[2011] QDC 59

DISTRICT COURT

CIVIL JURISDICTION

JUDGE ROBIN QC

No 155 of 2009

BODHI SPACE NO. 2 TRUST Plaintiff

And

JASMINE MAY GROCHAU

and

PAUL SHEEP INVESTMENTS PTY LTD Defendants

BRISBANE

..DATE 31/03/2011

JUDGMENT

CATCHWORDS

Uniform Civil Procedure Rules r 292, r 293 Cross-applications by plaintiff and defendants for summary judgement - plaintiff successful - parties' deed held to require payment on dates stipulated for particular amounts aggregating $140,000, which was taken to be the relevant debt on dissolution of a partnership - payments to by made albeit on a provisions basis pending recourse to processes for raising and resolving disputes as to correctness of the $140,000 - no outcome from such processes to date

JUDGMENT

HIS HONOUR: There are cross applications before the court, one by the plaintiff seeking summary judgment under rule 292, the other by the defendants seeking judgment under rule 293.

The latter application I would construe as a tactical response to the other. It certainly hasn't been demonstrated that the plaintiff presents a claim so devoid of prospects of success it ought to be dismissed without a trial on the merits.

The plaintiff and the defendants on the otherside were in partnership, operating a business of health and fitness centres with premises in Brisbane and the Gold Coast which ran satisfactorily for some years until unhappy differences led to a separation which involved a distribution of the premises and the businesses conducted in them: one to the plaintiff, the other to the defendants' side.

There were disagreements in relation to sorting out accounts. These were resolved by a deed of agreement, the parties to which were the plaintiff company and the defendant company, also the first defendant and Mr Paul Christopher Shepherd, who stands behind the plaintiff. That deed of agreement, which is before the court, was executed some time in November 2008.

It deals with the issues of present concern in paragraph 21, which notes that the plaintiff and/or Mr Shepherd had made financial accommodation available to the partnership and to Ms Grochau that Williams and Partners, the partnership accountants, had produced draft partnership accounts quantifying the difference in partnership payments as a "Debt" of $304,900 owing to the plaintiff.

The clause goes on, and I quote:

“21.3. For the purposes of this Deed, the Debt is to be reduced to $140,000.

“21.4. Bodhi Space and Jasmine are entitled, at their own expense, to engage an accountant (Nominee Accountant) to review the Draft Partnership Accounts and all documentation of the partnership used to compile such accounts to verify the Debt.

“21.5. Any such review of accounts and any dispute arising therefrom is to be completed and/or raised, as the case may be, by 31 January 2009.

“21.6. Where a difference is material (i.e. the amount payable herein under clause 21.3 may be less than the Debt), the nominee accountant and Williams and Partners are to confer to resolve any difference which will become the new Debt figure. This does not delay or negate the requirement of Bohdi Space and Jasmine to make ongoing payments as prescribed in clause

21.9. Where the new Debt Figure shows that Paul Shep Investments in fact owes Bohdi Space, then Paul Shep Investments must effect such payment.

“21.7. Where the nominee accountant and Williams and Partners are unable to reconcile the differences, the quantum of the debt is to be determined by the President (or nominee) of the Institute of Chartered Accountants by 31 March 2009."

Clause 21.9 provides for payment of the debt as to $24,000 on the "settlement date" of the 2nd of December 2008, then for instalments over a maximum of three years payable quarterly commencing 31st of January 2009, with payments to be $11,308 per quarter. This would result in a final payment on the 30th of April 2011 with a balance of a couple of thousand dollars remaining to be paid by the end of July 2011.

21.9 in (d) provides for interest of 10 per cent per annum to be applied to "outstanding repayments" and in (e) that upon a failure to make a quarterly instalment, interest is recoverable on the outstanding instalment at the rate of 16 per cent per annum from the day of non-payment.

I think Mr Cleary appearing for the plaintiff is correct that the 10 per cent interest applied potentially to the first $24,000 and perhaps to the final $2,000. The 16 per cent rate is claimed in respect of the $11,308 instalments, none of which has been paid, although the initial $24,000 was.

Exhibit 1 is an interest calculation which applies the 16 per cent rate to the amount of instalments overdue. Although the claim covered the payment due on the 30th of next month, it is not and cannot be sought in the present application because the plaintiff has not exercised its option of calling up the whole debt under 21.9(f) which reads: "Failure to pay an instalment constitutes an event of default allowing Paul Shep Investments to immediately demand the amount outstanding and to seek to recover such amount in a court of competent jurisdiction, together with interest and costs on a solicitor and own client basis (i.e. indemnity costs)."

That provision has been set out in full to explain why the order which the court makes allows the successful plaintiff indemnity costs. Only standard costs are sought in respect of the dismissal of the defendant's cross application and those are likely to be minimal in the circumstances.

The defendants have been represented (by the court's leave) by Mr Carey who is the partner of the first defendant. He has ably presented her case. The argument before the court today has come down to this question: Are the defendants obliged to pay the quarterly instalments on the dates fixed in the deed or does the obligation to make payments depend on the final quantification of the "Debt"? In my opinion, they are obliged to pay, having regard to the second sentence of 21.6.

There's been reference during the hearing to what appear to me to be similar arrangements which come down to "pay now, argue later" under the Building and Construction Industry Payments Act 2004. My Associate has located some decisions which are useful in expounding that legislation and the way it works and in collecting other authorities. I record them as Baxbex Pty Ltd v. Bickle [2009] QSC 194, Impulse Electrical (Aust) Pty Ltd v. Mother Natures Chermside Pty Limited [2007] QDC 023 and J Hutchinson Pty Ltd v. Thunder Investments Pty Ltd [2009] QDC 90.

I've had occasion myself to consider the legislation in Ainsworth v. R J Miller Building Pty Limited [2008] QDC 199. The other District Court cases are but two of many examples of summary judgment being awarded to builders on the basis that as events unfolded, progress payments had to be met – with resolution of any disputes regarding the proper amount of indebtedness deferred until a later time. And section 100 of the Act makes it clear that in the court proceedings which the legislation generally seeks to avoid, a proper and just accounting is to be made which may well involve the disgorging of progress payments that the client has had to make.

Independently of such legislation, common form building contracts often contain provisions regarding certificated for progress payments which have been recognised as requiring payment in the first instance albeit “provisional only”. See for example Daysea Pty Ltd v Watpac Australia Pty Ltd [2001] QCA 49 at [18] ff, especially at [21]: “The Proprietor is bound to pay the amount of the certificate notwithstanding that the amount is provisional only and subsequently may be

found to be incorrect”.

There is dispute as to the true amount of indebtedness here. The defendants “nominated” Rod Baker and Company. They took the precaution of writing on the 31st of March 2009 to the President of the Queensland Branch of the Institute of Chartered Accountants to "notify" that the President's "assistance may be required to resolve a dispute which has arisen." There still has been no formal reference to the President although matters are fairly well advanced. The Institute has prepared a document for signing by the parties, also Mr Shepherd, the purpose of which is to protect the Institute against claims.

Mr Carey complains that the plaintiff has not been cooperative in getting the dispute before the President or the President's nominee. Be that as it may, an undertaking is now offered by the plaintiff, which the court underlines by making the judgment which the plaintiff will obtain dependent on its signing and making available the Deed sought by the Institute.

...

The court is not in any position today to go into the disagreements that exist between Mr Baker and Mr Vaughan, who is the accountant representing the plaintiff's interest and whose firm also happened to be the accountant of the partnership while it was operating.

Mr Baker's letter to the President indicates that one of the areas of disagreement relates to a debt owed by the second defendant to a company associated with the plaintiff. On Mr Baker's analysis, quoting his letter to the defendants' then solicitors of 27 January 2009, "The Bodhi Space No. 2 Trust has a net debt owing to the partnership of $36,490.08." He was still awaiting partnership accounts.

Mr Vaughan for his part complains at not getting information from the defendants and difficulties causing delay in tracing what happened to the proceeds of cheques that appeared to have been made out to relatives. The latest information from Mr Vaughan-----

...

-----is in a letter to Mr Baker dated 8th of September 2009 which responds to various concerns that Mr Baker had raised.

The letter states, "(7) we also enclose a summary of the final loan and equity position showing a net amount owing to Paul of $219,147 (appendix 13)," and in paragraph nine, "we have now provided you with all the additional data requested and a final balance of the consolidated loan accounts of $219,147. This loan difference is greater than the $140,000 balance as per the agreement."

Mr Cleary submits - as I understood him - that the $219,147 represents a comparison with the $140,000 which features so prominently in the parties’ deed of agreement.

I'm unsure of that since earlier parts of Mr Vaughan's letter appear to record concessions.

In the ultimate this will be an important issue if my suspicion that the $219,147 stands in place of the $304,900 proves correct; in that event, the outcome will be different.

It is accepted by everyone that the $140,000 represents half of an amount of $280,000 presented as a concession to the defendants. As Mr Vaughan puts it in his affidavit, on the accounts prepared by him, "the second defendant would need to pay the plaintiff the sum of $152,450 although the deed records that the debt is reduced to $140,000."

I understood it to be a matter of agreement today that if the indebtedness of the partnership to Mr Shepherd and/or his company fell below or could be reduced to below $280,000 then the occasion would arise for repayment of some amount to the defendants.

On the plaintiff's approach today, which I think is the correct one, that consideration is beside the point. It is a situation of the defendants having to pay now with the prospect of getting some reimbursement should it ultimately be established that too much has been paid.

The plaintiff's side has an advantage in respect of accounting matters today in that Mr Vaughan has presented evidence on oath and rendered himself liable to be cross-examined, whereas there's no affidavit from Mr Baker.

This hearing today was not an appropriate occasion for the Court to embark on its own examination of such figures as exist in workings in the material.

If what Mr Baker appears to be saying is correct, the plaintiff may have to refund everything. If my understanding as opposed to Mr Cleary's of Mr Vaughan's most recent document which goes back to 2009 is correct then the overpayment would be a more modest $10,000 or so.

The key provision here is 21.6. The plaintiff bases its case on the second sentence which clearly commits the defendants to have to pay the debt.

Mr Carey argued that nothing had to be paid until the dimensions of the debt were finally known either by review by the accountants in combination or by the President of the Institute. Dates were indicated for finalisation of either exercise. It might be noted that if determination by the good offices of the Institute were required, that would be highly unlikely to occur by the 31st of January 2009 when the first payment had to be made. That perhaps provides the crucial test in my view: if matters were before the Institute, that would not absolve the defendants from having to make the January 31st, 2009 payment. It was perhaps always overhopeful to imagine that the Institute, if brought in, would come up with a determination by the date set out in clause 21.7.

As I understood Mr Carey, he placed considerable weight on the first sentence of 21.6 as effectively providing that there may be no debt where there's difference between the accountants, therefore, there's nothing to pay.

In my view, it is significant that the defendants, like the plaintiff, had competent professional assistance when the deed was negotiated and prepared. Indeed, the deed itself formally records somewhat inelegantly in the heading to clause 26:

"Entire understanding, independent legal advice and free will", although there's no reference in the body of the clause to independent legal advice.

Mr Broderick's affidavit confirms that the defendants had that advantage and in that context they solemnly accepted a variable obligation to pay $140,000. This gives the court some comfort; it is hardly likely that they would have made that agreement if of the view that on a true accounting, it ought to be the plaintiff making payments.

Just as, in the decisions identified above, a summary judgment for what was admittedly a provisional sum was awarded by reference to the legislation or analogous contracted provisions, I'm of the clear view that in this matter, the plaintiff ought to have judgment for the sums claimed, albeit on the provisional basis which may see a revisiting of the accounts. That's all I need to say. Order as per initialled draft.

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