W and F Lechner P/L v Drummond and Rosen P/L

[2001] NSWSC 275

Reported Decision: (2001) 38 ACSR 42

New South Wales

Supreme Court

CITATION:	W & F Lechner P/L v Drummond & Rosen P/L [2001] NSWSC 275
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4791/00
HEARING DATE(S):	6 March 2001
JUDGMENT DATE:	12 April 2001
PARTIES :	W & F Lechner Pty Limited (ACN 000 383 040) (Appellant) Drummond & Rosen Pty Limited (Respondent)
JUDGMENT OF:	Santow J

COUNSEL :	R W R Parker, QC/D L Warren (Appellant) S D Epstein, SC/D A C Robertson (Respondent)
SOLICITORS:	Autore & Associates (Appellant) Mills Cameron Gallagher Lawyers (Respondent)
CATCHWORDS:	CORPORATIONS — Statutory Demand — Progress payment to architect capable of giving rise to a presently owing liquidated debt under the relevant contract — No genuine dispute — Whether need for further substantiation in verifying affidavit of basis for time charging — allowing appeal ground not previously argued — Alleged defects in affidavit verifying statutory demand under s459E falls to be considered by reference to substantial injustice — None here — Wider discretion to set aside statutory demand if it exists not to be exercised in circumstances.
LEGISLATION CITED:	Corporations Law s447A; s459E; s459G; s459J; s1322 Corporations Law Rules Rule 1.7
CASES CITED:	B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1995) 13 ACLC 88 Besser Industries (NT) Pty Ltd v Steelcon Constructions Pty Ltd (1995) 16 ACSR 596 Coulton v Holcombe (1986) 162 CLR 1 David Grant & Co Pty Ltd v Westpac Banking Corporation (1994) 12 ACLC 895 Hunter v West Maitland Municipality (1923) 23 SR(NSW) 420 Kalamunda Peach Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 12 ACLC 391 Kezarn v Sydney Asbestos Removal Limited (1998) 29 ACSR 11 Rothwells Ltd v Nommack (No. 100) Pty Ltd (1988) 6 ACLC 1,199 Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 13 ACLC 1,256 Spencer Constructions Pty Ltd v G & M Aldridge Pty Limited (1997) 15 ACLC 1001 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 Topfelt Pty Ltd v State Bank of New South Wales Ltd (1994) 12 ACLC 15 Torrens Aloha Pty Limited v San Modern Painting Pty Limited ([2000] NSWSC 227, Santow J, 27 March 2001, unreported) Waterboard v Moustakas (1988) 180 CLR 491
DECISION:	Master’s decision upheld

IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 4791/00
W & F Lechner Pty Limited (ACN 000 383 040)
Appellant
Drummond & Rosen Pty Limited
Respondent
JUDGMENT

Table of Contents

Page

INTRODUCTION
SALIENT FACTS
Genuine Dispute
Conclusion
The time charge
Conclusion
The Appellant’s new ground for attack — alleged deficiency in the affidavit verifying the debt grounding the Statutory Demand
Conclusion

OVERALL CONCLUSION

introduction

1    This is an appeal by the Plaintiff developer from a judgment of Master McLaughlin dated 20 February 2001 dismissing an application to set aside the Defendant architect’s statutory demand. The Master concluded that he was not satisfied that the Plaintiff had discharged the burden upon it of establishing the existence of a genuine dispute. The Defendant had carried out architectural work for the Plaintiff developer. This was in relation to the redevelopment of a shopping centre at Corrimal. It proceeded under a first development application which failed to get approval and was replaced by a second. It is not in dispute that these architectural services were performed, regulated by the terms of a document headed “Agreement for provision of architectural services” (“the Agreement”).

2    At issue in this appeal is whether taking into account the terms of that Agreement and in the events that happened, there was a genuine dispute as to whether a sufficient basis for ascertaining what was due and owing had been established. What is unusual is that the Plaintiff/Appellant does not in terms dispute that money was owing. Rather it disputes that there was any ascertainable basis for determining any specific fixed sums as due and owing in terms of the agreement. There is separately also an attack on the affidavit required by s459E(3) of the Corporations Law; that ground was not argued before the Master. Nor is it disputed that the Plaintiff paid to the Defendant amounts totalling $120,000.

3    The formal grounds of appeal of the Appellant are contained in the Notice of Appeal as follows:

“1. That the master was wrong in not finding that there was a genuine dispute within the meaning of s459H Corporations Law about the existence or amount of any debt said to be due by the appellant to the respondent.
2. The master was wrong in finding that on the evidence the respondent had shown that there was a debt presently due and payable by the appellant to the respondent.
3. The mater was wrong in construing the evidence of the appellant as being that because the appellant did not admit whether he owed the sum claimed that it did not dispute the debt.
4. The master was wrong in considering that a debt is not genuinely disputed when the debtor requires to have the exact amount of the debt determined prior to payment.
5. Because the respondent’s Statement of Demand for payment of the debt was not supported by an affidavit which in terms complied with the provisions of rule 5.2 Corporations Law Rules and section 459E(3) Corporations Law but simply averred a statement of belief of the deponent, which itself did not set forth any grounds for a belief, the Court was required to hold that no proper Statutory Demand had been served on the Appellant.
6. The Master was wrong in failing to find that the respondent’s Statutory Demand should be set aside because the verifying Affidavit failed to state the source of the deponent’s knowledge of the matters stated in the Affidavit in relation to each of the debts.”

4 Grounds 5 and 6 of the Notice of Appeal are entirely new grounds not argued at all before the Master. Those grounds relate to the affidavit required to be filed so as to accompany the statutory demand, in conformity with s459E(3) of the Corporations Law which provides:

“Unless the debt, or each of the debt is a judgment debt, the demand must be accompanied by an affidavit that”
(a) verifies that the debt, or the total of the amount of the debts is due and payable by the company; and
(b) complies with the Rules.”

5    The Respondent objected strenuously to the affidavit grounds of appeal being thus argued. The Respondent points out that it is only “in very exceptional cases” that a party will be permitted to raise a new point on appeal and such a course will only be permitted where “the interests of justice require it”. (Waterboard v Moustakas (1988) 180 CLR 491 at 498; Coulton v Holcombe (1986) 162 CLR 1 at 8.) This is not a case where the course of the trial to date would demonstrably not be affected by the failure to take the point; compare Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 and Waterborard v Moustakas (supra).

6    I have concluded that the affidavit grounds of appeal should be permitted to be argued, on the basis that the interests of justice do on balance require this, though concluding that the ground of appeal fails for the reasons later set out.

SALIENT FACTS

7    The facts are substantially agreed between the parties and what follows represents agreed or undisputed facts, save where indicated.

8    The evidence before the Master consisted of:

(i) Affidavit of Wilhelm Lechner sworn 28 November 2000 (the earlier affidavit of 19 February 2001 was not allowed);

(ii) Affidavit of Lyn Rosen sworn 7 February 2001;

(iii) Affidavit of Ray Rosen sworn 9 February 2001;

(iv) Exhibits RCR1, RCR2, RCR3, RCR4, RCR5 and RCR6 to the affidavit of Ray Rosen sworn 9 February 2001.

There was no cross-examination on the affidavits.

9    The Appellant is the owner of certain land at Corrimal upon which a shopping centre is erected. The Appellant retained the Respondent to provide architectural services in relation to a proposed redevelopment of that shopping centre at Corrimal owned by the Appellant.

10    The terms upon which the Appellant retained the Respondent are set out in the fee agreement accompanying the Respondent’s letter dated 4 July 1997 [Ex RCR6] (although prior to that date the parties had operated under the terms of a letter dated 12 January 1996 Ex RCR5]. I shall refer to the revised Agreement as “the Agreement”, and as encompassing the first letter agreement.

11    Although neither of the two agreements were signed, the parties nevertheless acted on the basis that the agreements were valid and binding. The two agreements are essentially identical except that the agreement of 4 July 1997 provided for a reduction of the fee from 5% of the cost of the work to 4% of the costs of the work. Each Agreement provided by its terms when money was to be paid. There was a lump sum of $10,000 for the initial Phase 1A. Then payments by way of progress payments with the Agreement how much was to be paid to the Respondent; more detailed reference is made to the relevant clauses later. The progress payments were specific percentages of the total cost of works with the amounts being paid at specific stages of the project. Each agreement also details how the “cost of works” was to be calculated; see clause 3 of the revised agreement of 4 July 1997; Ex RCR6 (“the Agreement”). Each agreement also provides for charges on a time basis for other work not being part of the work for which a percentage charge was to be made.

12    In a letter from the Respondent to the Appellant dated 4 July 1997 which accompanies the agreement, Mr Rosen (a principal of the architect) says: “We have reconsidered our proposal and due to the now increased extent of the development we are prepared to do the project for a fee of 4%. However, this is on condition that you will now pay for all the work we have done over the last two years to achieve an approval from Coles Myer.”; see Ex RCR6.

13 On 6 February 1998 a Development Application (“the First Development Application”) for the proposed redevelopment was submitted to Wollongong Council. This First Development Application was not approved by the Council and was not pursued in the end by the Appellant (see paras 23—26 of Mr Rosen’s affidavit of 9 February 2001. The work particularised in that First Development Application was subsequently costed by a quantity surveyor at $25 million. That provided the basis (.75% of $25 million, being $187,500 plus $10,000 lump sum reduced by amounts paid) for the first invoice of 10 February 1998 from which was derived the account rendered of 8 December 1999 (attached to the affidavit verifying the debt under s459E(3) of the Corporations Law). That was in turn relied upon for the first amount of $77,500 claimed under the Statutory Demand, after deducting earlier payments received (being $197,500 less $120,000 received). That calculation, in terms of the Agreement, was .75% of the quantity surveyor’s estimate of building cost ($25 million); for what was described in the Agreement as Phase 1B, namely “from completion of [the initial] Phase 1A up to and including submission of development application”.

14    In October 1999 a revised Development Application for the proposed redevelopment was submitted to Wollongong Council.

15    The Respondent submitted invoices from time to time commencing on 31 January 1996 [Ex RCR1].

16    The Appellant made payments from time to time but at no time was it up to date.

17    The Respondent’s representatives made numerous requests for payment and received in response various payments and promises of payment, including on one occasion (in May 1999) a promise from the Appellant to make regular monthly payments, initially of $5,000 but increasing to $10,000 [paragraph 34 of Mr Rosen’s affidavit].

18    The Appellant did not prior to the service of the Statutory Demand make any complaint about any invoice or suggest in any way that the sums sought were not payable.

19    The Appellant did not at any time seek a breakdown or further details of the amounts claimed in any invoice.

20    The amount sought in the Statutory Demand totalling $192,752.48 (reduced by payments received to provide balance outstanding of $148,283.84) had three elements:

(a) Amounts outstanding in respect of an invoice dated 10 February 1998 [page 19 of Ex RCR1] as referred to in an account rendered dated 8 December 1999, that is the balance remaining after payments of $120,000, namely $77,500.00; this was charged out on a percentage basis (.75%) of the total cost of completion as estimated at $25 million by a quantity surveyor (see earlier);

(b) Unpaid invoice dated 29 October 1999 [page 46 of Ex RCR1] “in connection with preparation of revised development application documentation based on time only” = $70,783.84;

(c) Interest on unpaid amounts $44,468.64 supported by a schedule showing the detailed calculation.

21    Interest under the relevant Fee Agreement [Ex RCR6 at 11] is payable at 2% over the highest overdraft rate charged by ANZ from time to time.

22    The Statutory Demand the subject of the proceedings was served on or shortly after 7 November 2000.

23 The Application to set aside the Statutory Demand was filed on 28 November 2000 and served within the 21 day period laid down by s459G of the Corporations Law.

Genuine Dispute

24    The Master determined that the alleged disputes raised by the Appellant in the affidavit filed in support of its application to set aside statutory demand (affidavit of Wilhelm Lechner dated 27 November 2000) were not genuine disputes. He quotes from paragraphs 5, 7 and 8 of Mr Lechner’s as follows:

“No other details or particulars as to any of the components or items supposed to be comprehended in or referred to by any of the said invoices has ever been claimed or provided to the plaintiff. [paragraph 5]
No quantity survey or reasoned or detailed costs of projected works has ever been provided nor has agreement ever been sought by either party for agreement on any such elements or bases of a final sum to be paid to the plaintiff on completion of the defendant’s work in contemplation. [paragraph 7]
The applicant says in answer to the whole claim that it is presently disputed as not ever having been adequately particularised, that the basis of all and every charge in any invoice received to date or subsequently, will only be able to be calculated with precision when the work has been completed or a decision is made not to proceed or proceed further with the works contemplated, that all interest thereon will likewise need to be precisely calculated at that time and that in the indefinite arrangements actually and impliedly being followed as the defendant’s work has proceeded to date and proceeds in future, the appropriate course has been and is for payment from time to time by the applicant to the claimant on account of the sum, to be finally found due whether by agreement, arbitration or Court proceedings. Until the present demand is withdrawn and detailed particulars of claim corresponding with the applicable bases of claim referred to in the original fee 'agreement' are provided by the claimant, the applicant intends to suspend payment to the claimant.” [paragraph 8]

25    At paragraph 12 of his judgment the Master says:

“It is I think not unfair to construe what is said by the deponent in that part of paragraph 5 which I have quoted and in paragraph 8 which I have quoted in totality as being that the plaintiff says that it does not know whether it owes the money or not; but it has never disputed the debt, but that it has never acknowledged the debt.”

26    The Master then concludes that:

“… such an attitude adopted by the plaintiff does not disclose any genuine dispute between the plaintiff and the defendant concerning either the existence or the amount of the debt.”

27    The Master goes on to say:

“The plaintiff has at all times had available to it the invoices since the claim for interest has been made, the plaintiff has at all times had available to it the schedule of the calculation of interest.
The plaintiff has never at any stage, and does not now, point to any payment of any invoice or do any part of the calculation of interest which it challenges. Indeed, even the letter which the plaintiff through its solicitors sent to the solicitor for the defendant on 23 November, after the service of the statutory demand, did not in any way identify any part of the amount claimed in the demand which was the subject of any dispute.”

28    The Master is here referring to the affidavit of Mr Rosen dated 9 February 2001, Annexure “O”.

29    The Appellant attempts to attack the Master’s judgment essentially by contending that the basis of the charges made did not accord with the applicable fee agreement (“the Agreement”). The skeletal outline of the Appellant’s submissions dated 5 March 2001 sets out the basis of that attack.

30    Thus it is emphasised that the account for $77,500 relates to the First Development Application which was never approved and was subsequently replaced. The charge is on a percentage basis which prima facie is what the Agreement lays down. The Appellant’s argument is that,

“because the agreement did not proceed to completion but was abandoned or frustrated, the architect was confined to a time charge rather than a percentage charge. It did not have an option of choosing the basis of its charging. The amount paid as a percentage of the cost of works was merely a way of dividing up payments to the Respondent. It was an assessment of the value of work done. The payment to the architect for the entire job was to be the cost of work executed, not the cost of works estimated.”

31    The Appellant particularly relies on what appears at page 7 of the fee agreement immediately after various fee components for the various phases of the project are listed where it is said:

“The apportionment of charges is intended only as a means of assessing interim payments and does not necessarily reflect the amount of work completed in any work phase.”

32    To deal with that contention, it is necessary to consider more closely the terms of the Agreement to see whether there is a basis for a genuine dispute as to its proper construction or whether, as the Respondent contends and the Master implicitly accepted, the Agreement fully supports the basis for the account rendered of 8 December 1999 forming Annexure B to the affidavit verifying the debt.

33    Clearly enough the Agreement (as revised) in clause 3 provides for a “basic fee” of 4% which represents the overall fee. It is referable to the “cost of the works in respect of the project” which includes a number of associated definitions including “cost of works — estimated”. This is defined as “the Cost Consultant’s estimate of the cost of executing and completion of the works under normal commercial conditions”. It is then stated in the same clause 3:

“In all cases, the ‘cost of works — estimated’ shall be used:
For assessing progress payments to the architect;
For assessing final payment to the architect when ‘cost of works — tendered’ and ‘cost of works executed’ are not applicable.
Immediately before the provisions headed “Progress Claims for Fees” appears the following paragraph in clause 3: “Where work is omitted on the instruction of the Client, the Architect shall be entitled to fees for his services in respect of that work prior to its omission. The fees shall be based on the value of the work omitted.”

34    Under “Progress Claims for Fees” then appears the following relevant provisions which I quote in full whilst noting that Phase 1B is the relevant phase applicable to the account rendered earlier referred to of 8 December 1999:

“For the purpose only of assessing progress claims on fees, the Architect’s fees shall be apportioned between phases scheduled in clause 1 as follows:

ARCHITECT’S BASIC SERVICES (PHASE 4) FEE COMPONENT

PHASE 1A: Up to and including preparation and finalisation of retail planning options as concept/brief $10,000.00 lump sum

PHASE 1B:From completion of Phase 1A up to and including submission of Development Application0.75% of the ‘cost of the works’
PHASE 2:From completion of Phase 1B up to and including submission of Building Application1.0% of the ‘cost of the works’
PHASE 3:From completion of Phase 2 up to and including completion of Construction Documentation1.25% of the ‘cost of the works’
PHASE 4:Contract Administration1.0% of the ‘cost of the works’
This division is applicable only where the Architect is employed for the full and continuous range of basic services.
The apportionment of charges is intended only as a means of assessing interim payments and does not necessarily reflect the amount of work completed in any work phase."

35    It is undisputed that Phase 1B is the applicable phase in the events that happened and that $10,000 is earlier payable for Phase 1A.

36    Moreover it could not be said that because the contract provided for progress payments against the final payment, there was no amount due and payable until the contract was completed, as Besser Industries (NT)Pty Ltd v Steelcon Constructions Pty Ltd (1995) 16 ACSR 596 affirms in the context of a builder’s statutory demand. Branson J set out what I would consider to be the applicable principles in relation to statutory demands to recover progress payments. Besser (NT) confirms (at 600) that a lump sum contract is entirely compatible with an intention that the contract 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’.”
See also Torrens Aloha Pty Limited v San Modern Painting Pty Limited ([2000] NSWSC 227, Santow J, 27 March 2001, unreported).

37    I accept the Respondent’s contention that in such a contract as this, a party in the position of the Respondent is entitled to issue a statutory demand in respect of unpaid progress payments which find their clear basis in the terms of the contract, as here. There was a liquidated debt due and payable as quid pro quo for a consideration (performance of the contract for architectural services) that was sufficiently executed, in terms of the contractual regime for payment, to have earned the payment claimed; see McPherson J in Rothwells Ltd v Nommack (No. 100) Pty Ltd (1988) 6 ACLC 1,199 at 1,200-1.

38    In particular, I do not consider that the terms of the contract, viewed in the light of the surrounding circumstances, would lead to the opposite conclusion that the contract, or the obligation thereof imposed on the architect, is entire; compare the cases referred to in D W Greig and J L R Davis “The Law of Contract” (LBC, 1987) at 1,226(iii) such as McDonald v Jane [1960] VR 184 where £1,000 was to be paid for the entire act of delivering up vacant possession. Likewise distinguishable is Hunter v West Maitland Municipality (1923) 23 SR(NSW) 420. There a contract to remove night soil from residential premises was properly considered to be an entire contract for the reasons emphasised by Cullen CJ (at 425). This was because the service which the plaintiff had agreed to provide “was one so radically, so essentially affecting the health of the community that every provision in it ….. is of the very essence and nature of the contract”.

39    The part of clause 3 relied upon by the Appellant namely “The apportionment of charges is intended only as a means of assessing interim payments and does not necessarily reflect the amount of work completed in any work phase” in fact assists the Respondent. It emphasises that the progress payments do not depend upon an assessment of the work beyond the temporal cut-off point in the definition of Phase 1B.

40    Finally, an argument is put that the substitution of the Second Development Application for the First represented an abandonment of the contractual basis for making the payment applicable to Phase 1B. However, that is not a submission which could be accepted having regard to a clear fulfilment of Phase 1B in its stated terms. There was in fact a development application submitted and that was which is all that Phase 1B requires. That it was not subsequently proceeded with is immaterial in terms of the definition of Phase 1B. Nor could it be argued that the contract as a whole was abandoned as the parties continued to operate in relation to the Second Development Application. That argument is patently feeble and can be safely rejected even at this stage.

Conclusion

41    There is no genuine dispute in relation to $77,500 comprised in the Schedule nor indeed in relation to the interest applicable to that amount.

The time charge

42    That leaves the second component of the Statutory Demand, namely the invoice 9520/458.02 for $70,783.84 in relation to the Second Development Application costed on a time basis. That it was costed on a time basis is apparent from the invoice which refers to it being “based on time only” and in any event that it was so costed is not in dispute.

43    The Appellant accepts that charging this amount on a time basis was permissible but contends that: “… there was no way the Appellant could calculate whether the cost was reasonable or otherwise without knowing who did the work, their position in the company or the charge-out rate which was applied. Even though in these proceedings the Respondent produced the various time sheets, it is still not possible, using those time sheets, to calculate the true charge, since one does not know at what rate the relevant people’s time was charged out to the Appellant.”; see Appellant’s skeleton written submissions of 5 March 2001 para 17.

44    Accepting that the contract provided for this work to be costed on a time basis (being presumably “tenancy work for specialty shops and kiosks” referred to at pages 7 and 8 of the contract), the basis for the time charge appears in the contract at page 8 under the heading “General Time-charge Rate”. It provides for a rate for principals of $142 per hour, for senior technical staff at $100 per hour and for other architectural and specialist technical staff at $75 per hour, which rates are to be adjusted on a continuing three monthly cycle based on changes in the Consumer Price Index.

45    The Respondent’s answer to the Appellant’s attack proceeds as follows:

(i) There is no provision in the contract entitling the Appellant to details or particulars of amounts claimed by the Respondent so that the provision of such details or particulars is not a pre-condition of the Appellant’s liability to the Respondent to pay for the work done on a time basis.

(ii) The affidavit filed in support of the Appellant’s application does not assert either that the invoices are excessive or that the Appellant believes that they are; the only ground of dispute so far as the time costed work is concerned appears in the Appellant’s affidavit supporting its application to set aside the Statutory Demand (affidavit of Lechner of 27 November 2000, para 7). This merely states that: “the said fee ‘agreement’ referred to makes reference to time costing per hour at different rates according to the qualifications of the persons carrying out of the work claimed but no particulars of any such hours, persons or subject works has ever been received by the applicant from the defendant as at the date hereof.”

(iii) The Respondent contends that the defendant to an application to set aside a statutory demand is not required to provide such detailed evidence justifying the amounts claimed as the onus is on the applicant to demonstrate the existence of a genuine dispute and not merely to say, “I have not seen the supporting detail”.

(iv) The Appellant failed to request further particularisation of the invoices prior to the services of the Statutory Demand or otherwise complained or requested such particularisation, such that it is apparent that any “dispute” raised by the Appellant in respect of the Respondent’s invoices is not “genuine”.

(v) But, in the alternative, the Respondent has in any event produced time sheets recording the expenditure which show on Counsel’s calculation 576 hours by the Respondent’s employees on the Second Development Application (see affidavit of Mr Rosen of 9 February 2001, paras 28 and 29 and the time sheets produced being “RCR4”) such that, even at the lowest rate payable pursuant to the contract ($75) this would amount to $43,200.

46    In circumstances where the time basis of charging is not in dispute, but importantly also, where at no time has the Appellant taken issue with the substantiation provided in the time sheets, there could be no basis for a genuine dispute in relation to that time costing item. Without the latter, there may well be a basis for genuine dispute if all that occurs is an unsupported assertion that time was spent, with no basis for verification. For of course the basis of that time spent is information peculiarly within the knowledge of the architect. That is not to say that the affidavit verifying the affidavit must include that detailed substantiation when this is in a contractual context where that is not a prerequisite.

47    Nor in relation to the percentage claim or this time claim could there be any basis for a genuine dispute on the terms of the contract itself merely because the First Development Application was not pursued to approval but was replaced by substantially amended plans in the Second Development Application which were submitted. While it is true the contract makes no express provision for the substitution of another development application, clearly enough the contract did contemplate variations to design (see para 4 under that heading at page 9). Moreover, under the heading “Changes in Instructions and Protracted Services” forming part of clause 5 at page 12 there is an even clearer indication that the contract was intended to accommodate future changes where it provides for where: “the architect’s work is increased due to changes in client’s instructions or requirements including all revisions and any amalgamation of tenancies requiring revisions and/or redrawing of tenancy plans or if the architect’s work or his services are protracted due to causes beyond his control then an additional fee shall be chargeable”. The clause goes on to provide that such fees “shall be “on a time basis at the general time-charge rate scheduled herein unless some other basis is agreed”.

48    The final component is interest and it is clear that once the components in respect of which interest is payable have been ascertained, as these have been, there can be no basis for challenging what was the agreed basis for charging interest; see under “Fee Conditions” at page 12, second paragraph.

Conclusion

49    There is no basis for a genuine dispute on any of the items comprised in the statutory demand and the Master’s conclusion to that effect should not be disturbed.

The Appellant’s new ground for attack — alleged deficiency in the affidavit verifying the debt grounding the Statutory Demand

50    I have said earlier that I would allow the further ground of appeal to be raised in the interests of justice, though I should add that the case for doing so is close to the line. The Respondent says, with some justification, that if this particular ground had been expressly articulated in the application to set aside the Statutory Demand, a fresh statutory demand could have been issued which would have dealt with what is in essence a rather technical objection to the form of the affidavit verifying the debt. Nonetheless, given my clear conclusion that the ground of appeal must fail, to allow it to be dealt with should ultimately occasion no prejudice to the Respondent.

51 It is important that the precise basis of challenge be correctly articulated. Ultimately it is a challenge to the Statutory Demand rather than to the affidavit. This is because the mandatory requirement in s459E(3) pertains to the demand, in requiring that the demand

“must be accompanied by an affidavit that:
(a) verifies that the debt … is due and payable by the company; and
(b) complies with the rules.”

52 That this is a requirement for the Statutory Demand bears directly on the jurisdictional basis for the court by order to set aside a demand, to be found in s459J of the Corporations Law. That section is in the following terms:

“ 459J (1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.”

53    In s9, there is a definition of “defect” which is in the following terms:

“ ‘ defect ’ in relation to a statutory demand, includes:
(a) an irregularity; and
(b) a misstatement of an amount or total; and
(c) a misdescription of a debt or other matter; and
(d) a misdescription of a person or entity;” [emphasis added]

54    The Appellant contended that notwithstanding the authority of the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Limited (1997) 15 ACLC 1001 at 1007 differing from McClelland CJ in Eq in B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1995) 13 ACLC 88 that a defect “in the demand” within the meaning of s459J(1)(a) was a defect solely in relation to the demand itself; thus it could not be a defect pertaining to the affidavit required by s459E in relation to the statutory demand to verify the underlying debt. But I consider there are clear statutory indications in s459E, s459J and the definition of “defect” which support the Federal Court’s conclusion that so to read s459J is erroneous. Thus, as I have said, s459E properly understood is a set of requirements applicable to the demand itself. It is not to be understood so far as it deals with the essential accompanying affidavit as separately directed to that affidavit save that it might be said to be in an adjectival sense a description of the requirements applicable to the demand.

55 Thus when one turns to s459J to construe the expression “defect in the demand” it is only natural to treat a defect in the demand as comprehending the affidavit that must accompany that demand. Indeed it is the affidavit which supports the demand in providing verification of the demand debt. That in turn produces the consequences, in terms of winding-up for the company that refuses to meet a statutory demand not set aside.

56    What the Full Federal Court in Spencer Constructions Pty Ltd (supra) did was to equate a defect in the demand to a defect “in relation to” the statutory demand in concluding that s459J(2) is: “the legislative prescription which ensures that defects alone, whether in the statutory demand or in relation to the statutory demand, will not result in an invalidity.” Substantial injustice must result, before such defects prove fatal. There is none such here, as I explain.

57 If further justification be needed for such reading, it is to be found in the earlier emphasised portion of the definition of “defect”. This refers to a defect “in relation to” a statutory demand though it is the preposition “in” which appears in s459J(1)(a). That reinforces the notion that the preposition “in” thus comprehends both the demand itself and the essential verifying affidavit, and denotes no narrowing of what is comprehended by the Statutory Demand to exclude the affidavit.

58    It follows from this reasoning that if a deficiency is pointed to by the Appellant in the present affidavit be no more than the statutorily defined “defect”, for example amounting to a mere irregularity, then the court is precluded from setting aside the statutory demand merely on that basis when there is no substantial injustice. Indeed it would be absurd were two standards to apply for setting aside the demand; that is, if only a defect in the actual demand and not in the supporting affidavit gave rise to the leniency of requiring substantial injustice before the demand were set aside.

59    Turning to the specific deficiencies, there are two contended. The first is that it is said that the affidavit was defective in stating that the deponent “believed” that the amount said to be due was owing, rather than asserting that the amount said to be due was owing. To this the Respondent submits, and in my view correctly, that there is no difference in meaning or substance between what was said and what it is said should have been said. It is implicit in any affidavit that that matters asserted are what the deponent believes to be true.

60    However, that leaves the second allegation of deficiency, namely that the affidavit fails to state the source of the deponent’s knowledge in reaching that belief. What the statutory form 7 requires is that the affidavit must “3. State the source of the deponent’s knowledge …”

61    Here the deponents knowledge is based upon the business records of the Respondent. Those business records are in fact the two invoices which are actually annexed. For there to be no explicit statement, if such be required by form 7, that the deponent, “has inspected the business records of the credit or in relation to the debtor company’s account with the creditor” when attesting to a source of knowledge as to that indebtedness is artificial in the extreme. This is especially when the very business records themselves are themselves attached so as clearly to leave no room for the recipient to be in any doubt as to the source of the deponent’s knowledge. If, contrary to my view, therefore there be thereby non-compliance with form 7, that non-compliance is a mere “irregularity” of the kind comprehended by the definition of “defect”.

62    Finally it should not be overlooked that paragraph 3 not only annexes copies of the invoices and a schedule of interest payable but also makes clear that “the debt is the balance of the money due and payable in respect of the services provided by the Company to the Debtor in connection with the development application and provision of architectural services for the Debtor’s building project at Corrimal.”

63    The deponent moreover makes clear in paragraphs 4 and 5 his belief that there is no genuine dispute and that the money has not been paid.

64    In all the circumstances it could not reasonably be concluded otherwise than that insofar as the failure to state expressly that the deponent’s belief was based upon the relevant business records which were annexed was a “defect in the demand”, a proposition itself open to question, it could not be said that “substantial injustice will be caused unless the demand is set aside”. Clearly enough the Appellant understood the basis for claiming that the debt was payable so suffered no injustice from the failure to say expressly that the belief in question was based upon the relevant business records.

65 I have so far dealt with the question on the basis that the demand would only be set aside pursuant to s459J(1)(a) I have not dealt with the conflict of authority as to whether circumstances covered by paragraph (a) may also constitute “some other reason” why the demand should be set aside pursuant to s459J(1)(b). Were I to have to choose between the authorities I would prefer to follow Hill J in Kalamunda Peach Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 12 ACLC 391. Hill J held that the demand which had a defect could only be set aside where it caused substantial injustice and therefore could not be set aside “for some other reason” within s459J(1)(b) on such ground. The alternative approach emanates from the judgment of Lockhart J in Topfelt Pty Ltd v State Bank of New South Wales Ltd (1994) 12 ACLC 15 and has been strongly supported by Senior Master Mahoney in Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 13 ACLC 1,256. However, Senior Master Mahoney in adopting the approach in Topfelt Pty Ltd said that the effect of s459J(1)(a) was that, for a defective demand that did not produce a substantial injustice to be set aside, the significance of the defect must be as compelling as substantial injustice. Were that view correct, the present circumstances would not rise to the level of being as compelling as substantial injustice in any event, so the same result would follow, namely that the demand would not be set aside.

66 I should here deal with another argument put by the Appellant and answered by the Respondent. The Appellant contended that s459E(3)(b), in requiring that the demand must be accompanied by an affidavit that “compliance with the rules”, thereby imposed a mandatory requirement analogous to that which led the High Court in David Grant & Co Pty Ltd v Westpac Banking Corporation (1994) 12 ACLC 895 to conclude that the requirements of s459G of the Corporations Law applicable to setting aside a statutory demand must be strictly complied with such that any failure was incapable of rectification under s447A or s1322 of the Corporations Law.

67 The difference however between s459E of the Corporations Law and s459G is that s459E simply uses the word “must” whereas s459G(2) uses the peremptory words “may only” adding thereby such additional emphasis as would leave no room for anything short of strict compliance.

68 But even if that were not so, the Respondent correctly points out that pursuant to Rule 1.7 of the Corporations Law Rules, substantial compliance with the Forms in Schedule 1 (including form 7) is sufficient compliance. Even if the affidavit in this case did not actually comply in a formal sense with form 7, I would conclude that it substantially complies and that therefore the affidavit “complies with the rules” by coming within their permitted latitude.

69 Finally, were I wrong in my earlier conclusion that s459J(1)(b) of the Corporations Law could not apply in the circumstances, the most that follows is that the court has a discretion to set aside the statutory demand if it is satisfied that there is some other reason why the demand should be so set aside. As Austin J held in Kezarn v Sydney Asbestos Removal Limited (1998) 29 ACSR 11 at 18:

“The court should not act under s459J(1)(b) unless, in Bryson J’s words, there is some good reason relevant to the purpose for which that provision exists — in the Full Federal Court’s words in Spencer Constructions , a reason relevant to the ‘legislative intent’.”

70    Here the non-compliance does not arise from the “plain words of the statute” but from a form scheduled to the rules. To elevate such a form to the height where a minor infraction of its requirements, if such occurred, should lead to setting aside the demand would indeed be to elevate form over substance — in both senses of the word form. There is no suggestion that false evidence has been given in the affidavit. When the purpose or object of the Corporations Law is considered there is no basis in the legislative intent to acquire the exercise of any discretion conferred by s459J(1)(b) to set aside the demand.

Conclusion

71    The further ground permitted the Appellant to raise by way of appeal based on the claimed deficiency in the affidavit verifying the debt fails.

OVERALL CONCLUSION

72    There is no basis for disturbing the Master’s decision ordering that the Appellant’s originating process be dismissed. It should follow that the Appellant must pay the costs of the Respondent though I will, if desired, hear submissions on that when, as I direct, the matter comes back before me to make final orders within twenty-one days from to-day.

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Last Modified: 04/19/2001