Torrens Aloha P/L v San Modern Painting P/L

[2001] NSWSC 227

Reported Decision: (2001) 19 ACLC 755
(2001) 17 BCL 443
[2001] NSWSC 227
[2001] ACL Rep 120 NSW 33

New South Wales

Supreme Court

CITATION:	Torrens Aloha P/L v San Modern Painting P/L [2001] NSWSC 227 revised - 6/04/2001
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4246/00
HEARING DATE(S):	27/03/01, 28/03/01
JUDGMENT DATE:	27 March 2001
PARTIES :	TORRENS ALOHA PTY LTD (ACN 002 005 370) (Plaintiff) SAN MODERN PAINTING PTY LTD (ACN 093 396 617) (Defendant)
JUDGMENT OF:	Santow J

COUNSEL :	M R Gracie (Plaintiff) T D Castle (Defendant)
SOLICITORS:	Roxburgh & Co (Plaintiff) David Begg & Associates (Defendant)
CATCHWORDS:	CORPORATIONS — Application to set aside statutory demand payments under painting subcontract — Whether capable of constituting debt presently due and owing when defects later claimed to be found — Offsetting claim can be unliquidated so long as genuine i.e. not dishonest or colourable — But cannot be an offsetting claim for more than nominal amount of $1 unless damage reasonably ascertainable — Scope for construing contract and considering undenied facts in concluding claim for liquidated damages spurious.
LEGISLATION CITED:	Corporations Law s459H
CASES CITED:	Banbury v Daniel (1884) 54 LJ Ch 265 Besser Industries (NT) Pty Ltd v Steelcon Constructions Pty Ltd (1995) 16 ACSR 596 Chalet Homes Pty Ltd v Kelly [1978] Qd R 389 Crowshaw v Pritchard and Renwick (1899) 16 TLR 45 Dawnays Ltd v FG Minter Ltd and Trollope & Colls Ltd [1971] 1 WLR 1205 Egan v State Transport Authority (1982) 31 SASR 481 Earnshaw v Gorman Sons Pty Ltd ([2001] WASCA 50, 28 February 2001, unreported (Full Court)) Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 Gold Coast Oil Co Pty Ltd v Lee Properties Pty Ltd (1984) 1 BCL 63 at 66 Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No. 1) (1994) 13 ACSR 455 Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No. 2) (1994) 12 ACLC 490 Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124 Rothwells Ltd v Nommack (No. 100) Pty Ltd (1988) 6 ACLC 1,199 Re Sanders Constructions Pty Ltd [1969] Qd R 29 Tharsis Sulphur & Copper Co v M’Elroy & Sons (1878) 3 App Cas 1040 The Tergeste [1903] P 26 Dunedin Water Works Co v Bassett (1868) 1 NZCA 141
DECISION:	Statutory Damand substantiated in part.

REVISED — 6 April, 2001
IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 4246/00
TORRENS ALOHA PTY LTD (ACN 002 005 370)
Plaintiff
SAN MODERN PAINTING PTY LTD (ACN 093 396 617)
Defendant
JUDGMENT — ex tempore

INTRODUCTION

1    Statutory demands these days rarely generate novel issues. This case generates two issues which if not novel, are still open to argument. The first is whether a builder or subcontractor can ground a statutory demand, insofar as requiring a liquidated present indebtedness, upon a claimed debt for completed work when allegedly still subject to defects requiring rectification. Those defects had earlier been rectified, but further defects were allegedly found, after the statutory demand. The law treats lump sum contracts as compatible with an obligation to pay by instalments. Can that law be called in aid, in support of a statutory demand so based? Or the law applicable where a party has received a substantial part of the benefit he or she might reasonably expect from the contract?

2    The second issue is reconciling the relatively low hurdle of genuineness for admitting an unliquidated offsetting claim (based on delayed completion), with the need to quantify it so it is set at its genuine level. For if not so capable of being quantified, it must be set at a nominal $1. Each of these issues throw up the extent to which the Court at this early quasi interlocutory stage, may decide genuineness questions by construing the contract grounding the claimed debt.

3 The Plaintiff developer seeks to set aside the Defendant painter’s statutory demand. It is for monies said to be owing under a subcontract for painting work. The principal matter left to determine concerns the quantum to be attributed, if any, to an offsetting claim advanced by the Plaintiff. The major item of the offsetting claim pertains to liquidated damages said to be applicable by reason of the painter’s delay. The Defendant denies that the contract or any implied term of it allows for such damages and contends that the genuine level of any such damage is unascertainable. The Plaintiff however contends that its offsetting claim renders the statutory demand below the prescribed amount ($2,000) for the purpose of the formula in s459H of the Corporations Law. There is also a more frontal attack. It is based on the contention that work subject to claimed post demand identified defects is not completed and therefore no amount could be due and owing at all. This is in circumstances where the Plaintiff claims the work was subject to outstanding defects and any entitlement to payment depended on its satisfactory completion. The Defendant’s response is that it could not genuinely be disputed that any outstanding defects notified by the date of the statutory demand had been attended to. Further, that the Defendant is entitled to rely on the principles applicable to entitlement to progress payments as creating a debt due and owing at the date of the statutory demand.

4    Thus the principal constituent of that offsetting claim is an amount, up to 16 October 2000, of $84,000 based on an alleged date for completion of 5 July 2000; see Balog affidavit 16 October 2000, para 33; it was calculated at $69,000 as of 19 September 2000. The rate was $1,000 per day, taken from cl 15.1 of the subcontract under the heading “liquidated damages”; see para 27 below. The Defendant denies its applicability for reasons later set out.

5    That amount of $84,000 relies upon the Plaintiff’s construction of the relevant contract for the painting of a block of residential apartments being the subcontract between the Plaintiff and the Defendant dated, when last executed, 26 May 2000; see Balog affidavit at page 10. The issue turns on whether liquidated damages of $1,000 per day applies by reason of the Defendant having, as the Plaintiff claims, failed to complete the contract by the date of 5 July 2000 so as, in terms of the contract, to trigger the liquidated damages clause in clause 15.1 of that contract, in the circumstances that occurred. If the Plaintiff succeeds in that contention, it is common ground that the statutory demand must be set aside. If the Plaintiff fails in that contention it seeks to fall back on the contention, advanced at this hearing for the first time, that, though no time for completion be fixed by the contract (as asserted by the Defendant and denied by the Plaintiff), nonetheless the general law will fix a reasonable time. The Plaintiff asserts that reasonable time was some time after the 5 July 2000 and before 12 September 2000 when the Defendant ceased to be on the site.

6    The Plaintiff’s contention is then that the $1,000 per day should be extrapolated from the liquidated damages clause producing a figure which would completely offset the statutory demand amount left after agreed offsets totalling $46,625, (see para 8(10) below for their calculation). That would leave an amount of $54,967 out of the original statutory demand amount of $101,594.

7    The Plaintiff contends that, at the least, this contention rises to the level of a genuine claim (by way of counter-claim or cross-demand) that sufficiently satisfies the requirement that it be not merely fictitious or colourable; see Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No. 2) (1994) 12 ACLC 490 at 493. The Plaintiff then contends that it should be quantified at $1,000 per day yielding $84,000. The Defendant disputes both propositions.

AGREED FACTS

8    At the risk of some overlapping with the above introduction, it is convenient that I set out what can be taken to be agreed facts, noting in passing the contentions of the parties.

(1) The application concerns a statutory demand dated 25 September 2000 for $101,594 for painting work performed at a 92 unit building development at Randwick (Tibor Balog, annexure “A”). The sum demanded is based on two invoices issued by the Defendant on 15 September 2000 for $53,975 and $47,619 respectively (Tibor Balog, annexures “H” and “I”). By letter dated 19 September 2000 the Plaintiff disputed the Defendants right to payment (Tibor Balog, annexure “J”).

(2) The invoices related to painting work performed during the period 13 July 2000 to 15 September 2000. As at 15 July 2000, four invoices covering the period from 26 May to 13 July, being a total of $103,100, had been paid by the Plaintiff (Ian George Wright, annexures “E” to “M”).

First Invoice

(3) The first invoice for $47,619 relates to Interior painting jobs and comprises two elements (“First Invoice”):

(a) First, the sum of $30,200 plus GST being the balance of moneys due under a lump sum contract dated 26 May 2000 (Tibor Balog, annexure “B”), and two additional items of $600 and $500 respectively. The Plaintiff disputes the sum of $500 (Mark Stephen Druhan, para 28). Without admissions, the Defendant has agreed not to press this amount for the purposes of s459H only on the basis that such amounts are de minimis.
(b) Secondly, the sum of $13,090 plus GST being the cost of completing the items listed on the Plaintiff’s defect sheets (The defect sheets are Exhibit 1 to Tibor Balog affidavit. The calculation of the sum is stated on an invoice dated 12 September 2000 which is SD annexure “F”). Although the Plaintiff has acknowledged that 374 hours were spent in attending to the matters listed in the defect sheets (Mark Stephen Druhan, annexure “F”) — some of which were clearly not the fault of the Defendant — without admissions, the Defendant has agreed not to press this amount for the purposes of s459H only on the basis that the rate to be applied to these hours has not been agreed for the purpose of clause 6 of the Subcontract.


(4) Thus, the balance of the claim pressed by the Defendant in relation to the First Invoice is $29,700 plus GST, namely $32,670.

Second Invoice

(5) The Second Invoice for $53,975 relates to a series of items for exterior painting jobs. Although the contract provides for a rate of $20 per square metre, on 22 June 2000 the Plaintiff accepted some revised quotations for specific aspects of this work as well as a general rate of $12 per square metre (Tibor Balog, annexure “D”; Ian George Wright, annexures “B” and “C”).

(6) The Plaintiff specifically disputes item 1 for $435 and item 2 for $1,960 and $261 (Mark Stephen Druhan, paras 29 and 30). Without admissions, the Defendant has agreed not to press these amounts for the purposes of s459H only, on the basis that the amounts are de minimis.

(7) Items 5 and 7 have been calculated at the rate of $20 per square metre. Without admissions, the Defendant has agreed to accept a re-calculation of these amounts for $12 per square metre for the purpose of s459H only. This leads to a reduction of $1,744, on the basis that the amounts are de minimis.

(8) Thus, the Defendant presses the balance of the Second Invoice in the sum of $49,134, being $49,068 less the deductions of $4,400 plus GST.

Offsetting Claims Alleged

(9) The Plaintiff alleges a series of offsetting claims:

(a) Rectification and touch up work performed by Apex Painting as per their invoices of December, January and February (Mark Stephen Druhan reply annexures “B”, “C” and “D”). The total for this work is $15,776. This work is referable to complaints made by unit owners (Exhibit MSD 1 to Mark Stephen Druhan reply affidavit — 23 unit owners complaints listed. Although the Defendant was not asked to perform this work (Mark Stephen Druhan reply, para 17), without admissions the Defendant has agreed to accept that this amount is an offsetting item for the purposes of s459H. This is only on the basis that acceptance of this sum is an answer, on this application, to the Plaintiff’s allegations that the work done by the Defendants was defective. That is, the quantum of that dispute can be ascertained by reference to the work done to correct it (on the Plaintiff’s case).
(b) Alleged rectification work by John Galcsik in the sum of $28,765 being the sum of $13,980 and further estimated rectification work in the sum of $4,000, together with an amount of $3600 for the cost of paint to the end of March 2001 and a further amount for overheads and supervision totalling $6785. The Plaintiff also claims that it cannot yet quantify the final cost of all defect rectification works to be performed or amounts for future paint supply and overhead and profit. Although the Defendant was not asked to perform this work, without admissions, the Defendant has agreed to accept $11,060 as an offsetting item for the purposes of s459H only in respect of the Galcsik work to date plus paint costs for similar reasons to those stated in relation to the Apex work. (The Plaintiff, after initially disputing it, later agreed that this should be the offset, without admissions.)
(c) Liquidated damages for delay of $84,000 up to 16 October 2000, based on an alleged date for completion of 5 July 2000 (Tibor Balog para 33; cf Tibor Balog annexure “J”). The Defendant contends that this claim is wholly without merit. The Court has rejected this claim, but has allowed an offsetting item of $1 in respect of the alleged unliquidated claim by the Plaintiff for breach of the implied term to complete the subcontract works within a reasonable time.

(10) Having regard to its concessions the Defendant seeks an order under s459H(4) varying the Demand to be the amount of $54,967, being $32,760 in respect of the First Invoice; $49,134 in respect of the Second Invoice; less $15,776 in respect of the Apex work, $11,060 in respect of the Galcsik claim and $1 in respect of the unliquidated claim for delay.

9    Finally, I should note that the Defendant submits in relation to the defects as follows:

(1) The Defendant relies in particular upon a statement by the Plaintiff’s Site Foreman, Mr Druhan, on 12 September 2000, acknowledging that the Defendant had completed all of the Defects work which the Plaintiff had asked it to perform. This statement was made three days before the Defendant issued the invoices upon which the statutory demand is based:


“AS PER ATTACHED DEFECT SHEETS -
ALL WORKS COMPLETED AS OF 12/9/00

TOTAL HOURS 374"


(2) There is no genuine dispute to the claim made by the Defendant, particularly in light of the concessions made in the letter from Begg & Associates dated 19 March 2001. The real problem (says the Defendant) is that even on the Plaintiff’s own evidence “the boss” — meaning presumably Mr Balog — had a problem with the amount of time spent by the Defendant attending to the defects work (the claim for which is no longer pressed in relation to this demand) and the use of the $20 per square metre rate for certain work (again a claim which is no longer pressed in respect of this demand) (Mark Stephen Druhan reply affidavit, para 4).

The threshold issue — any indebtedness at all?

10    That in turn gives rise to the threshold issue, namely whether the Defendant could properly base its statutory demand upon any amount at all. This is on the basis that there could be no present indebtedness for a contract still allegedly uncompleted, insofar as post statutory demand defects have been claimed by the Plaintiff though not conceded by the Defendant. This is in circumstances where the Subcontract provided for payment by way of progress payments in conformity with the procedure laid down in clause 7.2 and following. This the Plaintiff contends disentitles the Defendant to any payment, even by way of progress payment, until the whole work is satisfactorily completed. On that view, progress payments are acts of grace whilesoever there are alleged defects standing in the way of full completion. That is a proposition which I do not accept in so extreme a form for reasons I deal with below.

11    The relevant clause (7.2) dealing with progress payments needs to be quoted in full:

“ Progress Claims and Payments
the Subcontractor shall submit progress claims in a form required by the Torrens Payment Requirements on or before the date or within the period stated in the Subcontract Information indicating the value of work executed and incorporated in the Subcontract Works Claims for payment must be submitted together with
(a) the total value of work executed and incorporated in the Project to the date of the claim;
(b) a breakdown of the percentage complete of each trade or part and the amount claimed in respect of each trade or part;
(c) where required by Torrens, the Subcontractor’s certification that the Subcontract Works as executed comply with the Subcontract and Authority requirements;
(d) proof of payments by the Subcontractor of contributions to the appropriate funds for superannuation, redundancy, workers compensation, insurance and long service leave; and
(e) a signed statutory declaration in the form attached to the Subcontract.
Unless agreed otherwise, payment shall be assessed and made by Torrens within the period for payment stated in the Subcontract Information after receipt of the progress claim.
If Torrens fails to pay the amount due in accordance with the Subcontract within the period for payment, the Subcontractor may give Torrens written notice of that fact (“Payment Notice”). If Torrens fails to pay the amount due within thirty (30) days of receipt of a Payment Notice, Torrens will only be liable to pay simply interest on the amount due, calculated daily at the applicable published Commonwealth Bank Cash Management rate, from the expiry of the period of thirty (30) days from receipt of the Payment Notice until the date of payment.
Payment of moneys shall not be evidence of the nature of work or an admission or liability or that work has been satisfactorily executed and shall be a payment on account only.
Torrens may in its absolute discretion include an amount in any progress payment on account of any Variation notwithstanding that the Variation has not been valued. Where an amount is included as a whole or partial payment for a Variation which had not been valued, if the Subcontractor does not give notice to Torrens that it disputes the value of the Variation prior to or with its next progress claim, the Subcontractor has agreed with the value of the Variation as determined by Torrens.
Notwithstanding this Subcontract, the Subcontractor must as a condition precedent to receiving its first progress payment, execute and deliver to Torrens a signed, completed original of the Subcontract.”

12    In Besser Industries (NT) Pty Ltd v Steelcon Constructions Pty Ltd (1995) 16 ACSR 596 at 600, dealing with an application to set aside a builder’s statutory demand, Branson J sets out what I would consider to be the applicable principles in relation to statutory demands to recover progress payments. This is save as those principles may be affected by express provision to the contrary in the relevant contract. The Plaintiff contends that the present subcontract does produce a different result by reason of the Plaintiff’s central role in appraising the work, as against an independent third party, so seeking to distinguish Besser (NT).(supra). Besser (NT) confirms that a lump sum contract is compatible with an intention that the contract sum should be payable by instalments, articulating the basis for that proposition as follows:

“In my view the fact that cl 1 of the heads of agreement provides for a lump sum as the contract sum or price does not tell against an intention that the contract sum should be payable by instalments. Many authorities recognise that there is no necessary inconsistency between a lump sum contract price and progress payments. See, for example, Tharsis Sulphur & Copper Co v M’Elroy & Sons (1878) 3 App Cas 1040; Banbury v Daniel (1884) 54 LJ Ch 265; Re Sanders Constructions Pty Ltd [1969] Qd R 29; Dawnays Ltd v FG Minter Ltd and Trollope & Colls Ltd [1971] 1 WLR 1205; Chalet Homes Pty Ltd v Kelly [1978] Qd R 389; Egan v State Transport Authority (1982) 31 SASR 481; Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124.

The purpose of progress payments in construction contracts was explained by White J in Egan v State Transport Authority at 537. His Honour said:
Payments have long been recognised as being merely agreed instalments in reduction of the lump sum price, made on that account to keep the building contractor on the job. The purpose of instalment payments is not to pay for the materials in the sense that a purchaser of land or of specific goods pays money for or towards the purchase price. Instalment payments are made in contracts like this as a practical measure to enable the contractor to keep working under the contract; they are made also in reduction of the lump sum contract price. Such payments have been described as the ‘life blood’ of the contract.
I am in respectful agreement with his Honour on this point. The same approach was taken by Phillimore J in The Tergeste [1903] P 26 at 34 where His Honour said:
A man who contracts to do a long costly piece of work does not contract, unless he expressly says so, that he will do all the work, standing out of pocket until he is paid at the end. He is entitled to say, ‘That is not my contract; it is quite true that I had contracted to do the work and I am bound to do it; but there is an understanding all along that you are to give me from time to time, at reasonable times, payments for work done, and if the contract here was to do certain work, it always included that term, to do it if we are paid reasonable sums in part payment as we go along, not an advance, but in part payment for work already done before we proceed to the next thing’; and if that payment is not made, then the shipwright, or any other artificer, is entitled to review his work, and say, ‘I have done work worth so much; true I have contracted to do other work, but it is not reasonable I should do it as I have not been paid, and in respect of work I have done I claim payment’.”

13    The Besser (NT) building contract provided for a lump sum contract price and progress payments. There is then a requirement for the superintendent of the contract to determine the value of the work carried out and issue a progress certificate, whereas the present contract has no independent third party doing that assessment. But there, as here, it is made clear that payment of monies under a progress certificate shall not be taken as evidence against, or as an admission that, any work has been executed or of the value thereof or as having been executed in accordance with the contract; compare the third last paragraph of clause 7.2 above. Nonetheless Besser (NT) affirms that a debt still arises in favour of the contractor or subcontractor, capable of grounding a statutory demand.

14    The Plaintiff as I say attempted to distinguish Besser (NT) (supra) by reference to that part of clause 7.2 which states: “unless agreed otherwise, payment shall be assessed and made by [the Plaintiff] within the period for payment stated in the Subcontract Information after receipt of the progress claim.” That is, the Plaintiff seizes on the absence of an independant third party. However, I do not consider that distinction affects the underlying principle. But in any event, where the work is apparently completed and all notified defects rectified at the time of the statutory demand (see para 18 and following) the case is stronger than a mere claim for a progress payment. I would add that there is no sufficient basis for distinguishing Besser (NT) on the basis that there was a plausible contention that the work done was so defective as to free the other party altogether from the obligation of payment, and taking into account the concessions made by the Defendant. This was a case where the contract was in any event not for an entire and indivisible obligation. Rather there was a debt payable as quid pro quo for a consideration (performance of the subcontract) that was sufficiently executed to have earned the payment claimed, thus giving rise to a liquidated debt; see McPherson J in Rothwells Ltd v Nommack (No. 100) Pty Ltd (1988) 6 ACLC 1,199 at 1,200-1,201. As D W Greig and J R L Davis in “The Law of Contract” (LBC, 1987) put it (at 1,233) in dealing with a contract which, like this one, does not involve an indivisible entire obligation:

“So long as the party agreeing to pay the lump sum has received a substantial part of the benefit which he might reasonably expect from the contract, he is required to fulfil his obligation of payment of the price agreed, subject, however, to a set-off or cross claim for the cost of remedying any defects or omissions in the work tendered.
In each case, it is a matter of circumstance and degree to determine whether the tendered performance satisfies this test, or whether it is so defective as to free the other party from his obligation of payment. In Hoenig v Isaacs [1952] 2 All ER 176, the plaintiff, an interior decorator and furniture designer, had agreed with the defendant to decorate the latter’s flat, and make some furniture, for the lump sum payment of £750, with a provision for progress payments. The defendant paid a total of £400 as the work proceeded, but refused to pay the balance, complaining of faulty design and bad workmanship. The official referee found that the defects in the work were that a wardrobe door required replacing, and that a bookcase needed to be altered. Although Somervell LJ considered the case to be ‘near the border line’ (at 179), neither Denning nor Romer LJJ had any difficulty in concluding that the plaintiff’s breaches did not go to the root of the contract. The plaintiff was awarded the balance of £350, less some £56 to cover the cost of remedying the defects.”

15    The Plaintiff’s argument to the contrary is that payment was assessed by the Plaintiff itself at zero, with the result that it determined and was entitled to determine that nothing was yet to be paid. It is said that that concludes the matter, despite the obvious absurdity of so unfair a contractual result; one which gives the subcontractor no right to insist on payment against the whim of the developer when prima facie the work was completed and notified defects rectified. To say the escape from absurdity is to found in the dispute procedure (cl. 17) cannot be right. The terms of the dispute procedure is said by the Plaintiff to provide the basis for overriding the developer’s supposedly absolute powers to withhold payment in such circumstances, on the basis of further alleged defects later claimed. No basis is stated for how the dispute resolution is able to avoid such unfairness, if the contract provides no basis for qualifying the developer’s supposed unfettered discretion to refuse payment. When such construction of a contract produces so manifestly absurd and unfair a result not mitigated elsewhere, it tends strongly against that construction, more especially one which is not explicitly to be found in the quoted clause dealing with progress claims and payments. It says “unless agreed otherwise, payment shall be assessed and made by Torrens within the period for payment … after receipt of the progress claim”. There is nothing which says, after “assessed” that the assessment can be set at zero where prima facie all the work is done and all the then notified defects rectified (see para 18 below). That is the clearest case for a payment, even stronger than for a conventional progress payment.

16    It is true that in matters pertaining to statutory demands, a court in assessing the genuineness of the dispute does not attempt to resolve that dispute beyond the level of determining its genuineness. But a court may still construe the contract against the background of undenied facts to see if a contention, as here, is “inherently improbable”; or a “patently feeble legal argument”; see Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 per McLelland CJ in Eq. Where such a construction, along with admitted, undeniable or undenied facts justify the court in reaching a conclusion that a particular contention fails to rise to the level of plausibility, the court, as in any interlocutory proceedings, will so declare.

17    The question is whether in this case the Court may safely reach such a conclusion in considering whether the principles in Besser (NT) are applicable in the present case without impermissibly going beyond an assessment of genuineness. The Defendant is assisted in doing so, by it having demonstrated, beyond the level of genuine dispute, that all defects identified to the Defendant by the date of the statutory demand had been rectified. The Defendant then relies on the Besser (NT) principles (and earlier concessions made) for there being then a debt due and owing for the work done notwithstanding defects subsequently raised.

18    Accordingly, the Defendant points first to the undeniable fact that the defect sheets (in PX1) deal with all defects ascertained as at 12 September 2000. Marked on the defect sheets are the number of hours required to attend to the defects and there appear at two points initials of Mr Druhan and a number of hours (20 and 13 respectively). The total number of hours are 374 and represent work done by way of rectification by the Defendant.

19    Those sheets and that collection of hours is then referred to in the affidavit of Mr Druhan for the Plaintiff of 16 October 2000 particularly at paras 24 to 27. I quote what is there said:

“24. Annexed hereto and marked with the letter F (page 13) is a Invoice/Statement dated 12th September 2000 prepared by me on or about that date.
25. the words “Total hours 374” were written by me at the request of Frank the subcontractor’s foreman who said:
‘I have to do an invoice for you. Can you please write it out for me? I have trouble writing in English.’
At his request I added up the 374 hours from notes written on the defect sheets by Mr Delalic or his workers which Frank gave me at the time.
26. I did not write ‘ x 35 = $13090’.
27. I then gave the document back to Frank. I did not see the document again.”

20    At page 13 of Mr Druhan’s affidavit appears the invoice referred to above. It includes, as may safely be inferred, the 374 hours and importantly prefaced by the words “all works completed as of 12/9/00”. The invoice is signed by Mr Delalic and Mr Druhan’s initials appear on the lefthand side.

21    In those circumstances I do not consider that a plausible contention could be raised to the contrary of the proposition that Mr Druhan, on behalf of the Plaintiff, accepted that as at 12 September 2000 the then ascertained defects had been attended to.

22    In those circumstances, though it be the case that the Plaintiff contends that further defects were subsequently ascertained after the date of the statutory demand (see Mr Rommel’s affidavit of 17 October 2000, Mr Druhan’s further affidavit of 2 March 2001, MSD1 in each case with no attempt at quantification or correlation with the earlier list, and Mr Galcsik’s affidavit of 27 March 2001) the analogous position was clearly reached to that which applied in Besser (NT). One of two possibilities must follow. Either the further rectification claims turn out to be spurious, in which case the Defendant was always entitled to payment in full, with no need to resort to the principles applicable to progress payments. Or, as cannot now be precluded, despite the lack of proper substantiation to date, still further rectification work will be required. Then there would be sufficient basis to draw on the principles applicable to progress payments or alternatively the principles applicable where the party required to pay has received the substantial part of the benefit he might reasonably expect. Thus a payment would be required to be made as at the date of the statutory demand (25 September 2000) when the work was apparently completed and all prior notified defects rectified. That is so notwithstanding other defects for rectification were later raised. Such payment is to be in the amount of the two invoices, though only after subtracting therefrom amounts where concededly there remained any basis for a genuine dispute on other grounds; see para 23 below. So far as any post statutory demand alleged defects are concerned, they are not quantifiable in a way that would allow a counter-claim to be assessed at other than a nominal $1, for similar reasons to the analysis of unliquidated damages for delay; see para 35 below. Meanwhile the invoiced amount with the conceded deductions is due and owing.

23    I quote below in summary form those agreed deductions and the basis submitted for them.

Statutory Demands $101,594.

Deductions conceded by Defendants:

(a) First Invoice:

Druhan para 28 $500.
Defect work $13,090.
GST on above $1,359.

(b) Second Invoice

Druhan para 29, 30 $2,656.
Items 5, 7 @ $12 per square metre $1,744.
GST on above $440.

(c) Apex Painting Invoices $15,776.

Druhan reply annexures B, C, D


(d) Galcsik claim $11,060.

Unliquidated Damages re: Delay: $1.
$ 46,626.

(substantiated amount) $ 54,968

24    There remains to be considered if necessary in a second judgment the one final deduction claimed, based on further rectification work claimed to have been done by Mr Galcsik (“the Galcsik claim”); see now postscript which records agreement has been reached at $11,600.

25    It follows that, subject to the foregoing and the remaining matter of liquidated damages, I do not accept that there is any genuine dispute in relation to the Defendant’s claim as so reduced by the agreed deductions. That Galcsik claim relates to the contest over whether there is an genuine dispute in relation to the further work identified by Mr Galcsik and the subject of his affidavit of 27 March 2001 and the affidavit of Lynne Clarke and Mr Druhan, also of that date. It suffices that I simply note that the Defendant contends that the genuine dispute relates only to a further $11,060 whilst the Plaintiff contends that the genuine dispute relates to $28,765. If the Defendant is successful in relation to the liquidated damages, there would still remain an amount in excess of $2,000 in the Defendant’s statutory demand even if $28,765 were deducted.

26    Again, applying the conventional approach in statutory demands of interpreting a contract where that interpretation can be safely made, I approach the matter as follows.

27    For liquidated damages to be applicable, clause 15.1 of the contract must be satisfied. I quote it below:

“ 15.1 Liquidated Damages
If the Subcontractor fails to reach Completion by the Date of Completion, the Subcontractor shall be liable to Torrens for liquidated damages at the rate stated in the Subcontract Information for every additional day up to and including the Date of Completion or the date on which the Subcontract is terminated, whichever first occurs. Any amount for which the Subcontractor is liable as liquidated damages shall be a debt due and payable by the subcontractor to Torrens and, without prejudice to Torrens’ rights, may be deducted from any payment or payments to be made following the Date for Completion.”

28    That requires ascertaining “the Date for Completion” which is defined in clause 19.1 as follows. (I quote in addition the definition of “Date of Completion” since it shows the draughtsman was conscious of the difference between the date set for completion and the date completion actually occurred.)

“Date for Completion” means the day that is the last day of the period of days as specified in the Subcontract Information as the time for Completion, such period being taken to commence from the date of the Notice to Proceed.
“Date of Completion” means the date certified by Torrens to be the date upon which the Subcontract Works reached Completion.

29    It will be apparent that the measurement of the period for completion starts with what is defined as the “Notice to Proceed”, quoted below from clause 19.1

“Notice to Proceed” means a notice in writing from Torrens to the Subcontractor informing the Subcontractor that the site is available for the Subcontractor to commence work on site.

30    No document has been submitted by the Plaintiff as constituting a Notice to Proceed. The Plaintiff relies upon the fact that the contract did in fact proceed. But absence of the Notice to Proceed is a fatal defect so far as the Plaintiff is concerned in establishing liquidated damages. The period never starts to run, in terms of clause 15.1 and the relevant definitions.

31    But to continue with the ascertainment of the “Date for Completion”. It is clear that its source, the “Subcontract Information”, is that referred to or contained at the commencement of the contract. An annexure F is referred to at the commencement being the only possible reference to the Construction Programme”. But there is in fact no annexure F attached or otherwise produced consisting of a Construction Programme. The nearest one gets is that on the face of page 1 of the contract there does appear a reference to “time for completion” as meaning “as per Builders’ agreed Programme/Schedule”. But even if that different expression be equated to the “Date for Completion”, there never was any agreed construction programme. The only candidate advanced by the Plaintiff for such an agreed programme is a conversation which appears in paragraph 3 of Mr Wright’s affidavit for the Plaintiff of 16 October 2000 which is in the following terms:

“3. Included in my duties was the calling of tenders I personally spoke to painting contractors. I recall saying to Mr Delalic in a telephone call in May 2000 ‘The works have to be completed in 6 weeks from commencement.’”


(Mr Delalic is a principal of the Defendant.)

32    By no stretch of the imagination could this constitute an agreed programme or schedule or otherwise satisfy the definition of either “Date for Completion” or “Time for Completion” (to the extent that this inconsistent terminology can be reconciled). There simply was no agreement on the Plaintiff’s own evidence. Nor is it to be implied from the Plaintiff’s earlier notice of demand that the contract be completed by 5 July 2000. Hence the Plaintiff’s two subsequent notices to complete cannot be used to eke out an agreement. They were given on 26 June 2000 and 8 July 2000 and refer to 5 July 2000 as the completion date. A notice demanding completion by a date specified only in the notice and not in the contract cannot bootstrap itself into an agreement that this be the contractual completion date. There is no evidence sufficient to satisfy any notion of implied consent merely from the fact that the Defendant did not protest at the time of the Notices or was told earlier that completion had to be in six weeks.

33    There is a further problem in any event. Clause 4.2 of the contract makes crystal clear that any short range construction programmes “do not represent fixed obligations”. They thus could not constitute a contractual Completion Date. Moreover, it is clear from the final two sentences of cl 4.2 that such programme dates are to be contrasted with “the Date for Completion” which cl 4.2 renders paramount. The problem for the Plaintiff is that expression has no definition of any contractual character.

34    It follows that I am satisfied there is no plausible contention that could be raised to the contrary of the proposition that liquidated damages are not applicable.

35    Then the Defendant attempted to eke out a corresponding quantum of damage based upon the common law proposition that if no time for completion is agreed there is an implied term requiring completion within a reasonable time; see Dunedin Water Works Co v Bassett (1868) 1 NZCA 141; Gold Coast Oil Co Pty Ltd v Lee Properties Pty Ltd (1984) 1 BCL 63 at 66; and Crowshaw v Pritchard and Renwick (1899) 16 TLR 45. That proposition however could not in the present contractual circumstances give rise to an offsetting amount by way of quantifiable offsetting claim, even accepting that all that is required is that the offsetting claim be not fictitious or colourable. Though that modest threshold be passed it must be capable of being valued at its genuine level. At the present time and on the present state of the evidence it can only be valued at a nominal $1. This is because damages cannot be readily calculated, as is the case here where they depend on matters not presently ascertained or reasonably ascertainable; see Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd(No. 1) (1994) 13 ACSR 455 at 462 per Young J. It must be remembered that whilst an offsetting claim can be unliquidated, the capacity to ascertain its genuine level is essential, if it is to be other than a nominal $1. It was not so possible here. This is more particularly when the onus of establishing what is reasonable is on the party (the Plaintiff) relying upon that implied term; see most recently Earnshaw v Gorman Sons Pty Ltd ([2001] WASCA 50, 28 February 2001, unreported (Full Court)).

36    This remaining contender for an offsetting claim, based as it is on unliquidated damages, cannot find a justifiable basis for quantification in the liquidated damages clause when the latter is clearly not applicable. It must therefore fail beyond a nominal $1.

CONCLUSION

37    On the materials before me, the Plaintiff’s claim to have the Defendant’s statutory demand dismissed in its entirety must fail. The amount for which the Defendant’s statutory demand is ultimately to be treated as substantiated is $54,967, subject to the Galcsik claim not being admitted for greater than $11,060.

POSTSCRIPT

38    No further judgment is now required. This is because it has been subsequently agreed between the parties that there is to be a deduction for “the Galcsik claim” from the statutory demand, in the amount proffered by the Defendant of $11,060 rather than the higher amount sought by the Plaintiff.

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Last Modified: 04/09/2001