AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd

[2010] HCATrans 230

[2010] HCATrans 230

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M2 of 2010

B e t w e e n -

AJ LUCAS DRILLING PTY LTD (ACN 087 777 455)

Applicant

and

McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD (ACN 002 929 017)

Respondent

Application for special leave to appeal

FRENCH CJ
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 3 SEPTEMBER 2010, AT 2.26 PM

Copyright in the High Court of Australia

MR M.H. WHITTEN:   May it please the Court, I appear for the applicant.  (instructed by Corrs Chambers Westgarth Lawyers)

MR D.S. LEVIN, QC:   May it please the Court, I appear with my learned friend, MR J.R. GURR, for the respondent.  (instructed by Norton Rose Australia)

FRENCH CJ:   Yes, Mr Whitten.

MR WHITTEN: If your Honour pleases, it is submitted that special leave to appeal ought be granted on two bases: firstly, that the matter gives rise to questions of law which are of general importance; secondly, that the interests of justice require this Court consider the matter. As to the first, the questions of law which we are concerned with, we say, are matters of general importance, firstly, proper interpretation of section 58 of the Supreme Court Act, and secondly, what constitutes a sufficient demand for the purposes of that section? 

It is put against us that section 58 is unique to Victoria.  Apart from some similar legislation in Tasmania all the other States, the Commonwealth and its Territories have provisions in which the operative words are “the date the cause of action arose”.  We say to that that in practical terms there is no distinction to be had because, at the end of the day, section 58 is designed to identify a point in time in respect of a debt or sum certain from which interest ought run.

In the context of “a debt or sum certain”, language in section 58 such as date on which those amounts become due and payable, whether by reference to a written instrument or otherwise, and then if there be none, then from the date of a demand of payment, are no more or less than a definition of when a cause of action arises in respect of a debt or sum certain.  To that end, your Honour, we submit that there is no practical distinction between the Victorian legislation and its counterparts throughout the country.  That, we say, supports the proposition that this is a matter of general importance. 

The evident purpose behind section 58 was to ameliorate a mischief caused by payers of moneys, debts or sum certain delaying in doing so for lengthy periods ultimately necessitating litigation for the payee to be paid.  In the commercial world the passage of time and the erosion inflation clearly gave rise to great prejudice to a successful plaintiff who is kept of his or her or its money for lengthy periods.  The effect of the Court of Appeal’s decision, the subject of this application, is to see that mischief repeated in this case rather than the effect being given to section 58 in curing that problem.

CRENNAN J:   What about application book 173, and I am looking now at paragraph 186 of the Court of Appeal’s judgment.  It is noted there in the first two sentences that there had been a finding made by the trial judge that”

the time for payment was not certain.  Lucas did not seek to content otherwise on the appeal.

MR WHITTEN:   Yes, we deal with that, your Honours, in our summary of argument.  There are three possible answers to the question which section 58 grapples with, which is when the cause of action arises or when this debt or sum certain ought to be paid.

CRENNAN J:   Yes, but what I am directing your attention to is you did not run this argument before the Court of Appeal.

MR WHITTEN:   That is correct.  It was certainly raised in discussion during the hearing and, as their Honours below noted at the passage your Honour has just taken me to, that is the result of the discussion.  Whilst it was certainly contended before the primary judge and discussed before the Court of Appeal that three possibilities to when Lucas is entitled to be paid, the corollary being when McConnell Dowell ought to have been liable to pay, was firstly the date of the termination itself by reference to the words in clause 24.4, the subcontract “shall be paid”. 

If that is not right then the next step down alternative was, it was submitted and discussed before the Court of Appeal, a reasonable period, readily implied, in such contracts where they are otherwise silent as to timing for payment and if both those propositions do not satisfactorily answer the question, then we are left with what section 58 leaves us with, which is the date of demand.  It is fair to say, your Honour Justice Crennan, that that was the focus of the appeal in this respect; the demand.

FRENCH CJ:   The clause implies all manner of valuation processes before the sum crystallises, does it not?

MR WHITTEN:   The quantum may be the subject of the formulation or the integers that you see in 24.4 there, your Honour, but the liability to pay, we always maintained, arose upon termination.

CRENNAN J:   I was just raising with you the point whether or not this was a suitable vehicle in the light of the fact that there are no findings made by the Court of Appeal on the very point you now want to agitate because of the way in which you ran the case before the Court of Appeal.

MR WHITTEN:   The fact that the issue as to whether the relevant date was the date of termination can be put to one side.  We certainly maintained it, as I have said earlier, your Honour, it was discussed before the Court of Appeal, but no relevant finding was made on the appeal because the focus of the appeal was about whether the letter of 23 September was a sufficient demand, so in the cascading possibilities, as it were, for a date from which interest ought run under 58, we come to the third, and that was the focus of the appeal.  That, we would submit, leaves this case still as a suitable vehicle if only on that third, or last, basis, the sufficiency of the demand.

FRENCH CJ:   There is a judgment involved as to whether the statement “Under clause 24.4 MacDow are obliged to make payment” is a demand.  How does that raise a question of principle?

MR WHITTEN:   Your Honours, the Court of Appeal’s decision, its treatment of this topic, starting at application book 166, set out the relevant considerations and most particularly, perhaps, are the Colonial Finance decision and the instruction given by Justice Walker there.  Those threads, if you like, of principle were all properly picked up by the Court of Appeal, with respect, but once we get to paragraph 184 of the Court of Appeal’s decision, and as our friends have called it in their argument, the careful analysis, we see here where the Court of Appeal reveals its understanding, if you like, of what the relevant principles are and then goes into application mode.

We say that when one carefully goes through paragraph 184, which I would like to do in due course, one sees that at the end of the day the Court of Appeal put aside the operative words of the letter and really the decision on this point turned on context.  If that is the way in which the task was undertaken, and we say it is when on carefully looks at 184, then the Court of Appeal has acted on a wrong principle.

FRENCH CJ:   What, is it wrong to look at context?

MR WHITTEN:   It is not wrong to look at context, it is wrong to disregard the primacy of the words in the letter which, we say, gave rise to the demand or amounted to the demand.  In other words, the Court of Appeal said, “We have these words” and as your Honour the Chief Justice has just recited them ‑ ‑ ‑

FRENCH CJ:   “You are obliged to make payment, now let’s start talking”.

MR WHITTEN:   “Under clause 24.4 let’s talk about how much”.  Exactly, your Honour.  What is then followed is the Court of Appeal in 184 has said, “I do not look at those words any more, I look at the context” and the context here was really a general discussion about what happens on termination.  With the greatest respect, that is not only just a wrong approach – it is certainly a wrong application of the correct principle under Colonial Finance.  The words themselves, we say, were a clear intimation of a request for payment, and it was required.  The rest of the context, so‑called, that the Court of Appeal seemed to focus on was discussions and arrangements about how much.  That did not at all derogate from the quality of the letter itself, those operative words, as being a relevant demand for the purpose of section 58. 

Your Honours, if I could turn to that paragraph 184, it might be a convenient time, and step you through it, the main components, if you like, of this analysis with which are most concerned are, first of all, the second line your Honours will see the Court says:

Giving s 58 the requisite broad application –

But we pause there and hark back to the words of Justice Kirby in the Victorian WorkCover Authority v Esso decision which is recited back in application book 168.  That was not the effect of the result created by this analysis in 184.  In truth a very narrow application of this section was applied to the relevant words of the letter.  The Court went on:

in our view, on its proper construction, the letters not a demand:  rather it noted a number of matters concerning the termination -

We pause again.  For our purposes, the most important of those matters arising from the termination was payment.  The language used could not have been clearer that Lucas was looking to be paid pursuant to clause 24.4.  That was the trigger, if you like, upon the automatic termination under 24.3 of the contract, and clearly upon that automatic termination of the subcontract Lucas was looking to be paid, and made its position clear.  The Court went on at that:

promised to provide information and sought to open a discussion between the parties.  While it is possible that the words ‘you are obliged to make payment to me’ could in some circumstances constitute a demand –

If I can pause there again, your Honours, whilst it might be possible that the words, the court obviously did not go on to say why it was not possible in this case; those words did not amount to a demand.  Similarly, the court did not elucidate as to what circumstances might contain ‑ ‑ ‑

CRENNAN J:   Your complaint is about the way the court construed the letter.  It does not involve any matter of principle as I understand it.  You accept the principles.

MR WHITTEN:   The principles as articulated by Justice Walker in Colonial Finance be those applicable to this task ‑ ‑ ‑

CRENNAN J:   That a letter of demand has a peremptory quality and so forth.

MR WHITTEN:   Yes, your Honour.  A clear information that payment is required.  They are the correct principles.  They are not reflected in the analysis, so‑called, in paragraph 184 of the Court of Appeal and certainly if they were the principles in the court’s mind, they were not applied.  Yes, I am having my cake and trying to eat it as well, but we certainly say, you get to a certain point in misapplication, if you like, of relevant principle, that a court can be seen to have either misinformed itself or certainly not acted on correct principle.  Finally, in that paragraph, if I may, your Honours, you will see the court went on to say that:

the context in which Lucas stated that McDow was obliged to make payments to it shows that (objectively construed) Lucas was simply referring to the existence and operation of cl 24.4 to explain the foreshadowed provision of claims for discussion and the seeking of a ‘frank discussion’.

I repeat what I said a moment ago, because that really does bear it out.  There is no regard had in that analysis to the magic words, as we would contend, that McDow was obliged to make payment.  It did not say in the letter “some time down the track” or “when we get to talking about how much” and it would not because clause 24.4 itself, we say, made it pellucid that McDow was liable to pay on the termination.  The rest of 24.4 just talks about what items or what values it was to pay for. 

Looking at that term “context” because it does arise, I think, at least once or twice in the Court of Appeal’s reasons, we say that the correct context in which this task should have been undertaken was firstly the context which section 58 creates itself; the remedial or beneficial purpose, it clearly stands for and ought to have been applied here, namely, to compensate a party who ought to be paid from being kept out of its money over time, nothing surprising there.

The alternative context in which the court ought to have looked at this question was the termination itself, the very reason for the 23 September letter.  It is in response to a 16 September letter from McDow saying, “Look, we have been sacked.  Your subcontract is now automatically terminated”.  That is the context in which the 23 September letter was produced and express reference to payment being required under 24.4.  When that letter is seen in that context, we would say the court clearly erred in not finding that that letter was a sufficient demand. 

Your Honours, the second component or basis for the grant of special leave, in our submission, is that the interests of justice require consideration by this Court that it visit this particular case.  I have taken you through the analysis in paragraph 184.  We say that, to use our learned friend’s language in their argument, the decision of the Court of Appeal was manifestly wrong or certainly at the least was attended by sufficient doubt to warrant a grant of leave.

The approach taken by the Court of Appeal really had the effect, as I have already taken you through 184 and through to 186 of those reasons, of producing a narrower interpretational construction of the words in the letter used by Lucas than the language used in the Colonial Finance matter which, of the three letters your Honours will recall, the second and third were considered by Justice Walker as being sufficient to constitute demands, and that was a guarantee case, a much stricter environment if you like or context in which to construe such documents.  Here, the context, being in respect of section 58, required a much broader or flexible construction of the relevant language.  That is not what the Court of Appeal did, with respect. 

The second- the sub‑reason, if you like, your Honours, as to why we say the interests of justice support a grant of leave is that the decision, as it presently stands, is clearly inequitable.  Your Honours will have seen both sides have their say about that in the material, but the simple analysis is this.  At the end of the day Lucas’ claim was for work and labour done.  It did the work.  It expended money, so it is beyond controversy – a lot of money.  It was not paid anything during the course of the project.  At the point of automatic termination it was entitled to be paid.

There can be very little useful argument about when Lucas ought to have been paid.  Any proposition which leans towards the outer end of the spectrum, namely when Lucas finally instituted proceedings, or when it obtained judgment, simply flies in the face of section 58.  The other end of the spectrum is clearly the only useful argument about when Lucas ought to have been paid and the corollary is, as I said a moment ago was, that is when McDow had an obligation to pay.

All that happened as a result of the Court of Appeal’s decision is that McDow held the money, Lucas was kept out of it and we say, with respect, section 58 ought to have insured that Lucas was compensated fairly for

having been kept out of its money.  Your Honours, unless there is anything else with which I can assist you, they are our submissions.

FRENCH CJ:   Thank you, Mr Whitten.  We will not need to trouble you, Mr Levin.

This application concerns the interest payable on an award of a sum of money due to the applicant pursuant to a building sub‑contract with the respondent. The Court of Appeal of the Supreme Court of Victoria allowed a cross‑appeal from a decision of the primary judge. The issue agitated before the Court of Appeal was whether the respondent was liable to pay interest under section 58 of the Supreme Court Act 1986 (Vic) on the applicant’s award from 23 September 2003, the date on which the applicant sent a letter to the respondent referring to the obligation to make payment to the applicant.

In our opinion the Court of Appeal decision involved an application of settled principles to the particular facts of the case and the decision is not attended with sufficient doubt to warrant a grant of special leave and the interests of justice do not require such a grant.  Special leave to appeal is refused with costs.

The Court will adjourn briefly to set up the video link for the next matter.

AT 2.45 PM THE MATTER WAS CONCLUDED