Native Avenue Pty Ltd & Windemere Investments Pty Ltd T/As PKF Mount Barker v SRB Systems Pty Ltd & SRB Subo Pty Ltd
[2011] SADC 182
•30 November 2011
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
NATIVE AVENUE PTY LTD & WINDEMERE INVESTMENTS PTY LTD T/AS PKF MOUNT BARKER -V- SRB SYSTEMS PTY LTD & SRB SUBO PTY LTD
[2011] SADC 182
Judgment of Her Honour Judge McIntyre
30 November 2011
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS - GENERALLY
RESTITUTION - RESTITUTION RESULTING FROM UNENFORCEABLE, INCOMPLETE, ILLEGAL OR VOID CONTRACTS - RECOMPENSE FOR SERVICES RENDERED - QUANTUM MERUIT
PROFESSIONS AND TRADES - ACCOUNTANTS AND AUDITORS
The plaintiffs seek payment of invoices rendered to the defendant companies for accounting services provided to the defendants and to an unrelated corporate entity. Plaintiffs seek payment for accounting work relying on contract or alternatively quantum meruit. Issues as to the terms of the retainer including as to billing arrangements, the scope of the work to be undertaken or the time frame within which it was to be completed. Further issues as to the terms of the agreement concerning unrelated corporate entity. Whether plaintiffs were party to either contract or otherwise entitled to sue upon the agreement. Whether entire contract. Defendants denied the plaintiffs' entitlement to payment of invoices and counter-claimed for loss of research and development tax concessions. Plaintiffs’ claims against the defendants and defendants’ counter-claim against the plaintiffs dismissed.
Law of Property Act 1936 s15; Trustee Act 1936 s16; Corporations Act 2001 , referred to.
Baltic Shipping Company v Dillon (1993) 176 CLR 344; Pavey & Matthews Pty Ltd v Paul [1986-87] 162 CLR 221; Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880; Brenner and Another v First Artists Management Pty Ltd and Another [1993] 2 VR 221, considered.
NATIVE AVENUE PTY LTD & WINDEMERE INVESTMENTS PTY LTD T/AS PKF MOUNT BARKER -V- SRB SYSTEMS PTY LTD & SRB SUBO PTY LTD
[2011] SADC 182
The plaintiffs trade as PKF Mount Barker – an accounting firm. The plaintiffs issued these proceedings claiming to be entitled to payment of invoices rendered to the defendant companies for accounting services. There are however a number of highly contentious aspects to what might have been thought to be a relatively straightforward debt collection matter.
The defendants deny that the plaintiffs are entitled to payment of the invoices and further counter-claim for loss and damage asserting amongst other things, that the plaintiffs have acted in breach of the retainer agreement.
It is uncontentious that PKF Mount Barker agreed to provide the defendants with accounting services (‘the retainer”) but the terms of the retainer are in dispute. PKF failed to document the terms of the retainer which has led to dispute as to the parties, the scope of work to be undertaken, the time frame within which it was to be completed and the billing arrangements generally. These failures were compounded by poor communication and inadequate record keeping on the part of PKF. The situation is repeated in relation to what the plaintiffs assert to be the first defendant’s obligation to pay accounts rendered by PKF to an unrelated corporate entity Subo Turning Pty Ltd (“the Turning claim”).
For the reasons that follow I dismiss the plaintiffs’ claims against the defendants and the defendants’ counterclaim against the plaintiffs.
Issues
The key issues in dispute are as follows:
1.Are the plaintiffs entitled to sue upon the retainer agreement?
2. What were the terms of the retainer?
3. What work did PKF do for the defendants?
4 Was the general retainer work performed promptly and efficiently?
5. What are reasonable charges for the PKF work?
6.Are the defendants liable for the unpaid invoices?
7.Is the first defendant liable for accounting services provided by PKF to Subo Turning Pty Ltd?
8. Are the plaintiffs liable to the defendants on the counter-claim?
Background
Robert Sladojevic is a structural engineer who has been involved in a number of businesses that provide innovative means of manufacturing concrete wall panels for use in construction. In about 2002 Mr Sladojevic set up SRB Construction Technologies Pty Ltd. That company has never traded but owns the patents to several of Mr Sladojevic’s inventions.[1]
[1] Transcript p569
On 30 June 2004 he incorporated another company, the first defendant SRB Systems Pty Ltd (Systems), to sell products and develop the technology for which SRB Construction Technologies Pty Ltd owned the patents. Mr Sladojevic is the business manager and general manager of Systems. Systems commenced trading on or about 3 September 2004. I will refer to Mr Sladojevic’s companies as the SRB Group.
The manufacture of SRB Group products was initially sub-contracted to a Sydney-based company - Subo Turning Pty Ltd (Turning). Turning is not part of the SRB Group.
In about 2004-5 a substantial change took place in the SRB Group’s business. Rather than selling direct to the building industry, the SRB Group entered into a contract with Reid Construction Systems Pty Ltd (Reid) to undertake national distribution of SRB Group products. A new company SRB Subo Pty Ltd (Subo) was incorporated on 17 February 2005 to manufacture the products and to provide warehousing for the national distributor Reid. Subo is part of the SRB Group and the second defendant. Turning continued to undertake some manufacturing for the SRB Group but remained unrelated to the SRB Group.
In late August/September 2006 Mr Sladojevic says that the SRB Group started discussions with a third party company, ITW, concerning the possible sale of part of the SRB Group. In June 2008, ITW bought the entire Australian operations of the SRB Group and the Australia and New Zealand intellectual property. The SRB Group retained the international intellectual property and the ownership of all patents.[2]
[2] Transcript p580-81
Systems instructed MBA Partnership to act as its accountants in about June 2005. In January 2006 Subo also retained MBA Partnership as its accountants. In mid-2006, the defendants instructed PKF Mount Barker to take over from MBA Partnership as their accountants. There was no written retainer agreement. During the course of the retainer the defendants also instructed PKF to prepare special purpose accounts for the negotiations with ITW. PKF Mount Barker undertook work for both defendants until the retainer was terminated by the defendants on 17 January 2008.
From 2006 until 2008 a number of invoices were rendered by PKF. All invoices for work prior to 30 June 2007 were paid. None of the invoices for work performed after that date have been paid.
In addition PKF undertook work for the unrelated entity Turning. The plaintiffs say that the first defendant, Systems, agreed to pay for this work. None of PKF’s invoices for the Turning work have been paid.
Pleadings
Proceedings were issued on 1 April 2008 seeking payment of the unpaid invoices. The statement of claim has been amended more than once.
The summons was originally issued by Streather Holdings Pty Ltd (Streather) and Pendulum Pty Ltd (Pendulum). On 19 November 2008, leave was granted by a Master of this Court to amend the name of Streather to Native Avenue Pty Ltd (Native Avenue) and to join Windemere Investments Pty Ltd (Windemere Investments) as a plaintiff. On 27 November 2008 leave was granted to remove Pendulum as a plaintiff to the action. Initially the pleadings named only the first defendant Systems but were subsequently amended to include Subo as the second defendant.
Notwithstanding the amendments, the plaintiffs’ pleadings remain unhelpful. The first five paragraphs relate to the corporate changes affecting the ownership of the PKF Mount Barker partnership. The claim as against the defendants is pleaded in paragraphs numbered 36 (sic), 6, 7, 8 and 9.
The plaintiffs allege that PKF performed accounting and related services for Systems and rendered invoices totalling $49,628.48 and for Subo rendering invoices to a total of $41,936.50. The pleadings then assert as follows:[3]
7. The defendant is indebted to the plaintiffs with respect to the accounting and related services as set out in the invoices specified in the previous clause hereof.
8. The defendant has failed and/or refused to pay to the plaintiff the amount due to the plaintiff with respect to such accounting and related services namely the sum of $91,025.98.
9. The said sum of $91,025.98 is due payable and unpaid.
[3] Amended Statement of Claim
These three paragraphs are confusing and unhelpful because they conflate the claims against the first and second defendant into one claim against “the defendant”. Paragraph 7 claims that “the defendant” is indebted for the “invoices set out in the previous clause”. There is only one invoice specified in the previous clause.
The plaintiffs’ pleadings are also unhelpful because they do not set out the basis of the claims against the defendants. If they are asserted to be in contract, this is not pleaded, nor are the terms of any contract. If they are claims in quantum meruit this is also not pleaded. This issue was raised during the course of the hearing. Counsel for the plaintiffs indicated that the claim was contractual but that in the event this was unsuccessful then the plaintiffs would rely on quantum meruit.
Paragraph 36, which appears after paragraph 5 of the amended statement of claim asserts that:
…Up until 21 February 2008 PKF performed accounting and related services for the first defendant and rendered various invoices with respect of such services (sic).
The pleading then sets out a number of invoices. Although this is not obvious on the face of the pleading the evidence establishes that the first four invoices were apparently rendered to Turning. Even on the plaintiffs’ case it cannot be said that PKF performed the accounting and related services set out in those invoices for Systems. The basis upon which Systems is asserted to be liable for invoices rendered to an unrelated company is not stated.
The Further Amended Defence and Counterclaim filed by the defendants on 24 November 2009 is complex and raises a number of defences to the plaintiffs’ claim. The defendants do not deny that there was a retainer agreement between inter alia Systems, Subo and PKF. There is an issue as to whether either of the two plaintiffs is entitled to the benefit of that agreement. The defendants say that they did not enter into any agreement with the plaintiffs to act as their accountants. They deny the efficacy of the assignment set out in paragraphs 2 and 3 of the plaintiffs’ statement of claim and deny that they are indebted to the plaintiffs for the amount claimed or in any amount at all. The defendants further deny liability for the Turning invoices.
The defendants also raise a counter-claim. They seek damages for a range of matters referred to in the further amended defence and counter-claim as follows:
·Falsity of representations set out at paragraphs 79 – 83 of the amended defence.
·False or misleading conduct set out at paragraphs 84 – 88 of the amended defence.
·Breaches of the retainer by PKF set out at paragraphs 89- 92 of the amended defence.
·Negligence set out at paragraph 93 of the amended defence.
·Failure by PKF to claim R & D expenditure set out at paragraphs 94 – 96 of the amended defence.
The defendants say that they have suffered loss as a result of these matters and seek damages, or in the alternative, they seek a set-off.
The Hearing
The hearing commenced in October 2010. The matter was part heard after three weeks and was to have been completed in late December 2010. However, an interlocutory application was filed on behalf of the defendants on 22 December 2010 seeking to call expert evidence from Mr Chris Bray, an accountant, as to the quantum of the research and development tax concessions. The plaintiffs required time to consider that application and to file affidavit material in response. The application was argued on 4 February 2011. In a ruling the same day, I allowed the defendants’ application to call evidence from Mr Bray and gave leave to the plaintiff to reopen in order to call answering expert evidence if so advised. The matter was adjourned to April 2011 in order to complete the evidence and to hear closing submissions.
The plaintiff called two witnesses, Mr Rick Copping a chartered accountant and a partner in PKF Mount Barker and Ms Jillian Lawford (formerly Roeger) an accountant employed by PKF. The defendant called a number of witnesses - Mr Robert Sladojevic the general manager of SRB Systems and Subo, his wife Mrs Bessy Sladojevic who is the SRB Group accounts manager with qualifications in accountancy and commerce, Mr Charles Gillam the defendants’ solicitor and Mr Chris Bray the defendants’ current accountant.
I was impressed by Mr and Mrs Sladojevic. They were helpful, clear and forthright. They either had a good recall of relevant events or were able to refresh their memories by reference to contemporaneous material such as emails or correspondence. Mr Gillam was very even handed in his evidence and appeared to have a good recall of events assisted by his file notes. Mr Bray gave a combination of factual and expert evidence. He was professional and clear in both his aspects of evidence.
I also formed a favourable view of Ms Lawford albeit her evidence was limited by a lack of file notes requiring her to rely upon brief time sheet entries when her memory failed. This did not greatly assist her recall of some events. Further her involvement in this matter related to the performance of accounting work for the defendants. She was not involved in the setting up of the client relationship nor was she involved in many of the key discussions or communications and accordingly she was unable to assist with evidence on several contentious issues.
Mr Copping was an unimpressive witness. He appeared to have a surprisingly poor recall of a number of important events. He did not bring a file or other helpful material to court to assist him with his recollection until quite late in his evidence. Prior to that, he was often in the extraordinary position of attempting to refresh his memory by reviewing material provided to him by the defendants albeit some of this was PKF’s discovered business records. Later he referred to some file material but it appeared that this did little to assist his recollection. I prefer the evidence of the other witnesses where this evidence conflicts with that of Mr Copping.
What invoices were rendered by PKF?
Invoices were rendered to the first defendant SRB Systems Pty Ltd as follows:
Invoice No. Date Amount Paid/ Not Paid
13966 21.08.06 $154.00 Paid
14408 29.09.06 $5,498.85 Paid
14953 30.11.06 $4,070.00 Paid
14954 30.11.06 $1,136.85 Paid
16601 30.06.07 $1,383.80 Paid
11602 30.06.07 $14,319.25 Paid
16646 04.07.07 $154.00 Paid
17989 14.12.07 $21,637.00 Not Paid
18120 09.01.08 $5,306.40 Not Paid
18309 31.01.08 $4,033.70 Not Paid
18434 21.02.08 $8,514.00 Not Paid
The following invoices were rendered to the second defendant SRB Subo Pty Ltd.
Invoice No. Date Amount Paid/ Not Paid
149567 30.11.06 $2,640.00 Paid
14963 30.11.06 $2,536.05 Paid
15473 20.02.07 $154.00 Paid
15663 13.03.07 $7, 122.50 Paid
16598 30.06.07 $2,301.20 Paid
18125 09.01.08 $41,937.50 Unpaid
In addition the plaintiffs rendered a number of accounts to Subo Turning Pty Ltd. These are all unpaid and are as follows:
Invoice No. Date Amount Not Paid
14406 29.09.06 $4,524.96 Unpaid
14985 30.11.06 $2,936.54 Unpaid
15212 15.01.07 $2,164.36 Unpaid
15332 31.01.07 $511.50 Unpaid
The invoices detail a range of accounting services that PKF is said to have rendered to Subo, Systems and Turning. The invoices contain a brief narrative description of the work done and the name of the person who did the work. It is clear from the evidence and the invoices that the defendants paid all of the invoices for work performed under the retainer up to 30 June 2007.
In summary, Systems has paid invoices totalling $26,716.75. The unpaid invoices attributed to Systems amount to $39,491.10. The claim against Systems for invoices rendered to Turning amounts to $10,137.36. Accordingly the total amount claimed against Systems is $49,628.46. The amount paid by Subo is $14,753.75 and the amount claimed against Subo is $41,937.50.
Are the plaintiffs entitled to sue on the retainer agreement?
The defendants say that when they retained PKF Mount Barker to act as their accountants, and before any services were performed, it was represented that PKF was a partnership conducted and owned by Mr Copping and Ms Phillipa Wadham. It is said that neither Subo nor Systems retained the plaintiffs as described in the amended statement of claim to act as their accountants.[4] The defendants further argue that, as the plaintiffs are not parties to the contract, they are not permitted to sue the defendants for work done by PKF under the retainer.
[4] Paragraph 5 of Amended Defence
The amended statement of claim sets out the material facts relating to the plaintiffs and their relationship with PKF Mount Barker as follows: –
1. The plaintiffs are and were at all material times companies incorporated pursuant to the Corporations Act 2001.
2. Until 12 October 2007 the first plaintiff and another company Pendulum Pty Ltd (ACN 066380014) owned the capital in the accounting partnership business known as PKF Mount Barker.
3. On 12 October 2007 the first plaintiff and Pendulum entered into a deed of dissolution and partition pursuant to which the first plaintiff purchased the whole of the capital of the partnership business including all property, assets, credits, effects and goodwill (‘the assignment’).
4. The first plaintiff gave written notice of the assignment pursuant to section 15 of the Law of Property Act 1936 by affidavit of its director Richard Copping sworn 13 October 2008 and served on about that day. The first plaintiff gave further written notice of the assignment by letter from its solicitors dated 6 January 2009.
5. On 31 October 2007 the second plaintiff Windemere Investments Pty Ltd in its capacity as trustee of the Windemere trust became the sole legal owner of PKF.
The defendants say that the two notices of assignment relied upon by the plaintiffs are not notifications under the requirements of s.15 of the Law of Property Act 1936 and so are ineffective for a legal assignment. In particular the defendants say that the first notice, the affidavit of Mr Copping sworn on 13 October 2008, is ineffective because:
1. It was provided one year after the debt was assigned; and
2. The form of the notice was not a form recognised by the law as a notice of assignment as it was in affidavit form.
Further it is said that the letter from the plaintiff’s solicitors sent subsequent to the affidavit on 6 January 2009, cannot rectify the failed notice provided in the affidavit. The defendants also contend that that there is no equitable assignment. It is therefore said that the assignment of the debt was ineffective. Finally, in their written submissions the defendants say that:
The assignment issue is only material to unpaid accounts for the period when the putative assignor did the work but is not a party to the action. The assignment point only applies to the first change of owner of the firm, and not the second (which is the change of trustee for Copping’s practice trust).
Mr Copping gave somewhat confusing evidence on this topic. However, taking his evidence in conjunction with the documents tendered as part of his evidence, it appears that during 2006, PKF Mount Barker was a partnership of trusts. Each trust had a company as its trustee. Mr Copping’s trust was, and remains, the Windemere Trust. At that stage its trustee company was Streather. Mr Copping owned 60% of the capital of PKF through this trust.
Mr Copping’s business partner in 2006 was Phillippa Wadham. She had a family trust for which the trustee was Pendulum. She owned, through her trust, 40% of the capital of PKF.
A third trust, the Gawler Street Trust (Gawler Street), participated in the partnership for income. It had no rights to capital. It was a vehicle to enable PKF to make distributions to staff such as bonuses. The trustees of that trust were Streather and Pendulum. Finally, Mr Copping said that there was an agent company representing the partnership of trusts called Panker Nominees (Mount Barker) Pty. Ltd. (Panker). It held the tax agent licence for PKF.
On 12 October 2007 Mr Copping and Ms Wadham entered into a deed to dissolve PKF Mount Barker on 31 October 2007.[5] The deed relevantly provided that:
·Pendulum assign all of its share and interest in the partnership to Streather;
·Ms Wadham transfer all of her shareholding and interest in Panker to Mr Copping or his nominee;
·Pendulum resign as a Trustee of the Gawler Trust.
[5] Transcript p34 and Exhibit P7
It therefore appears that Native Avenue (or Streather as the first plaintiff was then known) purchased the whole of the capital of the partnership business as asserted in paragraph 3 of the amended statement of claim. What the pleadings do not explain is the manner in which Panker (later Windemere Investments – the second plaintiff) came to be the sole owner of PKF Mount Barker as asserted in paragraph 5 of the amended statement of claim.
I accept Mr Copping’s evidence that Streather held the capital of the partnership business on trust for the Windemere Trust, that Streather retired as trustee and Panker was substituted as the trustee for the Windemere Trust by a deed of appointment dated 31 October 2007.[6] That deed of appointment relevantly provides:
…..
2. The retiring trustee declares and directs that all the estate and interest of the retiring trustee in those parts of the said trust premises to which section 16 of the Trustee Act 1936 as amended extends will henceforth vest in the new trustee upon the trusts affecting the same respectively by virtues of the deed.
3. The retiring trustee agrees that it will transfer all other investments and property subject to the Windemere Trust to the new trustee to be held by the new trustee upon the trusts affecting the same respectively.
[6] Transcript pp33-4 and Exhibit P11
Panker Nominees (Mount Barker) Pty Ltd changed its name to Windemere Investments Pty Ltd on 30 July 2008[7].
[7] Exhibit P5
Streather Holdings Pty Ltd changed its name to Native Avenue Pty Ltd on 11 August 2008.[8]
[8] Exhibits P2 and P3
Taking all of these matters into account I make the following findings:
·The first plaintiff, Native Avenue (then known as Streather), was until 31 October 2007, 60% owner of PKF in its capacity as trustee for the Windemere Trust.
·At 31 October 2007 Native Avenue became 100% owner of PKF in its capacity as trustee for the Windemere Trust.
·The second plaintiff Windemere Investments was substituted as trustee of the Windemere Trust by deed of appointment of new trustee dated 31 October 2007. The effect of the deed of appointment was, by operation of s.16 of the Trustee Act 1936, to vest all the rights previously held by Native Avenue Pty Ltd.
Ms Wadham wrote a letter to the defendants dated 31 October 2007 in which she informed them of her resignation and of the fact that Mr Copping and the other staff would “continue to service you as PKF Mount Barker”.[9] That the defendants were aware of this is confirmed by the evidence of Mr and Mrs Sladojevic and the defence which states, that the retainer was varied, on or about 19 October 2007 to substitute Mr Copping for Ms Wadham as the person performing the accounting services.[10]
[9] Exhibit D6
[10] Further Amended Defence para 13.3.1
I find that the situation at the time the defendants retained PKF Mount Barker was for all practical purposes, as the defendants understood it to be. PKF Mount Barker was a partnership owned and operated by Ms Wadham and Mr Copping albeit in unequal shares and through trust arrangements. I further find that the defendants did not object to the partnership change occasioned by Ms Wadham’s resignation. No evidence was called to suggest that the precise ownership structure of PKF Mount Barker was an important consideration for the defendants. It appears from their amended defence that the defendants wished to retain PKF Mount Barker in general and the services of Ms Wadham and Mr Copping in particular. Neither the fact that Mr Copping and Ms Wadham owned their share of the partnership through trustee companies nor the change in ownership of the partnership affects that arrangement. I find that the plaintiffs are entitled to maintain this action against the defendants for the work performed by PKF Mount Barker under the retainer. Likewise, the defendants are entitled to maintain their counter-claim against the plaintiffs
Whilst the defendants appear to have restricted this argument to the retainer, I find for completeness that the plaintiffs are also entitled to maintain an action against the first defendant in respect of the Turning claim.
What were the terms of the retainer?
The statement of claim does no more than assert that PKF performed “accounting and related services” for the defendants. The circumstances in which those services were performed and the basis upon which the plaintiffs assert an entitlement to payment for those services is not set out.
The defendants say in their defence that, in June 2006, there was a meeting between Robert Sladojevic, Bessy Sladojevic and Phillipa Wadham at the offices of PKF Mount Barker. During the course of that meeting the SRB Group retained PKF and, specifically Ms Wadham, to act as their accountants. At that time, the SRB Group consisted of the two defendants and other entities as follows:
·SRB Construction Technologies Pty Ltd;
·Casne Verige Pty Ltd;
·SRB Unit Trust;
·R & BS Investments Pty Ltd;
·SRB Holdings Pty Ltd.
These instructions relate to what I will call the general retainer. In addition to the general retainer, the defendants also gave instructions to PKF to prepare some consolidated accounts at various dates for the purpose of the ITW negotiations. It is my view that these special purpose accounts raise a number of issues distinct from those raised by the general retainer. I will therefore deal with those separately.
General retainer
Mrs Sladojevic gave evidence, which I accept, that she had an initial meeting with Phillipa Wadham in March 2006 and that subsequently she and her husband had a meeting with Phillipa Wadham and Rick Copping in about June 2006. She said this meeting was held at PKF Mount Barker and went for about one to two hours. She said they discussed Systems, Subo and SRB Construction Technologies and what the companies did as a group. Ms Wadham was to do the work and Mr Copping was to oversee it. She also gave evidence that Mr Copping said that he would do the R&D work and, if he needed any specialised help, he could draw on the resources of the Adelaide PKF office. She said that at the end of the meeting PKF were retained to do the accounting work for her, her husband and the SRB Group. She said that PKF was instructed to attend to the 2005 accounts and tax returns as a matter of urgency as these were due at the time. PKF was then to prepare the 2006 accounts and to start the R&D process. The defendants were not given any form of quote or estimate for the work to be done.[11]
[11] Transcript pp738 -741
Mrs Sladojevic said that shortly after the meeting in June 2006 she commenced sending material to PKF to enable them to act as the SRB Group’s accountants. She said that she sent PKF a copy of the group structure, the management accounts from MBA and the MYOB accounts. Mrs Sladojevic said that she mainly dealt with Jill Lawford (then Roeger) and from time to time with Ms Wadham and Mr Copping.
Remarkably, Mr Copping did not give any evidence-in-chief about the retainer or the instructions that PKF were given in relation to the defendants’ requirements. Ms Lawford was unable to give evidence on that topic.
It was put to Mr Copping in cross-examination that the retainer for the members of the SRB Group commenced in June 2006. His answers on that topic were not entirely clear. He did however agree that PKF invoices showed a meeting on 2 June 2006 to discuss business structure “to that extent that was the commencement of our engagement by the Sladojevic group”.[12] The relevant invoice states as follows:
2 June 2006: Meeting between Mr & Mrs Sladojevic and Phillippa Wadham to discuss the business structure, the use of the companies for research and development and tax planning for 2005 and 2006.[13]
[12] Transcript p164
[13] Exhibit P9
This appears to be the first item on any of the invoices relevant to the defendants. It is supportive of the matters Mrs Sladojevic says were discussed at the meeting where the SRB Group retained PKF. I therefore find that the retainer commenced in early June 2006.
Mr Copping conceded that there was no written retainer. He did not know why this was not done. He agreed that it was a requirement of his professional body that retainer letters be sent. He further agreed that having been retained by the SRB Group PKF had an obligation to act competently, efficiently and only to do work necessary under the terms of the retainer.[14] He did not however give any evidence as to the precise terms of the retainer.
[14] Transcript p165-6
The defendants say that the terms of the retainer were partly express and partly implied. Part of the express terms of the retainer asserted by the defendants is set out in paragraph 13.1 of the amended defence. The defendants say that it was agreed that PKF would provide, promptly and efficiently, accounting services in the nature of:
·The preparation of accounting records, financial statements and taxation returns;
·The preparation of taxation advice;
·The preparation of research and development tax offset advice and applications; and
·The preparation and maintenance of ASIC records promptly and efficiently.
The plaintiffs do not admit these terms in their reply. It is plain from the invoices rendered that PKF provided some accounting services of the type asserted by the defendants. The plaintiffs do not indicate in the reply whether they dispute the date of the agreement, the extent of the services, that other members of the SRB Group were party to the agreement, that the services were to be provided promptly and efficiently or a combination of these matters.
The other express terms of the contract asserted by the defendants are set out at paragraph 13.3 of the defence. First it is said that Ms Phillippa Wadham would perform the services except for the delegation of items of work not requiring particular skill and care. This term was said to be varied on or about 19 October 2007 by substituting Mr Rick Copping for Ms Wadham. Second it is said that the portion of accounting services consisting of the preparation and provision of research and development tax offset advice and applications was to be performed by Mr Copping who would liaise with other persons affiliated with PKF.
The plaintiffs admit these express terms. The admission of the second matter concerning research and development advice is however inconsistent with other matters pleaded in the reply and the plaintiffs’ conduct of the matter generally. Specifically I note the plaintiffs’ reply in response to the counterclaim for damages for failure to provide accurate R&D advice in a timely manner is as follows: [15]
15. Says as to the matters pleaded at paragraphs 94-96 of the further amended defence and counterclaim that the parties discussed the availability of tax incentives for eligible research and development. The plaintiff advised the defendants that an application for research and development incentive required specialist expertise which the plaintiff did not offer. The plaintiff advised the defendants to take specialist advice.
[15] Plaintiffs’ amended reply dated 3/12/2009
Taking into account all of the evidence I find that it was an express term of the retainer that PKF would provide accounting services to the defendants in the nature of:
· The preparation of accounting records, financial statements and taxation returns;
· The preparation of taxation advice;
· The preparation and maintenance of ASIC records.
I further find that it was an express term that PKF provide these services promptly and efficiently. I will deal with the R & D tax concessions as a separate issue in the context of the counter-claim.
The defendants say, and the plaintiffs do not dispute, that the following terms were implied terms of the retainer:[16]
· PKF would prepare Subo and Systems accounts, financial statements and taxation returns accurately and in a manner consistent with accepted accounting principles.
· PKF would exercise all reasonable skill and care.
· PKF would not be entitled to charge any member or members of the group twice in relation to the same item of work.
· PKF would act honestly in all its dealings and communications with Subo & Systems.
· PKF would not charge any member of the group for correcting a mistake, error, oversight or omission made by PKF.
· PKF would deliver up to Subo or Systems on demand any and all documents prepared by PKF in respect of which they had been charged and PKF had been paid.
· Systems and Subo would pay PKF’s reasonable charges.
· PKF would at all times act in good faith and reasonably.
[16] Amended defence and counter-claim para 13.4 - 13.11
The defendants contend there was another implied term which the plaintiffs do not admit. The defendants assert that PKF’s obligation to prepare financial statements for each of the defendants was with respect to each financial year, an entire obligation such that failure by PKF to complete the financial statements with respect to a financial year meant that PKF was not entitled to payment for work done for the incomplete preparation of the financial statements for that year.[17]
[17] Defence para 13.12
Special purpose ITW accounts
During February 2007 Mr Sladojevic met with Mr Copping. He advised him of negotiations with ITW concerning the possible sale of part of the SRB Group. He says that he provided instructions to PKF to update the financial statements for Systems and Subo to 30 January 2007 and to prepare consolidated financial statements for Systems and Subo so that he could provide these to ITW as part of the negotiations. He indicated that these were required urgently to progress the sale negotiations.
By email dated 14 March 2007 Mr Sladojevic asked PKF to have Mr Copping contact Mr Sladojevic urgently to finalise consolidated accounts to give to ITW. By email dated 4 April 2007 PKF provided Systems and Subo with the requested accounts.
At a meeting on 31 October 2007 Mr Sladojevic says he told Mr Copping that he wanted the January 2007 accounts updated to 31 October 2007 to provide to ITW. Mr Sladojevic says he informed Mr Copping that he was going overseas for four weeks and that he expected the October 2007 accounts to be completed by his return in late November 2007.
Mr Copping’s evidence confirms that he was aware of and understood the sale negotiations that were underway between the defendants and ITW. He drew the distinction between that work and what he described as “annual accounting work”.[18] He described the need to “prepare accounts for the potential purchaser – clearly so that they could see and understand what they were purchasing.”[19] It is clear from his evidence and that of Mr Sladojevic that these accounts were not standard accounts as the negotiations were only about part of the defendants’ business. It was therefore necessary to extract from their accounts what was relevant to the sale and then consolidate those items into one set of accounts.[20] Whilst it was necessary to base these accounts on the general accounts prepared for the defendants this was it seems a stand alone task.
[18] See for example Transcript page 68
[19] Transcript p67
[20] Transcript p99 - 100
Mr Copping said that Mr Sladojevic had impressed the urgency of the January accounts on him.[21] Likewise it appears from the evidence and the correspondence that the November deadline for the updated ITW accounts was made clear to PKF and was understood.
[21] Transcript p241
Accordingly I consider that this work is different to the general retainer work. These accounts were for a specific purpose and had a specific time frame within which they were to be provided.
What work did PKF do for the defendants?
It is uncontentious that PKF was required to undertake the preparation of the defendants’ standard accounts and taxation returns although there is some dispute as to whether the 2005 accounts and returns formed part of the initial instructions. In addition, PKF was asked to prepare the special purpose accounts related to SRB Group negotiations with ITW. Paragraph 89 of the amended defence alleges a failure on the part of PKF to complete accounting records for a number of periods as follows:
Breaches of Retainer by PKF
In breach of the terms of the Retainer PKF –
89.1 failed to prepare accurate accounting records, for any of the following periods –
89.1.1 Systems
a) For the period ending 30 June 2005
b) For the period ending 30 June 2006
c) For the period ending 30 June 2007
d) For the period ending 31 October 2007
e) For the period ending 30 November 2007
89.1.2 Subo
a) For the period ending 30 June 2006
b) For the period ending 2007
c) For the period ending 31 October 2007
d) For the period ending 30 November 2007
89.2 failed to prepare any of the following financial statements
89.2.1 Systems
a) The 2005 financial statements
b) The 2006 financial statements
c) The 2007 financial statements.
89.2.2 Subo
a) The 2006 financial statements
b) The 2007 financial statements
89.3 failed to prepare any of the following Consolidated Accounts –
89.3.1 to 31 January 2007
89.3.2 to 31 October 2007
89.3.3 to 30 November 2007
89.4 failed to prepare any of the following Sale Accounts –
89.4.1 to 31 January 2007
89.4.2 31 October 2007
89.4.3 30 November 2007
The plaintiffs’ reply did not respond to that pleading. Mr Copping did not give evidence in chief about the work completed for the defendants. In cross-examination, Mr Copping was asked whether he agreed with the list in paragraph 89 of the defence or not.[22] Mr Copping said that he wished to take time to consider that issue. His general difficulty in answering what one might have thought were relatively straightforward questions about completion of taxation returns and other accounts was surprising in the circumstances and illustrative of the problems with Mr Copping’s evidence in general.
[22] Transcript p206
Mr McPharlin’s report[23] sets out, and Mr Copping agreed, that the work performed by PKF for the defendants was as follows:
[23] Exhibit D2 para 3.2 - 3.3
1.Unsigned and undated balance sheets as at the end of 30 June 2006, 2007 and October 2007 classified between Subo and Systems showing the elimination of inter entity loans, together with trading statements and profit and loss statements for the 2006/2007 financial years and the four months ended October 2007 each showing income and expenses allocated between ITW and non-ITW and between Subo and Systems.
2.SRB Group financial reports signed by PKF on 20 February 2008 but not signed by the Directors including balance sheets as at 30 June 2006, June 2007 and October 2007 and trading and profit and loss statements for the 2006 and 2007 financial years and the four months ended October 2007 together with note 1 to the financial statements.
3.Subo and Systems unsigned, undated trading statement and profit and loss statement for the seven month end of January 2007 together with comparative figures for the 2006 financial year.
4.Draft financial reports for Subo for the 2006 and 2007 financial years and the four months ended October 2007 comprised of balance sheets, trading loan, profit and loss statements for each of the three periods together with notes to the financial statements and depreciation schedules unsigned by PKF and the Directors other than the financial report for the 2006 financial year which is dated 11 November 2006 by PKF.
5.Draft financial reports for Systems for the 2005, 2006, 2007 financial years and the four months ended October 2007 comprised of balance sheets, trading and profit and loss statements for the four periods together with notes to the financial statements and depreciation schedules for each of the four periods unsigned by both PKF and the Directors.
6.Income tax returns for Systems for the 2005 financial year and the 2006 financial year.
Mr McPharlin identifies some other work undertaken for SRB Construction Technologies, SRB Holdings and SRB Holdings Pty Ltd. The relevance of this to the present dispute is not obvious and I disregard those matters for the purpose of this decision.
On the topic of completed tax returns, Mr McPharlin’s report indicates that PKF prepared 5 returns for the SRB Group as follows: [24]
3.3.8 Income tax returns for SRB Subo for the 2005 financial year and for SRB Systems and SRB Holdings (Aust) Pty Ltd for the 2005 and 2006 financial years.
[24] Exhibit D2; p12 see also
It can be seen that only three of these returns are relevant to this matter.
Mr Copping was cross-examined on this topic as follows:[25]
[25] Transcript p177 line 25 to p178 line 27
QFor the time during which your firm was retained by the SRB Group, what tax returns for any of the entities amongst the clients, were completed and filed.
AI would need to check our records on that, I believe there’s a schedule in Mr McPharlin’s report detailing that, but I’d need to –
QIf you agree with him and it’s convenient to do it by reference to his report, then that suits me.
AThe only thing I’d add to that is Mr McPharlin’s report contains various tax returns, but I don’t believe there’s any documentary evidence in here about whether or not they were lodged. That’s the only shortfall there.
QI understand. Well let me ask it this way then, which ones were completed.
ACan I refer to – because I believe there’s a schedule in –
QPlease.
AFound it last time when I was looking through, Mr McPharlin had a list and I think I may have found it p.11, para 3.2.7 –
QIt’s those two isn’t it.
AThose two, ’05 and the report – the ’06 tax return has been provided to Mr McPharlin, it’s just been omitted from the schedule, that’s all and 3.2.9, another company not part of this matter, but SRB Holdings, the ’05 and ’06 returns are included in the material provided to Mr McPharlin.
QSo that’s four tax returns over all were completed.
AThat’s what this information indicates.
QYou’d agree with it.
AI agree that these were prepared, I can’t concede as to whether there was any others prepared, I’d need to check my records. But certainly those four were prepared.
QI’m suggesting to you that the only four tax returns for any client within the SRB Group, was the four which Mr McPharlin described in 3.2.7 and .9, adding 2006 for SRB Systems.
AWell that’s a suggestion. Like I said, I would need to refer to my documents to confirm that.
Later Mr Copping was asked as follows:[26]
[26] Transcript p199 line 25 to p200 line 31
QI want to turn to a new topic, and the topic is – and I have touched on it already – the extent of the work that was finished by your firm. I think we have established that there were four tax returns, two for each of two companies that were finished. Do you agree.
AI agree.
QI think we have established that there were no annual financial accounts finished for any client.
AWe didn’t agree with that, you will recall that my answer was that –
QYou were going to check.
AMy answer was that we completed what we believed to be final statements, but with the provision of subsequent information they turned out not to be final because they were inaccurate, but at the time of release they were believed to be complete.
QWhat language do you use when you’re sending accounts to a client. What I mean is, if you say ‘Here is a draft of the financial statements or accounts for the company’, that’s telling your client that that work is not yet finished, you would agree.
ANo, it’s not saying that at all.
QWhat is it saying.
AIt is saying ‘Here are the accounts according to the work we have completed. Please review them and if there is any queries or things that you’re not clear on, or errors that you believe, please come back to us.’
QWhen the language which goes with an accounting document from your firm doesn’t say it’s a draft or otherwise ask for any information, you are conveying to the client aren’t you, that that account is complete.
ATo the extent of the information we are provided with, a document without ‘draft’ on it, or is not attached to an email that says ‘draft’ or ‘interim’, then to the best of our knowledge we would believe that to be a complete document.
QSo for example, and you might not remember the details now, but a profit and loss account was sent to the client in let’s say February of ’07 for the client to give to a prospective purchaser. That would be sent to the client on the basis that that work was complete, true.
AUnless it had ‘draft’ or something on it.
When these matters were revisited Mr Copping’s evidence was as follows:[27]
QI think we have still got some matters that I have raised with you before that you were going to check for me. You remember cross-examination at the work done by Hugh McPharlin from Edwards Marshall, and you agreed with me that this analysis was that your firm had completed two tax returns for two companies within the SRB Group, you remember that.
AYes
QI suggest to you that there were either no statements of account or end of year accounts that had been completed off by your firm before the end of the retainer and you were going to check that for me; have you done that.
AYes, I have.
QWhat do you say about whether there were any financial accounts for any of the clients completed before the end of your firm’s retainer.
AThe term ‘completed’ I would like to just talk briefly. Completed from our sense. We complete accounts but they are not – no accounts are completed until the directors or partners, as the case may be, until they sign the accounts, that’s the completion. They are accepting that those accounts are correct. So we can and did complete accounts from our perspective but I don’t believe any of the accounts that we completed were signed by any of the directors. So in that sense they weren’t completed from our perspective. We published at various times completed accounts. Now they, with the passage of time and more information, it became obvious that those accounts needed more work and could not be regarded as the final accounts. And I can confirm as my colleague has suggested, that according to Mr Hugh McPharlin’s report, the four tax returns referred to in Mr McPharlin’s reports are the only returns that were lodged by PKF during the relationship with Mr Sladojevic entities.
[27] Transcript p331 line 36 to p332 line 33
Just as Mr Copping’s evidence is not helpful in establishing what work was done for the defendants, it is also not possible to clarify what was done by reference to the invoices themselves. By way of example the invoices rendered to Systems include charges for the preparation of financial statements for various periods as follows:
·Invoice dated 30 November 2006 charges an interim fee for the preparation of financial statements for the company for the financial year ended 30 June 2006
·Invoice dated 30 June 2007 charges inter alia an interim fee for the preparation of draft financial statements for the year ended 30 June 2006, review of the 2005 accounts prepared by the previous accountant and matters related thereto.
·Invoice dated 14 December 2007 charges inter alia an interim fee in relation to the preparation of financial statements for the years ended 30 June 2005, 2006, 2007 and the period ended 31 October 2007.
·Invoice dated 9 January 2008 charges inter alia for preparation of financial statements for the years ended 30 June 2006, 2007 and the period ended 31 October 2007.
·Invoice dated 21 February 2008 charges inter alia for preparation of draft financial statements for the years ended 30 June 2005, 2006, and 2007 and the period ended 31 October 2007.
Likewise, it is difficult if not impossible to identify the work performed for the special purpose accounts associated with the proposed sale to ITW apart from Invoice no.15663 dated 13 March 2007 rendered to Subo in the sum of $7,122.50 which appears to relate solely to the first special purpose accounts provided for the period to January 2007.[28]
[28] Exhibit P9
I further note the evidence of Mr Bray that his firm was instructed in January 2008. He said that the 2006 and 2007 returns were outstanding when they were instructed and that these were prepared and lodged by Bray Chan by June 2008. Bray Chan also prepared financial statements for the defendants for the same periods and the outstanding statements were completed by June 2008. Mr Bray said that this work was performed on the basis of the clients’ records without reference to the work performed by PKF.[29]
[29] Transcript p815-816; 819
It can be seen from these brief extracts from the invoices, the pleadings and the transcript that it is difficult to ascertain precisely what work was completed by PKF. Given the plaintiffs bear the onus of establishing their entitlement to payment for the outstanding invoices I would have expected that they would have produced this information.
General retainer
Doing the best that I can with the evidence it appears that, in terms of the general retainer, only three or possibly four taxation returns were prepared for the defendants. These were the income tax returns for Systems for the financial years ended 30 June 2005 and 2006, the income tax return for Subo for the financial year ended 30 June 2005 and, possibly although this is not mentioned in Mr McPharlin’s report, the income tax return for Subo for the financial year ended 30 June 2006. It is also not clear whether any of these returns were lodged although it appears likely from Mr Bray’s evidence that the 2005 returns were lodged at some stage but not the 2006 returns. Further, no final financial reports were produced for either company during the entirety of the retainer.
As I have found PKF failed to complete financial statements for any year and there is some doubt as to the completion of the necessary returns, I must now consider the entire contract argument. The defendants contend as outlined above, that it was an implied term of the retainer that PKF’s obligation to prepare financial statements for each of the defendants with respect to each financial year was an entire obligation. I reject this argument. There was no plea or evidence that set out the words which were said to constitute an entire contract. This would be an unusual arrangement in the context of a professional service agreement for general accounting services which would normally allow for interim payments of fees. The fact that the defendants made such interim payments suggests that they did not regard this as an entire contract despite the pleading.
The failure to complete work is however relevant to the liability of the defendants for the outstanding invoices.
Special purpose accounts
The first special purpose accounts were produced and paid for.[30] The situation with the updated special purpose accounts is otherwise.
[30] Exhibit P9 - Invoice no.15663 dated 13 March 2007
It is uncontroversial that the October 2007 sale accounts were not completed by the time Mr Sladojevic returned from overseas despite considerable email traffic during the intervening period. A number of exchanges took place after this and it is true to say that the relationship between the parties became increasingly acrimonious. I will refer to these issues later in these reasons however, for present purposes, it is sufficient to note that the defendants continued to retain PKF for the purpose of completing the special purpose accounts until 18 January 2007. I accept the evidence of Mr Sladojevic and Mr Gillam that the reason this occurred was that the defendants were concerned about jeopardising the sale to ITW and considered that it was preferable to persist with PKF than to incur additional delay by instructing alternative accountants. A number of further deadlines were set but not met and ultimately the defendants terminated the retainer and instructed Bray Chan. Mr Sladojevic said that Bray Chan produced the accounts required for ITW and that the defendants paid for that work. [31] This was confirmed by Mr Bray.
[31] Transcript p603
I refer to the decision the High Court of Australia in Baltic Shipping Company v. Dillon[32] and in particular to the judgement of Mason CJ where he states:
The concept of an entire contract is material when a court is called upon to decide whether complete performance by one party is a condition precedent to the other’s liability to pay the stipulated price or to render an agreed counter performance.[33]
[32] (1993) 176 CLR 344
[33] Paragraph 11
It is my view that the ITW accounts differ from the general retainer work in that it does constitute an entire contract. What the defendants contracted for was for PKF to provide completed accounts to a specific date by a specific date to enable the ITW sale negotiations to progress. The fact that work was done and some documents produced is not to the point. I find that PKF did not complete the updated special purpose accounts required for the ITW negotiations at any stage prior to the termination of the retainer and that it was necessary for this work to be undertaken by Bray Chan. In those circumstances I find that there was a total failure of consideration and that the plaintiffs have failed to establish any entitlement to payment for the work associated with the ITW accounts.
Was the general retainer work completed promptly and efficiently?
I have found that it was an express term of the retainer that PKF complete work for the defendants in a prompt and efficient manner. Mr Copping conceded as much in his evidence. The defendants contend that PKF breached this term. In my view, the defendants have provided clear and cogent evidence of delay and inefficiency on the part of PKF. There are many matters which lead me to this conclusion – I will mention only a few examples to illustrate the point.
First there was considerable delay relating to PKF taking over the accounts from the previous accountants MBA. PKF was instructed by the SRB Group in June 2006. Part of their instructions involved taking over the accounting for the group from MBA the previous accountants. Mr Copping was unable to confirm whether a letter was sent to MBA advising them of PKF’s instructions. That one was drafted and charged for is apparent from the invoices, but, it is not clear that this was ever finalised and sent. Mr Copping did however send an email to Mr Sladojevic dated 25 July 2006 which indicates that he has given some thought to the work undertaken by MBA.[34] Mr Sladojevic responded to that email requesting Mr Copping to have all the files transferred from MBA to PKF as well as the registered offices of those companies to be changed to PKF.
[34] Exhibit D11
On 3 August 2006 Mr Sladojevic referred an email from MBA to Mr Copping instructing PKF to ensure that they took over all of the SRB Group accounts as soon as possible. Mr Sladojevic further indicated that if MBA did not fully cooperate with the transfer of material that PKF should contact himself or Stephen Girotto so that they could follow it up with MBA.[35]
[35] Exhibit D10
Mr Copping agreed that he knew on 3 August 2006 from Mr Sladojevic’s email and the attached email from MBA that MBA had not prepared the financial statements and tax returns for the financial year ended 30 June 2005. He was then asked:[36]
[36] Transcript p276
QAnd wasn’t it your firm’s brief to do the 2005 accounts and tax returns.
ANot to my recollection.
QYour firm’s brief was to do all tax returns and financial accounts for the members of the group not yet done.
AThat’s correct. And to the extent that we knew they weren’t done we attended to that.
QAnd that document told you on 3rd August 2006 that they hadn’t been done.
AThat’s correct.
QSo then you would get onto them.
ASorry.
QAnd then you could get on and do them because that was your brief.
AThat was our brief.
The invoice for the first meeting on 2 June 2006 suggests that the question of the 2005 returns was discussed and Mrs Sladojevic gave evidence, which I accept, that instructions were given for these to be completed as a matter of urgency.
I find that the defendants regularly followed up progress with PKF. For example an email from Mrs Sladojevic to PKF dated 27 October 2006[37] refers to the returns to be completed for SRB Systems for the financial years ended 30 June 2005 and 30 June 2006. Mr Copping was referred to the text of this email as follows:[38]
[37] Exhibit D13
[38] Transcript p286 line 31 – p287 line 25
ANo returns have been completed for systems for 2005-2006.
QYes.
ACorrect.
QWhich informed your firm that that was work which your firm could do.
AThat was – certainly the 2006 work, we were under no misunderstanding right from the beginning that that was part of our assignment. 2005 obviously unfolded.
QWhat doubt did you have about that, after you got this email of October 2006.
AThere was no doubts about that, it’s a statement of fact.
QYou knew you had to do the 2005 returns and accounts as well, didn’t you.
AYes.
QYou knew that, no doubt about it –
ASorry, I stand corrected, you put the word accounts in there. Certainly the 2005 tax return had to be done. To what extent we had to do the 2005 accounts, didn’t probably become clear to everyone until the email I referred to previously of 23 July 2007, 12 months, well some nine months after this when it was abundantly clear that the accounts hadn’t been done.
QSo you knowing at least from this email in October 2006 that the tax returns hadn’t been done, you remained in a state of doubt for another nine months whether your firm ought to be doing the 2005 annual returns.
AI’ll agree with that.
It is stating the obvious to say that this evidence is contrary to that given by Mr Copping in the previously quoted passage. I find that the SRB Group instructed PKF to take over all of the accounts from MBA including responsibility for preparation of both the 2005 taxation returns and the annual accounts. I further find that this was clearly communicated to PKF on a number of occasions, including at the initial meeting on 2 June 2006 and that PKF understood, at the latest on 3 August 2006, that this work formed part of their retainer. Despite this however it appears that nothing occurred in terms of obtaining material from MBA or completing the 2005 accounts and taxation returns for many months.
Mrs Sladojevic gave evidence concerning invoices rendered by PKF to Systems for work performed prior to 30 June 2007. She was asked as follows:[39]
[39] Transcript p743, line 23 – p744, line 22
QBy that date, had you received from PKF any end of year financial statements for Systems.
ANo.
QHad you received any tax returns ready for lodgement for Systems by that date.
ANo.
QHad you communicated between June 2006 and June 2007 with PKF about their preparation of end-of-year tax returns – for that company.
AThere was no tax returns completed for that company.
QHad you been asking the firm about tax returns for Systems during that 12 month period.
AConstantly.
QHow did you communicate with the firm about the tax returns for during that 12-month period.
AVia email and telephone conversations asking them when they were going to be completed.
QDid you get an answer to that question.
AI did, I got answers apologising for taking so long and that they would be completed.
QAnd I ask you the same questions about, this time, the end of your financial accounts. By 30 June ’07 had you received from PKF end of year financial accounts for signature.
AFor SRB Systems?
QFor SRB Systems, thank you.
ANo, no.
QDid you communicate with them about that fact.
AYes, I sent them emails asking, again, where were the accounts.
QAnd what was the answer to that.
AThey were also apologetic and they said that they would get on top of it. They didn’t request any additional information; had they; I would’ve provided it pretty much straightaway.
Both Mr Copping and Ms Lawford indicated that Mrs Sladojevic always responded promptly to any of their requests for information.
It is clear that throughout this period the defendants were becoming increasingly concerned about delays in the provision of requested accounts and were regularly contacting PKF about this. In the circumstances I do not consider this to have been unreasonable. It seems that PKF had a similar view in relation to some at least of the delay. For example Mr Copping responded to an email of complaint from Mrs Sladojevic as follows and was cross examined on that topic:[40]
[40] Transcript p262 line 5 - 21
QLook at the next document ‘Dear Bessy, I understand and agree with your comments’.
AMm-hmm.
QAnd what you’ve said in that email is true, isn’t it; you did understand with – her and you did agree with her.
AYes, I understood the frustration they were experiencing.
QMr Copping, please, you understood that your client was saying ‘You’re not getting on with it, you’re not telling me why, I have been waiting since I’ve been here from 3 June last year, I still don’t have any accounts, it’s your fault’ and you replied saying ‘I agree, you’re right’.
AI agree –
QIs that not so.
AThat’s what I wrote.
The reason for the delay is not at all clear. Mr Copping was asked about an email he sent to the SRB Group on 28 June 2007 dealing with the fact that no accounts had been prepared for the defendants as follows:[41]
[41] Transcript p246
QAnd you say at about point 5 of the page ‘The only reason that the accounts for the SRB Group have not yet been completed is that we are trying to get information from the previous accountants’. See that.
AYes I can read that.
QWas that true.
AAt that point in time that was our belief, yes that was a true statement.
QSo after one year of acting for the group, your firm had not generated any complete yearly accounts; correct.
AThat’s correct and there’s a good reason for it.
QWell answer my questions.
AYes that’s correct.
QAnd you say to the client that the reason we’ve taken a year not to achieve one single completed statement of account is because we’ve been trying to get information from the previous accountants.
AThat was one of the reasons.
QYou say it’s the only reason.
ADid I say that?
QYou say the only reason that the accounts for the SRB Group –
ASorry, I beg your pardon, yes, yes, yes. Yes I agree with that.
QAnd you still say it’s the only reason.
AI do, I said that on June 28th.
Mr Copping was also cross-examined on the topic of whether he ever asked Mr Sladojevic or anyone at SRB to follow up MBA for the provision of any outstanding information. He was unable to point to any correspondence or record of making such a request. Mr and Mrs Sladojevic said no such request had been received. I accept their evidence. I find that PKF did not, from the date it was instructed to June 2007, ask the defendants to obtain information from MBA.
The delay in attending to those matters is compounded by PKF’s conduct when the defendants disputed the quantum of the invoices rendered in June/July 2007. Mr and Mrs Sladojevic said that they attended a meeting on 14 August 2007 with Mr Copping to discuss these accounts. Mr Copping was asked about this meeting in cross-examination. He said that he did not remember it nor did he remember the specific matters that were put to him about the conversation. He said that he was not disagreeing with what was put he just could not recall.[42] It is clear from the invoices and the WIP sheets that a meeting took place on that date and was charged for. Mr and Mrs Sladojevic gave evidence that Mr Copping told them that the reason PKF’s invoices were so high was due to Systems and Subo’s accounts having been neglected by the previous accountants, MBA Partnership. Mr Copping said that PKF needed to correct errors and reconstruct accounts but that all of the group accounts were now complete and up-to-date and that this was well worth the investment of $41,000. Mr Sladojevic says that he accepted this explanation and agreed to pay the invoices. I accept the evidence of Mr and Mrs Sladojevic about what occurred at this meeting.
[42] Transcript pp322-4
This explanation however came to be the subject of dispute in a meeting at Mr Gillam’s office in December 2007 between Mr Copping, Mr Sladojevic and Mr Gillam. The purpose of this meeting was to discuss the delay in the provision of the special purpose accounts for the ITW negotiations. The defendants were concerned that delay in the provision of those accounts to ITW would jeopardise the sale. Mr Copping admitted attending a meeting in December 2007 at Mr Gillam’s office with Mr Gillam and Mr Sladojevic because it was recorded in his time sheet and later charged for but, remarkably, he appears to have a very limited recall of this meeting.[43]
[43] Transcript p325
A number of matters were put to Mr Copping about what was said at the meeting as follows:
·That he said that the reason for PKF’s failure to provide the ITW accounts was attributable to failures on the part of MBA.
·That Mr Sladojevic became angry saying that Mr Copping had used this excuse before in the context of the June 2007 invoices when he claimed all of the SRB Group’s accounts were up to date.
·That Mr Sladojevic accused Mr Copping of lying in July 2007 and that Mr Copping had admitted he was lying.
·That Mr Gillam suggested to Mr Copping that he may not have understood that Mr Sladojevic was suggesting that he had told a lie and that Mr Copping confirmed that what he said in July 2007 about the accounts being up to date was a lie.
Mr Copping’s response to that cross-examination was to say that he did not recall those matters nor did he recall any specific statements. Mr Sladojevic and Ms Gillam later gave evidence confirming those matters put to Mr Copping. I accept the evidence of Mr Sladojevic and Mr Gillam as to what was said in this meeting. I find it extraordinary that Mr Copping claims to have no recollection of the matters discussed and in particular about his acceptance on two occasions of what was a serious allegation of telling lies to a client.[44]
[44] Transcript p325-330
The relationship between the parties became increasingly acrimonious during November 2007 when it became apparent to the defendants that the ITW accounts were unlikely to be prepared by the time of Mr Sladojevic’s return from overseas. The defendants made a number of complaints about delay in various emails. Some of these complaints are made in quite strident terms.[45] There was no contemporaneous contradiction of the complaints made by the defendants. This was put to Mr Copping and he was unable to explain why he did not respond to the complaints if they were untrue.[46]
[45] See for example bundle of emails Exhibit P14
[46] Transcript pp11, 216, 221
Mr Copping gave a good deal of evidence about why certain things were not done within certain time frames. In effect he admitted the delays but said that the defendants were responsible. In submissions the plaintiffs refer to this evidence and submit that the delays were caused by the quality of information provided by the defendants. It is said:
The plaintiff for its part (sic) says that the quality of information provided and the nature of the tasks which were asked to be performed resulted in extra time being spent. They point to such documents as the stock and equipment register (exhibit D16) and the type of information contained in the emails copied into Ms Lawford (exhibit P19) to show the type of information overload and evolution that they were required to deal with.
Mr Sladojevic does not understand the rigour of the accounting process. He does not understand, and there was no expert evidence called from anyone who did understand, the accounting exercise required to comply with the obligation (required by ITW) for the accounts to reconcile consistently over each of the relevant financial years. [47]
[47] Plaintiffs outline para 62
These criticisms overlook some important matters. First the complaints about changes in the stock and equipment register and Mr Sladojevic relates solely to the preparation of the ITW accounts and does not address the defendants’ overall concerns about delays in the general retainer work.
Second, the contention about expert evidence appears to reverse the onus of proof. This is the plaintiffs’ claim. It is for the plaintiffs to establish that the work was performed in accordance with the contract. It is my view that the plaintiffs have singularly failed to do this. The plaintiffs have either not kept or not produced records setting out what occurred at various stages in the retainer. There is no clear explanation either in documents or oral evidence that assists in determining what precisely caused any of the various delays. No doubt delays in the preparation of the standard accounts and taxation returns impacted upon the preparation of the ITW accounts but no explanation has been provided for the delays up to 30 June 2007 other than the asserted problems with the previous accountants.
The plaintiffs say in their submissions that: [48]
There is substantial evidence as to the changes in underlying information as late as 21 December 2007. There is ample evidence as to what the accountants had to do to accommodate such changes. Remembering always that the changes had to reconcile with past years as per the ITW direction.
It is equally clear that Mr Sladojevic had no interest in the work that had to be done by the accountants as result of the evolution of instructions, only frustration that it had not been done to his satisfaction within a time limit which was to his satisfaction.
[48] Plaintiffs written submissions para 35 and 36 footnotes omitted
In my view there is not substantial evidence as to changes in underlying information. Mr Copping gave very unclear evidence about the changes in information. It is plain that Ms Lawford did much of the hands-on work. Having said that her explanation as to what was required to be done to accommodate changes[49] relates exclusively to the work done following 30 June 2007 in relation to ITW accounts. What it does not explain is why this information was not obtained prior to 30 June 2007 and the accounts updated at that time. It does not explain why the standard accounts and returns were not prepared.
[49] Transcript pp413-423
Mr Sladojevic’s frustration was, I consider, warranted in the light of Mr Copping’s assertion to Mr and Mrs Sladojevic the accounts were up to date as at 30 June 2007. I find however that the accounts were not up to date as at 30 June 2007 despite what Mr Copping then said and despite the invoices that had been rendered to and paid by the defendants. This no doubt provides some explanation for PKF’s difficulty in meeting the time frame for the preparation of the ITW accounts but, given Mr Sladojevic did not know about this until after the deadline had been missed, it also provides some explanation for his expressed frustration.
It is asserted without evidence that documents and further information was volunteered by the defendants causing work to be revisited and reviewed adding to the cost and delay. The email exchanges and the evidence of Mrs Sladojevic in particular demonstrate to my satisfaction that all material requested by PKF was sent promptly and often in circumstances where either the information had been provided previously or where one would have thought the information should have been sought before. There does not appear to be any “volunteering” of information.
Further it appears plain that work was often duplicated for no apparent reason. The plaintiffs’ evidence did not explain this. One example relates to PKF’s work on the SRB Group structure. It is clear from both the invoice and Mrs Sladojevic’s evidence which I accept, that Ms Wadham asked for the group structure at the initial meeting with the clients on 2 June 2006, that she was given a copy and that this was discussed.
Mr Copping gave evidence that early in the retainer, in 2006, he spent considerable time considering and documenting the structure of the group as follows: [50]
[50] Transcript p205 line 15; p206 line 14
QWould you look at p.46 of the key tender book, the first three entries are for structure matters – that is, structure diagram or structure issues. Do you agree.
ACorrect.
QAnd if you look at p.53 those charges are also for structure.
AYes they are.
QAnd if you look at p.77 the first two amounts are charges in respect of structure.
AYes.
QYou’d accept my maths – if you add each of the entries to which I’ve just referred on those three pages, 46, 53 and 77, the amount of the charges to do with structure or structure diagram is $43,267.00. Do you accept that for me.
AI accept your adding up.
QAnd you’ve already told me that there were no structural changes made to the group.
AYes, I did.
QThe effect of which is that your firm charged my clients $3,267.00 for some structure charts without occasioning any changes.
AYes, for planning advice. I’ve rendered another client in excess of $50,000 and not effected any changes.
QI’m not interested in about any other client, I can assure you.
AAll right, well $3,000 is – I accept your adding up and that, in this case, would – is – would be the amount charged for the work done discussing alternative structures, discussing existing structures, confirming what the existing structure was, confirming the accuracy of the records of the group, which had some very big gaps in them – and if that did not give rise to – and as I said I’d need to check my records about this partnership of trusts – whether in fact that occurred, but it may well be that there was $3,000 charged in relation to this groups’ legal structure.
It does not appear that the defendants instructed PKF to undertake this work. Further it is not clear whether they received any benefit from this work. The preparation of SRB Group’s structure chart seems pointless in view of the fact that a diagram was provided at the initial meeting.
Even assuming this work was both necessary and valuable to the defendants it appears that Mr Copping and Ms Lawford spent at total of 14 hours in September 2007 again reviewing the history and structure of the SRB Group. Ms Lawford was cross-examined on this topic as follows: [51]
[51] Transcript p465 line 38; p466 and p467 line 6
QDid the client authorise you to trace the history of the group.
AHe would not have authorised me specifically but we have found in the office that it’s much more efficient if the person involved on the job sits in on the interview, you get the information first hand rather than it having to be referred to you by someone else in that meeting and it is actually cheaper in the long run for the client.
QEven though that took eight hours of your time.
AWell it may have taken a lot lot longer if I hadn’t been privy to that meeting.
QAnd even though the client didn’t instruct you to go and do it.
AIt would be the same as anyone when you’ve got a person in your office that is doing the work, you have to hand on to the junior unless you’re going to do the work specifically yourself.
QYou’re agreeing me with though aren’t you that the client didn’t instruct you to go off and do the task of tracing the history of the group.
AThe client instructed us to prepare accounts for his company, which entailed us having to understand his group structure.
QDid you ask the client whether they had the information so that they could give it to you, which would mean you didn’t have to spend eight hours of your time tracing the history of the group.
AI’m not aware whether they had information.
QNow that’s because you didn’t ask isn’t it.
AWell I’m not sure whether – who was responsible for asking I’m sorry.
QIf you’re about to embark on a process which is going to cost the client $3,030, you’d accept that the efficient and economic and sensible thing to do, if you need to know the history of the structure of the group for what you’re doing, is to ask the client whether they had it; correct.
AYes.
QAnd you didn’t ask the client.
ABut as we’ve also ascertained some of the –
QYou didn’t ask the client; am I right about that.
AWe didn’t ask –
QAm I right.
AYes okay I didn’t ask the client.
Mr Copping’s evidence was to a similar effect. Again therefore considerable work was undertaken without instructions from the client. The evidence does not explain why it was thought necessary to revisit the Group structure some 12 months after the previous work when there were apparently no changes. Further it seems surprising that so much time was spent on this issue, without instructions, at a time when the defendants were complaining about delay in the preparation of taxation returns and financial accounts.
I accept the evidence of Mr and Mrs Sladojevic, supported as it is by correspondence, that that on many occasions when the defendants requested progress reports from PKF the response was a series of questions or a request for documents.
Likewise the invoices and the WIP sheets suggest duplication of work or apparently late requests for information. Often the questions had previously been posed and answered and the documents provided. In other cases it was not apparent why the question or request had not been made earlier. By way of example I note the work performed in late July to August 2007 relating to obtaining MYOB accounts from MBA. The plaintiffs have failed to provide any satisfactory explanation of these matters.
Taking all of the evidence into account I consider that the plaintiffs have failed to demonstrate that they completed the general retainer work in a prompt or efficient manner. I find that the plaintiffs were, as the defendants assert, in breach of the retainer to perform the work in a prompt and efficient manner.
What are reasonable charges for the general retainer work?
There was no agreed basis for charging for the general retainer work. It is however uncontroversial that it was an implied term of the retainer that Systems and Subo would pay PKF’s reasonable charges.
Mr Copping agreed that PKF’s fees were not advised to the defendants until the first invoices were sent. Even then the basis on which fees were charged was not explicitly set out. PKF’s payment terms were set out on the invoices as being 14 days from the date of the invoice.
Mr Copping gave evidence that PKF charged on an hourly rate basis. He said PKF used a standard formula used throughout the accounting industry whereby the firm took an accountant’s wage, added 9% for superannuation and multiplied that by a factor of 4. This was divided by the normal working hours in a year allowing for leave and holidays (46 weeks) and then further divided by 37.5 hours in each week to give a nominal hourly rate. Mr Copping said that this rate was checked against the market and the particular staff member’s expertise and experience to see whether it was a fair and recoverable rate.[52]
[52] Transcript p44
Mr Copping said that PKF recorded in 10 x 6 minute units per hour. He said that on each desk there were two computer screens, one for the client and one for administration. Time was recorded contemporaneously by all staff in a time sheet entry on the administration screen. Disbursements were recorded and charged as they were incurred.
Mr Copping said that when PKF prepared a bill for a particular entity it was necessary to recall all of the time sheet entries in a work in progress report (WIP). An invoice was produced comprising the WIP and the disbursements. The invoice was then posted to a ledger. The WIP report was then assigned to the invoice number to which the timesheet entries related. He said this enabled PKF to obtain the time sheet entries that underpin any particular invoice.[53] The WIP report was not sent to the client. Rather the invoice contained a summary of the work done and the person by whom the work was done. I do not accept Mr Copping’s evidence that it was possible to ascertain the charge out rates of particular staff from the invoices as he asserted. This could only be done, with difficulty, from the WIP sheets.
[53] Transcript p39
Mr Copping said that he raised his hourly rate from $265 to $370 per hour following the dissolution of the partnership with Ms Wadham on 31 October 2007. He said that he could not recall the specific process that he went through to review what he felt was a fair rate but he had concerns that the rate he had previously been charging was below the market rate for a partner in a second tier firm.[54] In cross-examination he was asked if he told his clients about this rate change. He said that he could not recall whether he did. He was referred to a letter from Ms Wadham to the Sladojevics dated 19 October 2007[55] as follows:
[54] Transcript pp78-79
[55] Exhibit D6
QLooking at the second paragraph: ‘There will be no other changes to the firm with Rick Copping and all the staff continuing to service you as PKF Mount Barker’, do you see that.
AYes.
QYou’ve told her Honour before that you raised your rates at the dissolution of the partnership, which was as a result of an agreement effective on, I think, 31 October 2007; correct.
AThat’s a statement of fact.
QAnd notwithstanding this letter saying ‘There will be no other changes to the firm’, your rate went up; correct.
AStatement of fact.
QAnd you didn’t tell your clients about that, did you.
ANo, I don’t recall.
QYou just unilaterally put them up.
AI don’t recall whether I did or didn’t – that’s not a denial and it’s not an admission, I simply don’t recall.
QIt’s another ‘No comment’, is it.
AIt’s a ‘don’t recall’, I’d suggest they’re different.
The Sladojevics gave evidence that the only correspondence the SRB Group received was the letter from Ms Wadham which indicated that there would be no changes as a result of her departure. Regardless of the semantic difference between a “no comment” and a “don’t recall” I find that Mr Copping did not inform the defendants of the rate change.
The defendants tendered by consent an expert report of Mr Hugh McPharlin a Chartered Accountant dated 31 August 2009.[56] The report dealt with a number of issues relating to Mr McPharlin’s opinion as to the reasonableness or otherwise of the fees charged by PKF. The report is a preliminary report subject to the qualifications set out in the document but is nonetheless helpful in terms of the reasonableness of the fees. It appears from this report that the hourly rates charged by PKF were within industry standards. I note that the defendants do not contend otherwise except in relation to the increase in Mr Copping’s rate.
[56] Exhibit D2
I find that the hourly rates charged by PKF with the exception of Mr Copping’s increased rate were reasonable. I do not consider that the plaintiffs have established that Mr Copping’s increased hourly rate was reasonable particularly in view of the fact that the defendants were not informed of the rate increase. This latter issue was compounded by the representation that Ms Wadham’s departure would not cause any changes.
The hourly rate is however only part of the question of assessing the reasonableness or otherwise of charges for the general retainer work. The other issue relates to the manner in which that work was performed.
As I have found the plaintiffs did not complete all of the tasks they were required to complete and did work inefficiently. Work was repeated. Some matters were revisited on a number of occasions for no apparent reason such as the review of the SRB Group structure. Considerable work was done in respect of restructuring and yet there was no restructure. Work was also performed on a number of occasions without instructions. Information and documents were requested, and provided, on more than one occasion. The defendants were charged for items where work was repeated or undertaken without instructions.
It appears from an examination of the invoices both paid and unpaid, the work in progress sheets and the evidence of Mr Copping and Ms Lawford that all time recorded was charged. There does not appear to have been any occasion on which time was written off.
There are a number of other aspects to PKF’s charging practices that appear to be unreasonable when the invoices and WIP sheets are examined. If more than one PKF member attended a conference all of the time was charged and in-house conferences were charged on a regular basis.
The defendants were charged for conferences and correspondence about client complaints such as the August 2007 meeting at which the defendants complained about the quantum of the July 2007 accounts or the December 2007 conference at Mr Gillam’s office.
All work was charged at the same hourly rate whether it required the exercise of skill and judgment or was simply an administrative task. For example Ms Lawford’s time spent filing and reformatting documents was apparently charged at her standard hourly rate of $180.
Mr McPharlin’s report contains details of the accounts of PKF and Bray Chan. He properly qualifies his views and states that the extent of fees charged for professional accounting services can vary widely depending on the circumstances. I therefore do not consider that a comparison of the Bray Chan accounts with those of PKF is of more than general assistance. It can be seen that the Bray Chan accounts for the defendants’ end of year accounts and the special purpose accounts for the ITW transaction are considerably less than those of PKF. I accept the evidence of Mr Bray that he did not require the drafts and working papers from PKF to prepare the end of year accounts and tax returns for the defendants although some of the work done by PKF on the ITW transaction was relied upon. Mr McPharlin said that Bray Chan’s charges were within the range that he would expect for the preparation of such accounts.
Mr McPharlin comments on part of the PKF accounts as follows:
……
4.29 The information in Appendices 6 and 7 that is summarised in the tables at paragraphs 4.9 and 4.10 above show that:
4.29.1 $16,427.00 and $24,962.50 has been charged by PKF for services to SRB Subo and SRB Systems respectively that has been classified as annual accounts and tax return preparation but appears to largely relate to amending or revising financial statements for a particular year, or for a prior year;
4.29.2 $16,482.00 and $7,088.94 has been charged by PKF to SRB Subo and SRB Systems respectively for services that are described by PKF as business services that appear to relate to the preparation of consolidated financial statements for SRB Subo and SRB Systems respectively.
4.30 In my opinion, each of these sums are relatively substantial sums to have been incurred and charged for reworking financial statements or for the preparation of consolidated financial statements.
4.31 In my experience, whether time incurred for reworking financial statements may be charged to a client depends upon whether the reason for the rework was caused by the client, such as because of unclear or incomplete information, or by the firm. In my experience it is common for firms not to charge for time that is considered not to be valuable to the client because of errors or omissions caused by the firm’s personnel. On the other hand, it would, in my opinion, be usual to seek to charge a client for rework that was caused by the client’s own omissions.
…...
As I have found, and the plaintiffs conceded, the defendants responded promptly to all requests for information. I do not consider that the plaintiffs have shown that rework was caused by the defendants’ omissions.
As I have said, the invoices are not helpful in assessing the reasonableness of the charges because the work is not described in any detail. Further the invoices do not discriminate between the work performed on the special purpose accounts and the general retainer work. The WIP sheets add some detail but again they lack the detail required to properly assess the reasonableness of the charges.
It is my view that the plaintiffs have failed to establish that the PKF charges for the general retainer work were, as a whole, reasonable.
Are the defendants liable for the unpaid invoices?
I have found that the plaintiffs cannot recover for the ITW special purpose accounting work. I will deal with the Turning invoices separately. This leaves the question of payment for the general retainer work. The plaintiffs contend that:[57]
[57] Plaintiff’s outline para 1 - 6
1. The plaintiff’s claim is for professional services rendered and disbursements incurred for and on behalf of the defendants SRB Systems Pty Ltd (Systems) and SRB Subo Pty Ltd (Subo) for the 2006-2008 financial years. There is a separate claim in respect of a friendly but independent company Subo Turning Pty Ltd (Turning) with whom it shared factory premises in Sydney.
2. In support of its case on the merits PKF points to the uncontroversial fact that it performed professional services post 1 July 2007 in respect of the 2007 and part 2008 financial years. It has been paid nothing whatsoever for this period or in respect of these financial years.
3. The bellwether is probably the work of its witness chartered accountant Ms Lawford whose work was both substantial and unimpugned.
4. By 24 December 2007 ITW special-purpose accounts (‘the ITW special-purpose accounts’) including profit and loss statements and balance sheets were in a form where they could be used. Indeed they were used in respect of the ITW Reids sale. The defendants wrongly concede no benefit for this work.
5. The retainer was terminated in January 2008.
6. Notwithstanding this termination the plaintiff finalised the defendants’ accounts by 22 February 2008. It separated out the consolidated accounts, prepared tax returns and delivered final accounts which were expressed to be draft only as to the fact that minor sundry entries had not been “reconciled” (concerning a trifling amount of money) with source documents (because the relationship between plaintiff and defendants had broken down and this information was not available). It delivered such accounts to the defendants.
These submissions overlook the fact that this is said to be primarily a claim in contract. These submissions are couched in terms of a quantum meruit claim. The more detailed submissions that follow are likewise addressed to issues of the value of work done. The terms of the contract between the parties are not addressed nor is the question of PKF’s compliance with those terms.
I do not consider that the question of quantum meruit arises. I refer to the decision of the High Court of Australia in Pavey & Matthews Pty Ltd v Paul[58] and in particular to His Honour Justice Brennan’s comments at page 238:
Where work is done by a plaintiff under a contract which expressly or impliedly provides for the plaintiffs remuneration, there is no ground in restitution or unjust enrichment for imposing an obligation to pay remuneration different from the agreed remuneration. If it were possible to impose a quasi contractual obligation to pay reasonable remuneration when there is a subsisting unwritten contract which falls within the statute of frauds, the imposed obligation would be either inconsistent with the contract or it would duplicate the contractual obligation. An inability on sue on a contract provides no ground for imposing a quasi contractual obligation inconsistent with the contractual obligation to pay remuneration, and the effect of the statute on the contractual obligation cannot be circumvented by substituting a corresponding quasi contractual obligation. A subsisting contract is the source and charter of the rights and obligations of the parties, and the law cannot impose other rights and obligations either to vary the contractual provisions or to negative the effect which the statute of frauds has upon them.
[58] [1986 – 1987] 162 CLR 221
There was, as I have said, no dispute that there was an agreement between PKF and the defendants for the provision of general accounting services. I have made findings about the express and implied terms of that general retainer including finding that it was a term of the contract that the defendants pay PKF’s reasonable charges for work performed under the contract. I have further found that the plaintiffs are entitled to recover upon that contract. Accordingly it is my view, with the exception of the work performed after the termination of the retainer, that there is no entitlement in restitution for payment of the work performed under the retainer agreement as the terms of that agreement governs the rights and remedies of the parties. The situation might arguably be otherwise for the work performed after the termination of the retainer so I will deal with that work separately.
Retainer work
It is stating the obvious to say that the plaintiffs bear the onus of proving their claim. Whether work was performed by PKF after 1 July 2007 and whether the work was of benefit to the defendants is not to the point. Rather, it was for the plaintiffs to establish that the work was performed, and the charges rendered, in accordance with the contract.
I have found that the hourly rates were reasonable with the exception of Mr Copping’s unilateral fee increase in October 2007. The defendants say however that the work performed by PKF was neither timely nor complete and that the charges are not reasonable. The complaint relates to the whole of the retainer period including the accounts that have been paid by the defendants.
I consider that the plaintiffs were in breach of the terms of the contract as I have found them. The work was not done efficiently or promptly. In July 2007 the SRB Group had been told that the accounts were complete. They were not. Mr Copping admitted lying about this. Mr Copping said that the high charges would not be repeated but this was not the case. Even at the conclusion of the retainer PKF had not provided complete accounts or taxation returns for all relevant periods. The charges for this incomplete work were high and there were, as I have found, occasions of overcharging. The defendants paid substantial amounts a false assurance about the state of the accounts.
Whilst it is likely that some of the work, both before and after 1 July 2007, was performed in accordance with the contract and that the charges for the general accounting work were reasonable the state of the evidence is such that I am completely unable to make an assessment of that. The court should not be required to undertake in effect a taxation of costs. Even if this was appropriate, the state of the plaintiffs’ records is such that this would not be possible. Accordingly it is my view that the plaintiffs have failed to establish that the work was performed in accordance with the contract terms or that the invoices rendered for work performed after 30 June 2007 up to the termination of the retainer were reasonable and accordingly that aspect of the plaintiffs’ claim must fail.
Post-retainer work
Whilst it is not strictly necessary to do so, I find that it was reasonable for the SRB Group to terminate the retainer when it did. The ITW special purpose accounts were urgent and the transaction was at risk. PKF had not provided those accounts despite several opportunities to do so. The retainer was terminated and Bray Chan was appointed as the SRB Group’s accountants. PKF was advised of this by letter from Bray Chan dated 17 January 2008 which Mr Copping says was received on 18 January 2008.[59]
[59] Transcript p157
Mr Copping said that he considered that letter the end of the working relationship between PKF and the defendants.[60] For reasons that are not obvious PKF continued to work after that date despite Mr Copping’s understanding that it would be necessary for PKF to be re-engaged if further work was to be undertaken and, by implication, charged for. It is common ground that PKF was not re-engaged by the defendants.
[60] Transcript p112
On 21 February 2008 PKF rendered an invoice for the sum of $8,514 to the first defendant, Systems.[61] The narrative on that account states as follows:
Fees for professional services in relation to the preparation of your draft financial statements for the years ended 30th June 2005, 2006 and 2007 and the period ended 31 October 2007, research specific to your affairs, telephone calls and attending to related matters.
[61] Exhibit P9; Invoice 18434
The work in progress sheet that related to this invoice indicates that all of the time charged was recorded for activities that took place after 18 January 2008. There was no contract between the parties at this stage and thus no contractual basis upon which the plaintiffs could recover. The question of quantum meruit arguably arises in these circumstances however there is no clear evidence of a request by the defendants for PKF to undertake this work. There is further no evidence that the services were accepted by the first defendant or indeed that the first defendant was aware that the work was done and that the plaintiffs expected to be paid for the work.[62] The evidence on the topic of the work performed during this period was cursory at best and I am completely unable to assess its value.[63] Further it appears likely that much of the work related to the ITW accounts which I have found not to be recoverable. In those circumstances I find that the plaintiffs cannot recover the sum of $8,514 from the first defendant Systems comprised in the invoice dated 21 February 2008.
[62] Sabemo Pty. Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880
[63] Brenner & Another v First Artists Management Pty Ltd & Another [1993] 2 VR 221
Is the first defendant liable for accounting services provided by PKF to Subo Turning Pty Ltd?
This claim relates to invoices dated 29 September 2006, 30 November 2006, 15 January 2007 and 31 January 2007 totalling $10,137.36. The work covered by these invoices was undertaken during the period August 2006 until January 2007 for Subo Turning Pty Ltd.
The plaintiffs contend that this is a strong claim and that PKF performed work for Turning “upon the promise of the defendants to pay for it.”[64] It does not appear that the plaintiffs contend that there is an alternative claim for quantum meruit in respect of the Turning claim.
[64] Plaintiffs’ written submissions para 13 and 14
I have already adverted to the defects in the plaintiffs’ statement of claim. The basis of the Turning claim is not set out – the invoices are simply included as part of the claim against the first defendant. I note further that, insofar as it is advanced in the Statement of Claim, the claim is only against the first defendant Systems not the second Subo.
The first defendant does not deny that an agreement to pay for those accounts was entered into. The dispute centres around the terms of that agreement. The further amended defence sets out the agreement as follows:
…..
15. At a meeting in July 2006 the precise date of which the defendants cannot better describe:
15.1 Mr Sladojevic said to Mr Copping that:
15.1.1 Mr Sladojevic had been dealing with Suho Turning Pty Ltd (“Subo Turning”) with respect to the manufacturing of stock for Systems;
15.1.2 Subo Turning was run by Mr Robert De Leon (Mr De Leon) who was its director and its controlling shareholder;
15.1.3Both Mr De Leon and Subo Turning was in financial difficulties as a result of which it had, inter alia, recently sold to Subo (sic);
15.1.4 Mr Sladojevic understood, from conversations with Mr De Leon, that the accounts of Subo Turning were in a mess.
15.1.5 Mr Sladojevic wanted to assist Mr De Leon to have the affairs of Subo Turning wound up in an orderly manner (“the orderly winding up”);
15.1.6 For the purpose of achieving the orderly winding up Mr Sladojevic wanted to recommend an accountant to Mr De Leon to prepare financial statements and accounts for Subo Turning and also to liaise with an administrator or liquidator of the company (“the Subo Turning Work”);
15.1.7 He wondered whether PKF were interested in undertaking the Subo Turning Work, and that if they were –
a) he would suggest to Mr De Leon that Subo Turning retain PKF for that purpose;
b) Systems would pay PKF’s costs of undertaking the Subo Turning Work.
15.2 Mr Copping said to Mr Sladojevic that –
15.2.1 PKF would be able to do and would be interested in doing the Subo Turning Work;
15.2.2 He would ‘pad out’ future invoices to Systems in an amount equal to the cost of the work he did in relation to Subo Turning;
15.2.3 He would nonetheless invoice Subo Turning for the cost of the Subo Turning Work so that he would be able to vote at creditors meetings
16. PKF were thereafter, on a date the defendants do not know retained by Subo Turning to undertake the Subo Turning Work.
…..
Mr Sladojevic gave evidence concerning this topic confirming the arrangement as outlined in the defence. He also indicated that he did not see the Subo Turning invoices until they were provided to his solicitor Mr Gillam in December 2007. He said that he had never had any conversation with Mr Copping about the payment of those accounts, nor was a demand made to the SRB Group for payment of those Turning accounts to his knowledge.[65]
[65] Transcript p607 and p610
Mr Copping gave evidence that Mr Sladojevic asked him if he would undertake some work for Turning because of their financial difficulties. Mr Copping was keen to know how PKF was going to get paid and he says that Mr Sladojevic gave him an undertaking that if PKF did not fully recover its fees through the liquidation that Systems would pay any shortfall. Mr Copping said that this was not documented but he was comfortable with that assurance and on that basis undertook the work. Mr Copping said that when PKF first raised its invoices they were made out to Subo Turning and lodged with PKF’s proof of debt in the liquidation. Ultimately the liquidation was completed and there was no dividend payable. Mr Copping said that, under his agreement with Mr Sladojevic, the invoices were then readdressed to Mr Sladojevic’s postal address at Blackwood.[66] The invoices remained in the name of Subo Turning. Mr Copping’s evidence did not assist me with the date of the liquidation or the date on which he says the accounts were readdressed and sent to Systems.
[66] Transcript p37-38
Mr Copping said that the work was performed on the PKF’s usual hourly rate and that there was no double counting of the work. In other words he did not bill Systems for any of the work at the same time. He denied that Systems would pay for the work done for Turning by way of “padding” the Systems invoices.
I accept the evidence of Mr Sladojevic and Mr Gillam that the first time the accounts were sent to Systems was in about December 2007 despite the fact that the last Turning work was performed by PKF in January 2007 and despite the dates appearing on the invoices. This is not necessarily inconsistent with Mr Copping’s evidence although I found his evidence on the topic somewhat confusing. Plainly the invoices were not sent on the dates indicated on their face given Mr Copping’s evidence about first lodging them as part of the liquidation and subsequently readdressing them.
I am left in a state of uncertainty as to the precise nature of the agreement between Mr Sladojevic and Mr Copping. On balance I prefer the evidence of Mr Sladojevic. I am unable to assess whether any “padding” took place owing to the general difficulty I have had with the evidence about work performed by PKF and the manner in which that work was charged. I have found it impossible to assess the work done for Systems and the basis upon which it was charged let alone assess whether the invoices for that work have been increased in some way to account for the Turning work. In all of the circumstances, I find that the plaintiffs have failed to make out their claim against the first defendant Systems for payment of the Turning accounts and I reject that claim.
Are the plaintiffs liable to the defendants on the counter-claim?
The defendants have not called evidence or pressed claims relating to loss and damage suffered by reason of the allegations of false or misleading conduct, misrepresentations, breaches of retainer and negligence set out in the defence and counterclaim.
The remaining aspect of the counter claim is the claim for loss of research and development tax concessions (R & D Tax concessions). The defendants say that their initial instructions to PKF included instructions to provide advice and assistance to claim R & D Tax concessions. It is not in dispute that Subo and Systems undertook research and development activities at all material times. Further, it appears uncontentious that R & D Tax concessions are available to eligible Australian companies and that the concessions take the form of increased R & D related tax deductions. R & D Tax concessions require a number of activities to be undertaken within prescribed time frames. The defendants say that PKF failed to take the necessary steps within the required time frame and that they therefore lost the opportunity to claim R & D Tax concessions for R & D expenditure during the financial year ended 30 June 2006.
That loss is quantified in the report of Mr Chris Bray dated 29 November 2010.[67] Mr Bray also gave evidence concerning the quantum of the lost tax concessions. I accept this evidence and I find that Systems has lost tax concessions of $18,717.90 and Subo has lost $9,179.10. In addition there is the question of interest.
[67] Exhibit D22
The plaintiffs agree that the availability of tax incentives for eligible research and development was discussed but that PKF advised the defendants that an application for such a grant required specialist expertise which PKF did not offer. PKF advised the defendants to take specialist advice.[68]
[68] Reply para 15
Mrs Sladojevic gave evidence that the defendants instructed PKF to undertake this work this work at the meeting with Ms Wadham and Mr Copping on 2 June 2006. The first account rendered to Systems refers a meeting on 2 June 2006 at which, inter alia, research and development tax planning were discussed. Mrs Sladojevic communicated to PKF on 20 February 2007 by way of an email indicating that the SRB Group was waiting for information about R & D Tax concessions from PKF and enquiring when this would be sent.
Mr Copping gave evidence denying that PKF was instructed to claim R & D tax concessions for members of the SRB Group. He said that R & D tax concessions are a complex area and that PKF did not purport to have the skills to prepare such a claim. He had a fundamental understanding of how such claims worked but had never prepared such a claim. Mr Copping did not however give evidence about the nature of the discussions on 2 June 2006 as he could not remember that meeting. It is plain from the invoice that the topic was discussed and it seems unlikely that it would have been mentioned if the extent of the advice was as indicated by Mr Copping.
Mr Copping did recall receiving Mrs Sladojevic’s email of 20 February 2007 in which she referred to R & D work and instructions given to PKF by her husband six months earlier and complaining about a lack of feedback. Mr Copping said that he responded to that email with another email (prepared by Mr Ness another accountant at PKF) which advised Mrs Sladojevic of the key elements of registration.[69]
[69] Transcript p214-218
This email was put to Mrs Sladojevic as follows:[70]
[70] Transcript p778
QYou will see there that Mr Ness has just given some advice on the downloading of the form which is the one that has to be completed within 10 months, and gave you the opportunity to ask whether you wanted to fill it out or whether you wanted him to fill it out.
AYes.
QCan I suggest that certainly by the time of that email you were conscious of the fact that PKF would not be – you would not be retaining PKF to do the R & D.
AThe understanding was all along the way that they were to do our R & D so we were quite shocked when we received this email giving us a link saying ‘Here, there’s the link, go and do your own R & D’.
QOr register for the R & D.
AOr register for the R & D sorry.
QWas that why you decided to consult Mr Todd instead.
AYes.
QSo you weren’t going to ask PKF to do it anymore, you were going to get someone else.
AWell, PKF had stated at this stage that they couldn’t do R & D so –
QIn any event, the end of the R & D story with PKF.
There are some agreed facts in relation to this topic as follows:
1. Alex Todd is an expert in the field of research and development tax concessions.
2. Mr Todd met with Mr and Mrs Sladojevic on 22 February 2007.
3. In the course of the meeting he informed them about the time limit for lodgement of an application for registration for research and development activities namely 30 April 2007.
4. On 23 February 2007 he forwarded them a written proposal in final form to undertake a claim for the research and development tax concession [P39].
5. The defendants did not take up the proposal.
Taking all of this material into account it is my view that whilst there may have been a discussion of R & D tax concessions at the meeting on 2 June 2006 which lead to the defendants understanding that PKF could and would undertake the R & D tax concession work there was no true meeting of minds on this topic and that the R & D tax concession work did not form part of the retainer. This position was clarified by February 2007 when I find that PKF communicated to the defendants that they did not have the expertise required to do R & D tax concession work. The defendants still had time to instruct an alternative expert such as Mr Todd to claim the relevant concessions and would have suffered no loss. The fact that they took steps to do so indicates to me that the defendants at that stage knew that PKF would not undertake this work on their behalf. I therefore find that the counter-claim for Research & Development tax concessions fails.
Conclusion
In conclusion I order as follows:
1. That the plaintiffs’ claims against the defendants be dismissed
2. That the defendants’ counter-claim against the plaintiffs be dismissed.
I will hear counsel about any consequential orders including as to costs.
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