Mackintosh Contractors Pty Ltd v Coochin Nominees Pty Ltd

[1994] QCA 234

IN THE COURT OF APPEAL	[1994] QCA 234
SUPREME COURT OF QUEENSLAND

Appeal. No. 235 of 1993

Before Macrossan C.J.
Fitzgerald P.
Demack J.

[Mackintosh Contractors v. Coochin Nominees]

BETWEEN:

MACKINTOSH CONTRACTORS PTY. LTD.

Respondent (Plaintiff)

AND:

COOCHIN NOMINEES PTY. LTD.

Appellant (Defendant)

REASONS FOR JUDGMENT - THE COURT

Judgment delivered 28/06/94

This is an appeal, and an application for leave to appeal, from an order made in the District Court at Brisbane on 12 October, 1993, giving the respondent "liberty to sign final judgment" against the appellant for the sum of $62,576.00 together with interest. The order was made on an application for summary judgment in an action commenced by the respondent by a plaint filed on 6 August, 1993.

The respondent seeks to maintain the order appealed from, and opposes the grant of leave to appeal, although it is common ground that His Honour's reasons for his decision cannot be sustained; neither party referred him to sub-s. 553(2) of the Corporations Law or s.86 of the Bankruptcy Act 1966 (Commonwealth) which, subject to one matter mentioned below, determine the rights of the parties.

The appellant engaged the respondent to carry out construction works in connection with a subdivisional development at Buderim pursuant to a contract entered into on or about 24 June, 1991. On 25 November that year, the Superintendent under the contract issued payment certificate No. 4 for the amount of $62,576.00 to the respondent, which became entitled to payment of that amount within 14 days, i.e., on or before 9 December, 1991. Meanwhile, on 3 December, 1991, provisional liquidators were appointed to the respondent on an application for winding-up filed that day. The order that the respondent be wound up was made on 30 January, 1992.

Under cl.44.4 of the contract between the parties, the appellant was authorised in specified circumstances "by notice in writing" to the respondent to take the work remaining to be completed out of the hands of the respondent and, if it did so, under cl.44.5 it was entitled to "complete that work". Clause 44.6 provided:

"44.6 Adjustment on Completion of the Work Taken

Out of the Hands of the Contractor.

When work taken out of the hands of the Contractor under Clause 44.4(a) is completed the Superintendent shall ascertain the cost incurred by the Principal in completing the work and shall issue a Certificate certifying the amount.

If the cost incurred by the Principal is greater than the amount which would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due from the Contractor to the Principal ...."

It was not disputed that the appellant had taken the remaining work out of the hands of the Contractor and completed the work and that the Superintendent had ascertained the cost incurred by the appellant in completing the work and issued a document certifying that amount on 1 June 1992. Further, it was not disputed the appellant was indebted to the respondent in the amount of payment certificate No. 4 issued by the Superintendent to the respondent on 25 November, 1991, the sum of $62,576.00 for which the respondent was given liberty to sign final judgment by the order under appeal, and that, subject to what is said below, the respondent was indebted to the appellant for the amount of the certificate issued by the Superintendent under cl.44.6 on 1 June 1992. Further, it was conceded that, if that was so, sub-s. 553(2) of the Corporations Law and s.86 of the Bankruptcy Act required the two amounts each to be set-off against the other and that, in that event, the order under appeal should be set aside if leave to appeal is granted.

The respondent's argument against this conclusion was based solely on the premise that the appellant had not acted in accordance with cl.44.4 of the contract in that, while it had taken the remaining work out of the hands of the respondent, it had not done so "by notice in writing". Two points were made. Firstly it was said of two letters sent by the appellant's Engineer, who was also the Superintendent under the contract, that the first, a letter dated 3 December, 1991 said only that the appellant "may exercise his rights under Clause 44.4(a), that is take out of your hands the work remaining to be completed", and that the second, a letter dated 9 December, 1991, said "... the Principal has taken out of the hands of the Contractor the whole of the work remaining to be completed, in accordance with the requirements of Clause 44 ...". Neither was a satisfactory notice, it was submitted, and further neither was signed by the Principal, nor was the Engineer's authority to send such letters established.

This is not the basis upon which the respondent's application was conducted in the District Court and it is, in the circumstances, a wholly inadequate basis to shut the appellant out at this point of the proceedings and to deny it a statutory right of set-off. The injustice of such a course is highlighted by the absence of any relevant issue between the parties at the time of the hearing in the District Court.

In an affidavit sworn by one of the liquidators of the respondent in support of its application for summary judgment, the following paragraph appears:

"4. ...

(c) The contract works were commenced by the Plaintiff at the beginning of July 1991 and continued until the Defendant on 3 December 1991 took out of the hands of the Plaintiff the remainder of the contract works to be completed ....".

The deponent then went on to refer to and exhibit copies of the two letters from the Engineer dated 3 December, 1991 and 9 December, 1991.

These matters were also referred to in an affidavit by a Director of the appellant filed in opposition to the respondent's application. After referring to the letter from the Engineer to the respondent dated 3 December, 1991, the affidavit continued:

"12. On the 6th of December, 1991 the Defendant
went into physical possession of the works.
Thereafter the Defendant paid moneys as they
became due to subcontractors and suppliers.

13. As a consequence of the Defendant having to enter the site and take over the Plaintiff's work, the Defendant suffered loss and damage ..."

The affidavit then went on to refer to the communication by the Engineer to the respondent which is relied upon by the appellant as a certificate under cl.44.6 of the contract.

If the respondent is correct in the basic premise upon which its argument depends, i.e., that a notice in writing was a mandatory requirement for the appellant to take the remaining works out of the hands of the respondent under the contract, which I take leave to doubt, it is apparent that the parties conduct during the material period falls for investigation to determine whether there was a variation of the agreement or, for example, the respondent waived its right to a notice in writing and/or is estopped from insisting upon that requirement. Before this Court, the respondent contended that there was an obligation upon the appellant to raise such issues and that the material does not do so. It is a sufficient answer to that submission that, on a fair reading of the material, it was not in dispute in the District Court that the appellant had taken the remaining work out of the hands of the respondent, and inferentially that it had done so in accordance with the contract. I do not think that a party should be shut out from enforcing its rights or defending a claim made against it on the basis that it failed to provide material to respond to a point apparently not only not made against it but arguably conceded in its favour.

As a further point, the respondent relied upon sub-s. 86(2) of the Bankruptcy Act, as applied to the present dispute by sub-s. 553(2) of the Corporations Law. The success of such an argument depends upon it being determined that the appellant either gave credit to the respondent or received credit from the respondent within the meaning of that provision. As at present advised, there seems to me to be no substance in that argument, but it is sufficient to say that it is at least sufficiently arguable that the appellant did not do so.

The appeal should therefore be allowed, subject only to the question whether the appellant should be granted leave to appeal. A combination of factors satisfy me that, in the particular circumstances of this case, leave should be given. In an application for leave to appeal, the Court may, if it sees fit, decline to hear argument directed to the correctness of the judgment against which leave is sought to appeal but, in this instance, that argument was permitted and it was demonstrated that the order made in the District Court was incorrect. Further, the effect of that order was, in a practical sense, finally to determine a major issue between the parties, namely whether the respondent is entitled to be paid by the appellant without a set-off in favour of the appellant of any amount owed to it by the respondent: cf. CIG Investments Pty. Ltd. v. Taylor

(C.A. No. 119 of 1993, unreported judgment delivered

25/11/93) Thirdly, the application has been decided without reference to statutory provisions which, if the appellant is correct, entitle it to such a set-off. When these matters are considered together they justify the grant of leave to appeal.

The remaining issue relates to costs. The respondent submitted that it should have the costs of the appeal in any event or that it should be granted a Certificate under the Appeal Costs Fund Act. I disagree. In my opinion, costs should follow the event. The application for summary judgment should not have been brought, and that it was an unsuitable application should have been apparent to the liquidators and their legal advisers who must have known that there were cross-claims between the parties.

Accordingly, I would grant leave to appeal, allow the appeal, set aside the orders made below, give the appellant leave to defend the District Court action and order the respondent to pay the appellant's taxed costs of and incidental to the application for summary judgment and this appeal.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

C.A. No. 235 of 1993

Brisbane
[Mackintosh Contractors v. Coochin Nominees]

BETWEEN:

MACKINTOSH CONTRACTORS PTY. LTD.

Respondent (Plaintiff)

AND:

COOCHIN NOMINEES PTY. LTD.

Appellant (Defendant)

Macrossan C.J.
Fitzgerald P.

Demack J.

Judgment delivered 28/06/94
Judgment of the Court

Application for leave to appeal granted. Appeal allowed. Set aside orders made below on 12 October 1993 and grant the appellant leave to defend the District Court action. Order the respondent to pay the appellant's taxed costs of and incidental to the application for summary judgment and this appeal.

CATCHWORDS:	CONTRACT - construction and interpretation - set off of debts - appellant contracted the respondent to perform certain works - under the contract appellant took unfinished work out of the hands of the respondent upon the respondent's insolvency - appellant completed work and sought to set off cost under bankruptcy legislation against sum owed to the respondent for work part completed - respondent claimed appellant had not given sufficient notice under the contract that work being taken out of the respondent's hands - whether issue of notice was actually in dispute
Counsel:	Mr. C. McConaghy for the appellant Mr. J. McKenna for the respondent
Solicitors:	Fox and Fox for the appellant Clayton Utz for the respondent

Hearing Date: 09/06/94