ACAT’s Missing Powers; Episode 5 – The Counterclaim Strikes Back

In one of the prequels I updated y’all on ACAT recently having its civil jurisdiction updated from $10,000 to $25,000. Like all prequels  the updated ACAT powers neglected key elements that are fundamental to helping ACAT perform coherently with the other elements of the wider system. (with the exceptions of Batman Begins, Casino Royale and Temple of Doom; Rise of Planets of the Apes did not work and I won’t hear differently).

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The ACAT’s civil jurisdiction limit means that any case commenced in the ACAT must be for a claim of less than $25,000. Various requirements exist for the calculation of that amount such as no interest to be included unless under contract, though this is arguable once again due to limited wording. As a claim for interest under a contract or agreed rate is really a contractual debt and not strictly interest on an unpaid amount, but maybe i’ll cover this later (The Interest Awakens, Rogue Interest…leave it with me).

Totally Not A Recent Case

So let’s say Joe Alow starts a matter for $10,001 against Joe Blow in ACAT for building work defects. Joe Alow has no choice because his amount is within the new ACAT jurisdiction. Joe Blow as the builder is owed $25,001 under the final contract payment.

Joe Blow would have normally been allowed to commence his claim in the Magistrates Court and would therefore have been allowed legal costs for his troubles. Even if Joe Blow agreed that there was about $10,001 in set-offs, he still could have commenced in the Magistrates Court and have been allowed costs because, giving each party full credit, should still result in a payment of $15,000 in his favour. So Joe Blow would get his costs, which for a matter such as this could be anywhere between $8,000 to $18,000, if not lots more or a little less, depending on the law firm and depending on the litigation philosophy of each lawyer.

What’s the Problem?

Well, because Joe Alow commenced first in the ACAT,  Joe Blow is required to bring all claims in the same action that are related to the same material facts thanks to a genuinely great principle called Anshun Estoppel. Anshun Estoppel is a principle cemented in the case Port of Melbourne Authority v Anshun Pty Ltd. The principle essentially states that, to save the parties, the courts and the public, time and money, litigation should be conducted as efficiently as possible with similar matters being dealt with concurrently. Which means that if you have matters and arguments against the same parties relating to the same material facts or matters, then those should all be brought up in the same case. If you fail to bring it up, you may be estopped (stopped) from raising it later.

This is a great principle brought about by good intentions, but then the legislature accidentally gets in the way.

So What Happens to Joe Blow?

Joe Blow is required to present his counter-claim in the ACAT action but has now brought a counter-claim that exceeds the ACAT jurisdiction. Which means that ACAT is not jurisdictionally competent to hear the claim.

Joe Blow’s claim could be transferred to the Supreme Court under s83 of the ACAT act, however this requires the parties to jointly apply to ACAT to transfer that matter. No other power of ACAT exists to transfer matters between jurisdictions. BY CONSENT ONLY.

Alternatively, the ACAT Act allows parties to drop any portion of a claim, without surrendering the right, that is over the jurisdictional limit under s21 of the ACAT act, however once again, this requires that party’s consent. So if a party refuses, there is no mechanism for resolution.

There are additional inherent powers of the Supreme Court to accept an application to transfer the matter to the Supreme Court, but nothing on the books. But even if this were to occur, the Supreme Court has the exclusive jurisdiction of $250,001 and above for civil claims, so Joe Blow may face an adverse costs order for wasting the Supreme Courts time with a claim that essentially zeros out at $15,000.

Further, s266A of the Magistrates Court Act specifically prohibits bringing claims that should be commenced in the ACAT due to the limit of $25,000.

So within the world of this legislative maze, withholding consent can be the nuclear option in litigation. How lame.

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Fabian ACAT tactics

So if you are Joe Alow, and know that you will go down on the claim of $25,001 because it’s a legitimate claim, you could start a smaller claim first on a questionable basis and refuse to consent to any transfer. The matter is then permanently trapped in ACAT which has no power to adjudicate on it or transfer it to a higher court, or even award costs if it eventually goes ahead and you are unsuccessful. Joe Blow would have to drop any portion of his claim over $25,000. There are ways for the ACAT to award costs in very limited circumstances, but you could totally avoid the stage that this is even accessible by refusing to consent.

Alternatively if you are Joe Blow and doubt the veracity of your $25,001 claim then you could do the converse and refuse to consent and let Joe Alow rack up costs chasing you.

Tactically, this is the perfect time to order your lawyers to turn the dial to all-stop and allow the other side to rack up maximum costs, in a no-costs jurisdiction, until a subtle “walk-away” offer becomes amicable to both sides.

will-you-give-us-a-chance-to-live

Fixes

This is insane. Both Joes are bound by law to bring their claims in their jurisdictions. Both Joes are bound by law to keep their claims in ACAT and both Joes are bound by law to never have their claims resolved if the other never concedes. Like a weird Byzantine, Schopenhauer, Kafka hybrid system. Scary stuff.

A simple legislative amendment would fix this and it could be as simple as: “new s21A: all claims or counter-claims that exceed the jurisdiction of the ACAT can be transferred to any court or tribunal the ACAT considers appropriate on either the application of either party or on the ACAT’s own initiative.”  Now I’m typing off the cuff here, but on the face of it, this would probably work. Ironically, any misapplication of a rule like this would result in an application to ACAT, but let’s start with small steps.

I’ve drafted legislation previously, so I sympathise with the position that a well-meaning, well-written law can lead to distorted outcomes. But given that matters have been filed that gave rise to this issue previously, it seems unacceptable that this wouldn’t have been fixed sooner.

Legal Principle Based on Fictional Characters to be Examined

The best laid schemes o’ Mice an’ Men, Gang aft agley, An’ lea’e us nought but grief an’ pain, For promis’d joy! Still, thou art blest, compar’d wi’ me!

Setting legal precedents on fictional characters could work in theory. I would love to examine a world where decisions about who owned a rug was adjudicated by asking “what would Geoff ‘the dude’ Lebowski do?” or “Would Stringer Bell, as a reasonable person, have made that property transaction?”. It would certainly make things more interesting.

Get to the point

So the United States is a country. And Texas is a state in that country. And sometimes they’re known, though not the most known (am I right Oklahoma?!), to pass crazy legal precedents.

Anyway, in Texas they still have the death penalty. Just like Sudan and Iraq? Yeah, I know it’s weird. So in 2002 the US Supreme Court decided 6-3 that the 8th amendment ban on “cruel and unusual punishments” precluded states from executing people who were considered mentally retarded. (and before anyone says anything, that is a completely acceptable medical term, retarded just means less developed or prevented, blame society if the word has taken on a new meaning).

In Atkins v Virginia the US Supreme Court determined that a person’s disabilities in areas of reasoning, judgment, and control of their impulses means that their level of moral culpability is diminished and therefore must fall short of the normal death penalty pre-requirements to find the most serious adult criminal conduct present. The major problem was that the Supreme Court left open the definition of mentally retarded…you must see where this is going.

So shortly after that decision, the “crazy” states started re-writing their laws to comply with new requirement that you could, in some circumstances, execute a mentally retarded person. Texas took a novel approach (pun definitely intended). A lower court Texas Judge decided to refer to material that the common man could relate to. Much like the ancien common law requirements of the “common passenger on the Clapham omnibus” or “Bondi Bus” in Australia, Texas decided to resort to a book that every year 10 in the western world has read.

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A lower court Texan Judge took this approach and in 2004 had the reasoning affirmed by the Texan Court of Criminal Appeals. The basics of the decision is that Texas has adopted what is known at the “Lennie test“; if a person is more retarded than Lennie then they are safe to execute but if they have more cognisance than Lennie then they are not safe to execute.

In Steinbeck’s classic “Of Mice and Men”, Lennie was a kind-hearted oaf whose strength was a weakness when juxtaposed against his child-like innocuous understanding of the world. [SPOIL-IES ALERTS-IES]. Lennie’s strength comes back to bite and first he pets a puppy to death and then steps up his game and strangles the rancher’s son’s wife to death when he’s confused by her sexual advances. I must add, beautifully played by the masterful John Malkovich, truly the Bard’s moksha.

Judge Cathy Cochran branched out and said:

“Most Texas citizens might agree that Steinbeck’s Lennie should, by virtue of his lack of reasoning ability and adaptive skills, be exempt” from the death penalty, she wrote. “But, does a consensus of Texas citizens agree that all persons who might legitimately qualify for assistance under the social services definition of mental retardation be exempt from an otherwise constitutional penalty?”

This test went unchallenged until the Texan Courts decided to uphold the execution of Bobby J Moore based largely on the definition of mental retardation. The Texan courts determined that the definition of mental retardation in 2002 under the DSM had since changed which meant that Bobby Moore could be safely executed regardless of the fact that contemporaneous bodies consider that Bobby Moore is sufficiently mentally retarded to be executed.

Mr Moore killed a 70-year old grocery clerk and no one disputes that Mr Moore is mentally challenged. To quote a psychologist in the 2014 hearing Mr Moore most likely “suffers from borderline intellectual functioning.” Including that Mr Moore could not likely tell the time, what day of the week it was, and that his IQ could be as low as 57, being mentally retarded by any measure of the word.

Essentially Texas was relying on the definition of “mentally retarded” as it existed in 1992 instead of adopting a floating definition.

Under current medical standards Mr Moore is considered mentally retarded however not by the the definition of 1992, and is therefore liable for execution as far as Texas is concerned.

The Supreme Court 

As the Senate continues to refuse to hold confirmation hearings for a replacement justice for Antonin Scalia (accurate at time of publication) the Supreme Court has been hesitant to hear any major cases that would have wide implications or that would likely have a unsatisfactory 4-4 split. So this session we are getting the “Lennie” case, determining whether the Federal government can fund spongy playground surfaces and whether it is legal to gerrymander districts on racial lines.

One alternative interpretation that could unite the justices was posited in the Yale Law Journal last year in the article “A reassessment of common law protections for “idiots”” and stated that by applying the standard that existed at the time of the 8th amendment instead of the 1992 definition would protect anyone with the mental faculties below that of a 14 year old. This would likely be sufficient to protect Mr Moore and probably Lennie as well.

The irony is that Lennie himself would not likely be protected under the current Texan test because in the novel he attempted to conceal his crime by hiding the body. Thomas Steinbeck, John’s son, has railed against the Lennie standard:

Prior to reading about Mr. Wilson’s case, I had no idea that the great state of Texas would use a fictional character that my father created to make a point about human loyalty and dedication, i.e., Lennie Small from “Of Mice and Men,” as a benchmark to identify whether defendants with intellectual disability should live or die.

My father was a highly gifted writer who won the Nobel Prize for his ability to create art about the depth of the human experience and condition. His work was certainly not meant to be scientific, and the character of Lennie was never intended to be used to diagnose a medical condition like intellectual disability. I find the whole premise to be insulting, outrageous, ridiculous and profoundly tragic. I am certain that if my father, John Steinbeck, were here, he would be deeply angry and ashamed to see his work used in this way. And the last thing you ever wanted to do, was to make John Steinbeck angry.

Uni Pub Development Hampered by Payments Dispute

Uni Pub has faced a legal challenge relating to the development of its ground level expansion into the next door premises.

A plumber working on the development has made a claim under s15 of the Building and Construction Industry (Security of Payments) Act 2009 (ACT) (SOP) alleging unpaid work of ~$195k out a total contract for $686k which included additional variations not part of the original contract and disputed by Uni Pub. The case is here.

The Payment Claim

Mr Gelonese, the director of VG Enterprises was a plumber employed by Uni Pub to perform the work for the expansion of Uni Pub on the ground level into Tamar House, located next door.

VG filed a claim in the Magistrates Court in Feb 2015 for ~$72k. (Next listed Jan 2016.) On application from VG and seperate from the Magistrates Court action, on 24 July 2015 an adjudicator accepted an appointment to determine a claim of ~$195k outstanding under the SOP. This amount appeared to include the ~$72k previously claimed. Importantly, under s 15, a claim under the SOP must relate only to work performed within the last 12 months.

The SOP came into effect in 2009 as a stop-gap protection to ensure that contractors could claim funds owed to them without resorting to the courts and the associated expenses. The 12-month limit exists to make sure that the function of the act as a rapid resort does not unfairly prejudice defendants from having to respond quickly to aged claims.

The adjudicator awarded the amount despite claims from Uni Pub that none or little work was performed within the preceding 12 months.

Judicial Review

Uni Pub applied to the Supreme Court seeking a determination that the adjudication was invalid on the basis of the 12-month bar. The question of the 12-month bar rested on whether VG could show that any work was completed following the termination of the contract.

Associate Judge Mossop heard evidence including from the site manager, Uni Pub management, Mr Gelonese and a quantity surveyor who assessed the value of the work performed following the termination.

Included in the evidence were unverified timesheets from the plumber detailing thousands of dollars of work which the Court found could not be relied upon with any accuracy and appeared to be prepared by Mr Gelonese’s wife but it was not made clear what primary data she was drawing on.

Importantly, there was nothing signed including the original work contract, though this was not in contention, nor the supposed variation to the contract which brought about the additional amounts. Evidence that the contract was terminated orally in May 2014 was not objected to by the Defendant’s solicitors despite clearly being hearsay. It was the evidence of Uni Pub that no employees of the defendant attended the site after termination.

Uni Pub hired a quantity surveyor to assess the remaining work to allow them hire a new plumber for the remaining $86k worth of work. A second report by the surveyor concluded that approximately $3,500 of work was performed since the termination that could not be attributed to the new plumber.

Finding

The quantity surveyors evidence was key and appeared to corroborate that version of events given by Uni Pub. The assessment that there was $3,500 unaccounted for work also appears to mesh with the statements made by VG that his staff did attend the site and perform some work without coordinating with Uni Pub, though the $3,500 is well short of the claimed $195k.

Mossop AsJ found that little or no work was performed since the termination in May ’14 meaning that the claimed amounts of the arbitration were not performed within the last 12 months and therefore the arbitrator had no jurisdiction to make a decision.

This effectively kills the claim and although there is still the Magistrates Court claim on foot, I’m sure that Mossop AsJ’s reasons will be closely considered by the parties when determining the most effective course of action (i.e. dropping it, with an agreement as to costs).

In its reasons, the Court noted that the plumber was as generic as possible in giving his responses and could not point to any particular work, instead identifying “just general works” which is highly unusual for such a large claim. Most professions can usually point to some sort of concrete accomplishment in exchange for $195k, but I would be willing to accept that challenge.

Comment

There were a few quirks with this matter that seemed to paint the plumber as heaps a little dodgy. Included in the evidence from VG was part of a conversation he secretly recorded when he showed up at a Uni Pub manager’s house unannounced asking him to sign invoices and quizzing him about the remaining payments. One might assume that the tendering of only part of a conversation recorded without the knowledge of a person would usually imply editing, seeing as it is pretty difficult to selectively record without the subject noticing (though I’ve never tried, ok once, but it didn’t end well). Unlike NSW, the ACT has not explicitly created an offence for secretly recording a conversation and also it is unclear whether tendering as evidence would count and publication.
(See s 11, Surveillance Devices Act (NSW))

VG appeared pretty lucky to get off without a harsher finding. Mossop AsJ was linguistically lenient with his characterisation of the evidence of VG; generously “preferring” the evidence that “suggested” that the timesheets did not “accurately record the time”. sigh.