Zinc and Copper Corporation of Australia Limited v Clayton Utz

[2004] NSWSC 1235

CITATION:	Zinc and Copper Corporation of Australia Limited v Clayton Utz [2004] NSWSC 1235
HEARING DATE(S):	6/12/04, 8/12/04
JUDGMENT DATE:	16 December 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Brownie AJ
DECISION:	Application dismissed.
CATCHWORDS:	Setoff - Equitable setoff - Test
LEGISLATION CITED:	Corporations Act 2001
CASES CITED:	Isaacs v Cachia [1981] 2 NSWLR 92 James v Commonwealth Bank of Australia (1992) 37 FCR 445 Lord v Direct Acceptance Corp Ltd (in liq) (1993) 32 NSWLR 362 Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Piggott v Williams (1821) 6 Madd 95, 56 ER 1027
PARTIES :	Zinc and Copper Corporation of Australia (Plaintiff) Clayton Utz (Defendant)
FILE NUMBER(S):	SC 3294/04
COUNSEL:	Mr MJ Cohen (Plaintiff) Mr M Ashhurst (Defendant)
SOLICITORS:	Michell Sillar (Plaintiff) Clayton Utz (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Brownie AJ

Thursday 16 December 2004

3294/04 Zinc and Copper Corporation of Australia Limited v Clayton Utz

JUDGMENT

1 This is an application under section 459G of the Corporations Act 2001 to set aside a statutory demand, served by the defendant upon the plaintiff. In that demand the defendants, a firm of solicitors, claimed the sum of $195,493.74 for fees said to be payable to them for work done by them for the plaintiff, representing the plaintiff in a proceeding in the Federal Court of Australia. The plaintiff now says, in short, that the defendants did certain work badly, and that there is a genuine dispute between it and the defendants about the existence or the amount of the debt claimed by the defendants, within the meaning of section 459H(1)(a) of the Act, and also that it has an offsetting claim within the meaning of section 459(H)(1)(b) and section 459H(5), that is a genuine claim that it has against the defendant by way of counterclaim, setoff or cross demand.

2 In the Federal Court proceedings, the present plaintiff was a respondent, and it sought leave to bring a cross-claim against two people. The plaintiff says now that the defendants did certain work in connection with this application, and did that work badly, so that certain of the fees charged by the defendants ought not to have been incurred; and the plaintiff also says that, after the termination of the retainer of the defendants, the plaintiff retained its present solicitors to act as its solicitors in the Federal Court proceeding, and those solicitors had to redo certain of the work previously done by the defendants.

3 It is not in contest, for present purposes, that the plaintiff makes these claims genuinely. However, the defendants say that all that the plaintiff has is, not a defence to their claim against the plaintiff in debt, but a cross- claim for unliquidated damages. I accept the theory behind this: Isaacs v Cachia [1981] 2 NSWLR 92 at 99, although I would add that it is sometimes happens that a client, sued by a solicitor for fees, has not just a cross-claim but also an equitable setoff, that is, a defence. Piggott v Williams (1821) 6 Madd 95, 56 ER 1027 was said to be such a case.

4 However, the evidence in this case does not go this far. It shows that the plaintiff has, sufficiently for present purposes, a genuine claim that the defendants did the relevant work badly, so as to give rise to a cross-claim by the plaintiff against the defendants for damages, but not so as to impeach the title of the defendants to make a claim against the plaintiff in debt for the defendants’ fees. I accept that this is the relevant test: James v Commonwealth Bank of Australia (1992) 37 FCR 445, and Lord v Direct Acceptance CorpLtd (in liq) (1993) 32 NSWLR 362 at 367, approving of the discussion in Meagher Gummow and Lehane in Equity, Doctrines and Remedies (3rd edition) paragraph 3709(h). See now the fourth edition, paragraph 37-045(h) and following.

5 The evidence shows that over a certain period the defendants acted for the plaintiffs, and rendered invoices for fees. The plaintiff paid part only of the sum charged, leaving unpaid the balance now claimed, $195,493.74. The plaintiff said that “approximately $152,000” of this represented fees charged for work done badly. The defendants said in substance that only $107,000 of the fees charged might be attributed to the work said to have been done badly.

6 In addition, the plaintiff said that it had paid its present solicitors $89,084.93, to represent it in the interlocutory application in the Federal Court, after the termination of the retainer of the defendants.

7 However, the evidence does not establish, even on a prima facie basis, that the work done by the defendants was done in such a way as to impeach the defendants’ title, so as to give rise to an equitable setoff. It establishes, sufficiently otherwise for present purposes, the existence of a cross-claim for unliquidated damages, but there is no evidence as to the measure of those damages, such as to enable the Court, pursuant to the power under section 459H(2) to “calculate” the difference between the defendants’ claim in debt and the sum that might be payable by the defendants to the plaintiff for damages.

8 The evidence shows a genuine dispute in the sense that the plaintiff has a complaint for deficiently performed work, but the deficiency in question leads only to a claim for damages. That claim for damages might constitute an offsetting claim, if the evidence was sufficient to enable the calculation in question to be made, but it does not. It is one thing to say that there is evidence showing that the defendants charged a certain sum for work done by them, treated now as being done negligently, but that does not mean that the plaintiff is not liable to pay the defendants’ fees. If the plaintiff has a remedy, it lies in a cross-claim in which damages might be awarded so as to put the plaintiff into the position where it would have been but for the alleged negligence, that is curing any economic disadvantage suffered by the plaintiff as a result of that negligence.

9 The analyses carried out as to how much of the charges raised by the defendants related to work said to have been negligently done addresses a different question. The relevant question here is whether the plaintiff suffered a loss by reason of the alleged negligence of the defendants, and if so what is the measure of that loss, and the focus is not upon the work done by the defendants, or how the fees charged by them for that work is to be apportioned between work said to have been done negligently, and other work.

10 As to the sum $89,084.93 paid by the plaintiff to its new solicitors, there is a similar problem. Part of the work done by the new solicitors may be attributed to putting the plaintiff back into the position where it would have been but for the alleged negligence of the defendants, but part of it can presumably be related to other work done by the new solicitors, for example familiarising themselves with the litigation generally; and the evidence does not enable this apportionment to be carried out.

11 I take the law in this regard to be estated by Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at 16-18:

“If the evidence shows a basis upon which some loss can be said to have arisen, and the claim is a genuine one, then the court should simply adopt that evidence, and make the calculation mentioned in section 459H(2).”

12 I conclude, with some regret, that the evidence in this case does not go that far. There is a claim by the plaintiff against the defendants for unliquidated damages. I suspect that, if this claim is established factually, then the damages to be awarded will be, at least, some tens of thousands of dollars, but I do not accept that the evidence permits me to put any figure on the damages that might so be awarded, even on a prima facie basis.

13 I dismiss the originating process with costs.

I certify that paragraphs 1 -13
are a true copy of the reasons
for judgment herein of
the Hon. Acting Justice Brownie
given on 16 December 2004

___________________
Susan Piggott
Associate
16 December 2004

Last Modified: 07/16/2007