Australian Winch and Haulage Company Pty Limited (Administrator Appointed) v Walter Construction Group Limited

[2002] FCA 1162

FEDERAL COURT OF AUSTRALIA

Australian Winch and Haulage Company Pty Limited (Administrator Appointed) v Walter Construction Group Limited [2002] FCA 1162

AUSTRALIAN WINCH AND HAULAGE COMPANY PTY LIMITED (ADMINISTRATOR APPOINTED) v WALTER CONSTRUCTION GROUP LIMITED

N 549 of 2002

ALLSOP J
16 SEPTEMBER 2002
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 549 of 2002

BETWEEN:	AUSTRALIAN WINCH AND HAULAGE COMPANY PTY LIMITED (ADMINISTRATOR APPOINTED) APPLICANT
AND:	WALTER CONSTRUCTION GROUP LIMITED RESPONDENT
JUDGE:	ALLSOP J
DATE OF ORDER:	16 SEPTEMBER 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. On the undertaking of the applicant company through its counsel and the undertaking of Mr Brian Hemsworth, shareholder of that company, in the form of Practice Note 3 and the latter in the form of Exhibit A in the proceedings, until 4 pm 19 September 2002, the respondent by itself, its agents, servants or otherwise be restrained from continuing with any call on unconditional undertakings to American Re-Insurance Company, which are copies of annexures “D1”, “D2”, “D3” and “D4” to the affidavit of Chris Kintis sworn and filed 16 September 2002.
2. If either party wishes to put on any further evidence or written submissions, they are to do so by lunch 18 September 2002.
3. Leave be granted to the applicant to file in Court a notice of motion, to be returnable instanter, and the requirement for service be dispensed with.
4. Leave be granted to the applicant to file in Court:

(a)the affidavit of Chris Kintis sworn 16 September 2002; and

(b)the affidavit of Scott Macalister Howell sworn 15 September 2002.

5. The matter be stood over to 2.15 pm on Thursday 19 September 2002 for judgment and/or further argument.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 549 of 2002

BETWEEN:	AUSTRALIAN WINCH AND HAULAGE COMPANY PTY LIMITED (ADMINISTRATOR APPOINTED) APPLICANT
AND:	WALTER CONSTRUCTION GROUP LIMITED RESPONDENT

JUDGE:	ALLSOP J
DATE:	16 SEPTEMBER 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 12 June 2002 there was filed in this Court an application and statement of claim by the applicant against the respondent. The application was founded on a claim under s 52 of the Trade Practices Act 1974 (Cth) (the Act). There was an allegation that there had been misleading and deceptive conduct in trade or commerce in connection with the granting of a subcontract by the respondent to the applicant and, in particular, in relation and in connection with the provision of unconditional performance bonds by the applicant to the respondent through an independent third party insurance company acting as a bondsman. Thus, the Court's jurisdiction to deal with the whole relevant controversy is raised by a claim under s 52.

2. Since the time of filing the application the applicant has gone into administration under Part 5.3A of the Corporations Act 2001 (Cth), and Martin John Green has been appointed administrator of the applicant. Also, as a consequence of that event, the solicitors have changed and the current solicitors acting for the applicant have come on the record, as of today.

3. It was indicated in argument today that the statement of claim may require some attention, that is a matter to which I will revert later.  A notice of motion was filed in Court today seeking orders restraining, in effect, the respondent from making or continuing to make a call on the four bonds which have been put in place by the applicant. 

4. The applicant and the respondent are subcontractor and builder respectively, in relation to work being conducted in respect of the construction of a coal mine in Queensland.  The applicant as subcontractor has been undertaking work in relation to the supply, installation and commissioning of shaft sink equipment at the project site.  This work is described in the contract variation document as the design, supply, installation, construction and commissioning of separate number one and number two hoisting systems and associated works more particularly described in the specification.  The development is called the Grasstree Development Project; it is off Grasstree Road via Middlemount in Queensland.

5. The original contract sum was in the order of $3 million.  This contract sum is reflected in the original agreement entered on 3 August 2001, although the date for commencement was identified in the schedule at 3 July 2001.  There was a variation to the contract some three and a half weeks later, on 27 August 2001, increasing the contract value and the scope of works to a sum in the order of $10 million.

6. Four unconditional bonds were issued by American Re-Insurance Company at the request of the applicant in the sums of $150,000, $348,261, $248,261 and $100,000.  Shortly after the applicant company went into administration, the respondents sought to call up these bonds.  It appears that the four bonds are explicable in the following way.  In cl 5(c) of the first contract entered on 3 August 2002 the parties provided for retention sums in the following terms:

   5.Payments

   …

   (c)The Builder may retain as retention, a percentage of monies becoming due under this Subcontract as stated in the Appendix.  One half of The monies so retained will be released on Practical Completion of the Head Contract Works and the other half (less any amount properly claimed by the Builder pursuant to this Subcontract) will be released when the Proprietor releases the retention or security held under the provisions of the Head Contract provided the Subcontractor has complied with its obligations under this Subcontract.

   …

7. Though cl 5(c) did not refer to bank guarantees or bonds, the appendix to that agreement referred to retention and cl 5(c) and had the following adjacent to those matters:

   5(c)         Retention             Bank Guarantee 10% for $150,000 – submitted within 14 days of execution of Subcontract.

8. On 27 August 2001 the variation to the contract was entered and a number of clauses were inserted into the subcontract and in particular, for today's purposes, cll 2.6, 2.7 and 2.8 were inserted which were in the following terms:

   2.6Special Condition 13

   The parties agree to insert a new Special Condition 13 into the Subcontract on the following terms:

   ‘13.1The parties agree that two (2) separate Defects Liability Periods will apply to the Works as follows:

   (a)   the first Defects Liability Period will apply to the Works under the Subcontract for a period of 12 months from the Date of Practical Completion and for which the Builder will retain security for 5% of the Subcontract Sum in accordance with the General Conditions of Subcontract;

   (b)   the second Defects Liability Period will apply only to the No.2 Shaft Production Hoisting System for a period of 64 weeks commencing from the expiry of the first Defects Liability Period and for which the Builder will retain security in the amount of $100,000 and GC 47 will apply accordingly.

   13.2Notwithstanding General Condition 48, the Builder Representative is not obliged to release any security being held for the first Defects Liability Period at the time of issue of the Certificate of Final Completion until the Subcontractor provides security to the Builder for the second Defects Liability Period in the form of an unconditional bond on terms and conditions approved by the Builder or in such other form approved by the Builder.’

   2.7 Additional Clauses

   In relation to Variation No 1 the parties agree to add clauses GC25, GC46, GC47, GC48, GC49 as per the attached extract from the General Conditions of Contract.  In the event of any inconsistency between these clauses and those under the Subcontract Agreement, these conditions shall take precedence.

   2.8 General Condition 46 

   The parties agree to amend General Condition 46.2 of the Subcontract by inserting the following words after the word ‘Contract’ in the third line of that clause:

   ‘(other than any performance tests required to be carried out following the Date of Practical Completion)’.

   [emphasis in original]

9. The first unconditional undertaking issued by American Re-Insurance Company is in the sum of $150,000.  The unconditional undertaking was entered on 27 November 2001, well after both contract and variation were executed.  There is no evidence before me which would indicate other than that the $150,000 referred to in that unconditional undertaking is referable to the amount in cl 5(c) of the original contract.

10. Of the remaining three bonds or unconditional undertakings, the last of them in the sum of $100,000 appears to be referable to the obligation in cl 13.1(b) incorporated by cl 2.6 of the variation contract.  There is no evidence before me to the contrary of such an inference. 

11. That leaves the second and third unconditional undertakings.  While the amounts in total in the second and third undertakings differ from 5% of the revised contract sum ($10,093,115) they are generally in accordance with that sum and it may be that there has been in the interim, that is up to 27 November 2001, an increase in the contract sum as between the parties.  There is no evidence to assist me in this respect.  However, without evidence I would conclude that the four unconditional undertakings are referable to cl 5(c), and cll 13.1(a) and 13.1(b) of the contract and varied contract, respectively.

12. This matter has come on urgently and these are incomplete reasons to explain why I have made interim orders until Thursday 19 September 2002 when I will deliver more detailed reasons and hear any further argument.  However, it seems to me at first blush that the amendments to the contract brought about by cll 2.6, 2.7, and 2.8 in particular, in the variation agreement do not touch, and were not intended to touch, the entitlement of the respondent to have retention funds as provided for by cl 5(c); that is, to have retention moneys in cash or kind available to it pursuant to that clause.  If this is the correct construction, that is, that what occurred in the variation agreement was not intended to obliterate the rights and obligations of the parties as identified in cl 5(c), there seems to me to be no particular ground in the contractual arrangements which would amount to a restraint upon the respondent from calling up the unconditional undertaking as to $150,000 so that such sums can stand as retention moneys and be dealt with in accordance with the balance of the terms of the contract.

13. The balance of the contract does not, as far as I am aware, identify any requirement to separately hold in any trust fund such retention moneys, but I will hear the parties on that in due course if the applicant wishes to propound an entitlement to see those funds in a separate account.

14. I have indicated that I will hear any further submissions on cl 5(c) and also any further evidence, but my preliminary view at the moment, subject to any such further evidence or submissions, is that I am reluctant to, and unpersuaded that I should, restrain the respondent from calling up the bonds up to an amount of $150,000.

15. As to the balance of the unconditional undertakings, a more significant prima facie issue arises.  The parties included cll 13.1(a) and (b) in the sub-contract. Those terms are referred to above.  At the moment it seems to me that there is some real argument that the security which was provided for by those clauses and the reference to general conditions of subcontract calls into play the general conditions of contract of the head contract, incorporated into the subcontract by cl 13.1 and by the text of the communication of 30 July 2001 (being page 34 of the exhibit “CK1” to Mr Chris Kintis' affidavit), such that if standing as security for the subcontract (insofar as general condition 10 can be sensibly construed in a contract between builder and subcontractor) while recognising the disconformity between the strict requirements of bank guarantees and the provision of unconditional undertakings, there appears to me to be some force in the proposition that as security, the terms of that clause apply.

16. In those circumstances, to the extent that cl 10.3 can be said to apply, the builder is entitled to draw on the bank guarantee for any reason whatsoever up to the expiry of the defects liability period upon breach of the contract by the contractor where such breach is not remedied within thirty days after written notice of the breach has been given to the contractor.

17. I have not made up my mind finally in relation to these three unconditional undertakings and, in particular, I have not been addressed on the question of the notion of the subcontract sum which appears in cl 13.1(a). 

18. In all the circumstances, although the evidence of irreparable damage is largely absent, I am prepared to infer for a short time that the company, being in administration, will suffer some or might suffer some significant interference if such large sums of money are withdrawn from its working capital or available working capital or that of its principals.  However, if any orders are to be contemplated further than Thursday 19 September, in my view the evidence as to balance of convenience should be looked at quite carefully.

19. The matter has come on with some haste and counsel have assisted me in the time available today and for that I am grateful.  However, given the circumstances of the potential effects on the company in administration of the withdrawal of such sums from its, or its principals', control through the call by American Re-Insurance Company in support of any call on the undertakings, I think it appropriate to give the parties slightly longer to contemplate the legal issues.  I do this in the light of the fact that I see reasonably confined or non-existent risk of damage to the respondent should the call be restricted for seventy-two hours.  However, if the call is to be restricted any further, as I said, the questions of undertaking as to damages and the balance of convenience will need to be looked at more carefully.

20. Thus, in all the circumstances, I think it appropriate to hold the status quo until Thursday 19 September, allowing the parties to provide written submissions and any further evidence by Wednesday 18 September at lunchtime, as my orders contemplate.  The parties should not take from these reasons that I have formed final views.  My decision to make an order until 4 pm on Thursday has been arrived at primarily as a consequence of my view that the issues require some reflection on my part and I think some reflection on the part of counsel and solicitors for the parties.  In those circumstances, I do not think that there will be any likely damage caused to the interests of the respondent by holding the position for another three days.

I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.

Associate:

Dated:            23 September 2002

Counsel for the Applicant:	M J Cohen
Solicitor for the Applicant:	Watson Mangioni
Counsel for the Respondent:	R W Hunt
Solicitor for the Respondent:	Corrs Chambers Westgarth
Date of Hearing:	16 September 2002
Date of Judgment:	16 September 2002