Midland Metals Overseas Pte Ltd (ARBN 053 006 330) v Powercor Network Services Pty Ltd (ACN 123 230 240)
[2019] VSCA 76
•8 April 2019
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0060
| MIDLAND METALS OVERSEAS PTE LTD (ARBN 053 006 330) | Applicant |
| v | |
| POWERCOR NETWORK SERVICES PTY LTD (ACN 123 230 240) | Respondent |
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| JUDGES: | TATE and WHELAN JJA and ALMOND AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 17 October 2018 |
| DATE OF JUDGMENT: | 8 April 2019 |
| MEDIUM NEUTRAL CITATION: | [2019] VSCA 76 |
| JUDGMENT APPEALED FROM: | Powercor Network Services Pty Ltd v Midland Metals Overseas Pte Ltd (Unreported, Supreme Court of Victoria, Efthim AsJ, 13 April 2018) |
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CORPORATIONS – Contract – Setting aside of statutory demands – Contract for supply of electricity cables – Technical specifications – Genuine dispute as to whether cables supplied complied with specifications under the contract – Construction of contract – Ultimate questions not decided – Corporations Act 2001, ss 459G, 459H – Leave to appeal refused.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr B A Coles QC with Mr P G Liondas | marshalls+dent+wilmoth (as town agents for Church & Grace, Solicitors and Attorneys) |
| For the Respondent | Mr C R Brown | Logie-Smith Lanyon |
TATE JA
WHELAN JA
ALMOND AJA:
Background[1]
[1]These background matters are substantially derived from the Summary for the Court of Appeal filed on behalf of the applicant.
The applicant, Midland Metals Overseas Pte Ltd (‘Midland’), supplies electricity cables to Australian electrical utility companies, including to the respondent, Powercor Network Services Pty Ltd (‘Powercor’). Powercor provides construction, repairs, maintenance and service works on various electricity distribution networks within Victoria.
On 16 October 2014, the parties entered into a written contract pursuant to which Midland would supply materials, including cable, to Powercor (‘the contract’).
From time to time during July 2017 and August 2017 Powercor provided Midland with Material Delivery Instructions pursuant to the contract which included orders for the delivery of a type of cable described as cable 340073 (‘cable 340073’). In response to the Material Delivery Instructions, Midland made deliveries of cable 340073 to Powercor.
Powercor refused to pay for some of these cable deliveries. Powercor asserted that the relevant cables were defective because they did not comply with a Powercor specification referred to as specification ZD056 and a Schedule of Guaranteed Performance, and that accordingly they did not comply with the contract. Powercor asserted that payment was not therefore due in relation to these deliveries.
Midland asserted that specification ZD056 and the Schedule of Guaranteed Performance (which formed part of the tender submissions for the contract) were not part of the contract and could not be relied upon to determine compliance with the contract; and that the only technical specification applicable to cable 340073 was a standard described as AS/NZS 5000.1. There was no allegation by Powercor that the cable did not comply with AS/NZS 5000.1.
The parties engaged in correspondence and meetings in relation to the cables during August to October 2017 but were unable to resolve the issues between them.
On 12 October 2017, Midland served on Powercor three separate statutory demands for $9,363.76, $18,727.51 and $84,273.83 relating to three separate orders of cable 340073 respectively.
On 6 November 2017, Powercor commenced three separate (substantially identical) proceedings seeking to set aside each statutory demand. The applications were supported by several affidavits of Timothy James Beer, Category Manager Network Products of Powercor. In opposition to each application, Midland relied on an affidavit of Jacques De Vries, Managing Director of Midland.[2]
[2]Originating process in proceeding S CI 2017 04478 ($9,363.76); S CI 2017 04480 ($18,727.51) and S CI 2017 04482 ($84,273.83). The affidavits supporting each application were the affidavits of Timothy James Beer sworn 3 November 2017 (First Beer Affidavit), 15 December 2017 (Second Beer Affidavit), and 16 February 2018 (Third Beer Affidavit). The affidavit in opposition was the affidavit of Jacques De Vries sworn 5 February 2018.
On the basis of its supporting material, Powercor contended that the invoices were not payable because:
(a) the cable did not comply with specification ZD056 and/or the Schedule of Guaranteed Performance;
(b) the cable may not be fit for purpose; and
(c) Midland had not provided technical specifications for the cable upon request as required by clause 7.4(a) of the contract.
By reason of each of these matters, Powercor claimed that a genuine dispute arose in relation to the existence of the debts underlying the statutory demands.
On the basis of its material in opposition, Midland denied there was a genuine dispute.
An associate judge disposed of the proceedings by ordering that the statutory demands be set aside having found in each case that a genuine dispute existed as to whether the relevant cable 340073 complied with specification ZD056.[3] Midland seeks leave to appeal against these orders.
[3]Powercor Network Services Pty Ltd v Midland Metals Overseas Pte Ltd (Unreported, Supreme Court of Victoria, Efthim AsJ, 13 April 2018) (‘Reasons’).
For the reasons which follow, we refuse leave to appeal. Stated shortly, we consider:
(d) the associate judge did not err when he found there was a genuine dispute as to whether the cables supplied complied with specifications under the contract which depended upon the proper construction of the contract;
(e) the associate judge did not decide or purport to decide any ultimate question on the issue of construction or otherwise.
Provisions of the Corporations Act
The relevant statutory provisions are found in s 459G and 459H of the Corporations Act 2001 (Cth) (‘the Act’).
Section 459G provides that a company may apply to the Court for an order setting aside a statutory demand served on the company. Such an application may only be made within 21 days after the demand is served.
Section 459H provides:
Determination of application where there is a dispute or offsetting claim
(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total —Offsetting total
where:
‘admitted total’ means:
(a)the admitted amount of the debt; or
(b)the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
‘offsetting total’ means:
(a)if the Court is satisfied that the company has only one offsetting claim--the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims--the total of the amounts of those claims; or
(c)otherwise--a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a) varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5) In this section:
‘admitted amount’ in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt--a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt--so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c)otherwise--the amount of the debt.
‘offsetting claim’ means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
‘respondent’ means the person who served the demand on the company.
(6) This section has effect subject to section 459J.
The applicable law
The applicable law was not in dispute. It was set out by the associate judge in the Reasons as follows:[4]
[4]Citations omitted.
15.The meaning of a genuine dispute in the context of the challenge of a statutory demand was formulated by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd. His Honour said:
It is, however, necessary to consider the meaning of the expression ‘genuine dispute’…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] AC 331 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.
16.In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd, Dodds-Streeton JA, with whom Neave and Kellam JJA agreed, referred to the principles that are to be taken into account in determining a genuine dispute and off-setting claim. Her Honour said:
As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off‑setting claim. It is required to evidence the assertions relevant to the alleged dispute or off‑setting claim only to the extent necessary for that primary task. The dispute or off‑setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice…
17.It is not for the Court to determine the merits of a dispute when an application is made to set aside a statutory demand. In Mibor Investments Pty Ltd v Commonwealth Bank of Australia, Hayne J said:
…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 the dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.
18.However, in Delnorth Pty Ltd v State Bank of New South Wales, Cohen J said:
Section 459H(1) refers to the court finding that there is a genuine dispute. The parties have argued this case on the issue of whether the proper construction of the agreement and the facts results in the plaintiff owing money to the defendant. The facts were not in dispute and there was thus no question of whose evidence would be accepted on a final hearing. Under the previous legislation, when there was a claim that there was a bona fide dispute on substantial grounds as to the debt claimed, the court could decide that dispute if it arose from a question of law or was of short compass. See, for example, Offshore Oil NL v Acron Pacific Ltd (1984) 2 ACLC 8.
I consider that under the provisions of the Corporations Law, the same approach can be taken. Although questions of disputed fact will not be decided on an application to set aside a statutory demand, the issue of whether there is a genuine dispute can be resolved on that application where the question arises on a short point of law or the construction of documents or agreed facts. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; 12 ACLC 669, McLelland CJ in Eq said that the expression ‘genuine dispute’ connotes a plausible contention requiring investigation. Where no further investigation is required, I consider that the court on an application under s 459g may decide as a matter of law if there is a genuine dispute. The occasions when this is possible may be few, but in my view this is one of them.
The contract
The contract under which the cable was supplied contains the following relevant definitions, terms and schedules:
1.1 Definitions
…
(f)Documents includes all warranties, guarantees, operating manuals, maintenance manuals or ‘as-built’ drawings in respect of the Materials;
…
(h)Materials means the materials and/or services specified in Schedule 1;
(i)Materials Delivery Instruction means the form described as a ‘Materials Delivery Instruction’ in Schedule 6;
…
1.6 Entire Contract
This contract contains the entire agreement of the parties in relation to the matters it deals with. No party can rely on an earlier contract, correspondence or anything else in writing, or anything said or done by another party (or by a director, officer, agent or employee of that party) before this Contract was executed.
…
4.1 Provision of Materials
(a)During the term of this Contract, when we require you to provide Materials to us, we will complete a Materials Delivery Instruction and issue that Materials Delivery Instruction to your Responsible Officer. Within 2 Business Days of receiving each Materials Delivery Instruction, you must advise our Responsible Officer in writing if you cannot supply:
(i)the type or quantity of Materials specified in the Materials Delivery Instruction; or
(ii)the Materials within the timeframe specified in the Materials Delivery Instruction.
…
4.2 Instructions and decisions
You must comply with any reasonable instruction we give you relating to any aspects of the Materials or this Contract.
…
4.7 Provision of documents
(a)You must give us all Documents as required under this Contract or reasonably asked for by us. The Documents must be given to us, in a format acceptable to us, before the End Date.
(b)If the Materials include commissioning works, you must provide to us all pre-commissioning documentation relating to such commissioning works in a form acceptable to us and not later than 14 days prior to your proposed date for installation or commissioning of any item of equipment or material that is commissioned or installed as part of the Materials.
…
7.2 Schedule of Rates
(a)The Schedule of Rates contains the rates you will charge us for the Materials and the contract sum is the sum payable by us to you under each Materials Delivery Instruction contract for the Materials based on the Schedule of Rates (Contract Sum).
…
7.4 Payment for Materials
(a)In consideration of your providing the Materials to us, we will pay you within the period stated in Item 8 of the Annexure on receipt of a properly rendered Tax Invoice from you. The payment will be based on the value of the Materials delivered by you, and will only be made if:
..
(ii)you provide any supporting information for the claim required by us;
(iii) you are not in breach of this Contract;
…
(e)If you fail, or you are unable for any reason, to supply all or part of the Materials or all or any part of your obligations under this Contract you are not entitled to any payment for those Materials or obligations under which you have failed to supply or perform.
…
17.1 Materials
(a) The Materials must comply with all requirements under this Contract.
(b) You warrant that the Materials will be:
…
(iii) of merchantable quality;
(iv)fit for the intended purpose as set out in, or as may be reasonably inferred from, this Contract;
(v)where applicable in accordance with any technical specifications specified in Schedule 2 and the relevant standards of the Standards Association of Australia or relevant international standards;
…
(d)During the warranty period, you are to replace or make good at your expense to the satisfaction of our Responsible Officer, any Materials which do not conform with the Materials Delivery Instruction, technical specifications in Schedule 2, any other requirements of this Contract or which do not otherwise comply with the warranties set out in this clause 17.1(b).
…
Schedule 1 Scope of Materials (clause 1.1(h))
Materials
Supply and deliver the items specified in Schedule 3, Schedule of Rates to the location and quantity as detailed in each Material Delivery Instruction. Each item delivery lead time shall not exceed the delivery date nominated in each Material Delivery Instruction.
…
Schedule 2 Technical Specifications (clause 17.1(b))
To the nominated Technical Specification, Drawing and or Australian Standards for each item detailed in Schedule 3, Schedule of Rates including:
·ZD056-LV Single Core, Multicore (control) & Parallel Web Public Lighting Cables[5]
[5]References to technical specifications applicable to other cables, conductors and stays are omitted.
…
Schedule 3 Schedule of Rates (excluding GST) (clause 7.2)
The following prices are fixed for the first six months and then variable in accordance with …
Table 1[6]
[6]References to other items in Table 1 are omitted.
SAP ID
Item Description
Price
UoM
Delivery
Lead Time340073
Cable, annealed copper, 0.6/1kv, 1 core, xlpe insulated, pvc sheathed, black, 185mm2, to as/nzs 5000.1 latest revision, drum = 500 metres.
$16.13
Per Metre
Proposed Ground 1
Midland submits that the associate judge erred:
(f) in finding that there was a genuine dispute as to whether on the proper construction of the contract the cable 340073 had to comply with specification ZD056; and
(g) to the extent that he purported to find that on the proper construction of the contract cable 340073 had to meet the requirements of specification ZD056.
Midland submits that under the scheme of the contract, it is obliged to supply and deliver ‘Materials’ to Powercor after receiving Material Delivery Instructions. ‘Materials’ is defined as the materials and/or services specified in Schedule 1.[7]
[7]Clause 1.1(h) of the contract.
Schedule 1 relevantly states:
Supply and deliver the items specified in Schedule 3, Schedule of Rates to the location and quantity as detailed in each Material Delivery Instruction…
Schedule 3 relevantly states:
The following prices are fixed for the first six months and then variable in accordance with special condition 1 of Schedule 5.[8]
Below this statement in Schedule 3 is a table (Table 1) which identifies and describes various items and specifies a price per unit of measure, either per metre or per coil.
[8]Schedule 5 is not presently relevant.
An extract of Table 1 relevant to cable 340073 is reproduced in [18] above.
Midland submits that it is only required to supply and deliver 340073 cable that meets the item description in Table 1. The item description for cable 340073 in Table 1 includes reference to ‘as/nzs 5000.1 latest revision’ but makes no reference to specification ZD056. Other item descriptions in Table 1 do make reference to relevant standards and to specification ZD056 or other specifications. Midland submits that the express reference to AS/NZS 5000.1 in the item description, the absence of any reference to specification ZD056 in the item description, and the reference to specification ZD056 or other specifications in other item descriptions in Table 1, demonstrate that the only technical specification which cable 340073 is required to meet is the standard ‘as/nzs 5000.1 latest revision’.
Powercor takes a different approach and submits that the relevant starting point is clause 17.1(b)(v) of the contract. Clause 17 concerns the standard of materials to be supplied and warranties.
Clause 17.1(b)(v) states:
You warrant that the Materials will be … where applicable, in accordance with any technical specifications specified in Schedule 2 and the relevant standards of the Standards Association of Australia or relevant international standards …
Schedule 2 is headed ‘Technical Specifications (clause 17.1(b))’ and relevantly states:
To the nominated Technical Specification, Drawing and or Australian Standards for each item detailed in Schedule 3, Schedule of Rates including:
·ZD056-LV Single Core, Multicore (control) & Parallel Web Public Lighting Cables[9]
[9]Reference to technical specifications applicable to other cables, conductors and stays is omitted.
Technical Specification ZD056 relevantly states:
1. Scope
This specification states the minimum requirements for Low Voltage (LV) 0.6/1(1.2) Kv single core PVC and XLPE insulated cables, and multicore cables used in CitiPower/Powercor networks. This specification is to be read in conjunction with the relevant Australian Standards referred to in this standard.
2. Standards
The standards used in this specification shall be of the latest issue at the date of tender, including all amendments. Unless otherwise specified herein, the items to be supplied under this specification shall be in accordance with the following Australian Standards…
…
4.2 Quality Assurance requirements
4.2.1The supplier shall ensure that items and services including sub-contracted items and services, comply with this specification.
…
4.2.4No deviations or exceptions to this specification’s minimum requirements are allowed without prior written permission being granted.
…
6.1Conductors
6.1Conductors shall be of plain or tinned annealed copper and shall comply with the relevant requirements in AS/NZS 1125…
…
13. Cables to be supplied
13.1 0.6/1Kv PVC, XLPE Insulated Cables
The following are the single core PVC/XLPE insulated cables to be supplied…
340073 Cable, LV, 0.6/1(1.2) Kv, 1/Core 185sq mm, plain annealed 500 stranded Copper conductor, XLPE(X-90) Insulated, PVC (SV-90) Sheathed, Black to AS/NZS 5000.1
Powercor submits that on the proper construction of clause 17.1(b)(v) (read in conjunction with Schedule 2 and Technical Specification ZD056) any cable 340073 supplied by Midland under the contract must comply with Technical Specification ZD056.
Reasons for decision of the associate judge
Relevant paragraphs from the Reasons of the associate judge are extracted below:
24.[Midland] says the warranty provisions of the Contract are entirely consistent with the provisions setting out the actual obligations to deliver Cable 340073 and that neither of those provisions are linked to specification ZD056. [Midland] submits that [Powercor’s] construction of the Contract is plainly and obviously incorrect as Cable 340073 is not required to comply with specification ZD056 but only with AS/NZS 5000.1 and did comply with that specification.
25.[Midland’s] submission appears to depend on the words ‘where applicable’ contained in clause 17.1(b)(v). In my view, when construed properly, there is no support for [Midland’s] submission. The words ‘where applicable’ refer to the particular specification in Schedule 2 which applies to a certain item. In other words, the clause requires [Midland] to provide cables which comply with specification ZD056 as that specification applies to Cable 340073. In my view, ‘where applicable’ does not refer to whether a specific specification has been nominated next to Cable 340073 in the Schedule 3 table.
26.On a proper construction of the Contract by virtue of clause 17.1(b)(v), Cable 340073 must be in accordance with specification ZD056. [Midland] has warranted pursuant to clause 17.1(b)(v) that Cable 340073 will be in accordance with specification ZD056. That clause, which incorporates Schedule 2, cannot be ignored. It is arguable that the cables that were provided were not that which [Midland] agreed to provide.
27.Here there is no invention of a dispute after a statutory demand was served. [Powercor] has made it clear at all stages that the dispute is based on the terms of the Contract and the dispute appears to be genuine.
28.[Powercor], as a result of a tender process, entered into the Contract on 16 October 2014. On or about 12 August 2013, [Midland] submitted a response to the tender for the Contract that included a Schedule of Guaranteed Performance which included specification ZD056 Schedule A information for Cable 340073, including a conductor diameter of 2.65mm and an overall diameter of 24.4mm (maximum 5% tolerance). The proposed primary manufacturer was Seoul Electric, South Korea and the proposed secondary manufacturer was Ningbo Kangxing Cable, China.
29.Clause 1.6 of the Contract contains an entire contract clause which provides:
This Contract contains the entire agreement of the parties in relation to the matters it deals with. No party can rely on an earlier contract, correspondence or anything else in writing, or anything said or done by another party (or by a director, officer, agent or employee of that party) before this Contract was executed.
30.[Midland] submits that clause 1.6 of the Contract is clear and unambiguous as to the fact that the Contract contains the entire agreement of the parties in relation to the matters it deals with and no party can rely on anything else that is outside the Contract, in particular including anything else in writing before the Contract was executed. This clause itself, according to [Midland], defeats [Powercor’s] attempt to refer to pre-contractual documentation to set up a collateral contract or to contend that the pre-contractual documentation sets out technical requirements that are incorporated into the Contract.
31.[Midland] relies on Hope v RCA Photophone of Australia Pty Ltd,[10] which was followed by the Court of Appeal in Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd[11] where Warren CJ, Harper JA and Robson AJA stated:
[10](1937) 59 CLR 348.
[11](2012) 37 VR 486.
In Hope v RCA Photophone of Australia Pty Ltd, clause 27 of the relevant contractual document described the whole as the ‘entire understanding’ between the parties. To make the point doubly secure, it added that the contract contained no terms other than those expressed. The High Court held that the clause in question left no room for a submission that the terms of the contract were not fully embraced within its four walls.[12] [citations omitted]
[12]Ibid 517 [108].
32.The effect of entire agreement and merger clauses has been referred to in the text Cheshire & Fifoot Law of Contract.[13]The learned authors when considering such a clause state that:
Commercial contracts in writing commonly include a clause stating that the document contains the entire agreement or contract of the parties, and that all other terms are excluded. Does such a clause (often called a merger clause) conclusively establish that the document is a final and complete record of the contract, so that evidence of extrinsic terms is definitively excluded? If a document that is ostensibly complete must be accepted as such (see 10.5 above), this conclusion should follow a fortiori from an express statement to that effect. Moreover, the rule that a collateral contract must be consistent with the main contract appears to preclude evidence of such a contract in the face of a merger clause, although this must depend on the construction of the particular clause.
However, it is clear that such a clause does not prevent the admission of evidence of pre-contractual conduct in support of a claim of deceit or misleading conduct, or of rectification, or of equitable estoppel. Moreover, it does not, unless implied terms are expressly referred to, operate to exclude the implication of specific terms to give business efficacy to a contract, or (a fortiori) of generic terms implied by law. These qualifications apart, evidence of extrinsic terms has generally (but not always) been excluded in cases of documents containing an entire agreement or merger clause. It may be that such clauses should be subject to the special scrutiny given to terms limiting or excluding liability.[14]
33.Here there is no claim of deceit or misleading conduct, rectification or equitable estoppel. The tender process and [Midland’s] response formed the basis for [Powercor] entering into the Contract in the first place. The Court should be able to refer to those documents which go to identify the subject matter of the Contract. It would be unjust in these circumstances if the Court could not refer to the Schedule of Guaranteed Performance tender document to identify the description of what is meant by Cable 340073.[15]
34.In my view, [Powercor] therefore has a genuine dispute, however based on the construction of the Contract. [Powercor] submits that this is not an issue that should be determined in accordance with the principles in Delnorth Pty Ltd v State Bank of New South Wales[16] which state that the Court can resolve a genuine dispute in an application to set aside a statutory demand if the question arises on a short point of law or the construction of documents or agreed facts. [Powercor] submits that the determination of the dispute will need to involve expert opinion about whether [Midland] has complied with specification ZD056 and that dispute should not be determined by this Court on an application to set aside a statutory demand.
35.I agree with [Powercor] that there is no evidence put by [Midland] contrary to the evidence of [Powercor] that [Midland] has not complied with specification ZD056. [Midland] did not engage in that issue because it formed the view that it complied with the terms of the Contract and that that was sufficient to demonstrate that there is no dispute. It should have a chance to file evidence in respect of whether it has complied with specification ZD056 before the contractual dispute is determined. [Powercor] has put before the Court a plausible explanation as to why it is entitled to withhold payment of the invoices which requires further investigation.
[13]N Seddon, R Bigwood and M Ellinghaus, Cheshire & Fifoot Law of Contract (LexisNexis Butterworths Australia, 10th ed, 2012).
[14]Ibid 418–19.
[15]See Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352.
[16](1995) 17 ACSR 379.
Analysis – Proposed Ground 1
In our view, in this case there is a genuine dispute as to whether the cables supplied complied with the technical specifications of the contract; ‘whether the cables that were provided were not that which [Midland] agreed to provide.’[17] This depends upon the proper construction of the contract. At the heart of the construction issue is the key question whether the item description in Schedule 3 is a comprehensive statement of the technical specification required for cable 340073 or whether the technical specification for cable 340073 is also to be ascertained by reference to Schedule 2 and other documents. Schedule 2 lists various technical specifications, including specification ZD056 which refers to cable 340073.
[17]Reasons [26]. See [30] above.
The resolution of this question is neither plain nor obvious. In [24] and [25] of the Reasons the associate judge correctly identified the fundamental difference between the parties; one contending that neither the warranty provisions nor the obligation to deliver the cable under the contract are linked to specification ZD056, the other contending that they are linked on a proper reading of the warranty provisions in conjunction with the relevant schedules.
The resolution of this will depend on the answers to interrelated and subsidiary questions of construction required to ascertain the purpose and effect of Schedule 2 and Schedule 3.
This will include consideration of –
(h) the meaning and effect of the words ‘where applicable’ in clause 17.1(b)(v);
(i) the meaning and effect of the words ‘nominated Technical Specification’ in Schedule 2; whether they engage the technical specifications listed in Schedule 2 or the technical specifications incorporated in the item descriptions in Schedule 3;
(j) the meaning and effect of the words ‘for each item detailed in Schedule 3’ in Schedule 2; whether they engage the technical specifications (if any) applicable to the items so detailed or merely identify a list of items in respect of which Schedule 2 technical specifications are to apply where applicable.
In determining an application to set aside a statutory demand of the kind in question, the primary task required by the legislation is to decide whether there is a genuine dispute. The associate judge undertook that task. We discern no error in the approach taken or in the finding that there is a genuine dispute based on the construction of the contract.[18]
[18]Reasons [34].
Midland submits that it is unclear whether the associate judge was simply making a finding that there was a genuine dispute based on the proper construction of the contract or was going further and purporting to make a substantive finding on construction.
In support of the proposition that the associate judge may have gone so far as to make a substantive finding on the issue in dispute, Midland relies particularly on the first sentence of [26] of the Reasons. We consider that this sentence would provide some support for this proposition if it stood alone, but the Reasons contain many indications to the contrary.
To demonstrate that the first sentence of [26] should not be read alone, it is helpful to set out extracts from the Reasons including the first sentence of [26]:
On a proper construction of the Contract by virtue of clause 17.1(b)(v), Cable 340073 must be in accordance with specification ZD056. (First sentence of [26])
The plaintiff has made it clear at all stages that the dispute is based on the terms of the Contract and the dispute appears to be genuine. ([27])
In my view, the plaintiff therefore has a genuine dispute, however based on the construction of the Contract. ([34])
It should have a chance to file evidence in respect of whether it has complied with specification ZD056 before the contractual dispute is determined. ([35])
The plaintiff has put before the Court a plausible explanation as to why it is entitled to withhold payment of the invoices which requires further investigation. ([35])
Further, after finding that Powercor has a genuine dispute based on the construction of the contract, the associate judge refers to Powercor’s submission that the (construction) issue should not be determined in accordance with the principles in Delnorth Pty Ltd v State Bank of New South Wales,[19] noting that the Court can resolve a genuine dispute on an application to set aside a statutory demand if the question arises on a short point of a law or the construction of documents or agreed facts; however the associate judge does not say that he would do so, and in this case there is no adequate basis to infer that he did do so.
[19](1995) 17 ACSR 379.
The associate judge appears to accept Powercor’s submission that expert evidence would be needed before the dispute could be determined and, significantly, that Midland should have a chance to file evidence in respect of whether it has complied with specification ZD056 before the contractual dispute is determined. In our view, this statement does not foreclose or inhibit later argument on any aspect of the construction point and we consider it should not be read as precluding or inhibiting any further argument.
Considering the Reasons as a whole, with particular attention to the extracted passages above, it is tolerably clear to us that the associate judge simply made a finding that there is a genuine dispute. This is evident from the final sentence of the Reasons which is a straightforward application of the test enunciated by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd,[20] and elaborated upon by Dodds-Streeton JA in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[21] which the associate judge had previously cited.[22]
[20](1994) 12 ACSR 785.
[21](2008) 66 ACSR 67.
[22]Reasons [15]–[16].
To the extent that the Reasons might suggest otherwise, they should be regarded as obiter dictum. For the avoidance of doubt, it follows that the issue that was based on the construction of the contract, indeed all matters in issue between the parties in the respective proceedings have yet to be determined and remain open to be argued in the appropriate forum in due course.
Proposed Ground 2
Midland submits that the associate judge erred in relying on pre-contractual tender documentation in construing the contract and in identifying the obligations of the applicant pursuant to the contract.
Midland submits that, even if specification ZD056 was found to be applicable, the associate judge needed to find some requirement in the specification that was arguably not complied with in order to find the existence of a genuine dispute and that the associate judge erred in relying on pre-contractual documents to reach that conclusion.
Midland submits that the associate judge should not have had recourse to the pre-contractual dealings, namely, tender documents; that this was impermissible according to accepted principles of contractual interpretation where there was no ambiguity which could warrant the admission of evidence of surrounding circumstances of the tender process and in light of an entire agreement clause.
Powercor submits that the contract (including the entire agreement clause) does not preclude recourse to extrinsic materials, in this case the tender documents, for the purpose of identifying the subject matter of the contract; that in this case the identity of the subject matter of the contract is in issue; as is the scope and extent of specification ZD056 which will require further evidence potentially including evidence of industry practice to explain the absence of any reference to conductor diameter or overall diameter for this cable type in specification ZD056.
Analysis – Proposed Ground 2
In our view, this proposed ground is not made out.
Whilst the associate judge found that it is arguable that the cables that were provided were not that which Midland agreed to provide, careful attention needs to be paid to the elaboration in the paragraphs of the Reasons which follow.
First, the associate judge notes that the dispute is not a recent invention.[23] He then sets out the background facts established on the affidavit material that as a result of a tender process the parties entered into the contract;[24] that Midland’s submitted response to the tender for the contract included a document described as a Schedule of Guaranteed Performance which contained information for cable 340073 including conductor and overall diameter measurements.[25]
[23]Reasons [27].
[24]First Beer Affidavit [11].
[25]First Beer Affidavit [15].
The associate judge then sets out the entire agreement clause from the contract and summarises the submissions made on behalf of Midland to the effect that the contract is clear and unambiguous, that it contains the entire agreement of the parties and defeats Powercor’s attempt to refer to pre-contractual documentation. He notes that Midland relies on the High Court decision in Hope v RCA Photophone of Australia Pty Ltd[26], which was followed by the Court of Appeal in Retirement Services (RSA) Pty Ltd v 3143 Victoria Street Doncaster Pty Ltd[27] and refers to a passage from Retirement Services noting that in Hope the Court found that the ‘clause in question left no room for a submission that the terms of the contract were not fully embraced within its four walls’.[28]
[26](1937) 59 CLR 348 (‘Hope’).
[27](2012) 37 VR 486 (‘Retirement Services’).
[28]Reasons [31].
The associate judge then reproduces a passage from Cheshire & Fifoot Law of Contract, on the effect of entire agreement clauses which has, as its concluding words, ‘evidence of extrinsic terms has generally (but not always), been excluded in cases of documents containing an entire agreement or merger clause. It may be that such clauses should be subject to the special scrutiny given to terms limiting or excluding liability’.[29]
[29]Reasons [32].
Having set out the respective parties’ submissions and the law, the associate judge observes that the court should be able to refer to the extrinsic documents which go to identify the subject matter of the contract and expresses an opinion that it would be unjust if the court could not refer to the tender documents to identify the subject matter of cable 340073. Significantly for present purposes, the associate judge goes no further; he does not purport to determine the parameters of specification ZD056 by reference to those materials nor does he purport to construe the terms of the entire agreement clause.
The associate judge does however determine that Midland should be given the opportunity to file evidence in respect of whether it had complied with specification ZD056 before the contract argument is determined.
In our view, this was the appropriate course to take so that, if the court should later find that specification ZD056 is applicable to cable 340073, it will be in a position to determine its scope (which will necessarily involve argument about the effect of the entire agreement clause), whether recourse should be had to the tender documents and whether the relevant cable complied with the specification once it has been ascertained.
It follows that we do not accept that the associate judge wrongly relied on the tender documents to determine that there was a genuine dispute. Even if this conclusion is incorrect, it does not avail Midland in its quest for leave to appeal as there is another issue raised on the material which demonstrates arguable non-compliance with a requirement of the specification. In this regard it does not appear to be in dispute that cable 340073 is to be made of annealed copper. Cable 340073 as described in the Schedule of Rates,[30] Technical Specification ZD056[31] and in the order for supply (Material Delivery Instruction) all specify annealed copper and Mr Beer of Powercor deposed that the cables had to be made of annealed copper.
[30]Schedule 3 to the contract. See [18] above.
[31]Clause 6.1, 13.1 of Technical Specification ZD056. See [28] above.
However, Mr Beer has deposed that the cable supplied by Midland, relating to the invoices the subject of the statutory demands, had conductors made of compressed or compacted copper.[32]
[32]First Beer Affidavit [19].
In response, Mr De Vries of Midland deposed that a substantial quantity of cable 340073 previously delivered and previously accepted by Powercor was made of compacted or compressed copper, which conformed with standard AS/NZS 1125.[33] We consider that this may be so but Mr De Vries fails to contradict or to respond directly to the asserted non-compliance with the requirement to supply annealed copper cable. In our view, in itself, this provides a proper basis to demonstrate apparent non-compliance with the contract and to conclude that a genuine dispute exists about the existence or amount of a debt to which Midland’s statutory demands relate. It squarely raises the question of whether Powercor has any obligation to pay for the relevant three separate orders of cable 340073 given that clause 7.4 of the contract provides that the obligation to pay is premised on Midland not being in breach.
[33]Standard AS/NZS 5000.1 latest revision is a standard listed in Technical Specification ZD056.
Proposed Ground 3
Midland submits that the associate judge erred in setting aside the statutory demands on the basis that there was a genuine dispute when there was no genuine dispute. For the reasons previously advanced, this ground cannot succeed.
Notice of Contention
By notice of contention Powercor submits that the judgment below should be affirmed on the following grounds not decided by the associate judge, namely that there is a genuine dispute as to whether the invoices the subject of the statutory demands were due and payable on the basis that:
(k) Powercor identified a potential problem with the cables supplied by Midland in that they did not properly connect to connecting devices, which may have meant that the cables were not fit for purpose, as warranted by Midland in clause 17.1(b)(iv) of the contract;
(l) Pursuant to clauses 4.2, 4.7(a), 7.4(a)(ii) of the contract, Powercor is entitled to request Midland to provide certain documents and did request specifications for the cables to investigate the fitness of the cables for use in Powercor’s distribution network;
(m) In breach of contract clauses 4.2, 4.7(a) and/or 7.4(a)(ii) of the contract, Midland refused or failed to provide the requested documents; and
(n) In circumstances where Midland was in breach of the contract and had failed to supply supporting information for the claim, required by Powercor pursuant to clause 7.4(a)(ii) of the contract, Powercor was entitled to refuse to pay the invoices.
As we propose to refuse leave to appeal, and thereby uphold the judgment below, it is unnecessary to examine the contentions relied upon by Powercor in any detail.[34] Nevertheless, we make some general observations.
[34]Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27 [17], [24] (Winneke P); East Melbourne Group Inc v Minister for Planning (2008) 3 VR 605, 644 [164] (Warren CJ); Legal Services Commissioner v Brereton (2011) 33 VR 126, 128 [1]–[2], 156 [115]; Salta Constructions Pty Ltd v St George Bank (2014) 45 VR 245, 256–7 [37]–[40]; Di Stasio Pty Ltd v R & K Services Pty Ltd [2018] VSCA 340, [107].
Midland submits that Powercor’s contentions do not evidence any genuine dispute for the following reasons:
a.Clause 4.2 of the contract refers to reasonable instructions relating to any aspects of the ‘Materials’ or the contract; the request for information was not a reasonable instruction relating to the ‘Materials’ or the contract;
b.In any case, Midland provided the ‘technical specification’ for cable 340073, being the technical specification AS/NZS 5000.1, and it therefore complied with any requirement that may have applied under clauses 4.2, 4.7 or 7.4(a)(ii) of the contract;
c.Clause 4.7 refers to the provision of ‘Documents’ and is not aimed at a request for information of the type made. Furthermore, any requirement was to provide documents before the end date for the contract, which was 30 September 2017. The request for documents was made after this time; and
d.Clause 7.4(a)(ii) refers to supporting information ‘for the claims’; on any reasonable construction this can only refer to information about the claim for payment such as quantity and date of product delivered; the clause does not apply to requests for ‘information’ sought about the technical specifications of the product of the kind made.
Our brief comments are these. First, the issue of any unsatisfactory connection of the cables to connecting devices is a dispute on the facts. The parties have conducted tests on connectivity. One test of the connection proved satisfactory, the other unsatisfactory. There is, it would seem, a plausible contention about fitness for purpose requiring investigation and perhaps, at trial, the benefit of independent expert evidence.
It is only when the construction question about technical specifications is resolved that it will become clear which technical specifications are relevant, whether the request for information under clause 4.2 was reasonable, and whether Midland provided sufficient technical specifications for the cable to comply with the terms of the contract.
Conclusion
There are clearly many legitimate construction questions raised with respect to the contract.
In conclusion, we consider that the approach taken by Midland to pursue recovery of a purported debt by means of the statutory demand mechanism under the Act was precipitate and misconceived. This is a commercial dispute about some (but not all) of the cable delivered by Midland, where the issues were obviously contested at the time the statutory demands were made, where there was no suggestion of an actual or perceived incapacity to pay, and where the amounts involved were (in relative terms) minimal.
In our view, the appropriate course would have been for Midland to issue proceedings, to articulate a statement of its claim and to allow Powercor to articulate a statement of its defence. That course is still open to the parties if the matter cannot be resolved commercially. Necessary discovery and any contest over admissibility can be dealt with in the usual way.
In all the circumstances, we consider there are no real prospects of Midland succeeding on the appeal. Accordingly, we would refuse leave to appeal.
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