specify a maximum fee, the ordinary or usual method of charging is on a time-based arrangement, at least in respect of open-ended tasks of uncertain duration, as was provided for in the scope of work in the Engagement Letter.

  1. These matters appear to leave no room for a maximum fee to be inferred from the contract where no maximum fee has been expressed. ELB is not assisted by the first appearance of an allegation of a maximum price for the works being in the Amended Defence filed on 11 May 2020.

  2. ELB referred to widespread ambiguity in the English language[19] as a reason why “‘estimate’ should be interpreted by the Court as a fixed sum”, and continued “but more importantly, its meaning is largely irrelevant” [20] and (because of another argument about the Engagement Letter operating as an entire agreement, to which I shall come) “the classification of the term ‘estimate’ is laid arid”. [21]

    19. Manufacturers’ Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cases 60-853 at 75,343, Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (t/a Uncle Bens of Australia) (1992) 27 NSWLR 326 at 358.

    20. Defendant’s final outline of submissions, undated, [8] (underlining in original).

    21. Defendant’s final outline of submissions, undated, [8], [12]-[14], [17].

  3. Accordingly, there was no coherent argument advanced as to why the “estimate” of fees constituted a fixed or maximum sum for the work under the Engagement Letter. All the textual considerations are against it. There might have been an argument that an inaccurate estimate was misleading conduct – but that was never pleaded or advanced – or that an estimate of fees created an implied obligation in Lumina to notify ELB before the estimate was exceeded – but that point, to the extent that it was properly pleaded initially, [22] was deleted in the Amended Defence.

    22. Cf Defence, [3(d)], [3(e)].

  4. Primacy must be given to the text of a written contract. [23] The Court cannot rewrite the agreement according to what it thinks is fair and reasonable. [24] The repeated references to the hourly charge out rates of the Lumina employees was a reminder to ELB, if it was concerned about excessive fees, to keep a close eye on the fees or to insert other circuit breaker provisions in the agreement to prevent an inordinate amount being charged. It was not part of the agreement that the hours or rates were to be reduced, or fixed, or limited, by a Court on some generalised assessment of what is fair, even less so when the parties were aware that the time commitment by Lumina would be substantial initially and reducing over time. [25]

    23. Cherry v Steele-Park [2017] NSWCA 295 at [72].

    24. Newey v Westpac Banking Corporation [2014] NSWCA 319.

    25. Exhibit B, p 10, and Task 6, Engagement Letter.

  5. ELB’s primary argument against Lumina’s claim was, as indicated earlier, based on the notion that the Engagement Letter constituted an “entire obligation”, so that no fees were payable unless all of the work was completed.

  6. ELB submitted that:

“The Agreement contains an entire obligation and the consideration for the payment of money is indivisible and not severable; that is, the satisfaction of the Scope of Works was an entire obligation and functioned as a condition precedent to payment or counter performance”, [26]

and “Any monies paid to the Plaintiff under the Contract were paid on account and are monies had and received”. [27]

26. Defendant’s final outline of submissions, undated, [5.a.].

27. Defendant’s final outline of submissions, undated, [5.b.].

  1. ELB further submitted:

“An entire obligation is one in which, or in relation to which, the consideration for the payment of money or the rendering of some other counter performance is entire, indivisible and not severable. In Steele v. Tardiani ((9) (1946) 72 CLR 386, at 401, Dixon J cited the general proposition:

‘Where the consideration for the payment of money is entire and indivisible, as where the benefit expected by the defendant under the agreement is to result from the enjoyment of every part of the consideration jointly, so that the money payable is neither apportioned by the contract, nor capable of being apportioned by a jury, no action is maintainable, if any part of the consideration has failed; for, being entire, by failing partially, it fails altogether.’” [28]

28. Defendant’s submissions, undated, [10].

  1. No explanation was offered as to why there was no claim for return of monies wrongly paid, or why the two verified iterations of the pleading implied that some money was payable to Lumina under the Engagement Letter. [29]

    29. E.g. Amended Defence [1(n)(i)], Defence [3(c)] implies a limited entitlement in Lumina.

  2. Each of the three textual matters referred to earlier in relation to a fixed or maximum fee militate against such a construction of an entire indivisible obligation asserted by ELB. And there were other matters.

  3. First, this claim was not pleaded in the Amended Defence. ELB raised it on the first day of trial, and Lumina objected. Ultimately, the Court indicated that the matter would be decided on the pleadings absent any application. [30] No application to amend was made until after the evidence was closed and written closing submissions circulated. ELB then applied for leave to amend during closing oral submissions. Leave was refused, [31] in part because of the potential prejudice to Lumina being unable to answer this defence by claims of waiver and estoppel, a prejudice that was not strongly resisted. [32]

    30. T30/7/20, pp 85/50-86/3.

    31. Lumina BPO Pty Limited v ELB Pty Ltd [2020] NSWDC 710.

    32. T26/8/20, 240/15.

  4. Secondly, ELB referred to the termination clause in the Terms of Trade in the Engagement Letter, cl 14, which provided for termination by either party on notice. ELB argued that because cl 14 was silent on the subject of accrued rights in the event of termination, there were none, consistent with there being an entire agreement. But even in cases of termination for breach, accrued rights survive termination as a matter of law,[33] at least in the absence of contrary words. So clause 14 does not assist ELB. And it highlights a commercial absurdity in ELB’s argument. If the obligation to pay was entire, ELB could terminate at any stage on notice, and Lumina would be left with no contractual entitlement to payment, no matter how much work had been done. Such a construction must be avoided so as to prevent the agreement “making commercial nonsense or working commercial inconvenience”. [34]

    33. McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at 476-477.

    34. Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at 657 [35].

  5. Thirdly, the agreement contemplated ongoing accountancy work. Tasks 1, 6 and 7, at least, contemplate services under the agreement being for an indefinite period, and only Task 8 has a conclusion that can be clearly identified. ELB pointed [35] to terms in the agreement that speak of “the services we have agreed to perform”, that “fees are based upon the time incurred to complete each assignment”, the “estimate” of charges, the “Rectification of accounting system”, and payment “strictly within 14 days”, but none of these point unequivocally towards an entire agreement. Rather, they are either equivocal or point towards the time-based charging asserted by Lumina.

    35. Defendant’s final outline of submissions, undated, [25].

  6. Whatever may be embraced by the title of the estimate being “Rectification of accounting system, it does not override the other terms which specifically provide for a time-based charging system, and do not suggest that performance is entirely indivisible and not severable.

  7. For all these reasons, I reject the assertion that Lumina was not entitled to payment under the agreement in absence of completion of all, or even any, of the specified tasks. The consideration for payment was not “entire and indivisible”, as shown both by the separately numbered tasks, and by the ongoing nature of some of the tasks in the scope of works. I am persuaded that the proper construction of the contract is one where work done pursuant to its terms would be charged under a time-based arrangement, and there was no maximum fee agreed to in the Engagement Letter. The agreement specified the rates of fees payable to Lumina, and, in my view, ELB is liable to pay them.

F. Was there a three-month time limit to complete the Closing Book Task

  1. Although this assertion was pleaded in the defence, it was not referred to in ELB’s final written submissions. Faced with the ongoing nature of most of the tasks listed in the scope of works in the Engagement Letter, ELB argued that at least Task 8, the obligation to “Close 2017 and 2018 books” was required to be done in the initial three months.

  2. However, the reference in the agreement to “three months” is a solitary reference confined to the “initial” period covered by the estimate of fees. No task is specified as having to be done in that period. The earlier draft [36] shows that the reference to three months in the fee estimate was included before there was any specific task concerning closing the 2017 and 2018 books.

    36. Exhibit B, tab 5 at pp 12-13.

  3. Further, as the closing book task 8 did not include the preparation of the financial statements for the relevant years, [37] completion of the task would not itself have resulted in compliance with any statutory obligation about financial statements. There was no contemporaneous evidence (pre-contractual documents or otherwise) that indicated an importance in any task being done within three months. No contractual provision identified the consequences of failing to promptly perform any task. As mentioned earlier, even the pleading only impliedly and equivocally asserted an obligation to perform tasks within three months, and then it was all of those tasks.

    37. John Williams affidavit, 17/3/20 at [12(f)].

  4. Further, there was no claim for damages resulting from the asserted untimely completion of Task 8. Rather, ELB asserts that the only consequence was that costs were incurred to get the task completed, which it asserts was not started until mid-March 2019[38] and completed by June 2019, some five months later. [39] Even if these costs were confined to completing the tasks in the scope of works (of which I was not persuaded), there was no evidence that those costs exceeded the amount Lumina would have charged. In any event, as Lumina bore no obligation to complete these tasks, the costs do not establish any damage.

    38. Marie Bolton affidavit, 22/5/20 at [7].

    39. Marie Bolton affidavit, 31/7/20 at [8]-[10] and Exhibit A.

  5. For the reasons given, the obligation on Lumina was to work on the tasks, and charge according to the agreed rates. No specific time limits were imposed. Whilst a reasonable time limit might be implied, that was neither alleged, nor asserted to be contravened. I reject the claim that Lumina was in breach of the agreement in not completing the closing book task within the initial three months.

G. Extraneous tasks: alleged work outside the Agreement

  1. The second major component of the defence is that Lumina did and charged for work outside the terms of the Engagement Letter.

  2. The Engagement Letter contemplated work not just for ELB, but for three related companies and two related family trusts. In general terms, it required Lumina to become familiar with, so as to assess all the accounting policies, procedures and systems (Task 2), understand the ELB objectives (Task 3) and the accounting team structure (Task 5) and then design a monthly management report (Task 4), identify new resources required (Task 6) and areas of attention (Task 7), redesign all the policies and procedures (task 2), supervise and implement changes and train staff (task 6), liaise with ELB’s auditors, PwC (task 1 and 8), and to reconcile and make adjustments to the 2017 and 2018 Books. [40]

    40. John Williams affidavit, 20/3/20, [12(f)].

  3. As Lumina was to act as Chief Financial Officer of the Group (Task 1), anything of an accounting or financial nature for the ELB Group appeared to be within the ambit of the retainer. The subsequent proposal in relation to a concern raised by ASIC did not widen the retainer – it was already sufficiently broad to be within the Chief Financial Officer’s duties. But the further proposal did contemplate an upward adjustment to the estimate, as it identified further tasks specified by ASIC and Ms Bolton that required Lumina’s attention.

  4. ELB listed 102 items in the invoices which in the current pleadings are said to be tasks “other than their tasks in the Engagement Letter”. In submissions, this was explained to be an assertion that the items were not within the scope of the duties in the Engagement Letter, and a list of the 102 items was originally annexed to the initial verified defence. It represented a list of “disputed” items, not expressly because they were outside the scope of work of the Engagement Letter, but because they were “excessive and disproportionate to the scope of work”. [41]

    41. Original defence, [3(c)].

  5. ELB did not identify why these items were outside the scope of work. Rather, the argument was that they were not proved to be within it. ELB accepted that “the works the subject of the invoices were done”, [42] but asserted that they were not “within the Scope of the Works”. [43]

    42. Defendant’s final outline of submissions, undated, [46].

    43. Defendant’s final outline of submissions, undated, [46], [64].

  6. In the result, ELB led no evidence, and made no factual assertions about why the works were outside the scope of works in the Engagement Letter. Rather, it asserted that the evidence was unpersuasive. In this regard, no coherent explanation was given as to why the 102 items in the list of disputed items differed from the residue of items in the invoices.

  7. Apart from the concession that the work was done, the evidence of the disputed items of work was twofold: the information recorded on the invoice and the opinion provided by Mr Connolly in respect of each item in a schedule. Mr Connolly is a partner of Lumina, who was a senior Lumina employee on site at ELB, was a witness in the proceedings, and was cross-examined.

  8. ELB asserted that no value should be accorded to the opinion provided by Mr Connolly in schedule of items because: [44]

    44. Defendant’s final outline of submissions, undated, pp 9-10.

  1. He was an interested party;

  2. The schedule did not establish the factual basis for his opinion;

  3. The evidence did not establish that Mr Connolly’s opinion was based on his specialised knowledge; and

  4. Mr Connolly’s memory of the individual items was limited.

  1. No challenge was made to the invoices themselves. Rather, ELB submits that as the other Lumina employees whose work was recorded on the invoices were not called, the Court was entitled to infer that the evidence of the other employees would not have assisted Lumina’s case, in accordance with Jones v Dunkel. [45]

    45. (1959) 101 CLR 298.

  2. Mr Connolly’s evidence in respect of his personal entries in the invoices was the subject of cross-examination. His recollection of particular discussions referred to in the invoices was limited, as might be expected after two years, in respect of conversations of no particular significance. His financial interest in the result was not asked about, so he was denied the opportunity to answer the challenge to his evidence on this basis. I think it likely that Mr Connolly, as a partner of Lumina, has an interest in the outcome of the proceedings, but as the significance of that interest was not explored, I do not think it serves significantly to diminish the weight of his evidence.

  3. The factual basis for Mr Connolly’s opinions was principally inferentially the contents of the invoices themselves and perhaps his own experience of working at ELB would also factor into his opinion. The significance of this, and his interest in the outcome, in weighing the value of his evidence depends largely on the level of controversy of his explanations as to why the work was connected to the retainer. That controversy was minor – indeed he was never challenged on it.

  4. For this reason, I think the Makita (Australia) Pty Ltd v Sprowles [46] objections to his opinions, and the Jones v Dunkel submission in respect of the other Lumina workers, are not persuasive. The evidence of the nature of the work is recorded in the invoices. Mr Connelly’s opinion served merely to give explanations that connected the detailed specific work in the invoices to the larger objectives in the scope of works.

    46. (2001) 52 NSWLR 705; [2001] NSWCA 305.

  5. In my view, little assistance would likely be gained from calling the other employees even if that step was financially feasible in respect of the many transactions for less than a few thousand dollars, sometimes only hundreds of dollars or less. This is especially so when no challenge was put to Mr Connelly about any particular item being outside the scope of works, even the items of work that he performed personally.

  6. The context of the work done by Lumina was a broad scope of works, requiring Lumina to involve itself in all the financial and accounting systems of ELB. So long as Lumina was engaged in accounting work concerning ELB and its related companies and trusts, it was, in my view, engaged in tasks within the scope of works. No contrary test of the scope of works was proposed. The invoices, once it is accepted that the work was done, prove that the work was for ELB, and without more, established that it was very likely within the broad scope of works. That conclusion is not displaced by the circumstance that Mr Connolly’s memory of particular entries was limited or unhelpful, or that evidence of other like witnesses was not given.

  7. When invited to identify one disputed item in the invoices that fell outside the scope of works, ELB referred to an item that used the initials “GP”, which was said not to be evidenced to be connected to ELB. Yet the “Great Plains” accounting software system was used by ELB, and was referred to in the invoices, and there were frequent references to “GP” without it being specifically defined in the invoices. Any semblance of merit in this overly technical complaint evaporated on the evidence that “GP” was defined to be “Great Plains” in emails between Lumina and ELB’s auditors, PwC. [47]

    47. See Daniel Connolly affidavit, 17/3/20 at Annexure D.

  8. In the absence of some reasoned assertion that an item was unconnected to the ELB retainer, I would not draw a Jones v Dunkel inference, because there was no controversy on which the witness could assist. Even without Mr Connolly’s opinion, the invoices were sufficient to establish that the work was within the scope of the retainer. The evidence of Mr Connolly’s opinion explaining the types of work recorded on the invoices was admitted and provided additional support for the conclusion I would reach from the invoices. There was no contrary evidence, nor any coherent reason for the Court to conclude otherwise.

  9. In any event, Jones v Dunkel neither allows an inference that the available evidence but uncalled evidence would be adverse[48] (rather than merely not of assistance) nor can it convert conjecture and suspicion into evidence. [49] The conjecture advanced by ELB was not sufficient to displace the compelling inference arising from the invoices.

    48. Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [64].

    49. Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 4) [2006] FCA 446 at [50].

  10. Accordingly, I was satisfied that the work recorded in the invoices was within the broad scope of work in the Engagement Letter, and that Lumina was entitled to charge for it, as it did.

H. Other matters

  1. The pleadings might have enabled a claim by ELB that the interest rate of 15% was not a reasonable pre-estimate of damage but void as a penalty. But despite the Court raising that matter more than once, ELB made no submission about it at any time. In those circumstances, I could not conclude that it was out of proportion to the interest of Lumina it sought to protect,[50] nor that it was “extravagant and unconscionable”. [51] Interest claimed of $37,692.45 to date is accordingly allowed.

    50. See Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79.

    51. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 at [29]-[32].

  1. A question arose as to whether the suspension of work by Lumina on 10 January 2019 was a breach of contract. Lumina asserted that this entitlement was implied by the requirement that fees be paid strictly within 14 days, which did not occur. The precise circumstances of the suspension were not explored. There was no evidence that ELB wanted Lumina to continue notwithstanding the fees for which ELB would be liable.

  2. But there are other reasons why the matter is of no significance. There was no alleged term that Lumina was required to work daily for ELB or meet any time limits. So a mere temporary suspension of work would not appear to be in breach. Moreover, there is no evidence that Lumina’s fees, had they not suspended work, would have been less than the $97,894 asserted, but not evidenced, by Lumina, or the $18,564 invoices by one Andrew Taylor for accounting services (leaving aside the absence of any evidence that Mr Taylor’s work was related to the work Lumina was engaged to do).

  3. Accordingly, whilst I was not satisfied that a mere failure to pay on time enlivened a right in Lumina to suspend work, Lumina nevertheless was entitled to suspend and do the work according to its own timetable. Further, the suspension gave rise to no actionable right in Lumina, or defence in ELB.

I. Conclusion

  1. Although this matter consumed several days of trial, it was in truth a straightforward claim for work and services performed at an agreed rate. The challenge to the liability was based, first, on an unfounded construction of the agreement that was not open or supported by the text or the surrounding circumstances; and secondly, on a speculative basis that the invoices were not evidenced to be related to the retainer, despite the plain evidence on their face.

  2. The plaintiff, Lumina, is entitled to judgment in the amount claimed of $151,643.06 plus interest, at the agreed rate, of $37,692.45, totalling $189,335.51.

  3. The parties have asked that costs be reserved.

J. Orders

  1. Judgment for the plaintiff against the defendant in the sum of $189,335.51 including interest.

  2. Costs reserved.

**********

Endnotes

Decision last updated: 18 November 2020

Actions
Download as PDF Download as Word Document
Cases Citing This Decision

1

Lumina Bpo Pty Limited v ELB Pty Ltd (No 3) [2020] NSWDC 713
Cases Cited

14

Statutory Material Cited

0

Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 4) [2006] FCA 446
Cherry v Steele-Park [2017] NSWCA 295
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7